NEWS
MS&K Alerts and Legal Updates

New Laws and Regulations

Mitchell Silberberg & Knupp Labor & Employment Alert

January 2012

NEW LAWS AND REGULATIONS

New leave of absence requirement for organ and bone marrow donation — California SB 272, which amends Labor Code Section 1510, requires that private employers with 15 or more employees must provide a leave of absence, not to exceed 30 days in any one-year period, to employees for the purpose of donating an organ to another person. Employers are also required to provide a leave of absence, not to exceed five days in any one-year period, to employees who donate bone marrow to another person. Finally, employers may not discriminate against employees who choose to take such a leave of absence.

Additional pregnancy disability leave protections — California AB 592 prohibits any type of interference with an employee's rights provided under the California Family Rights Act, or rights arising from disability due to pregnancy, childbirth, or related medical conditions. SB 299 also requires employers to continue at the employers' expense health insurance coverage for female employees who take up to four months of leave due to pregnancy or childbirth.

Health insurance plan coverage requirements for domestic partners — California SB 757 requires that every group health insurance policy provided to California residents provide equal coverage for spouses and registered domestic partners, regardless of the policy provider's location or the employer's principal place of business.

New Fair Employment and Housing Act protection of gender identity, gender expression, and genetic information — California's enacted AB 887 and SB 559 make it unlawful to discriminate in hiring or employment on the basis of gender identity, gender expression, or genetic information. AB 887 expands the FEHA definition of "gender" to include gender identity, how the employee identifies his or her gender, and "gender expression," which is a person's "gender-related appearance and behavior." SB 559 defines "genetic information" as genetic tests of employees and employees' families and any manifestation of a disease or disorder in employees' families. AB 887 seems intended to clean up the different definitions of "gender" used in various California statutes. While the FEHA has protected "gender identity" for years, the FEHA cross-referenced the definition of "sex" used in the California hate crimes law, and now the terms "gender identity" and "gender expression" are expressly used in the FEHA.

New civil penalties for willful misclassification of independent contractors — California SB 459 adds sections 226.8 and 2753 to the Labor Code, which prohibit the willful misclassification of independent contractors and provide civil penalties ranging from $5,000 to $15,000 per violation and $10,000 to $25,000 for repeat violations. An employer willfully classifies an individual as an independent contractor if an employer avoids "employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor." The new law also imposes joint and several liability upon advisors (other than attorneys and company employees) who knowingly advise the violating employer to misclassify the individual.

New requirement that commissions contracts be in writing — California AB 1396, which amends Labor Code section 2751 and repeals section 2752, requires that by January 1, 2013, any contract involving certain sales commissions as a method of payment must be in writing and set forth how commissions are to be computed and paid. Commissions are compensation based on the value of goods or services sold.

New law limits use of credit checks — AB 22 amended Civil Code section 1785.20.5 and adds section 1024.5 to the Labor Code concerning consumer credit checks by employers. AB 22 prohibits the use of consumer credit reports by a current employer or prospective employer for hiring or personnel decisions unless the position sought is one of eight specific types: (1) a managerial position; (2) a position in the State Department of Justice; (3) a sworn peace officer or other law enforcement position; (4) a position for which the credit report is required by law to be disclosed or obtained; (5) a position that affords regular access to any person's bank or credit card account information, Social Security number, and date of birth, provided, however, that the access to this information does not merely involve routine solicitation and processing of credit card applications in a retail establishment; (6) a position where the individual is or will be a named signatory on the bank or credit card account of the employer and/or authorized to transfer money on the employer's behalf; and/or enter into financial contracts on the employer's behalf; (7) a position that affords access to confidential or proprietary information; or (8) a position that affords regular access during the workday to the employer's, a customer's, or a client's cash totaling at least $10,000. AB 22 also requires employers who will obtain a consumer credit report to provide notice of the reason such a report is sought. The law exempts certain financial institutions.

New law requires additional information on consumer notice provided for background checks — SB 909 requires that the notice provided to applicants and employees who will be subject to a background check (an "investigative consumer report") by a consumer reporting agency now include the website address where the applicant "may find information about the consumer reporting agency's privacy practices, including whether the consumer's personal information will be sent outside the United States or its territories."

New process for parents to obtain permits for employment of minors in entertainment — AB 1401 amends Labor Code section 1308.5 and adds section 1308.10 authorizing a new online process that parents may use to obtain a temporary work permit for a minor prior to the minor's obtaining actual employment in the entertainment industry. According to the bill's sponsors, "The purpose of the temporary permit is to allow the parent or guardian of a first-time permit applicant opportunity to establish a trust account for the minor and to produce the education and medical documentation required by the LC for the issuance of a minor's EWP. The temporary permit will only be valid for 10 days from the date of issuance." Further information may be found at https://permits.dir.ca.gov/tewp/.

WTPA mandates that employers provide most newly hired nonexempt employees with a written wage notice — AB 469, the California Wage Theft Prevention Act ("WTPA") of 2011, enacted new Labor Code Section 2810.5, effective January 1, 2012, requiring employers to provide most newly hired nonexempt employees a written wage notice. Employers are NOT required to provide notice to exempt employees or to employees covered by a collective bargaining agreement that provides "premium wage rates for all overtime hours worked and a regular hourly rate of pay of not less than 30% more than the state minimum wage." Where required, the written wage notice must contain all of the following information: rates of pay, indicating whether wages are paid by the hour, shift, day, week, salary, piece, commission, or otherwise, and including any rates for overtime, as applicable; allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances; the regular payday designated by the employer; the name of the employer, including any "doing business as" names used by the employer; the physical address of the employer's main office or principal place of business, and a mailing address, if different; the telephone number of the employer; the name, address, and telephone number of the employer's workers' compensation insurance carrier; and any other information the Labor Commissioner ("DLSE") deems material and necessary.

Based on its recently published FAQs and template, it appears that the DLSE has deemed the following additional information to be "material and necessary": employee name and hire date; whether the employer is a sole proprietor, corporation, LLC, general partnership, other type of entity, or staffing agency; "if the worksite employer uses any other business or entity to hire employees or administer wages or benefits" it also must provide the name of the other business, whether it is "a professional employer organization, employee leasing company or temporary services agency," its mailing and physical addresses and telephone number; whether the "employment agreement" is oral or written; the workers' compensation policy number (if insured) or certificate number for consent to self-insure (if applicable); and an "acknowledgement of receipt" that summarizes certain provisions of the new law. While there is a significant legal question as to whether the DLSE's additional requirements are authorized by the statute and are enforceable, for the time being employers are encouraged to provide all of the information included on the DLSE's template. In addition, pursuant to the statute, any changes made to the information in this notice must be provided in writing to all affected employees within seven calendar days. For wage changes, notice provided in a legally compliant (Labor Code 226) wage statement/paystub will suffice. The Department of Labor Standards Enforcement has issued a template and FAQs to assist employers prepare the notice (http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html). The failure to comply with Labor Code 2810.5 may result in significant penalty claims under the California Private Attorneys General Act ("PAGA").

WTPA allows DLSE to award liquidated damage — Prior law permitted individuals bringing civil claims for unpaid minimum wages also to seek liquidated damages (equal to the amount of the unpaid wages plus interest) in court. AB 469 (and companion AB 240) now authorize the DLSE to award liquidated damages.

WTPA provides DLSE with more time to pursue actions — Previously, the DLSE had one year to bring a civil suit seeking penalties under the Labor Code. AB 469 adds section 200.5 to the Labor Code, which extends the DLSE's time for bringing such an action for penalties to three (3) years.

WTPA increases time period during which DLSE may require an employer to post a bond — Labor Code section 240 previously authorized the DLSE to require an employer that violated certain provisions of the Labor Code to post a bond for up to six (6) months to ensure future payment of wages. As amended, the period for posting the bond may be extended for up to two (2) years. Where an employer fails to post a required bond, the DLSE may order an accounting and may assess an additional penalty of up to $10,000.

WTPA imposes additional record keeping requirements — AB 469 also amends the paystub requirements under the Labor Code. Previously, Labor Code section 226(a) required employers to maintain copies of employee paystubs/wage statement or a record of the deductions. AB 469 now requires a statement of deductions and a record of the deduction, possibly requiring employers to keep a paystub on file for each employee for each pay period. Employers who cannot produce copies of paystubs for each employee and a record of deductions may be found in violation of the Labor Code in class action and PAGA litigation.

WTPA bolsters remedies against repeat offenders — Labor Code 243 previously authorized a court to issue a temporary restraining order and order the employer to post a bond for payment of past wages due if the employer previously was convicted of violating the wage payment provisions of the Labor Code or failed to satisfy a judgment for the payment of wages. AB 469 now authorizes a court to order an accounting and makes the bond also available to collect on future violations of the Labor Code.

WTPA adds new criminal sanctions for violation of Labor Code — AB 469 adds a new provision, section 1197.2, to the Labor Code. This new provision states that, in addition to any other penalty imposed by law, an employer that "willfully fails to pay and has the ability to pay a final court judgment or final order issued by the Labor Commissioner for all wages due to an employee who has been discharged or who has quit within 90 days of the date that the judgment was entered or the order became final is guilty of a misdemeanor." If the total amount of wages due is less than one thousand dollars ($1,000), the employer shall be fined not less than one thousand dollars ($1,000) nor more than ten thousand dollars ($10,000) or imprisoned in a county jail for not more than six months, for each offense. If the total amount of wages due is more than one thousand dollars ($1,000), upon conviction the employer shall be fined not less than ten thousand dollars ($10,000) nor more than twenty thousand dollars ($20,000), or imprisoned in a county jail for not less than six months, nor more than one year, or both. Note that in contrast to Labor Code 1197.1, which imposes civil penalties upon an "employer or other person acting individually or as an officer, agent or employee" of the employer, new 1197.2 imposes criminal liability only upon the "employer."

New regulations expand the ADA's scope — The EEOC's regulations regarding the U.S. Americans with Disabilities Act Amendments Act (ADAAA) were approved and published in the Federal Register on March 25, 2011. These new regulations expand the scope of the U.S. Americans With Disabilities Act (ADA), as follows: (1) an impairment is now defined as a covered "disability" if it "substantially limits the ability of an individual to perform a major life activity as compared to most people in the general population"; (2) the definition of "major life activities" has been expanded to include "major bodily functions," which now include digestive, neurological, and reproductive functions, as well as single organ system functioning; (3) no minimum duration of impairment is required for the determination of "substantial limitation," so even a temporary "disability" can be covered; (4) to demonstrate employer-prohibited action, the employer must be shown to have had a belief that the employee suffered from an actual or perceived "disability," so even employees without an actual "disability" will be covered if the employer thought they had one; (5) "[m]itigating measures" like medication, which keeps an impairment of condition under control, must not be taken into account in determining the existence of a covered "disability." The one exception here are corrective lenses, so a person will not be considered disabled simply by wearing eyeglasses or contact lenses.

DIR's new hourly rate requirements for the California computer software employee and licensed physician exemptions — Under the California Labor Code, computer software employees and licensed physicians or surgeons are exempt from overtime if certain requirements are met. One requirement is that employees be paid at least minimum rates specified by the Department of Industrial Relations (DIR) based on the California Consumer Price Index for Urban Wage Earners and Clerical Workers. The following new rates are effective January 1, 2012:

Computer Software Employees
Minimum Hourly Rate of Pay: $38.89 (previous rate was $37.94)
Minimum Monthly Salary: $6,752.19 (previous rate was $6,587.50)
Minimum Annual Salary: $81,026.25 (previous rate was $79,050.00)

Licensed Physician or Surgeon
Minimum Hourly Rate of Pay: $70.86 (previous rate was $69.13)

IMPORTANT COURT DECISIONS

Discrimination Cases

California employers may discipline and terminate employees who engage in violent or threatening behavior against coworkers, even if that behavior is caused by a disability
 — In Wills v. Superior Court of Orange County, 195 Cal. App. 4th 143 (2011), the employer terminated an employee with bipolar disorder because he had threatened coworkers in violation of the employer's written policy prohibiting threatening conduct. The Court of Appeal affirmed summary judgment for the employer, noting that, while three decisions of the U.S. Court of Appeals for the Ninth Circuit appeared to endorse treatment of disability-related misconduct as part of the disability, none of those cases involved threats of violence. The state Court of Appeal also found that other federal decisions, and even the EEOC's Enforcement Guidance, endorsed termination of employment for threats or actual violence directed against coworkers.

Vulgar speech by itself will not support a claim for sexual harassment if it is not uttered "because of" sex — In Kelley v. The Conco Companies, 196 Cal. App. 4th 191 ( 2011), the court relied on the 2006 California Supreme Court decision in Lyle v. Warner Brothers Television Productions in which MS&K lawyers led by Adam Levin successfully represented Warner Bros. The Court of Appeal in Kelley determined that a supervisor's graphic and demeaning sexual comments did not support a claim for sexual harassment because they were not made "because of" or based on the plaintiff employee's sex. Instead, those comments were uttered in anger, and not in any relation to the employee's sex. Accordingly, they could not support a claim for unlawful harassment, no matter how vulgar and offensive. However, this decision does not mean that companies should curtail their policies of taking all steps necessary to eliminate hostile, offensive behavior in the workplace.

The "Cat's Paw" theory may increase employer liability — In Staub v. Proctor Hospital, 131 S. Ct. 1186 (2011), the U.S. Supreme Court held that employers may be liable under the federal Uniformed Services Employment and Reemployment Rights Act (USERRA) for discriminatory intent of company officials who influenced but did not actually make adverse employment decisions. Plaintiff Staub sued contending that the Defendant's stated reasons for his termination-poor performance and attitude problems-were pretext for discrimination because of his U.S. Army Reserve status. Staub argued that the allegedly discriminatory supervisors in his department had unduly influenced the hospital's human resources department to facilitate his termination. The federal district court agreed with Staub that antimilitary intent was a motivating factor in his termination. However, the U.S. Court of Appeals for the Seventh Circuit dismissed the case because the actual decision maker in the human resources department did not have antimilitary animus and did not rely solely on the advice of the discriminatory supervisors in Staub's department. The U.S. Supreme Court reversed the Seventh Circuit, holding that, if a supervisor's actions are based on antimilitary animus, are intended to cause adverse employment action, and are the proximate cause for an actual adverse employment action, then the employer will be liable under USERRA. While the Supreme Court addressed the employer's liability solely under USERRA, it did note that USERRA's anti-discrimination provisions are similar to those of Title VII of the U.S. Civil Rights Act of 1964, as amended, raising the likelihood that this "cat's paw" theory applies to discrimination claims based on race, color, religion, sex, and national origin.

Court approves Verizon's $6,011,190 settlement in a leave of absence class action  — Verizon's $6,011,190 settlement of a California Department of Fair Employment and Housing (DFEH) investigation was approved by a Los Angeles County Superior Court judge on December 8, 2011. In DFEH. v. Verizon, Sup. Ct. L.A. County, No. BC444066, the DFEH filed a class action challenging Verizon's practices under the California Family Rights Act (CFRA), which provides for leaves of absence to care for an employee's own or family member's serious health condition or to bond with a new child. The DFEH alleged that, in the 2007-2010 period, Verizon's California employees were improperly denied CFRA-protected leaves, were disciplined for using or applying for them, or were terminated-or resigned in lieu of being terminated-for excessive absences occurring because of their CFRA-protected leaves. In this settlement, the largest in DFEH history to date, Verizon agreed to review and revise its leave policies and procedures, continue its internal review process, and train personnel on CFRA procedures.

Retaliation Cases

Liability for retaliation against someone "closely related to or associated with" an employee who has engaged in protected activity — In Thompson v. North American Stainless, LP, 131 S. Ct. 863 (2011), the U.S. Supreme Court unanimously expanded the scope of retaliation claims. The lower courts had rejected the plaintiff's retaliation allegation that his termination was motivated by his fiancée's filing of an EEOC sex discrimination charge. Justice Scalia for a unanimous court stated that the broad antiretaliation provisions of Title VII prohibit any employer action that would "have dissuaded a reasonable worker from making or supporting a charge of discrimination," and that knowledge that one's fiancée would be fired would constitute such an action. While the Supreme Court did not expressly delimit the specific class of individuals protected from third-party retaliation, it did state that each circumstance must be evaluated individually. This individual approach means that employers should scrutinize carefully all facts and circumstances before taking adverse action against an employee, including his or her relationship to other employees who themselves might have recently engaged in protected activity.

Employees who complain orally about Fair Labor Standards Act violations are also protected from retaliation — In Kasten v. Saint-Gobain Performance Plastics Corp., 131 S. Ct. 1325 (2011), the U.S. Supreme Court held that, under the federal Fair Labor Standards Act (FLSA), employee protection from retaliation for "filing any complaint" includes protection for oral, as well as written, complaints. In a separate case against the employer, Saint-Gobain Performance Plastics (Saint-Gobain), a federal district court found the company to have violated the FLSA by failing to give employees credit for time spent donning and doffing work-related protective gear. In the case before the Supreme Court, Plaintiff Kasten had orally complained to Saint Gobain supervisors about that failure, and he was later terminated. Kasten filed suit claiming that Saint-Gobain had unlawfully retaliated against him for his FLSA-protected oral complaint. Saint-Gobain argued that oral, as opposed to written, complaints were not protected by the FLSA's prohibition against retaliation, and the federal district court and the Seventh Circuit agreed with that contention, focusing on the statute's use of the word "filing." The U.S. Supreme reversed, holding that oral complaints are also protected from retaliation, and sent the case back for further proceedings.

Wage And Hour Cases

Employees not entitled to "reporting-time" pay if they work at least half the scheduled hours — In Aleman v. AirTouch Cellular, 2011 Cal. App. LEXIS 1609 (No. B231142, Dec. 21, 2011), the putative class members alleged that AirTouch violated the applicable wage order by failing to pay "reporting-time pay." This case arose because employees reported to work for semimonthly meetings scheduled for 1 to 1-1/2 hours, which lasted at least half the scheduled time, for which the employees were paid. However, the plaintiffs contended that AirTouch failed to pay additional "split-shift" or reporting-time compensation on days where employees attended such a meeting in the morning and then worked another shift later the same day. The Court of Appeals agreed with AirTouch that, because the meetings were scheduled four days in advance, and the employees always were paid for at least half the scheduled meeting period before AirTouch sent them home, they were not entitled to additional reporting-time pay even for meetings lasting less than two hours. That Court also agreed with AirTouch that the employees were not owed additional split-shift compensation because, on days where employees worked split shifts, they were already paid a total amount greater than minimum wage for all hours worked plus one additional hour's pay. Finally, the Court upheld an agreement between AirTouch and class members-entered into while the lawsuit was pending-that released AirTouch from "any and all claims" in return for the right to exercise long-term incentive awards. The Court, however, reversed the lower court's order that the named plaintiff pay AirTouch's attorneys' fees, finding that the claims were about minimum wages and overtime. Accordingly, Labor Code section 1194 applied, and AirTouch could not recover attorneys' fees even though it was the prevailing party.

"Administrative/production worker dichotomy" not always applicable to determine whether certain insurance claims adjusters are exempt — In Harris v. Superior Court of Los Angeles County (No. S156555, Dec. 29, 2011), the California Supreme Court reversed and remanded the appellate court's decision that certain insurance claims adjusters had been misclassified as overtime exempt ("exempt"). In this class action, the adjusters argued that, under the "administrative/production worker dichotomy," defined in a series of 2001 cases involving Farmers Insurance claims adjusters called the Bell cases, they were nonexempt "production workers" and not exempt administrative employees. The appellate court agreed with the adjusters and concluded that they were not exempt from overtime since they were akin to production workers. The California Supreme Court reversed the lower court's decision, holding that the administrative/production worker dichotomy was factually distinguishable and that post-Bell IWC wage orders and federal regulations provided other guidance. Without addressing the merits of the underlying wage claims, the Supreme Court remanded the case for ruling on the employer's summary adjudication motion concerning the exempt issue.

Independent contractors test for insurance agents is a question of fact — In Arnold v. Mutual of Omaha (Cal.Ct.App. No. A131440, Dec. 30. 2011), the Court of Appeal found that certain insurance company agents qualified as independent contractors instead of employees. Plaintiff Arnold, a non-exclusive agent for Mutual of Omaha, sued it to recover reimbursement for business expenses, and waiting time penalties for unpaid final wages. Based on Mutual's limited control over Arnold, who in reality was in business for herself including acting as agent for other insurers, the Court of Appeal affirmed summary judgment in favor of Mutual. The court found that Arnold was an independent contractor because Arnold used her own judgment and manner in soliciting for Mutual's products, had a nonexclusive agreement, did not receive evaluation reports from a supervisor, and was not monitored by Mutual, whose training was voluntary. Also, Mutual agents who used its office space (which Arnold did not use) were required to pay a rental fee, and Arnold was only required to submit one request for Mutual's products within each 180-day period. Importantly, the court held that the existence of each factor in the independent contractor "control" test was a question of fact, while the legal conclusions to be drawn from the presence of those factors was an issue of law for decision by the court.

Sales commissions based on volume, not value, are still a commission — In Areso v. CarMax, Inc., 195 Cal. App. 4th 996 (2011), the California Court of Appeals upheld the trial court's summary adjudication for CarMax in a class action lawsuit for alleged failure to pay overtime. Plaintiff Areso worked as a sales consultant for CarMax, selling cars and accessories. Under its commission plan, CarMax paid employees a flat $154 for each good sold, instead of basing the commission on the value of what was sold. Areso argued that the flat rates were actually piece rates, not sales commissions, and that the IWC wage order's overtime exemption for sales employees did not apply. That exemption applies to sales employees whose earnings exceed 1-1/2 times the minimum wage if more than half their earnings are from sales commissions. The Court of Appeals disagreed with Areso's arguments that volume-based fees for sales are not sales commissions and affirmed the judgment in CarMax's favor.

Employer not liable for additional overtime where there is an explicit mutual wage agreement — In Arechiga v. Dolores Press, Inc., 192 Cal. App. 4th 567 (2011), the Court of Appeal upheld the validity of an explicit mutual wage agreement between Plaintiff and Dolores Press providing that Plaintiff would work a total of 66 hours per week, 40 of which were regular straight-time hours, and 26 of which were overtime hours. After Plaintiff was terminated, he filed suit claiming that he was paid a salary that covered only his first 40 hours of work per week and that he was owed overtime for the additional 26 hours per week. The Court of Appeal found that Dolores Press provided sufficient evidence to establish that the parties had entered into an explicit mutual wage agreement and that such an agreement was valid despite the Division of Labor Standards Enforcement ("DLSE")'s Enforcement Policies and Interpretations Manual's statements to the contrary.

Employees entitled to two extra hours' pay for meal and rest period violations — In United Parcel Service, Inc. v. Superior Court, 192 Cal. App. 4th 1043 (2011), the Court of Appeal interpreted the extra hour's pay penalty of Labor Code section 226.7 to authorize two extra hours' pay penalty per day if both a meal and a rest period are missed on the same day. The court cited the federal district court decision in Marlo v. United Parcel Service, Inc. (C.D. Cal. May 5, 2009), which also concluded that one payment for each type of violation was in accordance with public policy intended by the statute. However, as the United Parcel decision seems to conflict with language in the California Supreme Court decision in Murphy v. Kenneth Cole Productions, there may be an appeal to the California Supreme Court. In any case, employers should take steps to ensure that employees know that they may take timely both meal and rest breaks every day, and that employees must note on their weekly work time records any missed meal or rest period they wanted to take but could not do so.

Employees must show actual injury to recover damages for simple paystub violations — In Price v. Starbucks Corp., 192 Cal. App. 4th 1136 (2011), the California Court of Appeal upheld the trial court's decision to dismiss a plaintiff's claim for noncompliant wage statements in violation of Labor Code section 226(a) since the plaintiff failed to allege a cognizable injury. The simple absence of one of the nine itemized requirements on a wage statement (paycheck stub) was held as not giving rise to employer liability unless an employee was able to demonstrate a specific injury arising from the omission. Here, the asserted "mathematical injury" (requiring the employee to add up overtime and regular hours to ensure correct rate of pay) was distinguished from cases where employees presented evidence of inaccurate or incomplete wage statements that required nonwage statement discovery and further mathematical computation to determine if they were correctly paid.

Even nonresidents are covered by California's overtime laws when they work in the Golden State — The California Supreme Court in Sullivan v. Oracle Corp., 51 Cal. 4th 1191 (2011), unanimously held the following: (1) the Labor Code's overtime provisions apply to work performed in California by nonresident employees of California employers; (2) a claim by a nonresident employee for overtime violations may serve as the predicate for a separate claim under California's Unfair Competition Law, Business & Professions Code section 17200 ("UCL"), which extends the limitation period for wage claims to four years; and (3) a claim for overtime compensation under the federal FLSA, based on work performed for the California employer in other states, cannot serve as the predicate for a UCL claim. This third holding was based on a reluctance to apply California's UCL to alleged violations outside the facts of this case. However, the Supreme Court mentioned that a UCL claim conceivably could apply to the plaintiffs' federal law claims if their wages were paid (or underpaid) in California.


Class Action Cases

Class actions are now more difficult to bring, especially if a large class is sought in the absence of a uniform and discriminatory company policy — In Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), the U.S. Supreme Court ruled in favor of the nation's largest employer in a case in which the plaintiffs' lawyers sought to represent a class of approximately 1,500,000 women. The nine Justices unanimously held that defendants in employee class actions are entitled to individualized determinations of each employee's eligibility for back pay. The 5-4 majority held that there was insufficient commonality between claimants because they failed to show "significant proof" that Wal-Mart "operated [in making its employment decisions] under a general policy of discrimination." This decision will help employers defeat class certification under the commonality analysis, particularly when there are national, regional, or statewide claims of disparate treatment in the absence of an actual discriminatory policy by the defendant.

Class action waivers in employee arbitration agreements — On April 27, 2011, the U.S. Supreme Court in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), held that the Federal Arbitration Act (FAA) preempts a California Supreme Court decision prohibiting class action waivers in consumer arbitration agreements. This case concerned a dispute regarding an AT&T offer to consumers, but it provides legal support for upholding class action waivers in employee arbitration agreements. Accordingly, under the FAA, an arbitrator now may not impose classwide arbitration when the arbitration agreement either expressly prohibits it or possibly even if the agreement is silent on that issue. Employers accordingly should consider adding language making clear that its employee arbitration agreements are governed by the FAA, or reconsider employee arbitration agreements if they have rejected them in the past.

However, on January 3, 2012, the NLRB in a two-member decision, with its then third member recusing himself, issued its decision in D.R. Horton, Inc., 357 NLRB No. 184. In this important decision, the two NLRB members held that an employee arbitration agreement that expressly precluded both class action litigation and class action arbitration interfered with employees' right to take collective action and thereby violated Section 8(a)(1) of the NLRA. That section prohibits employer action that interferes with employee rights under that statute. Whether this decision will stand against the AT&T Mobility decision is currently an open question.

Contractual waiver of PAGA actions is enforceable and not preempted by Federal Arbitration Act — Despite the U.S. Supreme Court's decision in AT&T Mobility, the California Supreme Court denied review of the appellate decision in Brown v. Ralphs Grocery, 197 Cal. App. 4th 489 (2011). The appellate court in the Ralphs Grocery case rejected application of AT&T Mobility because California Private Attorney General Act (PAGA) claims are brought more on behalf of the state than the class action parties. Plaintiff Brown brought this class action under PAGA against Ralphs for alleged Labor Code violations, and Ralphs moved to compel arbitration pursuant to the employee's arbitration agreement that expressly waived Brown's right to class actions and right to pursue representative action for civil penalties under PAGA. The trial court determined that the arbitration agreement was procedurally unconscionable and substantively unconscionable because the class action and PAGA waivers were invalid. The appellate court reversed the finding that the class action waiver was invalid for lack of evidence, but affirmed the trial court's finding that waiver of PAGA was unenforceable, and remanded the case to the trial court to determine whether to sever the unenforceable PAGA provision or deny enforcement of the entire arbitration agreement.


Other Case Law Impacting Employers

Federal WARN Act liability even for a voluntary departure when a business is closing — In Collins v. Gee West Seattle LLC, 631 F. 3d 1001 (9th Cir. 2011), the Ninth Circuit held that employees who quit their jobs in response to receiving notice that the business is closing have not "voluntarily departed" within the meaning of the WARN Act. Here, within days after announcing that the business was likely to shut down on a specified date unless a buyer was found, 90 employees resigned from their employment. Thus, at the time of closure on the specified date, only 30 employees remained. While the lower court determined that no WARN notice was required because only 30 employees suffered a loss of employment, the Ninth Circuit reversed, explaining that "the unexpected and urgent need to find new employment is precisely the type of pressure . . . that Congress was attempting to eliminate by creating the WARN Act." The Ninth Circuit did not address the issue of how "imminent" or "probable" the job losses must be for employee departures not to be considered "voluntary."

Employees' rights during grocery store change of ownership not preempted by Food Safety Laws or National Labor Relations Act — In California Grocers Association v. City of Los Angeles, 52 Cal. 4th 177 (2011), the California Supreme Court held that a local ordinance providing grocery store employees certain rights for a 90-day period when stores 15,000 square feet or larger undergo a change of ownership is not preempted by state or federal laws. During the 90-day period, new store owners must hire from among the employees who previously worked at the store for at least six months, may only fire those employees for cause, and must prepare a written evaluation for each employee at the conclusion of that period. If the workforce is unionized, the new owner and union may contract around the ordinance.

Employers not required to pay employees' attorney fees when their employers sue them — In Nicholas Laboratories, LCC v. Chen, 199 Cal. App. 4th 1240 (2011), the Court of Appeal held that California Labor Code section 2802 does not require employers to reimburse the employee's attorneys fees when the employee has successfully defended his employer's claims against him. Plaintiff Nicholas Laboratories sued its former employee for various claims including breach of contract, conversion, negligence, unjust enrichment, and constructive trust, seeking damages in excess of $2 million. In response, the employee filed a cross-complaint for indemnity for expenses incurred in defending himself against his former employer's claims. On the eve of trial, Nicholas Laboratories agreed to dismiss its complaint without prejudice, and the employee agreed to submit his cross-complaint to the trial court for disposition. The trial court and the Court of Appeal disagreed with the employee, stating that section California Labor Code 2802 applies to indemnification for costs arising from third-party suits against the employee, not for the employer's own unsuccessful lawsuits against the employee.

Employees required to pay employers' litigation costs in unsuccessful suits against employers — In Plancich v. United Parcel Service, 198 Cal. App. 4th 308 (2011), Plaintiff sued UPS on several causes of action, including failure to pay overtime compensation and failure to provide breaks. The trial court ruled in favor of UPS, but refused to award UPS its litigation costs. The appellate court reversed and held that, because there is no express statutory exception excluding prevailing employers from recovering costs, UPS could recover costs of suit from Plancich.

Arbitration agreement lacking an opportunity to negotiate, notice of arbitration procedure, and explanation of waiver of the right to trial is unenforceable — In Wisdom v. AccentCare, Inc. (Cal. Ct. App., No. C065744, Jan. 3, 2012), the Court of Appeal held that a clause in an application for employment requiring that the applicant (but not the employer) agree that all disputes that cannot be resolved informally will be submitted to arbitration is procedurally and substantively unenforceable as unconscionable. The plaintiffs, employed by AccentCare as on-call staffing coordinators, filed a lawsuit claiming compensation for overtime and unpaid time spent handling off-hour calls. Prior to the start of employment, the plaintiffs signed acknowledgement forms attached to an employment application containing the arbitration clause. At the time of signing, there was no negotiation about the terms, no explanation of the arbitration clause or its consequences, and no notice that signing the form was optional. The court found the clause was procedurally unconscionable because its language implied there was no opportunity to negotiate, the rules of arbitration were not spelled out nor attached, and the applicant did not understand nor was it explained that the right to trial was being waived. The court found the clause substantively unconscionable because it lacked a mutual agreement to arbitrate claims.


EEOC Developments

EEOC files record number of cases against employers in FY 2011 — In November 2011, the EEOC announced it had received 99,947 charges in FY 2011 (ending September 30, 2011), the highest number in its history. However, because of the backlog of cases and alleged shortage of staff, the agency failed to resolve 78,136 charges by the end of the fiscal year. In FY 2010, the EEOC received 99,922 charges, an increase from 93,277 in 2009. The agency expects the numbers to continue increasing in FY 2012 as it steps up pressure on employers. In this regard, the EEOC has increased the number of systemic discrimination charges brought directly by one of its Commissioners against employers. The EEOC also is piloting a project with the U.S. Department of Labor's Office of Federal Contract Compliance Programs to share compliance information. Employers should be prepared for refusals to grant time extensions for responses to EEOC charges, shortened timelines for supplemental requests for information, and more charges involving multiple individuals and alleged systemic discrimination by large employers.

EEOC's retrospective review of significant regulations — The EEOC is seeking public comment on its Preliminary Plan for Retrospective Analysis of Existing Rules, in which the EEOC intends to identify regulations for modification, clarification, or repeal. While the EEOC has not finalized this Plan, it has published its initial list of potential regulations for review, which includes revising the "reasonable factors other than age" regulation under the U.S. Age Discrimination in Employment Act.

NLRB Developments

NLRB Members — The NLRB, usually a five-person board, has been functioning with three members since August. The Board lost a third member when Craig Becker's recess appointment expired at the end of 2011. While the Board legally could function with three members, a 2010 U.S. Supreme Court decision held that the authority of the Board could not be delegated to a panel with fewer than three members. In preparation for a possible loss of quorum, the NLRB contingently delegated authority to make certain litigation, funding, and appointment decisions to the agency's Board Chairman, General Counsel, and Chief Administrative Judge. After two of President Obama's nominations failed to clear the Senate in 2011, the President in early January 2012 designated Democrats Sharon Block and Richard Griffin and Republican Terence F. Flynn as recess appointments to the NLRB, restoring the Board to five members (three Democrats and two Republicans). However, the Senate under established precedent (which includes the Obama Administration's Deputy Solicitor General's assertion in 2010 at oral argument to the U.S. Supreme Court in an unrelated case) technically was not in recess when these alleged recess appointments were made. There accordingly might well be a legal challenge to these appointments.

NLRB revises election case certification process in preparation for loss of quorum — Before losing quorum at the expiration of Craig Becker's term in December 2011, the then three-member NLRB revised its election case certification process. Normally, representation election ballots are automatically impounded when a party requests review. However, because a two-member board cannot operate with full NLRB authority, election results will be suspended until the Board obtains a quorum. The applicable NLRB Regional Director will have the authority to count ballots and certify election results, despite a pending review of election results.

NLRB's new employee rights notice-posting effective April 30, 2012 — In August 2011, the NLRB issued a final rule requiring all covered employers to post a notice summarizing employee rights under the National Labor Relations Act. Among others, the notice informs employees of their rights to form, join, or assist a union; to bargain collectively over "wages, hours, and other terms and conditions of employment"; to have discussions with coworkers about these topics; to "take action with one or more co-workers to improve . . . working conditions by, among other means, raising work-related complaints with [the] employer or with a government agency and seeking help from a union"; to strike and picket; and to not join a union or participate in union activities. The notice also reminds employees that it is unlawful for an employer to: forbid talk or solicitation of union activity; question employees about union involvement in a manner discouraging the involvement; take negative employment action based on union involvement; threaten closure of a workplace if employees choose union representation; promise advantages like pay raises to discourage or encourage union support; spy on or tape union activities or threaten to do so; and prohibit union materials in the workplace. Twice postponed, this notice-posting requirement, now effective April 30, 2012, is currently subject to a court attack and is not limited to currently unionized businesses. The content, manner, and location of posting the required notice are quite specific and clearly delineated by the NLRB, and the notice may be downloaded from the NLRB website (https://www.nlrb.gov/sites/default/files/documents/1562/employee_rights_fnl.pdf.) or obtained by contacting the NLRB or its regional offices.

The NLRB and an employer's social media policies — In late 2011, two decisions of administrative law judges addressed whether employee postings made on social media constituted protected "concerted activity" under the National Labor Relations Act (NLRA). In addition, the NLRB Office of the General Counsel released a report analyzing fourteen social media cases prosecuted by the NLRB. His report delineated factors considered in evaluating if an employee's use of social media constitutes protected concerted activity, including whether the statements made: were made on behalf of other employees; involved the terms and conditions of employment; or were directed to or involving coworkers. The report also noted that an employer's overly broad social media policy that discouraged protected concerted activity may be found to be unlawful, even if no disciplinary action has been taken against any employees under the policy. However, employer social media policies that are narrowly tailored, use clearly defined terms to avoid ambiguity, and inform employees that the policy does not prohibit employees from discussing or disclosing the terms and conditions of their employment are more likely to be found lawful. Policies that prohibit employees from disclosing clearly defined confidential or proprietary company information on social media or prohibit employees from making statements on behalf of the employer are probably also lawful. However, overly broad policies restricting employees' use of social media also may violate the California Labor Code and should be avoided. Experienced legal counsel can be helpful in constructing appropriate social media policies.

NLRB rejects back pay for undocumented employees even if employer knew of immigration status — In Mezonos Maven Bakery, Inc., 357 NLRB No. 47, 8/9/11, a three-member NLRB panel held that seven illegal immigrants were not entitled to back pay after being fired for complaining about poor treatment from a supervisor. The employer never asked the employees for work authorization documents, in violation of the Immigration Reform and Control Act (IRCA). Citing the U.S. Supreme Court's holding in Hoffman Plastic Compounds Inc. v. NLRB, 535 U.S. 137 (2002), as controlling law, the panel determined that, if a complainant's employment is unlawful under IRCA, employers are not liable for back pay even when the employer's action was an unfair labor practice under the NLRA. In concurring opinions, two panel members expressed concern that unlawful conduct in violation of IRCA will unjustly enrich employers.

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