California

The following bills, many of which were introduced during the ongoing special legislative session, are currently pending in the California legislature:

FEHA Amendments for Medicare Benefit Reductions (AB 1814)

California’s Fair Employment and Housing Act (FEHA) prohibits discrimination on the basis of age regarding compensation or in “the terms, conditions or privileges of employment.” This recently-introduced bill would amend FEHA to provide that employers are not prohibited from providing health benefits or health care reimbursement plans to retired persons that are altered, reduced or eliminated when the retiree becomes eligible for Medicare benefits. This bill would further provide that it is declarative of existing law and applies to all existing health plans in effect as of the bill’s effective date once enacted. 

Increased Penalties for Failure to Pay Minimum Wage (AB 1881)

Labor Code section 1194.2 presently provides that in a court action to recover wages unpaid in violation of the minimum wage laws, the court may award liquidated damages equal to the amount of wages unlawfully unpaid, plus interest. This recently-introduced bill would increase the amount of liquidated damages that may be awarded to an employee to twice the amount of the wages unlawfully unpaid, plus interest. 

Job Protection Act Introduced (SBx8 60)

Known as the Job Protection Act, it would create a new legislative procedure for any bill, as defined, that may have a statewide economic impact on business. For instance, it would require the assembly and senate to prepare an economic impact analysis and conduct hearings on any bills having statewide economic impact on business. It would also require the responsible committees to place in their suspense file any bills generating a fiscal impact of $10,000 on small businesses and $50,000 on other businesses, and to follow specified procedural requirements for such bills.

Tax Credits for Hiring Veterans (SBx8 63)

California’s Personal Income Tax Law and Corporation Tax Law currently authorize various credits against taxes imposed by those laws, including credits to qualified employers, for hiring qualified employees, as defined. This bill would, for taxable years beginning on or after January 1, 2010, allow a tax credit in an amount equal to 25 percent of the wages (not to exceed $6,000) paid to each qualified veteran by the taxpayer during the taxable year. “Qualified veterans” would be defined as members of the Armed Services honorably discharged within five years preceding employment with the taxpayer, who received less than 4 weeks unemployment compensation during the 12 months preceding employment date with taxpayer, and who is employed for at least 120 hours during the taxable year in which the credit is claimed.

Meal Period Clarification Bill Introduced (SBx8 70)

This bill would clarify several open legal issues as well as re-characterize the nature of the “additional hour of pay” provided for meal period violations, thus potentially reducing the statute of limitations on such claims. Amongst other things, this bill would define “providing” a meal period to mean “giving the employee an opportunity to take” a meal period, rather than ensuring it is taken. It would also outline the criteria necessary for an on-duty meal period. It also clarifies that the extra hour of pay provided for meal period violations would be considered a “penalty” rather than “wages,” thus essentially creating a one-year rather than a three-year statute of limitations.

Individual Alternative Work-Week Schedule Bill Introduced (SBx866)

California law requires, with certain exceptions, employers pay overtime if employees work more than 8 hours in a day or more than 40 hours in a workweek. There is an exception for alternative workweek schedules, but these schedules must be adopted on a “work unit” basis and are subject to very strict adoption procedures. Known as the Workplace Flexibility Act of 2010, this bill would amend the Labor Code provisions concerning “alternative workweek schedules” and permit individual employees to agree to these schedules, thus avoiding the current special election procedures. Employees would be permitted to work up to 10 hours per day without accruing overtime, but would still be entitled to overtime after 40 hours in a workweek, and double-time after 12 hours in any day. 

Federal

Further COBRA Premium Subsidy Extension Appears Likely 

As of this Newletters’s publication date, the eligibility period for the COBRA premium subsidy extension will expire on February 28, 2010. However, it is foreseeable this eligibility deadline will be extended once again given the ongoing recession and since the President, the House of Representatives and the Senate have all proposed extending this eligibility period beyond the February 28^th expiration deadline.

Indeed, the House has already passed on a voice vote an emergency bill, known as the Temporary Extension Act of 2010 (H.R. 4691), that would extend the COBRA premium subsidy eligibility period until March 31, 2010, and would extend unemployment insurance benefits until April 5, 2010. This bill also proposes some clarifications concerning COBRA premium eligibility resulting from a reduction in hours. The House’s bill is presently pending in the Senate and likely to pass shortly once some procedural obstacles are overcome.

As mentioned, the House’s bill is considered a temporary stop-gap measure, and if and once passed, the House, Senate and Administration likely will soon continue work on additional extensions. Each proposed version differs somewhat concerning the length of this next extension (e.g., the President proposes extending it December 31, 2010, while the House and Senate propose shorter extensions). Others open issues are whether the coverage period for this premium subsidy (currently 15 months) will remain the same, and whether any new extension will apply only to newly eligible employees (so-called “assistance eligible individuals”) who suffer a qualifying event during this extended eligibility period (i.e., after March 1, 2010).

In the event this deadline is extended, employers will almost certainly be required to continue providing notice of this premium subsidy, including using the model COBRA notices developed by the Department of Labor. Stay tuned!! 

AGENCY

Federal

DOL Issues Model CHIPRA Notices for Employer Use

The Children’s Health Insurance Program (CHIP) Reauthorization Act of 2009 (CHIPRA) requires employers offering group health plans to annually notify employees of their potential rights to receive premium assistance under a state’s Medicaid or CHIP program. Presently, 40 states, including California, provide premium assistance through employer-based plans and are thus subject to CHIPRA’s employer notice requirements. On February 4, 2010, the Department of Labor issued model notices for employers to use to inform employees about these potential benefits under CHIPRA. These model notices, which include information on how employees can contact their states for further information, are available at www.dol.gov/ebsa/chipmodelnotice.doc. 

Employers are required to provide these notices by the date that is the later of (1) the first day of the first plan year after February 4, 2010, or (2) May 1, 2010. Accordingly, for plan years beginning between from February 4, 2010 through April 30, 2010, the employer CHIP Notice must be provided by May 1, 2010. For employers whose plan year begins on or after May 1, 2010, the employer CHIP notice must be provided by the first day of the next plan year (ex. January 1, 2011 for calendar year plans).

The DOL also published in the federal register (Volume 75, Number 23) detailed guidance concerning these notices, the deadlines to provide these notices, and which employers are subject to these notice requirements. This guidance can be accessed at http://edocket.access.gpo.gov/2010/pdf/2010-2409.pdf.

EEOC Issues Proposed Rule Concerning “Reasonable Factors Other Than Age” ADEA Defense

The EEOC recently published a notice of proposed rulemaking seeking input regarding the ‘reasonable factor other than age” defense for employers under the Age Discrimination in Employment Act (ADEA). In 2005, the United States Supreme Court held in Smith v. City of Jackson (2005) 544 U.S. 228 that plaintiffs may pursue “disparate impact” claims under the ADEA, but that the “reasonable factor other than age” test (RFOA), rather that the “business necessity” test, is the appropriate standard for determining the lawfulness of practices that disproportionately affect older workers. This proposed rule explains the RFOA defense only applies if the challenged practice is not based on age and that a neutral practice that disproportionately affects older workers can be justified only by showing that the practice is objectively reasonable when viewed from a reasonable employer under like circumstances. The proposed rule also enumerates non-exhaustive factors relevant to determining to whether a factor is “reasonable” and “other than age related.”

The EEOC will accept comments on this proposed rule until April 19, 2010. This proposed rule is available at http://edocket.access.gpo.gov/2010/2010-3126.htm.

Mental Health Parity Regulations Announced

The United States Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury recently issued interim final regulations for the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) which took effect in January 2010. The MHPAEA applies to employers with more than 50 employees, and requires that if their group health plans include mental health and substance use disorders along with standard medical coverage, the plan must treat them equally regarding out-of-pocket costs, benefit limits, costs, and practices such as prior authorization and utilization review. These final regulations will further clarify the MHPAEA and provide an enforcement framework. They are scheduled to take effect on April 5, 2010, and apply to plan years beginning on or after July 2, 2010.

The DOL, HHS and Treasury are accepting comments on these regulations until May 3, 2010 at www.regulations.gov. The regulations are available in the federal register (Vol. 75, Number 21) or at http://edocket.access.gpo.gov/2010/pdf/2010-2167.pdf.

DOT Promulgates New Drug and Alcohol Testing Rules

The United States Department of Transportation (DOT) has issued a notice of proposed rulemaking to amend certain provisions of its drug testing procedures to create consistency with new requirements established by the United States Department of Health and Human Service (HHS) Mandatory Guidelines. These proposed amendments will affect provisions dealing with laboratory urine specimens and will also affect the roles and standards applying to collectors and Medical Review Officers. These changes will include requiring testing for MDMA (i.e., ecstasy) and lowering the initial test cut off concentrations for other drugs (e.g., cocaine and amphetamines). The changes will also authorize employers to choose between full-service laboratories and an Instrumental Initial Test Facility, and will change and add some definitions to conform with HHS’ guidelines.

The proposed regulations are accessible at http://edocket.access.gpo.gov/2010/pdf/2010-2315.pdf. The DOT will accept comments on these regulations until April 5, 2010. Comments can be sent to www.regulations.gov.

DOT Bans Texting by Commercial Motor Vehicle Drivers 

The Department of Transportation (DOT) has recently issued regulatory guidance concluding that “commercial motor vehicle” drivers (as defined) are prohibited from “texting” (as defined) while driving on public roads in interstate commerce. The DOT recently concluded a study on distracted drivers and concluded “texting” while driving significantly increases the risk of accident, and it intends to expressly prohibit such “texting” in an expedited rulemaking process in 2010. In the interim, the DOT’s recently issued guidance concludes that commercial motor vehicle drivers are already prohibited from texting under currently existing federal regulations (e.g., 49 CFR § 390.17.) This interim regulatory guidance is available at http://edocket.access.gpo.gov/2010/pdf/4305.4307.pdf.

As a reminder, since July 2008, California has prohibited “texting while driving” and imposed civil penalties for violations.

JUDICIAL

California

California Supreme Court Holds Labor Code’s “Kin Care” Provision Inapplicable to Sick Leave Policy Providing Uncapped Number of Days Off

In a long-awaited decision, the California Supreme Court interpreted California’s “kin care” provision (Labor Code section 233), and somewhat surprisingly, issued a very narrow opinion that likely will impact very few employers. Specifically, the Court held section 233, which requires employers to allow employees to use up to half of their accrued sick leave for sick family members, did not apply to sick leave policies providing an uncapped amount of leave. Thus, employers with policies providing an uncapped number of paid sick days may limit their employee’s ability to use such sick leave to care for sick family members.

In this case, two telecommunications company employees filed a class action alleging their employer violated section 233 by not allowing them to use paid sick leave to care for their sick relatives. The employer maintained a very generous sick leave policy under which employees were entitled to paid sick leave for up to five consecutive days in any seven day period, with any new absences after that seven-day period restarting the five day entitlement. As a practical matter, and subject only to the employer’s attendance policy, the employees could receive an unlimited number of paid sick leave days for the employees’ own illnesses. However, the employer did not permit the employees to use this paid sick leave to care for ill family members.

The employees challenged this restriction, arguing it violated Labor Code section 233 which requires employers to permit employees to use up to half of the employee’s “accrued and available sick leave” to care for sick family members (as enumerated in statute). The trial court granted the employers’ summary judgment motion finding the sickness absence policy did not constitute sick leave as defined by Labor Code section 233. The court of appeal reversed, concluding section 233 did apply, and that Labor Code section 234, which prevents employers from disciplining employees for taking “kin care” leave, did not prevent employers from disciplining employees for kin care leave to the same extent the employer disciplines employees for taking leave for their own illnesses. The California Supreme Court granted review, and many had anticipated it might address this interplay between Labor Code sections 233 and 234, and an employer’s ability to enforce attendance control policies for kin care leave.

Unfortunately, the court failed to address that issue.) Instead it concluded Labor Code section 233 does not apply to all sick leave policies, but applies only to policies in which employers provide “accrued increments of compensated leave” (i.e., “a measurable, banked amount of sick leave”). The court reasoned California’s “kin care” statute and its reference to “accrued” and “accumulated” leave banks was intended to provide certainty to employers regarding how much “kin care” leave employees could take (e.g., one-half of this accumulated balance.) Thus, it did not apply to policies with uncapped leave for employee illnesses where employers would be unable to determine how much kin-care leave to provide. (McCarther v. Pacific Telesis Group (2010) ___ Cal.4th ___, 2010 Cal.LEXIS 1050.)

NOTE: as mentioned above, this narrow decision avoided reaching another important issue regarding an employer’s ability to enforce attendance management policies for kin care use on the same conditions as for absences due to the employee’s illness. Moreover, since very few employers provide “uncapped” sick leave policies, opting instead for “accumulation” type policies governed by Labor Code section 233, this decision will likely have fairly limited practical value.

Court Upholds Arbitration Provision Limiting Number of Depositions

In a wrongful termination suit, a former in-house attorney opposed the employer’s efforts to compel arbitration on the grounds the parties’ written arbitration agreement unfairly limited discovery by allowing only one deposition. The trial court found the discovery limitation substantively unconscionable and refused to compel arbitration, but the court of appeal reversed finding the discovery limitation not objectionable, in part because the agreement specifically authorized the arbitrator to expand discovery upon a showing of need.

The appellate court commenced its analysis noting arbitration is a favored remedy generally and arbitration agreements must be both procedurally and substantively unconscionable to be unenforceable. The court reiterated that both need not be present in the same degree, and that a “sliding scale” is generally used with the greater the procedural unconscionability (e.g., oppression, unfair surprise) present, the less substantive unconscionability (e.g., overly harsh or one-sided provisions) required to invalidate an agreement, and vice versa. The appellate court noted that very little procedural unconscionability existed since even though the agreement was presented on a take-it-or-leave-it basis, the attorney was highly-educated and the agreement’s provisions were clearly stated and conspicuous. The court also concluded the discovery limitation was not unduly one-sided or harsh observing that arbitration is intended to be a streamlined procedure requiring only “adequate” discovery, not “unfettered” discovery, and that the agreement authorized the arbitrator to grant further discovery as needed. The appellate court also held that where only a single provision was questionable, the trial court should have severed that provision rather than invalidating the entire arbitration agreement. (Dotson v. Amgen, Inc.(2010) ___ Cal.App.4th ___, 2010 Cal.App.LEXIS 129.)

But Another Court Invalidates An Arbitration Agreement Limiting Employee’s Substantive Remedies 

In this FEHA national origin and discrimination case, the California court of appeal refused to enforce an arbitration agreement restricting the plaintiffs’ potential remedies. The employment agreement at question required arbitration of any disputes between the physicians and the hospital, and incorporated the American Health Lawyers Association’s arbitration rules, which precluded the arbitrator from awarding consequential, special or punitive damages, limited available discovery and required the parties to split the arbitration fees. The appellate court concluded these limitations, particularly the limitation on otherwise applicable remedies, were substantively unconscionable, and it refused to sever these provisions since set forth in the rules the agreement provided would control the arbitration.

The appellate court also concluded the agreement was procedurally unconscionable since the reference to these rules was buried in the 13-page agreement which the employees were not permitted to review before signing, and the employer never provided a copy of the rules to the employees. Finally, the court refused to enforce a later-adopted arbitration agreement applying JAMS’ less-onerous arbitration rules since these plaintiffs had not signed that agreement, and none of the narrow exceptions for enforcing an agreement against a non-signatory (ex. third-party beneficiary, equitable estoppel, etc.) applied. (Suh v. Superior Court (ex. rel. CHA Hollywood Medical Center) (2010) ___ Cal.App.4th ___, 2010 Cal.App.LEXIS 192.)

NOTE: this decision underscores the importance of ensuring that any rule set adopted for arbitration purposes generally complies with California’s requirements for arbitrating statutory employment claims. This case also suggests that while courts may sever certain provisions from an otherwise enforceable agreement, they are less reluctant to do so when the provision is undeniably unenforceable (ex. the damages limitations for employment claims) and the employer included assuming a reviewing court would simply sever it once discovered.

Mixed-Motive Defense Still Viable in California

As discussed in the November 2009 newsletter, a California appellate court recently held that the so-called “mixed motive” defense and accompanying jury instructions remain available to employers in appropriate circumstances. (SeeHarris v. City of Santa Monica (2009) 2009 Cal.App.LEXIS 1731.) Under this “mixed motive” instruction (previously contained in BAJI jury instruction 12.26), if the jury concludes both discriminatory and non-discriminatory reasons motivated the challenged decision, the employer can still prevail by demonstrating it would have made the same employment decision solely on the basis of its legitimate reasons (i.e., its legitimate reason, standing alone, would have induced the employer to make the same decision.) In that particular case, the appellate court noted the employer might have initially considered the employee’s pregnancy in its termination decision, but that the employer had successfully demonstrated that it would have made the same decision regardless of pregnancy because of the employee’s well-documented performance issues.

The long-term viability of this employer-friendly decision was briefly in doubt as the appellate court agreed to “rehear” this issue, rendering the initial published decision unciteable. However, on February 4, 2010, the California court of appeal republished the decision, again holding that the “mixed motive” defense remains viable and available to employers in the right circumstances. (Harris v. City of Santa Monica (2010) ___ Cal.App.4th ___, 2010 Cal.App.LEXIS 135.)

NOTE: Unless the California Supreme Court grants review, this ruling potentially makes California’s version of the “mixed motive” defense more favorable than available under federal law. This is because under Harris and BAJI jury instructions, the “mixed motive” defense for FEHA purposes is a complete defense to liability, whereas under Title VII the defense serves only to limit certain types of damages once liability is established.

Prevailing Defendant in California Disabled Persons Act Lawsuit Entitled to Attorneys’ Fees Regardless of Whether Lawsuit Was Frivolous, Unreasonable or Groundless

A wheelchair-bound individual sued a grocery store under the Americans with Disabilities Act (ADA) and the California Disabled Persons Act (CDPA) (Cal. Civ. Code § 54 et seq.) alleging wheelchair users were denied entry by architectural barriers. The grocery store prevailed and the trial court awarded the store $118,458 in attorneys' fees under Civil Code section 55, which provides attorneys’ fees shall be awarded to a prevailing party. The California court of appeal affirmed the award and rejected plaintiff’s contention fees were only awardable for frivolous suits. The appellate court noted that while a prevailing defendant may only recover fees under the ADA if the claim was “frivolous” or “unreasonable,” the CDPA provision (Civil Code section 55) authorizes a prevailing defendant to recover its attorneys’ fees as a matter if right, at least where the plaintiff seeks only injunctive relief. The appellate court noted that, unlike Title VII or FEHA plaintiffs, plaintiffs suing under CDPA have multiple statutory remedies (most of which do not involve reciprocal attorneys’ fees provision), but by suing under section 55 for purely “technical violations” of California access laws, the plaintiff exposed himself to a potential fee award. (Jankey v. Song Koo Lee (2010) ___ Cal App. __, 2010 Cal.App. LEXIS 140.)

Class Certification Permitted Based On Class Member Declarations Demonstrating Common Factual and Legal Issues Predominated 

Drivers filed a putative class action claiming a vending machine supplier improperly classified its drivers as “commissioned exempt” and/or “outside salespersons” and accordingly, failed to provide overtime and meal and rest periods. The employer opposed class certification with declarations from 25 putative class members, all current employees of the company, stating they were allowed and encouraged to take meal breaks and actually took their breaks when they wanted no matter how busy they were. Other drivers stated they sometimes elected to forego taking their meal periods in order to finish their shifts sooner, but were never prevented from taking their breaks should they choose to take them. Based upon these declarants’ different meal/rest period practices, the trial court concluded “the members of the class [did not] hang together for typicality,” and the plaintiff was not an adequate class representative because he lied on his employment application about a felony conviction and incarceration. 

The California court of appeal reversed and directed the trial court to certify the subclasses upon approval of a new class representative. The appellate court noted the trial court improperly focused on the potential conflicting issues of fact or law on an individual basis, rather than evaluating “whether the theory of recovery advanced by the plaintiff is likely to prove amenable to class treatment.” The court noted the putative class action members’ declarations submitted in opposition to the motion demonstrated numerous predominant common factual issues, including how frequently meal periods were not taken and the employer’s failure to compensate for missed meal periods. The court also noted that individualized proof of damages for each class member is not a bar to class certification if the other legal requirements exist. (Jaimez v. Daiohs USA, Inc. (2010) ___ Cal App. __, 2010 Cal.App. LEXIS 156.)

Appellate Court Upholds 1.75 Multiplier on Plaintiffs’ Attorney Fees Award 

Various account executives and branch managers prevailed in their wage and hour class action against their employer and were awarded $978,121 in attorneys’ fees. On appeal, the employer argued the trial court failed to sufficiently discount the fees award for fees related to the unfair competition claim for which fees were unavailable, and that the court erred in applying a fee multiplier of 1.75. The California court of appeals upheld the 1.75 multiplier on the wage and hour-related fees citing the novelty of the legal issues, the skills displayed in presenting them, the extent to which the nature of litigation precluded other employment by attorney and the contingent nature of the fee award. The appellate court also upheld only discounting the fees award by 15% to reflect the unfair competition claims, noting the legal and factual issues presented were interrelated with the wage and hour claims. (Pellegrino v. Robert Half Int'l, (2020) ___ Cal.App.4th ___, 2010 Cal. App. LEXIS 228.)

Federal

United States Supreme Court Clarifies Diversity Jurisdiction Standard for Removal Purposes

Given California’s reputation for run-away jury verdicts in state court, employers (particularly out-of-state employers) prefer to defend lawsuits in federal court rather than state court. Employers may remove suits initially filed in state court to the more-procedurally-friendly federal court on the basis of federal question jurisdiction (e.g., a federal statue [ex. Title VII] is involved) or diversity jurisdiction (e.g., when no defendant is a “citizen” of the forum state). The diversity jurisdiction statute considers corporations to be citizens in both their state of incorporation and their “principal place of business,” but the federal circuit courts have historically applied differing definitions for “principal place of business.” In this just-issued ruling, the United States Supreme Court has adopted the more-employer-friendly “nerve center” test which may provide more clarity generally and may make it easier for employers with multi-state operations to remove to federal court based upon diversity jurisdiction.

In this case, employees filed a wage and hour class action in California state court against a national employer for unpaid overtime and meal/rest period violations. The employer removed to federal court on diversity grounds contending it was a New Jersey citizen because it was incorporated in and had its principal place of business (i.e., its corporate headquarters) in New Jersey. The federal district court and the Ninth Circuit Court of Appeals remanded to state court, concluding that under the “place of operations” test, the employer was a California citizen because it conducted its highest level of business activity in California. The United States Supreme Court reversed, however, concluding that a corporation’s principal place of business is determined under the “nerve center” test (i.e., where a corporation’s officers direct, control and coor