California

With the deadline for the first legislative chamber to pass bills having expired, and with the deadline for the second chamber to pass bills not until August 31, 2012, there has not been much significant activity on the remaining pending employment-related bills.  This will change once the current legislative recess ends, but for now most of the key bills remain at the committee stage in the second chamber.  Our California Legislative Report providing a complete overview of these bills and their status is available here. Listed below are some of the more significant legislative developments since last month’s newsletter:

FEHC and DLRS Eliminated as Part of State Budget (SB 1038)

The budget bill recently signed by Governor Jerry Brown reorganizes a number of state agencies and commissions, including several employment-related organizations.  First, this bill eliminates the Fair Employment and Housing Commission (FEHC) and transfers its duties to the Department of Fair Employment and Housing (DFEH).  A to-be-assembled Fair Employment and Housing Council will be established in the DFEH to succeed to the powers and duties of the former FEHC.  This bill also expands the specified powers of the DFEH related to complaints, mediations and prosecutions, and implements mandatory dispute resolution at no cost to the parties involved.  The bill will also eliminate a specified cap of actual damages under the FEHA, and require that certain actions be brought in court by civil action, rather than by accusation by the DFEH.  These provisions relating to the DFEH take effect January 1, 2013.

This bill also eliminates the Division of Labor Statistics and Research (DLSR) within the Department of Industrial Relations (DIR), and transfers the DLSR’s former duties to the Division of Occupational Health and Safety and the Division of Labor Standards Enforcement (DLSE).  Amongst other things, the DLSR was responsible for annually evaluating whether any adjustments were needed to the salary level to maintain the computer professional exemption under Labor Code section 515.5.

Two Social Media Bills Amended and Pass Initial Committee Votes (AB 1844 and SB 1349)

Consistent with the legislative trend at both the federal and state level, both these bills would prohibit employers from requiring applicants or employees to provide password or other information that would enable employers to access private social media maintained by the employee.  (As initially introduced, SB 1349 would have imposed similar prohibitions on educational institutions regarding students and applicants.)  Both bills respond to recent media reports that some schools and employers are requiring employees and/or students to divulge such information thus allowing the employer/educational institution access they could not otherwise obtain.  As presently drafted, these bills would not affect other screening devices (e.g., credit checks, etc.), nor preclude employers/educational institution from accessing non-private social media.  Both bills appear to have fairly strong bi-partisan support and little opposition so passage of either or both seems likely, and both have recently been amended.

As amended in the Assembly, under AB 1844, an employer shall not require or request an employee or applicant to do either of the following: (a) disclose a user name or password for accessing personal social media, or (b) access personal social media whether in or outside of the employer’s presence.   However, the amendments clarify that the new prohibition would not affect an employer’s existing rights and obligations to investigate alleged workplace misconduct.  The amendments further prohibit retaliation against employees who exercise rights afforded under this law, but do not prohibit discipline or discharge against an employee or applicant otherwise permitted by law.

SB 1349 previously imposed similar prohibition on educational institutions and private employers, but as amended now would apply only to educational institutions vis-à-vis their students. 

(NOTE: Maryland recently enacted the first bill prohibiting employers from requiring employees divulge such social media access information (S.B. 433, effective October 1, 2012) and other states are expected to pass similar bills shortly.  The Social Networking Online Protection Act (SNOPA) has also recently been introduced at the federal level.)

Status:  AB 1844 passed the Assembly unanimously, and is now pending in the Senate where it recently passed a vote by the Labor and Industrial Relations Committee.  It is expected to pass the Senate shortly.  SB 1349 has also overwhelming passed the Senate and is now pending in the Assembly.

Religious Accommodation Clarifications Proposed for FEHA (AB 1964)

The FEHA precludes discrimination based on religion, and requires employers to reasonably accommodate “religious beliefs or observances,” which is presently defined to include observance of the Sabbath or holy days and reasonable travel time prior to and subsequent to a religious observance.  As recently amended in the Senate, this bill would amend FEHA’s religious accommodation provisions to include a “religious dress practice or a religious grooming” (as defined) as a belief or observance.  (As originally introduced, this bill would have used the phrase “practice of wearing religious clothing or a religious hairstyle” instead of “religious dress practice or a religious grooming practice”).  This bill is intended to clarify that religious accommodation requires more than providing time off for religious observances, and is intended to address a stated increase in religious discrimination cases in California, and an alleged practice of segregating from public view employees who wear religious clothing.

“Religious dress practice” shall be construed broadly to include the wearing or carrying of religious clothing, head or face coverings, jewelry, artifacts, and any other item that is part of the observance by an individual of his or her religious creed.  “Religious grooming practice” shall be construed broadly to include all forms of head, facial, and body hair that are part of the observance by an individual of his or her religious creed.

This bill would specify that an accommodation is not reasonable if the accommodation requires segregation of an employee from customers or the general public.  As with disability accommodation, an employer does not have to adopt an accommodation posing an “undue hardship” and this bill would adopt for religious accommodation purposes the “undue hardship” factors used for disability accommodation analysis.  As recently amended, this bill specified that no accommodation is required if an accommodation would result in the violation of specified laws protected civil rights.

Status:  This bill passed the Assembly and is pending in the Senate where it was recently amended before passing a vote by the Judiciary Committee.  There does not appear to be any major opposition to this bill.

Assembly May Have Killed Bill Targeting Adhesion Contracts Precluding Consolidated or PAGA Actions (SB 491)

In AT&T Mobility v. Concepcion, the United States Supreme Court upheld contract provisions requiring consumers to arbitrate disputes on an individual rather than a class action basis.  This bill would provide that any term in a contract of adhesion purporting to waive the right to join or consolidate claims or to bring a claim as a representative member of a class or in a private attorney general capacity shall be deemed to lack the necessary consent to waive that right and be void.  This bill would apply to such contractual provisions that are entered into on or after January 1, 2013. 

Status: This bill passed the Senate but failed to pass an initial committee vote in the Assembly, and may be dead for this year.

AGENCY

California

Proposed Pregnancy Regulations Expected Shortly

The California Fair Employment and Housing Commission (now DFEH) proposal to modify regulations regarding pregnancy discrimination to include breastfeeding accommodations are proceeding, and may soon be adopted.http://www.fehc.ca.gov/act/pregnancyregulations.asp.

The proposed modifications list examples of “related medical conditions” that are protected under FEHA, and for the first time include “lactation.”  The proposed modifications most significantly place a duty on employers to reasonably accommodate breastfeeding or expressing breast milk. 

As an example, this definition could result in an employee requesting (and receiving) changed or reduced hours, or more or longer breaks, as a “lactation accommodation.” Significantly, the proposed regulations do not place limitations on the length of the time necessary to accommodate lactation. The practical effect of the proposed regulation is that a lactating woman may request reduced or modified hours to accommodate lactation for an indeterminate period of time.

Having convened on the modifications on June 13 after completing an initial notice and comment phase, the modified regulations were opened to public comment.  Another meeting will be held on August 14, 2012 to consider adoption of the modified regulations and there may be more refinements and a further comment period.   

Meanwhile, AB 2386 (as first reported here in April,http://www.wilsonturnerkosmo.com/news/employmentlaw/201204/), was passed by the state Assembly up to the Senate on May 29, 2012.  The bill would statutorily clarify breastfeeding as a protected category along with race, religious creed, color, national origin, ancestry, physical disability, medical condition, marital status, sex, age, or sexual orientation under the FEHA. 

Federal

NLRB Provides Still More “Guidance” Concerning Social Media Policies
On May 30, the NLRB released its third guidance in less than a year on employer social media policies, and they may not be slowing down.  The NLRB found fault with six of seven social media policies reviewed in the guidance, but specific examples in the guidance give employers a good indicator as to what works – and what does not – when it comes to crafting social media policies.

The May 30 guidance is primarily focused on social media conduct protected under Section 7 of the National Labor Relations Act.  Section 7 ensures employees are not restricted from engaging in “protected concerted activity.”  (More information on Section 7 follows.)  An often used example of protected concerted activity is discussing the “terms and conditions of employment” (such as wages and working conditions) with co-workers.

The May 30 guidance makes it clear that ANY prohibition that could be understood to prohibit employees from discussing the terms and conditions of their employment will be found unlawful.

While it may seem to be common sense, social media policies prohibiting the sharing of “confidential information” will be read by the NLRB as prohibiting discussion of terms and conditions of employment, and considered unlawful.  If an employer wants to protect trade secrets and confidential information, it should take pains to specifically describe the prohibited information.

For example, the NLRB gave its stamp of approval to policies that prohibit disclosure of attorney-client privileged information.  Also, requiring employees to respect all copyright and intellectual property laws was also an acceptable prohibition.  In this way, the guidance indicates that providing specific examples acceptable and unacceptable conduct will more likely be considered lawful and enforceable.

Further, a policy can advise workers that complaints are more likely to be resolved by face to face discussion with employees, rather than social media postings.  And, a lawful policy can prohibit postings that contain specific threats of violence, discriminatory remarks, or harassment, bullying, discrimination or retaliation.

The entire guidance can be found here: http://www.nlrb.gov/news/acting-general-counsel-releases-report-employer-social-media-policies

NLRB Unveils New Web Page Regarding “Protected Concerted Activity”

Section 7 of the National Labor Relations Act (NLRA) provides that employees, both union and non-union, have the right to engage in so-called “concerted activities.”  Specifically, section 7 states that “employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all such activities.  While the federal courts have enjoined the National Labor Relations Board’s (NLRB) requirement that employers display a poster explaining these rights, the NLRB has recently unveiled a new website describing an employee’s right to engage in concerted activities.  This new website is on the NLRB’s webpage at www.nlrb.gov/concerted-activity.

Amongst other things, this new webpage contains pertinent language from Section 7 as well as questions and answers regarding what constitutes protected concerted activity.  The page also contains summaries of recent cases in which employees were deemed to have engaged in concerted activity, including employees terminated for discussing work conditions on FaceBook or discussing their wages with co-workers. 

JUDICIAL

California

Employer Violates Labor Code Section 221 by Attempting to Recoup Commissions Earned by Employee as Result of Employer’s Assignment Error

Except in very narrow circumstances, Labor Code section 221 prevents employers from deducting amounts from an employee’s wages, even as a set-off for amounts owed by the employee.  One such exception is in the commission context where the parties may expressly identify the conditions needed for a commission to be “earned” and the circumstances under which an employer may recoup “advances” that ultimately were not fully earned because the contractual conditions were not realized.  Because of California’s strong public policy protecting wages, the employer’s right to recoup advance commissions requires proving the parties agreed to these specific conditions before a commission is “earned” and to the employer’s right to recoup the advance under the stated commissions.  However, once the express contractual conditions are satisfied and the commission is “earned,” it is considered a wage and the employer cannot recoup the commission once paid to the employee.   

In this case, a California court of appeal affirmed the jury’s conclusion the employer had violated Labor Code section 221 and constructively terminated its employee by attempting to recoup commissions the employee had earned as a result of the employer’s assignment error.  Significantly, the employer conceded the employee had satisfied all the express contractual conditions to earning the commission but contended the employee should not have been assigned to this account initially under the employer’s assignment guidelines.  The appellate court reaffirmed an employer’s general ability to contractually identify the criteria for “earning” a commission or for recouping an unearned advance, but noted this employer’s plan did not specify the employer could deduct amounts from an employee’s wages based on the employer’s clerical error in the account assignment process.  And absent such express contractual provisions, the employer was not entitled to unilaterally declare that the commission was not earned and use self-help measures to deduct funds from wages that had already been paid to the employee. 

Following a lengthy analysis, the court also rejected the employer’s federal preemption arguments, noting that the employee’s claims were governed by state law (Labor Code section 221) and did not require interpreting the collective bargaining agreement, and the agreement’s provisions would be unenforceable to the extent they violated Labor Code section 221.  The appellate court also found no reason to second guess the jury’s conclusion the employer’s unlawful efforts to recoup nearly $36,000 in previously paid commissions constructively discharged the employee.  In an unpublished portion of the opinion, the appellate court upheld the nearly $300,000 attorneys’ fees award in obtaining the $36,000 verdict.  (Sciborski v. Pac. Bell Directory (2012) 205 Cal.App.4th 1152.)

Not All Efforts to Recoup Commission Are Unlawful
In another case regarding “charge backs” and commissions, a different California appellate court upheld summary judgment for an employer when it determined that a chargeback provision in the employer's compensation plans did not violate the Labor Code.  The commission policy legally allowed for the recovery of advance commission payments to its retail sales representatives before completion of all conditions for payment.  In short, the commission exemption applied to the charge backs in this case.

In addition to the prohibitions of Labor Code section 221, Labor Code section 223 states that when a contract requires an employer to pay a certain wage, it is “unlawful to secretly pay a lower wage” than designated in the contract. Under the Labor Code, “wages” includes “all amounts for labor performed by employees … whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” Sales commissions are wages. But, the right to commissions depends upon the terms of the contract for compensation. Contractual terms must be met before an employee is entitled to commissions.

This case involved the sale of cell phone service plans.  The plaintiff’s compensation plan explained that commissions were paid in advance, but not earned until the expiration of a chargeback period during which the customer may cancel the service.  The chargeback provision did not affect base pay. The compensation plans explained that if a customer disconnected service during the chargeback period, the employee's future commission advances would be reduced by the original amount advanced for the sale.

The employer showed its chargeback policy did not violate section 223 because: (1) Plaintiff’s commission payments were advances based on commissioned sales, not wages; (2) the chargeback policy was explicitly set forth in the compensation plans and was not a “secret” underpayment (in violation of Section 223) of a lower than agreed-upon wage; and (3) the chargeback provision did not result in a payment of a lower wage than the wage designated in the compensation plans.

Since the conditions were satisfied, the employer was entitled to charge back excess advances.  This case is an example of how a clearly defined and operated commission plan utilizing recovery of advancements can be successfully defended by an employer. (Deleon v. Verizon Wireless (2012) ___Cal.App.4th ___, 2012 Cal. App. LEXIS 792.)

Electronically Filed DFEH Charge Sufficiently Exhausts Administrative Remedies

Before filing a civil suit under California’s Fair Employment and Housing Act (FEHA), a plaintiff must exhaust his or her administrative remedies by filing a verified complaint with the Department of Fair Employment and Housing (DFEH) and obtaining a right-to-sue letter.  In this case, a California court of appeal held the complaint filed by an employee’s attorney, but not actually signed by the employee or the attorney, using the DFEH’s online automated system was sufficient under FEHA.  The court noted California law already permits an attorney to sign for an employee, and the DFEH’s regulations do not require online verified complaints to be signed at all since completed under penalty of perjury.  Thus, since California law already permits attorneys to complete and sign the DFEH charge for their clients, and since the DFEH does not require any signature for on-line charges, there was no reason to preclude attorneys from completing an on-line charge on their client’s behalf.  (Rickards v. United Parcel Service, Inc. (2012) ___ Cal.App.4th ___, 2012 Cal.App.LEXIS ___.)

Employer Waives Right to Compel Arbitration by Unreasonably Delaying Enforcement Efforts

As discussed in prior newsletters, employment arbitration agreements are generally enforceable but are almost always challenged and are frequently invalidated for failure to comply with California law.  In this putative wage and hour class action, a California court of appeal concluded the employer had waived the right to enforce its arbitration agreement by actively litigating the matter for fifteen months before attempting to compel arbitration.  The appellate court observed the employer’s litigation tactics, many of which prejudiced plaintiffs and/or afforded it rights it would not have in arbitration, seemed more akin to a policy of delay rather than seeking the more expeditious resolution generally afforded through arbitration.  The court also concluded this broadly worded arbitration provision did not mention and thus would not apply to non-waivable statutory claims arising under the California Labor Code.  (Hoover v. American Income Life Ins. Co. (2012) ___ Cal.App.4th __, 2012 Cal.App.LEXIS ___.)

Disgruntled Former Employee SLAPP’s Employer’s Defamation Claim Regarding On-Line Disparaging Opinions

A bank filed a defamation action against a former Vice President for disparaging statements made on Craigslist.org’s “Rants and Raves” section.  The employee moved to strike the complaint under the anti-SLAPP provisions of Code of Civil Procedure section 425.16, alleging that his statements were constitutionally protected free-speech and that the Bank was unlikely to prevail on its defamation claim.  The Bank argued that the speech was not protected because (1) it was illegal as a matter of law under Financial Code section 1327 which makes derogatory statements about a bank criminal conduct, and (2) the statements were not regarding a matter of public interest and were merely the “musings of a disgruntled former employee about private matters.”   

The court of appeal rejected the Bank’s first argument, holding that Financial Code section 1327 was unconstitutionally vague and overbroad, and an impermissible content-based restriction.  The court likewise rejected the Bank’s second argument, holding that such statements, whether on the broad topic of the financial stability of the country’s banking system, or on the narrow topic of the bank and its personnel and activities, are of considerable public interest and therefore protected activity.

Finally, the court held that the Bank was not likely to prevail on its defamation claim because the former employee’s statements were non-actionable opinion.  In so holding, the court emphasized the context in which the statements were made, i.e. anonymous posts on an online forum entitled “Rants and Raves.”  The court reasoned that readers of the statements “should be predisposed to view them with a certain amount of skepticism, and with an understanding that they will likely present one-sided viewpoints rather than assertions of provable facts,” and noted that other California courts have recognized that “online blogs and message boards are places where readers expect to see strongly worded opinions rather than objective facts.”  (Summit Bank v. Rogers (2012) ___ Cal.App.4th ___, 2012 Cal.App.LEXIS ___.)

Employee’s Insubordination Constitutes “Misconduct” Disqualifying Employee from Unemployment Insurance Benefits  

In a somewhat rare event, the California court of appeals both issued guidance on what constitutes misconduct under Unemployment Insurance Code section 1256, and concluded an employee had actually engaged in such misconduct to disqualify himself from receiving unemployment insurance benefits.  In this case, the employee refused to sign a disciplinary notice even though the collective bargaining agreement required all disciplinary notices be signed by employees, and the notice specified the employee’s signature only acknowledged receipt of, not agreement with, the notice.  The employer terminated the employee for insubordination and thereafter contested the employee’s right to unemployment compensation on the grounds that he had engaged in misconduct as defined by Unemployment Insurance Code section 1256. 

The court of appeal agreed, holding that the employee’s actions constituted misconduct under section 1256.  The court held that the employee’s failure to sign the disciplinary memorandum constituted an intentional refusal to obey an employer’s lawful and reasonable directive, thus violating Labor Code section 2856 which requires employees to substantially comply with all lawful employer directives.  The court further held that the refusal to sign could not be considered a good faith error of judgment because even if the union president did tell the employee not to sign anything, the employee was not entitled to rely on that erroneous advice.  To hold otherwise, the court of appeal explained, would allow a union to insulate its members from adverse employment actions by giving them faulty advice that they need not comply with their employer’s directives.  The court also held that the employee had presented no evidence that he had any reason to doubt the honesty of his employer’s assurances that his signature would not constitute an admission of guilt.  (Paratransit, Inc. v. Unemployment Ins. Appeals Bd. (2012) ___ Cal.App.4th ___, 2012 Cal.App.LEXIS ___.)

(NOTE: Although this case suggests that employees may not only be terminated for refusing to sign a disciplinary notice, but may also be disqualified from receiving unemployment benefits, employers should be cautious as the holding may be limited to the unique circumstances involving a provision in the collective bargaining agreement requiring the employee to sign a disciplinary notice.) 

Labor Code Section 206.5 Does Not Preclude Enforcement of an Arbitration Agreement Related to a Wage Dispute

Labor Code section 206.5 prohibits employers from requiring an employee to execute a release of a claim or right on account of wages due, unless payment of the undisputedly owed wages is made, and it expressly invalidates any release that violates this section.  In this latest salvo in the arbitration war, an employee argued Labor Code section 206.5 rendered unenforceable an arbitration provision regarding a wage-related dispute because the employer allegedly owed wages to the employee when the arbitration agreement was executed.  Specifically, the employee argued the employer fraudulently induced him to accept the original employment offer, and several months later, told the employee he would forfeit any claim for an allegedly-promised equity interest unless he signed a second employment agreement containing the arbitration provision for all future disputes.  The trial court held Labor Code section 206.5 rendered the second agreement, including the arbitration provision, unenforceable, but the court of appeal disagreed.

Preliminarily, notwithstanding the agreement’s provision that an arbitrator, rather than the court, would determine the agreement’s enforceability, the appellate court held the employer had waived this argument by not raising it with the trial court in its original motion to compel arbitration.  However, the appellate court also held that Labor Code section 206.5 did not render the arbitration agreement unenforceable.  The court reasoned that while section 206.5 would preclude the employer from forcing the employee to release his wage-related claims, it did not preclude the employee from waiving his right to a jury trial regarding the wage-related claims.  In short, the court narrowly interpreted section 206.5 and held it applies to wage-related releases, but it does not act as a limit on the enforceability of arbitration provisions.  In this regard, the arbitration agreement did not constitute a waiver of the wage-related claims themselves, but simply a pre-determination where these wage-related claims would be heard.  Somewhat interestingly as well, the court suggested that even if the second employment agreement had violated section 206.5, this would not invalidate the separate arbitration provision, suggesting it would have compelled arbitration and then allow the employee to challenge the invalid release in the arbitration proceedings.  (Pulli v. Pony Int’l, LLC (2012) ___ Cal.App.4th ___, 2012 Cal.App.LEXIS ___.)

(NOTE: this was a favorable result for this employer, and potentially employers generally to the extent it removes yet another potential defense to the enforcement of employment disputes, including for wages owed.  However, employers should note that the court expressly noted that its holding applied only to Labor Code section 206.5, and did not preclude the employee from raising other objections to an arbitration provision executed under similar circumstances [e.g., unconscionability, duress, etc.].  In fact, the court did not address any of the frequently-asserted unconscionability objections, including those often raised regarding so-called non-waivable statutory claims such as Labor Code provisions applicable to wa