California

DLSR Announces Increase in Computer Professional Salary for Exemption Purposes

Labor Code section 515.5 provides that certain software employees are exempt from overtime requirements if certain criteria are met, including the performance of statutorily-enumerated duties and the employee’s hourly rate of pay is not less than the statutorily-specified rate.  The Division of Labor Statistics and Research (DLSR) is responsible for annually reviewing this salary to determine if any adjustments are needed for the following year, and usually makes such determination by the end of October.  On October 24, 2012, the DLSR adjusted the computer software employee’s minimum hourly rate of pay exemption from $38.89 to $39.90, the minimum monthly salary exemption from $6,752.19 to $6,927.75, and the minimum annual salary exemption from $81,026.25 to $83,132.93, effective January 1, 2013.

Federal

NLRB Issues Two Advice Memos Upholding “At Will” Provisions in Employer Handbooks

Section 8 of the National Labor Relations Act prohibits employers from developing work rules or policies that would “reasonably chill employees in the exercise of their Section 7 rights” (i.e., to engage in concerted activity).  Earlier this year, the National Labor Relations Board (NLRB) attracted considerable attention when one of its administrative law judges in American Red Cross Arizona Blood Services Region held the employer had violated Section 8 by maintaining an overly broad at-will provision.

In response to this scrutiny and numerous employer inquiries, the NLRB’s Acting General Counsel has published two advice memorandums upholding two fairly standard at-will provisions.  Both memorandums reiterate the criteria the NLRB will utilize in assessing whether an employer policy or rule violates Section 8, with the threshold issue being whether the rule or policy expressly restricts Section 7 activities.  If there is no express restriction, the rule or policy will only violate Section 8 if it (1) was promulgated in response to union activity; (2) the rule or policy has been applied to restrict the exercise of Section 7 rights; or (3) employees could reasonably construe the rule/policy to prohibit Section 7 rights.

Applying this standard, the NLRB concluded neither of the at-will disclaimers addressed in the Advice Memos expressly or implicitly violated Section 8.  Both disclaimers stated that employment would be at-will, and both stated that no managers had the authority to enter into agreements contrary to this relationship, while the second disclaimer also stated that only the president of the company could modify the at-will relationship.  In both instances, the NLRB’s General Counsel noted these provisions did not expressly preclude Section 7 rights, and there was no evidence these at-will provisions had been applied to restrict Section 7 rights or had been promulgated in response to union activity.

Finally, the NLRB’s General Counsel concluded that no employees would reasonably construe these provisions to restrict Section 7 activity.  The NLRB noted both provisions were fairly standard provisions intended to memorialize at-will relationships and to help defend against subsequent implied contract claims.  The NLRB also noted that the provisions did not require employees to refrain from seeking to change their at-will status, including potentially through concerted activity, or to agree that their at-will status could never be changed in any way.  In fact, the second disclaimer specifically authorized the employer’s president to enter into written agreements modifying the at-will relationship, thus encompassing the possibility of concerted-activity to modify the at-will relationship through a collective bargaining agreement modified by the president.  The NLRB’s General Counsel specifically distinguished the at-will language that had attracted the NLRB’s attention, noting it required the employee to personally agree that the at-will relationship could never be changed “in any way,” thus arguably reflecting an advance waiver of the employee’s ability to advocate concertedly.

Whether the NLRB actually intends to apply such fine distinctions or simply issued these Advice Memos to put out a firestorm inadvertently started by one of its ALJ’s remains to be seen.  For now, these Advice Memos confirm the NLRB does not intend to challenge all at-will provisions, and they provide some guidance on at-will language employers may use without violating the NLRA.  The NLRB’s press release and the full text of the Advice Memorandum are available at: www.nlrb.gov/advice-memos-find-will-clauses-two-employee-handbooks-are-lawful.

EEOC Issues Questions and Answers Concerning Title VII and the ADA Issues for Victims of Domestic Violence, Sexual Assault or Stalking

The Equal Employment Opportunity Commission (EEOC) has recently publishedQuestions and Answers: The Application of Title VII and the ADA to Applicants or Employees Who Experience Domestic or Dating Violence, Sexual Assault, or Stalking. (www.eeoc.gov/eeoc/publications/qa_domestic_violence.cfm).  The EEOC acknowledges that federal EEO laws do not prohibit discrimination or retaliation against applicants or employees who are victims of such criminal activity.

However, the EEOC also expresses concern that since these items are not directly addressed in the federal laws, employers may overlook how their employment decisions regarding such victims may otherwise implicate federal EEO laws.  Accordingly, the EEOC provides examples of employer actions (or inactions) regarding such victims might violate Title VII or the Americans with Disabilities Act (“ADA”).  For example, the EEOC notes an employer may violate Title VII’s prohibition on sex-based stereotypes by refusing to hire or terminating female victims who might bring “drama” into the workplace, or by allowing male employees to use unpaid leave for court appearances but not allowing female employees to do so.  The EEOC also notes that an employer may violate Title VII’s retaliation provisions if it takes adverse employment actions against a female employee who reports an assault by a co-worker.  The EEOC also provides examples of how employers may violate the ADA, including by not hiring a crime victim who suffered depression as a result, or by refusing to reassign a crime victim to an available vacant position as a potential accommodation to avoid interaction with their attacker.

NOTE:  As a reminder, while federal EEO laws do not currently cover these items, California has enacted a number of statutory protections for victims of domestic assault and stalking.  (See e.g., Labor Code §§ 230 et seq.)  The EEOC’s publication of this document may also signal its enforcement priorities and/or potential future legislation at the federal level.  In that regard, the California legislature recently considered but did not pass a bill (AB 1740) that would have amended FEHA to prohibit discrimination against victims of domestic violence, sexual assault or stalking, and similar legislation may be reintroduced in 2013.  

DOL Unveils Workplace Flexibility Toolkit

One of the emerging employment trends is so-called “workplace flexibility,” which is designed to balance the needs of employers and employees, including how, when, and where work is performed.  The Department of Labor (DOL) has recently published a new Workplace Flexibility Toolkit, which is available at www.dol.gov/odep/workplaceflexibility.  Developed in conjunction with the Office of Disability Employment Policy and the Women’s Bureau, this toolkit contains over 170 resources on workplace flexibility, including case studies, fact and tip sheets, issue briefs, reports and frequently-asked questions.

JUDICIAL

California

Kronos Time Rounding System Raises Question of Fact As To Whether Employees Received Full and Accurate Compensation

In a case that originated in San Diego Superior Court, defendant See’s Candy, in part, sought to defend its right to  round employee time punches to the nearest tenth of an hour. See’s utilized the Kronos timekeeping software system.  Its policy rounds employee time punches to the nearest tenth of an hour.  For instance, if an employee punches in at 7:58 a.m., the system rounds the time to 8:00 a.m.  Similarly a punch at 8:02 is rounded down to 8:00 a.m.

See’s  has a separate “grace period” policy where employees whose schedules are programmed into the system can punch in ten minutes early, or punch out up to ten minutes late, but are not allowed to work during those ten minutes [i.e., the employee has ten minutes of “personal time” during the punched grace period.]

The trial court certified a class of current and former non-exempt employees who may have suffered a loss of compensation due to the rounded time policies and/or due to clocking in or out during the grace period.  See’s asserted affirmative defenses, including that its rounding policy is consistent with state and federal laws permitting employers to use rounding for purposes of computing and paying wages and overtime and that the rounding policy did not deny the class members full and accurate compensation.  Plaintiff moved for summary adjudication on those affirmative defenses arguing there is no statutory or case authority allowing See’s to use a rounding policy and that this policy violated Labor Code sections 204 (requiring payment of wages every two weeks” and 504 (requiring premium wages after eight hours per day or 40 hours per week).

The Fourth District Court of Appeal rejected all of plaintiff’s contentions and reversed summary judgment that had been granted in plaintiff’s favor on these two affirmative defenses.  Initially, the court found the Department of Labor regulations permit employers to use a rounding policy for recording and compensating employee time as long as the policy does not “consistently result in a failure to pay employees for time worked.”  California’s DLSE has adopted this regulation in its manual.  The court found this policy consistent with California’s employee-protective policies and concluded that if a rounding-over-time policy is neutral, both facially and as applied, the practice is proper under California law because its net effect is to permit employers to efficiently calculate hours worked without imposing any burden on employees.  The court also noted that rounding policies are used by employers across the country and California employers should not be precluded from rounding time punches.  Such practices are allowed so long as they will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked." 

The court noted that See’s had offered evidence showing a net benefit to employees using the time rounding system, and that while Plaintiff’s expert reported  a net loss, Plaintiff’s expert had assumed that work always took place during employees grace period punches.  Because there were disputed facts regarding both the net benefit and/or loss to employees, and whether or not employees worked during their punched “grace period.” summary adjudication was improper.

Employers using time-rounding policies can expect continued wage and hour litigation challenging whether employees are paid for all time worked when wages are calculated using time rounding to calculate work time. Evidence of “net benefit” or zero loss to employees will be helpful in defending against such claims.  (See's Candy Shops, Inc. v. Superior Court, 2012 Cal. App. LEXIS 1132 (Cal. App. 4th Dist. Oct. 29, 2012).)

Appellate Court Concludes Narrowly-Drafted Arbitration Provision Inapplicable to Labor Code Claims

As mentioned many times in this newsletter, the California Supreme Court has upheld the enforceability of mandatory arbitration agreements in the employment context provided certain prerequisites are met, and California law expressly favors arbitration as a means to resolve disputes.  The practical reality, however, is employees, though their attorneys routinely challenge the agreements the employees signed, and some courts appear to apply an overly-narrow view towards enforcing these agreements, and this case arguably is the most recent example of this overly-narrow view.

In this wage and hour class action, drivers alleged they had been misclassified as independent contractors and asserted numerous Labor Code claims.  In a 2-1 ruling, the appellate court refused to enforce the parties’ arbitration provision on the grounds it did not apply to these particular claims.  The court noted the provision, as drafted, only applied to disputes regarding the “application or interpretation” of the parties’ independent contractor agreement.  However, following a recent ninth circuit decision (Narayan v. EGL, Inc. (9th Cir. 2010) 616 F.3d 895, 899), the court concluded the asserted Labor Code claims did not arise out of an “interpretation” of this agreement, but instead were statutory in nature and arose from the Labor Code itself.  In a strongly-worded opinion, the dissent concluded this dispute squarely fell within the language of the arbitration provision and the parties’ intent to arbitrate all disputes regarding the independent contractor agreement.  (Elijahjuan v. Superior Court (ex rel. Mike Campbell & Assocs., Ltd.) (2012) ___ Cal.App.4th ___, 2012 Cal.App.LEXIS 1080.)

NOTE: this case underscores the need for careful drafting regarding any arbitration provision given the likelihood it will be subject to judicial scrutiny before enforcement.

Appellate Court Declines to Compel Arbitration against Employee who did not Sign Arbitration Agreement

In this wrongful termination suit, the employer moved to compel arbitration against its former human resources director who had resigned prior to signing the newly-unveiled arbitration agreement.  The employer argued the former employee should be compelled to arbitrate even though she had not signed the agreement, both because she had been in charge of obtaining such signatures and had misled the employer in believing she had signed it or, alternatively, she had impliedly agreed to arbitrate by continuing to work for several months.  The appellate court refused to compel arbitration finding there was no evidence this employee had expressly or impliedly agreed to arbitrate.

The court began its analysis noting arbitration is contractual in nature, and there was no basis to find an express intent to arbitrate since the employee had not signed the written agreement.  The court expressed concerns about this employee’s deceptive behavior in creating the misperception she had previously signed the agreement, but noted the employer had failed to demonstrate it had detrimentally relied upon this misperception (i.e., it had failed to show it would have terminated her if it had known she had not signed the agreement).  The court also rejected the employer’s contention the employee had impliedly consented to arbitration by continuing to work for some time after the arbitration program was unveiled.  The court noted the employer’s written insistence that employees would need “to sign” the new agreement suggested the agreement needed to be mutual, and undercut its current position that arbitration was a unilateral offer an employee could implicitly accept simply by continuing to work.  (Gorlach v. The Sports Club Co. (2012) ___ Cal.App.4th ___, 2012 Cal.App.LEXIS 1074.)

Applying Brinker, Another Appellate Court Concludes Class Certification Inappropriate for Meal and Rest Period Claims

Earlier this year, the California Supreme Court issued its long-awaited ruling inBrinker Restaurant Corp. v. Superior Court regarding an employer’s obligation to provide meal periods.  Although seemingly a favorable result for employers, many were waiting to see how appellate courts would apply Brinker on the numerous class actions either then pending or that were remanded followingBrinker.  As discussed in prior newsletters, so far the results have generally been favorable.  (See e.g., Flores et al. v. Lamps Plus, Inc. (2012) 209 Cal.App.4th 35 [discussed in September 2012 Newsletter; affirming denial of class certification in meal period class action post-Brinker on grounds individual issues predominated regarding why particular employees did not take meal period offered by employer].)

This month, another appellate court has similarly concluded individual issues predominated and precluded class certification of meal and rest period violations.  Regarding meal periods, the appellate court observed the trial court’s findings “that individual questions of proof predominated coincide with the common sense notion that the reasons any particular employee might not take a meal period are more likely to predominate if the employer need only offer meal periods, but need not ensure employees take their meals.” Similarly, regarding rest periods, the court observed employers need only provide such breaks and thus, liability will arise only if its written policy directly violates the law or its policy is in name only but unobserved in practice.  The court concluded the employer’s written policy complied with the law and since there were no time records indicating whether such breaks were actually taken or not taken (since the breaks are paid), individual questions would again predominate.  Not surprisingly either, perhaps, the court concluded individualized questions would predominate whether any individual employee suffered “actual injury” due to pay stubs that allegedly did not comply with Labor Code section 226.  (Tien v. Tenet Healthcare Corp. (2012) 209 Cal. App.4th 1077.)

(NOTE: this decision continues the favorable trend post-Brinker, but in light of the weight afforded by the court to the meal and rest periods as written, it underscores the importance of promulgating and enforcing a comprehensive meal and rest break policy.  As discussed in the October 2012 Newsletter, a new law (SB 1255) takes effect January 1, 2013 and concludes employees are deemed to have suffered actual injury under Labor Code section 226 if certain statutorily-enumerated violations occur.  It remains to be seen whether this new law will make it easier for employees to pursue class actions for wage statement violations.)

Appellate Court Concludes Trial Court Properly Refused to Use “Mixed-Motive” Jury Instruction in FEHA Pregnancy Discrimination Case

A hotly-debated topic, and one that is presently being reviewed by the California Supreme Court (Harris v. City of Santa Monica (S181004)), involves the standard of causation for proving liability in FEHA discrimination cases.  Specifically, must the plaintiff prove an adverse employment action was “because of” their protected characteristic (i.e., their race or gender was the “but for” cause of the challenged action) or must they demonstrate only that this characteristic was a “motivating factor” in the decision (i.e., their race or gender contributed to the challenged action along with other contributing factors).  Assuming the “motivating factor” standard governs in FEHA cases, a related issue is whether employers may use the “mixed motive” affirmative defense (originally contained in BAJI instruction 12.26 but omitted from updated CACI instructions) to demonstrate it would have made the same decision even in the absence of a discriminatory or retaliatory motive.  As mentioned, the California Supreme Court is presently reviewing these issues, and the matter has been fully briefed although not orally argued and a decision is expected in 2013.

In the meantime, a recent appellate court decision highlights the potential dispositive impact of these seemingly arcane causation standard instructions.  In this case, an employee terminated upon return from maternity leave sued for FEHA pregnancy discrimination, while the employer argued it terminated the employee for performance issues and insubordination, most of which was discovered during the maternity leave.  After the trial court concluded plaintiff need only demonstrate her pregnancy was a “motivating factor” rather than the “but for factor,” the jury ruled in her favor.  The appellate court affirmed, concluding that until the California Supreme Court holds otherwise in Harris, plaintiffs in FEHA actions need only demonstrate their protected criterion was a motivating factor in the challenged action.

The appellate court also concluded the trial court had properly decided not to utilize the mixed motive affirmative defense instruction in that case since the employer had consistently argued the employee’s pregnancy had not played any role in the termination decision.  In other words, there was no need to instruct about possible “mixed motives” to determine which motive ultimately prevailed, since this employer had argued it had only a single motive (i.e., a lawful one) throughout.  (Alamo v. Practice Mgmt Information Corp. (2012) ___ Cal.App.4th ___, 2012 Cal. App. LEXIS 1086.)

Appellate Court Upholds Stipulated Injunction Not To Solicit Former Customers

An employer sued two former employees for trade secret misappropriation, and the parties resolved that matter with the former employees agreeing they would not contact any customers identified in the settlement agreement for five years, and agreeing to have judgment entered against them if they violated the settlement agreement.  The former employees disregarded these written promises by contacting specifically-identified former customers, but contended the stipulated judgment not to solicit the customers involved an invalid restraint on trade (i.e., an unenforceable covenant not to compete).   

In a somewhat unique procedural scenario, the appellate court rejected this argument and concluded the former employees had failed to establish the trial court lacked the ability to originally enter or subsequently enforce the stipulated injunction against solicitation.  The court noted the general rules precluding covenants not to complete, but noted an exception existed involving protectable trade secrets and that customer lists may qualify as trade secrets if they have independent economic value (i.e., they reflect actual customer preferences and orders as opposed to simply embodying information readily ascertainable through public sources such as business directories).  The court concluded these former employees had failed to demonstrate the agreed-to list of customers in the settlement agreement was not a trade secret, which they needed to do since they were challenging the enforceability of the injunction.  The court also noted that “fundamental fairness and common sense” precluded these former employees from agreeing not to solicit certain customers to resolve the first trade secret lawsuit, and then breach the settlement agreement and claim the agreed-to customer list did not constitute trade-secret information.  (Wanke, Industrial, Commercial, Residential, Inc. v. Keck (2012) 209 Cal. App.4th 1151.)

Court Of Appeals Certifies Newspaper Carrier / Independent Contractor Class

A group of newspaper home delivery carriers filed a class action against the newspaper publisher alleging they were misclassified as independent contractors and, thus, denied various benefits, including overtime and meal and rest periods, otherwise owed to employees.  The publisher argued the carriers were properly classified as independent contractors, pointing in part to the written agreement identifying them as such, and that individualized questions as to each individual’s status precluded the commonality needed for class action purposes.  The trial court denied class certification, but the appellate court reversed, holding the independent contractor-employee issuecould be resolved on a class wide basis. 

The court of appeal found a sharp distinction with how individuals performed their work with questions germane to class certification  “…because all of the carriers perform the same job under virtually identical contracts, those variations [in performance] simply constitute common evidence that tends to show AVP's lack of control over certain aspects of the carriers' work…”  The court also observed:

Similarly, the so-called “secondary factors” that must be considered when determining the primary issue in this case — whether AVP improperly classified the carriers as independent contractors rather than employees — also may be established for the most part through common proof, since almost all of those factors relate to the type of work involved, which is common to the class. Therefore, we hold the trial court erred in finding that the independent contractor-employee issue is not amenable to class treatment. 

The court focused heavily on the defendant’s right to control its workers, noting that there was evidence (indicating a question of fact) that defendant instructed drivers how and where to drive their delivery routes, monitored performance through customer complaints, made deductions through pay, relayed customer requests regarding delivery,  required a submission of invoices, conducted of routine field inspections, instructed carriers how to fold newspapers, and set mandatory times for paper pick up.

However, although the court found the independent-contractor-employee issue amendable to class treatment, it concluded post-Brinker that individualized questions would predominate on the meal and rest period issues and it denied class certification on those claims.  (Ayala v. Antelope Valley Newspapers, Inc. (2012) ___ Cal.App.4th ___, 2012 Cal. App. LEXIS 1083.)

Supreme Court Review in 30 Minutes or Less

In Patterson v Domino’s Pizza, the appellate court held a franchisor may be held liable under the Fair Employment and Housing Act for acts taking place in a franchisee's place of business (e.g., sexual harassment).  The California Supreme Court has granted the franchisor’s petition for review to determine whether a franchisor may be vicariously liable for tortious conduct by a franchisee’s supervising employee.  Franchisors and franchisees will certainly be watching with interest.  Opening briefs are due in December of this year, and there may be a long wait before this issue is resolved.