California
As we approached the June 3, 2011 deadline for legislation to pass the initial chamber of origin fast approaching, the legislative picture began coming into focus as a number of employment-related bills passed the first chamber and moved to the second chamber. As a practical matter, bills that passed this first crucial vote have a sizable likelihood of passing the second chamber given the current single-party control in the Legislature, and most will likely make it to the Governor's desk for signature or veto. Indeed, one bill that would alter the process for selecting union representation for agricultural workers (SB 104 – discussed below) has already passed both chambers and has been sent to the Governor for enactment or veto.
Below is a quick recap on the status of some of the employment-related bills we are monitoring:
Governor Considering Bill Allowing "Card Check" to Replace Secret Ballot Elections for Agricultural Employees (SB 104)
California law currently requires secret ballot elections for employees in agricultural bargaining units to select labor organizations to represent them for collective bargaining purposes. This bill would permit agricultural employees, as an alternative procedure, to select their labor representatives by submitting a petition to the Agricultural Labor Relations Board signed by a majority of the bargaining unit. This bill has passed both the Assembly and the Senate and Governor Davis is considering whether to sign or veto it. A similar bill (SB 1474) was vetoed in 2010.
Bill Limiting Credit Checks in Employment Decisions Passes Assembly (AB 22)
This bill would prohibit employers, other than certain financial institutions, from obtaining consumer credit reports for employment purposes unless (1) the information is substantially job-related, meaning that the person for whom the report is sought has access to financial or confidential information, or (2) the position at issue is in the state Department of Justice, a managerial position, that of a sworn police officer of other law enforcement position or a position for which the law requires the employer to obtain this type of information.
Similar versions of this bill passed the California Legislature in 2008, 2009 and 2010 but were vetoed by the then-Governor Schwarzenegger. This history suggests this bill will again pass the Legislature and advance to Governor Brown's office for signature or veto.
Assembly Passes Bill Prohibiting Mandatory Use of E-Verify (AB 1236)
This bill would prohibit the state of California, or a city, county, city and county or other special district from requiring an employer other than one of these government entities to use the federal E-Verify system, except when required by federal law or as a condition of receiving federal funds. A similar version of this bill (AB 1288) passed the Legislature in 2009 but was vetoed by then-Governor Schwarzenegger. (The Assembly's passage of this bill prohibiting the mandatory use of E-Verify is interesting and timely given the United States Supreme Court decision in Chamber of Commerce v. Whiting (discussed below) upholding Arizona's state law requiring employers use E-Verify).
Bill Increasing Penalty for Minimum Wage Violations Passes Assembly (AB 197)
Labor Code section 1194.2 presently authorizes an employee to recover liquidated damages equal to the amount of wages unlawfully unpaid in minimum wage violations. This bill would increase the amount of liquidated damages that may be awarded to twice the amount of wages unlawfully unpaid, plus interest. A similar version (AB 1881) was vetoed in 2010.
Bill Increasing Time for Employers to Respond to EDD Notices Passes Assembly (AB 274)
This bill would provide employers 30 days, rather than the current 10 days, to submit information to the Employment Development Department concerning an employee's request for unemployment insurance benefits.
Bereavement Leave Bill Passes Assembly (AB 325)
This bill would allow employees to take up to four days of unpaid bereavement leave within a thirteen month period following the death of a spouse, child, parent, sibling, grandparent, grandchild or domestic partner, and authorize civil actions for violations of this new leave right. In 2010, Governor Schwarzenegger vetoed a prior version of this bill proposing three days of unpaid bereavement leave.
Bill Prohibiting CFRA-Related Interference Passes Assembly (AB 592)
California's Family Rights Act (CFRA) and Pregnancy Disability Leave (PDL) prohibit employers from refusing to grant leave to an eligible employee for certain statutorily enumerated reasons (e.g., to care for a family member with a serious health condition under CFRA, to take leave on account of pregnancy under PDL, etc.). This bill would amend CFRA and the PDL to make it an unlawful employment practice for an employer to interfere with, or restrain the exercise or attempted exercise of any right provided to an employee under these provisions.
This bill would essentially codify in CFRA and the PDL the Family Medical Leave Act's (FMLA) prohibition on employer "interference" with FMLA leave rights. [See e.g., 29 U.S.C. § 2615(a)(1) ("it is unlawful for any employer to interfere with, restrain, or deny the exercise of or the attempt to exercise" substantive rights guaranteed by the FMLA.)
Senate Passes Bone Marrow/Organ Donation Leave Amendments (SB 272)
Last year, the Governor signed into law Labor Code section 1510 which entitles employees up to five days paid leave in a one-year period for bone marrow donations and up to 30 days paid leave in a one-year period for organ donations. This bill would amend Labor Code section 1510 to clarify that the days of leave are "business" days rather than calendar days (e.g., five "business" days for bone marrow donations), and that the one-year period is measured from the date the employee's leave begins and consists of 12 consecutive months. This bill would also specify that such a leave would not constitute a break in the employee's continuous service for purpose of his or her right to "paid time off" (in addition to the sick and vacation entitlement already enumerated in the statute).
Bill Would Require Employers to Maintain Insurance Coverage during Pregnancy-Related Leaves (SB 299)
Government Code section 12945 currently prohibits employers from refusing employees disabled by pregnancy, childbirth or a related medical condition to take up to four months leave from work. This bill would prohibit employers from refusing to maintain and pay for coverage under a group health plan for an employee who takes such qualifying leaves. However, the employer would potentially be entitled to recover from the employee the premiums paid if the employee failed to return to work after the leave expires unless the employee qualified for one of the bill's identified statutory exceptions.
Assembly Passes Bill to Revise Attorney's Fees Awards in Small Employment Cases (AB 559)
California's Fair Employment and Housing Act (FEHA) grants trial courts discretion to award reasonable attorney's fees to a prevailing party, but Code of Civil Procedure section 1033 also provides the court discretion to limit fees when the prevailing party receives a judgment less than what could have been awarded in a limited civil case ($25,000). In 2010, the California Supreme Court held in Chavez v. City of Los Angeles (2010) 47 Cal.4th 970 that a trial court has discretion in a FEHA case to deny a successful plaintiff attorney's fees if the plaintiff proceeds in unlimited civil court but recovers less than the $25,000 jurisdictional minimum. (In Chavez, the court denied a nearly $900,000 attorney's fees request in a FEHA discrimination case in part because the plaintiff only recovered $10,000 in damages.)
This bill would nullify Chavez and provide that Code of Civil Procedure section 1033.5 shall not apply to FEHA actions, meaning FEHA plaintiffs recovering small monetary awards might still recover attorneys' fees awards that dwarf the amount recovered by plaintiff.
Gender Identity and Expression Protections Proposed for FEHA (AB 887)
The Fair Employment and Housing Act (FEHA) presently prohibits discrimination or harassment against individuals because of "sex," which is defined to include gender, and through its incorporation of Penal Code section 422.56, gender identity and behavior. This bill would amend FEHA to specifically identify "gender, gender identify and gender expression" as characteristics protected under FEHA. It would also require employers to allow an employee to appear or dress consistently with the employee's gender expression (along with gender identity presently required). "Gender expression" would be defined as "a person's gender-related appearance and behavior whether or not stereotypically associated with the person's assigned sex at birth."
Talent Agency Discrimination Protections Pass Assembly (AB 1364)
Labor Code section 1700.47 presently prohibits talent agencies from discriminating against an artist because of the artist's race, color, creed, sex, national origin or handicap. This bill would expand the list of criteria based upon which a talent agency may not discriminate to be fully consistent with those identified in the Fair Employment and Housing Act (e.g., adding ancestry, marital status, age, sexual orientation and changing "handicap" to mean physical disability, mental disability and medical condition).
Senate Passes Genetic Discrimination Prohibitions for FEHA and Unruh Act (SB 559)
This bill would amend the Unruh Civil Rights Act (Civil Code § 51 et seq.) and FEHA, as well as other statutory anti-discrimination provisions (e.g., contained in the Education Code, etc.), to prohibit discrimination on the basis of "genetic information" as defined in the bill.
Bill Targeting Non-California Choice of Law and Forum Provisions Passes Assembly (AB 267)
This bill would prohibit employment contract provisions (including in applications or handbooks) requiring an employee, as a condition of obtaining or continuing employment, to use a forum other than California or to agree to a choice of law other than California law, to resolve any employment-related issues that arise in California.
Bill Requiring Written Commission Contracts Passes Assembly (AB 1396)
This bill would amend Labor Code section 2751 and require that by January 1, 2013, all employers entering into employment contracts for services to be performed in California and contemplating payment in commissions to put the contract in writing and identify the method by which commissions will be computed and paid. Employers failing to comply with these requirements would be liable to employees for triple damages. This amendment is intended to address a judicial decision which had effectively invalidated a prior version of Labor Code section 2751 because it imposed these requirements only on out-of-state employers. This amendment would apply these requirements to all employers entering into employment contracts involving commission payments for services performed in California.
Assembly Passes Bill to Require Retention of Displaced Property Service Employees (AB 350)
Under the current Displaced Janitor Opportunity Act (Labor Code § 1060 et seq.), contractors and subcontractors that are awarded contracts to provide janitorial or building maintenance services at particular sites are required to retain for up to 60 days certain employees employed at that site by the previous contractor or subcontractor. This bill would rename the act the Displaced Property Service Employee Opportunity Contract and make its provisions applicable to "property services," which would include licensed security (as defined), landscape, window cleaning, food cafeteria and dietary services. The bill would also extend the 60-day retention period up to 90 days. These retention provisions do not apply to employees the contractor or subcontractor can demonstrate had not satisfactorily performed under the terminated contract.
Assembly Passes Bill Prohibiting Workers' Compensation Apportionment Based Upon Protected Characteristics (AB 1155)
This bill would limit the consideration of an employee's protected characteristics (e.g., race, religious creed, national origin) in workers' compensation proceedings in two respects. First, it would provide that no workers' compensation claim shall be denied because the employee's injury was related to the employee's race, religious creed, color, national origin, age, marital status, sex, sexual orientation, or genetic characteristics. This provision is intended to prevent coverage from being denied because an employee was assaulted or injured by another party because of the employees' protected characteristics (e.g., a racially motivated assault on an employee performing his or her duties).
The second provision would preclude the use of certain "risk factors" based on protected classifications when apportioning liability and causation for permanent disability purposes. Thus, physicians would not be permitted to consider race, national origin, gender, sex, genetic characteristics, and certain other factors when assessing apportionment of the causes of an industrial disability. The Legislature passed similar bills in 2008 and 2010 (SB 1115 and SB 145), which were vetoed by then-Governor Schwarzenegger.
Increased Workplace Smoking Prohibitions Passes Senate (SB 575)
Labor Code section 6405.5 currently prohibits smoking of tobacco product inside an "enclosed space" (as defined) at a place of employment, and authorizes civil fines for violations. This bill would expand the prohibitions on workplace smoking to include "owner-operated businesses" (except where the owner-operator is the only employee) and eliminate most of the currently specified exceptions that permit smoking in certain work environments (e.g., hotel lobbies, bars and taverns, tobacco shops, banquet rooms, warehouse facilities and employee break rooms).
Assembly Passes Bill to Limit Immediate Appeal Rights for Motions to Compel Arbitration (AB 1062)
Code of Civil Procedure section 1294 currently authorizes a party to immediately appeal a trial court order denying a motion to compel arbitration. This bill would amend section 1294 to limit the ability to immediately appeal an order denying arbitration to only motions filed pursuant to a private or public sector collective bargaining agreement. In other words, private employers or businesses would no longer be able to immediately appeal a denial of their arbitration request but would be limited to either filing an appeal at the end of the case, or pursuing an immediate petition for writ of mandate, the review of which is discretionary with the court of appeal.
AGENCY
Federal
DOL Issues Smart Phone App Allowing Employees to Track Their Hours Worked
The Department of Labor recently unveiled a new application for smartphones allowing employees to independently track the hours they work. This app is available in English and Spanish and creates a timesheet for employees to track regular hours worked, break times and overtime. This free app is currently compatible with the iPhone and iPod Touch and can be downloaded through the DOL's website or iTunes, and additional versions for other smartphones are expected shortly. More information about the DOL's initiative is available atwww.dol.gov/whd.
JUDICIAL
California
Payments Based Upon Number of Vehicles Sold Rather Than the Vehicle's Value Constitute "Commission Wages" Exempting Employees from Overtime Requirements
A number of California's Industrial Wage Orders exempt from state law overtime requirements employees who earn at least one-and-a-half times the minimum wage and more than half of the employee's compensation represents commissions. Labor Code section 204.1 governs commissions paid to vehicle dealers and defines commission wages as "compensation paid to any person for services rendered in the sale of such employer's property or services and based proportionately upon the amount or value thereof."
In this case, car sales consultants filed a class action seeking unpaid overtime arguing the employer's compensation program of paying the consultants a uniform dollar payment per car ($154), plus a guaranteed base pay, did not constitute "commissions" under Labor Code section 204.1 because these payments were not based on a percentage of the car's value or price. The California appellate court rejected this argument and granted summary judgment in the employer's favor, holding these uniform payments constituted a "commission" under Labor Code section 204.1.
The court first reiterated the California Supreme Court's conclusion in Ramirez v. Yosemite Water (1999) 20 Cal.4th 785, that the commissioned sales exemption is limited to employees actually involved in selling products or services, and who receive commissions as defined in the Labor Code. However, the appellate court rejected the employees' argument "commissions" must be a percentage of the sales price, noting that Labor Code section 204.1 specifically states commissions may be "based proportionately upon the amount or value thereof." Noting it was addressing a case of first impression, the appellate court observed while most prior cases had addressed commission based upon the value/price of the object sold, the Labor Code specifically contemplated commission payments based upon the number of items sold. The Court noted the amount paid was proportionate to the number of vehicles sold, which satisfied the commission wage requirements. (Areso v. Carmax, Inc. (2011) ___ Cal.App.4th ___, 2011 Cal.App.LEXIS 618.)
(NOTE: while Labor Code section 204.1 is specifically labeled as applying to vehicle dealers and this particular case involved vehicle sale consultants, the California Supreme Court has previously suggested its interpretations of Labor Code section 204.1 may apply more broadly than just that context. It will also be worth watching to see if subsequent courts adopt Areso's interpretation of Labor Code section 204.1 or instead rely upon the authorities distinguished inAreso which had limited section 204.1 to commissions based upon the "value" of the object sold.)
Following Rehearing, Appellate Court Again Holds Employees May Recover up to Two Premium Wage Payments per Day for Missed Meal and Rest Periods
Labor Code section 226.7 requires an employer who fails to provide an employee with a meal or rest period to pay that employee one additional hour of pay (a so-called "premium payment") for each day that the meal or rest period is not provided. An undecided issue has been the number of premium payments an employee may receive each day, with employees arguing they may receive up to two payments if both a meal and rest period is missed, and employers arguing employees may recover only a single premium payment per "work day." In 2009, a federal district court in California held the Industrial Wage Orders treat these as separate violations and, thus, employees may recover up to two premium payments in a single day if both a meal and rest period is missed. (See Marlo v. UPS (C.D. Cal. 2009) 2009 U.S.Dist.Lexis 41948.) However, since lower federal district court decisions are not binding in California, it remained to be seen whether California state courts would adopt a similar rule.
As discussed in the March 2011 Newsletter, a California court of appeal had followed Marlo and held that employees may recover up to two additional hours of pay on a single work day for meal and rest period violations if both a meal and rest period is missed. Following rehearing, this same appellate court reached the same conclusion and essentially reissued unchanged its prior opinion. The California appellate court first concluded that the legislative history to section 226.7 supported this interpretation, noting it was enacted concurrently with the Industrial Wage Orders which are structured such that meal and rest period violations are treated as separate violations. The court also concluded allowing up to two premium payments would further public policy by dissuading employers who had already failed to provide a rest period (and already owed an hour premium pay) from also not providing a meal period. (United Parcel Service, Inc. v. Superior Court (ex rel Allen) (2011) ___ Cal.App.4th ___, 2011 Cal.App.LEXIS 652.)
Another California Appellate Court Denies Class Certification Finding Employers Need Not Ensure Employees Take Offered Meal and Rest Periods
While California employees and employers continue to wait for the California Supreme Court decisions in Brinker and Brinkley regarding whether employers must ensure meal periods are taken or simply provide an opportunity to take such a break, another California court of appeal has weighed in. In this class action lawsuit, the appellate court acknowledged that the issue regarding the duty to provide meal and rest breaks is presently pending before the California Supreme Court, but concluded it was within its discretion to rule on the class certification issue given how long these cases have been pending. Relying upon numerous federal court decisions, the court concluded employers must provide an opportunity to take a meal and rest period but need not ensure they are taken. The court also concluded class certification was inappropriate since the employer had provided ample evidence of its meal and rest period opportunities, meaning the reasons any employee chose not to take breaks would largely involve individualized inquiries inappropriate for class action purposes.
The Court also held that the three named class representatives were unqualified to represent the class. One of them had two felony and three misdemeanor convictions, while the second one had a very brief tenure with the company and had limited recollection of the conditions of employment, suggesting he could not meaningfully testify about the alleged violations. Finally, the third named class representative testified the employer provided him with meal and rest periods and he never worked off the clock, meaning he could not fairly represent the class because he received all the rights to which he was entitled. (Flores v. Lamps Plus, Inc. (2011) 195 Cal.App.4th 389.)
(NOTE: as discussed in prior newsletters, this is simply the most recent California appellate court decision drawing a similar conclusion about an employer's meal and rest period obligations. However, another recent case (Tien v. Tenet Health Care (2011) 2011 W.L. 523611) reaching the same conclusion was recently granted review pending Brinker and Brinkley meaning it is not presently citeable, and it is widely expected the same will soon occur in Flores.)
Union-Issued Flyers Containing Personal Attacks on Management Member Not Protected Free Speech Involving a Public Interest
A mid-level management employee filed a defamation and false light action against union members who distributed flyers throughout his apartment complex stating "neighbors beware of this man," "protect your family, safeguard your property," he "tried to take away workers' pension benefits." The union unsuccessfully attempted to dismiss these claims under California's anti-SLAPP statute (Code of Civ. Proc. § 425.16) arguing the statements were protected free speech involving matters of public interest.
The California court of appeal reiterated that anti-SLAPP dismissal motions involve a two-step inquiry, with the defendant first demonstrating the challenged action arises from protected activity and, if so, the plaintiff demonstrating a probability of prevailing on the merits. The appellate court observed that speech involving public concerns is entitled to constitutional protections generally, but cautioned that not all speech necessarily implicates a public concern. Specifically, the court noted that not all labor disputes automatically rise to the level of a public interest, and a union cannot turn an otherwise private matter into one of public interest through its own actions, including flyers such as these involving a private individual. The court emphasized these flyers were distributed in a different city away from the jobsite, were mostly personal and not strike-related, they targeted a management employee not involved in the labor negotiations, and the audience had neither knowledge nor interest in the strike. (Price v. Operating Engineers Local Union No. 3, et al. (2011) ___ Cal.App.4th ___, 2011 Cal.App.LEXIS 651.)
Federal
United States Supreme Court Upholds Arizona State Law Requiring Employers to Use E-Verify to Determine Employee Eligibility
In 2007, the state of Arizona passed the Legal Arizona Workers Act which (1) required that licenses of Arizona employers that knowingly or intentionally employ unauthorized aliens be suspended and in certain circumstances, revoked; and (2) required all Arizona employers to use the federal E-Verify system to confirm the workers they employ are legally authorized workers. The United States Chamber of Commerce filed a pre-enforcement challenge to this law arguing federal immigration law expressly and impliedly preempted this state law. In a lengthy 5-3 decision, the United States Supreme Court rejected these challenges and held federal law does not preempt Arizona's licensing law, or its requirement that all Arizona employers must use the otherwise voluntary federal E-Verify system.
The Court began its analysis noting the applicable federal law (the Immigration Reform and Control Act (IRCA)) prohibits employers from knowingly hiring unauthorized aliens and imposes federal civil and criminal sanctions for employers violating this prohibition. The Court also noted that while IRCA expressly preempts States from imposing "civil and criminal sanctions" on those who employ unauthorized aliens, IRCA's statutory language did not preclude States from imposing sanctions "through licensing and similar laws." (8 U.S.C. § 1324a(h)(2).) The Court concluded the Arizona law did not conflict with federal immigration law by imposing new civil or criminal sanctions, which would be preempted, but instead simply imposed sanctions under the licensing authority expressly reserved to the states through IRCA's statutorily enumerated savings clause.
Applying a similar statutory analysis, the Court concluded the Arizona requirement employers use the federal E-Verify system to do business in Arizona did not conflict with, and thus was not preempted by, the Illegal Immigration Reform and Immigrant Responsibility Act (IIRIRA). The Court noted that while the IIRIRA statutorily prohibited the Secretary of Homeland Security from requiring any entity (outside of the Federal Government) to use the federal E-Verify system, the IIRIRA contains no language circumscribing state action. In other words, while the federal government could not require non-federal government-related employers to use E-Verify, the federal law did not preclude states from imposing laws mandating their state employers use this system.(Chamber of Commerce v. Whiting (2011) ___ S.Ct. ___, 2011 U.S.LEXIS 4018.)
(NOTE: as a practical matter, this decision will not materially impact most California employers (except those who are federal contractors subject to a 2008 executive order), as California has not passed a state law counterpart to the Arizona law, and it is unlikely it will do so. Accordingly, most California employer's participation in E-Verify will remain voluntary. However, this decision will likely impact those states who have enacted provisions similar to Arizona's requiring all employers to use E-Verify (e.g., Georgia, Mississippi, South Carolina and Utah) and those states requiring state contractors or agencies to use the system. It may also prompt other states to consider provisions similar to the Arizona law, so non-California employers should keep a watch on legislative developments in their states.)
United States Supreme Court Holds ERISA Does Not Authorize District Court to Reform Plan Based on Summary Plan Description, But May Authorize Equitable Relief
Approximately 25,000 CIGNA employees filed suit under ERISA after the company changed from a defined-benefit plan to a cash-balance plan, and the class action plaintiffs relied heavily upon a summary newsletter touting the benefits of this change-over and argued they were misled or not provided proper notice. The district court agreed these disclosures violated ERISA's notice obligations, and relying upon ERISA § 502(a)(1)(B), it first reformed the new pension plan and then awarded benefits according to this reformed plan.
The United States Supreme first concluded that the specific ERISA provision the district court relied upon (section 502(a)(1)(B)), did not authorize the court to reform the plan based upon alleged misrepresentations contained in the summary plan description. The Court noted that this particular section only authorizes plan participants to sue to recover benefits owed under the plan, and the summary plan description is distinct from the underlying plan. However, the five-justice majority opinion then noted that another ERISA subsection (§ 502(a)(3)) specifically authorizes equitable relief with the particular standard to recover depending upon the particular equitable theory utilized. The Court remanded to the district court to reassess the appropriate relief under a different ERISA section (subsection (a)(3) rather than (a)(1)(B)), observing that while the plan participants must demonstrate actual harm, they need not always demonstrate detrimental reliance depending upon the remedy sought. (Cigna Corp. v. Amara (2011) ___ S.Ct. ___, 2011 U.S.LEXIS 3546.)
Sarbanes-Oxley Does Not Protect Employees of Publicly-Traded Companies Who Disclose Information to the Media
Two auditors at a public company who were terminated for violating the company's internal policy prohibiting non-authorized disclosures to the media sued alleging they were terminated in violation of the Sarbanes-Oxley Act (SOX), 18 U.S.C. § 1514A(a)(1), for reporting SOX violations and other securities laws. The Ninth Circuit Court of Appeals affirmed summary judgment in the employer's