
Employment Law News – March 2012 Legislative Mar 01, 2012 Related Attorneys Expertise Practice Areas Employment California As we approach the initial deadline to introduce bills for the 2012 legislative session, there are several employment-related bills pending, including the following: Expansion Proposed of Tax Credits for Hiring Full-Time Employees (AB 1596) Currently, California's Personal Income Tax Law and Corporation Tax Law authorize "qualified employers" (i.e., a taxpayer employing 20 or fewer employees) to obtain a credit in the amount of $3,000 for each full-time employee hired. This bill would expand the definition of "qualified employer" to mean a taxpayer that employs 50 or fewer employees as of the last day of the preceding taxable year. This bill has been referred to the Committee on Revenue and Taxes. Public Employees' Bill of Rights Act Proposed (AB 1655) California presently maintains a Bill of Rights for State Excluded Employees that prescribes various rights, terms and conditions of employment for "excluded employees," defined as certain supervisory, managerial, and confidential state employees. This bill would enact the Public Employees' Bill of Rights to apply to state employees other than excluded employees. Amongst other things, this bill would provide that state employees shall be entitled to priority over excluded employees or contractors in filling permanent, overtime and on-call positions. It would also change from three years to one year the period of time to serve any notice of adverse action and to complete any investigation against any state employee for any cause for discipline based on any civil service law. Expansion of Meyers-Milias-Brown Act Protections Proposed (AB 1808) The Meyers-Milias-Brown Act establishes procedures governing the resolution of disputes regarding wages, hours, and other terms and conditions of employment between public employees and pubic employee organizations. Under this act, "public employees" (as defined) have the right to form, join, and participate in the activities of employee organizations of their own choosing for purposes of representation on all matters of employer-employee relations. This bill would expand the definition of "public employee" to include any person employed by an employer that is not a public agency, but with which a public agency shares or co-determines decisions governing essential employment conditions of that person. This bill would also state that it is declaratory of existing law. Public Utility Whistleblower Protection Program Proposed (AB 1843) Under California law, the Public Utilities Commission has regulatory authority over public utilities and the ability to establish rules for all public utilities. This bill would require the Commission to establish a comprehensive whistleblower protection program to protect public utility employees, former employees, and third-party contractors and subcontractors from retaliation for bringing information to the Commission or other public entities (as specified) regarding safety and other enumerated issues. Safe-Harbor Proposed to Dissuade Employers from Checking Applicant's Social Media (AB 1844) Under common law, employers have a duty to exercise reasonable care in employing a person and are required to use reasonable care to discover whether a potential employee is unfit or incompetent. This bill would provide a safe-harbor defense in negligent hiring claims and specify that an employer will not be deemed negligent if it fails to discover whether a potential employee is unfit or incompetent by the employer's failure to search or monitor social media (as defined) before hiring the employee. The proposed new Labor Code section 982 would also prohibit employees or prospective employees to disclose a user name or account password to access social media used by the employee or prospective employee. "Familial Status" Protection Proposed for FEHA (AB 1999) This bill would amend the Fair Employment and Housing Act (FEHA) and include "familial status" as an additional basis upon which the right to seek, obtain and hold employment cannot be denied. "Familial status" would be defined as an individual who is, who will be or who is perceived to be a family caregiver, with "family" meaning a child, a parent, a spouse, a domestic partner, a parent-in-law, a sibling, a grandparent or a grandchild. Meal Period Exemption Proposed for Commercial Drivers (AB 2176) Labor Code section 512 requires employers to provide a meal period or periods to employees who work a specified number of hours in a shift. This bill would amend section 512 and provide an exemption from the meal period requirements for commercial drivers operating a vehicle that is required to display placards pursuant to specified provisions of the Vehicle Code. Mandated Pension-Related Reporting for Retired Corporate Executive Officers Proposed (SB 1208) Presently, domestic and publicly-traded corporations must annually file a report disclosing the compensation, as specified, of each board of director member and its five most highly compensated executive officers who are not members of the board, and its chief executive officer. This bill would state the Legislature's intent to enact legislation requiring these corporations to also report all forms of compensation, including pensions and benefits from other types of employee benefit plans, to the five most highly compensated retired executive officers of the corporation. Federal Payroll Tax Reduction and Unemployment Insurance Benefits Extension Signed into Law (HR 3630) As expected, Congress has passed and the President has signed into law the Middle Class Tax Relief and Job Creation Act of 2012 which extends the payroll tax reduction and unemployment insurance benefits until December 31, 2012. Specifically, this bill extends the two percentage point reduction (from 6.2% to 4.2%) on the payroll taxes paid by employees. This bill also extends the current level of unemployment insurance benefits through 2012, but reduces the maximum number of weeks of benefits individuals can receive depending on the employment levels in their states. Individuals residing in states with unemployment over nine percent would be eligible to receive up to 73 weeks (down from 99 weeks) and individuals residing in states with less than nine percent unemployment would be eligible for up to 63 weeks. AGENCY California State of California and United States DOL Sign Agreement to Reduce Misclassification of Employees as Independent Contractors As discussed in prior newsletters, the willful misclassification of employees as independent contractors remains a top enforcement priority at the federal and state level. Effective January 1, 2012, the state of California has a new law (SB 459) prohibiting the "willful misclassification" of employees as independent contractors and providing significant new penalties for such misclassification, including statutory penalties up to $25,000 per violation and additional posting requirements. On the federal level, the United States Department of Labor (DOL) has unveiled its Misclassification Initiative, which includes partnering with states to prevent, detect, and remedy employee misclassification. More information about the federal initiative is available at www.dol.gov/misclassification. Consistent with this enforcement emphasis, the DOL and the State of California recently entered into a memorandum of understanding regarding the improper misclassification of employees as independent contractors. (The DOL had previously entered into similar agreements with eleven other states.) This memorandum signals that the federal DOL and California will coordinate efforts and target the misclassification of employees. The DOL's press release concerning this new partnership is available at www.dol.gov/opa/media/press/whd/WHD20120257.htm. Federal NLRB Issues Second Report Providing Guidance Concerning Workplace Social Media Policies The National Labor Relations Board (NLRB) Acting General Counsel has recently issued a second Operations Management Memo recounting fourteen workplace social medial cases reviewed by the NLRB. (The first report was issued in August 2011). Half of these cases analyzed the propriety of the particular employer's social media policies, and five were found unlawfully overbroad. The remaining cases involved employees discharged for posting comments to Facebook, and several terminations were found unlawful because they resulted from unlawful policies. The full Operations Management Memo is available atwww.nlrb.gov/news/acting-general-counsel-issues-second-social-media-report. The NLRB's Office of Public Affairs also issued a summary memorandum (www.nlrb.gov/print/3418) regarding this report, and underscored two main points: Employer policies should not be so sweeping that they prohibit the kinds of activity protected by federal labor law, such as the discussion of wages or working conditions among employees; An employee's comments on social medial are generally not protected if they are mere gripes not made in relation to group activity among employees. The NLRB's Counsel noted the "new and evolving nature of social media cases" and has asked all regional NLRB offices to send potentially meritorious cases to the agency's Washington D.C. office to help develop a consistent enforcement approach. EEOC Extends Title VII Recordkeeping Requirements to GINA The Equal Employment Opportunity Commission (EEOC) recently issued a Final Rule extending its existing recordkeeping requirements under Title VII of the Civil Rights Act of 1964 (Title VII) and the Americans with Disabilities Act (ADA) to entities covered by title II of the Genetic Information Nondiscrimination Act of 2008 (GINA). Title II of GINA applies to employers with fifteen or more employees and prohibits discrimination based on genetic information (as defined by GINA). This Final Rule adopts the previously proposed regulations without change and takes effect April 3, 2012, and is available at 77 Fed. Reg. 5396 and www.gpo.gov/fdsys/pkg/FR-2012-02-03/pdf/2012-2420.pdf. The Final Rule does not require the creation of any new documents or impose any additional reporting requirements; rather, it merely imposes the same record retention requirements under GINA that currently apply under Title VII and the ADA through 29 CFR 1602. Simply summarized, private employers must retain personnel and employment records for one year from the date of making the record or the personnel action involved, whichever is later. However, in the case of involuntary terminations, employers must retain the terminated employee's personnel or employment records for one year from the date of termination. Further, when a discrimination charge is filed with the EEOC or a civil action is brought by the EEOC or the Attorney General regarding Title VII, the ADA or GINA, the employer must retain any relevant records until the final disposition of that matter, which may be longer than one year. (The EEOC's Final Rule estimates there will be approximately 200 new GINA charges filed in 2012, compared to 245 in calendar year 2011 and 201 in calendar year 2010). A summary of these recordkeeping requirements is available atwww.eeoc.gov/employers/recordkeeping_obligations.cfm. EEOC Clarifies Prior Opinion Letter Concerning Interaction of ADA and High School Diploma Requirements In November 2011, the EEOC issued an informal discussion letter concerning how the Americans with Disabilities Act (ADA) applies to job qualification standards, including whether the requirement of a high school diploma violates the ADA. This letter is available at www.eeoc.gov/eeoc/foia/letters/2011/ada_qualification_standards.html. In response to considerable commentary, the EEOC has recently issued a memorandum in question and answer format to clarify this interplay between the ADA and high school diploma requirements. This memorandum specified that employers are not prohibited from adopting a requirement that a job applicant have a high school diploma, but they may have to allow someone who says a disability prevented them from obtaining a high school diploma to demonstrate qualifications for the job in some other way. Even then, however, the employer is not required to hire that individual, or to prefer that person over someone else, but may hire the best qualified person for the position. This clarification memo is available atwww.eeoc.gov/eeoc/newsroom/wysk_high_school_ada.cfm. EEOC Issues Revised Publications on Employment of Veterans with Disabilities The EEOC has also issued two revised publications addressing veterans with disabilities and the ADA, particularly the changes resulting from the ADA Amendments Act of 2008 which made it easier for veterans with a wide range of impairments to obtain reasonable accommodation. The "Guide for Employers" explains how protections for veterans with service connected disabilities differ under the ADA and the Uniformed Services Employment and Reemployment Rights Act (USERRA), and how employers can prevent disability-based discrimination and provide reasonable accommodations. It is available athttp://www.eeoc.gov/eeoc/publications/ada_veterans_employers.cfm. The "Guide for Wounded Warriors" answers questions that veterans with service-related disabilities may have about the protections they are entitled to when they seek to return to their former jobs or look for civilian jobs. This Guide also explains the kinds of accommodations that may be necessary to help veterans with disabilities obtain and successfully maintain employment. It is available at www.eeoc.gov/eeoc/publications/ada_veterans.cfm. JUDICIAL California Appellate Court Decertifies Wage and Hour Class Action Citing Flawed Trial Plan to Manage Large Class The court of appeal reversed a $15 million verdict in a misclassification class action and decertified a class of 260 bank employees because the trial court's plan to rely only on evidence regarding twenty randomly-selected class members to prove liability was "fatally flawed" and a violation of the defendant's due process rights. After the class was certified, the trial court, on its own initiative, proposed randomly selecting a sample of 20 plaintiffs to testify at trial. (The defendant had proposed individualized hearings before a special master, while the plaintiffs had proposed conducting a class-wide survey followed by the selection of a random sample of plaintiffs who would be the subjects of trial, a plan outlined by their statistical expert.) The court selected the twenty "representative" plaintiffs and five alternates by pulling names out of a hat, and four of the selected plaintiffs subsequently opted out of the class. They were replaced, over defendant's objection, with four alternates. The trial court then granted a motion in limine prohibiting the introduction of any evidence regarding any class members who were not included in the random sample. The court prohibited the four plaintiffs who had opted out from testifying regarding their own experience at the bank, but allowed the two named plaintiffs (who were not members of the random sample) to testify. Although defendant had deposition testimony and declarations from absent class members suggesting that at least one-third of the class was properly classified, the court prohibited defendant from introducing the evidence. In a bifurcated bench trial, the court concluded that all members of the class had been misclassified and had worked overtime. The court entered judgment for $15 million. Throughout the process, the defendant repeatedly and consistently objected that the trial plan violated its due process rights. The court of appeal reversed the judgment, concluding that the defendant's due process rights were violated when it was prevented from introducing relevant evidence in support of an affirmative defense that had a reasonable probability of limiting its liability. The court quoted the U.S. Supreme Court's recent rejection of "Trial by Formula" in Wal-Mart Stores, Inc. v. Dukes (2011) 564 U.S. ___, 180 L.Ed.2d 374, noting that "[w]hile Wal-Mart is not dispositive of our case, we agree with the reasoning that underlies the court's view that representative sampling may not be used to prevent employers from asserting individualized affirmative defenses in cases where they are entitled to do so." (Duran, 2012 Cal. App. LEXIS 107, at 102, n.65.) The court did not explicitly reject the use of statistical sampling to prove liability in any class action, but pointed out there was no authority in support of such a plan, and expressed doubt that such a plan could pass muster. In so doing, the court distinguished its decision in Bell v. Farmers Insurance Exchange* (2004) 115 Cal.App.4th 715, in part because that decision had addressed the use of statistics to prove damages only, not to establish liability. The court also expressed concern with the fact that the trial plan was put in place without any expert recommendation and without complying with basic statistical principles. For example, there was no evidence that 20 out of 260 class members was a representative sampling; and the fact that four of the initial 20 plaintiffs opted out meant that the sample was no longer random. The court did not state that a sample based on expert recommendation and statistical principles would be a valid basis for determining class-wide liability, but held that the trial court's plan (lacking these elements) was "fatally flawed." The court also concluded that the trial court erred in failing to decertify the class on defendant's motion after the liability phase of the trial was completed because that decision was based on the erroneous legal assumption that the trial court's use of statistical sampling was valid. (Duran v. U.S. Bank National Association (2012) ___ Cal.App.4th ___, 2012 Cal. App. LEXIS 107.) Prevailing Defendant Entitled to Recover Expert Fees after Plaintiff's Refusal to Accept 998 Offer California Code of Civil Procedure Section 998 sets forth certain conditions under which a defendant may recover expert fees after a plaintiff has rejected an offer to compromise. "[T]he court . . ., in its discretion, may require the plaintiff to pay a reasonable sum to cover the costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial . . . or during trial . . . of the case by the defendant." In this case, the defendant employer sought to recover the cost of deposing plaintiff's expert witness. After deposing the expert, defendant successfully filed a motion in limine, excluding the expert from testifying at trial. Plaintiff argued the expert fee was not "reasonably necessary," since the expert never testified at trial thanks to the in limine motion. The court held the deposition was "reasonably necessary," because without it, defendant would not have been successful in moving to exclude his testimony. Plaintiff also argued section 998 only permits reimbursement for fees paid to defendant's own expert. The court disagreed, holding that based on the plain language of the statute, which allows for recovery of costs incurred for "the services of expert witnesses," and the statute's broad policy of encouraging settlements, the legislature did not intend to reimburse only fees paid to defendant's own expert. (Chaaban v. Wet Seal, Inc. (2012) 203 Cal. App. 4th 49.) Appellate Court Addresses Interplay between PAGA and IWC Wage Order A local union sued on behalf of its member bus drivers alleging their employer violated provisions of the Labor Code requiring employers to provide meal and rest periods for their employees. The court of appeal addressed several issues involving the interplay between the Private Attorneys General Act of 2004 ("PAGA") and IWC Wage Order No. 9. The court of appeal first addressed whether plaintiffs could recover PAGA penalties under both Wage Order 9 and Labor Code section 558 for failing to provide meal and rest periods or compensation in lieu of meal and rest periods. Wage order 9 provides certain civil penalties for employers who violate the provisions of the wage order, and Labor Code section 558 provides civil penalties for any violation "of a section of this chapter or any provision regulating hours and days of work in any order of the [IWC]." The court held plaintiffs could not recover PAGA penalties under both Wage Order 9 and Labor Code section 558, because PAGA only permits recovery of civil penalties for violations of the California Labor Code (which Wage Order 9 is not), and allowing plaintiffs to recover PAGA penalties under both the wage order and section 558 would be an impermissible double recovery for the same act. The court reasoned that while PAGA can serve to indirectly enforce certain wage orders by enforcing statutes that require compliance with wage orders (e.g., Labor Code § 1198, which prohibits longer work hours than those fixed by wage order or employment under conditions prohibited by a wage order), but PAGA does not create any private right of action to directly enforce a wage order. The court next addressed the circumstances under which PAGA penalties may be reduced. PAGA provides that in any action by an aggrieved employee seeking recovery of a civil penalty, the court may award a lesser amount than the maximum penalty where, "based on the facts and circumstances of the particular case, to do otherwise would result in an award that is unjust, arbitrary, oppressive, or confiscatory." The court of appeal upheld the trial court's ruling, which ordered a thirty percent reduction to the maximum civil penalty. The court noted that in this case, the union never filed a grievance with the company regarding meal periods, and it actually objected to the implementation of mandatory meal and rest periods beginning in July 2003. In addition, the evidence showed the defendant was unable to pay the penalties from ongoing revenues because it had lost a major contract. Based on the facts and circumstances of this case, the court found that a thirty percent reduction was not an abuse of the trial court's discretion. The court also addressed whether unpaid wages under Labor Code section 558 amounts to a civil penalty and are thus recoverable under PAGA. Section 558 provides a civil penalty of $50 or $100 "for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages. . ." (emphasis added.) Defendants argued that section 558 distinguished between civil penalties and restitution for unpaid wages, and that unpaid wages are an independent remedy in addition to the civil penalty. The court disagreed, holding that section 558 provides a civil penalty of both the statutory amount ($50 or $100), and any underpaid wages, with the underpaid wages going entirely to the affected employees, and the $50 or $100 being distributed between the State (75%) and the aggrieved employees (25%). The court based its reasoning on the plain language of the statute, along with dictum from a prior supreme court opinion. Finally, the court addressed whether Labor Code Section 558 permits recovery of civil penalties for missed rest periods. As stated above, the language of section 558 permits civil penalties for violations of "a section of this chapter or any provision regulating hours and days of work in any order of the IWC." Defendants argued no section in Chapter 1 of the Labor Code, consisting of sections 500-558, contain a requirement to provide rest periods. In addition, they argued Wage Order 9's rest period requirement was not an order "regulating hours and days of work," as "hours and days of work" refers only to overtime and alternative workweek schedules. The court disagreed, stating the legislature in section 516 authorized the IWC to "adopt or amend working condition orders with respect to break periods." This provision strongly indicates the legislature intended that violations of such orders be subject to a civil penalty provided by section 558. Moreover, the court said the language of section 558 is broad, applying to "any provision regulating hours and days of work in any order." Since rest periods implicate hours of work in the ordinary sense, it falls within the gambit of section 558. (Thurman v. Bayshore Transit Mgmt (2012) ___ Cal.App.4th ___, 2012 Cal. App. LEXIS 223.) Appellate Court Invalidates Arbitration Agreement Requiring California Employee to Arbitrate in New York and Waive Otherwise Available Remedies As discussed in prior newsletters, both federal and California law express a presumption in favor of arbitration, and federal and California courts have upheld the enforceability of arbitration agreements in the employment context provided they are not "unfair" or "unconscionable." The practical reality, however, is plaintiff's counsel and seemingly some judges are hostile to such agreements and courts are increasingly willing to invalidate agreements that contain provisions contrary to the law and/or that provide unique advantages to the employer who drafted the agreement. In this FEHA sexual discrimination and wage and hour case, the appellate court refused to enforce an arbitration agreement finding it procedurally and substantively unconscionable. The court first rejected the employer's argument that the arbitrator, rather than the court, should determine the agreement's enforceability. The court noted the general rule is that a trial court determines whether an agreement is enforceable, and that while the parties may agree to have an arbitrator make such a determination, this intent must be shown by "clear and unmistakable" evidence. In this case, the agreement was silent regarding having the arbitrator, rather than the court, determine enforceability so the general rule applied. The court also found the agreement procedurally unconscionable because it was presented without an opportunity to negotiate its provisions, it failed to inform the employee about the heightened costs of arbitrating in New York (rather than California) before a three-judge panel, and it referenced but did not attach the AAA and NASD rules, such that the employee did not understand the rules that would apply. The court found the agreement substantively unconscionable because it required New York law to apply, it required the employee to waive substantive remedies available under California law, and it precluded the employee from recovering attorneys' fees while obligating her to pay the employer's attorneys' fees if it prevailed. Given the number of substantively objectionable terms, the appellate court declined to sever these provisions and instead refused to enforce the entire agreement. (Ajamian v. Cantorco2e, L.P.(2012) ___ Cal.App. ___, 2012 Cal. App. LEXIS 148.) (NOTE: this decision does not change the general rule regarding the enforceability of arbitration agreements, but simply underscores the importance of careful drafting for such agreements). Appellate Court Refuses to Enforce Arbitration Agreement Referencing but Not Attaching AAA Rules, and Authorizing Prevailing Employer to Recover Attorneys' Fees The Federal Arbitration Act and the California Arbitration Act specifically provide that a trial court may decline to enforce an arbitration agreement on the same grounds equally applicable to other contracts, including on the ground that it is "unconscionable." For unconscionability purposes, the agreement must be both "procedurally" unconscionable (i.e., it involves oppression and surprise) and "substantively" unconscionable (i.e., it contains one-sided provisions and/or unfairly allocates risks in an objectively unreasonable manner). These elements need not be present in equal degree; instead, a "sliding scale" of sorts is used such that the more substantively oppressive the agreement is, the less procedural unconscionability is required and vice-versa. In this FEHA disability discrimination case, a California court of appeal declined to enforce a mandatory arbitration agreement on the grounds it was procedurally and substantively unconscionable. The court concluded a high-degree of procedural unconscionability existed because it was drafted by the employer and presented to the employee without an opportunity to negotiate its provisions, and it mentioned AAA's rules would govern, but it did not specify which AAA rules and it did not provide the employee with a copy of the AAA rules. The court also found the agreement substantively unconscionable because it authorized the arbitrator to award costs and attorneys' fees to the prevailing party, including presumably the employer. The court concluded this provision substantively disadvantaged the employee because FEHA generally only entitles prevailing employers to recover their attorneys' fees when the employee's claims were frivolous, unreasonable or brought in bad faith. (Mayers v. Volt Mgmt Corp. (2012) ___ Cal.App.4th ___, 2012 Cal. App. LEXIS 227.) Federal Appellate Court Refused to Apply Agreement's Choice of Ge
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California

As we approach the initial deadline to introduce bills for the 2012 legislative session, there are several employment-related bills pending, including the following:

Expansion Proposed of Tax Credits for Hiring Full-Time Employees (AB 1596)

Currently, California's Personal Income Tax Law and Corporation Tax Law authorize "qualified employers" (i.e., a taxpayer employing 20 or fewer employees) to obtain a credit in the amount of $3,000 for each full-time employee hired. This bill would expand the definition of "qualified employer" to mean a taxpayer that employs 50 or fewer employees as of the last day of the preceding taxable year. This bill has been referred to the Committee on Revenue and Taxes.

Public Employees' Bill of Rights Act Proposed (AB 1655)

California presently maintains a Bill of Rights for State Excluded Employees that prescribes various rights, terms and conditions of employment for "excluded employees," defined as certain supervisory, managerial, and confidential state employees. This bill would enact the Public Employees' Bill of Rights to apply to state employees other than excluded employees. Amongst other things, this bill would provide that state employees shall be entitled to priority over excluded employees or contractors in filling permanent, overtime and on-call positions. It would also change from three years to one year the period of time to serve any notice of adverse action and to complete any investigation against any state employee for any cause for discipline based on any civil service law.

Expansion of Meyers-Milias-Brown Act Protections Proposed (AB 1808)

The Meyers-Milias-Brown Act establishes procedures governing the resolution of disputes regarding wages, hours, and other terms and conditions of employment between public employees and pubic employee organizations. Under this act, "public employees" (as defined) have the right to form, join, and participate in the activities of employee organizations of their own choosing for purposes of representation on all matters of employer-employee relations. This bill would expand the definition of "public employee" to include any person employed by an employer that is not a public agency, but with which a public agency shares or co-determines decisions governing essential employment conditions of that person. This bill would also state that it is declaratory of existing law.

Public Utility Whistleblower Protection Program Proposed (AB 1843)

Under California law, the Public Utilities Commission has regulatory authority over public utilities and the ability to establish rules for all public utilities. This bill would require the Commission to establish a comprehensive whistleblower protection program to protect public utility employees, former employees, and third-party contractors and subcontractors from retaliation for bringing information to the Commission or other public entities (as specified) regarding safety and other enumerated issues.

Safe-Harbor Proposed to Dissuade Employers from Checking Applicant's Social Media (AB 1844)

Under common law, employers have a duty to exercise reasonable care in employing a person and are required to use reasonable care to discover whether a potential employee is unfit or incompetent. This bill would provide a safe-harbor defense in negligent hiring claims and specify that an employer will not be deemed negligent if it fails to discover whether a potential employee is unfit or incompetent by the employer's failure to search or monitor social media (as defined) before hiring the employee. The proposed new Labor Code section 982 would also prohibit employees or prospective employees to disclose a user name or account password to access social media used by the employee or prospective employee.

"Familial Status" Protection Proposed for FEHA (AB 1999)

This bill would amend the Fair Employment and Housing Act (FEHA) and include "familial status" as an additional basis upon which the right to seek, obtain and hold employment cannot be denied. "Familial status" would be defined as an individual who is, who will be or who is perceived to be a family caregiver, with "family" meaning a child, a parent, a spouse, a domestic partner, a parent-in-law, a sibling, a grandparent or a grandchild.

Meal Period Exemption Proposed for Commercial Drivers (AB 2176)

Labor Code section 512 requires employers to provide a meal period or periods to employees who work a specified number of hours in a shift. This bill would amend section 512 and provide an exemption from the meal period requirements for commercial drivers operating a vehicle that is required to display placards pursuant to specified provisions of the Vehicle Code.

Mandated Pension-Related Reporting for Retired Corporate Executive Officers Proposed (SB 1208)

Presently, domestic and publicly-traded corporations must annually file a report disclosing the compensation, as specified, of each board of director member and its five most highly compensated executive officers who are not members of the board, and its chief executive officer. This bill would state the Legislature's intent to enact legislation requiring these corporations to also report all forms of compensation, including pensions and benefits from other types of employee benefit plans, to the five most highly compensated retired executive officers of the corporation.

Federal

Payroll Tax Reduction and Unemployment Insurance Benefits Extension Signed into Law (HR 3630)

As expected, Congress has passed and the President has signed into law the Middle Class Tax Relief and Job Creation Act of 2012 which extends the payroll tax reduction and unemployment insurance benefits until December 31, 2012. Specifically, this bill extends the two percentage point reduction (from 6.2% to 4.2%) on the payroll taxes paid by employees. This bill also extends the current level of unemployment insurance benefits through 2012, but reduces the maximum number of weeks of benefits individuals can receive depending on the employment levels in their states. Individuals residing in states with unemployment over nine percent would be eligible to receive up to 73 weeks (down from 99 weeks) and individuals residing in states with less than nine percent unemployment would be eligible for up to 63 weeks.

AGENCY

California

State of California and United States DOL Sign Agreement to Reduce Misclassification of Employees as Independent Contractors

As discussed in prior newsletters, the willful misclassification of employees as independent contractors remains a top enforcement priority at the federal and state level. Effective January 1, 2012, the state of California has a new law (SB 459) prohibiting the "willful misclassification" of employees as independent contractors and providing significant new penalties for such misclassification, including statutory penalties up to $25,000 per violation and additional posting requirements. On the federal level, the United States Department of Labor (DOL) has unveiled its Misclassification Initiative, which includes partnering with states to prevent, detect, and remedy employee misclassification. More information about the federal initiative is available at www.dol.gov/misclassification.

Consistent with this enforcement emphasis, the DOL and the State of California recently entered into a memorandum of understanding regarding the improper misclassification of employees as independent contractors. (The DOL had previously entered into similar agreements with eleven other states.) This memorandum signals that the federal DOL and California will coordinate efforts and target the misclassification of employees. The DOL's press release concerning this new partnership is available at www.dol.gov/opa/media/press/whd/WHD20120257.htm.

Federal

NLRB Issues Second Report Providing Guidance Concerning Workplace Social Media Policies

The National Labor Relations Board (NLRB) Acting General Counsel has recently issued a second Operations Management Memo recounting fourteen workplace social medial cases reviewed by the NLRB. (The first report was issued in August 2011). Half of these cases analyzed the propriety of the particular employer's social media policies, and five were found unlawfully overbroad. The remaining cases involved employees discharged for posting comments to Facebook, and several terminations were found unlawful because they resulted from unlawful policies. The full Operations Management Memo is available atwww.nlrb.gov/news/acting-general-counsel-issues-second-social-media-report.

The NLRB's Office of Public Affairs also issued a summary memorandum (www.nlrb.gov/print/3418) regarding this report, and underscored two main points:

- Employer policies should not be so sweeping that they prohibit the kinds of activity protected by federal labor law, such as the discussion of wages or working conditions among employees;
- An employee's comments on social medial are generally not protected if they are mere gripes not made in relation to group activity among employees.

The NLRB's Counsel noted the "new and evolving nature of social media cases" and has asked all regional NLRB offices to send potentially meritorious cases to the agency's Washington D.C. office to help develop a consistent enforcement approach.

EEOC Extends Title VII Recordkeeping Requirements to GINA

The Equal Employment Opportunity Commission (EEOC) recently issued a Final Rule extending its existing recordkeeping requirements under Title VII of the Civil Rights Act of 1964 (Title VII) and the Americans with Disabilities Act (ADA) to entities covered by title II of the Genetic Information Nondiscrimination Act of 2008 (GINA). Title II of GINA applies to employers with fifteen or more employees and prohibits discrimination based on genetic information (as defined by GINA). This Final Rule adopts the previously proposed regulations without change and takes effect April 3, 2012, and is available at 77 Fed. Reg. 5396 and www.gpo.gov/fdsys/pkg/FR-2012-02-03/pdf/2012-2420.pdf.

The Final Rule does not require the creation of any new documents or impose any additional reporting requirements; rather, it merely imposes the same record retention requirements under GINA that currently apply under Title VII and the ADA through 29 CFR 1602. Simply summarized, private employers must retain personnel and employment records for one year from the date of making the record or the personnel action involved, whichever is later. However, in the case of involuntary terminations, employers must retain the terminated employee's personnel or employment records for one year from the date of termination. Further, when a discrimination charge is filed with the EEOC or a civil action is brought by the EEOC or the Attorney General regarding Title VII, the ADA or GINA, the employer must retain any relevant records until the final disposition of that matter, which may be longer than one year. (The EEOC's Final Rule estimates there will be approximately 200 new GINA charges filed in 2012, compared to 245 in calendar year 2011 and 201 in calendar year 2010). A summary of these recordkeeping requirements is available atwww.eeoc.gov/employers/recordkeeping_obligations.cfm.

EEOC Clarifies Prior Opinion Letter Concerning Interaction of ADA and High School Diploma Requirements

In November 2011, the EEOC issued an informal discussion letter concerning how the Americans with Disabilities Act (ADA) applies to job qualification standards, including whether the requirement of a high school diploma violates the ADA. This letter is available at www.eeoc.gov/eeoc/foia/letters/2011/ada_qualification_standards.html. In response to considerable commentary, the EEOC has recently issued a memorandum in question and answer format to clarify this interplay between the ADA and high school diploma requirements. This memorandum specified that employers are not prohibited from adopting a requirement that a job applicant have a high school diploma, but they may have to allow someone who says a disability prevented them from obtaining a high school diploma to demonstrate qualifications for the job in some other way. Even then, however, the employer is not required to hire that individual, or to prefer that person over someone else, but may hire the best qualified person for the position. This clarification memo is available atwww.eeoc.gov/eeoc/newsroom/wysk_high_school_ada.cfm.

EEOC Issues Revised Publications on Employment of Veterans with Disabilities

The EEOC has also issued two revised publications addressing veterans with disabilities and the ADA, particularly the changes resulting from the ADA Amendments Act of 2008 which made it easier for veterans with a wide range of impairments to obtain reasonable accommodation. The "Guide for Employers" explains how protections for veterans with service connected disabilities differ under the ADA and the Uniformed Services Employment and Reemployment Rights Act (USERRA), and how employers can prevent disability-based discrimination and provide reasonable accommodations. It is available athttp://www.eeoc.gov/eeoc/publications/ada_veterans_employers.cfm.

The "Guide for Wounded Warriors" answers questions that veterans with service-related disabilities may have about the protections they are entitled to when they seek to return to their former jobs or look for civilian jobs. This Guide also explains the kinds of accommodations that may be necessary to help veterans with disabilities obtain and successfully maintain employment. It is available at www.eeoc.gov/eeoc/publications/ada_veterans.cfm.

JUDICIAL

California

Appellate Court Decertifies Wage and Hour Class Action Citing Flawed Trial Plan to Manage Large Class

The court of appeal reversed a $15 million verdict in a misclassification class action and decertified a class of 260 bank employees because the trial court's plan to rely only on evidence regarding twenty randomly-selected class members to prove liability was "fatally flawed" and a violation of the defendant's due process rights. After the class was certified, the trial court, on its own initiative, proposed randomly selecting a sample of 20 plaintiffs to testify at trial. (The defendant had proposed individualized hearings before a special master, while the plaintiffs had proposed conducting a class-wide survey followed by the selection of a random sample of plaintiffs who would be the subjects of trial, a plan outlined by their statistical expert.) The court selected the twenty "representative" plaintiffs and five alternates by pulling names out of a hat, and four of the selected plaintiffs subsequently opted out of the class. They were replaced, over defendant's objection, with four alternates. The trial court then granted a motion in limine prohibiting the introduction of any evidence regarding any class members who were not included in the random sample. The court prohibited the four plaintiffs who had opted out from testifying regarding their own experience at the bank, but allowed the two named plaintiffs (who were not members of the random sample) to testify. Although defendant had deposition testimony and declarations from absent class members suggesting that at least one-third of the class was properly classified, the court prohibited defendant from introducing the evidence. In a bifurcated bench trial, the court concluded that all members of the class had been misclassified and had worked overtime. The court entered judgment for $15 million. Throughout the process, the defendant repeatedly and consistently objected that the trial plan violated its due process rights.

The court of appeal reversed the judgment, concluding that the defendant's due process rights were violated when it was prevented from introducing relevant evidence in support of an affirmative defense that had a reasonable probability of limiting its liability. The court quoted the U.S. Supreme Court's recent rejection of "Trial by Formula" in Wal-Mart Stores, Inc. v. Dukes (2011) 564 U.S. ___, 180 L.Ed.2d 374, noting that "[w]hile Wal-Mart is not dispositive of our case, we agree with the reasoning that underlies the court's view that representative sampling may not be used to prevent employers from asserting individualized affirmative defenses in cases where they are entitled to do so." (Duran, 2012 Cal. App. LEXIS 107, at *102, n.65.) The court did not explicitly reject the use of statistical sampling to prove liability in any class action, but pointed out there was no authority in support of such a plan, and expressed doubt that such a plan could pass muster. In so doing, the court distinguished its decision in Bell v. Farmers Insurance Exchange (2004) 115 Cal.App.4th 715, in part because that decision had addressed the use of statistics to prove damages only, not to establish liability.

The court also expressed concern with the fact that the trial plan was put in place without any expert recommendation and without complying with basic statistical principles. For example, there was no evidence that 20 out of 260 class members was a representative sampling; and the fact that four of the initial 20 plaintiffs opted out meant that the sample was no longer random. The court did not state that a sample based on expert recommendation and statistical principles would be a valid basis for determining class-wide liability, but held that the trial court's plan (lacking these elements) was "fatally flawed." The court also concluded that the trial court erred in failing to decertify the class on defendant's motion after the liability phase of the trial was completed because that decision was based on the erroneous legal assumption that the trial court's use of statistical sampling was valid. (Duran v. U.S. Bank National Association (2012) ___ Cal.App.4th ___, 2012 Cal. App. LEXIS 107.)

Prevailing Defendant Entitled to Recover Expert Fees after Plaintiff's Refusal to Accept 998 Offer

California Code of Civil Procedure Section 998 sets forth certain conditions under which a defendant may recover expert fees after a plaintiff has rejected an offer to compromise. "[T]he court . . ., in its discretion, may require the plaintiff to pay a reasonable sum to cover the costs of the services of expert witnesses, who are not regular employees of any party, actually incurred and reasonably necessary in either, or both, preparation for trial . . . or during trial . . . of the case by the defendant." In this case, the defendant employer sought to recover the cost of deposing plaintiff's expert witness. After deposing the expert, defendant successfully filed a motion in limine, excluding the expert from testifying at trial. Plaintiff argued the expert fee was not "reasonably necessary," since the expert never testified at trial thanks to the in limine motion. The court held the deposition was "reasonably necessary," because without it, defendant would not have been successful in moving to exclude his testimony.

Plaintiff also argued section 998 only permits reimbursement for fees paid to defendant's own expert. The court disagreed, holding that based on the plain language of the statute, which allows for recovery of costs incurred for "the services of expert witnesses," and the statute's broad policy of encouraging settlements, the legislature did not intend to reimburse only fees paid to defendant's own expert. (Chaaban v. Wet Seal, Inc. (2012) 203 Cal. App. 4th 49.)

Appellate Court Addresses Interplay between PAGA and IWC Wage Order

A local union sued on behalf of its member bus drivers alleging their employer violated provisions of the Labor Code requiring employers to provide meal and rest periods for their employees. The court of appeal addressed several issues involving the interplay between the Private Attorneys General Act of 2004 ("PAGA") and IWC Wage Order No. 9.

The court of appeal first addressed whether plaintiffs could recover PAGA penalties under both Wage Order 9 and Labor Code section 558 for failing to provide meal and rest periods or compensation in lieu of meal and rest periods. Wage order 9 provides certain civil penalties for employers who violate the provisions of the wage order, and Labor Code section 558 provides civil penalties for any violation "of a section of this chapter or any provision regulating hours and days of work in any order of the [IWC]." The court held plaintiffs could not recover PAGA penalties under both Wage Order 9 and Labor Code section 558, because PAGA only permits recovery of civil penalties for violations of the California Labor Code (which Wage Order 9 is not), and allowing plaintiffs to recover PAGA penalties under both the wage order and section 558 would be an impermissible double recovery for the same act. The court reasoned that while PAGA can serve to indirectly enforce certain wage orders by enforcing statutes that require compliance with wage orders (e.g., Labor Code § 1198, which prohibits longer work hours than those fixed by wage order or employment under conditions prohibited by a wage order), but PAGA does not create any private right of action to directly enforce a wage order.

The court next addressed the circumstances under which PAGA penalties may be reduced. PAGA provides that in any action by an aggrieved employee seeking recovery of a civil penalty, the court may award a lesser amount than the maximum penalty where, "based on the facts and circumstances of the particular case, to do otherwise would result in an award that is unjust, arbitrary, oppressive, or confiscatory." The court of appeal upheld the trial court's ruling, which ordered a thirty percent reduction to the maximum civil penalty. The court noted that in this case, the union never filed a grievance with the company regarding meal periods, and it actually objected to the implementation of mandatory meal and rest periods beginning in July 2003. In addition, the evidence showed the defendant was unable to pay the penalties from ongoing revenues because it had lost a major contract. Based on the facts and circumstances of this case, the court found that a thirty percent reduction was not an abuse of the trial court's discretion.

The court also addressed whether unpaid wages under Labor Code section 558 amounts to a civil penalty and are thus recoverable under PAGA. Section 558 provides a civil penalty of $50 or $100 "for each underpaid employee for each pay period for which the employee was underpaid in addition to an amount sufficient to recover underpaid wages. . ." (emphasis added.) Defendants argued that section 558 distinguished between civil penalties and restitution for unpaid wages, and that unpaid wages are an independent remedy in addition to the civil penalty. The court disagreed, holding that section 558 provides a civil penalty of both the statutory amount ($50 or $100), and any underpaid wages, with the underpaid wages going entirely to the affected employees, and the $50 or $100 being distributed between the State (75%) and the aggrieved employees (25%). The court based its reasoning on the plain language of the statute, along with dictum from a prior supreme court opinion.

Finally, the court addressed whether Labor Code Section 558 permits recovery of civil penalties for missed rest periods. As stated above, the language of section 558 permits civil penalties for violations of "a section of this chapter or any provision regulating hours and days of work in any order of the IWC." Defendants argued no section in Chapter 1 of the Labor Code, consisting of sections 500-558, contain a requirement to provide rest periods. In addition, they argued Wage Order 9's rest period requirement was not an order "regulating hours and days of work," as "hours and days of work" refers only to overtime and alternative workweek schedules. The court disagreed, stating the legislature in section 516 authorized the IWC to "adopt or amend working condition orders with respect to break periods." This provision strongly indicates the legislature intended that violations of such orders be subject to a civil penalty provided by section 558. Moreover, the court said the language of section 558 is broad, applying to "any provision regulating hours and days of work in any order." Since rest periods implicate hours of work in the ordinary sense, it falls within the gambit of section 558. (Thurman v. Bayshore Transit Mgmt (2012) ___ Cal.App.4th ___, 2012 Cal. App. LEXIS 223.)

Appellate Court Invalidates Arbitration Agreement Requiring California Employee to Arbitrate in New York and Waive Otherwise Available Remedies

As discussed in prior newsletters, both federal and California law express a presumption in favor of arbitration, and federal and California courts have upheld the enforceability of arbitration agreements in the employment context provided they are not "unfair" or "unconscionable." The practical reality, however, is plaintiff's counsel and seemingly some judges are hostile to such agreements and courts are increasingly willing to invalidate agreements that contain provisions contrary to the law and/or that provide unique advantages to the employer who drafted the agreement.

In this FEHA sexual discrimination and wage and hour case, the appellate court refused to enforce an arbitration agreement finding it procedurally and substantively unconscionable. The court first rejected the employer's argument that the arbitrator, rather than the court, should determine the agreement's enforceability. The court noted the general rule is that a trial court determines whether an agreement is enforceable, and that while the parties may agree to have an arbitrator make such a determination, this intent must be shown by "clear and unmistakable" evidence. In this case, the agreement was silent regarding having the arbitrator, rather than the court, determine enforceability so the general rule applied.

The court also found the agreement procedurally unconscionable because it was presented without an opportunity to negotiate its provisions, it failed to inform the employee about the heightened costs of arbitrating in New York (rather than California) before a three-judge panel, and it referenced but did not attach the AAA and NASD rules, such that the employee did not understand the rules that would apply. The court found the agreement substantively unconscionable because it required New York law to apply, it required the employee to waive substantive remedies available under California law, and it precluded the employee from recovering attorneys' fees while obligating her to pay the employer's attorneys' fees if it prevailed. Given the number of substantively objectionable terms, the appellate court declined to sever these provisions and instead refused to enforce the entire agreement. (Ajamian v. Cantorco2e, L.P.(2012) ___ Cal.App. ___, 2012 Cal. App. LEXIS 148.)

(NOTE: this decision does not change the general rule regarding the enforceability of arbitration agreements, but simply underscores the importance of careful drafting for such agreements).

Appellate Court Refuses to Enforce Arbitration Agreement Referencing but Not Attaching AAA Rules, and Authorizing Prevailing Employer to Recover Attorneys' Fees

The Federal Arbitration Act and the California Arbitration Act specifically provide that a trial court may decline to enforce an arbitration agreement on the same grounds equally applicable to other contracts, including on the ground that it is "unconscionable." For unconscionability purposes, the agreement must be both "procedurally" unconscionable (i.e., it involves oppression and surprise) and "substantively" unconscionable (i.e., it contains one-sided provisions and/or unfairly allocates risks in an objectively unreasonable manner). These elements need not be present in equal degree; instead, a "sliding scale" of sorts is used such that the more substantively oppressive the agreement is, the less procedural unconscionability is required and vice-versa.

In this FEHA disability discrimination case, a California court of appeal declined to enforce a mandatory arbitration agreement on the grounds it was procedurally and substantively unconscionable. The court concluded a high-degree of procedural unconscionability existed because it was drafted by the employer and presented to the employee without an opportunity to negotiate its provisions, and it mentioned AAA's rules would govern, but it did not specify which AAA rules and it did not provide the employee with a copy of the AAA rules. The court also found the agreement substantively unconscionable because it authorized the arbitrator to award costs and attorneys' fees to the prevailing party, including presumably the employer. The court concluded this provision substantively disadvantaged the employee because FEHA generally only entitles prevailing employers to recover their attorneys' fees when the employee's claims were frivolous, unreasonable or brought in bad faith. (Mayers v. Volt Mgmt Corp. (2012) ___ Cal.App.4th ___, 2012 Cal. App. LEXIS 227.)

Federal

Appellate Court Refused to Apply Agreement's Choice of Ge

Employment Law News – March 2012

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