Current Articles

Hot Button Issue in PAGA Discovery Resolved

Posted by Ryan Quadrel

On July 13, 2017, the California Supreme Court clarified important discovery procedures for actions filed by employees under the Private Attorneys General Act (PAGA).  The Court in Williams v. The Superior Court of Los Angeles resolved a hotly contested discovery issue for PAGA litigation and will likely make these cases significantly more expensive to litigate for employers.

Williams was a former employee of Marshalls retail stores who filed a PAGA claim asserting numerous wage and hour violations on behalf of himself and other aggrieved employees.  In discovery, Williams’ attorneys requested contact information for all nonexempt California employees in the period March 2012 through February 2014.

Marshalls responded that there were approximately 16,500 employees and refused to provide their information, raising several legal objections including privacy concerns for these employees.  Marshalls asserted that it would be burdensome to provide this information and the request was overbroad.  

The Court disagreed.  Citing California’s broad discovery policy, the Court reasoned that Williams’ case was filed on behalf of all Marshalls employees in California on the basis that the company “implemented a systematic company-wide policy” which was noncompliant with California wage and hour law.  Thus, the information sought by Williams was relevant and within the permissible scope of discovery.

In essence, the Court found that Williams was entitled to the contact information of Marshalls’ employees much in the same way a named plaintiff in a class action is entitled to the contact information for individuals in the potential class.  In class action cases, potential class members often qualify as “percipient witnesses” and the Court viewed aggrieved employees in PAGA actions no differently. 

Marshalls argued that Williams must have some substantial proof of his own claims before he can discover contact information of its employees.  At the trial level, this argument was accepted and Williams’ motion to compel was denied with leave to renew after his deposition was taken to determine if his case had any merit.  The Supreme Court reversed this decision, finding that the trial court put the proverbial cart before the horse and Williams was “presumptively entitled” to an answer to his interrogatory.

The Court was mindful the disclosure of contact information for 16,500 employees would be burdensome for Marshalls.  However, the Court was reluctant to endorse a policy that would discourage legitimate discovery with implications for any statewide PAGA claim.  

The Court then addressed the privacy concerns of Marshalls’ employees.  The Court compared the disclosure of employee contact information in PAGA cases to class action cases, in which the Supreme Court has previously held that fellow employees “might reasonably expect, and even hope, that their names and addresses would be given to”a plaintiff seeking to recover civil penalties on their behalf.

To balance privacy interests, the Court observed a procedure known as a Bellaire-West notice, in which the employer notifies the employees that disclosure of their contact information is sought and gives them the opportunity to “opt out” of having his or her information released.  The Court also noted that a protective order could be used to further address privacy concerns.

The Court’s ruling in Williams will certainly make PAGA cases even more costly for employers to litigate.  Now that the law is clear on this issue, employers who are sued under PAGA claims should be aware that contact information for fellow employees is discoverable information and there is little, if anything, that employers can do to prevent counsel for the PAGA plaintiff from contacting its employees. 

In doing so, employees may be alerted to the fact that they have potential private claims against their employer, which could open the floodgates to private litigation or even snowball into a class action lawsuit.  

Employers should ensure that they are fully compliant with California wage and hour law, which is becoming increasingly complicated every year.  Even payroll companies and statewide HR professionals struggle to keep up with these changes.  

Employers are putting themselves at risk if they do not routinely audit their payroll practices to ensure compliance.  What may seem like an insignificant wage statement violation can expose an employer to substantial liability under the California PAGA.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


U.S. Department of Labor Issues Statement on the Status of its Overtime Rule

Posted by David Mulé

On November 22, 2016, a federal District Court in Texas issued an injunction preventing the United States Department of Labor from implementing its Final Rule that would have raised the minimum salary on December 1, 2016 for employees classified under the white collar exemptions (executive, administrative and professional) to $913 per week.

The United States Department of Labor issued the following statement on November 29, 2016 summarizing the decision:

On November 22, 2016, U.S. District Court Judge Amos Mazzant granted an Emergency Motion for Preliminary Injunction and thereby enjoined the Department of Labor from implementing and enforcing the Overtime Final Rule on December 1, 2016.  The case was heard in the United States District Court, Eastern District of Texas, Sherman Division (State of Nevada ET AL v. United States Department of Labor ET AL No: 4:16-CV-00731). The rule updated the standard salary level and provided a method to keep the salary level current to better effectuate Congress’s intent to exempt bona fide white collar workers from overtime protections.

Since 1940, the Department’s regulations have generally required each of three tests to be met for the FLSA’s executive, administrative, and professional (EAP) exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”).  The Department has always recognized that the salary level test works in tandem with the duties tests to identify bona fide EAP employees.  The Department has updated the salary level requirements seven times since 1938.

The Department strongly disagrees with the decision by the court, which has the effect of delaying a fair day’s pay for a long day’s work for millions of hardworking Americans.  The Department’s Overtime Final Rule is the result of a comprehensive, inclusive rule-making process, and we remain confident in the legality of all aspects of the rule.  We are currently considering all of our legal options.

To read the statement and view more information on the DOL’s website regarding the Final Rule, click here

This may or may not be the end of the story.  It is possible for the Department of Labor to appeal the decision.  However, it is not possible to predict with any degree of certainty whether this will occur and what effect it will have given the changing administration resulting from the Presidential election.

What is certain, however, is that California has its own minimum salary requirement for employees who meet the duties tests set forth for executive, administrative or professional employees.  The California minimum salary is tied to the state minimum wage and must be no less than twice the minimum wage for full time work.  In 2016, that equates to a minimum salary of $800 per week ($10.00 x 2 x 40 hours).  As the state minimum wage increases as is scheduled, so too will the minimum salary requirement increase for employees properly classified as exempt.  

We recommend that employers consult with employment counsel experienced in wage and hour compliance for advice on compliance.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


The California Fair Pay Act:  One Year Later
Part One

Posted by Ryan Quadrel

Last October, Governor Brown signed S.B. 358, the “Fair Pay Act” (“FPA”) into law, with the intent to eliminate the gender wage gap. Two additional bills were signed by the Governor this year.  S.B. 1063 expands the application of the FPA from gender to now include race and ethnicity as well.  A.B. 1676 establishes that prior salary alone cannot be used to justify a gender wage disparity.  With these additional measures, California has taken another step towards closing the nation’s opportunity divide.

As with any new law, the roll-outs of the FPA and its progeny have left many employers with questions and concerns.  Indeed, it will take at least another year or more before the California Courts interpret the new laws and provide answers to these important questions.

The New Standard: Substantially Similar

Interpretation of the term “substantially similar” is essential to a proper understanding the FPA, as this replaces the “equal work” standard of existing federal and state discrimination statutes (Title VII and FEHA).  The legislative intent of the FPA is clear – this language is designed to eliminate loopholes for employers who have historically avoided claims brought under the noteworthy, albeit passé, “Equal Pay Act” (enacted in 1949 and last amended in 1985).  

Gone are the days when an employer can justify a wage disparity between its sanitation staff by labeling one employee a housekeeper and another a janitor. Instead, the FPA focuses on what the employee is actually doing, making it illegal for a California employer to “pay any of its employees at wage rates less than the rates paid to employees of the opposite sex for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.”

What Does This All Mean?

What remains to be seen is how far this will go.  To what degree do the jobs have to vary in skill, effort and responsibility such that they are no longer “substantially similar”?  The problem is even more complicated for smaller business where employees might rotate positions.  

A grocery store employee might one day work the cash register and later that day stock shelves when a delivery arrives.  Does that justify paying this employee more than another employee who only operates the cash register?  How many hours would the first employee have to stock shelves to justify paying him more?  How much more can the employer pay him and how is that measured?

Until the Courts interpret the “substantially similar” standard, one thing is clear – the FPA is a much more stringent standard for employers, who will no doubt struggle to implement compliant HR policies. 

Exceptions, Exceptions, Exceptions

The exceptions and affirmative defenses previously available to employers under the Equal Pay Act still remain under the FPA, but the “catchall” exception is now significantly stricter for employers.   These exceptions will permit a wage differential only if it is based entirely upon one of the following: (1) a seniority system; (2) a merit system; (3) a system that measures earnings by quantity or quality of production; or (4) upon a bona fide factor other than sex, such as education, training, or experience (i.e., the “catchall” exception). 

Not surprisingly, employers have traditionally relied on the catchall exception to justify apparent wage disparities between men and women.  With the FPA now in effect, employers might find that this is not so easy anymore.  

If an employer seeks to rely on a “bona fide factor” it: (1) may not be based on or derived from a sex-based differential in compensation; (2) must be job related with respect to the position in question; and (3) must be consistent with a “business necessity.”

What Qualifies as a Business Necessity?

The “business necessity” element to the catchall exception is likely to be a sticking point for employers.  This term is loosely defined in the bill as “an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.”

To better understand this concept, let’s apply it to our grocery store example.  Suppose the cashier who is also stocking shelves is a male who is paid more than his female counterpart who only operates the cash register.  Let’s also suppose that they are performing work that is “substantially similar”.  The female employee learns of this and proceeds to sue the store for back pay.  

The grocery store’s owner attempts to explain the disparity, offering as a defense the fact that the male employee has an Associate’s Degree and the female employee only has a High School Diploma.  

Who wins?

Probably, the female employee wins in this example.   In essence, the grocery store is arguing that the distinction between an Associate’s Degree and High School Diploma falls under the category of “education” within the exception for a “bona fide factor other than sex.”  While this defense might have worked for the grocery store in 2015, its chances are now lesser.  The store would have a hard time explaining how the male employee’s Associate’s Degree is consistent with a “business necessity”.

If you were thinking like a lawyer, it might have just occurred to you that the store could have argued instead that the male employee had special training, which is consistent with a business necessity of the store.  You would be correct, that is almost certainly the better argument between the two.  

Not so fast.  What if the female was also capable of being trained to work the stock room?  What if there were other means of serving the employers “business necessity” which did not involve paying the female employee less than her male counterpart?  

Conclusion

Without further clarification from the Courts on the narrow “catchall” exception, many employers in California will find themselves asking these and similar questions when attempting to comply with the FPA.

So what should an employer or employee do now that the Fair Pay Act is in effect?  How does this change the dynamic of the employment relationship? How do the recent amendments to the FPA for race and ethnicity affect this?  Finally, how have the Courts dealt with these issues so far?  

Stay tuned.  In Part Two of our article, we will explore each of these questions and offer solutions for both employers and employees.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


The California Fair Pay Act:  One Year Later
Part Two

Posted by Ryan Quadrel

Part One of this series included a summary of the new standards promulgated by the Fair Pay Act (“FPA”) and the need for judicial interpretation to better predict how the FPA will be enforced.

In Part Two, we will discuss some of the additional questions raised by the new legislation that will go into effect in 2017 and how the Fair Pay Act has already made its way into the Courts of California.  We will also explore some of the ways that employers might take steps to ensure they are complying with the laws and how employees can make sure they are fairly paid.  

What Can Employers Do to Ensure Compliance?

Although the FPA took effect January 1, 2016, most businesses (especially smaller businesses with more informal HR practices) remain unprepared to defend claims brought under the FPA.  This is primarily due to the fact that the burden is on the employer to justify wage disparities between men and women, and effective January 1, 2017, between employees of a different race and/or ethnicity.

A good start for employers to ensure compliance with the FPA is to consult with a statistician or numbers cruncher who can run a quantitative analysis of wages paid to employees in various positions for the business.  This data should then be analyzed qualitatively by experienced legal counsel to ensure that any pay disparities are either properly justified under an exception to the FPA or that wages have been adjusted appropriately.

For certain employers, it may also make sense to revamp HR policies and procedures.  Instituting a seniority or merit based system might avoid any ambiguity under the “catchall” exception and ensure that employees advance and receive wages proportionate to their job performance.

Additional Questions Raised by 2016 Legislation

With the FPA’s expansion to prohibit wage discrimination based on race or ethnicity, the issues for employers become increasingly complex. Notably, performing a statistical analysis becomes more challenging and the potential claims by employees is expanded exponentially.  Statisticians will have to compare not only wages between men and women, but also men of one race against men of another race; women of one ethnicity against men of another ethnicity; and so on.

The 2016 legislation has also sealed the door on employers who might justify a wage disparities based on the employee’s earnings at his or her former job. From a fairness perspective, this makes good sense. Permitting this justification would, in essence, allow employers to perpetuate decades of wage discrimination - a clear contradiction to the intent of the FPA.

Many employers will have to change their traditional practice of relying on an applicant’s prior earnings to negotiate salary.  Employers will experience a unique problem when they seek to hire a highly qualified applicant who demands a higher rate than the company’s employees performing substantially similar work.  The employer would then have to decide between passing the candidate over, or else increasing pay for all of its other employees in those positions.

Active Cases

Although it is still too soon for judicial interpretation of these new laws, claims under the FPA have already started making their way into the Courts. One that we will be keeping our eyes on is the matter of Ribeiro v. Sedgwick LLP, a case filed in San Francisco County Superior Court on July 26, 2016 and which was removed to federal court on motion of the defendant.  

Traci Ribeiro, the named Plaintiff in this class action lawsuit, brings the suit against Sedgwick LLP on behalf of herself and other female attorneys in an effort to end “systematic gender discrimination” by her employer.  In her complaint, she describes the alleged male-dominated culture of the firm, which pays its female attorneys lower wages and routinely passes them over for advancement and partnership opportunities. Ribeiro seeks injunctive relief, back pay, liquidated damages, punitive damages and attorney’s fees.

It will be a while before the Court decides on Ms. Ribeiro’s case and it will be interesting to see what exceptions Sedgwick LLP will rely upon in an attempt to explain the wage disparity.  The Court’s analysis and interpretation of the employer’s defense may lead to a better understanding of the new standards under the Fair Pay Act. 

In the meantime, Ribeiro is a good example for both employees and employers of how the FPA will play out. Employers who are not prepared to explain apparent wage disparities or who have failed to properly address them will be especially vulnerable to class action lawsuits like Ribeiro. Employees need only point to an example of unequal pay in order to place the burden on employers to demonstrate otherwise.

Regardless of how Sedgwick LLP attempts to explain the wage disparity, Ms. Ribeiro is substantially more likely to prevail on her claims for gender discrimination than she would have been if she filed this case prior to the enactment of the Fair Pay Act. The same principal will hold true for employees of different race or ethnicity who are paid less than their counterparts when S.B. 1063 goes into effect on January 1, 2017.

What Should Employees Do If They Are Being Paid Unfairly

Employees should not be afraid to discuss their pay with fellow employees.  An employer may not take an adverse action against an employee who discusses his or her earnings with other employees. This is considered a protected activity under the law.  Employers are cautioned against taking retaliatory action against employees who engage in these discussions.

Employees should also feel free to open up a dialogue with their employer about any perceived wage disparity. If an employee feels that s/he is being paid unfairly, that should be brought to the employer’s attention so the employer can have the opportunity to explain or address it. Often these issues can be resolved without involving the Courts.

If attempts to resolve the issue with the employer directly are unsuccessful or if an employee feels that s/he is being retaliated against for bringing these concerns, at that time it would be advisable to speak with an experienced attorney for help resolving the issue.

Stay tuned for more updates on the California Fair Pay Act. This is sure to be a hot topic for employment law and we will keep our eyes on the docket to see how these new laws are interpreted and enforced.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.

"Can I Get a Copy of My File?"

Posted by Ryan Quadrel

The effect on many employers when they hear this question is an instant realization that something is wrong – or else, it’s about to be.  More often than not, employers would be well advised to trust that instinct.  

Although this request from an employee raises a red flag for many, in reality it could be completely benign – nothing more than an act promoting transparency.  Either way, it is a matter that should be dealt with promptly and carefully or the employer risks facing fines, litigation expenses and possibly even paying the employee’s attorney’s fees.

Background

Since 1937 the California Labor Code has recognized an employee’s right to request certain documents from his or her employer.  (Cal. Labor Code Section 432).  However, in 2013 two additional provisions of the Labor Code went into effect, both of which drastically expanded the scope of documents that could be requested.  Employees (both current and former) or their representatives are now entitled to request “wage statements” and “personnel records”, and employers can be fined if they fail to produce them within 30 days.  (Cal. Labor Code Sections 226 and 1198.5).  

So why talk about this now?  These statutes have been in effect for three-and-a-half years now and that’s relatively old news in the rapidly evolving field of employment law.  Nonetheless, the matter is becoming increasingly relevant, as we observe a recent trend in the role these laws play in employment litigation and settlement of wage and hour claims.

Entering the fray are a handful of law firms which take a very formulaic approach to these cases.  They lead with an expansive request for documents before a lawsuit is ever filed against the employer, threatening fines and litigation of the employer does not timely comply.  Behind the scenes, these firms are often on a fishing expedition, seeking any and all information that could be used to fuel a much larger scale class action or PAGA (Private Attorney General Act) claim against the employer.  

This, in turn, drives up the settlement amount in the demand letter, which routinely follows after the documents are produced by the employer.  Considering the volume and frequency with which these claims are being asserted by these firms, it is now more important than ever that employers are prepared on what the law requires them to produce if they are ever faced with such a demand.  

Wage Statements

Wage statements can be particularly tricky, since there is very specific information that needs to be included on them (especially for non-exempt employees).  If information is inaccurate or missing, employers may face penalties under a PAGA claim in the amount of $100 per employee per pay period for the initial violation and $200 for each employee per pay period for each subsequent violation.  These numbers may seem small at first but can add up very quickly, especially for organizations with many employees with similar wage statements created under the same system.

When an employer receives a demand for wage statements pursuant to Cal. Labor Code Section 226, s/he is obligated to produce all wage statements for the subject employee.  There are very few, if any, limitations or exceptions this requirement and failure to produce the wage statements within 21 days is likely to result in a $750 penalty from the Labor Commissioner.

However, a shrewd plaintiff’s attorney does not stop there.  If any violations on the wage statements are found, the next step will be for him/her to contact and obtain wage statements from all other employees and seek to assert similar claims on their behalf against the common employer.  After all, this is how they aim to get the big bucks.

It is therefore strongly recommended that employers consult with an attorney or HR professional with knowledge of these requirements who can review the company’s wage statements and payroll procedures to ensure compliance.  

Prevention is, of course, the best method to avoid liability.  By the time an employer receives a valid request for wage statements from an employee, it may be too late.  However, if as an employer you ever find yourself in a position where you are asked to produce an employee’s records, be sure to consult with an attorney before producing anything.  At the same time be mindful of the 21-day time-frame to avoid potential fines.

Personnel Records

The term “personnel records” is loosely defined by Cal. Labor Code Section 1198.5 and the attorneys for the employee are likely put their own spin on what they think should be produced.  Indeed, the Code embraces a broad definition of “personnel records” which is intended to prevent employers from assigning documents to files having some other name, and then refusing access to the documents on the ground that they are not contained in the “personnel file.”  Harris v. Best Buy Stores, L.P., No. 15-CV-00657-HSG, 2016 WL 4073327, at *11 (N.D. Cal. Aug. 1, 2016).

In a memorandum interpreting this provision of the Code, the Labor Commissioner stated: “Categories of records which are defined as personnel records are those that are used or have been used to determine that employee's qualifications for employment, promotion, additional compensation, or termination or other disciplinary action.”

Determining what falls under these categories can be confusing and challenging, even to experts in the field of employment law.  Moreover, the consequences of misinterpreting them can be severe.  If an employer fails to produce all that is required, s/he could be facing fines and litigation.  An employer producing too much might be violating consumer privacy policy and at the same time handing its employees a lawsuit on a silver platter.  

To make things more complicated, the statute includes very specific procedures by which personnel records must be kept and disclosed to employees. Where, when and how the requests are made by employees and the methods in which the documents are produced are all relevant and important considerations here. 

What an Employer is Not Required to Produce

It is crucial for employers to know what they are not required to disclose.  For example, employers are not obligated to produce documents related to investigation of an employee’s possible criminal offense, letters of reference, ratings, reports or records that were obtained prior to employment.  The timing of the employee’s request and any pending litigation are also important factors to consider in terms of what the employer should or should not disclose.  

Finally, employers should keep a separate file for documents relating to a lawsuit or claim made by that employee to avoid any confusion arising from the employee's right to inspect his or her personnel file at “any reasonable time” as promulgated by the Code.  This measure also serves to protect the attorney-client privilege with respect to these documents.

Conclusion

An employer is taking a significant risk by venturing a guess on what they should or should not disclose after they receive a request for records from their employee.  In addition to potential fines and over-disclosure, the statute affords employees a private cause of action for injunctive relief to obtain an employer’s compliance, and even allows them recover court costs and reasonable attorney's fees for this.

We therefore recommend that all employers avail themselves of these important disclosure requirements and advise that they seek legal counsel for compliance before receiving one of these demands from an employee.  However, if you have already received such a demand it is important to understand this is a time-sensitive matter that you should discuss with an attorney promptly and before producing any documents in response.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


Wages for Hourly and Salaried Employees are Going Up

Posted by David Mulé

The minimum wage in California has gone up in recent years from $8.00 per hour to the current rate of $10.00 per hour.  Senate Bill 3, signed into law by Governor Brown on April 4, 2016, will now increase the state minimum wage incrementally over time to $15.00 per hour by year 2022.  Although such wage increases directly affect the lowest paid workers in the state, they also have a direct impact on some workers who are paid on a salary basis as exempt employees.

Under current law, workers in California who satisfy the basic requirements of the executive, administrative or professional exemptions, must be paid a salary that is at least two times the minimum wage for full time work.  This means that a manager classified under the executive exemption in 2016, for example, must be paid an annual salary of at least $41,600 to qualify for the exemption (increasing to $43,680 on January 1, 2017 for employers with 26 or more employees).  The same is true of a human resources director classified under the administrative exemption or an engineer classified under the professional exemption.  Further, this sum may not be reduced for part-time workers.  Whenever, the minimum wage goes up, so too must the wages of exempt employees to meet this minimum salary requirement.  

By year 2022, California employees in such exempt positions will have to be paid at least $62,400 per year in order to be exempt from the payment of overtime compensation under state law.  Employers that fail to pay this minimum amount, even to part-time exempt employees, will be required to pay overtime compensation to those employees.  Since employees who work as executives, administrators or professionals often work overtime which could result in very high overtime liability for employers who are unaware of this minimum salary requirement.

Making matters even more complicated, federal laws regulating wages and hours also apply to most California employers.  Historically, the minimum salary requirement for exempt employees under the federal Fair Labor Standards Act (FLSA) has been less than the California minimum.  However, that will change on December 1, 2016.  

The federal Department of Labor (DOL) issued new rules amending the federal white-collar overtime exemptions that will increase the minimum salary of such workers to $47,476 starting on December 1, 2016. This salary threshold will be subject to automatic increases every three years, beginning January 1, 2020. For more information about the new rule, click here.

Thus, to be compliant with both California and federal wage and hour laws, employers will have to increase the minimum salary requirement for exempt employees from the current $41,600 per year to $47,476 per year by December 1, 2016.  

Employers will now have to track both state and federal minimum salary requirements to ensure that they are paying their employees enough to qualify for the applicable overtime exemptions. Employers should regularly review their exempt employee classifications to determine whether they will have to increase the minimum salaries of certain employees in their companies to remain compliant with the law and to avoid incurring significant overtime liability and potential penalties.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


U.S. Supreme Court Issues Important Religious Discrimination Decision

EEOC v. Abercrombie & Fitch Stores, (USSC, June 2015)

Posted by David Mulé

The U.S. Supreme Court rendered an important religious discrimination decision clarifying the requisite “intent” to be applied under Title VII of the Civil Rights Act of 1964 which, among other things, makes it unlawful for an employer to refuse to hire someone because of that person’s religion. 

In EEOC v. Abercrombie & Fitch Stores, Samantha Elauf, who is a practicing Muslim, applied for a retail position with Abercrombie.  Elauf wore a headscarf to the job interview.  Although the assistant store manager gave her a qualifying rating for hire, she was unsure if Elauf’s headscarf would violate Abercrombie’s “Look Policy” which prohibited caps of any kind.  The assistant manager then asked the district manager whether the headscarf would violate store policy and told the district manager that she believed Elauf wore the headscarf because of her faith.  The district manager told the assistant manager not to hire Elauf, indicating that the headscarf would be a violation of the Look Policy – as would all other head wear, religious or otherwise.  

The EEOC sued Abercrombie on Elauf’s behalf.  At trial, the judge found Abercrombie liable for religious discrimination as a matter of law and awarded her damages.

On appeal Abercrombie argued that there was no evidence that Ms. Elauf informed Abercrombie that she needed a religious accommodation.  Thus, Abercrombie could not have discriminated against her “because of” her religion.  The appellate court agreed and held that Abercrombie could not be liable for discriminating against Elauf because Abercrombie did not have “actual knowledge” that she needed an accommodation for her religious practice. 

However, the Supreme Court took another view and held that a plaintiff suing for religious discrimination does not need to show that the employer was expressly informed of the need for religious accommodation.  Rather, the plaintiff need only show that the desire to avoid accommodating the employee was a “motivating factor” in the employment decision. 

On behalf of the Court, Justice Scalia wrote:

“[T]he intentional discrimination provision prohibits certain motives, regardless of the state of the actor’s knowledge.  Motive and knowledge are separate concepts.  An employer who has actual knowledge of the need for an accommodation does not violate Title VII by refusing to hire an applicant if avoiding that accommodation is not his motive.  Conversely, an employer who acts with the motive of avoiding accommodation may violate Title VII even if he has no more than an unsubstantiated suspicion that accommodation would be needed.  

“Thus, the rule for disparate-treatment claims based on a failure to accommodate a religious practice is straightforward:  An employer may not make an applicant’s religious practice, confirmed or otherwise, a factor in employment decisions.  For example, suppose that an employer thinks (though he does not know for certain) that a job applicant may be an orthodox Jew who will observe the Sabbath, and thus be unable to work on Saturdays.  If the applicant actually requires an accommodation of that religious practice, and the employer’s desire to avoid the prospective accommodation is a motivating factor in his decision, the employer violates Title VII.”

Thus, Elauf did not have to expressly inform Abercrombie of a need for accommodation.  Abercrombie “knew – or at least suspected” that her scarf was worn for religious reasons.  Abercrombie’s avoiding the potential to have to accommodate Elauf could have been a “motivating factor” in the decision not to hire her.  The Court held that was sufficient evidence to state a claim for religious discrimination. 

Further, the fact that Abercrombie’s Look Policy was neutrally applied and did not treat religion differently than any other characteristic did not matter because neutral policies still must accommodate needs.  In the words of the Court:  

“Title VII does not demand mere neutrality with regard to religious practices—that they be treated no worse than other practices.  Rather, it gives them favored treatment, affirmatively obligating employers not “to fail or refuse to hire or discharge any individual . . . because of such individual’s” “religious observance and practice.”  An employer is surely entitled to have, for example, a no headwear policy as an ordinary matter.  But when an applicant requires an accommodation as an “aspec[t] of religious . . . practice,” it is no response that the subsequent “fail[ure] . . . to hire” was due to an otherwise neutral policy.  Title VII requires otherwise-neutral policies to give way to the need for an accommodation.”

In light of this case, management and human resources professionals must be mindful in the hiring process that applicants are not required to expressly request accommodations for religious practices when it is apparent from their appearance that such accommodations may be needed.   If such an applicant is qualified for the position, the applicant need only show that the employer could have been “motivated” by a desire to avoid accommodating the applicant’s religious practices, based on some suspicion or knowledge on the employer’s part that religious practices were in play.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


Amendments to the California Family Rights Act Regulations

Posted by David Mulé

New regulations for the California Family Rights Act (CFRA) will go into effect on July 1, 2015.  The California Fair Employment and Housing Council (FEHC) issued the amendments after a lengthy regulatory process intended to make the CFRA more closely resemble the federal Family and Medical Leave Act (FMLA).  The following is a list of some of the important changes.  Click here for a link to the text.  

Covered Employers and Eligible Employees

The CFRA applies to employers who employ 50 or more employees within a 75-mile radius of the work-site.   This basic provision was amended to clarify that joint employers and successors-in-interest now fall under the definition of “covered employers.”  Thus, where two or more businesses exercise some control over the work or working conditions of the employee, the businesses may be joint employers under CFRA.  This is to be determined on a case-by-case basis considering the economic realities of the situation. 

For employees with no fixed worksite, the regulations state that the worksite is the site to which the employees are assigned as their home base, from which their work is assigned, or to which they report.  

Additionally, the regulations clarify that if an employee is not eligible for CFRA leave at the start of a leave because the employee has not met the 12-month length of service requirement, the employee may nonetheless meet this requirement while on leave, because leave to which he/she is otherwise entitled counts toward length of service (although not for the 1,250 hour requirement).

Serious Health Condition

Under the CFRA, a serious health condition is defined as an illness, injury, impairment, or physical or mental condition that involves either inpatient care or continuing treatment.  Under prior CFRA regulations, inpatient care required an overnight stay in a medical facility.  The new regulations loosen the definition somewhat.  Now, inpatient care only requires the “expectation” that the employee will remain overnight, even if the employee is ultimately discharged earlier.

Requests for CFRA Leave

When an employee requests a need for leave that could qualify under the CFRA, the regulations provide that an employer “should inquire further” to determine whether the employee is requesting CFRA leave and to obtain necessary information concerning the leave such as, the commencement date, expected duration, and other permissible information.  The mere mention of “vacation,” other paid time off, or resignation does not render the employee’s notice insufficient, provided the underlying reason for the request is CFRA qualifying, and the employee communicates that reason to the employer.  Further, the employer shall respond to the leave request no later than five business days after receiving the employee’s request.  

Medical Certifications

Under the former CFRA regulations, employers could require an employee to obtain a second opinion of the employee’s serious health condition if the employer had “reason” to doubt the validity of the medical certification.  However, under the new regulations, employers must have a “good faith, objective reason” to seek a second opinion.  

Employers may not contact employee health care providers except to authenticate or validate a medical certification.  The FEHC has provided a sample health care certification at the end of the new regulations.  Conspicuously placed at the beginning of the sample certificate is a notice that employers are prohibited from requesting genetic information under the California Genetic Information Nondiscrimination Act of 2011.

Further, an employer may not require an employee to undergo a fitness-for-duty examination as a condition of an employee’s return.  After an employee returns from CFRA leave, any fitness for-duty examination must be job-related and consistent with business necessity.

Pay Reductions for Exempt Employees

The new regulations allow employers to reduce exempt employees’ pay for CFRA intermittent leave or a reduced work schedule, provided the reduction is not inconsistent with any applicable collective bargaining agreement or employer leave policy, the FEHA, and any other applicable state or federal law.  The FMLA already has a similar provision.  

Reinstatement Rights

Upon granting CFRA leave, an employer must now inform the employee of its guarantee to reinstate the employee to the same or a comparable position.  Further, returning employees must be reinstated to their prior positions even if the employer restructured the position to accommodate the employee’s leave.  Also, if an employee is no longer qualified for the position because of the employee’s inability to satisfy a necessary prerequisite for the job such as attend a necessary course, renew a license, or other non-qualifying reason as a result of the leave, the employee shall be given a reasonable opportunity to fulfill those conditions upon returning to work.

Fraudulent Use of CFRA Leave

The new CFRA regulations state that an employee who fraudulently uses CFRA leave is not protected by the job restoration or health benefits provisions.  Nevertheless, the employer bears the burden to prove that the CFRA leave was used or obtained fraudulently.

Conclusion

Not surprisingly, the regulations are challenging to wade through.  Nonetheless, they endeavor to more closely unify the FMLA and CFRA which will make compliance easier for California employers.  There will likely be follow-up clarification from the FEHC on the application of the new regulations.  We recommend that all affected employers read the regulations in conjunction with their own leave policies and seek legal counsel for guidance on compliance issues.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


Take a Rest Day

Mendoza v. Nordstrom, Inc., (9th Circuit, February 2015)

Posted by David Mulé

On February 19, 2015, the Ninth Circuit Court of Appeals sent a case to the California Supreme Court to answer three questions under California law which could have a significant impact on California employers and employees.   In the words of the Court, “the obligations of thousands of California employers, and the rights of tens of thousands of California workers, are at stake.”
The case involves former Nordstrom employees who brought a class action suit alleging violations of the California’s day-of-rest provisions.  They allege that Nordstrom violated wage and hour laws by failing to provide one day’s rest in seven to non-exempt Nordstrom employees.  Mendoza, one of the plaintiffs, worked for Nordstrom as a barista and later as a sales representative.   He claimed that on three occasions he worked more than six consecutive days:   

  • Eleven consecutive days – two being less than six hours.
  • Seven consecutive days – three being less than six hours.
  • Eight consecutive days – five being less than six hours.  

On each of these occasions, Mendoza was not originally scheduled to work more than six consecutive days, but he did so after being asked by either his supervisor or a co-worker to fill in for another employee.  

At trial the court ruled that Nordstrom was exempt from the requirement because plaintiffs worked less than six hours on at least one day in the consecutive seven days of work.  The court also found that Nordstrom did not “cause” the plaintiffs to work more than seven consecutive days because there was no coercion.   On appeal, the Ninth Circuit Court of Appeals sent the case to the California Supreme Court to answer the following questions interpreting California law. 

  • Labor Code § 551 provides that “[e]very person employed in any occupation of labor is entitled to one day’s rest therefrom in seven.”  Is the required day of rest calculated by the workweek, or is it calculated on a rolling basis for any consecutive seven day period?
  • Labor Code § 556 exempts employers from providing such a day of rest “when the total hours of employment do not exceed 30 hours in any week or six hours in any one day thereof.”  Does that exemption apply when an employee works less than six hours in any one day of the applicable week, or does it apply only when an employee works less than six hours in each day of the week?
  • Labor Code § 552 provides that an employer may not “cause his employees to work more than six days in seven.”  What does it mean for an employer to “cause” an employee to work more than six days in seven:  force, coerce, pressure, schedule, encourage, reward, permit, or something else?

Question One:  What is the Meaning of One Day’s Rest in Seven?

Considering the above provisions, the Court examined a sample employee work schedule:

SundayMondayTuesdayWednesdayThursdayFridaySaturday
OffWorkWorkWorkWorkWorkWork
WorkWorkWorkWorkWorkWorkOff

The Ninth Circuit Court of Appeals reasoned that if the statutes apply to any consecutive seven days, the employer would violate the law.  If, on the other hand, the statutes apply to each workweek, the employer’s schedule would be appropriate.  Since there is no California case that clearly answers the question, the Ninth Circuit sent the question to the California Supreme Court for an opinion.

Question Two:  Is the Exemption Less than 6-Hours One Day or Each Day?

The Ninth Circuit then asked the Supreme Court to shed light on whether the following schedule would fall within the exemption under Labor Code § 556:

SundayMondayTuesdayWednesdayThursdayFridaySaturday
8 Hours9 Hours5 Hours8 Hours8 Hours8 Hours9 Hours

The Court saw two possible readings of the statute.  One reading could be that an employer need not provide a day of rest if an employee works less than six hours in “any” single day of the week. The trial court took this position emphasizing the word “any,” which very often means “one.”  However, “any” can mean “each” or “all.”  Consider the expression, “any child knows the answer to that simple question.” 

Question Three:  What is the Meaning of “Cause” to Work?

On this question, the Court wondered what conduct would count as “causing” an employee to work more than the day-of-rest statutes allow.  To “cause” can mean to “induce.”  Is it enough for an employer to encourage or reward an employee who agrees to work additional consecutive days?  Elsewhere causation is defined in terms of the “natural and probable consequence” of one’s action.  Is it enough for an employer to permit employees to trade shifts voluntarily, when a natural and probable consequence may be that an employee works more than the day-of-rest statutes allow? 

Conclusion?

There are no clear answers at this time.  Currently, the California Supreme Court has accepted the case for review.  What seems clear, however, is that the Court’s decision will have a meaningful impact on employers and employees throughout the state.  The scheduling practices in this case are common in many industries.  We recommend that companies with similar scheduling practices consult with employment counsel to be prepared in the event the Court hands down a decision declaring such practices to be unlawful.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


California's New Sick Time Law:

What Every Employer Needs to Know to Stay Healthy

Posted by David Mulé

On July 1, 2015, virtually all California employers will have to provide their employees paid sick leave under the new state mandated Healthy Workplaces, Healthy Families Act of 2014.  Unlike many other paid leave laws which have compliance thresholds based on company size, employee length of service or full time status, this law will affect nearly every employer and employee in the state.  

Although the law looks simple, requiring employers to provide a minimum of three days of paid sick leave per year, it has some requirements which will be unfamiliar to most employers.  Also, written into the law is a significant anti-retaliation provision that employers will need to understand at the risk of serious consequences.  This article summarizes the simple and challenging aspects of this law and offers some suggestions for compliance. 

Paid Sick Time Basic Provisions - NEW

  • Applies to all employees regardless of full/part-time status.
  • May be used for the employee’s own illness or for preventive care, to care for a sick family member, or to recover from certain crimes.
  • Accrues at rate of 1 hour per 30 hours worked.
  • Exempt employees (Executive, Administrative & Professional) accrue based on 40 hours per week or actual hours if less.
  • Unused accrued sick time carries over from year to year.
  • Employers may establish maximum accrual cap at 6 days or 48 hours.
  • Employers may limit usage to 3 days or 24 hours per year.
  • Employers may establish a waiting period on use until the 90th day of employment.
  • Employers may set a minimum increment for use of no more than 2 hours.
  • Unused accrued sick time does not need to be paid to employees at the time of separation.
  • Separated employees returning to work within one year must have their unused accrued leave reinstated. 

Differences from Traditional Sick Leave Policies

Applies to ALL Employees

Under the new law, all employees shall receive paid sick time regardless of their status as full-time or part-time, seasonal or temporary.  The law even requires companies to make paid sick time available to exempt employees for whom companies typically do not keep track of work hours.

Carries Over from Year to Year

Unlike traditional sick leave policies, the new law allows employees to accumulate and carry over accrued unused sick pay from year to year.  Given the mandated accrual rate of 1 hour for every 30 hours worked, the average full time employee who works 40 hours per week will accrue nearly 9 days per year.  Fortunately for employers, the law allows companies to set a maximum accrual cap of 6 days or 48 hours.  Thus employees who reach this limit will cease accruing until they use sick time.  Employers must be sure to do this because indefinite annual accrual will result unless the employer has a written policy setting such a cap.

Reinstatement Rights

Employers will have to reinstate all unused accrued sick days to employees who separate their employment with the company and return to work within one year of separation.  Such employees shall be entitled to use those previously accrued and unused paid sick days and to accrue additional paid sick days upon being rehired.

Notice Requirements

Employers will now be required to conspicuously display a poster regarding the new law.  Additionally, at the time of hire, employers must provide new employees with information about the law which may be included on the already mandated "Notice to Employee" form employers must provide.  Employers will also have to disclose the amount of accrued sick pay on itemized wage statements or on a separate document provided at the same time as wages.

Record-keeping Obligations

The new law requires employers to document the hours worked and paid sick days accrued and used by their employees.  Further, current and former employees must be provided copies of such records upon request.  If an employer does not maintain adequate records, it shall be presumed that the employee is entitled to the maximum number of hours accruable, unless the employer can show otherwise by clear and convincing evidence.

Heavy Enforcement Provisions

One of the most onerous features of this new law is embedded in its enforcement provisions.  First, in addition to owing unpaid sick pay and potential back pay, employers could face up to $4,000 in penalties per employee for failing to comply with the provisions of the law.  Further, as one would expect, the law prohibits employers from discriminating or retaliating against employees who request paid sick days.  However, the law also presumes that an employer has retaliated against any employee who engages in a right protected under the law and is disciplined or terminated within 30 days.  Specifically, the law states that there shall be a "rebuttable presumption of unlawful retaliation" if an employer denies an employee the right to use accrued sick days, discharges, threatens to discharge, demotes, suspends, or in any manner discriminates against an employee within 30 days of either a) filing a complaint alleging a violation of the law; b) cooperating with an investigation of an alleged violation of the new law; or 3) opposing a policy, practice or act that is prohibited by the law.  

Challenging Provisions

Accrual vs. Front Loading

One way employers may avoid the challenges of calculating and managing accruals, is to simply provide 3 or more paid sick days to their employees at the beginning of each year.   Since the law allows employers to limit annual usage to 3 days or 24 hours, this approach can avoid the challenges of calculating accruals.  Employers who choose to front load at least 3 days will have to allow employees to use the full amount of paid sick time on the 90th day after being hired and continue to provide 3 days annually measured from the anniversary date of hire.  Reporting will be easy under this method as well since companies may simply show the number of unused hours employees have remaining on their wage statements.

The Impact on PTO

Many employers have Paid Time Off ("PTO") policies which blend traditional vacation and sick leave policies into a simplified single policy.  Employers will have to rethink the wisdom of doing this in light of this new law.  For example, employers who provide PTO on an accrual basis will have to add sick pay to the accrual method, but will have to adjust their accrual rates to comply with the new law.  Further, unless they carve out sick leave from PTO within their existing policies, employers will have to pay out all unused accrued PTO (including sick time) at the time of termination.  This could be costly for businesses.  Also, the right to reinstatement of sick pay for employees returning within one year of separation is not typically found in PTO policies.  This could complicate the administration of blended PTO polices.

Conclusion

Although California's new paid sick leave law seems complicated, there are ways for businesses to incorporate it into their existing policies without too much disruption.  There may be a significant cost for employers who do not currently provide any paid sick time or PTO.  But, for most employers who already provide paid leave, the challenges will be in making changes to their existing polices to comply with the technical requirements of the law.  

Given the strict penalties and enforcement provisions built into this law, all employers should review their policies and make necessary adjustments to come into compliance.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


California Supreme Court Clarifies Commissioned Salesperson Exemption

Peabody v. Time Warner Cable, Inc. (July 14, 2014)

Posted by David Mulé

Many California employers utilize what is commonly referred to as the commissioned sales exemption for certain types of sales employees.  This allows employers to classify inside sales representatives as exempt from the payment of overtime wages provided that certain criteria are met. The exemption is only available to employees who work under Wage Orders 4 or 7.  Additionally, a two prong compensation test is required:  a) the employee must earn more than 1.5 times the minimum wage for each hour worked per pay period; and b) more than half of the employee’s compensation must be commissions. 

In Peabody v. Time Warner Cable, Inc., the California Supreme Court held that an employer may not spread commissions over multiple pay periods to meet the minimum earnings requirement of 1.5 times the minimum wage.

The plaintiff sold advertising for Time Warner Cable and was classified as exempt from overtime compensation as a commissioned salesperson. The plaintiff was paid hourly wages on a bi-weekly basis.  Additionally, she received a monthly commission check.  Although her total monthly compensation averaged out to a sum that exceeded the required minimum amount of 1.5 times the minimum wage (i.e., $12 per hour at the time), her compensation fell short of this requirement once per month on those pay periods that only included her base rate of $9.61 per hour.

Plaintiff’s lawsuit alleged that the commissioned sales exemption was not satisfied and that she was entitled to overtime compensation for all hours worked in excess of eight per day and forty per week.

The California Supreme Court held that Time Warner’s approach of paying commissions on a monthly basis and attributing commission wages paid in one pay period to cure a deficit in another period was improper.  In the words of the Court, “Whether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period.  An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.”  

Even though California law allows employers to pay unearned commissions on a less frequent basis than regular wages, all earned commissions must be paid no less than twice per month.  In this case, although the plaintiff’s commissions had been earned, Time Warner Cable did not pay them promptly.  Thus, plaintiff’s earnings did not meet the minimum compensation prong of the test. 

Employers who use the commissioned sales exemption must be careful to strictly apply each of its criteria to avoid losing the entire exemption and opening up the possibility to having to pay significant overtime compensation.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


Independent Contractor vs. Employee

Ruiz v. Affinity Logistics Corp., (9th Circuit, June 16, 2014)

Posted by David Mulé

Many companies have proper business relationships with other businesses or individuals who qualify as independent contractors.  However, many companies mistakenly classify certain workers as independent contractors who do not meet the required test under California law.  This issue was taken up by the Ninth Circuit Court of Appeals in Ruiz v. Affinity Logistics Corp., where the Court held that the company had misclassified its home delivery drivers as independent contractors.  

The plaintiff was originally employed by Penske Logistics as a furniture delivery driver.  Penske had a furniture delivery contract with Sears.  In 2003, Affinity Logistics took over the Sears contract for delivery services.  Affinity told Ruiz and his co-workers that if they wanted to continue working for Affinity, they would have to be independent contractors.  As such, they would have to sign independent contractor agreements that could be terminated for any reason on 60-days’ notice.  Affinity drivers had to have fictitious business names, business licenses, and commercial checking accounts.  Drivers were also required to lease their trucks from Affinity and leave them at Affinity during non-working hours.

In reaching its decision that Affinity’s drivers were not independent contractors, the Court held that Affinity substantially controlled the manner and means of the performance of its drivers’ duties.  For example, Affinity determined the non-negotiable flat rate paid to the drivers.  Affinity determined driver schedules and set daily routes.  Affinity required drivers to wear specific uniforms and forbade them from wearing earrings, displaying tattoos, or having certain designs of facial hair.  Affinity drivers were also required to follow a detailed procedures manual.  Drivers had to report to the warehouse every morning to be informed of their customer satisfaction reviews from previous deliveries. Affinity monitored its drivers throughout the day for such things as driver appearance, the loading of their trucks, and their progress throughout the day.  Drivers were required to call their Affinity supervisor periodically between stops to track their delivery time.  Taking all of these facts into consideration, the court determined that Affinity retained and exercised the right to control the drivers’ work.

The court found as well that other secondary factors supported an employment relationship, such as:  a) Affinity’s drivers did not have distinct occupations or businesses apart from their work for Affinity even though they were required by Affinity to have fictitious business names and maintain business licenses; b) the type of work they provided was not a specialized or unique skill commonly performed by an independent contractor; c) Affinity provided the trucks and phones to drivers; d) drivers were not allowed to use leased trucks from Affinity for any purpose other than carrying out duties for Affinity; and e) Affinity required their trucks be kept on Affinity property when not in use.  

The Ruiz v. Affinity Logistics decision sends a strong cautionary message to employers.  Even if a company and the worker both believe that the relationship is one of independent contractor instead of employment, it is risky to classify workers as independent contractors.  We recommend that businesses periodically review their worker classifications and pay particular attention to any independent contractor classification to avoid making this risky and costly mistake.


IRS Definition of Service Charge vs. Tip

Possible Overtime Implications for Employers

Posted by David Mulé

On January 1, 2014, the IRS began requiring employers to classify automatic gratuities as service charges. The effect of this decision is that service charges are considered wages. This has obvious tax implications as well as, not so obvious, wage and hour implications.

The IRS defines a tip as having the following characteristics:

• The payment must be made free from compulsion (meaning, it must be the customer’s choice to voluntarily pay a tip, or not);

• The customer must have the unrestricted right to determine the amount (rather than a pre-determined fixed percentage);

• The payment should not be the subject of negotiations or dictated by employer policy (meaning, the employer should not have any involvement with the customer in determining the amount); and

• Generally, the customer has the right to determine who receives the payment (as opposed to the employer).  (IRS Publication 531)

If the above criteria are not met, the amount will be considered a service charge and treated as regular wages for tax purposes.  To illustrate the problem, a restaurant for example may have a policy of requiring an automatic 18 percent gratuity for parties of a certain size.  In such a case, the fixed “gratuity” is really a service charge because it is required.  Any amount the customer chooses to leave in addition to the 18 percent in the example above would be considered a tip, provided all above criteria are met.  

On the other hand, a list of sample calculations of suggested tip amounts on a service bill would likely fit the definition of a tip.  In such a case, the customer would be free to choose the actual amount to leave, if any. In this case, the suggested tip calculations are really an aid provided to the customer to help in the calculation of a voluntary tip.

The effect of the IRS rule has obvious payroll tax implications.  If the automatic gratuity is considered to be a service charge, it belongs to the restaurant and becomes a part of the restaurant’s gross receipts.  Since an automatic gratuity is a service charge rather than a true tip, employers may use those amounts when calculating the Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips, otherwise known as the tip credit, even if management chooses to distribute the amount to the employees.

There is also a wage and hour problem that may elude many employers. Under California law, if an employer pays all or a portion of a service charge to an employee, the sum must be included in the employee’s regular rate of pay and must be factored into any overtime calculation.  Thus, an employee who is paid on an hourly basis and who works overtime will be entitled to an overtime premium that is more than 1.5 times his or her hourly rate.  This can result in significant wage and hour exposure to employers who have non-exempt employees working in fields where service charges are required.  Failure to factor service charges into overtime premium calculations could result in unpaid overtime claims including penalties and attorneys’ fees in the event of a lawsuit.

The IRS rule presents significant economic challenges for employers in the food service and hospitality industries where service charges for larger parties are common practice.  However, the problem is certainly not restricted to these industries.  We recommend that employers who use service charges consult with labor and employment counsel to review the potential wage and hour implications of the IRS rule.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


Employer Liable for Injuries Caused by Intoxicated Employee after Returning Home from Office Party

Purton v. Marriott International, 218 Cal.App.4th 499 (July 31, 2013)

Posted by David Mulé

Now that the holidays are upon us, it is an appropriate time to review a case arising out of an office holiday party. Unfortunately, there is no holiday cheer in this case.  However, the case illustrates the risks employers assume when they sponsor social functions involving alcohol.  

The case involves the legal concept of respondeat superior which imputes liability to employers for injuries caused by their employees acting within the course and scope of their employment.  Often times the legal concept arises when employees engage in conduct outside of the workplace.  In the case that follows, the employer was found to be liable for the death of a person resulting from an automobile accident caused by an intoxicated employee.

The facts of the case begin with a Marriott hosted annual holiday party for its employees and management.  The Marriott did not require its employees to attend.  Prudently, Marriott only served beer and wine and limited drink tickets to two per person.  Not to be constrained by rules however, a Marriott employee (ironically a bartender) drank a beer and a shot of Jack Daniels before going to the party.  For backup, he also brought a flask of whiskey with him. This employee did not drive to the party. Instead, he rode along with three other co-workers.  

While at the party, another bartender (the restaurant General Manager) refilled the employee's flask with Jack Daniels from the hotel's liquor supply.  At 9:00 pm, the employee left with several other people.  It is unclear from the evidence in the case whether he drove or was driven home.  Fortunately, he and another co-worker were safely dropped off at the employee's home.  

Twenty minutes later, however, the drunken employee left his house to drive his co-worker home.  During the drive, the employee struck Dr. Purton's car, killing Dr. Purton.  The employee's blood alcohol level was .16.  When he rear-ended Dr. Purton's car, he was traveling over 100 miles per hour.  He pleaded guilty to gross vehicular manslaughter.

Dr. Purton's parents sued the employee and Marriott for wrongful-death.  The case turned on whether the employer could be liable for torts committed by an employee within the scope of employment.  Specifically, the question for the court was whether this employee was acting within the scope of his employment when he left his home, after safely arriving there from the party.  

Marriott argued the employee was not acting within the scope of his employment at the time of the accident.  The employee’s act of drunk driving which caused the fatality had occurred after the employee returned home safely from the party and did not occur while the employee was acting within the scope of his employment.  In other words, its liability ended when the employee arrived home safely from the party.  The court disagreed.  

In the eyes of the court, it was sufficient that the employee’s alcohol consumption occurred during the scope of employment at an employer-sponsored event.  The court further reasoned that it was foreseeable that an intoxicated employee would drive home, and foreseeable that he may not stay at home.

The court held that an employer may be found liable for its employee’s torts as long as the proximate cause of the injury (here, alcohol consumption) occurred within the scope of employment (during the party).  Significantly, the court stated it is irrelevant that foreseeable effects of the employee's negligent conduct (here, the car accident) occurred at a time when the employee was no longer acting within the scope of his employment.  The court saw no legal justification for terminating the employer’s liability as a matter of law simply because the employee arrived home safely from the employer-hosted party.

Thus, the court reversed the trial court’s order granting Marriott’s motion for summary judgment, and sent the case back to be tried in front of a jury to determine whether "the proximate cause of the accident, namely the employee’s intoxication, occurred at the party."  

After the Purton case, employers hosting office parties or events must ask themselves if it is foreseeable that an intoxicated employee could return home and then later cause a car accident.  After the Purton case, employers should think twice before serving alcohol at office-sponsored events.  At the very least, they should limit and monitor employee alcohol consumption.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


California Supreme Court Issues Decision that Administrative Claims for Wages May be Compelled to Binding Arbitration

Sonic-Calabasas v. Moreno

On October 17, 2013, the California Supreme Court issued another important decision in the hotly contested area of binding arbitration agreements in employment cases.  In a prior ruling on the same case (Sonic I), the California Supreme Court held that it was contrary to public policy and unconscionable for an employer to require an employee, as a condition of employment, to waive the right to a Berman hearing, commonly known as a Labor Commissioner hearing for wages owed.  However, after the United State Supreme Court’s decision in AT&T Mobility LLC v. Concepcion (2011), the California Supreme Court was ordered to reconsider this ruling in light of the U.S. Supreme Court’s decision. 

In light of the Concepcion decision, the California Supreme Court has now concluded that the Federal Arbitration Act (FAA) preempts California’s rule prohibiting the waiver of a Labor Commissioner hearing in a predispute arbitration agreement imposed on an employee as a condition of employment.  Now, as a result, arbitration agreements may be used to compel employees to submit claims to binding arbitration rather than adjudicate them before the Labor Commissioner.  

The Court made a point to clarify that a binding arbitration agreement imposed on an employee may still be unconscionable if it is otherwise unreasonably one-sided in favor of the employer.  But, courts may not refuse to enforce an arbitration agreement imposed on an employee as a condition of employment simply because it requires the employee to bypass a Berman hearing.

The impact of this case is potentially significant.  Many wage claims brought before the Labor Commissioner are small and do not appear to justify the effort and expense of compelling a formal arbitration proceeding.  However, an employee who does not win his or her Labor Commissioner hearing may file an appeal and re-litigate the claim before a judge in a bench trial.  Having first successfully defended a claim in a Berman hearing only to have to defend it again in a bench trial can be a very costly matter for an employer when the case eventually comes to a conclusion.  Conversely, an arbitration on even a small wage claim would likely result in a relatively swift and final decision.


New Laws for 2014

The following is a list of new employment laws recently signed by Governor Brown, many of which will go into effect on January 1, 2014.

Recovery Periods - SB 435

Most employers know that if they fail to provide non-exempt employees with meal and rest periods, they must pay a penalty equivalent of one hour of pay for each event.  Now, some employers will have to add "recovery periods" to the list.

Signed by Governor Brown on October 10, 2013, SB 435 requires employers to pay one additional hour of pay at the employee's regular rate of compensation for each workday that a meal, rest or recovery period is not provided.   A recovery period is defined as a "cool-down period" for employees who work outside to prevent heat illness.  Existing Cal/OSHA regulations state that employers should "allow and encourage" employees to take cool-down periods in increments of at least 5 minutes when they feel the need to do so to protect themselves from overheating.  This requirement applies to certain industries that have employees working out-of-doors such as agriculture, construction, landscaping and others.  Thus, we strongly recommend that employers review their Illness and Injury Prevention Program to make sure it is compliant with current Cal/OSHA standards.   

Since SB 435 amends Labor Code section 226.7 which is often used as the basis for missed meal and rest period class action lawsuits, one could reasonably anticipate future missed recovery period class-action cases coming soon to a courtroom near you.  To read the full text of the bill, click here.

Employers may also find information about compliance on Cal/OSHA's website here and here

Military and Veteran Status - AB 556

This bill was signed into law by Governor Brown on October 10, 2013 and adds "military and veteran status" to the list of categories protected from employment discrimination under the Fair Employment and Housing Act.  The law also provides an exemption for an inquiry by an employee regarding military or veteran status for the purpose of awarding a veteran's preference as permitted by law.  To read the full text of the bill, click here.

Immigration and Employment Retaliation -SB 666 

This expansive bill which amends several existing laws, two of which are mentioned here, was signed by Governor Brown on October 5, 2013.  

The bill amends Labor Code section 98.6 to make it clear that written and oral complaints regarding wages an employee believes are owed to him or her are protected activities for purposes of the prohibition on retaliation against an employee for engaging in protected activities.   

The bill also adds Labor Code section 244 which makes it an unlawful "adverse action" to report or threaten to report a current, former or prospective employee or his or her family member to a federal, state or local agency for suspected citizenship or immigration status because of that person's exercise of a right under the Labor Code, the Government Code or Civil Code.  The bill defines "family member" as a spouse, parent, sibling, child, uncle, aunt, niece, nephew, cousin, grandparent, or grandchild related by blood, adoption, marriage, or domestic partnership.  

To read the full text of the bill, click here

Domestic Worker Bill of Rights - AB 241

This new law signed by Governor Brown on September 26, 2013 amends the Labor Code to add section 1450 that requires workers in many household occupations to be paid overtime compensation at a rate of one and one-half times their regular rate for all hours worked in excess of 9 hours per day or 45 hours per week.  This new law does not apply to "casual babysitters" whose work is intermittent or irregular as well as babysitters who are under 18 years of age.  However, the law would apply to nannies, housekeepers, and people who provide care for the elderly or disabled within a private household.  To read the full text of the bill, click here.

Minimum Wage Increase - AB 10

On September 25, 2013, Governor Brown signed AB 10 into law increasing the state minimum wage for all industries on July 1, 2014 to $9.00 per hour and again on January 1, 2016, to $10.00 per hour. 

Paid Family Leave Expansion - SB 770

On September 24, 2013, Governor Brown signed SB 770 which expands California's paid family leave wage replacement program (administered through the EDD) to provide wage replacement benefits to an employee who takes time off to care for a seriously ill grandparent, grandchild, sibling, or parent-in-law, effective July 1, 2014.  Prior to this amendment, the law only provided such benefits to employees who took time off to care for a spouse, child, parent, or domestic partner.  To read the full text of the bill, click here.

This article is for educational purposes only.  Nothing herein should be construed to constitute legal advice.


New I-9 Form

On March 8, 2013, the U.S. Department of Homeland Security issued its updated I-9 Form.  Read more

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