2004 LABOR AND EMPLOYMENT LEGAL UPDATE Presented by

2004 LABOR AND EMPLOYMENT LEGAL UPDATE Presented by: Jeffrey A. Dinkin Sheppard, Mullin, Richter & Hampton LLP

NEW LAWS FOR 2004 WAGE AND HOUR LEGISLATION

SB 796: Labor Code Private Attorney General Act of 2004 a/k/a The Bounty Hunter Bill

SB 796: The Bounty Hunter Bill l Effective January 1, 2004 l Provides a private right of action For any provision of the Labor Code that provides for a civil penalty to be assessed and collected by the Labor Commissioner l Penalties may now, as an alternative, be recovered through a civil action brought by an aggrieved employee l On behalf of him/herself and other current or former employees l

SB 796: The Bounty Hunter Bill l Adds a penalty to all Labor Code sections that do not already have a penalty provision l Penalty varies by number of employees at the time of the alleged violation: if no employees - $500 l one or more employees: l l l $100 per employee per pay period for the initial violation $200 per employee per pay period for subsequent violations

SB 796: The Bounty Hunter Bill l Successful plaintiff may recover reasonable attorneys’ fees and costs l Where the penalty goes: If no employees– 50% to General Fund and 50% to the Labor and Workforce Development Agency l One or more employees – 50% to General Fund, 25% to Labor and Workforce Development Agency, 25% to the aggrieved employee(s) l

SB 796: The Bounty Hunter Bill l So l what does this mean? Lawsuits for technical or trivial violations of the Labor Code LC Section 431 (failing to file an application with the DLSE) l LC Section 432. 5 (forcing employee to sign a document with a condition that is prohibited by law, e. g. , a non-compete provision) l LC Section 1198. 5 (inspection of personnel file) l

SB 796: The Bounty Hunter Bill l So l what does this mean? Motivation for employees and attorneys to bring lawsuits for Labor Code violations Employees get 25% of the penalties awarded l Their attorneys get their attorneys fees awarded l Collective actions that may not need to satisfy the typical requirements for a class action l More costly lawsuits for California employers l

SB 796: The Bounty Hunter Bill l So what should employers do? Review handbooks and policies for Labor Code compliance l Review practices for compliance l Educate and train supervisors l Don’t delay in correcting problems l l Bill may be challenged as form of impermissible tax legislation

AB 223: New Rule for DLSE Appeals

AB 223: New Rule for DLSE Appeals l Effective January 1, 2004 l Overturns 2002 California Supreme Court decision (Smith v. Rae-Venter Law Group) l Labor Code Section 98. 2 Either party may appeal a Labor Commissioner decision l If the party seeking appeal is unsuccessful, must pay other side’s costs and attorneys’ fees l

AB 223: New Rule for DLSE Appeals l Old Rule - Appealing party is only “successful” if court’s ruling on appeal is more favorable to the appealing party l Example: Employer appeals award of $500 to employee l Court awards $300 to employee l Employer is “successful” and does not pay employee’s fees and costs l

AB 223: New Rule for DLSE Appeals l New Rule - Employee who appeals is “successful” if the court awards an amount greater than zero l Examples: l Employee appeals $100 award to employee l l l Employee recovers $105 - employee is successful and will be awarded fees and costs Employee recovers $10 - employee is successful and will be awarded fees and costs Employee recovers ZERO - employee is unsuccessful and will not be awarded fees and costs

AB 223: New Rule for DLSE Appeals l New Rule - Employer that appeals is “successful” only if court award is zero l Examples: l Employer appeals $100 award to employee: l l l Employee gets $105 on appeal - employer is unsuccessful and must pay employee’s fees and costs Employee gets $10 on appeal - employer is unsuccessful and must pay employee’s fees and costs Employee gets ZERO on appeal - employer is successful and is not required to pay employee’s fees and costs

AB 223: New Rule for DLSE Appeals l So what does this mean? Employers should carefully consider whether to appeal a DLSE award l Employers should strongly defend all claims at the DLSE hearing stage l l Do not wait for appeal to make your best arguments!

AB 276: Increased Labor Code Penalties

AB 276: Increased Labor Code Penalties l Effective January 1, 2004 l Amends various Labor Code Sections to provide for increased penalties l LC Section 210 – penalties for violation of Sections 204, 204 b, 204. 1, 204. 2, 205. 5, 1197. 5 (payment of wages requirements) old penalty - $50/$100 l new penalty - $100/$200 l

AB 276: Increased Labor Code Penalties l LC Section 225. 5 – penalties for violation of Sections 212, 216, 221, 222, 223 (failure to properly pay wages) old penalty - $50/$100 l new penalty - $100/$200 l l LC Section 1197. 1 – failing to pay minimum wage old penalty – $50 per employee per pay period l new penalty – $100 per employee per pay period l subsequent violations – remains $250 per employee per pay period l

AB 276: Increased Labor Code Penalties l Amends Labor Code Section 226 (itemized wage statements furnished to employees) l l Itemized statements must not only be provided, but now must also be “accurate” Does not change penalties: $50 per employee per pay period for initial violations l $100 per employee per pay period for subsequent violations l aggregate maximum penalty of $4, 000 l $750 penalty for failure to provide requested records l

AB 276: Increased Labor Code Penalties l So what does this mean? Employers must continue to be vigilant in complying with California’s wage and hour provisions l Wage statements must satisfy all nine requirements in Labor Code Section 226 l

SB 179: Liability for Companies Entering Into Service Contracts

SB 179: Liability for Companies Entering Into Service Contracts Applies to companies or individuals who enter into labor contracts for construction, farm labor, garment, janitorial or security guard services l Liability and civil penalties if knew or should have known that contract does not provide funds sufficient to allow the labor contractor to comply with all applicable laws or regulations governing the labor or services to be provided under the contract. l

SB 179: Liability for Companies Entering Into Service Contracts l Rebuttable presumption that no violation of law where the contract meets 10 requirements. l These 10 requirements must be contained in a single written documents and are: 1. Name, address and telephone number of contracting parties;

SB 179: Liability for Companies Entering Into Service Contracts 2. 3. 4. Description of services to be provided and statement of when services to be commenced and completed; Contractor’s employer identification number; Contractor’s workers’ compensation insurance policy number and carrier’s name address and telephone number;

SB 179: Liability for Companies Entering Into Service Contracts 5. 6. 7. Vehicle identification number of any vehicle owned and used by contractor in connection with contract services and information about vehicle liability insurance policy; Address of any real property used to house workers in connection with contract; Total number of workers to be employed under contract, total amount of all wages to be paid, and dates when wages are to be paid;

SB 179: Liability for Companies Entering Into Service Contracts 8. 9. 10. Amount of commission or other payment made to contractor; Total number of persons to be utilized under contract as independent contractors and list of their license numbers; and Signatures of contracting parties and date contract signed.

SB 179: Liability for Companies Entering Into Service Contracts l So l what does this mean? Ensure that future labor contracts for construction, farm labor, garment, janitorial, or security guard services contain the 10 essential provisions for the rebuttable presumption

New Rates Effective 2004 l IRS l Mileage Reimbursement Rate 37. 5¢ per mile (up from 36¢) l Minimum Pay for Exempt Computer Software Employees l $44. 63 per hour (up from $43. 58) l Minimum Pay for Exempt Licensed Physicians l $ 57. 56 per hour (up from $56. 21)

SB 420: Medical Marijuana and the Workplace l Employers are not required to accommodate the medical use of marijuana at the workplace or during work hours l Health insurers are not required to provide reimbursement for the medical use of marijuana

NEW LAWS FOR 2004 INSURANCE LEGISLATION

SB 2: Health Insurance Act of 2003

SB 2: Health Insurance Act of 2003 l Mandated health insurance coverage paid for by employers. l Will affect about 860, 000 employees and dependents of companies with 50 or more employees l About 18% of 4. 5 million uninsured Californians l Cost estimate $1. 3 billion (CMA) to $11. 3 billion (Employment Policies Institute)

SB 2: Health Insurance Act of 2003 l Effective dates: January 1, 2006 for employers with 200 or more employees l January 1, 2007 for employers with 50 to 199 employees l January 1, 2007 for employers with 20 to 49 employees (goes into effect only if tax credit in place) l

SB 2: Health Insurance Act of 2003 l “Pay or Play” System l Requirements for large employers (200+) l Pay fee to EDD to provide health coverage for each employee and qualified dependent l l Qualified dependents include spouses, dependent children and domestic partner Or provide appropriate healthcare coverage for employees and qualified dependents

SB 2: Health Insurance Act of 2003 l Requirements for medium-sized employers (50 -199; 20 -49 if tax credits) Pay fee to EDD to provide health coverage for each employee l Or provide appropriate healthcare coverage for employees l l Exemption for small employees with less than 20 employees

SB 2: Health Insurance Act of 2003 l Eligibility l requirements Coverage must be provided or fee paid if employee worked Minimum of 3 months; and l At least 100 hours per month l l Average of 23 hours per week

SB 2: Health Insurance Act of 2003 l Employee Costs l l Employees can be required to pay up to 20% of premium costs Exception where employees make less than 200% of Federal Poverty Level l l Can only be required to contribute up to 5% of wages Exception where coverage provided for employee and dependents and employer pays more than 80% of employee coverage costs l Can require employee to pay more than 20% of coverage costs

SB 2: Health Insurance Act of 2003 l Actual implementation of SB 2 not certain Referendum sponsored by Chamber of Commerce l State litigation based on unlawfully imposed tax without required 2/3 rd vote in legislature l Federal litigation based on ERISA preemption l Legislative action l

AB 226: Life Insurance Policies for Non-Exempt Employees

AB 226: No Employer-Owned Policies for Non-Exempt Employees Effective January 1, 2004 l Employers can no longer purchase life insurance designating the employer as the beneficiary for current or former non-exempt California employees l Existing policies will remain in effect only if no premium payments need be made after January 1, 2004, and then only remain in effect until January 1, 2010 l l Notice required to affected non-exempt employees

AB 226: No Employer-Owned Policies for Non-Exempt Employees l So what does this mean? Determine status of existing insurance policies covering non-exempt employees l Confirm exempt status of employees covered by employer-owned life insurance policies l

NEW LAWS FOR 2004 TIME OFF LEGISLATION

SB 1661: Paid Family Leave

SB 1661: Paid Family Leave l New program – Paid Family Leave (PFL) l l a component of State Disability Insurance (SDI) Provides up to 6 weeks of State payments for individuals unable to work due to: l l need to care for sick or injured child, spouse, parent, domestic partner, or need to care for new child (birth, adoption, foster care placement) l includes birth of domestic partner’s child

SB 1661: Paid Family Leave l January 1, 2004 Law goes into effect l Employees start contributing l . 08% on first $68, 829 of wages l In addition to 1. 1% SDI employee contribution l l New notice must be given to employees hired after January 1, 2004. Form DE 2511 (“Paid Family Leave”) l go to: www. edd. ca. gov/direp/difla. htm l

SB 1661: Paid Family Leave l July 1, 2004 Individuals can begin receiving PFL benefits l Notice must also be provided to each employee who leaves work to care for a seriously ill family member or to bond with a new child l

SB 1661: Paid Family Leave l Limits on benefits No PFL if receiving other benefits from State (unemployment, disability, etc. ) l No PFL if another family member is able and willing to provide care l 7 day waiting period l Employers can require employees to use 2 weeks accrued vacation l

SB 1661: Paid Family Leave l Benefit right, not a leave of absence right PFL provides benefits where an individual is unable to work because of a need to care for family member l PFL does not require employers to grant leaves of absence l l Employee’s right to a leave of absence will depend on state and federal leave laws (FMLA. CFRA, PDL, etc. ) or an employer’s policies

SB 1661: Paid Family Leave l So what does this mean? l l Print out copies of the Notice and start providing to new employees as of January 1, 2004, and employees leaving work for family reasons as of July 1, 2004 Revise handbook to address PFL issues l l Vacation, sick leave coordination, overlap with FMLA/CFRA, notice, return to work Make sure your payroll is ready to start making tax deductions as of January 1, 2004

SB 478: Time Off to Attend Judicial Proceedings

SB 478: Time Off to Attend Judicial Proceedings l Effective January 1, 2004 l Applies to employees who are victims, or related to victims, of certain felonies l Allows time off work to attend judicial proceedings related to the crime regardless of whether employee’s attendance is required

SB 478: Time Off to Attend Judicial Proceedings l Covered crimes include violent or serious felonies (Penal Code §§ 667. 5, 1192. 7), or felony involving theft or embezzlement l To qualify crime victim must be employee or employee’s spouse, child, stepchild, brother, stepbrother, sister, stepsister, mother, stepmother, father, stepfather or registered domestic partner

SB 478: Time Off to Attend Judicial Proceedings Where feasible, employee must give employer prior notice of need to attend judicial proceeding l If prior notice not given, employer cannot take action against employee for unscheduled absence if employee provides appropriate documentation within reasonable time after absence l Leave is unpaid unless employee elects to use accrued sick leave, vacation, or compensatory time off l

SB 478: Time Off to Attend Judicial Proceedings l So what does this mean? Review and revise leave of absence policies to comply with law l Ensure policy provides appropriate notice requirements l

NEW LAWS FOR 2004 DISCRIMINATION LEGISLATION

AB 76: Liability for Sexual Harassment by Non-Employees

AB 76: Employer Liability for Sexual Harassment by Non-Employees l Effective January 1, 2004 l Imposes liability on employers for sexual harassment committed by customers, clients, or other non-employees If employer knows or should have known of the incident and l Fails to take immediate and appropriate corrective action l

AB 76: Employer Liability for Sexual Harassment by Non-Employees l Extent of employer’s control and any other legal responsibility the employer may have over the conduct of the nonemployee will be considered in determining liability l No guidance about what constitutes sexual harassment by non-employees and/or what constitutes appropriate corrective action

AB 76: Employer Liability for Sexual Harassment by Non-Employees l So what does this mean? l l l Ensure that clear anti-harassment policy is in place Include prohibition of harassment in appropriate contractual relationships Ensure that policy includes prohibition of sexual harassment by non-employees Ensure that policy has clear complaint procedure Ensure that supervisors are aware of expanded duties to respond to employee complaints of harassment by nonemployees

AB 196: Gender Identity

AB 196: Gender Identity Effective January 1, 2004 l Definition of “sex” under FEHA expanded to include person’s gender l Acts to prohibit discrimination or harassment based on gender identity and perceptions of an individual’s gender l l Regardless of whether the perceived gender characteristics are different from those traditionally associated with the individual’s sex at birth

AB 196: Gender Identity l Does not affect employer’s ability to require employees to comply with reasonable workplace appearance, grooming and dress standards But cannot be precluded by other provisions of state or federal law l Employers must allow employees to appear and dress consistently with their gender identity l

AB 196: Gender Identity l So what does this mean? Review and revise discrimination and harassment policies to comply with law l Review and revise any appearance, grooming and dress standards l Educate supervisors and employees about requirements of law l

SB 777: New Whistleblower Rules

SB 777: New Whistleblower Rules l Existing law prohibits employers from adopting or enforcing any rule, regulation or policy that prevents employees from disclosing information to government agency where employee has reasonable cause to believe the information disclosed constitutes violation of state or federal law, or retaliating against employee who makes a disclosure

SB 777: New Whistleblower Rules l New protections effective January 1, 2004 l Whistleblower protections extended to employees who refuse to participate in an illegal activity or activity that may result in violations of state or federal law l Also prohibits retaliation against employees for having exercised their whistleblower rights in any former job

SB 777: New Whistleblower Rules l New l penalty for violations Employer who is corporation or LLC is liable for civil penalty up to $10, 000 for each violation l In addition to any other penalties

SB 777: New Whistleblower Rules l New burden of proof for employers Under existing law, employee must demonstrate violation by preponderance of the evidence l Now, employer must show by clear and convincing evidence that alleged retaliatory action would have occurred for legitimate, independent reasons even if the employee had not engaged in whistleblower activities l

SB 777: New Whistleblower Rules l Whistleblower l hotline established To be maintained by office of the State Attorney General to receive calls from persons who have information about possible violations of state or federal laws, or violations of fiduciary responsibility by a corporation or LLC to its shareholders, investors or employees l Call received to be referred to appropriate government authority for review and possible investigation

SB 777: New Whistleblower Rules l Whistleblower l law posting required Employers must post list of employees’ rights and responsibilities under the whistleblower laws, including the telephone number of the whistleblower hotline

SB 777: New Whistleblower Rules l So what does this mean? Review and revise policies to ensure compliance with whistleblower laws l Educate supervisors about legal standards and how to handle situations l Post information on whistleblower laws and whistleblower hotline number l

AB 1536: Service of Discrimination Complaints

AB 1536: Service of Discrimination Complaints l Current law requires DEFH to serve copy of any complaint alleging an unlawful practice under FEHA on employer within 45 days of date complaint filed l New law provides that when complaining party is represented by private counsel, the counsel, not DFEH, must serve complaint on employer within 60 days of date complaint filed

NEW LAWS FOR 2004 DOMESTIC PARTNER CHANGES

AB 205: Domestic Partner Rights and Responsibilities Act l Effective January 1, 2005 l Requires that legally required rights afforded to married persons under statutes such as family care and medical leave laws, statutes governing insurance coverage, spousal pension rights and death benefits, be extended to those in registered domestic partnerships

AB 17: Domestic Partner Rules for State Contractors Effective for contracts executed or amended on or after January 1, 2007 l Prohibits state agencies from entering into contracts for acquisition of goods or services with contractor who discriminates in the provision of benefits between employees with spouses and employees with domestic partners l Applies to contracts of $100, 000 or more l Requires that state contracts contain statement of compliance with rules l

HR 2622: FAIR AND ACCURATE CREDIT TRANSACTIONS ACT OF 2003 REQUIRED DISCLOSURES OF WORKPLACE INVESTIGATIONS

HR: 2622: Fair and Accurate Credit Transactions Act of 2003 l To address concerns raised by 1998 FTC opinion letter interpreting the Fair Credit Reporting Act (“FCRA”) l Under FACT, employers need not comply with the FCRA disclosure requirements when hiring a third party to conduct certain workplace investigations

HR 2622: Fair and Accurate Credit Transactions Act of 2003 l Under FACT, employers need not comply with the FCRA disclosure requirements when hiring a third party to conduct certain workplace investigations: l l l Investigations of suspected misconduct related to employment Investigations relating to compliance with applicable laws, the rules of self-regulatory organizations (such as the SEC), or the employer’s preexisting written policies These disclosure exclusions apply only when report or communication of investigation results is not provided to any person except employer or employer’s agent; governmental officer, agency or department; a selfregulatory organization; or as otherwise required by law

HR 2622: Fair and Accurate Credit Transactions Act of 2003 l Disclosure requirement if employer takes adverse action taken an employee based in whole or in part on the investigation report or communication Must provide summary of the report or communication to the affected employee l Summary need not disclose the sources of the information contained in the report or communication l

HR 2622: Fair and Accurate Credit Transactions Act of 2003 l What l does this mean? Ensure compliance with employer obligations under FACT when engaging a third party to conduct a workplace investigation

OTHER LEGISLATION

Other Legislation l Among the other employment-related legislation passed are laws pertaining to specific industries, including l l AB 394: Nurse staffing ratios established for acute care hospitals AB 330: Meal period exemptions for bakery employees AB 1688: Wage-hour regulations created for car washes AB 1497: Amendments to state plant closing law enacted for landfill operators

Other Legislation AB 385: New wage statement rules for state agencies l AB 1758: New overtime standards for Department of Corrections l SB 259: State military leave provisions amended to authorize school districts and community college districts to supplement pay for employees on leave l l Updated OSHA posters released

Other Legislation l Local minimum wage ordinance for covered employees in the City and County of San Francisco l l l Effective February 2, 2004 Minimum wage of $8. 50 per hour for work performed within San Francisco Workers’ compensation reform l l l More information than we have time for But significant additional reforms are needed Continue to let your state representatives know the urgency of this problem

SIGNIFICANT COURT DECISIONS SEXUAL HARASSMENT BONUS SYSTEMS NON-SOLICITATION AGREEMENTS DUTIES IN INTERACTIVE PROCESS

Avoidable Consequences Defense to Sexual Harassment Claims State Department of Health Services v. Superior Court (Mc. Ginnis)

Avoidable Consequences Defense to Sexual Harassment Claims Federal Law recognizes defense in Title VII cases where employee suffered no tangible adverse employment action and employer demonstrates: (1) exercised reasonable care to prevent and promptly correct sexually harassing behavior; and (2) plaintiff unreasonably failed to take advantage of preventive or corrective opportunity. l California Courts previously split on whether this defense would apply to claims under the FEHA. l

Avoidable Consequences Defense to Sexual Harassment Claims November 24, 2003 California Supreme Court decision recognized that employers may assert a defense of “avoidable consequences” l Employers are still strictly liable for sexual harassment (liable whether or not it knew about the harassment) but can reduce damages by showing the following: l l (1) employer took reasonable steps to prevent and correct workplace harassment; (2) employee unreasonably failed to use the preventive and corrective measures provided by employer; and (3) reasonable use of the employer’s procedures would have prevented at least some of the harm suffered.

Avoidable Consequences Defense to Sexual Harassment Claims l So, what does this mean? Employers should have a policy and procedure for dealing with harassment, and strongly encourage reporting of harassment. l All employees should be advised of and sign off on acknowledgement of policy and procedure. l Employers should enforce their policies so that they can show that reporting would have prevented harm. l

Potential Problems with Profitability Based Bonus Systems Ralphs Grocery Co. v. Superior Court (Swanson)

Potential Problems with Profitability Based Bonus Systems November 2003 case involved profitability bonus calculations which included costs of workers’ compensation claims and cash shortages in determining the store’s profitability l California Appellate Court ruled this was improper because: l l Labor Code § 3751(a) prohibits reductions in employee wages due to the cost of workers’ compensation claims; and IWC Orders prohibit deductions from wages for cash shortage, breakage or loss except in certain circumstances. Court did not care that this was a bonus calculation rather than a direct pay reduction, reasoning that if the employee suffered the burden of the loss, it must be considered a deduction from, or reduction of, wages.

Potential Problems with Profitability Based Bonus Systems l So what does this mean? Employers should not include costs of workers’ compensation claims in determination of profitability for purposes of bonuses to any employee. l Employers should not include losses due to cash shortages, or loss or breakage of equipment or inventory in determination of profitability for purposes of bonuses to nonexempt employees. l

Agreements Not to Solicit Customers After Employment Thompson v. Impaxx, Inc.

Agreements Not to Solicit Customers After Employment Common language in employment contracts prohibits an employee from soliciting customers or potential customers of the employer for 1 year after termination of employment l Employee was terminated for refusing to sign an agreement with such a provision l California Appellate Court said this was a wrongful termination in violation of public policy l

Agreements Not to Solicit Customers After Employment California law says any contract by which anyone is restrained from engaging in a lawful profession, trade or business is to that extent void l Previous case (D’Sa v. Playhut) held that it was wrongful termination to discharge an employee for refusing to sign an unenforceable covenant not to compete l Employer argued that this was not a true covenant not to compete, but merely a restrictive covenant l

Agreements Not to Solicit Customers After Employment Court said non-solicitation covenants are only enforceable to the extent they are necessary to protect trade secrets l Where employer cannot show that the information which the covenant is meant to protect, usually customer information, rises to the level of trade secret, the covenant will not be enforceable l In order for customer information to be protectable as trade secret, the information must derive independent economic value from not being generally known and be the subject of efforts to maintain its secrecy l

Agreements Not to Solicit Customers After Employment l So what does this mean? If employers want to require employees to sign agreements not to solicit customers, they must ensure that covenant is no more broad than necessary to protect trade secret information l and they must treat customer information as trade secret l

Employee Duty to Cooperate During Interactive Process Allen v. Pacific Bell

Employee Duty to Cooperate During Interactive Process FEHA requires that employers initiate interactive process to discuss possible accommodation of disability l In a November 2003 case, the employee simply insisted that the employer accommodate him by eliminating certain job duties from his previous job as a service technician, but failed to provide medical evidence that he was able to perform the remaining essential functions of that job l Employer had a process for obtaining alternative jobs, employee failed to cooperate, including by failing to show up for a keyboard test required for a desk job l

Employee Duty to Cooperate During Interactive Process l Court found that the employer was justified in not returning the employee to his previous job and in not offering any other job because the employee had failed to cooperate in the interactive process

Employee Duty to Cooperate During Interactive Process l So, what does this mean? Employers should have a procedure for the interactive process and document that options are made available to and discussed with disabled employees l If the employee fails to cooperate, the employer may be justified in not accommodating the employee l

2004 LABOR AND EMPLOYMENT LEGAL UPDATE THANK YOU!!