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Winter 2013

Achieving Success Together

At Blasco & Hawekotte General Counsel Services LLP, we try to live by our motto "Achieving Success Together" in order to benefit the businesses that we serve. In representing our clients, we recognize that while California presents many opportunities, it is also the leader in the nation in attempting to preserve and protect employee rights. However, in its quest to protect employees, the expenses and risks associated with hiring new employees has in our opinion resulted in harming those looking for work. Based upon the economics and complexity of hiring new employees, employers are reluctant to hire, and view new employees as more of a liability than as asset. As a result, the volume and complexity of the new employment laws being adopted in California each year present unique employment risks that are different from any other jurisdiction in America.

We recognize that the information that an employer needs to manage its employees is not a list of developments so comprehensive that the significant and the idiosyncratic blur together, but rather an understanding of the general changes in the law that affect all employers. Every business is different, and therefore faces different challenges in the area of labor and employment laws.

What we find assists our business clients at this time of the year is an understanding of the new issues presented by legislation, as well as the Courts attempting to implement such new legislation. The following is a list of what we believe are the most important new issues to be addressed this year.

Review Your Commission Agreements

Every employee whose compensation is based on a commission must have a written commission agreement. There are four key requirements: (1) commission agreements must be in writing; (2) commission agreements must describe the method by which the commission will be calculated and paid; (3) commission agreements must be signed and provided to the employee; and, (4) the employer must have receipt signed by the employee indicating his or her receipt of the fully executed commission agreement.

Why this matters: Unlike some issues where substantial compliance is sufficient, an employer can either produce the required fully executed agreement and receipt, or, it cannot. It is therefore important to verify that both the commission agreement and the executed receipt have been signed, and, that they are in the respective commissioned employee's personnel records. This applies to all of a companies commissioned sales personnel. Even those who have been working for the company for decades.

Update Your Social Media Rules

The law now expressly bans employers of from asking for employee or applicant user names and passwords. [Bob addressed other social media issues in our Summer Newsletter, Vol. 1, No. 3, which discussed making sure that your company owns any social media which is being used for marketing. For company owed social media, you have the right to the password and everything on the company owed social media account.]

Why this matters: The current tendencies of the NLRB are to protect employee communications in non-company owed social media. This includes application to both union and non-union workforces.

Using Social Media to Investigate New Employees

Not asking an applicant for its user name and password does not resolve the issue of: Can an employer search the internet as part of a background check on prospective employees?

Why this matters: The use of the internet in hiring decisions remains a hotbed of potential legal risk for employers. The internet can reveal personal information about a applicant that would be illegal to request during the hiring process (e.g., physical disability, age, marital status, religious affiliation, political affiliations, etc.). Employers should be mindful that using any such negative information in the hiring process may lead to a potential discrimination claim.

Employees Are Entitled to Inspect and Copy Their Personnel Records

Labor Code ยง1198.5 requires employers to allow an employee, a former employee, or his/her representative, to inspect and receive a copy of their personnel records relating to: (1) the employee's performance; and, (2) any grievance concerning the employee. The law establishes a 30-day period in which employers must comply with an employee's request.

Why this matters: The new rule imposes a $750 penalty for non-compliance, per request. This can become costly if you response policy is defective.

Wage Statement and Data Collection Policies

The law has contained a lengthy list of items that must be included in an employees pay stub. The new law clarifies these requirements.

Why this matters: To eliminate technical violations, unlike prior law the new law allows substantial compliance by an employer, by considering whether the employer had reviewed and attempted to instituted policies that were in compliance with the new law. This is just another example of why an employee handbook setting forth such policies is so critical.

Overtime Payment Agreements

The law states that payment of a fixed salary to a nonexempt employee will be deemed to be payment only for the employee's regular, non-overtime hours, notwithstanding any private agreement or "explicit mutual wage agreement" to the contrary.

Why this matters: A misclassification of an employee as exempt, when they are really nonexempt, could subject employers to significant unpaid overtime. This is in addition to interest and penalties accrued. This problem is usually compounded because when an employer misclassifies one employee; such misclassification usually applies to a number of employees.

Lack of Honesty By Employee in Internal Investigation Merited Termination

In McGrory v. Applied Signal Technology, Inc., the plaintiff sued his former employer for wrongful termination under California's Fair Employment and Housing Act (FEHA). The employer retained outside counsel to conduct an internal investigation after a female subordinate of plaintiff had responded to warnings and a performance improvement plan by accusing the plaintiff of sexual harassment and discrimination on the basis of gender and sexual orientation.

The report by the outside attorney substantiated some but not all aspects of the subordinate's claims. The attorney found in an interview with the plaintiff, that he had provided false answers to some questions and refused to answer other questions. As a result of the report, the plaintiff was terminated. The plaintiff did not dispute that the attorney's report contained these 4 conclusions, but disagreed with the accuracy of the conclusions. The court found that the FEHA does not shield an employee from lying or withholding information during an employer's investigation of a discrimination claim, and granted summary judgment to the employer.

Why this matters: The retention of an outside attorney to conduct an investigation when claims of discrimination and sexual harassment occur are critical to the decision that the employer. In this case, the outside attorney concluded that the supervisor was lying and withholding relevant information. This made the employer's decision as to what recourse should be taken, in this case termination, easier, and, provided the employer with the necessary defense to the plaintiff's wrongful termination action.

The Salary Basis Test for Employees Who are Exempt from Overtime

Most litigation over whether employees are classified properly as exempt from overtime involve a determination as to whether the employee spends the majority of his or her work time performing exempt duties. However, employers should not forget the salary basis test.

In Negri v. Koning & Associates, the California Court of Appeal assumed that an insurance adjuster performed more than 50% of his time performing exempt duties, but still found he had been misclassified as exempt because he was paid an hourly rate based solely on the number of hours he worked processing claims and was not guaranteed a minimum salary. Labor Code Section 515(a) exempts an employee from overtime pay eligibility only if he or she is "primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises independent judgment and discretion in performing those duties and earns a monthly salary no less than two times the state minimum wage for full time employment."

In Negri, even though the employee's hourly rate significantly exceeded two times the state minimum wage, his wages did not constitute a salary. Consequently, the employer wound up paying 20 hours of overtime for all 66 weeks the employee worked for the company.

Why this matters: The payment of a fixed salary to an employee is one of the requirements for his or her exempt status. In these economic times, many employers are hiring contract employees who are not paid a salary, but are paid on an hourly basis, which may involve more 5 or fewer hours than the traditional 40 hour work week. However, such hourly employees are not exempt from overtime pay, and are entitled to receive overtime as a non-exempt employee.

Collective Bargaining Agreements Must Expressly Waive Unpaid Vacation

California law prohibits "use it or lose it" vacation policies. Section 227.3 of the California Labor Code requires all accrued vacation to be paid on termination of employment, "unless otherwise provided by a collective bargaining agreement." Examining the meaning of the collective bargaining exception for the first time, the California Court of Appeal in Choate v. Celite Corp., ruled that the employer was liable for unpaid pro rata vacation because the union agreement did not "clearly and unmistakably waive" the employees' rights under Section 227.3.

Why this matters: Any waiver of benefits of any employee benefits must be clear and unambiguous. If there is any ambiguity in the employment agreement, which usually includes in a non collective bargaining employment agreement, an employee handbook, such ambiguous provisions will always be interpreted in favor of the employee.

Garnishment Exemption

The new garnishment exemption is $320 per week ($8 per hour times 40 hours per week.) Furthermore, wages above that threshold can be garnished up to 25% of the debtor's disposable income.

Why this matters: The failure of an employer to follow the garnishment rules is a double-edged sword. If the employer withholds too much, it is liable to the employee for any damage. If the employer withholds too little, it is liable to the judgment creditor for the difference.

Dress Code Changes

he law adds religious dress and grooming to the definition of protected religious observances, and includes wearing religious clothing, head and face coverings as protected activity.

Why this matters: This is an amendment to California's Fair Employment and Housing Act (FEHA) which provides for unlimited emotional distress and punitive damages. This becomes problematic when religious observance is a potential source of conflict between workers of different faiths. Though management may attempt to comply with this non-discrimination requirement, other employees may not feel the same on competing religious grounds.

Discrimination Against Breastfeeding Mothers

The law expands the scope of FEHA to protect breastfeeding mothers against employment discrimination. It includes "breastfeeding" and "medical conditions related to breastfeeding."

Why this matters: This is another amendment to the FEHA which provides for unlimited emotional distress and punitive damages. Employers should be mindful that this new law must be read in conjunction others, which require an employer to provide a reasonable amount of break time to accommodate an employee who needs to express breast milk and also requires that an employer provide adequate private space for an employee to express breast milk. Previously an employee's only remedy for an employer's noncompliance was an action for civil penalties ($100 per instance). The employee's remedy is now unlimited.

Depositions of Employees

The deposition of any person will be limited to seven hours of total testimony. This brings California law in line with federal law.

Why this matters: With the exception of employment cases, an employee cannot be required to attend a deposition for more than seven hours, unless otherwise ordered by the Court.

Worked Performed by Out-of-State Employees

California overtime laws apply to work performed in California for California-based employers by their employees who do not live in California.

Why this matters: When an employee comes from another state to perform work in California, the frequently work overtime in order to get their work done so they can go home. If they are an hourly employee, make sure that they only work 8 hour, or, make sure you pay them for the overtime as provided for by California law, even though their paycheck may be issued in their home state.

Disclosure of Employee Medical Information

California's "Confidentiality of Medical Information Act" provides that a recipient of medical information pursuant to an authorization may not further disclose that medical information except in accordance with a new authorization that meets the requirements of Section 56.11.

Why this matters: When an employer receives medical information regarding an employee as a result of the employee authorizing such disclosure to the employer, the authorization does not extend to the employer disclosing the information to others, without a subsequent authorization by the employee.

An employee who has sustained economic loss or personal injury resulting from the disclosure of his/her individually identifiable medical information may recover, compensatory damages, punitive damages (not to exceed $3,000); attorneys' fees (not to exceed $1,000); and costs of litigation. The statute however provides that these remedies are in addition to any other remedies available at law, which means the sky is the limit if the employee insists upon a jury trial. Furthermore, a knowing or willful violation can subject the employer to a civil fine of $250,000. Finally, note that unlike the tort of slander, the truth of the medical information is not a defense.

Termination of an Employee Following Exhaustion of Medical Leave May Be Actionable

Your company provides an employee with the maximum time of leave allotted by statute. The employee, however, is unable to return to work after the leave has expired. Because your company permitted all of the leave to which the employee was entitled and the employee is still unable to work, your company decides to terminate the employee. Under California law, your company may have violated California's FEHA. In Sanchez v. Swissport a California appellate court was asked to determine whether an employee who exhausted all permissible leave under the Pregnancy Disability Leave Law (PDLL) may state a cause of action under FEHA upon termination. The Court stated that an employer may commit employment discrimination in violation of FEHA in terminating a pregnant employee due to her failure to return to work even if the employer granted the employee the maximum leave provided under the PDLL. The Court held that disability leave required as a reasonable accommodation for a known disability under FEHA may in some circumstances exceed four months.

Why this matters: It is now clear that, even when an employer has provided an employee with the maximum amount of required leave and the employee has exhausted such leave under the PDLL and the FMLA, the FEHA requires employers to engage in an interactive process to determine whether there are any other reasonable accommodations (e.g., providing more leave time to the 8 employee.) If your company is presented with this situation, your company needs to initiate the interactive process and determine whether the employee is able to return to work after an additional short-term leave, or, whether a modified work schedule is feasible. Your company needs to work with the employee around the time his/her leave is expiring, to determine if he or she is returning to work, and if not, the reasons for their inability to return to work. If the reason is additional time is needed, the company needs to determine whether any additional reasonable accommodations are available. Of course, all of these actions need to be documented.

Employer has opportunity (or a duty?) to compel mental health exam of plaintiff

In employment cases, employees frequently put their medical condition and history at issue by alleging they are disabled or have suffered emotional injuries as a result of their employer's actions. However, they are then are able to deny their employers access to their medical records and avoid independent medical examinations ("IMEs"). Courts justify this doublestandard by finding that such discovery would invade the plaintiffs' privacy and that claimed emotional injuries are "garden variety." However, in one recent case an employer successfully required a discharged worker to undergo an IME.

Why this matters: Be careful what you wish for, as such a decision to allow an IME may create a legal duty on the part of the company to take follow-up action. If the psychiatrist who performs the IME informs the company that the employee poses a danger to a targeted individual, especially one employed by the company, the psychiatrist (and also, perhaps, the company) may have a duty to warn the targeted victim. Moreover, this law may develop in such a way that, where general discovery reveals that a current or former employee may pose a threat to a targeted individual, especially one employed by the company, the employer may have a legal duty to request an IME, in order to gain a better basis for a warning to the targeted individual.

Arbitration Agreement in Employee Handbook May Be Unenforceable

In Serpa v. California Surety Investigations, Inc. the Court held that an arbitration agreement contained in an employee handbook was not invalid simply because the employer could change the handbook in its discretion. The Court held that the implied covenant of good faith and fair dealing limited the employer's right to alter the agreement unilaterally; thus, the agreement was not illusory or unconscionable for lack of mutuality.

Why this matters: California law, like federal law, favors enforcement of valid arbitration agreements. Under California law, an arbitration agreement must be both procedurally and substantively unconscionable for it to be found invalid. When examining for procedural unconscionability, a court looks at two factors: oppression and surprise. Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create an overly harsh or onesided result. Substantive unconscionability occurs when an arbitration agreement is one-sided in favor of the employer without sufficient justification, for example, when the employee's claims against the employer, but not the employer's claims against the employee, are subject to arbitration.

The Court concluded the implied covenant of good faith and fair dealing limited an employer's authority to unilaterally modify the arbitration agreement and saved that agreement from being illusory and thus unconscionable. Far from finding the arbitration agreement unfairly gave the employer an advantage, the Court concluded that requiring the exhaustion of internal grievance procedures before arbitration commenced was both reasonable and laudable.

Amendments to Employee Handbooks

As the above changes in the law indicate, it is probably time to have your company's Employee Handbook updated and amended to reflect these, as well as other changes in California and Federal law.

© Blasco & Hawekotte General Counsel Services LLP 2013. All rights reserved.
No portion of this article may be copied, retransmitted, reposted, duplicated or otherwise used without the express written approval of the Blasco & Hawekotte General Counsel Services LLP.

This article is not legal advice and is not intended as legal advice. This article is intended to provide only general, non-specific legal information. This article is not intended to cover all the issues related to the topic addressed. The specific facts that apply to your matter may make the outcome different. This article is based on United States and California law. You should consult with an attorney familiar with the issues and the laws of your state. This article does not create any attorney client relationship.