The interplay between workers’ compensation claims and The Americans with Disabilities Act (“ADA”) is not always easy. A typical workplace situation occurs when an employee is injured on the job resulting in a leave of absence. When the employee is provided a medical release to return to work with modified work duty, the employer often believes termination of employment is appropriate if the employer believes the modified work duty precludes the employee from performing the essential functions of the job. Termination of employment may not be appropriate. Under the ADA and applicable state law, the employer is required to engage in the interactive process to determine whether other forms of reasonable accommodation are appropriate. Mistakes can be costly, in one instance to the tune of $2.2 million. Ask Lucent Technologies. EEOC v. Lucent Technologies, Inc. (2011) 642 F.3d 728.
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“Filing” a complaint under the federal Fair Labor Standards Act (FLSA) includes a verbal complaint. The FLSA establishes overtime pay and minimum wage standards for full-time and part-time employees in the private sector. The U.S. Supreme Court ruled that a verbal complaint is sufficient to trigger the FLSA’s anti-retaliation provision. Kasten v. Saint-Gobain Performance Plastics Corp (2011) 131 S.Ct. 1325. The typical situation involves an employee complaining to a supervisor about being short on overtime pay. The employee is subsequently terminated ostensibly for performance reasons. The employee then files a wrongful termination claim in violation of public policy as a result of the anti-retaliation provision of FLSA. Lessons learned: (1) Take complaints seriously. Supervisors should immediately communicate the nature of the complaint to person(s) in charge of human resources or pay disputes for an immediate investigation as to the nature of the complaint. Involve the complaining employee in the investigation. Communicate the results of the investigation to the employee. If warranted, take appropriate remedial action. (2) If discipline is warranted (unrelated to the FLSA complaint), make certain that there is a factual basis for the discipline, consistent with past practice, that justifies the discipline.
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California Pregnancy Disability Leave (PDL) now requires employers to provide continued health insurance coverage while an employee is on a PDL leave. The insurance coverage is at the same level and under the same conditions that coverage would have been provided had the employee continued active employment. The maximum duration of this required coverage mirrors the duration of PDL (4 months).
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California Minimum Wage Issues
Minimum Hourly Wages for exempt employees
|
Physicians and surgeons |
$70.86 |
1/1/12 |
|
Software Employees |
$38.89 |
1/1/12 |
Minimum Wage
|
San Francisco Minimum Wage |
$10.24/hr |
1/1/12 |
|
California |
$ 8.00/hr |
no change |
|
Federal |
$ 7.25/hr |
no change |
Numerous other cities, counties and the Port of Oakland have adopted living wage ordinances.
Effective January 1, 2012, employers are required to provide non-exempt persons with written notification concerning their wages. The Labor Commissioner is in the process of completing a form for this purpose. Prudence would dictate that until a form is available, the required information contained in California Labor Code Section 2810.5 be included in an offer letter, confirmation-of-employment letter or some other similar written communication to a new hire. It may also be prudent to provide the same notice to current employees and exempt employees.
Section 2810.5 (a) (1) At the time of hiring, an employer shall provide each employee a written notice, in the language the employer normally uses to communicate employment-related information to the emloyee, containing the following information:
(A) The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable.
(B) Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances.
(C) The regular payday designated by the employer in accordance with the requirements of this code.
(D) The name of the employer, including any “doing business as” names used by the employer.
(E) The physical address of the employer’s main office or principal place of business, and a mailing address, if different.
(F) The telephone number of the employer.
(G) The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
(H) Any other information the Labor Commissioner deems material and necessary.
Effective January 31, 2012, employers are required to post a new poster, “NLRA Rights.” The new posting requirement is the result of the National Labor Relations Board (“NLRB”) determining that both unionized and non-unionized employers subject to NLRB jurisdiction must advise employees of their rights relating to the National Labor Relations Act (“NLRA”). The notice must measure 11 x 17 inches and be posted in all locations where employee notices typically are posted, including on a company’s intranet or internet site if the company customarily posts personnel rules and policies on its intranet or internet. Failure to post the notice may be treated by the NLRB as an independent unfair labor practice.
Posters may be obtained free of charge from NLRB regional offices or by calling (202) 273-0064, or by ordering/downloading from the NLRB website: http://www.nlrb.gov. The poster, which may be available in a language other than English, is required at workplaces where at least 20% of employee are not English-proficient.
California law provides that an employer may seek a restraining order on behalf of an employee who has suffered unlawful violence or a credible threat of violence from any individual that can reasonably be construed to be carried out or has been carried out in the workplace. California employers have a duty to maintain a safe workplace.
The typical situation often involves a workplace altercation (i.e., employee discipline, reduction in force, termination, etc.) or domestic dispute (i.e., spouse, partner, significant other or children). Someone gets angry and makes some type of threat against an employee. The employee becomes frightened and fears for his/her safety while at work. Under Code of Civil Procedure section 527.8, the employer may seek a temporary restraining order and injunction on behalf of the employee.
The employer has the burden of proof by clear and convincing evidence to prove that the defendant is engaged in a course of conduct showing a credible threat of violence. The hearing is before a judge, not a jury. The judge will make an immediate decision. Hearings are inevitably held on an expedited basis to protect employees.
A recent case, Kaiser Foundation Hospitals v. Jeff Wilson (December 5, 2011, 4th Appellate District), provides guidance on admissibility of evidence. Wilson was married to an employee, whose employment was terminated by Kaiser. Wilson subsequently threatened two Kaiser employees. Wilson was in the nurse’s area visiting a patient when he yelled at another employee that he was going to “put down” a specifically identified Kaiser employee. On another occasion in the Kaiser hospital, Wilson said he was going to “flip his lid” and “do something that he would regret.” On another occasion, he was detained by police after making threats that he was going to “kill someone.” The following day, his wife told a therapist that Wilson had been making threats that he was going to shoot a specifically named Kaiser employee.
The trial court granted Kaiser’s request for a restraining order. Wilson appealed, arguing that the court based its decision on inadmissible hearsay. The Court of Appeal affirmed the trial court decision.
The Court of Appeal admitted that it found very little guidance whether hearsay is admissible in this situation. It did find the following persuasive authority:
- Code of Civil Procedure section 527.8(f) specifically states that the trial court “shall receive any testimony that is relevant (emphasis in original).”
- The plain language of this provision suggests that the Legislature intended to permit a trial court to consider all relevant evidence, including hearsay evidence, when deciding whether to issue an injunction to prevent workplace violence pursuant to section 527.8
- The language of the statute pertaining to hearsay evidence (Evidence Code section 1200) provides that hearsay evidence is generally inadmissible “except as provided by law.” Section 527.8 is such an exception.
The court concluded that “the unique context of a hearing pertaining to a workplace violence injunction supports our conclusion.”
Employers should take seriously any threat of violence in the workplace. Employers should carefully evaluate whether an immediate restraining order is appropriate. The Kaiser case provides guidance relating to the standard of the admissibility of evidence.
Employers frequently run pre-employment credit checks on job applicants. Effective January 1, 2012, there are new restrictions that significantly limit this action. AB 22 amends the California Civil Code and Labor Code by prohibiting the use of pre-employment consumer credit reports unless the position for which the report is sought is defined by statute. For most businesses, this means a managerial position, a position involving a high degree of financial involvement with the business, or access to confidential or proprietary information. All persons must be notified when obtaining a consumer credit report and the person must be notified of the specific reason for obtaining the report.
If employers determine a pre-employment credit check is necessary, prudent business practice would indicate that employers provide applicants a copy of the statute indicating the specific reason for obtaining the report. Have the person sign an acknowledgement of receipt. Retain the original signed acknowledgment and provide a copy to the applicant.
For companies using background search companies for pre-employment background checks, including credit checks, the written contract with the background search company should include a representation that it is in compliance with all federal and state laws with respect to any background check. The company should provide indemnification for any violation. Really prudent employers will request a copy of the background search company’s insurance coverage to make sure that if the employer is sued, there is available insurance coverage.
CALIFORNIA CREATES TWO NEW BUSINESS ENTITIES
On October 9, 2011, California Governor Jerry Brown signed Senate Bill No. 201 (“Corporate Flexibility Act of 2011”) and Assembly Bill No. 361, creating two new classes of corporations in California that give for-profit corporations the opportunity to embrace social, community and environmental ethos traditionally reserved for non-profit organizations: the flexible purpose corporation and the benefit corporation. Both laws are effective January 1, 2012.
SB 201: The Flexible Purpose Corporation
A flexible purpose corporation is a corporation that designates in its articles of incorporation a special purpose, which may include charitable and public purpose activities sometimes carried out by for-profit corporations but traditionally carried out by nonprofit public benefit corporations.
A flexible purpose corporation empowers its shareholders to customize its special purpose. The special purpose designation allows the board of directors to consider not only the best interests of the corporation and the shareholders but also whether the corporation’s actions will further its special purpose. The articles of incorporation must indicate whether the flexible purpose relates to a charitable or public purpose that a nonprofit public benefit corporation is authorized to carry out. The articles will state the effects upon the corporation’s (a) employees, suppliers, customers and creditors; (b) the community and society; and, (c) the environment.
In most instances, the flexible purpose corporation must prepare an annual report to shareholders to specify how it measures its success in carrying out its special purpose and report all material actions to carry out the special purpose. It must also prepare a current report on expenditures made in pursuit of a special purpose if the expenditures will have a material adverse impact on the flexible purpose corporation. Current reports and portions of the annual report must be made publicly available on the corporation’s website. An existing corporation or other business entity may convert to a flexible purpose corporation by a two-thirds vote, subject to dissenters’ rights.
AB 361: The Benefit Corporation
A benefit corporation must adopt the purpose of creating general public benefit, which is defined as a material positive impact on society and the environment. A benefit corporation may also adopt a specific public benefit from a list of seven categories identified in the bill. In carrying out their fiduciary duties, directors are permitted to consider the best interest of the benefit corporation, which is deemed to include the impact on employees, customers, shareholders, the community and society, and the environment. In making its assessment, a benefit corporation must use a third-party standard selected by the board of directors. A benefit corporation must prepare an annual benefit report explaining, among other things, whether the corporation pursued a general public benefit, the ways in which it pursued that public benefit, and the extent to which those benefits were created, as measured by the third-party standard. The corporation’s annual benefit report must be made publicly available through its website. Existing corporations and other business entities may convert to a benefit corporation by a two-thirds vote, subject to dissenters’ rights.
Both statutes give board discretion to the mission of the corporation, which is not focused on the traditional profit motive.
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WHEN ARE CORPORATE DISTRIBUTIONS TO SHAREHOLDERS PERMISSIBLE?
On September 1, 2011, Governor Brown signed into law AB 571, which significantly amends and streamlines the California Corporations Code provisions governing corporate dividends and distributions. “Distributions” includes shareholder dividends and share repurchases.
The new “alternative balance sheet test” provides that immediately after the distribution, the value of the corporation’s assets must equal or exceed the sum of (a) its total liabilities plus (b) the liquidation preference of any shares having a preference upon dissolution over the rights of shareholders receiving the distribution. The board of directors may make a determination that a distribution is permitted under the new balance sheet test based on financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances, a fair valuation or any other method that is reasonable under the circumstances. Prudent directors and shareholders may wish to clarify the means of making this determination in a written document (e.g., board resolution, shareholder agreement, etc.).
The general solvency test, which prohibits distributions that would render a corporation insolvent, remains unchanged by AB 571. The retained earnings test also remains unchanged. This test is satisfied if the corporation has retained earnings prior to a distribution that equal or exceed the amount of the distribution.
Prudence dictates that boards of directors consult with its accountant(s) prior to making any shareholder distributions to insure compliance with these requirements.
Shareholders selling their stock back to the corporation (“repurchase agreements”) need to be concerned that the corporation may not be able to honor its contractual commitments where the above solvency tests are not satisfied.
Senate Bill 459, effective January 1, 2012, requires employers who are found to have engaged in willful misclassification of independent contractors who should be treated as employees “to display prominently” for one year on their internet websites a notice to employees and the general public announcing that the employer “has committed a serious violation of law by engaging in willful misclassification of employees.” Employers without a website must have the notice “displayed prominently” in an area that is “accessible to all employees and the general public at each location where a violation … occurred.” Civil penalties of between $5,000 and $15,000 can be imposed for each violation unless the employer is found to have engaged “in a pattern or practice” of those violations, in which case the civil penalty is increased to $10,000 to $25,000 per violation.
Moreover, employees can seek enforcement of this new statute through the California Labor Commissioner. There is no charge to employees for this service. Any Labor Commissioner award can be enforced by obtaining a judgment in superior court. If the employer appeals, the employer must post a bond equal to the amount of the award. Attorneys’ fees are imposed on employers who unsuccessfully appeal but not on employees who unsuccessfully defend. If an employer appeals, the Labor Commissioner’s office will provide an attorney to an employee that cannot afford to hire his or her own attorney.
If the employer is a licensed contractor and the Labor Commissioner or Superior Court, for example, issues a determination that a person or employer has violated this law, the Contractors’ State License Board shall initiate disciplinary action against the licensee within 30 days of receipt of the notice.
And finally, any person hired by an employer who knowingly advises an employer to treat an individual as an independent contractor to avoid employee status is jointly and severally liable with the employer if the individual is found not to be an independent contractor. This section does not apply to an existing employee who provides advice to his employer or an attorney. It does apply to CPA’s, bankers, insurance brokers/agents, etc.
The U.S. Bureau of Labor Statistics estimates that independent contractor misclassification represents a multi-billion per year tax shortfall problem. Government agencies have financial incentives to pursue noncompliant employers. This is fertile ground for financial recovery for employees and their attorneys.
- Aggressive Creditors – an Update: Once a creditor obtains a judgment against an entity, individuals usually breathe a sigh of relief. Not so fast. Plaintiff Thomas Misik obtained a judgment against Sayrahan Group, LLC. Misik then sought to amend the judgment to allege alter ego liability against Thomas D’Arco. The court of appeals granted Misik’s request. D’Arco was the sole officer, director and employee of Sayrahan. There were no company minutes. The business address was the same as D’Arco’s residence. There was no business telephone number. Sayrahan had no website. This case is bizarre. There are numerous single-member limited liability companies (“LLC) operating from a residence. There is no statutory requirement for limited liability companies to hold meetings. There is no statutory requirement for LLCs to have officers or directors. All businesses must have websites? Often debtors allow a judgment against an entity believing there will be no individual liability. Little do shareholders or members believe that there can be post-judgment relief for a judgment creditor in favor of an individual not originally named in a complaint. Misik v. D’Arco (2011) 197 Cal.App. 4th 1065.
- Contractors May Operate as LLCs: Last year, S.B. 392 was enacted which permits the California State Contractors License Board to issue contractor’s licenses to limited liability companies no later than January 2, 2012. The CSLB is in the process of developing appropriate forms.
- Small Claims Court Jurisdiction Increases: Small claims court jurisdiction increases to $10,000 effective January 1, 2012 (SB 221).
- Non-Residents Temporarily Employed in California: California overtime provisions apply to work performed in California by nonresidents according to a unanimous California Supreme Court decision on June 30, 2011, Sullivan v. Oracle Corporation (2011) 51 Cal.4th 1191. Consequently, if nonresidents temporarily work in California, these employees are subject to the same California Labor Code provisions regarding overtime compensation that apply to California residents. Employers should be alert to employees temporarily assigned to various states and the impact another state’s laws may have on employee compensation and benefits.
- Commissions: Current California law requires an employer with no permanent and fixed place of business in California, who enters into an employment contract for payment of commissions to a California employee for services to be rendered within California, must have a written contract with the employee, setting forth the method by which the commissions shall be computed and paid. Violations make the employer liable for triple damages. Labor Code §§ 2751, 2752. Effective January 1, 2013, these statutes apply to all employers (regardless of where the employer is located). Note that the statute applies not only to “commission only” employees; the statute applies to any form of employment where some wage payment involves commissions. Prudence dictates that an employer should provide a written agreement for an employee to date and sign. AB 1396.
- Liability for Independent Contractor Employees: US Airways uses a conveyor to move luggage at SFO. US Airways hired an independent contractor to maintain and repair the conveyor. No US Airways employees participated or directed the contractor’s work. An employee of the independent contractor was injured while inspecting the conveyor system. The employee filed a workers’ compensation claim with SeaBright Insurance Company. SeaBright sued US Airways for reimbursement of money SeaBright paid the employee. The employee also sued US Airways. The California Supreme Court held that US Airways owes no duty of care to the independent contractor or its employee. The duty of care was delegated to the independent contractor. US Airways had no right of control as to the mode of inspecting or maintaining the conveyor system. Secondly, the Court held that Cal-OSHA safety requirements and regulations are delegable. That’s a primary reason why independent contractors are hired: they have the training and expertise to properly evaluate potentially dangerous situations. SeaBright Insurance Company v. US Airways, Inc. (2011) 52 Cal.4th 590.
- Wage and Hour Laws – Unlicensed Professionals: It’s no easy task to determine whether certain professions are exempt from overtime. The “learned or artistic” professional exemption is a case in point. Two thousand unlicensed junior accountants filed a wage and hour class action seeking unpaid overtime, claiming they were ineligible for the professional overtime exemption because they were unlicensed. Campbell v. PriceWaterHouseCoopers, LLP (2011) 642 F.3rd 820. Wage Order 4-2001 contains two subsections, one relating to individuals primarily engaged in an occupation commonly recognized as “learned or artistic.” The fact that these individuals are not licensed does not categorically preclude these employees from the professional or administrative exemption (“predominantly intellectual and varied in character”). Another court grappled with similar facts relating to law clerks (law school graduates who have taken a bar exam and are waiting for exam results). A California State Court of Appeals came to the same conclusion in Zelasko-Barrett v. Brayton-Purcell, LLP (2011) 198 Cal.App.4th 582. This is referred to as the “enumerated professions” exemption or “learned professions” exemption. This area of the law continues to remain confusing, to say the least.
- “Inadvertence” Defined: Employees of a residential care facility were treated as independent contractors. They were not provided itemized wage statements as required for employees under Labor Code § 226(a). The Division of Labor Standards Enforcement (DLSE) has jurisdiction to enforce this provision and assess a civil penalty of $250 per violation. The statute provides that the Labor Commissioner “shall consider whether the violation was inadvertent.” The DLSE cited Heritage Residential Care, Inc., a civil penalty of $72,000, representing 288 violations. Heritage believed the “employees” were really independent contractors and that therefore it was not required to provide itemized wage statements. The court of appeal held that Heritage’s state of mind was irrelevant. The penalty was upheld. Heritage Residential Care, Inc. v. DLSE (2011) 192 Cal.App. 4th 75.
A recent appellate court decision holds that meal periods and rest periods each provide an additional hour of pay per work day for each designated type of violation. United Parcel Service, Inc. v. Superior Court (Allen) filed on February 16, 2011.
The significance of this opinion is that if an employee is unable to take his/her rest period(s), the employer must pay an additional hour’s wage to the employee. Similarly, if an employee is unable to take his/her meal period, the employer must pay an additional hour’s wages to the employee. Consequently, employers can be liable to employees for up to two hours’ wages each day for failure to provide required rest and meal periods. This extra compensation is not treated as a “penalty,” but as “premium wages.”
Indicated below is a general overview of California law pertaining to rest and meal periods.
Rest periods. Employees must be given 10-minute net rest periods for every 4 hours of work, to be taken in the middle of each 4-hour period as far as is practical. However, a rest period need not be provided for employees whose total daily work is less than 3.5 hours. Rest periods are counted as time worked.
No employer may require an employee to work during any rest period mandated by an applicable order of the Industrial Welfare Commission. Although an employee is not required to take these rest periods, employers must “authorize and permit” them. Failing to account for these rest periods when scheduling and assigning tasks to employees may be deemed a failure to “permit” the rest periods.
Rest breaks represent a state-mandated minimum labor standard; the right to rest breaks cannot be waived or abridged by contract.
In general, if an employer fails to provide an employee a rest period in accordance with an applicable order, the employer must pay the employee one additional hour of pay at the employee’s regular rate of compensation for each work day that the rest period is not provided.
Employers are also required to provide break times for employees who desire to express breast milk for their infant children. The break time shall, if possible, run concurrently with any break time already provided to the employee. Break time that does not run concurrently with the rest time authorized for the employee by applicable Wage Orders must be unpaid. Employers are required to make reasonable efforts to provide the employee with the use of a room or other location (other than a toilet stall) in close proximity to the employee’s work area for the employee to express milk in private. The room or location may include the place where the employee normally works if it is adequately private. An employer is not required to provide break time for this purpose if to do so would seriously disrupt the employer’s operations.
There are a host of exceptions for various industries. For example, swimmers, dancers, skaters, and other performers in the motion picture industry, who are engaged in strenuous physical activities, must have additional interim rest periods during periods of actual rehearsal or shooting. Employers of employees working in on-site occupations of construction, drilling, logging, and mining are permitted more flexibility in scheduling rest periods.
Meal periods. Employers may not employ employees for a work period of more than 5 hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day is no more than 6 hours, the meal period may be waived by mutual consent of both the employer and employee. Similarly, employers may not employ employees for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived.
No employer may require an employee to work during any meal period mandated by an applicable order of the Industrial Welfare Commission. If an employer fails to provide an employee a meal period in accordance with an applicable order, the employer must pay the employee one additional hour of pay at the employee’s regular rate of compensation for each work day that the meal period is not provided.
As with rest periods, there are numerous exceptions.
Charter counties, such as Alameda and Los Angeles, have exclusive authority to provide for the compensation of employees. Thus, they are not bound by Labor Code and wage order provisions pertaining to meal and rest periods. In the motion picture industry, the time limits for meal periods are every 6 hours. In the broadcasting industry, the time limits for meal periods are every 5 hours, except that when a work period of not more than 6 hours will complete the day’s work, the employer and employee may mutually consent to waive the meal period. Employees in the motion picture industry (Wage Order No. 12-2001) and the broadcasting industry (Wage Order No. 11-2001) who are covered by a valid collective bargaining agreement that provides for meal periods, and includes monetary remedies for violations, are governed by the terms, conditions, and remedies of the agreement pertaining to meal periods and are not entitled to the remedies under the Labor Code Sections 226.7 and 512(d).
Some exceptions apply to certain employees in the wholesale baking industry. Beginning January 1, 2011, certain construction employees, commercial drivers, security officers, and employees of electrical and gas corporations or local public utilities who are covered by a collective bargaining agreement that expressly provides for meal periods and contains certain other requirements will be exempted from the Labor Code meal period requirements.
Employees working in logging camps and lumber mills are required to have a meal period between the third and fifth hour following the beginning of each shift. Employees in the healthcare industry who work shifts in excess of 8 hours in a workday may voluntarily waive their right to one of their two meal periods, provided the waiver is in writing and signed by both the employee and the employer. The employee may revoke the waiver by providing the employer with at least 1 day’s written notice. The employee must be fully compensated for all working time, including any “on duty” meal period (as discussed below), while the waiver is in effect. Employees with direct responsibility for children and certain others in 24-hour residential care facilities may be required to work on-duty meal periods under certain specified conditions.
Unless an employee is relieved of all duty during a 30-minute meal period, the meal period must be considered an “on duty” meal period and counted as time worked. An “on duty” meal period is permitted only when the nature of the work prevents an employee from being relieved of all duty and when the parties agree in writing to an on-the-job paid meal period. The written agreement must state that the employee may, in writing, revoke the agreement at any time.
An on-duty meal period is not a waiver of a meal period. Thus, when the nature of the work prevents an employee from being relieved of all duty, the employee and employer may agree in writing for the employee to have an on-duty meal period, as well as for the employee to waive the second meal period if the shift is longer than 10 hours but not more than 12 hours.
Employers are well advised to document or otherwise make a record of all rest periods, in addition to meal periods, unless all of an employer’s employees take such rest periods together at standard set times each day.