Labor and Employment

The Equal Employment Opportunity Commission (“EEOC”) thinks so. The EEOC recently posted a letter to its website stating that it may be unlawful for employers to require a job applicant to have obtained a high school diploma if the applicant suffers from a learning disability and has been unable to obtain one. The EEOC’s position represents a significant departure from traditional interpretation by the courts with regard to matters of unintentional discrimination resulting in a disparate impact on certain groups.

In an “informal discussion letter” the EEOC stated that requiring a high school diploma must be “job related for the position in question and consistent with business necessity.” Based on this statement, the EEOC apparently believes that employers might violate the Americans with Disabilities Act (“ADA”) if they require a high school diploma for a particular position which has the effect of disqualifying applicants who have been unable to graduate from high school due to a learning disability. The EEOC’s position appears to place employers in a very difficult position.

Employers who require their job applicants to have obtained a high school diploma generally do so in order to obtain applicants who have demonstrated the commitment and intellectual capacity to enable them to be trusted with more complex tasks in the workplace. Based on the EEOC’s decision, however, an applicant’s failure to have obtained a high school diploma may trigger a duty on the part of the prospective employer to query as to why that applicant has not obtained a high school diploma. Yet, this situation creates a catch-22 for employers. On one hand, an employer is potentially insulated from claims of discrimination asserted by mentally handicapped job applicants if the employer maintains an application process which does not consider (nor does it seek to learn) information regarding an applicant’s disabilities. Yet, on the other hand, turning a blind eye to a learning disability which precluded the applicant from obtaining a high school diploma, according to the EEOC, may violate the ADA. As a result, the EEOC’s position potentially exposes employers to allegations by disabled job applicants who claim that an adverse hiring decision was the result of discriminatory animus, either because the employer asked about disabilities, or because the employer did not select them for employment because they had not obtained a high school diploma and were unable to do so because of their disability.

This circumstance may be avoided where a high school diploma is in fact necessary for an applicant to perform the essential functions of the available job. Accordingly, where a high school diploma requirement is imposed, employers should carefully evaluate the job description and duties associated with the position to ensure that a high school education is actually required to perform the essential functions of the job. Where an employer determines that the essential functions of a job can be performed without having obtained a high school diploma, employers may wish to consider removing this condition as a basis upon which hiring decisions are made.

The California Supreme Court recently addressed whether insurance claims adjusters qualify for the administrative exemption under California law. (Harris v. Superior Court (Liberty Mutual Insurance Co.).) The Court’s decision in late December 2011, focused on the issue of the “administrative/production worker dichotomy.” Here the Court was looking at whether employees who fall on the “production” side can ever qualify for the administrative exemption.

The lower court held the claims adjusters dealt with individual claims, as opposed to providing advice on general policies or operations of the company. As a result, the Court found the adjusters were production workers and could not qualify for the administrative exemption as a matter of law.

Thankfully, the California Supreme Court reversed, finding that the lower court was too simplistic in their application of the administrative/production worker dichotomy. This does not mean that the Court eliminated the administrative/ production worker analysis. The Court did not address whether the claims adjusters at issue actually qualified for the administrative exemption. However, the Court cited with approval several federal cases finding claims adjusters to be administratively exempt. In dicta, the Court noted that an employee may be exempt where the employee’s duties in “servicing” a company are sufficiently important and the employee’s duties involve the regular use of discretion and independent judgment.

This is a positive step in defending against misclassification lawsuits. However, employers should be mindful that a successful defense in this area takes planning well in advance of your first lawsuit. Employers should carefully analyze their employees’ job duties and then commit them to job descriptions in order to demonstrate that those duties are sufficient important and involve the use of discretion and independent judgment.

Including arbitration provisions in employment agreements or employee handbooks is not a guaranteed way to avoid the courtroom. On January 3, 2012, the California Court of Appeal upheld a decision from the Sacramento County Superior Court holding that an arbitration provision contained in a pre-employment agreement was unconscionable, and, therefore, unenforceable.

In Wisdom v. AccentCare, Inc. (Super. Ct. No. 34-2009-00063028 CU OE GDS), the plaintiffs filed a complaint alleging they were not paid for all of the overtime and time they spent handling off-hour calls while they were employed by AccentCare as on-call staffing coordinators.

When they applied for a job with AccentCare, four of the six plaintiffs signed an acknowledgment form titled: “Acknowledge Your Understanding of the following Statements and Agreements by Placing Your Initials in Each Paragraph, then Sign and Date Below.” One of the paragraphs was an arbitration agreement that stated:

“I hereby agree to submit to binding arbitration all disputes and claims arising out of the submission of this application. I further agree, in the event that I am hired by AccentCare, that all disputes that cannot be resolved by informal internal resolution which might arise out of my employment with AccentCare, whether during or after employment, will be submitted to binding arbitration. I agree that such arbitration shall be conducted under the rules then in effect of the American Arbitration Agreement.”

After the lawsuit was filed, AccentCare sought to compel arbitration based on the signed acknowledgments. The trial court denied the motion on the ground that the arbitration agreement was unconscionable, and the Court of Appeal affirmed the judgment.

First, the trial court noted that the plaintiffs were not informed that signing the agreement was optional, and the heading indicated that signing was mandatory. Second, there was unequal bargaining power between the parties as few employees are in a position to refuse a job because of an arbitration agreement, and the nature of the employer-employee relationship leads to an inherent power imbalance. The agreement also implied that there was no opportunity to negotiate its terms as the other statements the applicants were directed to acknowledge were terms that an applicant would not expect to negotiate. For example, that the statements in the application were true, that AccentCare could investigate the applicant’s references, that AccentCare is a smoke-free and drug-free workplace, and that employment would be at-will.

The trial court also stated that an element of surprise was present because the arbitration agreement was located in the middle of five uniform, single-spaced paragraphs, and was not distinguished in any manner, the meaning of the agreement was not explained, and the plaintiffs did not know what “binding arbitration” meant. Thus, the employees’ reasonable expectation that they were entitled to a trial was disappointed.

Further, the trial court held the agreement was unenforceable because it was not mutual – there was no language indicating AccentCare agreed to submit to arbitration. The trial court noted the one-sidedness of the agreement due to the unambiguous phrases “I hereby agree” and “I agree,” and pointing out that only the applicant signs at the bottom of the form.

Lastly, the agreement stated that arbitration would be conducted under the rules of the American Arbitration Association, but the rules were not attached. Thus, the employee is “forced to go to another source to find out the full import of what he or she is about to sign — and must go to that effort prior to signing.”

This decision is yet another signal that enforcing pre-employment arbitration agreements continue to be increasingly difficult for employers. Employers should review their arbitration agreements with their legal counsel to determine whether any changes should be made to reduce the risk that the agreement will ultimately be deemed unenforceable.

UPDATED 12/21/2011: Based on the date on which the case was submitted at oral argument, the California Supreme Court was required to render a decision in this matter on or before February 6, 2012. On December 2, 2011, however, the Supreme Court agreed to accept additional briefing regarding whether its decision will be applied retroactively. The additional briefing likely will cause the Court’s decision to be delayed. Based on the current briefing schedule it appears that we could be waiting for a decision until April 2012.

Original Post:

On November 8, 2011, the California Supreme Court heard oral argument in Brinker Restaurant Corp. v. Superior Court of San Diego County (“Brinker”). As you probably know, the Brinker case has been pending before the California Supreme Court since October 22, 2008. Now, by hearing oral argument on this case, the California Supreme Court has effectively signaled that it will publish a decision within the next 90 days.

The Brinker lawsuit centers on the language contained in California Labor Code section 512, which states that “an employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes.” At issue in Brinker is whether, based on the language of this statute, an employer must ensure that its employees take meal breaks, or merely make meal breaks available to their employees.

In typical and customary fashion, the Supreme Court justices began asking questions very early into the Plaintiff’s oral argument. Justice Kennard wasted no time asking whether or not employers must ensure that employees take meal breaks or merely make meal breaks available, and appeared focused on the language of California Labor Code section 512, which states that meal and rest breaks must be “provided” by employers. Plaintiff’s counsel argued that the history of California wage orders demonstrates that employers must go beyond merely providing an opportunity for employees to take meal and rest breaks, and must ensure that they are taken. But, this did not end the inquiries. Justice Kennard followed up with additional questions about how it would be practical to require an employer to ensure that potentially hundreds, or even thousands, of workers actually took their meal breaks. Justice Liu followed up with additional questions about why workers would not be better protected if they had flexibility to take a meal break at their discretion, asking “isn’t the most worker friendly interpretation of this … that the worker should be able to do whatever he or she wants during a meal period?”

Counsel for Brinker Restaurant Corporation then argued that none of the California wage orders state an employer must require an employee to take a 30-minute meal break. Rather, Brinker’s counsel argued (not surprisingly) that Brinker believes employers have an obligation only to make meal periods available to employees.

During the oral argument presented by Brinker’s counsel, the justices shifted their focus away from the availability of meal breaks, and questioned Brinker’s counsel regarding the timing of meal breaks made available by employers. Predictably, Brinker’s counsel pointed out that nothing in the California Labor Code requires that meal periods be provided at any particular time. Perhaps seizing on the theme created earlier in the session by the Justices, Brinker’s counsel argued that employers, as well as employees, should have flexibility as to when meal breaks are taken.

After more than three years of waiting for the California Supreme Court to hear oral argument on the Brinker case, oral argument before the California Supreme Court ended only about 30 minutes after it began. Accordingly, the Brinker case is now under submission before the California Supreme Court. Because the court is required to render its decision within 90 days, we now know that the long wait for a decision in Brinker will be over by February 6, 2012.

Driving across the San Francisco Bay Bridge still provides one of the most beautiful views of any City I have seen in the United States. However, once off the bridge, you witness business owners besieged by a Frankenstein type laboratory of unfriendly employment laws. There is little doubt in my mind that, but for the view from the bridge, San Francisco would be Barstow, with nary a business in sight due to anti-employer laws. While these awful employment laws are good news for surrounding employer friendly counties, such as San Mateo, Santa Clara, Marin, and Contra Costa, we must remain vigilant to ensure these toxins do not get dumped in the Bay to spread like the plaque they are.

Two Toxins to Contain:

San Francisco’s “Living” Wage

When people talk about a “Living” wage, people naturally react with positive feelings envisioning their fellow citizens needing to be able to earn enough money at their jobs to survive. However, they fail to realize the insidiousness of this repackaging and rebranding of the “minimum” wage. In 2003, 60% of voters passed Proposition L, which required SF to increase the city’s minimum wage every year to reflect inflation. We are now realizing the effects of this bad idea.

As a result of Proposition L, SF’s hourly minimum wage will rise from $9.92 to $10.24 as of January 1, 2012. This is, the first time the minimum wage in any U.S. city has ever exceeded $10 per hour. Employers with employees in San Francisco will need to make sure that they make appropriate adjustments to their payroll systems and practices to account for the increase. This will also likely lead to further increases in the costs of goods and services within the City’s limits.

In the end, this incubation of the “Living” wage is demonstrating the problem with this idea. One of the fallacies of this type of “Living” wage tied to inflation is that it causes a vicious cycle. When wages are forced up, the costs of goods and services go up. The increase in costs show up as inflation. That inflation then forces wages up for the next year. The cycle then replicates itself year after year after year. Unless ended, the minimum wage will continue to march higher and higher. Businesses will then have to raise prices or lose money due to rising labor costs. At some point consumers will say they have had enough and get off this ride.

Changes to S.F.’s Health Care Mandate

San Francisco’s Health Care Security Ordinance requires many employers to spend a specified minimum amount toward certain health care expenses for their employees working in the City and County of San Francisco.

Employers and their group health plans will have additional compliance requirements under key changes to the Ordinance. These changes take effect on January 1, 2012. Employers, particularly those using a health savings account (HSA) plan or a health reimbursement account plan (HRA), must prepare for these new compliance requirements.

The main changes for 2012 are as follows:

• Employers using an HRA to comply with the Ordinance must file a report with the San Francisco Office of Labor Standards Enforcement (OLSE) the terms of the HRA. The report must include the expenses eligible for reimbursement.
• Employers must post a notice at their business, informing employees of their rights and the employer’s obligations under the Ordinance. The notice must be available in English, Spanish, and Chinese. In addition, if 5% or more or more of the employees at the business speak another language, the notice must also be made available in that specific language. The OLSE made the notice available on December 1, 2011.
• Commonly, San Francisco employers have charged their customers a “health care surcharge” to manage this increased cost. Employers that use a surcharge on customers to cover any part of the health care expenditures under the Ordinance must also file an annual report with the OLSE. In addition, if the amount an employer collects from the surcharge exceeds the amount actually spent on health care due to decreased costs or good financial management by the employer, that money cannot be considered additional profit for the employer. This is so, even if all the health care requirements under the Ordinance for the employees’ benefit are met. The Ordinance provides that any surplus must be paid out to the covered employees.
• A contribution (i.e., employer funded payment) to an HSA or HRA that is not paid irrevocably to a third party will not qualify as a health care expenditure under the Ordinance, unless certain requirements are met:

· the contribution remains available to the employee for reimbursement for at least two years after the employer funds the contribution;

· any unused balance from the 2011 account carries over to the 2012 account;

· the contribution is reasonably calculated to benefit the employee;

· the employee receives a notice within 15 days after the contribution is made providing them with: (i) the date and amount of the contribution; (ii) the name, address and telephone of any third party to whom the contribution was made; (iii) the current balance in the account; (iv) any changes to the account balance since the last account summary was provided; and (v) the applicable expiration dates of the funds in the account.

• Finally, if an employee voluntarily or involuntarily terminates employment and has an unused balance in his or her account: (i) any balance available for reimbursement must remain available for at least 90 days after termination, and (ii) within three days after termination, the employer must notify the employee of the current account balance and the applicable expiration dates of the funds in the account.

San Francisco’s Health Care Security Ordinance is an unmitigated disaster for Employers, and by extension consumers. It uses union type healthcare contributions as a platform to create another cost of doing business for small and medium size businesses. These costs cut into profitability or get passed onto consumers, creating a vicious cycle.

Conclusion

Businesses in San Francisco must behave of these laws, while businesses in nearby Cities must beware. Contrary to what the City Council and Board of Supervisors may think, no one is just going to open up a business so they have someplace to go each day. There must be some profit to encourage individuals to take on the risks associated with being an Employer. Employers are the lifeblood of any city. They create opportunities for people to live, work, and thrive within beautiful and vibrant environments. However, continuing to place increased burdens on a City’s employers can drain this lifeblood and the community’s vitality. While San Francisco is not going to shut down their laboratory anytime soon, employers throughout California should take note of the drastic effects of these types of “feel good” ordinances.