Labor and Employment

Governor Brown signed a significant number of bills into law during the 2011/12 legislative term, many of which will have a direct impact on almost every California employer, regardless of size. Many laws impose new obligations on employers and prevent employers from engaging in what they may otherwise thought was previously permissible. Below is a summary of the employment-related legislation that goes into effect on January 1, 2012 (except where noted).

1. AB 22 – Consumer Credit Checks.

Adds Labor Code section 1024.5, which will prohibit an employer or prospective employer (with limited exceptions for financial institutions) from obtaining consumer credit reports unless the person for whom the report is sought has or will have a position in one of the following categories:

a. A managerial position;

b. A position with the state Department of Justice;

c. A sworn peace officer or other law enforcement position;

d. A position for which the information in a credit report is required to be disclosed or obtained by another law;

e. A position that involves regular access to someone’s bank or credit card accounting information, SS number, and date of birth (does not include routine solicitation and processing of credit card applications in a retail store);

f. A position where the person is, or would be, any of the following: i) a named signatory on the bank or credit card account of the employer; ii) authorized to transfer money on behalf of the employer; or iii) authorized to enter into financial contracts on behalf of the employer;

g. A position that involves access to certain confidential or proprietary information; or

h. A position that involves regular access to cash totaling $10,000 or more of the employer, or its customers or clients, during the workday.

It also amends Civil Code section 1785.20.5 to require that the written notice provided to prospective employees prior to requesting a credit report for employment purposes, to identify the specific basis (per Labor Code section 1024.5) for the use of such a report. All other notice and disclosure requirements currently in effect under the state Consumer Credit Reporting Agencies Act remain in place. Violation of the new law can result in lawsuits for damages, attorney’s fees and costs, as well as additional penalties of up to $5,000 for each violation.

2. Written Commission Agreements.

While the Labor Commissioner and certain courts have already held that an employer must have a written commission plan explaining the calculation of, and entitlement to, commissions, there was no state law that mandated such writing until now.

AB 1396 (not effective until January 1, 2013) will amend Labor Code section 2751 and require that all commission compensation arrangements “shall be in writing and shall set forth the method by which the commissions shall be computed and paid.” The new law defines “commissions” as “compensation paid to any person in connection with the sale of the employer’s property or services and based proportionately upon the amount or value thereof.” Commissions do not include short-term productivity bonuses or bonus and profit sharing plans, unless based on an employer’s promise to pay a fixed percentage of sales or profits as compensation. Failure to comply with the new law can expose the employer to an action for penalties of $100 per pay period per aggrieved employee under PAGA.

3. Wage Theft Prevent Act of 2011

AB 469 is effective January 1, 2012 and amends and adds a number of provisions to the California Labor Code. Below are a few of the provisions of the new law employers will want to know.

a. Amends Labor Code section 98 to permit the Labor Commissioner to award liquidated damages to an employee who succeeds in a claim for a violation of the minimum wage law. Previously only a court could award liquidated damages;

b. Amends Labor Code sections 240 and 243 to permit the Labor Commissioner to require an employer who is convicted of a wage violation or who fails to satisfy a judgment for unpaid wages to maintain a bond for up to two years and, if an employer fails to do so, impose penalties of up to $10,000;

c. Amends Labor Code section 1174 to increase the number of years an employer must keep employee identification and payroll records as required under that section from two years to three years. Also provides that an employer may not prohibit an employee from maintaining their own “personal” record of hours worked or piece rate units earned. (ASIDE: The DOL’s new app for IPhones will help employees do that);

d. Amends Labor Code section 1194.2 to increase the amount of liquidated damages a court can award to twice the amount of the unpaid wages plus interest in any action before the court under Labor Code sections 98, 1193.6 or 1194;

e. Provides that an employer who willfully fails to pay (and has the ability to pay) a final court judgment or final order issued by the Labor Commissioner for all wages due, is guilty of a misdemeanor and subject to fines between $1,000 to $20,000, and possible jail time;

f. Requires employers to provide each non-exempt employee at the time of hire with a notice that includes the following: i) the rate or rates of pay and basis thereof (e.g. hourly, shift, day, week, salary, piece, commission, etc., including overtime rates); ii) allowances, if any, claimed as part of the minimum wage (e.g. meal or lodging credits/allowances); iii) the dates of regular payday(s); iv) the name of the employer, including any dba’s; v) the physical address of employer’s main office or principal place of business, and a mailing address, if different; vi) the employer’s telephone number; vii) the name, address, and telephone number of the employer’s workers’ compensation insurance carrier; and viii) any other information the Labor Commissioner may deem necessary and material (which means employers will likely see further requirements from the Labor Commissioner before the effective date of the new law). Finally, if any of the information required to be in the notice changes, a new written notice of such change must be provided to each employee within 7 calendar days of the change unless the change is reflected on a timely wage statement.

4. Continuation of Health Coverage under the PDL.

Unlike under the FMLA and CFRA which require an employer to continue group health insurance benefits for an employee out on a family medical leave (up to a maximum of 12 weeks), there was no requirement to do so when an employee was out on pregnancy disability leave (PDL).

SB 299 will require employers to maintain and pay for coverage under a group health plan for an employee out on PDL. PDL provides for an employee to take up to a maximum of four months of leave for disabilities related to pregnancy, child birth, or a related medical condition. Therefore, the obligation to continue health insurance coverage could potentially be for up to a four month period.

5. Misclassification of Independent Contractors.

This is a very important new law and will only bolster the heightened scrutiny over the misclassification of workers by a number of state and federal agencies. In fact the federal DOL has entered into MOU’s with a number of states (California has not yet signed, but is expected to) which provide for collaboration between the DOL and states to audit and take enforcement action against companies that misclassify workers as individual contractors.

SB 459 adds section 226.8 to the Labor Code. The new law prohibits the willful misclassification of an employee as an independent contractor by a consultant or an employer, and prohibits charging misclassified individuals a fee, or taking a deduction from their compensation, if it would otherwise violate the law had the individual been classified as an employee. “Willful misclassification” means that an employer is trying to “avoid employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”

Violation of the new law can result in serious consequences, including: a) a court or the California Labor and Workforce Development Agency (LWDA) can impose civil penalties between $5,000 and $15,000 for each violation, or $10,000 to $25,000 for a pattern and practice of violations; b) the LWDA or court can contact the state’s Contractors License Board and require the Board initiate action; and c) the LWDA or court will require any person or employer who willfully misclassifies a worker to prominently displace a notice on its website, or if no website, in an area that is accessible to all employees and the general public, a notice stating: i) it has committed a serious violation of the law by willfully misclassifying employees as independent contractors; ii) it has changed its business practices to avoid further violations; iii) that any worker who believes he/she is being misclassified may contact the LWDA (contact information must be included); and iv) that the notice is being posted pursuant to a state order. The notice must be signed by an officer of the company and remain posted for one year.

The bill also adds section 2753 to the Labor Code. This new law provides that any person, who for money or other valuable consideration, knowingly advises an employer to treat a worker as an independent contractor to avoid employee status for that worker, shall be jointly and severally liable with the employer if the worker is found not to be an independent contractor. The new law does not apply to attorneys providing legal advice in the course of the practice of law or a person who provides advice to his or her employer.

6. Out of State Workers’ Compensation Coverage.

Previously, if a California employer had employees who performed work out of state from time to time, they had to obtain a separate workers’ comp policy to cover the employees under the laws where they worked.

AB 228 amends Insurance Code section 11780.5 to provide that the State Compensation Insurance Fund (SCIF) may also insure a California employer against his or her liability for workers’ compensation benefits, under the law of any other state, for California employees

temporarily working outside of California on a specific assignment if SCIF insures the employer’s other employees who work within California.

7. No Mandated E-Verify by Government Agencies.

E-Verify is a federal program administered by the U.S. Department of Homeland Security and the US Social Security Administration. Some federal laws require certain employers to utilize the program. Otherwise, other employers can voluntarily use the program to verify that the employees they are hiring are authorized to work in the U.S. (e.g. that the identification documents utilized to complete the federal I-9 Form are in fact legitimate).

AB 1236 (known as the “Employment Acceleration Act of 2011” adds Article 2.5 (section 2811, et. seq.) to the Labor Code. It provides that, except as required by federal law, or as a condition of receiving federal funds, neither the state nor a city, county, city and county, or special district shall require an employer to use an electronic employment verification system, including under the following circumstances: (a) as a condition of receiving a government contract; (b) as a condition of applying for or maintaining a business license; or (c) as a penalty for violating licensing or other similar laws.

8. Expanding the Definition of “Gender”.

AB 887 amends, among other statutes, the Fair Employment and Housing Act (FEHA) (Government Code §§12920, et. seq.) to include gender expression in the definition of “gender.” “Gender expression” is defined as “a person’s gender-related appearance and behavior whether or not stereotypically associated with the person’s assigned sex at birth. The new law makes it unlawful to discriminate on the basis of gender identity and gender expression and also requires employers to allow an employee to appear or dress in a manner consistent with the employee’s gender expression.

9. Protection of “Genetic Information.”

Consistent with the federal Genetic Information Nondiscrimination Act (GINA), SB 559 amends, among other statutes, the FEHA (Government Code §§12920, et. seq.) to include “genetic information” as protected from forming the basis for employment discrimination. “Genetic information” is a separate category from “genetic characteristics” which were already protected under FEHA. “Genetic information” includes any request for, or receipt of, genetic services, or participation in clinical research that includes genetic services, by an individual or any family member of the individual. It does not include information about the sex or age of any individual.

On the other hand, “genetic characteristics” means either of the following: (a) any scientifically or medically identifiable gene or chromosome, or combination or alteration thereof, that is known to be a cause of a disease or disorder in a person or his or her offspring, or that is determined to be associated with a statistically increased risk of development of a disease or disorder, and that is presently not associated with any symptoms of any disease or disorder; or (b) inherited characteristics that may derive from the individual or family member, that are known to be a cause of a disease or disorder in a person or his or her offspring, or that are determined to be associated with a statistically increased risk of development of a disease or disorder, and that are presently not associated with any symptoms of any disease or disorder.

CONCLUSION:

Wow…. that was a lot to digest wasn’t it. What should employers do now? Well, because of the immensity of the new laws, and the consequences for failing to comply with them, employers are advised to work with their employment counsel to ensure that their policies and procedures are updated appropriately, and that they take all steps necessary to train their supervisors and managers to comply with the new obligations. The employment lawyers at Weintraub Genshlea Chediak Tobin & Tobin are available to assist employers in their understanding of, and compliance with, these new laws. Please feel free to contact us.

Making California the seventh state in the country to enact such a law, Gov. Jerry Brown signed Assembly Bill 22 on October 9, 2011. As reported here in a post dated August 18, 2011, this law bars most employers (except certain financial institutions) from using pre-employment credit checks in the hiring process. It remains to be seen if Occupy Sacramento or Occupy Wall Street protesters will decry the exemption in this law as yet another example of government showing undue favoritism to the financial sector. Either way, prudent employers who wish to perform or commission credit checks of employees or job applicants should consult legal counsel so as to avoid costly lawsuits.

A supervisor’s failure to return calls from an employee on family or medical leave may support a retaliation claim against an employer under the federal Family and Medical Leave Act (“FMLA”). Liability under such circumstances can exist, a federal court in Pennsylvania recently ruled, even if the employer has provided the employee with an appropriate amount of leave. Although from a distant locale and as yet untested by an appellate court, the decision from the court in Pennsylvania confirms that employers in the Golden State should strive to keep open the lines of communication with and to return calls from employees who are on family or medical leave – especially since there is so much overlap between the FMLA and the California Family Rights Act.

The employee in the Pennsylvania case, Hofferica v. St. Mary Medical Center, No. 10-6026 (E.D. Pa. Sept. 20, 2011), was a registered nurse who started working for the employer in June 2005. Her doctor diagnosed her with a disease that causes hearing loss, tinnitus, and vertigo in March 2008. Shortly after that diagnosis, the nurse applied for a year of intermittent medical leave, which the employer pre-approved. The nurse had to undergo a series of surgeries to treat her condition, which led her to take full-blown medical leave starting in September 2008. Her anticipated return-to-work date was November 6, 2008.

While on full-blown medical leave, the nurse (or sometimes her husband) called an assistant manager of the employer on a weekly basis to provide progress updates and news about her anticipated return date. The nurse alleged that the assistant manager failed to return a number of those calls. For example, when the nurse phoned on November 4, 2008, to explain that her doctor might delay her anticipated return date, the assistant manager did not return the call. The following day, upon learning that her physician had decided to postpone her return date by one week, the nurse again phoned the assistant manager to report that development and to request a one-week extension to her return date. Once again, the assistant manager declined to return the call.

The day before she was to return to work, the nurse received a letter from her employer stating that her employment had been terminated on November 7, 2008. The letter listed the nurse’s failure to return to work before her medical leave expired on November 6, 2008, as the reason for the termination. The nurse filed a lawsuit accusing the employer of interfering with her leave entitlement and retaliating against her for requesting such leave.

The federal court concluded that the employer had not interfered with the nurse’s leave entitlement because it gave her all the leave that it owed to her under the FMLA. At the same time, however, the court refused to dismiss the nurse’s retaliation claim. The court determined that the nurse had alleged “sufficient antagonism” to support such a claim, based upon the assistant manager’s failure to return her phone calls after the nurse commenced her medical leave. “While an employer’s failure to return an employee’s phone calls does not constitute overt antagonism,” the court explained, “it certainly suggests an antagonistic attitude toward the employee.” The court added that is particularly true “where —as here — such refusal began after the employee initiated FMLA leave, and continued despite regular communications from the employee.”

Although employers must exercise caution when initiating calls to employees who are on family or medical leaves of absence, that does not mean employers should refrain from taking or returning calls placed by such employees. Indeed, it is vital to provide an open line of communication to employees on such leaves – not only when the employee’s return date is drawing near, but throughout the entire leave period. Doing so will help employers reduce their exposure to both interference and retaliation claims.

Last month, we told you about a bill, SB 459, that was awaiting the Governor’s signature. SB 459 would penalize employers who willfully misclassify employees as independent contractors. See alert at http://www.thelelawblog.com/2011/09/articles/new-legislation-and-regulation/legislative-alert-employee-misclassification-bill-sent-to-governor/.

On Sunday, October 9, 2011, Governor Brown signed SB 459 into law. As we advised last month, employers are encouraged to review their classifications of employee/independent contractors and consult legal counsel, if necessary, to avoid incurring civil penalties and/or costly litigation as a result of the enactment of SB 459.

Given the state of the economy and the desperation felt by many employees regarding the security of their job (and the anger felt by disgruntled former employees regarding the loss of their job), violence remains a real and serious threat in the workplace. Recognizing this fact, on September 8, 2011, the Department of Labor – OSHA Division – issued a new Directive aimed at providing compliance officers guidance for investigating and responding to allegations and incidents of workplace violence. OSHA has also launched a new webpage focused on preventing workplace violence.

In the Directive, OSHA points out the alarming statistics from the Bureau of Labor Statistics’ (BLS) Census of Fatal Occupational Injuries (CFOI) show that an average of 590 homicides occurred each year during the years 2000 through 2009. In fact, homicides remain one of the four most frequent work-related fatal injuries, and remained the number one cause of workplace death for women in 2009. Several studies have shown that prevention programs can reduce incidents of workplace violence. According to OSHA, by assessing their worksites, employers can identify methods for reducing the likelihood of incidents occurring. OSHA believes that a well written and implemented Workplace Violence Prevention Program, combined with engineering controls, administrative controls and training can reduce the incidence of workplace violence in both the private sector and in governmental workplaces.

What is Violence in the Workplace?

Federal law defines workplace violence as “violent acts (including physical assaults and threats of assaults) directed toward persons at work or on duty.” (Center for Disease Control and Prevention, National Institute for Occupational Health (2002).) “Occupational Hazards in Hospitals.” (DHHS (NIOSH) Pub. No. 2002-101.) OSHA has grouped workplace violence into the following four classifications which describe the relationship between the perpetrator and the target of workplace violence.[1]

Type 1 – Criminal Intent.

Violent acts by people who enter the workplace to commit a robbery or other crime – or current or former employees who enter the workplace with the intent to commit a crime.

Type 2 – Customer/Client/Patients.

Violence directed at employees by customers, clients, patients, students, inmates or any others to whom the employer provides a service.

Type 3 – Co-worker.

Violence against co-workers, supervisors, or managers by a current or former employee, supervisor, or manager.

Type 4 – Personal.

Violence in the workplace by someone who does not work in the workplace, but who is known to, or has a personal relationship with, an employee.

Assessing the Risks of Violence in the Workplace.

Many workplaces are at risk for workplace violence, but certain workplaces are recognized to be at significantly greater risk than others. OSHA identifies certain industries like healthcare, social service settings, and late-night retail, as “high-risk industries.” However, every employer should perform an initial assessment to identify workplace security factors which have been shown to contribute to the risk of violence in the workplace.

According to OSHA and Cal/OSHA, if an employer has one or more of the following factors present in its workplace, it should consider its workplace to be at potential risk of violence:

1. Exchange of money;
2. Working alone at night and during early morning hours;
3. Availability of valued items, e.g., money and jewelry;
4. Guarding money or valuable property or possessions;
5. Performing public safety functions in the community;
6. Working with patients, clients, passengers, customers or students known or suspected to have a history of violence; or
7. Employees with a history of assaults or who have exhibited belligerent, intimidating or threatening behavior to others.

Implementing a Program to Prevent Workplace Violence.

The cornerstone of an effective workplace security plan is appropriate training of all employees, supervisors and managers. According to OSHA and Cal/OSHA, employers with employees at risk for workplace violence must educate them about the risk factors associated with the various types of workplace violence and provide appropriate training in crime awareness, assault and rape prevention and defusing hostile situations. Also, employers must instruct their employees about what steps to take during an emergency incident.

Since Type 3 and 4 events are more closely tied to employer-employee relations than are Type 1 or 2 events, an employer’s considerate and respectful management of his or her employees represents an effective strategy for preventing Type 3 and 4 events. According to OSHA, some workplace violence researchers have pointed out that certain actions which are perceived by an employee as a threat to their job status and security, (e.g., layoffs or reductions-in-force, disciplinary actions including demotions or suspensions, and/or termination) can be a triggering event for workplace violence. Thus, where such adverse employment actions are contemplated, employers should conduct due diligence prior to carrying out the action to ensure it has addressed the potential for a violent reaction, and then carry out the action in a respectful manner designed to minimize the potential violence.

One important fact for employers to be mindful of is that domestic violence is a prevalent form of workplace violence. Because domestic violence spills over into the workplace, employers need to take appropriate precautions to protect at-risk employees. For instance, when an employee reports threats from an individual with whom he or she has (or had) a personal relationship, employers should take appropriate precautions to ensure the safety of the threatened employee, as well as other employees who are in the zone of danger and who may be harmed if a violent incident occurs in the workplace. One option in California is to seek a temporary restraining order (TRO) and an injunction on behalf of the affected employee. Any employer may seek a TRO/injunction on behalf of an employee when he or she has suffered actual violence (assault, battery or stalking as prohibited in the California Penal Code) or a credible threat of violence reasonably likely to be carried out in the workplace.

Reporting Workplace Violence.

Under the California Labor Code and Cal/OSHA regulations, employers have a duty to record and report certain injuries in the workplace, including those resulting from workplace violence. Labor Code section 6409.1(b) states expressly that “[i]n every case involving a serious injury or illness, or death, in addition to the report required by subdivision (a), a report shall be made immediately by the employer to the Division of Occupational Safety and Health by telephone or telegraph.” Failure to do so can result in a civil penalty of no less than $5,000. Cal/OSHA actively encourages employers to report all deaths, and/or serious injuries or illnesses that result from a workplace assault or other type of violent act so that it can acquire a fuller understanding of the scope and nature of workplace violence by conducting an investigation of the circumstances surrounding the event.

Conclusion.

By issuing this new Directive, it is clear that OSHA is focused on enforcing workplace security laws to prevent violence. Therefore, employers should take the opportunity to: 1) audit their Injury and Illness Prevention Plan (IIPP) and/or other workplace security plans to ensure they identify workplace security factors which have been shown to contribute to the risk of violence in their particular workplace; and 2) train their employees.

[1]Cal/OSHA has a similar classification system grouped into three classifications:

In Type I, the violent actor has no legitimate business relationship to the workplace and usually enters the affected workplace to commit a robbery or other criminal act.

In Type II, the violent actor is either the recipient, or the object, of a service provided by the affected workplace or the victim (e.g., the assailant is a current or former client, patient, customer, passenger, criminal suspect, inmate or prisoner.)

In Type III, the violent actor has some employment-related involvement with the affected workplace. Usually this involves an assault by a current or former employee, supervisor or manager; by a current/former spouse or lover; a relative or friend; or some other person who has a dispute with an employee of the affected workplace.

Just this week, the Department of Labor (DOL) and the Internal Revenue Service (IRS) announced they are joining together to prevent employers from misclassifying employees as independent contractors. On September 19, 2011, Secretary of Labor Hilda L. Solis hosted a ceremony at the DOL headquarters in Washington to sign a memorandum of understanding with the IRS, which allows the agencies to share information and coordinate enforcement of employers thought to be misclassifying independent contractors. Seven states also signed similar agreements, including Connecticut, Maryland, Massachusetts, Minnesota, Missouri, Utah, and Washington. Hawaii, Illinois, Montana, and New York are expected to follow shortly. California is likely to sign on at some point in the not too distant future.

The reasons behind the increased scrutiny are two-fold. For one, independent contractors are ineligible for minimum wage and overtime pay, unemployment insurance, workers’ compensation and social security benefits. Second, the government does not collect employment taxes on compensation paid to independent contractors. Therefore, where misclassification occurs, federal and state governments lose out on much needed tax revenues.

What does this mean for you? It is becoming increasingly apparent that both federal and state government agencies are cracking down on the misclassification of independent contractors. Employers who contract with independent contractors should carefully examine those classifications to ensure misclassifications are not occurring. Doing so will allow employers to avoid costly consequences due to increased federal and state scrutiny.

On September 14, 2011, the California Legislature enrolled Senate Bill 459 and presented it to Governor Jerry Brown for signature. (As of the time of this post, the Governor has still not acted on SB 459.)

SB 459 was introduced by Senator Ellen Corbett to address the issue of misclassification of employees as independent contractors. Under California law, there is extensive statutory provisions that address the employee/employer relationship and provide numerous protections to employees in areas such as minimum wage, overtime and working conditions. SB 459 was introduced to prevent the misclassification of employees as independent contractors so that “true” employees could receive the protections of these statutes. SB 459 would subject employers to civil penalties of up to $25,000 per violation in the event that an employer willfully misclassifies an employee as an independent contractor. SB 459 also provides employees with a private cause of action if they suffer actual harm.

Supporters of SB 459 argue that it is necessary given the increase in the number of reported cases of misclassified employees to the California Employment Development Department. Supporters claim that employers misclassify employees in an effort to save on labor costs. Misclassification also costs the State and Federal Governments in lower revenue with regard to social security, unemployment and income taxes.

Opponents of SB 459 argue that it is poorly drafted, unfairly includes retroactive provisions, and could subject employers to lengthy and costly lawsuits arising from alleged misclassifications.

It remains to be seen whether Governor Brown will sign SB 459 into law. A similar bill was presented to then Governor Arnold Schwarzenegger in 2007 but he vetoed the legislation.

If SB 459 becomes law, employers are encouraged to review their classification of employees/independent contractors to avoid costly lawsuits and potential civil penalties.