No One You Know Should Be Sued For Disability Discrimination

Counseling clients to avoid exposure for disability discrimination can be a prickly business. Consider the following scenario.

Your client operates a small manufacturing concern. Every worker at the widget factory, from the owner to the janitor, takes lunch together at noon, every day. It has been that way every day since your client’s father opened the doors 45 years ago. This is because the factory operates as an assembly line, and it requires everyone’s simultaneous involvement.

One day, an employee, “Sam,” shares that he saw his doctor for vision problems and learned he has Type 2 Diabetes. Your client mutters some sympathetic words (not entirely sure about Diabetes or its different types), and the worker goes on to say that, owing to his Diabetes, he must eat more frequently. He wonders if, perhaps, he could break for lunch at 11 o’clock rather than noon.

Your client knows this is an absurd proposition, given the assembly line. Nonetheless, he says he’ll consider the request and they wander back to the factory floor. A week passes. Two. Sam continues to join everyone for lunch at noon. He does not raise the need to eat early again. However, his diabetic symptoms remind him daily that he needs to break and eat earlier. He gets shaky and light-headed. Not only is he physically uncomfortable, he is growing resentful. Each day that passes is a day closer to when he quits (or is “constructively terminated”) because he needs to eat earlier and your client has forgotten his request.

This describes an actionable case of “disability discrimination” or, at the very least a case of “failure to engage in the interactive process” (yes, that is a separate cause of action). What happens next is anyone’s guess, but it probably doesn’t end well for your client. If he had asked your advice, would you have known what to say? If not, read on.

Duties in this area are triggered when your client learns an employee has a “disability.” California’s Fair Employment and Housing Act (FEHA) defines disability to include a physical or mental disability, or medical condition. While “medical condition” encompasses a limited list of conditions, “physical disability” is read expansively, to include any condition that “limits a major life activity.”

While “mild” conditions, such as a common cold, non-migraine headaches and nonchronic gastrointestinal disorders do not meet the standard, the case law makes clear that FEHA has no durational requirement and even a passing condition may qualify. Employers tempted to define disability too narrowly must know that it has even been found to include uncorrected severe myopia (nearsightedness) and monocular vision.

Back to the widget factory. Sam was diagnosed with Type 2 Diabetes. A disability? Some would argue his condition affects the digestive, hemic and endocrine systems and, because eating is a “major life activity,” Type 2 Diabetes limits a major life activity and thus qualifies as a disability.
Assuming Sam has a disability, this knowledge triggered a duty by your client to “engage in the interactive process” in order to reasonably accommodate Sam if he could perform the essential function of his job with an accommodation.

What does the interactive process look like? It is a “discussion about an applicant’s or employee’s disability — the applicant or employee, health care provider and employer each share information about the nature of the disability and the limitations that may affect his or her ability to perform the essential job duties.”

The best practices for the interactive process include the following:

• Review the accommodation request;
• Obtain written medical release(s) or permission from the employee to obtain records and communicate with providers;
• Request the employee provide documentation from the his/her/their health care or rehabilitation professional regarding the nature of the impairment, its severity, the duration, the activities limited by the impairment(s) and the extent to which the impairment(s) limits the employee’s ability to perform the job’s essential duties/functions.

At the widget factory your client didn’t do any of this. This failure to engage in the process by itself supports an action and damages under FEHA.
Imagine if your client had engaged in the interactive process with Sam. They would have explored whether it was possible to “accommodate” Sam’s disability. The California Government Code and regulations provide guidance on reasonable accommodation. These include:

• Making facilities readily accessible to and usable by disabled individuals (e.g., providing accessible break rooms, restrooms or reserved parking places, etc.);
• Job restructuring;
• Offering modified work schedules;
• Reassigning to a vacant position;
• Acquiring or modifying equipment or devices;
• Adjusting or modifying examinations, training materials or policies;
• Providing qualified readers or interpreters;
• Allowing assistive animals on the worksite;
• Altering when and/or how an essential function is performed;
• Modifying supervisory methods;
• Providing additional training;
• Permitting an employee to work from home; and
• Providing paid or unpaid leave for treatment and recovery.

But, there are limits to this duty. FEHA does not obligate an employer to choose the best accommodation or the specific accommodation an employee or applicant seeks. They are not required to accommodate a worker’s medical marijuana use. Moreover, they are not required to provide an accommodation that causes the business to suffer “undue hardship,” defined as an action requiring “significant difficulty or expense” when considered in light of at least the following factors:

• Nature and cost of the accommodation weighed against tax credits, deductions or outside funding; and
• Nature, size and resources of business and accommodation’s impact on other employees.

At the widget factory, Sam’s desired accommodation was to break an hour earlier for lunch so that he would not feel shaky from a drop in blood sugar. On its face, this was not unreasonable, particularly given that a “shaky,” “light-headed” factory worker can endanger himself or others. Unfortunately, your client did not give this much thought. He clearly did not engage with Sam to explore potential (alternative) accommodations.

To be clear, it may be that your client cannot accommodate Sam. His proposal to allow him an early break might have proven unreasonable, given how the assembly line operates. If all possible accommodations would cause your client undue prejudice (applying the factors above), then it is unfortunate but Sam will need to find other work. Included in this equation is the principle that employers need not create a new position to accommodate a disabled applicant or employee. Thus, your client need not create a job for Sam in Accounting, where he can break early to eat without disrupting the assembly line. But the interactive process must be thorough and well-documented before this conclusion is reached without exposing your client to possible liability.

This law is nuanced. Unless your client has an experienced human resource professional, it might be a good idea to involve employment counsel, at least at the outset. The concepts and obligations may be unfamiliar, and the stakes are high. At least you can now rest easy knowing that you have some basic understanding of the risks in this area, and you can help your clients avoid disability discrimination liability. (This article originally appeared in the April, 2021 issue of the Santa Barbara Lawyer.)

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Tips to Avoid the Pandemic of COVID-Related Employment Lawsuits

Business owners cannot be surprised to learn that there have already been hundreds of lawsuits filed in California decrying employers’ pandemic-related practices. So far, the majority of these cases have focused on two theories: (1) perceived failure to provide a healthy and safe workplace, and (2) failure to reimburse necessary business expenses.

Health & Safety Claims

The California Labor Code provides employees with broad protections against avoidable dangers in the workplace. These include laws requiring employers to provide workers, at a minimum:

  • A place of employment that is safe and healthful. (Cal. Lab. Code §6400)
  • Safety devices and safeguards, as well as adoption of practices, means, methods, operations and processes that are reasonably adequate to render employment in the workplace safe and healthful. (Cal. Lab. Code §6401)
  • An effective written injury prevention program. (Cal. Lab. Code §6401.7)

It is important to know these obligations. Employers should also know that violations of these laws are typically redressed through claims filed under the Private Attorneys General Act of 2004 (PAGA). PAGA permits an “aggrieved employee” to step into the shoes of the Attorney General and bring a “representative” action to recover civil penalties against employers on behalf of themselves and other “aggrieved employees.” The penalties under PAGA are $100 for each aggrieved employee per pay period for the initial violation and $200 per employee per subsequent violation. This can quickly expand a limited event into a major lawsuit.

The cases alleging COVID-related health and safety violations so far include at least the following assertions:

  • Failure to have a written Illness Prevent Program.
  • Failure to provide washing facilities to maintain cleanliness.
  • Failure to conduct a hazard assessment to determine if COVID-19 is a hazard in the workplace, necessitating Personal Protective Equipment (PPE).
  • Failure to establish infection prevention measures such as encouraging sick employees to stay home, implementing social distancing protocols or establishing procedures to routinely disinfect and clean commonly used surfaces.

Tips to Avoid Health & Safety Claims

Employers can avoid exposure for health and safety claims by:

  • Developing and publishing a written Illness Prevention Program, include COVID-related measures.
  • Implementing COVID-related measures, including social distancing, face coverings, disinfection, pre-shift and visitor temperature checks and symptom screening.
  • Developing and maintaining a clear reporting structure for reports of potential COVID exposure or cases; communicate suspected or confirmed COVID cases to the workforce.

Avoiding Claims for Failure to Reimburse Business Expenses

The second focus of COVID-related employment lawsuits so far is employers’ obligations, under California Labor Code §2802, to reimburse employees for necessary business expenses they incur. Traditionally, when workers elected to work remotely and from home, costs incidental to this decision have not been subject to the reimbursement requirement. However, where businesses, in response to COVID, have mandated that employees work remotely, this triggers the reimbursement obligation.

To help avoid these claims, employers should keep in mind the following potential costs requiring reimbursement:

  • Use of personal mobile phone for business purposes;
  • Wi-fi internet connectivity;
  • Utility bills; and
  • Purchased furniture to enable working remotely.

Importantly, the duty to reimburse is not unlimited. Employers are only required to reimburse necessary expenses. A top-of-the-line ergonomic desk chair costing several hundred dollars is not necessary. Further, to the extent that an employee had mobile phone and Wi-fi connectivity before COVID, the case law has clarified that employers are only required to reimburse a percentage of existing services that approximates the enhanced use attributable to mandatory remote working.

Best practices dictate that employers should develop and implement a clear written expense reimbursement policy that is communicated to employees in a manner that permits a signed acknowledgment that a worker has received and understands the policy.

Conclusion

Employers with questions about these recommendations should consult their experienced employment counsel. We are here to help you.

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Crucial New California Employment Laws for 2021

State and Local Minimum Wage Increases

Statewide, the California minimum wage is at least $14 per hour. Employers with 25 or fewer workers (“small businesses”) must pay at least $13 per hour. Certain cities and/or counties have their own minimum wage laws and the higher wage governs. In Los Angeles city and county, for example, minimum wage is $15 per hour; small businesses pay $14.25 until July 1st, when they, too, must pay $15.00. Bear in mind the state minimum wage impacts the salary threshold for exempt status.

Pay Data Reporting Deadline March 31st

The March 31st deadline for employers with 100 or more employees to meet their pay data reporting obligation under SB 973 is coming fast. These employers will be required on an annual basis to submit information on their employees’ pay data by gender, race and ethnicity to the state’s Department of Fair Employment and Housing (DFEH).

New Law Expands Potential Responsibility For Wage-Hour Judgments

Many businesses fail to appreciate the enormous power the California Labor Commissioner wields to swiftly correct workers’ injustices, real or perceived, while, in some cases bringing a business literally to its knees. It would take a longer writing to describe the anatomy of a wage-hour claim. Suffice it to stay that, the actual claim, taken together with statutory “liquidated” damages, myriad penalties, interest (and attorney’s fees), can turn an innocent mistake into an enormous, if not devastating, financial headache for employers.

Since 2018, business owners, and even employees, can be held personally responsible for unpaid wages. Now, Assembly Bill (AB) 3075, effective January 1, 2021, makes it even easier for workers to enforce judgments for unpaid wages by making certain “successor” businesses responsible for their predecessor’s unpaid wage and hour judgments. The law prevents employers from evading unpaid wage and hour judgments by discontinuing one business, only to form a new business that is substantially similar to the old one. It adds Section 200.3 to the Labor Code and provides that a “successor” to a judgment debtor will be liable for any “wages, damages, and penalties owed to any of the judgment debtor’s former workforce pursuant to a final judgment, after the time to appeal therefrom has expired and for which no appeal therefrom is pending.”

Section 200.3 defines a “successor” to include those that use the same facilities or workforce to offer substantially the same services as the debtor; has substantially the same owners or managers; employs a managing agent who directly controlled the wages, hours, or working conditions of the debtor’s workforce of the judgment debtor; and, operates a business in the same industry as the judgment debtor and the business has an owner, partner, officer, or director who is an immediate family member of any owner, partner, officer, or director of the judgment debtor.

Reminder: Employers with 5+ Employees Required to Provide CFRA Leave

Remember that employers with just five (5) or more employees are now required to provide up to 12 weeks of unpaid job-protected leave for eligible employees to care for themselves and a wide variety of family members. (Previously, only employers with 50+ employees were covered by CFRA.)

What Employers Should Do Now

  • Ensure you are paying your employees at least the correct minimum wage, which may depend on the city and/or county of your business.
  • Remember that state minimum wage increases also impact the threshold salary requirement for employee exempt status. We can assist with this calculation.
  • Employers new to the California Family Rights Act (CFRA) should ensure their policies and handbook reflect employees’ rights under the Act, and that their HR Department is prepared. We can update your handbook and assist your HR Department.
  • Employers with 100+ employees should begin compiling their pay data as required under Gov’t. Code 12999 for reporting on or before March 31st. We can walk you through this process.

The Law Offices of Alex Craigie helps employers throughout California prevent, address and resolve employment disputes in a logical and cost-effective manner. Reach us at (323) 652-9451, (805) 845-1752 or at [email protected].

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Employment Law Attorney Alex Craigie Elected to 2021 Southern California Super Lawyers!

Employment law trial attorney Alex Craigie has been selected to the 2021 Southern California Super Lawyers list, an honor reserved for those lawyers who exhibit excellence in practice. Only 5% of attorneys in Southern California receive this distinction.

In April 2013, the Super Lawyers selection process received a patent (U.S. Pat. No. 8,412,564) from The United States Patent and Trademark Office. This distinction is relevant to both attorneys and consumers, as it further demonstrates credibility as an impartial third-party rating system.

Bar associations and courts across the country have recognized the legitimacy of the Super Lawyers selection process. In July 2008, the New Jersey Supreme Court upheld the findings of a Special Master, who stated:

“[The Super Lawyers selection process] is a comprehensive, good-faith and detailed attempt to produce a list of lawyers that have attained high peer recognition, meet ethical standards, and have demonstrated some degree of achievement in their field.”

“Suffice to say, the selection procedures employed by [Super Lawyers] are very sophisticated, comprehensive and complex.”

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What Employers Need to Know About the Families First Coronavirus Response Act

On March 18, 2020, President Trump signed the Families First Coronavirus Response Act (FFCRA). Importantly, the FFCRA is actually two separate acts, each of which imposes different employer obligations: the Emergency Paid Leave Act (E-Paid Leave Act) and the Emergency Family and Medical Leave Expansion Act (E-FMLA). This Bulletin discusses these Acts, which take effect 15 days after the law is enacted.

The E-Paid Leave Act

The E-Paid Leave Act requires private employers who employ fewer than 500 employees, as well as government employers, to provide paid sick leave to employees who cannot work (or telework) for one of the following reasons:

  1. The employee is subject to a federal, state or local quarantine or isolation order related to COVID-19;
  2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  3. The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
  4. The employee is caring for an individual who is subject to a quarantine or isolation order or has been advised by a health care provider to self-quarantine;
  5. The employee is caring for a son or daughter because the child’s school or place of care has been closed or the child’s childcare is unavailable due to COVID-19 precautions;
  6. The employee is experiencing any other substantially similar condition specified by the Secretary of HHS in consultation with the Secretaries of the Treasury and Labor.

The leave under the E-Paid Leave Act must be available to all employees and is in addition to leave already available under state and/or local laws. Full-time employees are entitled to 80 hours of paid sick leave. Part-time employees are entitled to paid leave equal to the average hours he/she works over a two-week period. There is no carryover from year to year and, once the employee returns to work, the employer is not required to provide any further paid sick leave under the E-Paid Leave Act.

The rate of pay depends on the reasons for leave from among the list above. If leave is for self-care (reasons 1, 2 or 3 above), the employee receives the higher of (1) the employee’s regular rate of pay, (2) the federal minimum wage, or (3) the local minimum wage. If time off is to care for a sick family member or a child who is not in school (reasons 4, 5 or 6), he/she receives two-thirds of their regular rate of pay.

There is a cap on E-Paid Leave Act amounts. For leave under reasons 1-3, the cap is $511 per day, up to an aggregate of $5,110. For leave under reasons 4-6, the daily cap is $200, up to an aggregate of $2,000.

Employers will be required to post an approved notice regarding the E-Paid Leave Act. To help employers cope with the financial burden of this additional leave, there are tax credits. The details of these credits are beyond the scope of this Bulletin and employers are encouraged to consult with their accounting professional to fully understand and take advantage of all available tax credits.

The E-FMLA Act

The E-FMLA Act expands the protections of the federal Family and Medical Leave Act (FMLA) to add Public Health Emergency Leave. Many smaller employers, with fewer than 50 employees, may be unfamiliar with the FMLA.

The E-FMLA Act expands coverage to include all employers with less than 500 employees, and is available to any employee who has been employed with the employer for at least 30 days. Unlike the ordinary FMLA, however, the E-FMLA is only available if an employee is unable to work (or telework) due to a need for leave to care for the employee’s child who is under 18 years of age because he child’s school or place of care has been closed or his or her childcare provider is unavailable due to a public health emergency.

The first 10 days of E-FMLA leave is unpaid, but an employee may elect or an employer may require the employer to substitute available vacation or paid sick leave (including E-Paid Leave Act pay) for the unpaid portion of E-FMLA leave. After 10 days, employers must pay at least two-thirds of an employee’s regular rate of pay for the number of hours the employee would otherwise be scheduled to work. For employees who have fluctuating working hours on a weekly basis, an employer is allowed to take an average over a six-month period. There are caps: paid E-FMLA leave may not exceed $200 per day and $10,000 in the aggregate.

The standard FMLA job restoration requirements apply to employers with 25 or more employees. Under certain circumstances, the job restoration requirements will not apply to employers with fewer than 25 employees.

As with the E-Paid Sick Leave Act, there are tax credits available to offset expenditures by employers to comply with the E-FMLA. Again, the mechanics of these credits are beyond the scope of this Bulletin and employers should seek advice from their accounting professional to understand and take full advantage of the tax credits.

Exemptions to E-Paid Sick Leave Act and E-FMLA

Employers of health care providers and emergency responders are exempt from E-Paid Sick Leave requirements. Such businesses, as well as businesses with under 50 employees may be entitled to an exemption if the leave requirement would jeopardize the business as an ongoing concern. However, this is contingent on whether the Secretary of Labor grants such exemptions, which is currently unknown. Act or the E-FMLA.

What Employers Should Do Now

Employers should act immediately to conform their policies and practices to the myriad requirements of the Families First Coronavirus Response Act. Employers with questions about this new law should contact their employment law professional.

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California Broadens Employer Obligations to Provide Sexual Harassment Training

Last fall, the California Legislature broadened the obligations of employers to provide sexual harassment and abusive conduct prevention training to their workforce. This Bulletin briefly explains these changes.

Expanded Scope for Sexual Harassment Prevention Training

For many years, only California employers with 50 or more employees were required to provide supervisors with sexual harassment and abusive conduct prevention training every 2 years. However, Senate Bill (SB) 1343, signed into law in 2018, changed this requirement in two important ways.

First, SB 1343 now requires employers with just five (5) or more employeesto provide sexual harassment and abusive conduct prevention training every two years.

Second, the law previously required only that supervisorsreceive sexual harassment prevention training. SB 1343 expands this requirement, as well, so that all employees, including seasonal and temporary workers, must receive sexual harassment and abusive conduct prevention training every two years.

What if You Provided Training to Supervisors in 2018?

Many employers reading this may have complied with the then-existing law and provided sexual harassment prevention training to their supervisors in 2018. Common sense would dictate that, at least as to these supervisors, these employers have met their obligation until 2020, right?

WRONG! In its FAQs, the California Department of Fair Employment and Housing (DFEH) states that, “[e]mployees who were trained in 2018 or before will need to be retrained.” “Employees” in this context applies to supervisors trained in 2018.

Additional Rules Regarding Sexual Harassment Prevention Training

  • SB 1343 also requires the DFEH to make online training courses available on the prevention of sexual harassment and abusive conduct in the workplace. The DFEH expects to have such trainings available by late 2019.
  • Employers are required to pay for all sexual harassment and abusive conduct prevention training. Gov. Code 12950.1(a)-(b).
  • Assembly Bill (AB) 2338 requires talent agencies to provide adult artists, parents or legal guardians of minors aged 14-17, and age-eligible minors, within 90 days of retention, educational materials on sexual harassment prevention, retaliation, and reporting resources.
  • AB 3082 requires the Department of Social Services to develop or identify educational materials addressing sexual harassment of in-home supportive services (IHSS) providers and recipients.
  • The DFEH provides an online Sexual Harassment and Abusive Conduct Prevention Training Toolkit at: https://www.dfeh.ca.gov/wp-content/uploads/sites/32/2018/12/SexualHarassmentandAbusiveConductPreventionTrainingToolkit.pdf

What Should Employers Do

Employers should take steps to ensure allemployees, including part-time, temporary and seasonal workers, receive the required sexual harassment and abusive conduct prevention training sometime this year. Employers with questions about these changes or needing help finding a sexual harassment and abusive conduct training provider should contact their qualified employment law counsel.

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New Calif Laws Expand Employees’ Rights to Sue for Sex Harassment

On September 30, 2018, Gov. Jerry Brown signed into law several bills that greatly expand the rights of employees to pursue sexual harassment lawsuits in California. The majority of these laws require immediate attention as they become effective January 1, 2019. This  discusses these laws and provides recommendations for how employers can act to avoid liability.

Expanded Liability for Sexual Harassment

SB 1300 makes numerous changes to existing law with regard to liability for alleged sexual harassment. In serial form, beginning on January 1, 2019, employers will:

• Be prohibited from requiring a release of Fair Employment and Housing Act (FEHA) claims in exchange for a bonus, raise, employment or continued employment;
• Be prohibited from recovering fees and enhanced costs through use of statutory (Cal. Code of Civil Procedure §998) offers to compromise, except where the employer can show (1) the lawsuit was frivolous, unreasonable and/or without merit; or (2) the employee continued to litigate a claim after becoming aware his/her case had no merit;
• Be potentially liable for any kind of unlawful harassment by nonemployees;
• Be potentially liable even where the harassment was a single instance or “stray remark” by a non-decision-maker;
• Be less likely to prevail on a sexual harassment case through a motion for summary judgment.

The statute of limitations refers to the “window” of time following an event within which an alleged victim can bring a civil action. Claims of sexual harassment can include a claim of sexual assault, in which the victim claims he/she was sexually touched without consent, or coerced or forced to engage in a sexual act. AB 1619 expands the limitations period for sexual assault claims to 10 years after the act, or 3 years after the alleged victim discovers the injury, whichever is later.

Expanded Definition of Sexual Harassment

SB 224 expands the list of professional relationships which can form the basis of a claim for sexual harassment. To the previous list, which included physician, psychotherapist, dentist and real estate agent, the bill adds individuals who present themselves as able to assist one in establishing a business, service or professional relationship. The law specifically identifies lobbyists, elected officials, directors, producers and investors.

Limits on Nondisclosure of Allegations and/or Settlements

Settlements of sexual harassment claims have historically included nondisclosure clauses, preventing the alleged victim from disclosing details about the claim and settlement. SB 820 prohibits provisions that prevent the disclosure of factual information relating to certain claims of sexual assault, sexual harassment, or discrimination based on sex, that are filed in a civil or administrative action.

The bill makes such provisions in a settlement agreement on or after January 1, 2019, void as a matter of law and against public policy. The bill creates a limited exception for a provision that shields the identity of the claimant and facts that could lead to the discovery of his or her identity, if that provision is included in the agreement at the claimant’s request.

Additionally, AB 3109 renders void and unenforceable any clause that prevents a party to a settlement agreement from testifying about alleged criminal conduct or sexual harassment in an administrative, legislative or judicial proceeding.

Additional Sexual Harassment Prevention Training

California law currently requires employers with 50+ employees to provide their supervisors with sexual harassment prevention training every 2 years. Effective January 1, 2020, SB 1343 requires any employer who employs 5 or more employees, including temporary or seasonal employees, to provide at least 2 hours of sexual harassment prevention training to all supervisory employees, and at least 1 hour of such training to all nonsupervisory employees, once every 2 years. The bill also requires the Department of Fair Employment and Housing (DFEH) to develop or obtain 1-hour and 2-hour online training courses on the prevention of sexual harassment in the workplace.

What Should Employers Do

Many of these new laws will impact how employment lawyers do their job, and will likely make it more difficult to resolve sexual harassment claims and lawsuits without a trial. However, employers remain primarily responsible and should examine their practices to ensure they maintain a harassment-free workplace.

Consideration should be given to getting a head start on sexual harassment prevention training, including for non-supervisory personnel. Employers with questions about how to reduce their chances of being targeted by a sexual harassment claim should contact their qualified employment law counsel.

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California Supreme Court Defines “Employee” vs. “Independent Contractor”

On April 30, 2018, the California Supreme Court, in Dynamex Operations West, Inc. v. Superior Court, clarified the proper test for California companies to apply before treating any worker as an independent contractor. This post discusses this important new holding.

Background on “Employee” vs. “Independent Contractor”

For some businesses and their workers, the question whether the worker is properly classified as an “employee” or an “independent contractor” is both important and challenging. For employees, the hiring business pays federal Social Security and payroll taxes, unemployment insurance taxes and state employment taxes, provides worker’s compensation insurance and must comply with numerous state and federal statutes and regulations governing the wages, hours, and working conditions of employees. The worker obtains the protection of the applicable labor laws and regulations, including protections against unlawful discrimination, harassment and retaliation.

If, on the other hand, a worker should properly be classified as an independent contractor, the business avoids those costs and responsibilities, the worker obtains none of the numerous labor law benefits, and the public may be required in some circumstances to assume additional financial burdens with respect to such workers and their families.

The proper classification analysis is, in the first instance, up to the hiring business. The decision is often made without the assistance of counsel and, where the classification lands on independent contractor, is frequently wrong. The consequences may not become known for months or even years. However, disgruntled employees misclassified as independent contractors often ultimately bring claims or suits under wage-hour laws. Worse, the California Employment Development Department (EDD), which administers unemployment insurance claims, can audit a business suspected of widespread misclassification and, in extreme instances, impound funds without notice to the business. Therefore, it is critical before a business classifies any worker as an independent contractor that it ensures the classification is accurate.

The DynamexCase and the ABC Test

Since 1989, California courts were historically guided in deciding the independent contractor question by “the seminal California decision on the subject,” S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations. This case provided employers, their lawyers, the state and the courts with several non-exclusive factors to consider in the employee/independent contractor analysis.

In the Dynamexlawsuit, two delivery drivers sued the company on behalf of themselves and similarly situated workers claiming that the company misclassified its drivers as independent contractors rather than employees. The California Supreme Court expressed the view that the multi-factor test previously announced in the S.G. Borellocase “makes it difficult for both hiring businesses and workers to determine in advance how a particular category of workers will be classified.” Therefore, the Supreme Court adopted a test previously adopted by some other courts known as the “ABC Test.”

Under the ABC Test, a worker is presumed to be an employee, unless the worker:

  1. Is free from the employer’s control and direction;
  2. Performs a service that is either outside the usual course of the business for which such service is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
  3. Customarily engages in an independently established trade, occupation or business.

What Should Employers Do

If anything, the stakes get higher all the time for companies that misclassify workers as independent contractors. Claims brought before the Division of Labor Standards Enforcement (DLSE), as well as civil lawsuits, including class action and private attorney general (PAGA) lawsuits are on the rise.

Before classifying one or a class of workers as independent contractors, companies should be sure they meet the applicable criteria. Additionally, the role of workers currently classified as independent contractors should be evaluated under the ABC Test. Given the complexity of this area of employment law, employers should consider working with their employment counsel to make sure they are in compliance.

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Cal Supreme Ct Announces New “Regular Rate” When Paying Overtime in Pay Periods in Which a Flat Bonus is Paid

On March 5, 2018, the California Supreme Court, in Alvarado v. Dart Container Corp., announced a new formula to determine an employee’s “regular rate” for overtime purposes when the worker received a flat bonus during the pay period. This post discusses this important new holding.

Background on Overtime Compensation and the “Regular Rate”

Most employers understand that, in California, employees are entitled to be paid overtime after working eight hours in any workday, 40 hours in any workweek, and on the seventh consecutive day of work in any workweek. The overtime rate is calculated at 1.5 times the employee’s “regular rate” after 8 hours and 2 times the “regular rate” after 12 hours on any workday or after the eighth hour on the seventh consecutive day in any workweek.

But many employers do not have a strong grasp of the formula involved in determining an employee’s “regular rate” used to calculate her overtime premium pay. Many improperly assume it is simply the worker’s base hourly rate. However, when calculating the “regular rate,” employers must also consider “remuneration” for work performed, with specific payments excluded—such as reimbursed expenses, reporting-time premiums, vacation or holiday pay, or discretionary bonuses—divided in any pay period by the total number of hours actually worked.

The following example, drawn from a guide provided by the Society for Human Resources Management (SHRM) is instructive:

For example, if an employee works 32 hours at $12.00 per hour and 10 hours during the same workweek at $10.50 per hour, the weighted average (and thus the regular rate for that workweek) is $11.64. This amount is calculated by adding the employee’s $489 straight-time pay for the workweek ((32 hours x $12.00/hour) + (10 hours x $10.50/hour) = $489) and dividing it by the 42 hours the employee worked ($489 / 42 hours =$11.64 per hour regular rate). The overtime premium of $5.82 (half the regular rate) is added to the employee’s wages for each one and a half overtime hour worked, and an additional overtime premium of $11.64 is added to hourly wages for each hour of double time earned.

Against this background, we discuss the California Supreme Court’s holding in Alvarado v. Dart Container Corp.regarding how to calculate an employee’s “regular rate” when she has received a flat rate bonus during the pay period. 

The AlvaradoCase and the Flat Rate Bonus

The plaintiff, Hector Alvarado, worked in the warehouse of Dart Container Corporation. To incentivize employees to work on weekends, Dart offered a $15 attendance bonus when any employee worked a full shift on a weekend day. The $15 “flat rate” bonus was paid regardless whether the employee worked any overtime hours. Alvarado sued Dart, claiming it had used an improper formula to calculate his “regular rate” for overtime in those pay periods in which he received at least one $15 attendance bonus.

Dart moved for summary judgment, which was granted and affirmed on appeal. However, after considering the formula Dart applied, as well as the formula set forth in the Division of Labor Standards Enforcement (DLSE) Manual, the California Supreme Court reversed, and embraced the following calculation methodology:

  1. Calculate the overtime compensation attributable only to an employee’s hourly wages by multiplying the employee’s hourly rate by 1.5 and by the number of overtime hours worked.
  2. Calculate the overtime premium attributable only to the employee’s bonus by dividing the bonus amount by the total non-overtime hours worked and multiplying that value by 1.5.
  3. Multiply the bonus overtime premium by total overtime hours worked and pay that amount in addition to the amount in step 1 as total overtime compensation.

This formula differs from the method used by Dart solely in that Dart divided the bonus amount by the total hours worked—both overtime and non-overtime. While this difference appears trivial, a failure to apply the proper formula will support a claim or lawsuit for unpaid wages. To make matters worse, the Supreme Court, acknowledging the “liberal construction” of California’s labor laws, held the new formula would be applied retroactively, as well as going forward.

What Should Employers Do

Employers who provide any type of nondiscretionary “flat rate” bonus, should immediately review and ensure their overtime “regular rate” calculation methodology is consistent with the new formula announced by the Alvarado v. Dart Container Corp. court. Given the complexity of this area of employment law, employers should consider working with their employment counsel in revising policies and methodology.

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The Importance of Severance and Release When Terminating Employees

Employers often find it difficult to justify, practically or emotionally, paying severance to an employee being terminated for cause. After all, employers ask, why compensate and reward a worker who broke the rules? It may be easier when the separation is a layoff, yet even under these circumstances, the company’s financial condition may constrain its ability to offer money to a separating employee, getting nothing but goodwill in return.

This Employment Law Bulletin briefly discusses severance and its primary justification: obtaining a release of any future employment law-based claims. We explain why best practices dictate employers set emotions aside in order to secure the protection provided by a release in exchange for a severance payment. We also discuss important issues related to the drafting and implementation of an enforceable severance agreement.

Why Offer Severance

There are sundry reasons an employer may want to offer severance to a separating employee: to reward a worker for years of loyalty; to cushion the blow of an unexpected layoff; to maintain goodwill in the community; or to preserve standing as a competitive, quality employer in the industry.

These are all sound reasons. They explain why employers might consider offering severance in many instances. But the single best reason why employers should offer severance to every terminated employee (i.e., one who is not leaving by her own volition) is the protection that a severance payment, combined with a well-drafted severance agreement, provides against a future claim or lawsuit.

Let’s begin by defining “severance.” In order to support a binding agreement in which the employee waives any claims, the severance must be compensation to which the employee wasn’t already entitled by virtue of her employment. Many employers we work with are surprised to learn that severance does not need to equal several months’ or even several weeks’ pay. This can be a particularly helpful point when considering offering severance to an employee terminated for lying or theft. The investment can be minimal. The peace purchased for merely a few hundred dollars (or less!) is always well worth the investment.

What Severance Buys You

Provided the agreement is properly drafted, signed and otherwise enforceable, the severance payment purchases a promise by the separating employee that she will not bring any claim or lawsuit, in a court or with a government agency, arising out of the employment relationship. Our typical California severance agreement expressly protects against seventeen (17) separate common law causes of action, as well as claims that could potentially be brought under eighteen (18) separate state and federal statutory schemes and regulations.

In fact, the only employment-related claim that cannot be expressly released by way of a severance agreement is one for unpaid wages, which can include reimbursement of expenses, overtime and waiting time penalties. Perhaps most importantly, most reasonably competent lawyers will abandon a claim, regardless of its apparent merits, where a potential client has signed an enforceable severance agreement with the former employer. In this way, for an investment of as little as a few hundred dollars, an employer can avoid incurring attorney’s fees and costs fighting a spurious claim.

The Elements of an Enforceable Severance Agreement

We cannot overstate the importance of having a knowledgeable employment law attorney draft your severance agreement. A severance agreement is a contract. In addition to pitfalls common to every type of contract, there are crucial drafting considerations unique to a severance agreement. This is particularly true if the separating employee is over 40-years-old. An agreement waiving any claims under the Older Workers’ Benefit Protection Act (“OWBPA”) must meet eight (8) statutory requirements, including providing the separating worker a 21-45 day period within which to consider the Agreement before signing it. Even then, the employee has seven (7) days to revoke the agreement. If the employer pays the severance before the expiration of the 7-day period, and the employee revokes the agreement, she may keep the payment and the employer is without recourse to recoup the funds!

In addition to an explicit waiver of any claims that could be brought under federal, state, common law, county, city or local ordinances, a severance agreement can and should provide other protections. Among these, we recommend clauses requiring confidentiality of the severance and prohibiting future disparagement of the employer and its management. It is generally a good idea also to include a clause in which the employee agrees not to apply for employment at any future time; this protects against future claims of discrimination in hiring.

The employee should never be pressured to sign the severance agreement, or to sign it “right away,” as this can provide a duress defense which may undermine the effectiveness of the agreement. It is also a good idea to include a severability clause so that, if an issue arises, a court can later “sever” out any portions of the agreement that are unlawful, rather than rendering the entire agreement unenforceable. A merger clause is also advisable, to prevent a terminated employee from claiming additional terms that are not included on the agreement itself.

Conclusion

California employers should always consider offering a severance when terminating an employee, provided the employee signs a well-drafted severance agreement waiving any claims arising out of the employment relationship. The severance payment need not be sizeable. However, it is crucial that the agreement be drafted properly. Employers with lingering questions should not hesitate to contact their experienced employment law counsel.

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Employers Required to Use New Form I-9 by September 18, 2017

Employers must begin using a new version of the Form I-9 issued by the U.S. Citizens and Immigration Services (USCIS) no later than September 18, 2017 or face potentially large fines. The Form I-9 is the document employers must use to verify the identity of new hires to ensure they are authorized to work in the United States.

What’s Different?

The changes to the Form are subtle. There are changes to the instructions and the list of documents approved to verify eligibility. A Consular Report of Birth Abroad (Form FS-240) was added as a List C document, and all the certifications of report of birth issued by the State Department (Form FS-545, Form DS-1350, and Form FS-240) have been combined.

The List C documents have been renumbered, except for the Social Security Card. All changes are described in detail in the newly revised Handbook for Employers: Guidance for Completing Form I-9 (M-274).

Storage and Retention Rules

Employers must be able to present the Forms to government officials for inspection within 3 business days of a request. Employers who choose to keep paper copies of the documents their employees present may store them with the employee’s Form I-9 or with the employees’ records. However, the USCIS recommends that employers keep Form I-9 separate from personnel records to facilitate an inspection request.

Employers are required to retain an employee’s Form I-9 until the later of (1) the date the employee began work for pay + 3 years, or (2) the date employment was terminated + 1 year.

Potential Penalties for Failure to Follow Form I-9 Rules

In 2016, Immigration and Customs Enforcement (ICE) announced increases for Form I-9 violations. For example, the minimum and maximum fines for simple Form I-9 violations increased to $216 and $2,156, respectively. Additionally, minimum and maximum fines for first offenses of Unlawful Employment of Unauthorized Workers has increased to $539 and $4,313 per worker, respectively.

Employers with lingering questions about the new Form I-9 should contact their employment counsel.

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The State of California Law with Regard to Considering an Applicant’s Criminal History

Employers may be already aware of the significant movement afoot to eliminate the consideration of an applicant’s criminal history, both from job applications and the interview, until a conditional offer of employment has been made. Variously termed “Ban the Box” or “fair chance” laws, the goal is to “ensure a fairer decision-making process” because, it is believed, anything that makes it harder for ex-offenders to find a job makes it more likely they will re-offend.

In California, the state of the law in this area is very much in flux. The purpose of this Bulletin is to discuss the current state of the law, including a new set of regulations issued in January, and provide a preview of pending legislation that is reasonably likely to be signed into law.

The Current Law

Under the current California laws and regulations, it is unlawful for an employer to consider the following from an applicant’s background record when hiring:

  • An arrest or detention that did not result in a conviction
  • A referral or participation in a pre/post-trial diversion program
  • A conviction that has been sealed, judicially dismissed, expunged or statutorily eradicated
  • An arrest, detention, etc. while the applicant was subject to the jurisdiction of a juvenile court (i.e., under 18 years of age)
  • Any non-felony conviction for possession of marijuana that is more than 2 years old
  • Any criminal history if it will result in an adverse impact on individuals within a protected class (commonly termed disparate impact discrimination)

Before an employer can refuse to hire based on an applicant’s criminal history, it must provide the applicant notice of the disqualifying conviction and an opportunity to show that it is factually inaccurate. If shown to be inaccurate, the conviction cannot be relied upon.

There are exceptions to these prohibitions for certain classes of employers, including health care facilities, that are required by law to screen prospective employees or prohibit hiring of individuals with criminal records.

Additionally, the cities of San Francisco and Los Angeles have enacted their own “Ban the Box”-type ordinances with more stringent requirements/limitations than those described above.

Pending Legislation

Assembly Bill 1008, introduced on February 16, 2017, proposes to add a section to California’s Fair Employment and Housing Act (FEHA), which would create new statewide restrictions on employers’ ability to make pre-hire decisions based on an applicant’s criminal history.

Under the proposed new law, employers:

  • Cannot include on an application any question that seeks disclosure of the applicant’s criminal history
  • Cannot inquire or consider an applicant’s criminal history before the applicant receives a conditional offer of employment
  • Cannot consider an applicant’s conviction of a misdemeanor where no jail time is possible
  • Cannot consider infractions or misdemeanor convictions older than 3 years
  • Cannot consider felony convictions older than 7 years
  • Must undertake an individualized assessment to determine whether a conviction has a “direct and adverse relationship” with the specific duties of the job sought before the applicant can be denied employment based on a conviction

If the employer decides, following this individualized assessment, to deny employment it must provide written notice that:

  • Identifies the specific conviction relied upon to deny employment
  • Provides a copy of the conviction history report
  • Provides examples of mitigation or rehabilitation evidence that the employer would consider
  • Provides notice of the applicant’s right to respond within 10 days

The applicant may then offer information that challenges the accuracy of the conviction or provide mitigation/rehabilitation evidence. In its current form, the bill requires the employer to consider any mitigation/rehabilitation evidence the applicant offers.

If the applicant does not respond to the first written notice, or upon receipt of the applicant’s response the employer still decides against hiring the applicant, it must provide a second written notice that:

  • Notifies the applicant of its final decision
  • Describes any existing internal procedure under which the applicant can challenge the employer’s decision
  • Discusses whether the applicant could be eligible for other positions at the company
  • Identifies the earliest date when the applicant can reapply to the employer for a position
  • Notifies the application of its right to file a complaint with the California Department of Fair Employment and Housing (DFEH)

What Should Employers Do?

California employers should ensure that their hiring practices fully comply with existing California laws, which must include consideration whether they are also governed by the separate ordinances for the cities of San Francisco and Los Angeles. Additionally, employers should monitor the progress and outcome of Assembly Bill 1008, and appropriately adjust their practices if it passes. Employers with lingering questions should not hesitate to contact their experienced employment law counsel.

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