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Employment Law E-Buzz

Easy-to-digest updates on emerging employer legal issues

Did You Know…New FEHA Regulations Take Effect April 1

Posted in Discrimination, Handbooks, Harassment, Leave Laws

The Fair Employment and Housing Council’s amendments to its Fair Employment and Housing Act (“FEHA”) Regulations take effect April 1, 2016.

The amended regulations cover a wide range of topics.  Listed below are several key changes:

  1. Employers with five or more employees, those covered by California’s pregnancy disability leave laws, are required to replace the current Pregnancy Disability Leave Notice with an updated notice.  The revised notice will be published on the Department of Fair Employment and Housing website.  2 C.C.R. § 11051.
  2. If an employee handbook describes other types of reasonable accommodation, transfers, or temporary disability leaves available to employees, the handbook must also describe reasonable accommodation, transfer, and pregnancy disability leave.  Previously, an employer was merely “encouraged” to include a pregnancy disability leave policy.  2 C.C.R. § 11049(d)(3).
  3. The prohibition against discrimination on the basis of sex protects all individuals from sex discrimination—not just females.  2 C.C.R. § 11029.  Gender identity, gender expression, and transgender status are expressly protected.  Id; 2 C.C.R. § 11035.
  4. Employees are eligible for up to 4 months of pregnancy disability leave per pregnancy.  “Four months” is calculated as the number of days or hours the employee would normally work within four calendar months (one-third of a year, or 17 1/3 weeks).  This amendment clarifies existing law and eliminates the need for complex calculations.
  5. Employers are prohibited from discriminating against an applicant or employee who holds or presents a driver’s license issued under Vehicle Code section 12801.9, issued to persons meeting all other qualifications for licensure except lawful presence in the United States.  2 C.C.R. § 11028.
  6. Employers are required to have a written harassment, discrimination, and retaliation prevention policy.  2 C.C.R. § 11023.  The policy must be distributed to all employees with acknowledgement that the employee has received and understands the policy.  In addition, the policy must:
    – Be in writing.
    – List all protected categories covered under FEHA: race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age for individuals over 40 years of age, military and veteran status, and sexual orientation.
    – Indicate that coworkers and third parties, as well as supervisors and managers, are prohibited from engaging in conduct prohibited by FEHA.
    – Create a complaint process to ensure that complaints are (i) designated confidential, to the extent possible; (ii) responded to in a timely fashion; (iii) investigated in a timely and impartial manner by qualified personnel; (iv) documented and tracked for reasonable progress; (v) provided appropriate options for remedial options and resolutions; and (vi) closed in a timely manner.
    – Provide a complaint mechanism whereby an employee is not required to complain directly to his or her immediate supervisor.
    – Instruct supervisors to report any complaints to a designated company representative.
    – Indicate that all complaints will be investigated in a fair, timely, and thorough manner.
    – Not promise confidentiality, but indicate that confidentiality will be kept to the extent possible.
    – State that appropriate remedial measures will be taken if misconduct is found.
    – Make clear that employees shall not be exposed to retaliation as a result of lodging a complaint or participating in a workplace investigation.
    – Be translated into languages spoken by at least 10 percent of an employer’s workforce.
  7. The requirements for sexual harassment training and education have been updated with new documentation and recordkeeping requirements and new content requirements.  Training must now address abusive conduct, a supervisor’s reporting obligations, and steps necessary to take appropriate remedial measures to correct harassing behavior.  2 C.C.R. § 11024.

Employers should consult with counsel and carefully review their existing company policies to ensure compliance with the amended regulations.

Did You Know…The IRS Concludes That a “Penalty” Is a “Penalty” (Except When It Isn’t)

Posted in Litigation, Wage and Hour

If you have ever paid a current or ex-employee in a settlement or after a trial or arbitration (and what employer has not?), then you know the importance of properly characterizing the payment for tax purposes.  For example, if the amounts are “wages,” then the employer must issue a Form W-2; pay the employer’s one-half share of Social Security and Medicare taxes; and withhold income taxes and the employee’s one-half share of Social Security and Medicare.  If the amounts are for emotional distress, then the employer must issue a Form 1099-MISC but need not withhold or pay any tax; instead, the employee is responsible for properly reporting the payment and paying any income tax and self-employment tax (the equivalent of Social Security and Medicare).  Amounts may also be attributable to pre- or post-judgment interest, or penalties under federal or state law, in which case different rules apply.

One such penalty (“waiting time penalties” or “WTPs”) applies under California Labor Code section 203 to an employer that willfully fails to timely pay final earned wages to a terminated employee.  The employer will owe an amount (expressly designated by section 203 as a “penalty”) equal to the employee’s daily wages from the due date until the date of payment, up to a maximum of 30 days.  The IRS recently released an internal memorandum from its in-house legal department, Chief Counsel Advice 201522004 (“CCA 201522004”) concluding that WTPs are not “wages” for federal tax purposes (and, therefore, there is no payroll tax payments or withholding on WTPs).  CCA 201522004 analyzes 70 years’ worth of court precedent and IRS guidance as to what constitutes “wages” and concludes that WTPs are not so described because the employer’s obligation to pay them does not arise from the employee’s performance of his or her services; rather, they arise from the employer’s failure to pay wages on time.  Though internal memoranda like CCA 201522004 are not binding precedent, they are useful for gauging the IRS’s position on similar facts and in any case the conclusion in CCA 201522004 is sound; reflects the California Department of Industrial Relations’ view that WTPs are not “wages”; and corresponds to the 2010 decision by the  California Supreme Court in Pineda v. Bank of America, N.A. (in a different context) that WTPs are not “wages.”

Although CCA 201522004 addressed WTPs, the IRS legal office went on to address meal and rest payments under California Labor Code section 226.7.  Section 226.7 – unlike section 203 – does not refer to those payments as “penalties” and California law sometimes refers to these payments as “penalties” and sometimes as “wages.”  CCA 201522004 suggests that these payments are ‘wages” because “the meal and rest period payments are essentially additional compensation for the employee performing additional service during the period when the meal and rest periods should have been provided.”

So what are the take-aways from all this?

  • Labels don’t mean much.  The IRS will not be bound by labels (for example, “penalties” versus “wages” versus something else) in determining the correct tax treatment.  Instead, the IRS applies what tax advisors call the “origin of the claim test” – that is, what are the underlying events and conduct under the facts and circumstances that give rise to the payment?  If the conduct is the employee’s performance of services, then the payment is likely “wages” even if a state statute uses a different term.  If the conduct is the employer’s failure to follow the law, then the payment more likely constitutes a “penalty.”
  • “Penalties” can be bad.  If a payment is a “penalty,” that characterization can be disadvantageous for the employer.  The reason is that, whereas an employer generally can deduct back wages or other damages as an “ordinary and necessary” business expense under Internal Revenue Code section 162 (even if the employer was in the wrong), a taxpayer generally cannot deduct “fines” or “penalties” paid to the government.  Though WTPs are paid to the terminated employee, other penalties under the Labor Code are paid to the government (and in any event there is precedent to the effect that restitution or similar payments to a private party under government compulsion may constitute a non-deductible fine or penalty).  CCA 201522004 addressed only whether WTPs are “wages” for payroll tax and withholding purposes, and not whether the employer could deduct them.  The employer’s best course of action is to avoid the question by paying final wages on time.
  • Get it in writing and don’t bend over backward.  CCA 201522004 is another example of how both sides in employment litigation need to agree on a consistent tax treatment of the payments so that each side understands its payment, reporting and withholding obligations.  The IRS generally (but not always) will follow the treatment agreed to by the two sides considering that the two sides have competing economic, tax and other interests, so long as the agreed treatment is consistent with the underlying facts (remember the “origin of the claim” test).  For example, whereas the employee may want to have the payments treated as tax-free damages for personal injury, that treatment is rarely justified by the facts of a typical employment dispute outside of a workplace accident.  As another example, it is usually not advisable to accommodate an employee’s request to treat meal and rest payments (“wages” as suggested by CCA 201522004 and therefore reported on Form W-2 subject to payroll taxes and withholding) as “emotional distress” damages (not “wages” and reported on Form 1099) because, really, how many employees suffer emotional distress upon learning that they were not paid for meal and rest periods?

Did You Know…Amendments to California’s Mandatory Paid Sick Leave Law Effective Immediately

Posted in Leave Laws, Legislation, Recordkeeping, Wage and Hour

iStock_000055806260_LargeSignificant amendments to California’s new Paid Sick Leave Law, the Healthy Workplace, Healthy Families Act of 2014, went into effect immediately upon Governor Brown’s signature on July 13, 2015.

The amendments include the following:

Clarification of the 30-Day Rule

The Paid Sick Leave Law previously applied to all employees who worked 30 or more days in California within a year from the commencement of employment.

The amendments clarify that an employee must work for the same employer for at least 30 days within the previous 12 months to be eligible to accrue paid sick leave with that employer.

(Cal. Lab. Code 246(a).)

Accrual Method

The Paid Sick Leave Law previously required employees to accrue paid sick leave at the rate of 1 hour for every 30 hours worked.

The amendments permit employers to use a different accrual method, so long as the accrual is on a regular basis and the employee accrues no less than 24 hours of sick leave or paid time off (“PTO”) by the 120th calendar day of employment per calendar year or 12-month basis.

(Cal. Lab. Code 246(b)(3).)

Safe Harbor for Pre-Existing Policy

The amendments provide a new safe harbor for sick leave and PTO policies in existence prior to January 1, 2015.

An employer complies with the law if it continues to offer a pre-existing plan that provides PTO accrual on a regular basis at a rate of no less than 1 day or 8 hours of accrued sick leave or PTO within 3 months of employment each calendar year or 12-month period, and the employee is eligible to earn at least 3 days or 24 hours of sick leave or PTO within 9 months of employment.  If an employer changes its pre-existing accrual method, it must comply with the accrual method set forth in the sick leave law or front-load the leave and provide 24 hours or 3 days of sick leave at the beginning of each year.

(Cal. Lab. Code 246(e)(2).)

Reinstated Sick Leave

The Paid Sick Leave Law requires employers to reinstate accrued sick leave balances to employees who return to work within one year of discharge.

The amendments provide that an employer is not required to reinstate accrued sick leave to an employee if the employee was paid out at the time of termination, resignation, or separation.

(Cal. Lab. Code 246(f)(2).)

Delayed Notice Requirement for Some Industries

The Paid Sick Leave Law requires employers to provide the available sick leave balance on each wage statement or other document provided on each pay date.

The amendments delay this requirement for employers covered by Wage Order 11 (which covers the broadcasting industry) and Wage Order 12 (which covers the motion picture industry) until January 21, 2016.

(Cal. Lab. Code 246(h).)

Notice on Wage Statement for “Unlimited” Sick Leave

The Paid Sick Leave Law requires employers to inform employees of their balance of available paid sick leave, either on a wage statement or a separate writing accompanying the statement.

The amendments permit an employer who provides unlimited sick leave to its employees to satisfy notice requirements by indicating “unlimited” on the employee’s itemized wage statement.

(Cal. Lab. Code 246(h).)

Rate of Pay Calculation

When the law was originally passed, the rate of pay was to be calculated based upon an employee’s hourly rate. For employees who earn different hourly rates of pay, are paid by commission or piece rate, or are non-exempt salaried employees, the rate of pay was calculated based upon the wages paid, not including overtime premium pay, and the hours worked in the full pay periods that the employee worked during the prior 90 days.

The amendments provide that:

1) For non-exempt employees, employers may choose one of two options: (a) calculate paid sick leave in the same manner as the regular rate of pay for the workweek in which the employee uses the paid sick leave, or, (b) calculate paid sick leave by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked during the full pay periods that the employee worked during the prior 90 days.

2) For exempt employees, paid sick leave is calculated in the same manner as the employer calculates wages for other forms of paid leave time.

(Cal. Lab. Code 246(k).)


The Paid Sick Leave Law requires an employer to keep records for 3 years documenting the hours worked and paid sick leave accrued and used by an employee and to make those records available to the Labor Commissioner upon request.

The amendments provide that the employer has no obligation to inquire into or record the purposes for which an employee uses sick leave or PTO.

(Cal. Lab. Code 247.5(b).)


Did You Know…SCOTUS Saves the Affordable Care Act (Again)

Posted in Court Decisions, Legislation

iStock_000035065250_FullThe U.S. Supreme Court handed down its much-anticipated King v. Burwell decision on June 25, and (again) gave the Obama administration a huge victory by safeguarding its signature legislation, the Affordable Care Act (“ACA”).

To understand what was at stake here, one needs to understand the “three legs” of healthcare reform underlying the ACA. Leg # 1 prohibits insurers from denying coverage or raising premiums based on a person’s medical history. Because this requirement could otherwise cause insurers to face a financial “death spiral” by forcing them to cover pre-existing conditions of a pool of older, sicker insureds, Leg # 2 requires younger, healthier people into the health insurance pool as well by penalizing them if they do not obtain health insurance (the so-called “individual mandate”). Because many people cannot otherwise afford insurance in order to enter the pool, Leg # 3 provides federal subsidies toward their premiums.

Two other ACA provisions interlace these three legs. First, the ACA encouraged states to set up their own web-based “exchanges” whereby insurers could offer policies directly to consumers. If a state did not set up its own exchange, the federal government would step in and operate one (www.Healthcare.gov) for it. Second, the ACA penalizes “large” employers (essentially, those with 50 or more full-time employees) that do not offer adequate health insurance coverage to their full-time employees (the so-called “employer mandate”), the purpose being to prevent them from “dumping” employees on federal or state exchanges and letting them be subsidized by the federal government. If a full-time employee gets a subsidy because his or her employer offers lousy (or no) coverage, then the employer gets penalized for that employee.

In June 2012, the U.S. Supreme Court in National Federation of Independent Business v. Sebelius upheld (in a 5-4 decision with Chief Justice Roberts writing the majority opinion) the individual mandate against a constitutional attack by the ACA’s opponents.

King did not similarly involve a constitutional challenge; instead, the controversy was what the test within the “four corners” of the ACA itself provided.  Specifically, an ACA provision (now section 36B of the Internal Revenue Code) makes subsidies available for coverage that is “enrolled in through an Exchange established by the State” under the ACA, but the IRS in issuing regulations allowed subsidies to be provided to people enrolling in a state or the federal exchange.  California set up its own exchange (www.coveredca.com) as did 13 other states, but 36 states decided not to operate their own exchanges and instead glommed onto the federal.

The plaintiffs in King maintained that the statute said what it said: Subsidies were available only to enrollees on a state exchange and the IRS overstepped its bounds by making subsidies available to enrollees on the federal as well. The government countered that such a reading was absurd because it would leave enrollees in 36 states without subsidies, thereby making insurance unaffordable and triggering the very insurer death spiral that the ACA was designed to prevent.

Again Justice Roberts penned a decision (this time 6-3) siding with the government. The majority said that the words “an Exchange established by the State” in section 36B were ambiguous when considered in the context of the rest of the text of the ACA and, given the ambiguity, the Court’s job was to interpret the statute in a way that furthered Congress’ intent – here, to prevent an insurer death spiral that would destroy the insurance markets and sink healthcare reform.  The majority did not rely on the so-called “Chevron test” (named after a 1984 opinion, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., under which courts are to defer to an administrative agency’s reasonable interpretation of a Congressional mandate in issuing regulations). The issue here, the majority said, was not the IRS’s interpretation of section 36B (Congress never intended the IRS to have regulatory discretion in this area) but rather that Congress intended that subsidies be available for enrollees on all exchanges in order for the health care reform to work. The majority’s approach means, as a practical matter, that any future Republican administration cannot undo the subsidies through regulation; rather, such action would require Congressional action. (Justice Roberts did get in some jabs at the slapdash way in which Congress passed the ACA in 2010, blaming that process for the statute’s poor drafting which the Court was now being asked to unravel.)

Justice Scalia (joined by Justices Thomas and Alito) wrote a dissent (which is piquant or acerbic depending on whether you like Justice Scalia’s style), saying essentially that the words “an Exchange established by the State” mean exactly that and that the Court should not try to divine or clean up whatever drafting issues Congress in 2010 had created.  The Court, Scalia complained, seemed to be going out of its way with King and National Federation to try to find any way to save a pet piece of legislation.  Perhaps, Scalia asked, the ACA should be called “SCOTUSCare”?

So what are the take-aways from King?

  • Had King gone the other way, the employer mandate would not have worked because the employer penalty is triggered if an employee goes on an exchange and gets a subsidy (if there is no subsidy, there could be no penalty).  With the decision in favor of the government, the employer mandate is not going anywhere and it is time to comply – large employers must offer coverage this year and start reporting next year.
  • Californians never had to worry because our state had set up its own exchange and they were therefore eligible for subsidies even had King gone against the government.  However, the Court’s decision means that individuals in states that did not set up exchanges and receiving subsidies (between 6 and 8 million depending on what article you read) will not lose them.
  • Insurers need not worry about the dreaded death spiral (well, at least not as a result of subsidies being lost for enrollees on the federal exchange – there could be other causes).
  • The decision is a blessing in disguise for Republicans (even though they might have gained some schadenfreude from an anti-government decision). Had King gone the other way, Republicans in Congress would have been under enormous pressure to come up with a legislative solution saving the subsidies, and “red state” governors would have been under enormous pressure to set up state exchanges.
  • King was the ACA opponents’ last hurrah in court.  Even though Republicans may run on a platform of repealing it for 2016, repeal is easier said than done because the ACA’s tendrils will be deep in the US economy and society even if we have a Republican administration and Congress in 2017. So, regardless of whether you think the ACA is a bad idea or dislike the way Congress passed it in 2010, it is time to deal with it.

Did You Know…The Guiding Light on Employer Handbooks — Sort of

Posted in Handbooks, National Labor Relations Board, Social Media

Most employers already know they cannot forbid employees from criticizing management, workplace conditions, or discussing salaries in person or on the Internet.  Employers cannot forbid employees from posting comments — both good and bad — on social media, as long as the comments are not unlawful.  And though an employer must put its employees on notice of behavior that is unacceptable and that could lead to termination, that notice must be given in a way that does not cause the employees to “reasonably believe,” even wrongly, that they are prohibited from engaging in the concerted activity protected by section 7 of the National Labor Relations Act.

It’s one thing to know the rules, it’s quite another to implement them properly.

Up until now, deciding what might cause an employee to “reasonably believe” they are prohibited from engaging in protected activity was pretty subjective.  Indeed, it still is.  That’s why the National Labor Relations Board’s general counsel recently released a 30-page memo offering guidance to employers on how to write employee handbooks in a way that doesn’t violate the National Labor Relations Act.  We include a few tips here:

Be specific about the term “confidentiality.”  For example, prohibiting disclosure of “business secrets or other confidential information” is okay, but telling employees not to “discuss work matters in public places” is not.

Context matters.  A confidentiality provision that prohibits “disclosure of all information acquired in the course of one’s work,” while facially overbroad, would pass muster when nestled among other provisions relating to conflicts of interest and compliance with state and federal regulations.  The same hold true for other provisions.  For example, a general ban on “derogatory comments” is not allowed, though a ban on “the use of racial slurs, derogatory comments, or insults” would be allowed if such rule were contained within a section dealing exclusively with unlawful harassment and discrimination.

Employers should avoid telling employees to simply “be respectful to the company, other employees, customers, partners, and competitors” or to avoid posting “statements that damage the company or the company’s reputation…” on social media.  But apparently admonishing “rudeness or unprofessional behavior toward a customer or anyone in contact with the company” would be deemed acceptable.

Admonishments that are generalized and overbroad in nature will not pass muster with the NLRB in the event the policy is reviewed in litigation.  So it’s best to be as specific as possible, and give examples of the prohibited conduct, in order to make clear the behavior that is prohibited and not give the impression that employees are barred from exercising their right to engage in activity protected under section 7.

The NLRB’s general counsel issued the guidance with an eye toward helping employers conform their handbooks to the law.  It’s worth a read.

Did You Know…PAGA Waivers Unenforceable in California Courts

Posted in Class Actions, Court Decisions

The United States Supreme Court recently declined to review the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC.  In Iskanian, the California Supreme Court held that the Federal Arbitration Act (FAA) preempted California’s policy against enforcement of class action waivers in arbitration agreements.  This means that class action waivers in employment arbitration agreements are generally enforceable.  However, the California Supreme Court also held that representative claims under the Private Attorneys General Act (PAGA) (an act which essentially deputized private citizens to seek penalties on behalf of California’s Labor and Workforce Development Agency and split any penalties recovered – 75% to the state and 25% to the employees) could not be waived in arbitration agreements.  The net effect of this holding is that any employment agreement that “compels the waiver of representative claims under the PAGA is contrary to public policy and unenforceable as a matter of state law.”  The California Supreme Court reasoned that the point of the PAGA was to expand California’s limited enforcement authority and that any agreement waiving a worker’s right to bring a PAGA action serves to disable one of the primary mechanisms for enforcing California’s Labor Code.

Notwithstanding, several California federal district court judges have rejected the Iskanian holding that workers cannot waive representative PAGA claims through arbitration agreements.  Thus, there is a split between state and federal courts in California.  The federal district courts disagree with Iskanian on the basis that (a) it is inconsistent with the United States Supreme Court decision in AT&T Mobility v. Concepcion which held that the FAA preempts any state laws that invalidate class action waivers and (b) the FAA preempts California’s rule prohibiting representative PAGA waivers because that rule treats arbitration agreements disfavorably.  The split between state and federal courts in California means that employees will want to litigate PAGA claims in state court and employers will want to proceed in federal court.

The Iskanian decision will most likely increase the number of PAGA claim filings and efforts to remove them to federal court.  The continuation of conflicting decisions by California state and federal courts may trigger another opportunity for the United States Supreme Court to address this issue.  In the meantime, Iskanian raises a host of procedural and strategic issues which will need to be addressed by employment counsel as PAGA claims proceed.

Notwithstanding, the uncertainty over the enforceability of representative class action waivers, employers should consider well-drafted arbitration agreements as an important tool for limiting and preventing class action employment litigation.

Did You Know…Second Meal Period Waivers Invalid for Health Care Workers When Working More Than 12 Hours

Posted in Court Decisions, Wage and Hour

In Jazmina Gerard v. Orange Coast Memorial Medical Center, the California Court of Appeal held that the wage orders health care companies have been following for years were wrong and contrary to the California Labor Code.

Three health care workers sued their hospital employer in this putative class and private attorney general enforcement action for alleged Labor Code violations and related claims.  Their primary contention was that the hospital’s policy illegally let health care employees waive their second meal periods on shifts longer than 12 hours.

Labor Code section 512(a) requires two meal periods for shifts longer than 12 hours.  On the other hand,  Industrial Welfare Commission (IWC) Wage Order No. 5 authorizes employees in the health care industry to waive one of those two required meal periods on shifts longer than 8 hours.  Thus, pursuant to Wage Order No.5  and meal period waivers, Plaintiffs all signed second meal period waivers and occasionally worked shifts longer than 12 hours without being provided a second meal period.

The principal issue was whether the IWC order was valid.  The Court concluded that the IWC exceeded its authority and declared section 11(D) of Wage Order No. 5 partially invalid to the extent it authorizes health care workers to waive their second meal periods on shifts longer than 12 hours because it was in direct conflict with Labor Code section 512(a).

The next issue the Court addressed was to what extent would its decision be retroactive.  [As a general rule, judicial decisions are given retroactive effect, even if they represent a clear change in the law.  However, there is an exception when considerations of fairness and public policy are so compelling that they outweigh the considerations that underlie the basic rule; e.g., when a party justifiably has relied on the former rule.]

Here, the Court held that with one exception, it would not opine on the potential liability of the hospital for violations of section 512(a) committed before its decision and remanded that issue to the trial court.  The one exception was that the hospital would have to pay plaintiffs’ premium wage claims based on Labor Code section 226.7(c) since the law was clear that employers were required to provide health care workers with a second meal period when they worked more than 12 hours in a day.

The issue, then, is not whether the hospital was on notice its failure to provide the required second meal periods was unlawful—it surely was—but whether it is somehow unfair to apply to hospital the particular remedy specified in section 226.7 for its actions prior to our decision today.

The Court concluded “[h]aving received the benefit of its employees working without the statutorily mandated second meal periods, there is nothing unfair about requiring hospital to compensate them for that time in accordance with the formula prescribed by the Legislature.”

Best Practices

Employers (especially those in the health care industry) should review their meal and rest period policies and ensure they are compliant with California statutes and court decisions as this one.

Did You Know…Court Confirms Employees on Medical Leave Must Still Comply With Existing Company Policies

Posted in Court Decisions, Leave Laws

In Richey v. Autonation, Inc., Case No. S207536 (January 29, 2015), the California Supreme Court confirmed that an employee who is on medical leave does not have a greater right to reinstatement or to other benefits and conditions of employment than if they were continuously employed, and they must comply with existing company policies regardless.

In Richey, a sales manager at Power Toyota Cerritos (“Power Toyota”), part of the AutoNation, Inc., consortium of automobile dealerships, was terminated while out on approved leave under the California Family Rights Act (“CFRA”) for violating company policy.  Power Toyota’s policy prohibited employees from engaging in other employment while on a leave of absence, and Toyota found out he was working at a restaurant he owned during this time.

Richey filed suit, alleging his termination violated CFRA and the case was ordered to arbitration.  The arbitrator denied Richey’s claim, finding that the employer was allowed to terminate if it had an “honest belief” that Richey was violating the policy, even if mistaken.  The trial court denied Richey’s request to vacate the arbitration award and Richey appealed.  The California Court of Appeal reversed the trial court’s decision, taking issue with the arbitrator’s reliance the “honest belief” defense because it had not yet been tested in the California Supreme Court and viable in California.

The California Supreme Court reversed, holding that Richey failed to show any prejudice from the arbitrator’s alleged error.  The Court explained that, regardless of whether this “honest belief” defense was a viable defense in California, the arbitrator nevertheless reached the correct conclusion.  The arbitrator expressly found that Richey was fired because he violated Power’s employment policy against outside work while on approved CFRA medical leave, not because he was on approved leave.  The award indicated Richey blatantly ignored his superiors’ clear instructions not to work at his restaurant while on CFRA leave.

The Court explained that, if it held that Power Toyota could not have fired Richey under any circumstances for violating company policy while on leave, it would be ignoring the rule set forth at C.F.R. §825.216(a) that an employee has no greater right to reinstatement or to other benefits and conditions of employment during medical or family leave than he or she would have if continuously employed during the same period.

The Court’s decision is significant because it confirms that employers are entitled enforce their existing policies and discipline employees for failing to follow them, regardless of whether their employees are out on a protected leave.  In addition, it underscores the importance of documented communications with employees regarding suspected violations.  In this case, the Court relied heavily on the fact that the employer explicitly warned the employee and tried to communicate with him about his outside employment and the employee ignored the employer’s overtures.  Finally, the Court provided an instructive explanation of the narrow grounds upon which an arbitrator’s decision can be reversed – decisions on the merits will be given significant deference and reversal will be limited to situations where procedural error results in the denial of a party’s opportunity to vindicate an otherwise unwaivable statutory right.

Of note, the Court did not address whether an employer’s honest belief that an employee was misrepresenting his or her medical condition is a viable defense to claims of disability discrimination in California, leaving issue open to be resolved in another case.

Did You Know…SCOTUS Will Decide Gay Marriage Issue Once and For All

Posted in Court Decisions

It was bound to happen.  Sooner or later the U.S. Supreme Court would be put to the task of deciding whether a married couple from California are still married while visiting Elvis’ ghost at Graceland, in Tennessee.

That day has come.

By June 2015, the Court will decide whether the few remaining gay marriage bans must fall.  Currently, only fourteen states still refuse to allow gay couples to marry.  And until recently, when the Sixth Circuit Court bucked the trend of the other circuits who have weighed in on the issue, gay marriage seemed a foregone conclusion.  It still is, but a decision from the high court will speed things up.  And despite the Court’s conservative leanings, gay marriage will prevail.

The President of the United States supports gay marriage.  He has also instructed the U.S. Attorney General to urge the Court “to make marriage equality a reality for all Americans,” not just those Americans living in thirty-six states and the District of Columbia.

Though the Justices initially declined to hear appeals of gay marriage cases just three short months ago, the number of states that now allow gay marriage has nearly doubled since then.

Given the level of importance of the issue, the Court is extending to two-and-a-half hours the time allowed for oral argument in which it will consider two questions: first, does the U.S. Constitution require states to issue marriage licenses to same-sex couples, and second, whether states must fully adopt the comity clause; that is, must states must recognize same-sex marriages performed elsewhere.

The appeals granted review by the Court spring from gay marriages cases in Kentucky, Michigan, Ohio, and Tennessee.  The Sixth Circuit upheld bans in those states, reversing federal judicial rulings in support of gay marriage and making it the first federal appeals court to rule against gay marriage since the Supreme Court struck down DOMA in 2013.

Did You Know…Employers Must Reimburse Employees for Personal Cell Phone Use

Posted in Class Actions, Court Decisions

Last August, in Cochran v. Schwan’s Home Service, Inc., a California Court of Appeal held that employers must reimburse employees for required work-related use of personal cell phones, even if the employees incur no additional out-of-pocket expenses from that work-related use. The California Supreme Court has refused to grant review of the decision, so the Cochran case stands as established case law.

In Cochran, the plaintiff, Colin Cochran, was a customer service manager for a food delivery provider who was required to use his personal cell phone for work purposes. His employer did not reimburse him for this work-related personal cell phone use. Cochran filed a class action lawsuit on behalf all customer service managers who were not reimbursed for expenses relating to work-related use of their personal cell phones.  He argued that Labor Code 2802 required the employer to reimburse him, even though he had an unlimited service plan and incurred no additional out-of-pocket expenses for the business calls.

Labor Code section 2802 requires employers to reimburse an employee “for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer.”

In addressing class certification, the trial court found the customer service managers lacked sufficient commonality with respect to the expenses necessarily incurred as a result of work-related use of personal cell phones.  Specifically, the trial court reasoned that differences in cell phone plans, including unlimited plans where no out-of-pocket expenses were incurred, raised too many individual questions and would require an inquiry into every class member’s cell phone plan.  As a result, the trial court denied class certification.

On appeal, however, the court dispensed with the trial court’s reasoning by finding that an employer always is required to reimburse an employee for the reasonable expense of the mandatory use of a personal cell phone, whether or not the employee incurred additional out-of-pocket expenses as a result of the work-related use.  Otherwise, the court found, the employer would receive a “windfall” by passing its operating expenses onto the employee.  Thus, the trial court’s ruling on certification was reversed.  This holding may require employers to reevaluate their policies and procedures related to personal cell phone use.

While Cochran made it clear that employers must reimburse employees for a “reasonable expense” of any necessary work-related use of their personal cell phones, it left open important practical questions.  Specifically, the court’s decision provides no guidance on when use of a personal cell phone will be considered necessary or how to calculate reimbursements.

Certainly a direct instruction would be considered necessary.  Arguably, however, personal cell phone use might also be considered necessary where employees are required to make work-related phone calls, or are otherwise expected to be available by phone, and a company-issued phone is not available.  The same could likely be argued for smartphones, tablets, or laptops where employees are expected to send or respond to work-related emails without a company-issued device.

While it is uncertain exactly how employers should calculate the reimbursement, such as using a lump sum or other calculating based on individual use, they key will be to ensure that the reimbursement is sufficient to cover the employee’s actual expenses, and that the employee may request reimbursement for any actual costs incurred in excess of the calculated or lump sum reimbursement. (See Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554 (2007) (addressing mileage reimbursement calculations).)  To comply with Cochran, employers should pay close attention to their cell phone and device policies, and assess which employees need a mobile device to perform their duties and whether the company provides such device.