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2011 Employment Law Update
By Daniel E. Gardenswartz, Esq. | Published: March 17, 2011
As the first quarter of 2011 draws to a close, now is a good time to ensure that your employment practices are up to date. The following "Employment Law Update" reflects some of the recent changes in employment law, and anticipated developments, based on a survey by our firm's Employment Practice Group. While not intended to be an exhaustive list, we have detailed some of the more significant developments in the law that California employers should be aware of in 2011.
Judicial Developments
Employee Privacy - Text Messaging
In a high profile case on employee privacy as to text and other electronic communications, the U.S. Supreme Court recently decided that an employer did not violate an employee's privacy rights by obtaining and reviewing a transcript of an employee's text messages.1 The Supreme Court ultimately held that such a search was "justified" after the employer found that certain employees were exceeding the monthly limit on the number of text messages their service plan covered and that the scope of the search was "reasonable" so that the employer did not violate the employee's Fourth Amendment rights.
Note that a critical factor for the Supreme Court was the employer's "Computer Usage, Internet and E-mail Policy," which contained explicit warnings which advised employees that text messages would be treated the same as e-mail under the electronic resources policy (i.e., subject to monitoring and review by the employer). The employee claimed, however, that the supervisor responsible for overseeing the pager program stated that the employer would not review text messages if the employee paid the overage charge.
Although the case dealt directly with the Fourth Amendment, the standards governing Fourth Amendment claims are substantially similar to those governing common law claims for invasion of privacy; thus, it contains guidance for all employers. Notably, the decision highlights the importance in evaluating whether there are reasonable grounds for any workplace investigation that is "motivated by a legitimate work-related purpose" and not "excessive in scope." The decision also highlights the necessity for all employers to have well written and uniformly applied policies related to employees' expectations of privacy in the workplace and on employer-provided equipment, including laptops and smart phones. Undoubtedly, employees will have a reduced expectation of privacy if such employer policies are clearly communicated to employees. Additionally, managers and supervisors should be trained not to make statements inconsistent with the company's policy (e.g., "We never actually review personal e-mails"). Finally, the policy should be reviewed and updated regularly to address new technologies, such as text messaging, use of social media, and new developments in the law.
Class Actions in Arbitration Agreements
In 2010, the U.S. Supreme Court decided the issue of whether an arbitration agreement that is silent on the issue of class arbitrations could be construed to permit such arbitrations.2 The Supreme Court ruled that an agreement must affirmatively permit class actions in order for an arbitrator to preside over the case as a class action, as opposed to an individual dispute between two parties to the agreement. Thus, unless there is contractual language permitting the class claims to go forward with a class action in the arbitral forum, class arbitrations are prohibited. The focus is on the language of the arbitration agreement. Commentators are anticipating that this decision may be used to invalidate various state court opinions holding that express class waivers are unenforceable or "unconscionable." Additionally, it would appear that the decision in this case mandates that arbitration agreements with express class action waivers are enforceable. Notwithstanding the decision in this case, best practices mandate that if employers want to prohibit class arbitrations, their agreements to arbitrate should contain a clear statement to that effect. It also remains to be seen whether state courts, which have generally not enforced class action waivers except in very narrow contexts, will now change their analysis regarding the enforcement of arbitration agreements that preclude class action participation.
This case presents an opportunity for employers who wish to clarify whether arbitration with an employee is desired, or required, and whether that arbitration will or will not allow claims to be brought on a class-wide basis.
Wage and Hour Law Update: Status of Meal/Rest Break Cases
As you may be aware, the California Supreme Court previously agreed to review the closely-watched case of Brinker Restaurant v. Superior Court of San Diego.3 The issue of an employer's obligation to either provide the choice to take a meal break, or to ensure that employees in fact take meal breaks, has been at the California Supreme Court for two years. The California Supreme Court's decision to grant review in the case nullifies the Court of Appeal's previous decision that while the Labor Code requires that employers provide meal and rest periods to their employees, employers are not obligated to ensure that their employees actually take their breaks.
The Supreme Court is expected to issue its decision later this year. We are hopeful that it will provide guidance to employers on complying with California's meal and rest period requirements and dealing with prohibitions against off-the-clock work. Given the continued uncertainty in this area of law, employers should continue to confirm that employees are taking their required meal/rest breaks and performing only pre-approved overtime work. This may be accomplished by providing employees with written meal and rest break policies and requiring a signed acknowledgment of such policies, reinforcing policies through periodic reminders, ensuring that employees record meal periods, adding an attestation clause to employee time sheets, and paying appropriate wages for all employees who fail to take their required meal break.
Age Discrimination
The California Supreme Court recently opened the door for more discrimination lawsuits based on "stray remarks" in the workplace. The "stray remarks" doctrine generally provides that comments made by non-decision making supervisors or coworkers-and that are unrelated to the challenged employment decision-are irrelevant to the question of discriminatory motive. In the recent case of Reid v. Google, Inc.4 the court specifically addressed whether California courts should adopt the "stray remarks doctrine" in employment discrimination cases.
Reid sued Google for age discrimination, wrongful termination, violation of public policy, failure to prevent discrimination, and both negligent and intentional infliction of emotional distress. Reid alleged that supervisors and co-workers had made derogatory age-related remarks to him such as that he was "slow," "fuzzy," "sluggish," and "lethargic." Google sought to dismiss the case on the theory that the only evidence of any discriminatory animus was stray comments such as co-workers calling Reid "an old man," and "old guy," and an "old fuddy-duddy."
The California Supreme Court ultimately refused to dismiss the case. The court emphasized that "[a] stray remark alone may not create a triable issue of age discrimination," but clarified that, in conjunction with other evidence of pretext, a "stray remark" could be part of a broader showing sufficient to defeat summary judgment.
Employers can seek to minimize the significance and impact of purportedly discriminatory comments by showing they were made, if at all, completely outside of the context of the challenged termination. Employers can also try to undercut the impact of remarks that were made by individuals with no supervisory responsibility over the plaintiff and/or played no role in the adverse employment decision. However, this case highlights the importance of training all employees about appropriate conversation and comments in the workplace. Harassment and discrimination training have become vitally important for employers across the state. Employers are also cautioned to train decision makers to carefully document and communicate the reasons justifying an adverse employment action.
Legislative Change
Employers should be mindful of the following new laws, which may or may not apply to your organization:
Paid Leave for Bone Marrow and Organ Donation
(Michelle Maykin Donation Protection Act (SB 1304)): Private employers with 15 or more employees will be required to provide up to 30 days of paid leave per year for an organ donation in any one-year period, and up to five days of paid leave per year for a bone marrow donation. The new law requires a private employer to restore an employee returning from leave for organ or bone marrow donation to the same position held by the employee when the leave began, or an equivalent position. Further, this law prohibits an employer from interfering with an employee taking organ or bone marrow donation leave and from retaliating against an employee for taking that leave, or opposing an unlawful employment practice related to organ or bone marrow donation leave. Although not required by SB 1304, employers should consider updating their employee handbooks and policies to reflect the additional leave rights for organ and bone marrow donor employees.
Leave for Protection of Family from Domestic Violence
(AB 2364): California law provides unemployment insurance benefits to eligible employees who are unemployed through no fault of their own. Until passage of AB 2364, these provisions contained a "good cause" exception allowing employees to retain their eligibility if they left employment to protect their "children" from domestic violence abuse. AB 2364 amends this domestic violence "good cause" exception to specify that an employee retains their eligibility if they voluntarily left employment to protect their "family" (not simply "children" as under the prior law) from domestic violence abuse.
Limited Exemption to Meal and Rest Period Requirements for Certain Unionized Workers
(Amended Labor Code § 512; AB 569): Effective January 2011, construction workers, commercial drivers, certain security officers, and employees of electrical corporations, gas corporations, or publicly owned utilities are now exempt from meal break requirements if they are covered by a valid collective bargaining agreement which expressly includes, among other things, provisions for wages, work hours, meal periods and final and binding arbitration of disputes about meal period provisions.
Workers' Compensation Insurance for Employees of Contractors
(New Business and Professions Code § 7127 (S.B. 1254)): Authorizes the registrar of contractors to issue a stop order, effective immediately upon service, to any licensed or unlicensed contractor who as an employer has failed to secure workers' compensation insurance coverage for his or her employees. Additionally, this new law specifies procedures for the payment of employees during a work stoppage subject to a stop order.
Computer Software Professional Wage/Hour Exemption:
Labor Code section 515.5 provides that certain computer software employees are exempt from overtime requirements if certain criteria are met, including a minimum annual salary or hourly wage. The Division of Labor Statistics and Research (the "DLSR") is responsible for adjusting the minimum each year. The DLSR has announced that there will not be an increase in the minimum hourly rate of pay exemption of $39.74, the minimum monthly salary exemption of $6,587.50, and the minimum annualized salary of $79,050.00 for 2011.
IRS - 2011 Standard Mileage Rates:
Under the 2011 IRS standard mileage rates, a reimbursement of $0.51 for each business mile driven is now a safe harbor for the purposes of mileage reimbursement for employees using their vehicles for company purposes.
Additional Disclosures for Background Checks
(SB 909): Effective January 1, 2012, employers will have to make additional disclosures to an applicant or employee in connection with a background check through a third party "investigative consumer reporting agency" regarding the website address for the agency's private practices, including whether the individual's personal information will be sent outside the U.S.5 As a result of this new law, we recommend that employers update their background check consent forms.
Administrative Developments
U.S. Department of Labor ("DOL") Policy and Enforcement Initiatives
Sweeping new federal regulations are in the works that may require many U.S. businesses to proactively demonstrate compliance with safety laws, wage laws, and anti-discrimination laws. The DOL has announced an enhanced regulatory and enforcement strategy for U.S. businesses with a stated goal of requiring employers to "find and fix" violations to ensure compliance before a Labor Department investigator arrives at the workplace. The new program is entitled "Plan/Prevent/Protect." In general, the DOL has described the new program as requiring employers to make written plans (Plan), create processes (Prevent), and test the processes with designated compliance employees (Protect).
As a result of this DOL initiative, employers will need to reexamine their practices and shift focus regarding employment law compliance. Instead of waiting until a problem arises, employers would have to develop, implement and enforce policies designed to eliminate, not merely mitigate, employment, safety, and employee benefit law violations. Unfortunately, the details of what a compliance initiative will involve will not be known until the details of the regulatory agenda are known. Once the final regulations are issued, we can advise clients on best practices to comply with the new DOL requirements.
U.S. Department of Labor ("DOL") Provides Information to Plaintiffs' Attorneys
In an unprecedented collaboration, the DOL's Wage and Hour Division (the "WHD") and the American Bar Association have announced an attorney referral system for employees whose complaints the WHD declines to pursue. In addition to providing complainants with a referral to an attorney, the WHD has indicated that it will be providing information and documents that employers provide to the DOL during wage-hour investigations, stating that it has "developed a special process for complainants and their attorneys to quickly obtain certain relevant case information when available." This is a marked departure from the DOL's previous policies of limiting the information and documents it was required to disclose.
The DOL has not stated whether employers will be given any notice or have an opportunity to object to release of company information and documents to employees or their attorneys. Nor has the DOL indicated whether it will provide employers with the same information and documents that it provides to employees and their attorneys. Employers should carefully consider the types of information and documents provided to the DOL's WHD during an investigation until the DOL provides answers to some of these questions. At this point, employers should assume that any information or document provided to the DOL during an investigation may end up in the hands of plaintiffs' attorneys. With this in mind, extreme care should be taken when responding to any DOL or similar federal and state administrative inquiries.
FMLA Child-Care Leave Extended to Domestic Partners and Others
The DOL issued an Administrative Interpretation (the "Interpretation") that extends child-care leave under the FMLA to domestic partners and other providers who do not have a legal or biological relationship with a child by expanding the circumstances in which a person is deemed to be standing In loco parentis (i.e., a person who assumes the obligations of a lawful parent without the legal formalities) to a child. Although the DOL's position is an interpretation and not a binding regulation, it will likely influence the way in which courts examine cases brought under the FMLA, and it will also challenge employers by potentially expanding the population of employees who may be eligible for FMLA leave.
Under the Interpretation, either day-to-day care or financial support of a child may be sufficient to establish an In loco parentis relationship if the employee intends to assume the responsibilities of a parent, regardless of the employee's legal or biological relationship to the child. Previously, both factors were required to be present. Consequently, the Interpretation extends eligibility for FMLA child-care leave to many domestic partners and others who, until now, were not considered "parents" under the FMLA. In light of this expanded interpretation of the FMLA, we recommend: (1) updating FMLA compliance packages to ensure that the compliance process includes appropriate forms and guidance for an employee seeking leave based on In loco parentis status; and (2) training managers and human resources staff about this expansion of the FMLA and its associated implications.
Veterans Hiring Kit Available On-Line
The DOL recently announced the availability of a new online toolkit to guide employers through the process for hiring veterans. The free toolkit is designed to assist and educate employers who have made the proactive decision to include veterans and wounded warriors in their recruitment and hiring initiatives and contains information about the six key steps to the successful hiring of military veterans. This toolkit may be especially helpful to employers who are government contractors and who need to devise strategies to effectively implement their Affirmative Action Plans. To access the toolkit, visit: www.AmericasHeroesAtWork.gov/forEmployers/HiringToolkit.
Non-Discrimination Testing for Insured Health Plans
The recent health care reform rules expanded the coverage of Internal Revenue Code section 105(h) ("Section 105") to fully-insured non-grandfathered group health plans, with certain modifications. The Section 105 rule prohibits a group health plan from discriminating in favor of highly compensated employees as to eligibility to participate in a plan and as to benefits provided under a plan. Generally, the Section 105 rule establishes two tests - an "eligibility test" and a "benefits test" - to determine whether a plan is discriminatory. If a plan fails either test, it will be considered discriminatory and an excise tax equal to $100 per day, per employee during the period of non-compliance will be imposed on the plan. At this time, the IRS has issued little guidance on the parameters of the required nondiscrimination testing for insured group plans.
In response to public comments and concerns about compliance with Section 105, the IRS announced on December 22, 2010, that nondiscrimination testing on insured plans would be delayed until the government issues regulatory guidance. Further, to allow insured plans time to comply with the rules, it is likely that future guidance will not apply until plan years beginning sometime after the date the guidance is issued. Thus, for calendar year plans, it is likely that employers will not have to worry about compliance with the Section 105 nondiscrimination rules until January 12, 2012, at the earliest.
The Section 105 rules and anticipated guidance may have an impact on multi-state employers who have different benefit levels, eligibility rules and contribution requirements based on location. Additionally, the application of Section 105 to insured group plans may impact a company's employment and severance agreements when such agreements provide for the company to pay a greater portion of health care premiums for current or former executives. In anticipation of the implementation of Section of 105 to insured group plans and the expected IRS guidance, employers should review existing executive employment and severance agreements and review current group plans with their plan consultants.
2011 and Beyond: Preparing for a Flood of New Employment Laws
The rest of this year will likely produce several more significant legislative developments in the employment arena. September 2010 represented Governor Arnold Schwarzenegger's last signing and vetoing of legislation as Governor in response to bills produced by a Democrat-controlled legislature. As 2011 unfolds, Governor Jerry Brown will likely consider various employment related bills that the California legislature has sought for several years. This may lead to a flood of new employment legislation in California.
On the federal level, the Internal Revenue Service is expected to crack down on companies that illegally try to trim payroll costs by changing employees' status to independent contractors. The use of independent contractors has regularly been a subject of confusion and often claims of misclassification. The 2011 proposed federal budget allocates an additional $25 million to hire as many as 100 new enforcement personnel to target worker misclassification and establish competitive grants to encourage states to address this issue. Based on this increased scrutiny of independent contractors, businesses should review their use of independent contractors and confirm that they indeed qualify as independent contractors and are not actually employees.
Finally, while the Health Care Reform Act is still the subject of several lawsuits, most of its substantive provisions remain in force, and its legal requirements are likely to kick in over the next few years. We will continue to monitor these laws, and are available to answer any questions you may have regarding this law.
As you continue to adapt your organization to the economic and legal changes we have seen over the past year, we suggest that, to the extent any of the above-mentioned changes affect your business, you amend your policies and procedures accordingly. If the need arises, we look forward to assisting you with any questions or concerns you may have with respect to your employment practices.
[1] City of Ontario v. Quon, 130 S. Ct. 2619 (2010).
[2] Stolt-Nielsen S.A. v. Animalfeeds International Corp., 130 S. Ct. 1758 (2010).
[3] Previously published at, Brinker Restaurant Corp. v. Superior Court, 165 Cal.App.4th 25 (2008).
[4] Reid v. Google, Inc., 50 Cal.4th 512 (2010).
[5] Cal. Civ. Code § 1786.16(a)(2)(B)(vi).
