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What Employers Need to Know When an Employee Files Bankruptcy

With the declining economy, bankruptcy filings are on the rise. You need to be prepared in case one of your employees files a bankruptcy. There are two types of bankruptcy cases that are commonly filed by individuals. An employee may file a Chapter 7 bankruptcy and attempt to discharge (wipe out) his or her debts. If an employee’s income is too high or an employee has assets that need protection (or for a variety of other reasons), an employee may file a Chapter 13 bankruptcy and establish a repayment plan for his or her debts over 5 years. When an employee files bankruptcy (either Chapter 7 or Chapter 13), an automatic stay is created which prohibits creditors from pursing any actions against the employee to collect a debt or pursue a claim. Typically, unless your employee owes you money for some reason (possibly an advance on income), you will not receive notice of the bankruptcy from the bankruptcy court. However, your employee may choose to tell you that he or she has filed bankruptcy. You will likely be notified if there is an ongoing wage garnishment, because a wage garnishment or levy must stop as a result of the protection of the automatic stay. Once you receive notice of an employee’s bankruptcy, you should immediately stop withholding wages pursuant to a garnishment order until further notice.

Your employee may need to take some time off of work in order to meet with his or her bankruptcy attorney. In addition, after the filing of a bankruptcy, your employee will need to attend a hearing known as a 341 meeting of creditors. The employee will be examined by a bankruptcy trustee concerning his or her assets, liabilities, income and expenses. These hearings can be continued multiple times by the bankruptcy trustee. Your employee has no control over the date and time that these hearings are set. In addition, your employee has little ability to reschedule these hearings. When your employee needs to take time off work to attend these hearings, you should consult your policies concerning employee absences. For example, if you offer PTO (“paid time off”) or time off for personal days, your employee may use this time to attend the bankruptcy hearings. You cannot discriminate against or terminate an employee because he or she filed for bankruptcy. (You also are prohibited from discriminating against job applicants simply because they have filed for bankruptcy protection in the past.) If you have an employment contract with an employee who has filed for bankruptcy and you want to terminate the contract while the bankruptcy case is open, you should consult a bankruptcy attorney because you would need to obtain the court’s permission to get relief from the automatic stay before you terminate the contract.

Be mindful of your employee’s right to privacy. Although bankruptcy petitions are public documents, financial information concerning your employee (such as garnishments) should be kept private between you and the employee. Also, financial records, such as garnishment information, should be maintained separately from personnel records and only accessed on a need to know basis.

If you have a claim against an employee or former employee who files bankruptcy, you may be able to file a complaint to ensure that the debt isn’t discharged through the bankruptcy depending on the type of claim. For example, if you have a claim against an employee for misappropriation of trade secrets or embezzlement, those debts may be nondischargeable. However, you have to file a complaint within 60 days after the meeting of creditors. If you have this situation arise, consult a bankruptcy attorney immediately.

HR Update: Missed Meal and Rest Periods Cost Employers Millions

Several high-profile class action lawsuits have been settled recently, with employers agreeing to pay millions to employees for missed meal and rest breaks. In the lawsuits, employees claimed that their employers did not allow them to take meal and rest breaks or to take them in a timely fashion. Generally, these types of class action lawsuits seek compensation for all affected employees for a four year period preceding the date the lawsuit is filed. In order to avoid a similar fate, it is important that you understand and consistently apply the rules regarding meal and rest breaks.

Rest Periods
In California, non-exempt employees must be given a 10 minute rest period for every four hours of work. The rest period is to be taken in the middle of each four hour work period as far as is practical. A rest period need not be provided for employees whose total daily hours of work are less than 3.5 hours. The 10 minute rest periods are considered time worked and must be paid. The employee may not be required to perform any work during a rest period. The rest periods may not be waived. If the employer fails to provide the rest period, the employer must pay the employee one additional hour of pay at the employee’s regular rate for each work day that a rest period is not provided. Although an employee is not required to take his/her rest period, the employer must “authorize and permit” the rest period. Failing to take into the account the need for rest periods when scheduling and assigning tasks may be deemed a failure to permit the rest period.

Meal Periods
Non-exempt employees who work more than five hours per day must be provided with a meal period of not less than 30 minutes. The meal period must begin before the end of the fifth hour of work. If the employee works more than five hours per day, but less than six hours per day, the meal period can be waived by mutual consent. If the employee works more than 10 hours in a given day, a second meal period of not less than 30 minutes must be given. If the hours worked are more than 10 hours per day, but less than 12 hours, the second meal period can be waived by mutual consent only if the first meal period was not waived. If the employer fails to provide the meal period, the employer must pay the employee an additional hour of pay at the employee’s regular rate. However, in contrast to rest breaks, employers have an affirmative obligation to ensure that meal periods are taken as required and to keep proper records with respect to each employee. Accordingly, it is important that you require your employees to sign in and out for their meal breaks.

The meal period may be unpaid unless the employee is not relieved of all duties. An on-duty (paid) meal period may be permitted only when the nature of the work prevents the employee from being relieved of all duty and when there is a written agreement between the employer and the employee for an on-duty meal period. If the employer requires the employee to remain at the work site or facility during the meal period, the meal period must also be paid.

What You Can Do To Protect Yourself
Given the magnitude of the risk associated with claims for missed meal and rest periods, many employers are now proactively addressing this issue. There are several things you might want to consider doing to protect against claims for missed meal and rest periods. First, you should include provisions in your Employee Handbook regarding meal and rest periods, informing your employees in writing that such breaks must be taken. Second, you may want to include a stand alone acknowledgement form, similar to your at-will acknowledgement form, in which employees certify that they have read and understand the company’s meal and rest period policies and that they agree to abide by those policies and take all required meal and rest periods. Finally, you may wish to include a statement on your employees’ time sheets, which the employee signs, certifying that they have worked all hours indicated and that they have taken all required meal and rest breaks for each day worked. While none of these methods guarantees you will not face a missed meal or rest period claim, they will provide you with the best defense possible should such a claim arise.

California Supreme Court Says Individual Supervisors Cannot be Held Personally Liable for Retaliation

As most of you know, California’s Fair Employment and Housing Act (“FEHA”) prohibits discrimination and harassment on the basis of sex, race, religion, color, national origin, ancestry, disability, medical condition, marital status, age, pregnancy, and sexual orientation. FEHA also prohibits retaliating against an employee for opposing or complaining about discrimination or harassment.

For the past decade, both the California Legislature and the California Courts have grappled with the issue of whether individual supervisors or co-workers can be held personally liable for discrimination, harassment or retaliation. Ten years ago, the California Supreme Court held that individuals may not be held personally liable for discrimination, and that liability for discrimination instead lies only with the employer. For example, assume that Company X is found to have terminated an employee because of her race. Company X can be held liable for discrimination. The supervisor who made the termination decision, however, cannot be held liable.

In contrast, FEHA specifically provides that individual supervisors and co-workers can be held liable for harassment. So assume that Supervisor Y, who works for Company X, is found to have sexually harassed an employee. In this case, Company X and Supervisor Y can both be held liable for harassment.

What about retaliation? For the past five to ten years, most courts that have considered the issue have held that individuals can be held liable for retaliation. On March 3, 2008, however, the California Supreme Court held that individuals cannot be held personally liable for at least some forms of retaliation. Here’s an example of what this means. Assume an employee of Company X complains to the HR Department that he believes he was passed over for a promotion because of his sexual orientation. The HR Department discusses the issue with the employee’s supervisor, who is angry to learn of the employee’s complaint. One month later, the supervisor fires the employee for performance issues. If the employee can prove that the performance issues were pretextual, and that he was actually fired because of his discrimination complaint, Company X may be liable for retaliation. The supervisor, however, may not be held personally liable.

What if the employee in the above example had instead complained to the HR Department that he was being harassed based on his sexual orientation? Would the result be different? Maybe. That’s because the California Supreme Court stated in a footnote that it was expressing no opinion on whether an individual who is personally liable for harassment would also be personally liable for retaliating against someone who reports that same harassment. Whether or not personal liability exists in this situation is thus a question that will have to be answered by another court or by the California Legislature.

Note that there are 7 Justices on the California Supreme Court, and 3 of them dissented. The dissenting Justices ended by opining that the California Legislature should clarify FEHA to specify precisely whether individuals can be liable for retaliation, and, if so, under what circumstances. It remains to be seen whether the Legislature will take that advice.

While this new decision is a boon to individual supervisors, it does nothing to change an employer’s liability for retaliation. Employers thus need to remain vigilant about promulgating and enforcing policies against discrimination, harassment, and retaliation.