Category Employment

Discrimination, Retaliation, and You: The original victim of discrimination is not the only one who can sue

By Samson R. Elsbernd and Kelli M. Kennaday, Esq.

Discrimination in the workplace has been prohibited since at least 1964.  In addition to prohibiting discrimination, the Civil Rights Act of 1964 also prohibits retaliation against employees who “oppose” unlawful employment practices.  Over the years, there has been surprisingly little guidance from the courts on what constitutes “opposition” to discrimination or harassment sufficient to trigger those protections.  It has generally been understood that someone who complains that they are the victim of discrimination or harassment is protected by the anti-retaliation provisions of those laws.  On January 26, 2009, however, a unanimous United States Supreme Court extended the protections of those laws to employees who report discrimination or harassment of others during an employer’s internal investigation.

Employees who disclose unlawful employment practices when asked may not be retaliated against by their employer.
In Crawford v. Metropolitan Government of Nashville and Davidson County, Tennessee, the local government investigated rumors of sexual harassment made against its employee relations director.  A supervisor asked Ms. Crawford if she had seen “inappropriate behavior” by the employee relations director and Ms. Crawford shared several instances of such behavior.  Ultimately, the employer did not take action against the employee relations director.  However, it fired three employees who had disclosed inappropriate conduct when asked about it during the investigation, including Ms. Crawford.  The employer claimed Ms. Crawford was fired for embezzlement; Ms. Crawford claimed she was fired in retaliation for reporting the sexual harassment.  The lower courts did not allow Ms. Crawford’s case to proceed, finding that she did not “oppose” an unlawful employment practice because she had not made an actual complaint about it.  Rather, she had simply disclosed what she had seen when asked.  The Supreme Court reversed, finding that the anti-retaliation provisions of Title VII protect not only employees who make an initial complaint or report of unlawful employment practices, but also employees who have “taken no action at all […] beyond disclosing it” when asked.

The Supreme Court stated that any other outcome would result in a “freakish” rule that protected employees who reported discrimination on their own, but not those who reported it after they were asked about it by a supervisor.  Such a rule would discourage employees from cooperating with employers during internal investigations.  The Court rejected the argument that its rule would discourage employers from conducting internal investigations.  Under the Court’s previous decisions, employers have a defense to harassment and discrimination claims when no tangible employment action is taken if the employer “exercised reasonable care to prevent and correct promptly” any discriminatory conduct and “the plaintiff employee unreasonably failed to take advantage of any preventative or corrective opportunities provided by the employer or to avoid harm otherwise.” Thus, the Court concluded, employers always have good reason to conduct an investigation into allegations of unlawful employment practices in the workplace.

How broad is the Supreme Court’s Interpretation of “Opposition” to Unlawful Employment Practices?
The language of the Supreme Court’s opinion in Crawford suggests that courts will interpret the term “opposition” within the anti-retaliation laws very broadly.  The Supreme Court noted that when employees share their belief that the employer has committed harassment or discrimination, the employee has “virtually always” opposed an unlawful employment practice.  The exceptions, noted the court, will be the “eccentric cases.”  Even more troublingly, the Court specifically stated that it was not deciding whether “opposition” includes silent opposition to unlawful employment practices. An example of  “silent opposition” would be when an employee disapproves of an unlawful employment practice but never shares that disapproval with her employer.  While stating that it was not deciding the issue, the Court suggested that “opposition” might include silent opposition.  In giving an example of what does not constitute opposition, the Court referenced an employee who thinks a supervisor’s racist joke is hilarious.  The Court found that such an employee would not be covered by the anti-retaliation laws because that employee did not oppose an unlawful employment practice.

Lessons from Crawford
As always, if you are considering terminating an employee, it is important to review the employee’s history to determine whether he falls within a protected classification.  An employee who has participated in a workplace investigation now should be included in the category of a protected class.  The termination of an employee in a protected classification is a high risk termination and you should make sure that the reason for the termination decision is absolutely unrelated to the protected activity, is well documented and, if possible, was not made or influenced by the employee who was the subject of the investigation.

Navigating the Rocky Shoals of Layoffs, Furloughs and RIFs

In this tough economic climate, many employers are being forced to consider rather unpleasant ways to reduce costs.  Some of those methods include laying off non-critical employees, furloughs (requiring employees to take unpaid periodic time off) or RIFs (mass layoffs).  While all of these strategies have obvious downfalls, including decreased morale, increased unemployment compensation premiums and possible litigation, employers also need to be aware of the various legal requirements that apply when these tools are used.  Making matters even more confusing, the new economic stimulus plan has placed increased burdens on employers when employees are terminated.  If you are considering a layoff, furlough or RIF, do not forget these important rules.

FINAL PAY RULES
If you let an employee go as part of a layoff or RIF, you must provide their final pay on their last day of work.  The final paycheck must include all earned unpaid wages and benefits, including accrued time off.  Commissions and bonuses must also be paid on the employee’s final day if the employer is capable of calculating the amount of the commission or bonus on that day.  If the employer is not able to calculate the amount of the commission or bonus (for example, if the employer has not yet received payment on the sale), then the employer must pay the commission or bonus as soon as it is able to make that calculation. If you fail to provide a terminated employee with her final pay on the last day of work, the employee is entitled to a waiting time penalty for each day the final paycheck is late, for up to thirty days.  Final pay rules do not apply to furloughs unless the furlough spans more than one pay period.

FURLOUGHS AND REDUCED HOUR SCHEDULES
Many employers are choosing to furlough employees for short periods in order to save money now, while retaining employees for the anticipated recovery.  If you are considering furloughing employees, be aware of potential issues with respect to exempt employees.

You may furlough non-exempt employee by asking them to take off one or more days per pay period without pay.  In that case, you simply don’t pay the employee for the time the employee does not work.  For exempt employees, however, the situation is much more complicated.  You are required to pay an exempt employee an entire week’s salary for each week in which the employee performs any work.  Thus, you may not ask an exempt employee to take off a Friday and pay that employee 4/5 of his salary without jeopardizing the employee’s exempt status.  However, you can furlough an exempt employee without pay for an entire workweek.

You may also reduce the normal schedule of a non-exempt employee to save costs.  In that situation, you would change the non-exempt employee’s normal work schedule to a reduced hour schedule (i.e. thirty-two hours per week versus forty hours per week). Again, the exempt employee would only be paid for the hours worked.  For exempt employees, however, you may not reduce the employee’s weekly salary based on a reduction in the amount of time worked during the week.  Accordingly, you may not use a reduced hour schedule for exempt employees in order to reduce their pay.

If you decide to furlough employees or impose a reduced hour schedule, you must also decide whether to allow affected employees to use their accrued time off. That decision is up to you.  For exempt employees, however, you can require the use of accrued time off in order to satisfy the requirement that an exempt employee be paid for a full week in which they perform any work.  In this example, you could require an exempt employee to take every other Friday off and to use accrued PTO to be paid for that day.  While this will not result in any immediate cost savings, it will get the PTO off your books.  Of course, if the exempt employees does not have enough accrued PTO to cover that day, you must still pay the employee for the full week.

RIFS, WARN ACT NOTICES AND SEVERANCE AGREEMENTS
If you are doing a large scale RIF (defined as an unemployment loss at a single site of employment for fifty or more employees during any thirty day period), you are required to provide WARN Act Notices to all affected employees and to the EDD, the Local Workforce Investment Board and the chief elected official of each city or county government within which the RIF occurs.  You must provide these notices sixty days prior to the RIF date.  A failure to meet these requirements can result in liability to the affected employees for the difference between sixty days and the amount of notice actually provided.  Penalties may also be assessed.

If you offer your RIF’d employees a severance package as part of their termination, there are also additional requirements for obtaining a valid release from those employees.  Employees included in a RIF must be provided with forty-five days in which to consider a release agreement.  The employees must also be informed in writing as to any class, unit or group of individuals covered by the program pursuant to which the release agreement is being offered, any eligibility factors for the program, any time limits for applying for it and the job titles and ages of all individuals eligible or selected for the program within the portion of the employer’s organization from which eligible employees were chosen, as well as the ages of all individuals in the same unit who were not eligible or selected for the program.  Release agreements that do not comply with these requirements are invalid as to age discrimination claims.
NEW COBRA RESPONSIBILITIES

The recent economic stimulus bill imposes additional COBRA requirements on employers when an employee is terminated, whether as part of a RIF or an individual termination. When you terminate an employee, you must now provide them with a notification that they are eligible for subsidized COBRA benefits.  As an employer, you may be responsible for paying the subsidy to the provider but may seek reimbursement by deducting the subsidy from your payroll taxes.

In addition to notifying employees who are currently being terminated of their COBRA subsidy rights, employers must also notify employees who involuntarily lost their jobs as far back as September 1, 2008 of their right to subsidized COBRA benefits, even if those employees did not initially sign up for COBRA.  Those employees now have a second chance to sign up for subsidized COBRA benefits.

If you are contemplating a layoff, furlough or RIF, make sure you understand your obligations under the various state and federal laws that apply.  Otherwise, your attempt to save money may actually cost you money.

401(k) Benefits May be Real Liabilities

And By: Samson R. Elsbernd
401(k) retirement savings plans and similar defined contribution plans generally shift retirement plan risks from employers to employees. However, a recent Supreme Court Case decided this past February, LaRue v. DeWolff, Boberg & Associates, could make 401(k) defined contribution plans riskier for employers.

Defined Benefit Plans v. Defined Contribution Plans
Employers generally offer employees one of two types of retirement plans: defined benefit plans or defined contribution plans. Defined benefit plans provide a set retirement income, which is usually related to the number of years worked and employee compensation. On the other hand, defined contribution plans, also called individual account plans, provide payment according to the individual employee’s retirement account, which depends upon the amounts contributed and the performance of that account. 401(k) retirement savings plans are popular defined contribution plans.

Previously, the Supreme Court, in Massachusetts Mutual Life Insurance Company v. Russell, ruled that an employee could not sue the fiduciary of her plan (her employer) under ERISA (Employee Retirement Income Security Act of 1974) for breach of fiduciary duty concerning a defined benefit retirement plan. However, the Supreme Court recently allowed an employee to sue his employer under ERISA for fiduciary breach concerning his defined contribution plan.

Employees Can Sue Their Employers Regarding Their 401(K) Plans

In LaRue v. DeWolff, Boberg & Associates, the United States Supreme Court clarified that ERISA authorizes individuals to sue and recover for fiduciary breaches that impair the value of the retirement plan assets in the employee’s individual account. LaRue, the employee, sued his employer regarding his 401(k) retirement plan. His plan provided procedures and requirements that enabled individual plan participants to direct the investment of their contributions. LaRue alleged that he directed his employer to make investment changes in his individual account that the employer did not make. Consequently, he claimed his individual retirement account suffered a loss of $150,000 in interest (the Court record did not state whether the loss of interest was a decline or an increase in the value of the assets in the plan). LaRue argued that his employer should cover the loss, and the Supreme Court said LaRue could sue for this fiduciary breach under ERISA. The Court allowed the lawsuit to continue because fiduciary employer misconduct could reduce the benefits available under the retirement plan in the defined contribution system, whereas administrator misconduct in a defined benefit plan will not affect the retirement benefits unless the misconduct causes a risk of default for the entire plan.

LaRue Might Not Be Able To Recover
LaRue might not be able to recover from his employer even though the Supreme Court allowed him to sue. The case will now go back to the trial court, where LaRue has to prove 1) the fiduciary (employer) had breached its obligations, and 2) the breach had a detrimental effect on LaRue’s plan. The Supreme Court merely said employees could sue their employers for fiduciary breaches related to their 401(k) plans. The Court did not consider whether LaRue correctly followed the procedures and regulations of his plan, whether LaRue must exhaust all other remedies provided for in his plan before suing for the fiduciary breach, or whether LaRue started his lawsuit and asserted his rights early enough to get relief from a court. Lessons From LaRue Employers choose defined contribution plans because of their advantages over defined benefit plans, including less regulation and fewer administrative costs. Additionally, defined contribution plans give employees more control over their retirement, especially in an increasingly mobile job market. Perhaps more important to employers, defined contribution plans shift several risks of defined benefit plans from employers to employees, including the dangers of employees outliving the accumulated assets (longevity risk) in the plan and accumulating insufficient assets (investment risk).

The landscape has now changed again and some risk has been shifted to employers who offer defined contribution plans. Now that employees can sue their employers for mismanaging their 401(k) retirement plan accounts, these retirement plans are riskier than defined benefit plans with respect to lawsuits for fiduciary breaches. For example, employers may be susceptible to lawsuits by disgruntled employees whose retirement plans did not grow as large as the employee had hoped. To better defend themselves against this risk, employers should make sure they understand their fiduciary obligations under ERISA and consider having a qualified investment advisor under contract to perform some or all of those obligations. In addition, documentation will be critical in the event of a lawsuit, so employers should keep notes and records of all activity and discussions regarding changes in their employees’ plans. Though these suggestions will not prevent an ERISA, they will help defend against such a claim if one is made.

Wilke, Fleury, Hoffelt, Gould & Birney, LLP Labor & Employment Newsletter, August 2008, Volume 11, Issue 3

2009 Legislative Update

2008 was a relatively active year in terms of important legislative changes for California employers.  The following is a synopsis of the more notable changes that were enacted or modified for 2009.

California Law
Text-Based Communication While Driving Prohibited
Effective January 1, 2009, text-based communication while driving is prohibited.  Employers should update existing policies.

Temporary Employees Must Be Paid Weekly
Labor Code section 201.3 requires that temporary employees be paid on a weekly, rather than on bi-weekly, basis.  With certain exclusions, Section 201.3 defines a “temporary services employer” as “an employing unit that contracts with clients or customers to supply workers to perform services for clients or customers” and who negotiates with its clients and customers on such matters as time and place where the services will be provided, type of work, working conditions, and quality and price of the services.  The “temporary services employer” also determines the assignments of workers, retains the authority to assign a worker to another client or customer when the worker is deemed unacceptable to the client or customer, assigns workers to perform services for clients or customers, sets the rate of pay for workers, pays workers from its own account, and retains the right to hire and fire the workers.

The following new rules apply to temporary service employers:

•    With certain exceptions, temporary workers must be paid weekly with the wages for the current week’s work due on the payday of the following week.

•    If a temporary employee is assigned to work “day to day” from a pool of workers, the employee’s wages must be paid at the end of each day.

•    Strike replacements must be paid at the end of each workday.

•    Unless otherwise stated, temporary services employees who are fired or quit must be paid pursuant to Labor Code §§ 201 and 202.

Overtime Exemption For Physicians Paid On An Hourly Basis
A licensed physician or surgeon who is primarily engaged in performing duties for which licensure is required is exempt from overtime if he/she is paid at least the minimum hourly rate set annually by the state.  Effective January 1, 2009, the minimum hourly rate is $69.13. This exemption does not apply to employees in medical internships or resident programs, physician employees covered by collective bargaining agreements or veterinarians.

Monthly or Annual Salaries for Exempt Computer Professionals
California Labor Code § 515.5 has been amended to allow an employer to pay a computer professional who is exempt from overtime a monthly or annual salary.  The salary required for the exemption is $79,050 annually or $6,587.50 monthly.

Earned Income Tax Credit
You must provide notification to all employees that they maybe eligible for the federal earned income tax credit (EITC) within one week before or after, or at the same time, you provide a Form W-2 or a Form 1099 to any employee.

Federal Law
Department Of Homeland Security: Supplemental Final “No-Match Letter” Rule
On October 23, 2008, the Department of Homeland Security (“DHS”) issued its supplemental final rule for employers who receive a “no-match” letter from the Social Security Administration or a Notice of Suspect Documents letter from the DHS.  The final rule will become effective upon the lifting of an injunction put in place during a legal challenge to the original 2007 version.  This will likely take place in early 2009.

The supplemental final rule requires employers to:

•    Verify within 30 days that the mismatch was not the result of a record-keeping error on the employer’s part.  If it is, then correct and communicate the corrected information to the SSA.

•    If the mismatch cannot be resolved as a record keeping error, then the employer must notify the employee within 5 business days and request that the employee confirm the accuracy of the employment records within 90 days of receiving the no-match letter.

•    At the end of the 90 day period, if the mismatch has not been resolved the employer will have 3 days to complete a new I-9 form with the employee.  The questionable Social Security Number may not be used when completing this new form.

The supplemental final rule provides a safe harbor to employers that follow its procedures.  If an employer does nothing to resolve the mismatch or does not act in good faith, then the employer may be liable for employing an unauthorized worker, leading to civil or criminal penalties.

Amendments To The ADA
The ADA Amendments Act of 2008 (“ADAAA”) goes into effect on January 1, 2009.  The effect of the ADAAA on California employers is minimal, as California employers were already required to comply with the Fair Employment and Housing Act which is even more favorable to employees than the ADAAA.  However, employers in should still be aware of the ADAAA and its potential effect on their out-of-state operations.

The ADAAA expands the definition of disability, in several ways, including:

•    Requiring the courts to determine whether an impairment substantially limits a major life activity without taking into account mitigating measures such as hearing aids, prosthetics or insulin.

•    Expanding the definition of “major life activities” to include caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing lifting, bending, speaking, breathing, learning, reading concentrating, thinking, communicating, working and the operation of a major bodily function, such as the immune system, normal cell growth and digestive, bowel, bladder, neurological, brain, respiratory, circulatory, endocrine and reproductive functions.

•    Removing the “substantially limits” requirement, meaning that individuals are not required to establish that their impairment limits or is perceived to limit a major life activity to be “regarded as being disabled.”  However, reasonable accommodations need not be provided to an individual who is only “regarded as” having an impairment.

•    Providing that an impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active.

Revised Form I-9 for Employers
The U.S. Citizenship and Immigration Services has revised the list of documents that will be acceptable for Form I-9, Employment Eligibility Verification.  The new rule does the following:

•    Requires that all documents presented during the verification process be unexpired;

•    Eliminates List A identity and employment authorization documentation Forms I-688, I-688A (Temporary Resident Card and outdated Employment Authorization Cards);

•    Adds foreign passports containing certain machine-readable immigrant visas to List A; and

•    Adds to List A valid passports for citizens of the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI), along with Form I-94 or Form I-94A.

The revised Form I-9 is available at www.uscis.gov.  Paper copies of the Form I-9 can be ordered by calling 1-800-870-3676.  Employers are required to use the revised form for all new hires.

Family and Medical Leave Act
The Department of Labor has made changes to the Family and Medical Leave Act that will take effect on January 16, 2009:

Military Family Leave
•    Employees who are family members of covered service members may take up to 26 work weeks of leave in a single 12-month period to care for a covered service member with a serious illness or injury incurred in the line of duty while on active duty.
•    Families of National Guard and Reserve personnel on active duty may take 12 weeks of FMLA job-protected leave to manage their affairs based on “any qualifying exigency,” including short notice deployment, military events and related activities, childcare and school activities, financial and legal arrangements, counseling, rest and recuperation, post deployment activities, and additional activities where the employer and employee agree to the leave.

Employee Eligibility
•    Twelve months of employment need not be consecutive for purpose of determining whether an employee has been employed by an employer for at least 12 months.  An employer need not count a break-in-service of seven years or more, with two exceptions:

1.    An employee’s fulfillment of his/her military obligations; and

2.    A period of approved absences or unpaid leave, such as for education or child-rearing purposes, where a written agreement or collective bargaining agreement exists concerning the employer’s intent to rehire the employee.

•    Time spent fulfilling an employee’s military service obligations now count toward the employee’s 1,250 hour and 12-month requirements for compliance with the Uniformed Services Employment and Reemployment Rights Act.

•    An employee who is not eligible for FMLA protection at the beginning of his/her leave may begin FMLA once he/she has met the eligibility requirements.

Light Duty

•    Light duty does not count against an employee’s FMLA entitlement.  The employee’s right to restoration is suspended during the period of time the employee performs light duty or until the end of the applicable 12-month FMLA leave year.

Waiver of Rights

•    An employee may voluntarily settle or release FMLA claims without approval from a court or the DOL.

Serious Health Condition

•    An employee who is incapacitated for more than three consecutive full calendar days must show that he/she is receiving continuing treatment from a health care provider in order to satisfy the definition of “serious health condition.”  The employee must visit a health care provider two times within 30 days of the first day of incapacity unless extenuating circumstances exist.  The employee must also see a health care provider within seven days of the first day of incapacity and, for a chronic serious health condition, must visit a health care provider at least twice a year.

Perfect Attendance Award

•    An employer may deny “perfect attendance” awards to an employee who does not have a perfect attendance because of FMLA leave as long as the employer treats an employee taking a non-FMLA leave in the same manner.

Employer Notice Requirements
•    An employer is required to provide employees with a general notice about the FMLA, a notice of eligibility and of rights and responsibilities, and a designation notice.

Employee Notice

•    An employee must follow an employer’s normal and customary call-in procedures for FMLA notification, absent unusual circumstances.

Substitution of Paid Leave
•    An employee electing to use any type of paid leave concurrently with FMLA leave must follow the same terms and conditions of the employer’s policy that apply to other employees for the use of such leave.

Computing FMLA Leave During a Holiday Week

•    Whether an employee is charged FMLA leave for a holiday depends on whether the employee needs to take FMLA leave for a full or partial work week.  An employee taking a full week of FMLA leave during a week containing a holiday will have the holiday counted against his/her FMLA allotment.  An employee taking less than a full week of FMLA leave during a week containing a holiday will not have the holiday counted against his/her FMLA allotment unless the employee was otherwise scheduled and expected to work the holiday.

Medical Certification
•    The Health Insurance Portability and Accountability Act applies to communications between an employer and an employee’s health care provider.  The employer’s representative may contact the health care provider, but that representative must be a health care provider, a human resources professional, a leave administrator, or a management official and cannot be the employee’s direct supervisor.  Further, an employer may not ask the health care provider for information beyond what is required by the certification form.

•    An employer may request a medical certification for each leave year for medical conditions that last longer than one year.

The new regulations and the DOL’s commentary are available at http://www.dol.gov/esa/whd/fmla/finalrule.htm.

New W-4 Form (Employee’s Withholding Allowance Certificate)
The Internal Revenue Service has provided a new 2009 Federal W-4 Form.  An employer is required to use the new W-4 Form for all employees.  An employee who previously provided a W-4 Form claiming exemption from federal income tax withholding must file a new 2009 W-4 Form by February 16, 2009 in order to continue the exemption.  If the employee does not give an employer a new W-4 Form, an employer should withhold as if the employee is single, with zero withholding allowances.

The “Me Too” Evidence Phenomenon: Disgruntled Employees Can Hurt You Even If They Don’t File Lawsuits

In the recent U.S. Supreme Court case of Sprint/United Management Co. v. Mendelsohn, the Court left the door open for plaintiffs in employment cases to introduce damaging evidence that other employees were also harassed or discriminated against. In Sprint, 51 year-old employee Ellen Mendelsohn brought an age-discrimination suit against the company after she was laid off in an ongoing company-wide reduction in force. Mendelsohn wanted to introduce testimony of other former Sprint employees who claimed that their supervisors had discriminated against them too because of their age (“me too” evidence). None of these other witnesses worked in the same department with Mendelsohn, none of them ever worked under any of Mendelsohn’s supervisors and none of them had ever brought a lawsuit alleging age discrimination. Rather than ruling that “me too” evidence either is or is not admissible, the Court held that there is no bright line rule either permitting or excluding such evidence, but that such evidence must be assessed on a case-bycase basis. In other words, each court will be allowed to determine whether such evidence will or will not be allowed in a particular case and the parties will have little or no indication of which way the court will rule before the case actually goes to trial.

How “Me Too” Evidence Impacts Employers
What this means for employers is that “me too” evidence may be admissible against the company in a harassment or discrimination suit. Thus, a plaintiff in a discrimination case may attempt to assemble a large group of disgruntled employees to come to trial and testify that they were also discriminated against, making it much easier for the plaintiff to prove his/her own case by inference. And, since the admissibility of “me too” evidence will be determined on a case-by-case basis, it may be harder for employers to get cases dismissed at an early stage.

How Employers Can Protect Themselves
The prudent employer will try to avoid harassment/discrimination claims in the first place by establishing strong anti-harassment/discrimination policies, providing appropriate supervisor training on those policies and taking every report of harassment/discrimination seriously. In the event a disgruntled employee testifies that he/she was the subject of harassment or discrimination, the employer may be able to diffuse such testimony by demonstrating that the employee never complained while they were employed or that the company took immediate and effective action upon receiving a complaint.

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.

Water Cooler Politics

Political news is a hot topic. People are discussing the presidential election, the war in Iraq and gay marriage everywhere, including in the workplace. Every employee has his/her own outlook on politics and many employees want to share their opinions. However, while one employee may have good intentions in discussing his/her political views, another employee may not perceive it that way. A political discussion can quickly evolve into a political debate, leading to tense relationships in the workplace. If co-workers are unable to work together or if employees become distracted by intense political discussions, they will have less time to pay attention to work. For employers, this can translate into lost productivity, loss of employees or even a harassment lawsuit.

You cannot fire an employee because of his/her political views. California law prohibits employers from interfering with an employee’s outside political activities or from imposing political viewpoints on employees. However, you can take some steps to ensure a productive and cooperative work environment. Banning all political discussions is not recommended. However, you may and should take action if political discussions result in disruption or complaints. The approach you decide to take will depend on your policies and the work culture. Here are some simple steps that you as an employer can take in dealing with political discussions at work:

  • Restrict use of the company e-mail system and bulletin boards to work-related items.
  • Remind employees to treat everyone with respect and to maintain professionalism.
  • Do not force your views on your employees.
  • Have an open door policy and/or complaint procedure.
  • Be fair to all employees regardless of your own personal political views.
  • Address performance issues if they arise, but focus on the work issue, not the political issue.

These simple steps may help you avoid conflicts among employees due to their political views and prevent claims before they arise.

The Ability of an Employee to Work for Another Employer Doing a Similar Job Does Not Necessarily Allow You to Deny Medical Leave

The California Family Rights Act (“CFRA”) applies to companies with 50 or more employees and allows an employee to take up to 12 weeks of unpaid “family care and medical leave” if the employee has worked for the company for more than a year and has a minimum of 1,250 hours of service during the previous year.  Grounds for leave under the CFRA include child-related needs (e.g., birth and adoption), the serious illness of a family member or, as relevant here, when an employee’s serious health condition “makes the employee unable to perform the functions of the position of that employee.”  During an employee’s medical leave under the CFRA, the employer must continue to provide the employee with health benefits and, when the employee returns to work, he or she must be given the same seniority as before the leave.

Based on the language of the CFRA alone, it seems logical to presume that an employee who can work for another employer doing the same job that he or she does for you is not “unable to perform the functions of the position of that employee.”  Well, the California Supreme Court weighed in and rejected that presumption.

Antonia Lonicki v. Sutter Health Central
Antonia Lonicki worked at a hospital owned by Sutter Health Central as a certified technician in the hospital’s sterile processing department.  Ms. Lonicki claimed she suffered from stress due to the fact that the hospital was a Level II trauma center and other work-related difficulties.  After her shift was changed one day and her request for vacation was denied, Ms. Lonicki left work and claimed that she was too upset to return.  At the request of her supervisor, Ms. Lonicki obtained a note from a nurse practitioner for a one-month leave of absence for “medical reasons.”  Over the next month, Ms. Lonicki saw several other healthcare professionals with regard to her medical complaints, including a physician chosen by Sutter.  The opinions of these healthcare professionals differed with respect to whether Ms. Lonicki could return to work for Sutter without restrictions.  Despite Sutter’s numerous requests that Ms. Lonicki return to work, Ms. Lonicki did not do so.  Sutter discharged Ms. Lonicki for failure to appear for work.

During the time that Ms. Lonicki was on medical leave from Sutter, she was working part-time at another hospital (Kaiser) where her duties and tasks were nearly identical to those she performed at Sutter.  At her deposition, Ms. Lonicki testified that her duties at Kaiser were “about the same,” but that it was “a lot slower” at Kaiser because Kaiser was not a Level II trauma center.

In defending against Ms. Lonicki’s lawsuit charging that Sutter violated the CFRA, Sutter argued that Ms. Lonicki did not qualify for CFRA medical leave because her part-time job with Kaiser demonstrated that she did not have a “serious health condition” that made her “unable to perform the functions” of her full-time job at Sutter.  The Court did not accept this argument.  While the Court found that Ms. Lonicki’s ability to work part-time for Kaiser doing tasks virtually identical to those she claimed she was unable to perform for Sutter was strong evidence she was capable of doing her full-time job at Sutter, that fact alone was not dispositive.  The court reasoned that a serious health condition that prevents an employee from doing the tasks of an assigned position does not necessarily indicate that the employee is incapable of doing a similar job for another employer.  The court illustrated its point with the following example: A position in the emergency room of a hospital that regularly treats a high volume of critical injuries may be far more stressful than similar work in the emergency room of hospital that sees relatively few critical injuries.

What Can Employers Take From the Court’s Decision?
The California Supreme Court’s decision establishes that an employee’s ability to perform similar duties for another employer does not conclusively prove that the employee may be denied CFRA medical leave.  Instead, the inquiry as to whether an employee is unable to perform the functions of his or her position for purposes of the CFRA must focus on the specific job assigned to the employee and not simply the general job functions.  Thus, any policy or practice of automatically denying or terminating CFRA medical leave based on the fact that an employee is performing similar tasks for another employer is likely to lead to trouble.  The Court’s decision makes it clear that there is no safe harbor.  Rather, employers must carefully review and consider all of the relevant facts in determining if an employee is truly “unable to perform the functions of the position of that employee” for purposes of determining if CFRA medical leave must be given.

California Supreme Court Approves Three Methods Of Reimbursing Employees For Expenses Incurred In Discharging Their Job Duties

As most of you probably know, California law requires an employer to reimburse its employees for all necessary expenses incurred in discharging their duties.  For example, if you require an employee to use her own car to perform her job, you must reimburse the employee for automobile expenses.  Examples of other reimbursable expenses could include travel expenses, business cards, office equipment, certain employer-mandated training, or amounts spent on marketing efforts.

The California Supreme Court has recently decided that an employer may satisfy its expense reimbursement requirement by paying its employees increased compensation in the form of increased base salary or commission rates, or both.  At issue in the case was the proper way to reimburse employees who are required to drive their own automobiles as part of their job duties.  All sides agreed that California law requires employers to fully reimburse its employees for automobile expenses actually and necessarily incurred in performing their job duties.  The issue raised by the case was what methods an employer may use for providing such reimbursement.  The court found that there are three methods an employer may use to calculate the amount of reimbursement required.  Although this case was limited to reimbursement for automobile expenses, it would apply to other expenses employees incur in performing their job duties.

The first reimbursement method is the actual expense method, which requires the employer to calculate the expenses that an employee actually and necessarily incurs.  The actual expenses of using an automobile, for example, include gas, maintenance, repairs, insurance, registration, and depreciation.  The actual expense method is the most accurate method, but it is also the most burdensome because it requires detailed recordkeeping by the employee of amounts spent in each of these categories, along with information needed to apportion those expenses between business and personal use.  Moreover, because an employer is only required to reimburse an employee for necessary business expenses, the actual expense method requires an employer to consider the reasonableness of an employee’s choices.  For example, an employee’s choice of automobile will significantly affect the expenses associated with using it, because it’s more expensive to drive a Lincoln Navigator than a Toyota Corolla.  When calculating actual costs, the employer would need to decide which portion of these costs were necessary (and thus reimbursable), and which merely reflected employee preference for a more expensive car.  Because this method can be so burdensome, most employers do not use it for reimbursement of automobile expenses.  However, it is commonly, and easily, used for reimbursement of other expenses (such as air fare, meals, etc.).

The second method of calculating reimbursement for work-required use of an employee’s own automobile is the mileage reimbursement method.  Under this method, the employee keeps track of the number of miles driven to perform her job duties, and the employer multiplies the miles driven by a predetermined amount that approximates the per-mile cost of owning and operating an automobile.  Although not required to do so, many employers use what is known as the IRS mileage rate, which is a rate set by the IRS for federal income tax purposes.  This rate is based on national average expenses for fuel, maintenance, repair, depreciation and insurance.  Because the mileage reimbursement method necessarily results in an approximation of actual expenses, an employee will always be permitted to show that the reimbursement amount paid is less than the actual expenses the employee necessarily incurred for work-required automobile use.  If the employee can make such a showing, the employer must make up the difference.

The third, and final, method of calculating automobile reimbursement expenses is the lump-sum payment method.  Under this method, the employee need not submit any information to the employer about miles driven or actual expenses incurred.  Instead, the employer merely pays the employee a fixed amount (either through higher wages or commissions) for automobile expense reimbursement.  This fixed amount should be based on the employer’s understanding of the employee’s job duties, including the number of miles the employee typically drives to perform those duties.  In fixing this amount, the employer must be sure that it is sufficient to provide full reimbursement for actual expenses.  If it is not, the employee will be permitted to challenge the amount of the lump-sum payment as insufficient.

It is important to note that there are numerous laws governing the payment of wages that do not apply to expense reimbursement.  For example, there are tax consequences for both the employer and the employee associated with classifying payments to employees as wages, rather than expenses.  The amount payable as wages is also subject to minimum wage laws.  Finally, California Labor Code section 226 requires employers to provide its employees with itemized wage statements containing a host of information.  In order to make it easier to show compliance with these various wage laws, an employer who chooses to use the lump sum payment method would be well advised to pay the lump sum separately from its employees’ regular wages.  Alternatively, if an employer chooses to combine the wage and lump sum payments into one check, the employer should separately identify the amount of the combined payment that represents wages, and the amount that represents reimbursement for expenses.

Wilke, Fleury, Hoffelt, Gould & Birney Labor & Employment News, February 2008, Volume 11, Issue 1.

Who is a Supervisor? A Lead Employee may be a Supervisor for Purposes of a Sexual Harassment Claim

In our August 2007 Labor and Employment Newsletter, we cautioned employers that the scope of liability for a supervisor’s actions, particularly in a sexual harassment case, are incredibly broad. In a recent California case, the Court held that the definition of “supervisor” can include a lead employee for purposes of determining liability in a sexual harassment case. The Court emphasized that the determination will rest on the employee’s actual responsibilities, not his or her job title. In Almanza v. Wal-Mart Stores, Inc, the plaintiff worked as an unloader. Her responsibilities were to unload merchandise from delivery trucks. She worked in a crew of six to eight employees, one of whom was the lead unloader. The lead unloader’s responsibilities included unloading trucks, ensuring that other unloaders removed and stacked freight quickly and efficiently, asking unloaders to find empty pallets for incoming merchandise, and occasionally instructing other unloaders to stock the sales floor. Plaintiff claimed that the lead unloader sexually harassed her and that Wal-Mart was strictly liable for the harassment because the lead unloader was a supervisor under FEHA.

Who Is A Supervisor As Defined By FEHA?
Under FEHA, a “supervisor” is “any individual having the authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or the responsibility to direct them, or to adjust their grievances, or effectively to recommend that action, if, in connection with the foregoing, the exercise of that authority is not of a merely routing or clerical nature, but requires the use of independent judgment.”

Although the lead unloader in the Wal-Mart case was compensated on an hourly basis and had no authority to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, Plaintiff introduced evidence showing that the lead unloader authorized breaks, scheduled overtime work, and often contributed to performance appraisals. Plaintiff also pointed out that the lead unloader was unofficially permitted to authorize sick leave, late arrivals, vacation requests, and prepare performance appraisals. In rebuttal, Wal-Mart argued that the lead unloader acted only on the orders of another supervisor and that his opinions were afforded little or no weight. The Court determined that there was enough evidence of the lead unloader’s authority that a jury should decide whether he was a supervisor under FEHA and permitted Plaintiff to proceed with her sexual harassment claim.

Why Is The Classification Of Supervisor Important?
FEHA imposes two standards of employer liability for sexual harassment. These two standards turn on whether the employee engaging in sexual harassment is considered a supervisor or not. If the employee is a supervisor as defined under FEHA, the employer is held strictly liable for the supervisor’s actions. This means that an employer would be held responsible for the harassment even if the employer had no knowledge of the harassment. If the employee is not considered a supervisor under FEHA, the employee bringing a harassment claim must show that the employer knew or should have known of the conduct and failed to take immediate and appropriate corrective action in order to hold the employer liable for the harassment.

How Does This Case Impact Employers?
Knowing who qualifies as a supervisor under FEHA is essential in order to comply with California’s employment laws. For example, in California, all employers are required to provide two hours of sexual harassment training to all supervisors upon hire and every two years thereafter. If a current employee is promoted to a supervisory position, an employer has six months from the date of promotion to provide this training. No such requirement exists for non-supervisory employees. As the Wal-Mart case makes clear, relying on job titles alone to determine which of your employees are supervisors is a dangerous practice. Instead, you should consider the actual authority your employees are allowed to exercise. If they direct the day-to-day activities of others, they are likely supervisors within the meaning of FEHA.

Training Reminder
We would like to take this opportunity to remind you to schedule training sessions for your supervisors because a new training year is approaching. For those supervisors who last received training in 2006, two more hours of training are required in 2008. Also, do not forget to train your new supervisors within six months of promotion or hire. If you are unsure about who needs to be trained, how to enroll in a training session, or if you have any other questions regarding sexual harassment training, please feel free to contact us at 916-441-2430 or newsletter@wilkefleury.com.

Employees with Mental Health Disorders: Proceed with Caution

Most employers know that an employee cannot be terminated because of a disability, unless the disabled employee is unable to perform the essential functions of the job with or without reasonable accommodation and without creating a direct threat to the health and safety of other employees. However, a recent court decision has added a new wrinkle which seems counterintuitive to this school of thought. Employers now must exercise even greater caution in addressing the termination of employees with mental health disorders.

Employer Liable For Dismissing Employee With Bipolar Disorder
After a contracts clerk at a dialysis provider suffered an emotional breakdown at work, she was diagnosed with bipolar disorder and informed her employer of that fact. Over the next year, the employee struggled with her disorder insofar as she was irritable and had difficulty changing medications to address the disorder. Because the disorder began to interfere with her work, her supervisors presented her with a written performance improvement plan. In response, the employee angrily thrust the plan, along with several expletives, back at her supervisors. Upon returning to her cubicle, she began throwing and kicking things, an event causing other employees to express concern. Thereafter, she was terminated.

In a lawsuit the employee filed against her former employer for disability discrimination, a federal jury returned a verdict in favor of the employer. However, the appellate court overturned the jury verdict, holding that the employee’s conduct was a part of her disability, and, as such, she could not be terminated for any conduct resulting from her bipolar disorder.

Standard Of Conduct
The most significant aspect of this case is that conduct which would otherwise subject an employee to discipline can now be considered a part of an employee’s disability and, thus, protected. Additionally, the new decision may invite misuse and allow a non-disabled employee to claim that unprofessional conduct or poor job performance is the result of a mental heath disorder when faced with termination. With a multitude of mental health disorders acknowledged by medical science, it can be very difficult for employers, who are not clinical psychologists, to discern what conduct and behavior is consistent with a particular disorder.

Nonetheless, employers can help themselves avoid a situation similar to that addressed in this case by expressly including a professional standard of conduct as an essential job function in every employee’s job description. A written policy requiring professional conduct at all times can create a baseline from which to reasonably accommodate employees with mental health disorders. Moreover, the inability of an employee with a mental health disorder to maintain a professional level of conduct with reasonable accommodation could serve as a legitimate basis for dismissal. While such a policy is not an absolute remedy, it will at least give an employer a defense should an employee with a mental health disorder be disciplined or terminated.

Employee Safety
To complicate matters even further, the employer in this case did not argue that the employee’s conduct was a direct threat to the health and safety of other employees in the workplace. Since the direct threat question was not presented, the question as to whether threatening behavior, even if caused by a disability, is grounds for termination was not answered, leaving employers in a no-win situation. While “zero tolerance” policies against workplace violence are considered the norm, the court’s decision may force employers to soften these policies and evaluate all potentially violent conduct on a case-by-case basis. At the same time, allowing a potentially violent employee to remain on the job could be a violation of federal and state workplace safety laws and may expose employers to liability. Even worse, if an employee with a mental disorder does injure a co-worker, it is hard to imagine anything more detrimental to the morale of the workforce.

Hopefully, the courts and legislatures will clarify the confusion created by the new decision. Until then, employers should consult an attorney if they have concerns about the conduct of an employee who may have a mental health disorder. Furthermore, caution should be exercised when contemplating the termination or discipline of an employee with a suspected mental health disorder.

Supreme Court Allows Employees to Seek Compensation for Missed Meal and Rest Breaks for Three Year Period

As you probably know, California law requires employers to provide meal and rest periods to employees. For each work day in which a meal or rest period is not provided, the employer is required to pay one additional hour of pay at the employee’s regular hourly rate. While not terribly burdensome in isolation, the cost to employers for missed meal and rest periods can skyrocket if a class action lawsuit is brought on behalf of a significant number of employees who claim they were denied meal and rest periods over a long period of time.

Employer Requirements For Providing Meal And Rest Periods
Until recently, the law was unclear as to whether these payments were considered wages or penalties. The distinction is important because, if considered penalties, employees may only seek compensation for one year of missed meal and rest periods. If considered wages, employees may seek compensation for three years. The California Supreme Court recently ruled that such payments are considered wages, thus allowing employees to seek compensation for three years of lost meal and rest periods.

Pursuant to Division of Labor Standards Enforcement (DLSE) regulations, employees are entitled to an unpaid 30-minute, duty-free meal period after working for five hours, and a paid 10-minute rest period for each four hours of work. Furthermore, it is the responsibility of employers to actively ensure that employees are taking their required meal and rest periods, and are not working through them. Based on the potential liability regarding meal and rest periods, employers must not only actively ensure breaks are taken, but should keep accurate time records for all employees. In fact, employers are required to keep all time records, including records of meal periods, for a minimum of three years.

Payments For Missed Meals And Rest Periods Are Considered Wages And Subject To A Three Year Statute Of Limitations
In Murphy v. Kenneth Cole Productions Inc., the plaintiff was a store manager in a Kenneth Cole Productions retail clothing store. Murphy’s primary responsibilities were to make sales, receive or transfer products, process markdowns, and clean. Often, Murphy would eat lunch while continuing to work. Murphy regularly worked nine to ten hour days in which he was only able to take an uninterrupted, duty-free meal period once every two weeks. Murphy resigned after approximately two years of work. Subsequently, he filed a wage claim with the California Labor Commissioner for unpaid overtime and waiting time penalties, claiming that he was improperly classified as an exempt employee.

The Labor Commissioner issued a decision in Murphy’s favor. Murphy then asserted additional claims for lost meal and rest periods. The trial court ruled that the payments for meal and rest periods were wages and thus applied the three-year statute of limitations. The Court of Appeal reversed the decision, reasoning that the payments were penalties and thus subject to the one year statute of limitations. However, the California Supreme Court agreed with the trial court that payments for lost meal and rest periods were considered wages with a corresponding three-year period to bring such claims. The Court reasoned that the statute’s plain language, administrative and legislative history, and the purpose of the remedy all pointed to the conclusion that the additional hour of pay constituted a wage and not a penalty.

The Court compared payments for lost meal and rest periods to payments for overtime, and suggested that such payments have a dual-purpose remedy. The primary purpose of payments for missed meal and rest periods is to compensate employees. The secondary purpose is to serve as an incentive for employers to comply with labor standards. Since the main purpose of such payments is to compensate employees, the money should be defined as wages and is thus subject to the three year statute of limitations. Moreover, the Court explained that because employers are required to keep all time records for a minimum of three years, employers should have the appropriate evidence to defend against missed meal and rest period claims.

What This Means For You
The best defense against potential missed meal and rest period lawsuits is to proactively ensure that employees take the appropriate meal and rest breaks. Additionally, it is essential that employers keep detailed time records for their employees, including meals taken, for a minimum of three years. These preventative measures may discourage employees from filing such lawsuits altogether and, at the least, will allow you to defend yourself if such a lawsuit occurs.

A Short Course on Labor Commissioner Hearings

Those of you familiar with this publication know that most of our articles deal with substantive issues in the area of employment law. In this article, we depart from that motif in order to provide a brief primer on a type of administrative proceeding that many of you may eventually have to face—cases before the California Labor Commissioner. Because these cases are relatively informal (and often involve low dollar amounts), it is not unusual to see both employees and employers handling the matters without the assistance of counsel. Given that, knowledge of the basics is desirable.

Who Is The Labor Commissioner?
The California Division of Labor Standards Enforcement (DLSE) is the state agency responsible for enforcing statutes, regulations, and orders pertaining to employee wages, hours, and working conditions. The DLSE is also the default organization for enforcement of all California labor laws when such enforcement is not explicitly delegated to another agency or entity. The DLSE’s executive officer is known as the Labor Commissioner. Upon receipt of a claim by an employee or representative thereof, the Labor Commissioner must (through DLSE employees and agents) investigate and take appropriate action against the employer. Such claims are often for items such as failure to pay overtime, failure to timely pay wages on termination, or failure to provide required benefits. However, given the breadth of DLSE responsibility, the range of issues brought before the commissioner is vast.

In conducting necessary investigations into employee claims, the commissioner has unlimited access to all workplaces within California, and any person who fails to cooperate in allowing such access or furnishing required information is guilty of a misdemeanor. The commissioner also possesses court-enforced subpoena power as to both documents and witnesses. Therefore, the Labor Commissioner and his agents may literally be thought of as the “employment police.”

How Do Proceedings Before The Labor Commissioner Work?
As stated, the Labor Commissioner has authority to investigate employee complaints and, depending on the issues raised via a complaint, may provide for a hearing. Actions involving wage recovery claims usually proceed through the hearing process.

After an employee files a complaint, the Labor Commissioner must—within 30 days—notify both the employee and employer regarding whether any further action will be taken. The commissioner can do one of three things. First, he can decide that the employee’s claim is facially meritless, and take no action. In such a case, no employer action is required, and the commissioner will transmit a letter to the parties indicating that the investigation has been completed. Second, and at the opposite end of the spectrum, the commissioner can himself pursue a civil action against the employer.

The third option is for the Labor Commissioner to hold an administrative hearing on the matter. If the commissioner chooses this option, he will notify the parties of the time and place of the hearing. Generally, the hearing must be held within 90 days of the commissioner’s notification. While the hearing may be postponed or continued if the commissioner finds the interests of justice warrant additional time, employers should in many cases think carefully before proposing or agreeing to a postponement. As noted above, many employee claims involve allegedly unpaid wages; in assessing back pay on a successful claim, the commissioner must calculate the amount of such pay from the time the claim is filed, not the date of the hearing. Thus, so long as an employer is prepared to substantively defend an employee’s claim, sooner is better. It should also be noted that an initial conference between the parties and the Deputy Labor Commissioner often takes place several weeks before the evidentiary hearing. At that meeting, the parties generally present their positions in an attempt to settle the matter. If no settlement is reached at or after that meeting, the evidentiary hearing will go forward.

The hearing itself is relatively informal. It is generally conducted in a conference room, not a courtroom, and is held before the Deputy Labor Commissioner, not a judge. Each party may call witnesses and present evidence. Hearings lasting more than a few hours are rare. Following the hearing, the Labor Commissioner will issue a written decision on the matter. A copy of that decision must be filed with the DLSE and served on the parties within 15 days after the conclusion of the hearing. As with a normal civil case, the commissioner’s decision can award the employee all, some, or none of the sought-after relief. This can include penalties and will include interest where back pay is awarded. The decision must include a statement of reasons supporting the result.

What Happens After The Labor Commissioner’s Decision Is Issued?
The Labor Commissioner’s decision must apprise the parties of their right to appeal the decision. If no appeal is taken, the commissioner’s decision becomes final. If either party wishes to appeal, they must do so within 10 days of the commissioner’s service of the decision. The appeal does not get submitted to another level of Labor Commissioner/DLSE review; instead, the matter is heard “de novo” in the appropriate California superior court. De novo review means that the matter is independently addressed by the superior court, and no deference is given to the Labor Commissioner’s ruling. If the employer appeals the commissioner’s award to an employee, it must post an undertaking in the full amount of the award. In the course of an appeal, the Labor Commissioner is permitted to represent employees who are unable to pay for an attorney.

If the losing party’s appeal is unsuccessful, the court may award the other party the attorneys’ fees and costs it incurred in defending the appeal. In cases where an employer appeals a decision and has the Labor Commissioner’s award reduced, the court may nonetheless give attorneys’ fees and costs to the employee so long as the court’s judgment does not completely negate the commissioner’s award. Indeed, for purposes of fees and costs on appeal, the governing statute (Labor Code section 98.2) goes so far as to say that an employee “is successful if the court awards an amount greater than zero.”

Conclusion
Proceedings before the Labor Commissioner are sufficiently common that employers should take care to educate themselves as to the fundamentals. The above discussion gives you some sense of what you may expect should you find yourself on the business end of an employee’s claim. For additional information on Labor Commissioner proceedings, you may visit the DLSE’s website at www.dir.ca.gov/dlse/dlse.html.