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.

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.

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.

The California Labor Code specifies that an employer who terminates an employee must immediately pay all of the employee’s unpaid, earned wages. If an employee quits giving 72 hours notice, the employee is entitled to receive a final paycheck on the last day of employment. On the other hand, if the employee fails to give 72 hours notice, the employer has 72 hours from the quitting date to remit final wages to the employee.

The Waiting Time Penalty Provision
To ensure that employers comply with the laws governing the payment of wages when an employment relationship ends, the legislature enacted Labor Code Section 203, which provides for a “Waiting Time Penalty.” Under this provision, a penalty is levied against the employer if it willfully fails to pay wages due to the employee at the conclusion of the employment relationship. For each day that overdue final wages remain unpaid, a waiting time penalty equal to the employee’s daily rate of pay may be assessed against the employer up to a maximum of 30 days.

Based upon the wording of the statute, you may think that waiting time penalties would only apply when an employer willfully withholds wages owed to an employee. That is not the case. The waiting time penalty applies in almost all cases where final pay is not tendered on a timely basis whether by design, neglect or even impossibility. The following hypotheticals may help you avoid or limit liability for final pay violations.

Hypothetical # 1: An employee gives 72 hours notice to end the employment relationship. Employer fails to give employee a final check on employee’s last day, but has the check ready two days later. On that day, employer informs former employee that he can come in and pick up the check, and the former employee agrees to pick up the check. Subsequently, the former employee fails to pick up the check for ten additional days.

Is the employee entitled to a waiting time penalty and, if so, in what amount?

The employee would be entitled to a waiting time penalty in the amount of two days wages. Here, employee gave sufficient notice of termination. Thus, the employer had a duty to pay all final wages at the time of termination. The employer failed to do so, and the penalty is applied for two days. The penalty does not extend for an additional ten days because the employer informed the employee that the check was ready. This is referred to as “Tender of Payment” and stops the waiting time penalty from accruing.

Hypothetical # 2: An employee quits her job without giving sufficient notice. On her last day, she confirms her mailing address with her employer and requests that the wages be mailed to her. Six days later, employee receives her final wage check in the mail. The envelope was postmarked two days after the employee’s final day of employment.

Is the employee entitled to a waiting time penalty and, if so, in what amount?

Employee would not be entitled to a waiting time penalty under these facts. Here, employee did not give 72 hours notice of termination. Thus, the employer was obligated to pay all of employee’s wages not later than 72 hours after the date she quit. Employer satisfied the obligation by mailing employee’s check to her, at her request, two days after her final day.

Hypothetical # 3: Same facts as hypothetical # 2, but the employee does not request that the wages be mailed to her.

In this scenario, how does the employer remit the employee’s final payment?

If the employee does not request that the wages be mailed to her, the employee must return to her former employer’s place of business 72 hours after quitting and demand the wages that are due. The waiting time penalty does not accrue unless this demand is made.

Hypothetical # 4: Employee gives 72 hours notice of terminating employment. On employee’s last day of work, he asks employer for his check. Employer responds that the check is not available and the employee must wait until the end of the payroll period when the payroll service prepares the checks. Two weeks after employee’s last day, he receives his check in the mail.

Is employee entitled to a waiting time penalty and, if so, in what amount?

The employee would be entitled to a waiting time penalty in the amount of 14 days wages. Under the Labor Code, when an employee gives sufficient prior notice of his intention to quit, the employee is entitled to his wages on his last day. Here, since the employee quit, gave sufficient notice, and did not receive his payment for two weeks, he is entitled to a waiting time penalty in the amount of 14 days wages.

Hypothetical # 5: Same facts as hypothetical #4, but employer is currently unable to forward employee’s final wages due to financial difficulty.

Is this a valid defense to the waiting time penalty?

No, inability to pay is not a defense to the waiting time penalty. The following scenarios also do not justify delaying final pay. Our payroll department is out-of-state and cannot get us the check in time. The employee has an outstanding debt or company property; we are not going to pay wages until employee pays us or returns the property.

Question & Answer
Question: When computing the amount of the penalty, do you count only the days an employee might have worked during the period for which the penalty accrues, or do you also include non-workdays?

Answer: All non-workdays are included. When computing the penalty you count all of the calendar days between the date payment was due and the date payment is tendered, including weekends, non-workdays, and holidays.

Question: Is overtime included in calculating the daily rate of pay for purposes of computing the waiting time penalty?

Answer: “Regularly scheduled” overtime is included in calculating the daily rate of pay for purposes of computing the waiting time penalty. Occasional or infrequent overtime is not included.

Question: Does the failure to reimburse business expenses within the statutory timeframe trigger the waiting time penalty?

Answer: No, reimbursement for business expenses is not included in the statutory definition of wages, and therefore will not trigger section 203.

Question: Does the failure to pay earned, accrued and unused vacation time trigger the waiting time penalty?

Answer: Yes. Under California law, earned vacation time is considered wages, and therefore the employer must pay the employee at his or her final rate of pay for all such earned, accrued, and unused vacation time.

Conclusion
To minimize the risk of claims for waiting time penalties, employers should carefully review their payment practices in connection with the cessation of an employee’s employment.

The employment related legislation in 2006 was relatively sparse. Nonetheless, employers need to be aware of recent legislation that either creates new laws or modifies existing laws. The following is a synopsis of the more notable laws that were enacted or modified in 2006.

California Law

AB 1835 – Minimum Wage Increase
On September 12, 2006, Governor Schwarzenegger signed into law AB 1835, which increases the state minimum wage to $7.50 per hour effective January 1, 2007, and to $8.00 per hour effective January 1, 2008. This law also requires the Department of Industrial Relations to upwardly adjust the permissible meal and lodging credits by the same percentage as the increases in the minimum wage and to amend and republish the Industrial Welfare Commission’s wage orders. Additionally, this law requires employers to post written notice of the new rates in their facilities. Aside from the direct changes made in AB 1835, the increase in the minimum wage will impact other wage rates and overtime exemptions under state law, including the following:

•  Employees subject to the executive, administrative, and professional overtime exemptions must be paid, at a minimum, an annual salary of $31,200 ($2,600 per month) in 2007 and $33,800 ($2,773.33 per month) in 2008 in order to preserve their exempt status.
• Exempt employees covered by collective bargaining agreements must be paid, at a minimum, $9.25 per hour in 2007 and $10.40 per hour in 2008 in order to preserve their exempt status.
• Employees paid on commission who are exempt must be paid more than $11.25 per hour in 2007, and more than $12.00 per hour in 2008, in order to preserve their exempt status.
• Employees who work split shifts must be paid a total wage equal to at least the minimum wage plus $7.50 in 2007, and at least the minimum wage plus $8.00 in 2008.

SB 1441 – Discrimination
This bill adds sexual orientation to the list of protected classifications under an existing law that prohibits discrimination based on race, national origin, ethnic group identification, religion, age, sex, color, or disability against any person in any program or activity that is conducted, operated, or administered by the state or by any state agency or that is funded directly by or receives any financial assistance from the state. The terms “sex” and “sexual orientation” are defined as set forth in the California Fair Employment and Housing Act. Additionally, the definition of discrimination is expanded to include a perception that a person has any of the enumerated characteristics or that the person is associated with a person who has or is perceived to have any of those characteristics.

AB 2440 – Child Support/Wage Deductions
This bill imposes liability on any person or business entity that knowingly assists someone who has an unpaid child-support obligation to escape, evade, or avoid current payment of those obligations. Prohibited actions include the following: a) hiring or employing a person obligated to pay child support without timely reporting to the Employment Development Department’s New Employment Registry; b) retaining an independent contractor who is obligated to pay child support and failing to timely file a report of that engagement with the Employment Development Department; and c) paying wages or other forms of compensation that are not reported to the Employment Development Department. The penalty for violating this law is three times the value of the assistance that is owed, up to the total amount of the entire child-support obligation owed.

AB 2095 – Sexual Harassment Training
This bill modifies existing law requiring employers to provide mandated sexual harassment training to supervisors by limiting the required training to supervisors physically located in California.

AB 1553 – Arbitration
This bill provides that, if an agreement requires arbitration of a controversy to be demanded or initiated within a set time period, the commencement of a civil action within the specified time period tolls the applicable time limitations in the arbitration agreement from the date the civil action is commenced until 30 days after a final determination by the court that the party is required to arbitrate the controversy, or 30 days after the final termination of the civil action that was commenced and that initiated the tolling, whichever date occurs first.

AB 2068 – Workers’ Compensation

This bill expands an employee’s right to be treated by his or her personal physician for an on-the-job injury. Specifically, this law provides that a “personal physician” who may be pre-designated as the primary treating physician for workers’ compensation purposes includes a corporation, partnership, or association of licensed doctors of medicine or osteopathy.

SB 1613 — Cellular Phone Use While Driving
Effective July 1, 2008, it will be illegal to drive a motor vehicle while using a wireless telephone unless the phone is equipped to allow hands-free listening and talking and is used in that manner while driving. The penalty for violating this law will be $20 for the first offense and $50 for each offense thereafter. This law does not apply to a person who is using a cellular telephone to contact a law enforcement agency or other public-safety agency for emergency purposes or to an emergency service professional operating an authorized emergency vehicle.

San Francisco — Paid Sick Leave Ordinance
Effective February 5, 2007, all employees who are employed within the city limits of the City of San Francisco must be provided with paid sick leave. Such sick leave must accrue at the rate of one hour for every 30 hours worked. Employers may adopt an accrual cap of 72 hours, at which level further accrual stops. The ordinance does not specify that the accrual cap may be prorated for part-time employees. The accrued leave must carry over from year-to-year. However, no pay out of accrued but unused sick leave is required upon termination of employment. For new hires starting after February 5, 2007, a 90-day waiting period is allowed before paid sick leave begins to accrue.

Employees may use their accrued sick leave for their own illness or to care for a spouse (or registered domestic partner), child, parent, grandparent or other specifically “designated person” if they do not have a spouse or registered domestic partner. Note that this ordinance is more generous than California law, in that it permits all of the accrued sick leave to be used for caring for other individuals, whereas California law only allows one-half of the employee’s annual accrual to be used for such purposes. If an employer has a policy combining sick leave and vacation as paid time off (PTO) and the policy provides at least the amount of sick leave required under the ordinance, no further leave is required.

Federal Law
Preservation of Electronically Stored Information

As of December 1, 2006, various amendments to the Federal Rules of Civil Procedure took effect with regard to electronic discovery. For the first time, the Federal Rules of Civil Procedure recognize electronically stored information (“ESI”) as a distinct category of discovery. At this point in time, the scope of producible electronic discovery under the amendments is not clearly defined. However, it is likely that the scope of producible electronic discovery will be very broad, including not only items such as employee emails, but other ESI created or received by the company’s electronic information system.

The new amendments require companies to maintain and produce ESI the same way that hard copy documents are maintained and produced. However, given the nature of technology and the fact that many electronic information systems automatically overwrite or discard files after some time period, the new amendments provide for a “safe harbor.” Under the new amendments, there is limited protection against sanctions for a party’s failure to provide ESI in discovery if the information has been lost as a result of the routine operation of a electronic information system, as long as that operation was in good faith. Given this requirement, it is unlikely that the safe harbor will apply if a company allows relevant ESI to be discarded when someone knew or should have known that the ESI would automatically be discarded by the company’s electronic information system. Such action is likely to be viewed as “virtual shredding” and beyond the protection of the safe harbor.

Several recent state and federal employment law cases have reemphasized the burden imposed on employers when dealing with disabled employees or applicants, as well as those employees or applicants who are merely “regarded as” disabled. The first case involved an ADA class action suit against UPS on behalf of deaf employees who were denied the opportunity to work as drivers. The second case involved a FEHA claim brought against Lockheed Martin for failure to accommodate an employee who was not “actually disabled”; Lockheed simply thought the employee was disabled. Both of these cases illustrate the extreme care that employers must take to avoid liability when presented with an employee or applicant whom the employer believes is disabled.

In the recent litigation involving UPS, a group of deaf employees brought a class action suit in Federal court alleging that deaf workers were prohibited from competing for driving jobs. UPS required all would-be drivers to pass a hearing test issued by the U.S. Department of Transportation (DOT). UPS imposed this requirement on all drivers despite the fact that the DOT requires the test only for people driving vehicles that weigh more than 10,000 pounds. The deaf workers contended that because UPS has many vehicles that weigh less than 10,000 pounds, the company’s overbroad use of the hearing test constituted a violation of the Americans with Disabilities Act.

UPS argued that, in the face of uncertainty regarding whether deaf drivers are more dangerous than drivers who can hear, it should be given the benefit of the doubt. The court disagreed with UPS, stating that employers only get the benefit of the doubt in cases of uncertainty if they offer persuasive proof that a stricter driving requirement is consistent with business necessity. In coming to its decision, the court ruled that UPS could no longer use the DOT standard to exclude deaf employees from driving vehicles weighing less than 10,000 pounds and ordered that the company assess each applicant individually. Damages have not yet been determined in the case.

In another recent case brought in California state court, an employee of Lockheed Martin Corporation alleged that Lockheed discriminated against him by terminating his employment rather than accommodating his physical limitations. This case differs from most disability discrimination cases in that the employee was not actually disabled; Lockheed simply thought he was.

In late 2000, the Plaintiff injured his lower back while working as a metal fitter. After filing a workers’ compensation claim, the plaintiff participated in a vocational rehabilitation program so that he would be able to take work assignments other than as a metal fitter. Lockheed retrained the plaintiff as a plastic parts fabricator but it was ultimately decided that there was no accommodation that could be made for the plaintiff’s inability to sit or stand for more than three hours a day. The plaintiff filed suit, alleging disability discrimination and failure to accommodate in violation of the Fair Employment and Housing Act. In court, the plaintiff maintained that his standing and sitting restriction could be accommodated by simply providing an additional break or two or allowing him to occasionally sit on a stool.

The Court first found that the plaintiff did not have an actual disability. That, however, did not end the inquiry. The court went on to find that, even though the plaintiff was not actually disabled, the employer must explore reasonable accommodations for, and engage in an interactive dialogue with, applicants or employees whom it regards as disabled. If the employer would have engaged in an interactive dialogue, it would have uncovered the fact that the plaintiff’s restriction could have been accommodated. As a policy matter, the court found that if an employer thinks an employee is disabled, it should not be let off the hook for discriminatory behavior based on the fact that it is mistaken in its assumption. What can a California employer do to avoid the situations in which UPS and Lockheed found themselves? The answer can be found in the interactive process described in the Lockheed decision. When faced with an employee whom the employer knows or believes is disabled, the employer should engage the employee in an interactive process or dialogue. At comparatively low cost, much good can be achieved and liability possibly avoided.

During this process, the employer must leave its preconceived notions behind. Stereotypes and generalities are exactly what the ADA and FEHA aim to eliminate. Thus, an employer shouldn’t rely on its experience with others having the same impairment. The interactive process should focus on the employee’s specific limitations and their effect on his or her ability to perform. The employer should make a clear effort to assist and communicate with the employee in good faith. And finally, if there is going to be a failure of the interactive process (and a resulting suit), the employer should leave no doubt that the fault is with the employee. By properly implementing the interactive process, an employer can provide itself a strong defense to potential liability.

Do you know just what your harassment training programs should include? All employers should review their training programs now in order to ensure compliance with new guidelines issued by the California Fair Employment and Housing Commission (FEHC). The FEHC is the agency charged with enforcement of the harassment training law. (See http://www.fehc.ca.gov/pub/harassment training.asp)

Who Must Comply?
Pursuant to California Government Code Section 12950.1, employers with 50 or more employees or contractors are required to provide all supervisory employees with at least two hours of classroom or other effective interactive training and education regarding the prevention of sexual harassment. The 50 employee requirement “means employing or engaging fifty or more employees or contractors for each working day in any twenty consecutive weeks” in the present calendar year. The law does not require that the 50 employees work at the same location or all work or reside in California.

What Are The Specific Training Objectives?
The guidelines set forth content objectives for training both “to assist California employers in changing or modifying workplace behaviors that create or contribute to ‘sexual harassment’” as defined by federal and California law, and “to develop, foster and encourage a set of values in supervisory employees” who undergo such training “that will assist them in preventing and effectively responding to incidents of sexual harassment.” In addition to laying out the general content objectives for mandated harassment training, the guidelines also address “e-learning” and “webinar” training, which may prove to be convenient alternatives to the traditional classroom training.

What Is “E-Learning” And “Webinar” Training, And What Are The Additional Requirements For Each?
The guidelines define “e-learning” as “individualized, interactive, computer-based training whose content is written, developed and approved by an instructional designer(s), qualified trainer(s) or subject matter expert(s).” “Webinar” is defined as “an internet-based seminar created and taught by a qualified trainer and transmitted over the internet or intranet in real time.” Employers may also opt for “other effective interactive training and education,” which may include the use of “audio, video or computer technology in conjunction with classroom, webinar and/or e-learning training.”

In the event that the employer opts for an e-learning alternative to classroom training, the Commission requires that employers provide supervisors with trainers or educators who will make themselves available “within a reasonable period of time” to answer any questions the supervisor may have relating to the training. Furthermore, if a webinar format is utilized the Commission requires that employers obtain records demonstrating that a learner “attended the entire training and actively participated in the training’s interactive content, discussion questions, hypothetical scenarios, quizzes or tests, and activities.” Finally, employers must comply with the minimum two hour harassment training requirement. That requirement may be fulfilled by two classroom hours, two webinar training hours, or “in the case of an e-learning program, a program that takes the supervisor no less than two hours to complete.”

Who Is Fit To A Be A “Qualified Trainer”?
The guidelines define a “qualified trainer” as an individual who has “legal education coupled with practical experience, or substantial practical experience in harassment, discrimination and retaliation” that can “effectively lead in-person or webinars.” The trainer must be qualified to train on a number of issues related to harassment as outlined by the FEHC guidelines.

How Do You Track Training?
Employers are required to provide training once every two years and have the option of using “individual” or “training year” tracking. Under the “individual” tracking system, an employer simply tracks “its training requirement for each supervisory employee, measured two years from the date of completion of the last training of the individual supervisor.”

Alternatively, an employer may use the “training year” tracking method and thereby “designate a ‘training year’ in which it trains its supervisory employees.” The employer will then retrain the supervisory employees no later than the next “training year,” two years later. In the case of newly hired or promoted supervisors who receive training within six months of assuming their supervisory positions, but in a different training year, “the employer may include them in the next group training year, even if it occurs sooner than two years.” Furthermore, a supervisor who has received anti-harassment training in compliance with the statute within the prior two years from either a current, prior or alternate joint employer “need only be given, be required to read and acknowledge receipt of, the employer’s antiharassment policy within six months of assuming” the new supervisory position or “within six months of employer’s eligibility.” The current employer, however, will have the burden of establishing the legal compliance with this section of the previous training. The employer may then place new supervisors on the two year track schedule.

What Records Should Be Kept And For How Long?
The Commission requires that employers keep documentation of harassment training in order to track compliance. The records should include “the name of the supervisory employee trained, the date of training, the type of training, and the name of the training provider.” The documentation records should be kept for a minimum of two years. What Should You Do To Ensure That Your Training Is In Compliance With The Law? Given the gravity and ramifications of sexual harassment claims, employers should consider taking some time to evaluate and strengthen their harassment training programs to meet the legal specifications. The following steps may help you in this process.

• Know whether or not you are subject to the training statute. You may safely assume that you are subject to the training statute if you have 50 or more full time, part time, or temporary employees or contractors and at least one of them lives or works in California.
• Train all supervisors who “directly” supervise California employees. If you are not sure whether the supervision is “direct” or otherwise, assume it is direct and train them.
• Maintain a fixed training schedule that is easily enforceable. Group your supervisors by “training year” and set fixed training schedules to facilitate your training requirement.
• Evaluate your training programs regularly. Look for any changes in applicable California and federal law.
• Protect yourself from harassment claims by going beyond the minimum training required. Consider:
  (a) expanding harassment training to include topics that are recommended but not required under the law;
  (b) training your supervisory employees even if your company is not subject to Section 12950.1; and
  (c) providing more than the minimum two hour training.

Over the last few years, California courts have been flooded with wrongful discharge lawsuits. We noted in an earlier article that California appellate courts have expanded the situations in which employees may bring claims against their employers, particularly in retaliation lawsuits. Recent cases further exemplify the growing trend to liberalize wrongful discharge lawsuits. Because the California Supreme Court has declined to review these cases, it is not immediately clear what long term impact these decisions will have on at-will employment principles. What is clear is that employers should take steps to understand current regulations and case law to avoid a wrongful discharge lawsuit.

Public Policy In A Wrongful Discharge Suit
An employee may bring a wrongful discharge suit against the employer if the employee can demonstrate that the discharge violated fundamental and substantial public policy. The California Supreme Court has held that a wrongful termination action based on violation of public policy must be grounded on some constitutional, statutory, or regulatory basis. In the past, courts interpreted that requirement to mean the violation must inure to the public interest—simply put, such violations were required to affect the public at large and not just private individuals.

It is unclear if this remains true given a recent case that resulted in a favorable outcome to an employee based on his individual claim of unsafe working conditions. In that case, a maintenance mechanic was terminated after refusing to clean up a containment area. While the containment area did not violate any safety standards, the area did store corrosive materials that could have been fatal if not handled correctly. The employee argued that the clean up of that area was not part of his job description, he was not trained in such tasks, and he believed the assignment was unsafe. He premised his belief that the area was unsafe on one past incident where another employee was injured from touching the chemicals.

The employee was discharged following his refusal to perform the assigned task. After his termination, the employee sued, claiming that the termination violated public policy. After the lower court proceedings resulted in an appeal, the appellate court ruled in favor of the employee, noting that the employee had a reasonable “good faith” belief that the assignment was unsafe.

What Is Good Faith?
Traditionally, the phrase “good faith” is understood to denote an act that is honest in purpose, free from intent to defraud, and generally speaking, faithful to one’s duty or obligation. This definition is generally broad and often left for the jury to decide.

The appellate court’s approach to the definition of good faith in this case was even more relaxed and gives employers cause to be worried. The appellate court’s decision, read broadly, means that an employee need not show that the actual work that he is complaining about is unsafe, just that he, in good faith, believes that it is unsafe. While the employee’s belief must also be reasonable, the employee can simply point to past unsafe conditions and complaints to demonstrate that he has a reasonable fear that the current condition is unsafe.

Although the California Supreme Court has refused to review this case, past decisions seem to support the appellate court’s ruling. In 1991, the California Supreme Court stated that an employee need not prove an actual violation of law in order to establish wrongful termination. The fact that he reasonably believed that the activity was illegal sufficed to demonstrate that he was wrongfully terminated. That decision implied that no actual harm or violation must exist, only that the employee in good faith believed that it did at the time.

How Does This Affect Employers?
Naturally, this liberal construction of good faith will contribute to the already growing number of lawsuits. As a result, employers should be prepared to update current termination policies in order to prevent a claim. Here are a few simple steps an employer should take in order to avoid litigation.

Make sure employment handbooks discuss anti-retaliation policies. Talk about these policies with employees (particularly supervisors/managers), make clear that the company does not tolerate retaliation, and stress that any perceived retaliation should be immediately reported. If an employee refuses to work, ask the employee why he is refusing to perform. Document these discussions. If the refusal is based on the employee’s concern that it would violate a law, regulation, or pose health concerns, seek legal advice before terminating the employee. Keep complaints confidential and investigations discreet. This minimizes unnecessary third party involvement and makes it easier for employers to show that no one involved in the decision leading to the termination had a retaliatory motive.

Monitoring employee activity, both on and off the job, has never been more relevant than it is in today’s increasingly wired and cost conscious world. Ten years ago, who could have imagined that disgruntled employees could let their feelings be known to literally millions of people from their P.C. at home? Who would have imagined that happy employees could waste countless hours on the job keeping track of their favorite sporting event from their cubicle, or having real-time conversations on their computer with a friend on the other side of the country? With the proliferation of the Internet and the advent of personal websites, web logs, e-mail, and ESPN.com, all of these drags on productivity have become a reality.

Unfortunately, the law has always been slow to keep up with modern advances, and the Internet and all of its progeny are no exception. All we can do is apply the law that we have to the world in which we find ourselves.

In California, an employee has a constitutionally protected right to privacy that can be enforced against a private employer. To maintain a cause of action for an invasion of the constitutional right to privacy, the plaintiff must satisfy several threshold elements. These elements are:

1) that there is a legally protected privacy interest;

2) that the employee enjoys a reasonable expectation of privacy; and

3) that the conduct of the employer constitutes a serious invasion of privacy. An employer may defend against an invasion of privacy claim by defeating any of these elements.

An employer’s written policy, acknowledged by the employee, may defeat the employee’s reasonable expectation of privacy. In fact, in a recent California case, the court found that employers can diminish an individual employee’s expectation of privacy by clearly stating in their policy that electronic communications are to be used solely for company business and that the company reserves the right to monitor or access all employee Internet or e-mail usage. This finding has broad implications that can be applied to a variety of modern monitoring scenarios.

Email Monitoring
Because the California Constitution protects employee privacy as to electronic monitoring only when employees have a “reasonable expectation of privacy,” a well crafted policy clarifying that the employer reserves the right to monitor electronic and other communications at work serves to diminish any employee privacy expectation with regard to the use of company computers, telephones, and e-mail. Such a policy, when disseminated, will preserve your right to reasonably monitor these communications, particularly e-mail on the company system.

Given that such privacy policies greatly reduce potential liability and may soon be legislated in California anyway, it makes good business sense to draft and distribute a policy now rather than later.

Internet Use
Employers can prohibit personal Internet use on a company computer. In fact, one California court has held that an employer can terminate an employee for accessing pornographic websites from home on a company computer when the employer had an appropriate electronic monitoring policy in place. In that case, the company had provided the personal computer to the employee and had a very clear policy in place preserving its right to monitor the use of company provided computers as necessary.

Employers should use care not to exceed the bounds of their rights in accessing Internet websites that employees have visited or created. Although an employer’s activities may not be an invasion of the employee’s privacy, the conduct may constitute an intrusion into protected activities, concerted action, political activities or off-duty conduct.

Web Logs
A relatively new phenomenon is “blogging.” Blogs, short for web logs, are online logs or journals in which employees (or anyone else with a computer) voice their opinions about anything they wish…including their employers. What can an employer do if an employee is disparaging the employer online?

If an employee is disseminating trade secrets, defamatory comments or is “blogging” on company time or computers, then an employer can probably safely terminate the employee. An employer may also be able to terminate an at-will employee who is bad-mouthing, ridiculing or generally denigrating the company, a boss or, worst of all, the employer’s product. However, the operative word is “may.” Taking adverse action against even at-will employees for blogging on their own time, especially when those blogs are not defamatory or do not implicate trade secrets, may raise issues involving discrimination, retaliation, and political and free speech. In many cases, your reaction to a blog entry could end up costing you much more than the original blog post ever would have. Aside from these issues, monitoring employee’s blogs also gets into the thorny area of controlling what the employee does on his or her own time.

Regulating Off-Duty Choices
While the Internet and employee monitoring are hot issues in employment law right now, offduty conduct by employees has also been making the news. Recently, some companies have begun experimenting with rules regarding their employees’ conduct away from work, particularly when that conduct impacts the employer’s health care premiums. Employees have countered by claiming that off-duty conduct is not an appropriate subject for scrutiny or control by an employer.

When an employer wants to regulate off-duty conduct it must primarily be done through contract and it must be based on a legitimate business need. For example, some employers have started programs designed to improve employee health. The most widespread of these new programs are those which attempt to prohibit smoking. Generally, these programs have been voluntary and based on incentives to quit. However, a new case in Michigan has garnered a great deal of attention because it is not a voluntary program and the employer tested its employees to ensure compliance. This program has been challenged by several employees and the employer will be forced to defend the policy in court. Regardless of the outcome of the Michigan case, California statutorily protects legal off-duty conduct by employees and healthy lifestyle policies may violate these statutory protections.

At this point there have been no California cases testing whether healthy lifestyle policies violate employee privacy rights and it is worth asking if your company wants to be the first to test those uncertain waters. It should be noted that, if such policies are not carefully considered and drafted, they could end up implicating issues other than privacy, such as the ADA (i.e., policies targeting disabilities) or age discrimination (i.e., policies targeting medical conditions such as cholesterol-levels or high blood pressure).

As you probably know, the Consolidated Omnibus Budget Reconciliation Act, commonly known as COBRA, allows employees to elect to continue health coverage under an employer-sponsored health plan for a certain period of time following the termination of employment or other qualifying event. Once an employee elects continuation coverage, the employee is responsible for paying the premiums required to keep the coverage in effect. Generally, the insurer provides the required notice explaining continuation coverage rights to the employee after a qualifying event. The employee then has 60 days to elect coverage.

In a new federal court case out of Michigan, however, the employer was found liable to an employee for damages suffered due to a failure to provide the proper COBRA notification, even though the employer had contracted with a third-party administrator to provide the notification. In Linden v. Harding Tube Corp., the court explained that ERISA imposes a responsibility upon a plan sponsor to provide appropriate notification regarding COBRA coverage rights. A plan sponsor is defined as the employer in the case of an employee benefit plan established or maintained by a single employer. The court went on to explain that there could be no dispute that the regulations with respect to COBRA notification had been violated because neither the employer nor the company with whom it had contracted to provide COBRA notifications had notified the insurance carrier that there should be continuation coverage or paid the premium necessary to activate the coverage. As the plan sponsor, the employer is initially liable for those violations. The court left it up to the jury to decide whether the employer could recover from the third-party with whom it had contracted for the damages it had to pay its ex-employee.

The lesson to be taken from this case is that if there is a failure to communicate COBRA continuation rights to an employee following a qualifying event, the employer will ultimately be responsible for that failure if the employer is also the plan sponsor. If you contract with a third-party to provide COBRA notification rights, you should make sure that copies of the appropriate notices following a qualifying event are sent to you so that you can ensure the notifications have been made in a timely fashion. If they are not, you could be held responsible for any medical costs incurred by your ex-employee during any time that he was uninsured because of your failure to provide the appropriate notification.

As you have probably heard, identity theft across the nation is growing at an alarming rate, particularly in the workplace. With this upsurge, victims are increasingly looking to recover damages from the companies from which their information was stolen.

What Is Identity Theft?
Identity theft occurs when someone uses the personal information (usually a social security number, name, date of birth, or credit card number) of another fraudulently and without permission. The thief typically uses this information to obtain money, goods, or services, but identity theft is also used to obtain identification cards and other government-issued documents.

Identity Theft – A Growing Problem
According to FBI statistics, identity theft is our nation’s fastest growing crime. In 2004, the Federal Trade Commission, which operates a nationwide identity theft hotline, announced that for the fourth straight year identity theft topped the list of consumer complaints. In 2004 alone, the FTC reported that there were almost 44,000 victims of identity theft in California. With 122 victims per 100,000 people, California ranked third in the nation behind only Nevada and Arizona.

The Legislative Response
Legislative response to the rise in identity theft has occurred on the national and state levels. In 1998, Congress passed a law making it a federal crime to use another’s identity to carry out an activity that violates federal law or that is a felony under state law. Similarly, California law now makes it a felony to use the personal identifying information of another for any unlawful purpose without the authorization of that person. A California statute also requires businesses and government agencies to notify consumers if hackers gain entry to computers that contain unencrypted personal information such as credit cards, social security numbers, and driver’s license numbers. That same statute allows any person injured by a violation of the law to file a civil suit against the company or agency.

Expansion Of Identity Theft Into The Workplace
Initially, stealing mail and wallets was the primary form of identity theft, but recently criminals have expanded to hacking into computers and copying company databases to obtain private information. Two examples illustrate the expansion of identity theft into the workplace. First, in San Diego, a dishonest employee obtained access to a storage room where past payroll information was filed. The employee obtained Social Security numbers from 100 current and former employees and used them to obtain credit in their names. Second, a Nigerian crime ring was employed temporarily at a very large corporation. One of the Nigerian employees downloaded an employee list containing social security numbers, then used the numbers to obtain credit and make fraudulent purchases. The employees did not know about the concerted thievery until they shared stories with their co-workers and learned that many of them had been victimized.

Identity Theft & The Employer – New Grounds For Recovery
Employees and their lawyers are considering potential grounds for recovery of when their personal information is misappropriated from work. Case law is relatively undeveloped, but two theories have materialized as potential grounds for recovery. The first theory is based on invasion of privacy. A short time ago, 204 employees of a Minnesota trucking company filed a class action lawsuit against their employer after their social security numbers were faxed to 16 terminal managers. They claimed that this was an invasion of privacy because the company released personal, confidential information without their permission. The Minnesota Court of Appeals agreed, and overturned a trial court order dismissing the claim. The trucking company sought review of the ruling, and the Minnesota Supreme Court overruled the Court of Appeals, finding that the employer’s dissemination of social security numbers to terminal managers did not constitute publication under the definition of invasion of privacy. Although the anti-employer decision was overturned, the case demonstrates a legitimate possibility that an employer’s failure to guard against disclosure of employees’ confidential information could lead to invasion of privacy lawsuits. The second theory is based on negligence principles. Recently, a Michigan appellate court upheld a $275,000 jury verdict awarded to several 911 operators who were victims of identity theft. The plaintiffs filed a negligence action against their union after discovering that the person behind their identity theft was the daughter of the union treasurer. The union treasurer took private company records out of the office, and her daughter somehow obtained the information and misused it. In upholding the verdict, the court found that the union owed a duty of care to its members, and that identity theft was a foreseeable consequence of a breach of that duty. Although limiting its holding to the facts, the decision signals a wakeup call to employers—take proper steps to ensure confidentiality of your employee’s private information, or be liable for the consequences.

How To Protect Yourself – A Self Survey
For tips on how to avoid or limit liability in the event that identity theft strikes the workplace, check the Identity Theft Resource Center website, accessible at www.idtheftcenter.org.

Existing law requires that an employee who works more than five hours a day must be provided with a meal period of not less than 30 minutes, except that if the total work period per day is no more than six hours, the meal period may be waived by mutual consent. An employee who works for more than 10 hours a day must be provided with a second meal period of not less than 30 minutes, except that if the total hours worked are no more than 12 hours, the second meal period may be waived by mutual consent, but only if the first meal period was not waived. To give you an idea of how costly violating this law can be, a jury in Oakland recently awarded $172 million to thousands of employees who claimed that Wal-Mart denied them these required meal periods.

The Division of Labor Standards Enforcement (DLSE) has proposed a new regulation clarifying an employer’s obligation to provide meal periods to its employees. The proposed regulation defines the term provide as “to supply or make available a meal period to the employee and give the employee the opportunity to take the meal period.” The proposed regulation clarifies that an employer is deemed to have provided a meal period to an employee if the employer: (1) has informed the employee, either orally or in writing, of his or her right to take a meal period; (2) gives the employee the opportunity to take the meal period; and (3) maintains accurate time records. Notwithstanding these three criteria, an employer may still establish by a preponderance of the evidence that a meal period was in fact actually supplied or made available to the employee and the employee was in fact actually given the opportunity to take the meal period. The proposed regulation also clarifies when the required meal period(s) must begin. For employees who work more than five hours but no more than six hours per day, the meal period must be provided during the sixth hour of work, but may be provided earlier. For example, if an employee works from 8 a.m. to 2 p.m., the 30 minute meal period must be provided between 1:01 p.m. and 2:00 p.m., but may be provided earlier. Moreover, the employer and employee can mutually waive the employer’s obligation to provide a meal period.

For employees who work more than six hours but no more than 10 hours per day, the meal period must be provided before the completion of the sixth hour of work. The employer cannot waive its obligation to provide the meal period. However, an employee may initiate a request for approval from the employer to: (A) not take the meal period for that day; or (B) take only a portion of the meal period for that day. The employer has the discretion to approve or deny the request. The employer’s approval or denial of such request is not a violation of the employer’s duty to provide a meal period.

For employees who work more than 10 hours but no more than 12 hours per day, the employer must provide a second 30 minute meal period. The second meal period may be provided any time between 10 hours and 1 minute and 12 hours. If the total hours worked are no more than 12 hours, the employer’s obligation to provide a second meal period may be waived by mutual consent of the employer and the employee, but only if the first meal period was not waived.

The DLSE’s proposed regulation has already undergone two rounds of rather substantial revisions. The DLSE is currently considering comments to the most recent version of the proposed regulation, and may revise the proposed regulation yet again. As soon as the regulation is finalized and adopted, we will update you in a future edition of this newsletter.

2005 was a slow year for new employment-related legislation, and much of the new legislation is limited to certain types of employers or employees. Here is a synopsis of the more notable legislative activity.

Computer Professional Exemption Clarified
Existing law provides that employees in the computer software field may qualify for overtime exemption if certain conditions are met. One of those conditions is that the employee’s hourly rate of pay is not less than $41. A new law now clarifies that this condition is met if the employee’s hourly rate is not less than $41 or the annualized full-time salary equivalent of that rate, provided that in each workweek the employee receives not less than $41 per hour worked. Note that, under both the old and the new laws, an employee in the computer software field is not exempt from overtime requirements unless all of the following additional conditions are met:

1. The employee is primarily engaged in work that is intellectual or creative and that requires the exercise of discretion and independent judgment. 2. The employee is primarily engaged in duties that consist of one or more of the following: A. The application of systems analysis techniques and procedures, including consulting with users to determine hardware, software, or system functional specifications. B. The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications. C. The documentation, testing, creation, or modification of computer programs related to the design of software or hardware for computer operating systems. 3. The employee is highly skilled and is proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering.

Deadline For Filing Fair Employment And Housing Act Claims Extended For Minors The Fair Employment and Housing Act (“FEHA”) prohibits discrimination, harassment and retaliation. Under current law, an employee who believes that her employer violated FEHA must file a complaint with the Department of Fair Employment and Housing within one year from the date upon which the allegedly unlawful conduct occurred. Effective January 1, 2006, this period is extended for up to one year after the employee reaches age 18.

Final Wages May Now Be Paid By Direct Deposit
Existing law has long allowed an employer to pay wages by direct deposit, so long as the employee has voluntarily authorized direct deposit. Final wages, however, could not be paid by direct deposit. Effective January 1, 2006, Labor Code section 213 has been amended to provide that final wages may be paid by direct deposit, so long as the employer complies with all other requirements regarding the payment of final wages.

Wage Statements
When an employer pays an employee’s wages, the employer must furnish the employee with an accurate itemized statement showing, among other things, the name of the employee and his or her social security number. By January 1, 2008, existing law requires the employer to include no more than the last four digits of the employee’s social security number or an existing employee identification number other than a social security number. This law has been clarified to provide that, by January 1, 2008, the employer must include on the itemized statement the last four digits of the employee’s social security number or an employee identification number other than a social security number. In other words, if you were intending to comply with the new requirement by including the last three digits of your employees’ social security numbers on their statements, you now need to include the last four digits.

Unruh Civil Rights Act Expanded
The Unruh Civil Rights Act generally prohibits business establishments from discriminating on the basis of sex, race, color, religion, ancestry, national origin, disability or medical condition. The Act has now been expanded to explicitly prohibit business establishments from discriminating on the basis of marital status or sexual orientation.

Service Of Labor Commissioner Complaints, Notices And Decisions
The Labor Commissioner is authorized to investigate employee complaints and provide for a hearing in any action to recover wages, penalties and other demands for compensation. A new law provides that, in such proceedings, the complaint, notices, and decision may be served by leaving a copy of the document at the home or office of the person being served and thereafter mailing a copy of the document to the person at the place where a copy was left. This new law was enacted to address the problem of employers who tried to avoid personal service of labor commissioner documents by refusing to sign for the documents.

Public Works Payroll Records
Existing law provides for the payment of prevailing wages on certain public works, and requires each contractor and subcontractor performing work on a public work to keep payroll records regarding his or her employees. Senate Bill 759 amends this requirement by specifying that the payroll records may consist of printouts of payroll data that are maintained as computer records, if the printouts contain the same data and are verified in the same manner as required for other payroll records.

DLSE Proposes New Regulation Clarifying Meal Period Requirements
By Kim Johnston
Existing law requires that an employee who works more than five hours a day must be provided with a meal period of not less than 30 minutes, except that if the total work period per day is no more than six hours, the meal period may be waived by mutual consent. An employee who works for more than 10 hours a day must be provided with a second meal period of not less than 30 minutes, except that if the total hours worked are no more than 12 hours, the second meal period may be waived by mutual consent, but only if the first meal period was not waived. To give you an idea of how costly violating this law can be, a jury in Oakland recently awarded $172 million to thousands of employees who claimed that Wal-Mart denied them these required meal periods.

The Division of Labor Standards Enforcement (DLSE) has proposed a new regulation clarifying an employer’s obligation to provide meal periods to its employees. The proposed regulation defines the term provide as “to supply or make available a meal period to the employee and give the employee the opportunity to take the meal period.” The proposed regulation clarifies that an employer is deemed to have provided a meal period to an employee if the employer: (1) has informed the employee, either orally or in writing, of his or her right to take a meal period; (2) gives the employee the opportunity to take the meal period; and (3) maintains accurate time records. Notwithstanding these three criteria, an employer may still establish by a preponderance of the evidence that a meal period was in fact actually supplied or made available to the employee and the employee was in fact actually given the opportunity to take the meal period.

The proposed regulation also clarifies when the required meal period(s) must begin. For employees who work more than five hours but no more than six hours per day, the meal period must be provided during the sixth hour of work, but may be provided earlier. For example, if an employee works from 8 a.m. to 2 p.m., the 30 minute meal period must be provided between 1:01 p.m. and 2:00 p.m., but may be provided earlier. Moreover, the employer and employee can mutually waive the employer’s obligation to provide a meal period.

For employees who work more than six hours but no more than 10 hours per day, the meal period must be provided before the completion of the sixth hour of work. The employer cannot waive its obligation to provide the meal period. However, an employee may initiate a request for approval from the employer to: (A) not take the meal period for that day; or (B) take only a portion of the meal period for that day. The employer has the discretion to approve or deny the request. The employer’s approval or denial of such request is not a violation of the employer’s duty to provide a meal period.

For employees who work more than 10 hours but no more than 12 hours per day, the employer must provide a second 30 minute meal period. The second meal period may be provided anytime between 10 hours and 1 minute and 12 hours. If the total hours worked are no more than 12 hours, the employer’s obligation to provide a second meal period may be waived by mutual consent of the employer and the employee, but only if the first meal period was not waived.

The DLSE’s proposed regulation has already undergone two rounds of rather substantial revisions. The DLSE is currently considering comments to the most recent version of the proposed regulation, and may revise the proposed regulation yet again. As soon as the regulation is finalized and adopted, we will update you on its requirements in a future edition of this newsletter.

Proposed Changes
As we previously informed you, on January 14, 2005, the Division of Labor Standards Enforcement (DLSE) issued a proposed meal and rest period regulation. The intent behind the proposed regulation was to provide clarity and flexibility with regard to the meal and rest period requirements. The proposed regulation addressed the timing of meal periods, the requirements for “providing” a meal period, and the classification of any money paid for failure to provide a meal period.

However, the DLSE failed to complete the rulemaking process and promulgate a final rule by the January 14, 2006 deadline. On that date, the proposed regulation lapsed, leaving employers with the law as it existed prior to the proposed regulation. Therefore, employers must be aware of and properly follow the applicable law in place before the proposed DLSE regulation.

Meal Period Requirements In Effect Prior To The DLSE’s Proposed Regulation And Still In Effect Today
Because the DLSE’s proposed regulation failed to take effect, employers are left to deal with the less-than-clear law in place prior to the proposed DLSE regulation. As always, diligence on the part of employers in following the law will help prevent lawsuits by employees and protect the interests of employers.

Currently, an employee who works at least five hours a day must receive an unpaid meal period of at least 30 minutes. However, if the total work period is less than six hours, the meal period can be waived with the mutual consent of the employer and employee. Additionally, a second meal period is required if the employee works more than 10 hours. Again, however, this meal period can be waived with the mutual consent of the employer and employee if the total work period is less than 12 hours and the first meal period was not waived.

Prior to the DLSE’s proposed regulation, the DLSE took the position that meal periods had to start before the end of the fifth hour for the first meal period and before the end of the tenth hour for the second meal period. Thus, employers should continue to follow this mandate in an effort to ensure that meal periods are timely taken. As for “providing” the meal period required by the law, the onus is on the employer to make sure that employees take their required meal periods at the required times. If the employer fails to provide a required meal period, the employer must pay one additional hour of pay at the employee’s regular rate of pay for each workday that the meal period is not provided in addition to paying for the time that the employee worked during the period. The failure to provide meal periods can be very costly. In a recent class-action suit, a jury returned a $172 million verdict against Wal-Mart for denying employees their legally required meal and rest periods. The potential for large verdicts and costly court battles necessitates diligence in ensuring that employees are taking their required meal periods.

If Meal Periods Are Missed And The Employer Must Pay, Is The Payment A Penalty Or Wages?
When employers pay for meal periods missed by employees, the payment can arguably represent either wages to the employee or a penalty against the employer. If the payment is characterized as a penalty, the employee must file a claim within one year, whereas a claim for wages must be filed within three (sometimes four) years. Additionally, a penalty, unlike wages, is not subject to income tax withholding. Finally, if the payment is characterized as a penalty, the employee cannot seek attorneys’ fees under the wage recovery statutes.

The lapse of the proposed DLSE regulation that would have clarified this area of law left employers without a definite answer to this issue. Further, no clear answer has been provided by the courts. In May of 2005, the Labor Commissioner issued an opinion that such payments were penalties. Additionally, two California appellate courts that have addressed the issue agree with the Labor Commissioner that such payments are penalties. However, another California appellate court has ruled that such payments represent wages to the employee. Because of this split of authority and the importance of the issue, the California Supreme Court has granted review of one of the cases to provide a definitive answer.

Conclusion
While employers may have heard or read about proposed changes to the meal period requirements, the proposed regulation that would have made such changes lapsed on January 14, 2006. Thus, any proposed changes regarding meal periods did not take effect and the law existing prior to the proposed regulation is still in force. In order to avoid liability for missed meal periods, employers must be proactive in making sure that employees take their meal periods at the appropriate times. Otherwise, employers may face costly lawsuits by employees.

In an effort to attract the most qualified employees, employers sometimes make promises that they cannot keep.  But what may once have been considered harmless exaggeration by employers can now be the basis for a costly lawsuit.  Several recent cases have held that employers can be liable for fraud if their representations about a job do not pan out.

Overstating earning potential costs employer over $1.2 million
In a recent case, an employer that overstated an applicant’s earning potential was hit with a $1.2 million damage award.  The employee in that case earned $5,800 to $5,900 a month at his old job.  He applied for a new job and, during the interview, told the employer that he needed to earn at least $5,700 a month.  The employer then pulled out a financial statement, made some calculations, and stated that if the employee had been with the company between January and September of 1999, he would have made $70,000 (which would have been well over $5,700 a month).  Based on this representation, the employee accepted a position with the new employer and quit his old job.  In his first three months of employment, however, his monthly paychecks amounted to $4,400, $5,100, and $4,800 respectively.  The employee complained but received no response, and shortly thereafter was fired.  Although he re-applied for a job with his old employer, it had a strict no-rehire policy.  He eventually found another job that paid less than $4,000 a month.

The employee sued for fraud, arguing that the employer falsely promised him a salary of at least $5,700 per month, and that he left his old job in reliance on that promise.  The jury agreed with the employee and awarded him $490,913 in economic damages, $50,000 for pain and suffering, and $1.5 million in punitive damages, which the trial court later reduced to $675,000.  In upholding the jury’s decision, the appellate court noted that the employee was entitled to recover the income he lost when he left his old job in reliance on the employer’s false promise about salary, so long as such damages were not speculative or remote.

Employer can be liable if it overstates job security

In another case, an employee claimed he was induced to leave a steady job in New York for a new job in California based on false promises of job security.  The employee earned $120,000 a year in New York as the president of a small family-owned company.  He was actively recruited by a California company that wanted him to accept a job as its general manager.  During the recruitment process, the employee told the employer he was concerned about giving up a secure job and moving his family across the country.  He asked the employer to assure him that his job would be secure.  In response to these concerns, the employer told him that he would continue to be employed so long as he performed his job well and achieved certain goals.  The employer also told the employee that that the company was strong financially and that it anticipated solid growth and a stable and profitable future.  The employee ultimately accepted the new position and moved his family to California.

Approximately two years later, the employee was terminated.  He was told that his job was being eliminated because of a management reorganization, and that the termination had nothing to do with his performance.  The employee sued the employer for, among other things, fraud.  The court found that the employee could state a claim for fraud if he could prove that the employer induced him to leave his job in New York by making promises that it knew it could not keep.  The court also held that, if the employee could prove his fraud claim, he would be entitled to recover the costs of moving to California and the loss of job security and income associated with his former job in New York.

Tips to Follow
As these cases make clear, employers can be held liable if their representations to prospective employees later prove to be false.  In order to avoid costly lawsuits, here are some tips to follow when interviewing employees and extending job offers:

•    Provide training to interviewers so they do not misrepresent the employer’s financial condition or the applicant’s salary potential or job responsibilities.

•    Review all job postings carefully to ensure that you are not making any unintended or unauthorized promises.

•    Write down the terms and conditions of a prospective employee’s employment in a detailed offer letter.

•    Use two interviewers at once, since this provides an employer with a witness if a dispute later arises.

The bottom line:  Do not make promises you cannot keep.