California Employment Law Update : Labor and Employment Lawyers & Attorneys : Proskauer Rose Law Firm : Wage & Hour Laws, Disability, Workplace Safety

Last week, we reported that the California Labor Commissioner issued a template "Notice to Employee" as required by the Wage Theft Prevention Act of 2011 (the "Act"), which went into effect January 1. The Act requires employers to furnish specified wage information to certain non-exempt employees at the time of their hire.

As we also pointed out, the Commissioner's "Frequently Asked Questions," published December 30, 2011, stated that the Notice (or the information contained therein) must be given to all current employees, despite the fact that the statute calls only for employers to provide such data to employees "at the time of hiring." We placed a call to the DLSE shortly after the FAQs were issued, and the agency responded yesterday by updating its Web site. The FAQs, which can be found here, now reflect that the information required under new Labor Code § 2810.5 need only be provided at the time of hiring and within 7 days of a change in such information, if the change is not listed on the employee's pay stub for the following pay period.

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California Governor Jerry Brown has signed into law a number of bills addressing a wide array of issues that could significantly impact employers in the coming year. Read on for an overview of some of these new laws and their key provisions.

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Today, in a decision authored by Justice Anthony Kennedy, the U.S. Supreme Court unanimously overturned a decision by the U.S. Court of Appeals for the Ninth Circuit in a case involving an employee’s assertion that a government employer had violated the Fourth Amendment by unreasonably obtaining and reviewing personal text messages sent and received on employer-issued pagers.  Justices Stevens and Scalia issued concurring opinions.

City of Ontario v. Quon (08-1332)

• Full text of decision (pdf)
• Supreme Court docket information

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On April 26, the California Supreme Court issued a decision in the case of Pearson Dental Supplies, Inc. v. Superior Court (S167169) that will likely have resounding implications for the enforceability of arbitration awards.  The case concerns an arbitration decision in which an employee’s age discrimination claim was dismissed as untimely.  The arbitration agreement in question required the employee to initiate arbitration of his claims within one year.  However, rather than proceeding to arbitration, the employee first pursued his claims with the California Department of Fair Employment and Housing (DFEH) and subsequently in the Superior Court.  By the time the employee had finally submitted his claims to binding arbitration, more than one year had passed since his termination, and the arbitrator dismissed the action.

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As we reported previously, in December 2007 the National Labor Relations Board issued a decision relating to company e-mail policies in The Guard Publishing Company, d/b/a The Register-Guard, 351 NLRB No. 70 (2007), holding that an employer (i) may restrict the use of its computer systems to business related uses only, and (ii) could distinguish between personal and organizational solicitation in enforcing its no-solicitation policy.

Earlier this week, in The Register-Guard v. NLRB, No. 07-1528 (D.C. Cir July 7, 2009), the D.C. Circuit issued its decision reversing, in part, the Board’s decision.

Neither party requested review of (and, thus, the court did not address) the Board’s general holding that allowed restricting the use of company e-mail to business purposes.  The Court also chose not to address the Board’s position on distinguishing between the types of solicitation. Instead, it held that based on the facts of this particular case — where the policy in question did not actually make a distinction between types of solicitation — the employer could not discipline an employee for a union-related solicitation. As discussed below, the decision highlights the risks to employers who act based on the current Board law in the absence of a clear written policy that makes an explicit distinction between types of solicitation. Moreover, even if employers have such a policy now, the future Obama Board is likely to modify the current law.

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Yesterday, in a highly anticipated 5-4 decision, the U.S. Supreme Court held in Ricci v. DeStefano that the City of New Haven engaged in unlawful intentional race discrimination in violation of Title VII of the Civil Rights Act of 1964 (“Title VII”) when it discarded a firefighter promotional test because of the racial makeup of the successful test takers. The City claimed that the test had a disparate impact on minorities and that, if it certified the test results and proceeded with promotions, it would have been sued for discrimination by minority test takers. The Court held that the City had to show a strong basis in evidence that it would be liable in such a suit – something more than the statistical results of the test – in order to justify throwing out the test and discriminating against the successful test takers, most of whom were white. It further held that, upon its review of the factual record, the City could not meet this burden. Reversing the Second Circuit (which had affirmed the trial court decision), it found that summary judgment should be entered against the City. The factual background of the case, opinion of the Court and the implications of the case for employers are discussed below.

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In an important ruling that increases the burden on plaintiffs in cases under the federal Age Discrimination in Employment Act (ADEA), the United States Supreme Court held on June 18, 2009 that plaintiffs in age discrimination cases always bear the burden of proving that an adverse employment action would not have been taken against them “but for” their age. Gross v. FBL Financial Services, Inc., No. 08-441. This ruling draws a distinction between the ADEA and Title VII, under which plaintiffs need only show that their membership in a protected class was a “motivating factor” in an employer’s action, and eliminates any shifting of the burden of persuasion in so-called “mixed motive” cases under the ADEA.

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Over the last few years, caregiver discrimination has become an emerging issue in employment law. A pair of recent court decisions and the potential impact of the Lilly Ledbetter Fair Pay Act of 2009, as well as signals from the Obama Administration, in particular the Equal Employment Opportunity Commission, suggest that the issue of discrimination because of a worker’s family caregiving responsibilities is gaining recognition and momentum. In March, both the First and Ninth Circuit found in favor of employees who had alleged that they had been discriminated against based on their caregiving responsibilities. In April, the EEOC issued a new technical assistance document on the subject. This recent activity serves as an important reminder to employers that the EEOC, plaintiffs’ attorneys and the courts are scrutinizing employment decisions that adversely affect caregivers more closely than ever to determine whether unlawful discrimination might be afoot. As such, employers would be wise to take proactive steps to avoid allegations of discrimination against caregivers.

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The California Court of Appeal has issued an important decision that has significant implications for California employers that have tip-sharing arrangements for their employees. In Chau v. Starbucks Corp., 2009 WL 1522708 (Cal. Ct. App. Jun. 2, 2009), the court held that an employer can allow employees who have both supervisory and customer service duties to receive a portion of the tips that are left by patrons in collective tip-boxes. The court further held that customers who place tips in a collective tip-box (rather than giving the tip directly to a specific employee) intend their gratuity to bedistributed among all members of the team that provided customer service to them, including employees who may have some supervisory duties. As a result, the San Diego trial court’s judgment granting over $105 million in restitution to a class of more than 100,000 current and former Starbucks coffee baristas has been overturned.

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Introduction

On May 18, 2009, the Internal Revenue Service (the “IRS”) issued new proposed regulations that allow plan sponsors of Internal Revenue Code (“Code”) Section 401(k) or 403(b) safe harbor plans to reduce or suspend non-elective contributions mid-year if they are experiencing a “substantial business hardship.” Prior to the proposed regulations, a plan sponsor could suspend non-elective contributions under a safe harbor plan only by terminating the plan. The proposed regulations apply to both traditional safe harbor plans and those that qualify as “qualified automatic contribution arrangements” (QACAs), a type of automatic enrollment plan introduced under the Pension Protection Act of 2006 for plan years beginning in or after 2008. The proposed regulations mirror current regulations that allow sponsors of plans with safe harbor matching contributions to reduce or suspend such contributions mid-year.

Plan sponsors may rely on the proposed regulations immediately (i.e., effective for amendments adopted after May 18, 2009) pending issuance of final regulations. If the final regulations are more restrictive than the proposed regulations, the final regulations will only apply prospectively.

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On May 1, 2009, we reported that the Court of Appeals for the District of Columbia Circuit had just ruled that the National Labor Relations Board, which has functioned with only two of its five members since January 1, 2008, had lost its quorum and, as a result, had no statutory authority to issue any of the nearly 400 decisions that were released during the preceding 16-month period. Laurel Baye Healthcare of Lake Lanier, Inc., 2009 U.S. App. LEXIS 9419 (D.C. Cir. 2009).

On May 18, the NLRB issued a press release announcing that, notwithstanding the D.C. Circuit’s decision in Laurel Baye Healthcare, Chairman Liebman and Member Schaumber would continue to issue decisions in unfair labor practice and representation cases. The Agency emphasized that two other Courts of Appeal, the First and Seventh Circuits, had upheld the two-member Board’s authority to decide cases, and that the issue currently is pending review in seven other circuit courts.

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In a 7-2 decision, the United States Supreme Court has held that AT&T did not violate the Pregnancy Discrimination Act (“PDA”) when it based its calculation of employees’ pensions in part on a pre- PDA accrual rule that treated pregnancy leave less favorably than other forms of disability leave. AT&T Corp v. Hulteen, No. 07-543 (May 18, 2009). The Court’s decision reversed the Ninth Circuit and confirmed the presumption that discrimination statutes will not be applied retroactively.

Background

Plaintiffs were Noreen Hulteen and three other AT&T employees who had taken pregnancy leave before April 29, 1979, the effective date of the PDA. At the time they took leave, AT&T based employee pension benefits on a seniority system (i.e., a system based on length of service) that provided less service credit for pregnancy leaves than it did for other forms of temporary disability leave. When the PDA took effect, AT&T changed its system and began to provide full service credit for pregnancy leaves. It did not, however, retroactively adjust the accrued service credits of Plaintiffs or any other employees who previously had taken pregnancy leave. Therefore, when those employees retired, they received an overall pension amount that was less than it would have been if AT&T had afforded full service credit to their pre-PDA pregnancy leaves.

Plaintiffs and their union filed suit against AT&T in the Northern District of California alleging discrimination on the basis of sex and pregnancy in violation of Title VII of the Civil Rights Act of 1964, as amended by the PDA. Plaintiffs argued that it was unlawful for AT&T, in the present day, to apply a seniority-based pension system that incorporated antiquated pre-PDA accrual rules that had differentiated on the basis of pregnancy. Doing so, Plaintiffs contended, carried forward the old service credit differential so as to produce a disparate effect in the amount of the pension benefits of employees who had taken pre-PDA pregnancy leave. The district court agreed, holding that AT&T had engaged in unlawful pregnancy discrimination, and the Ninth Circuit, en banc, affirmed. Because the Ninth Circuit’s decision directly conflicted with rulings from other circuits, the Supreme Court granted certiorari to resolve the circuit split.

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According to Court of Appeals for D.C. Circuit Earlier today, the Court of Appeals for the District of Columbia Circuit ruled that the National Labor Relations Board, which has functioned with only two of its five members since January 1, 2008, is “not properly constituted” and has no decision-making authority. Laurel Baye Healthcare of Lake Lanier, Inc. v. N.L.R.B., No. 08-1162 (D.C. Cir., 5/1/09). At the same time, in another unfair labor practice case raising the identical issue, the Seventh Circuit agreed to enforce a Board Decision and Order issued by the two-member Board. New Process Steel L.P. v. N.L.R.B., No. 08-3517, et al. (7th Cir., 5/1/09).

As a result of term expirations and the election-year failure to make appointments to fill the three vacancies on the Board, an NLRB reduced to two members -- Chairman Wilma Liebman and Member Peter Schaumber -- has issued hundreds of decisions over the course of the last 16 months in both unfair labor practice and representation cases. Today’s ruling by the District of Columbia Circuit calls the validity of those decisions into question.

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The Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (“VEVRAA”) creates a variety of affirmative action obligations for employers with federal government contracts. The Act was amended in 2002 by the Jobs for Veterans Act (“JVA”). In May 2008, the Department of Labor finalized rules that implement changes to these obligations made by the JVA for employers with federal government contracts that are entered into or modified on or after December 1, 2003. Employers with federal contracts entered into before December 1, 2003 must continue to comply with VEVRAA’s pre-JVA requirements, and employers with contracts in both categories are required to comply with both the new and the old regulations.

Most of the affirmative action requirements set out in VEVRAA remain unchanged by the JVA. This Tip of the Month outlines several important requirements under VEVRAA, and highlights the key changes created by the JVA.

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As of this writing, the Centers for Disease Control and Prevention has confirmed 109 cases of the H1N1 virus, commonly known as swine flu, in the United States. The World Health Organization has confirmed 331 cases of swine flu worldwide and has raised the pandemic threat level to Phase 5 on its six-step scale (Phase 5 designation essentially means that infections from the outbreak that originated in Mexico have been jumping from person to person with relative ease). This Client Alert outlines a few of the myriad legal issues that employers may face with regard to swine flu. As every situation is different, employers are strongly encouraged to seek the advice of counsel with respect to any questions related to these issues. We are, of course, available to provide a more detailed analysis as to any of the matters discussed below or to advise on any other questions that you may have on pandemic flu planning and its implications for the workplace.

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On April 24, 2009, President Obama announced his intention to nominate Craig Becker and Mark Gaston Pearce to fill two of the three vacant positions on National Labor Relations Board.

The NLRB is comprised of five members appointed by the President who are subject to approval by the Senate Health, Education, Labor and Pensions Committee and confirmation by the full Senate. Board Members are appointed for a term of five years. The two current Board Members are Wilma B. Liebman (Democrat), who on January 20, 2009 was designated Chairman by President Obama, and Peter C. Schaumber (Republican), whose term expires on August 27, 2010.

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The U.S. Department of Labor’s (the “DOL”) Wage and Hour Division recently issued a Wage and Hour Opinion Letter, FLSA 2009-3, addressing how a company can compute overtime payments retroactively for salaried employees it had mistakenly classified as exempt (not overtime-eligible) under the Fair Labor Standards Act (“FLSA” or the “Act”). The DOL reiterated its support for the half-time methodology in calculating back overtime due, endorsing the so-called “fluctuating workweek” model on a retroactive basis for remedying the misclassification of salaried employees. This is a significant development and, in so deciding, the DOL has “weighed in” on an issue that remains a source of lively debate in the federal courts.

Generally, the FLSA requires that overtime pay be calculated weekly (notwithstanding that an employer’s payroll period might be semi-monthly or bi-weekly) and that employees receive one and one-half times their regular hourly rate of pay for each hour worked in excess of 40 hours in a workweek. Here, the employer paid a guaranteed salary bi-weekly and expected the employees to work a minimum of 50 hours per week. The employer’s payroll software even converted the bi-weekly salary to an hourly rate by dividing the salary by 100, without regard to whether the employees worked more or less than 100 hours in the payroll period. When the employer concluded that it had mistakenly classified certain salaried employees as exempt, it wished to pay them back overtime retroactively, using a half-time methodology, reasoning that the employees had already been compensated straight-time for each hour over 40 worked in the workweek.

The DOL agreed. Since the fixed salary covered all the hours the employees worked in a workweek, straighttime already was included in the salary covering the hours worked over 40 and, as a result, the employees needed only to be paid an additional one-half of their actual regular rate for each overtime hour. Important to the DOL’s decision was the fact that the fixed salary was paid to the employees even when they worked less than 100 hours in the bi-weekly payroll period.

The Opinion Letter is particularly noteworthy for its generous interpretation of the fluctuating workweek’s “clear mutual understanding” requirement which, heretofore, many had understood meant that there had to be a “clear and mutual understanding” at the outset of how salary and overtime would be calculated and paid for hours worked. According to this Opinion Letter, the “clear and mutual understanding” criterion does not need to be set forth in writing and intent can be inferred from the parties’ conduct that the fixed salary was compensation for all hours actually worked by the employee in a given week, rather than for a fixed number of hours per week – a stance that adopts the minority view among judicial decisions that have considered the issue.

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Recent changes in the legal and economic landscape have significantly heightened the risk that employers’ compensation systems will come under attack. Congress has passed the Lilly Ledbetter Fair Pay Act (“Ledbetter”), which effectively waives the statute of limitations for compensation discrimination claims under the majority of federal employment statutes. The law increases a plaintiff’s ability to recover for compensation discrimination, by placing into issue each and every decision impacting pay, starting from the date of initial hire, rather than just those decisions that occurred within statutory filing period. The law has made the issue of pay equity a hot button issue. Plaintiffs’ attorneys and government regulators are primed for attack.¹

The Obama administration also has brought the specter of increased EEOC and OFCCP enforcement activity, as well as the possibility of additional proemployee legislation in the pay discrimination arena. Of note is the Paycheck Fairness Act (“PFA”), which, if passed in its current form, would substantially amend the Equal Pay Act of 1963 and make it significantly easier for employees to establish unlawful pay discrimination. The PFA broadens the categories of employees that plaintiffs can claim as comparators for purposes of showing pay inequity; it sharply curtails the affirmative defenses available to employers; it makes it easier for plaintiff’s attorneys to bring large class-action lawsuits, and it permits uncapped compensatory and punitive damages. It also allows the OFCCP to use a simplistic and often inaccurate “pay grade methodology” when identifying federal contractors unjustly investigated and make it more difficult for them to defend against agency audits.

Coupled with these legal developments have been a rash of company layoffs, rising unemployment, and an increasing number of employees and former employees who face difficult financial plights. All of these forces make employee compensation discrimination lawsuits more likely. Conducting internal audits to identify disparities in compensation that might be subject to legal challenge, and appropriately addressing such disparities, is one of the best ways to prevent pay discrimination lawsuits and to place your organization in the most favorable position should they occur. This Tip of the Month provides guidance for in-house counsel and human resources executives when undertaking such audits.

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1} For more information on the Ledbetter Act see our Client Alert about it.

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Proskauer Prevails As The Court Holds That Collectively Bargained Agreements for The Arbitration of Statutory Discrimination Claims are Enforceable

On April 1, 2009, the United States Supreme Court, in a 5-4 decision, ruled in favor of Proskauer Rose’s client 14 Penn Plaza LLC, holding that a collective bargaining agreement (“CBA”) that clearly and unmistakably requires union members to arbitrate Age Discrimination in Employment Act (“ADEA”) claims is enforceable as a matter of federal law. The Court’s decision validates the right of an employer and a union to negotiate about the way disputes can be resolved, even when those disputes involve individual statutory rights. Accordingly, 14 Penn Plaza LLC. v. Pyett, is significant to all employers who have collective bargaining relationships.

Proskauer negotiated the CBA at issue on behalf of the Realty Advisory Board on Labor Relations, Inc., (“RAB”) and handled this litigation on behalf of 14 Penn Plaza — from the district court through argument of the matter before the Supreme Court by Paul Salvatore, co-chair of Proskauer’s Labor and Employment Law Department.

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