By Daniel E. Gardenswartz, Esq. | Published: December 21, 2007
As we do each year, our employment and labor law practice group has surveyed recent legislative and judicial developments which may affect your organizations employment practices and procedures.
This list is not meant to be exhaustive. Rather, it is intended to highlight several of the significant developments in the law that California employers should be aware of in 2008 and beyond. In light of these changes, now is a good time to review your current employment policies and procedures to ensure that your organization remains in compliance with California and Federal employment laws. By reviewing and modifying your employment policies, you will help to minimize the frequency and costs of employment-related disputes. As always, if you have any questions about the contents of this update, or you would like to discuss your organization's employment policies and procedures, please feel free to contact us.
LEGISLATIVE ENACTMENTS
On the legislative front, the 2007 session saw little significant changes for California employers. In October, Governor Schwarzenegger vetoed the vast majority of labor and employment bills sent to him by the Legislature. However, because we are approaching an election year, it is likely that some of the vetoed employment-related legislation may be resurrected in 2008. Following is a summary of the significant employment legislation that California employers should be aware of.
Leave for Military Spouses (A.B. 392)
Effective immediately, employers with 25 or more employees must allow a spouse of certain members of the armed forces, National Guard, or Reserves, deployed during military conflict, to take up to ten days of unpaid leave when the service member's spouse is home on leave. Employees qualify for this leave provided that they work at least 20 hours a week. For an employee to exercise his or her rights under this new law, within two days of receiving official notice that the employee's spouse will be home, the employee must notify his/her employer of his/her intent to take a leave of absence. In addition, the employee must submit official written documentation certifying that his/her spouse will be home during the period in which he/she has requested leave.
If your organization has 25 or more employees, you should update your employee leave of absence policies and procedures to reflect this new law. So as to avoid any confusion, it is also advisable that the employees' obligations under A.B. 392 are also included.
Decreased Hourly Rate Requirement for "Computer Professional Exemption" (S.B. 929)
This year the Legislature amended California Labor Code Section 515.5, which sets forth the requirements for a "computer professional" to qualify as an exempt employee for the purpose of overtime and wage/hour regulations. As of January 1, 2008, the minimum hourly rate of pay for a computer professional has been decreased from $41.00 per hour to not less than $36.00 per hour, with an understanding that this amount may be adjusted in future years. Under this new law, a computer professional who earns an income that ultimately amounts to $36.00 an hour or more, can lawfully be classified as an exempt employee, so long as the employee satisfies the other requirements to classify an employee as an exempt computer professional.
If your organization employs any "computer professionals," this is a significant development. If you are unsure whether any of your employees fall under Labor Code Section 515.5, it is recommended that you contact our employment law group.
Notification of EITC Credit Eligibility (A.B. 650)
Under this new law, employers must notify employees that they may be eligible for the Federal Earned Income Tax Credit ("EITC") within one week, before or after, the employee is given his/her annual wage summaries (e.g. W-2 forms or 1099s).[1] A.B. 650 offers recommended language for this annual notice. In addition, the notice must clarify that those who receive the EITC do not necessarily jeopardize governmental benefits, such as Medicare and Temporary Assistance for Needy Families payments. Finally, the statute requires that every employer process, at the request of the employee and in accordance with federal law, Form W-5 for the advance payment of the EITC. The requirements of A.B. 650 apply to all companies that have employees in California.
Please note that an employer may not satisfy the new EITC notice provisions by merely posting notification on an employee bulletin board or sending it through office mail. Rather, employers must either send out this notice to their employees' last known addresses or hand deliver the notice directly to each employee.
Changes in Workers' Compensation Law
The Governor made several modifications to the state's workers' compensation scheme. For example, the new workers' compensation laws extend the time period from two to five years during which an injured worker can receive aggregate disability payments. In addition, the Labor Commissioner may now post on its website the names of any companies found to be illegally without workers' compensation insurance. Similarly, employers who fail to cooperate with a workers' compensation carrier's payroll audit request may be penalized by having their premiums tripled.
Hands Free Law Effective July 1, 2008
On July 1, 2008, California drivers will be prohibited from using cell phones unless they have engaged a hands-free device. Commercial drivers are exempt from this law until July 1, 2011. If an employee must use a cell phone while driving on "company business" (a practice we discourage), it is imperative that before July you not only review this new law with your employees, but consider purchasing hands-free devices. Because courts have yet to test the implications of this new law, especially as it relates to an employer's vicarious liability for torts committed by its employees, we continue to advise our clients that they should prohibit, in writing, the use of cell phones while driving for any work-related activities.
Itemized Wage Statement Amendment Effective July 1, 2008
Under a law signed by the Governor in 2005, as of July 1, 2008, employers may no longer include an employee's entire social security number on wage statements. Employers may include a unique identifier separate from an employee's social security number, or the last four digits of an employee's social security number. If it is your organization's practice to include nine digit social security numbers on wage statements, we advise that as soon as possible, you change this practice so that you have worked out any glitches prior to July 1st.
Minimum Wage Increase
Effective January 1, 2008, the minimum wage in California will increase from $7.50 per hour to $8.00 per hour. On a related note, if you have not already done so, it is recommended that before the first of the year you update your employee bulletin board posters which can either be purchased in laminated form from various third-party vendors or can be downloaded from the Department of Industrial Relations' website at www.dir.ca.gov/WP.asp.
Revised I-9 Forms
Beginning December 26, 2007, all employers, regardless of size, will be required to fill out the revised I-9 Immigration forms for each new employee. You can find copies of the revised forms at the following website: www.uscis.gov/files/form/i-9.pdf.
JUDICIAL DEVELOPMENTS
In contrast to the dearth of legislative developments over the past year, 2007 saw several notable employment-related judicial decisions. Following are several of these decisions.
Missed Meal and Rest Breaks are "Wages" Not "Penalties"
In a unanimous decision, the California Supreme Court in Murphey v. Kenneth Cole Productions held that payments due to employees under Labor Code Section 226.7 for missed meal and rest breaks are wages and not penalties. Because they are considered wages, employees who make claims for missed meal and rest breaks may reach back for four years in making any "missed" meal period calculations rather than be bound by the one year statute of limitations for "penalties."
In addition, under Murphy, employees may be entitled to punitive damages based on an employer's failure to remit the "pay remedies" due to an employee (or more likely a class of employees) who fails to take meal or rest breaks.
Murphy is but one more reminder over the past several years that employers must pay serious attention to California's meal and wage hour laws. In order to protect your organization from potentially costly lawsuits, we advise that you regularly remind your non-exempt employees that they are required to take their meal and rest breaks.[2] In addition, it is important that your organization document when employees take their meal and rest periods.
The Future of Class Action Waivers in Pre-Employment Arbitration Agreements
Employment class action lawsuits can be devastating for employers. In an attempt to limit the threat of class actions, many employers have requested that their employees agree to pre-employment agreements waiving the employee's right to be represented in a class action. In a split four to three decision, the California Supreme Court ruled in Gentry v. Circuit City that a class action waiver cannot be enforced where the claims at issue may not be waived as a matter of law, and where a class action would be a "significantly more effective means" of resolving the claims at issue.
The court in Gentry did not invalidate all class action waivers, nor did it question the validity of arbitration clauses in employment agreements. Yet, the fallout from Gentry may mean that despite some employers' efforts to keep employee grievances outside of the class action juggernaut, courts may nonetheless find that a class action is a superior method of resolving employment disputes.
In light of the Gentry decision, employers should seize the opportunity to review their pre-employment agreements. If your organization does not currently have an arbitration clause in your pre-employment agreement, you may want to consider including one in the future. If you have an arbitration agreement, it is important that you review it to ensure that the agreement does not contain any provisions that may be deemed invalid (one of the problems for the defendant in Gentry is that the arbitration clause limited statute of limitations to one year and punitive damages to no more than $5,000). Lastly, and perhaps most important, if you would like to have your employees enter into a separate pre-employment class action waiver, it is advisable that you remind employees that they have a right to opt-out and seek counsel prior to entering into the agreement.
Under a Profit Sharing Plan, an Employer May Decrease Earnings for Losses Caused by Employees
In an important decision, the California Supreme Court held that Ralphs Grocery's profit- sharing plan did not violate California's long-standing prohibitions against deducting from an employee's wages the costs of routine accidents, loss of equipment, cash register shortages, and workers' compensation costs. In support of Ralphs' plan, the court held that some profit-sharing plans do not violate the law where certain costs are deducted from revenue in order to determine the amount of bonus profits per employee.
Employers should be mindful of the fact that the Ralphs' decision did not deal with earned wages. In other words, while the court held that Ralphs could make a determination concerning what employees must do to earn a future bonus, the decision does not allow an employer to make an after-the-fact reduction in an employee's wages or bonus due to company losses. In addition, this case was rather fact-specific, in that the bonus portion of the employee's compensation was a relatively small part of his/her overall wage. A court may still in the future invalidate a bonus or commission plan that provides a more substantial portion of the employee's wages. Nevertheless, this decision is a positive step as it allows employers to continue to seek new and innovative ways to increase employee morale and productivity.
Employers May Make a "Lump Sum" Payment in Lieu of Actual Reimbursement
In a unanimous decision, the California Supreme Court held in Gattuso v. Harte-Hanks Shoppers, Inc. that an employer does not have to reimburse work-related expenses separately, but rather, may cover these expenses by paying higher wages or salaries.
Gattuso deals with a scenario common to many employees. In this case, rather than mandating that employees submit detailed expense requests, the employer simply offered some of its sales employees a "lump sum" payment each month.
In its ruling, the court held that employers may be flexible in the way they reimburse their employees for employment-related expenses. Nevertheless, the court made it clear that whatever method an employer adopts, the employer must fully reimburse employees for "all expenses actually and necessarily incurred." According to the court, an employer who pays higher wages to cover expenses "must also communicate" to its employee the "method or basis" for apportioning amounts paid between wages and expenses. Such communication should be made before the employee begins charging expenses to his/her employer.
While the court made clear that an employer must fully reimburse employees for the actual cost of expenses incurred, it noted that an employer may consider not only the actual expenses, but in addition, whether those expenses were "necessary," which depends on the "reasonableness of the employee's choices." In other words, while an employee may insist on actual reimbursement rather than the standard IRS mileage rate or a "lump sum" payment, the employer may base the amount it is willing to compensate its employee on the "reasonableness" of the employee's expenses.
CONCLUSION
Going into the new year, California employers should be mindful that despite the relative slowdown on the legislative front, courts are continuing to provide employees new opportunities to air their grievances. Fortunately, there remain numerous preventative strategies employers can implement to in some cases prevent, or at least lessen, the impact of costly employment-related lawsuits.
To the extent the above changes affect your business, we suggest that you amend your employment policies, practices, and procedures. Our labor and employment law group will gladly assist you in this regard, and answer any questions or concerns you may have related to your organization's employment practices and polices. May the new year bring you and your organization continued success.
