On October 7, 2011, Governor Brown signed AB 1396. The new law requires all employers doing business in California to draft written contracts for any agreements with employees that involve commissions as a method of payment for services. Commission wages are defined as compensation paid to any person for services rendered in the sale of an employer’s property or services and based proportionately upon the amount or value thereof.

               The deadline for employers to reduce all commission agreements to writing is January 1, 2013. In addition, employers must provide a signed copy of the contract to every employee covered by the commission agreement and obtain a signed receipt for the contract from each employee. There are no penalties associated with a violation of the new statute but presumably it could be a basis for suit under California’s Private Attorneys General Act (PAGA) and Unfair Competition Law.  

In addition to the new law, California already regulates the payment of commissions, the calculation of commissions and what happens with a commission upon termination/resignation. Ultimately, employers must draft written commission agreements by the deadline above and carefully review the terms of the documents to ensure they are clear and lawful.

In the latest effort to crack down on the misclassification of employees as independent contractors, California Governor Jerry Brown recently signed SB 459, a bill prohibiting any person or employer from “willfully” misclassifying workers as independent contractors. The bill also prohibits employers from charging a misclassified worker a fee or deducting from his pay for any costs related to his employment i.e., equipment, services, repairs, or fines. Employers who violate the new law will be fined between $5,000-$15,000 for each violation, in addition to any other penalties or fines. Employers engaged in a “pattern or practice” of violations are subject to fines up to $25,000 for each violation.

In addition, an employer who violates the new law must post a notice to employees on its Internet website, or, if it does not have a website, another prominent area.  The notice must provide the following information: (1) the employer violated the law; (2) the employer changed its business practices to avoid committing further violations; (3) the contact information for the state Labor and Workforce Development Agency to report other violations; and, (4) the employer was ordered to post the notice. SB 459 reinforces the importance of appropriately classifying independent contractors under California and federal law. Employers should also be aware of the mine field of other violations under various laws with respect to misclassification of independent contractors.

California has changed the rules for when an employer may obtain and use credit reports. Effective January 1, 2012, California will impose significant restrictions on an employer’s ability to obtain a credit report for employment purposes. 

California Assembly Bill 22, signed by Governor Jerry Brown, generally permits employers who are seeking to fill only specific, identified “exempt” positions to obtain and use credit reports to screen applicants and/or current employees.  The use of the credit reports in other occupations generally is prohibited.  Further, employers will be required to provide the employee or applicant with a disclosure statement setting forth the specific basis permitting the employer to obtain a credit report.  (Six other states currently have laws restricting employers’ use of credit reports: Connecticut, Hawaii, Illinois, Maryland, Oregon, and Washington.)

Credit reports may be obtained only if the position to be filled falls into one of eight “exempt” categories:

  1. Positions with the state Department of Justice;
  2. Managerial positions, i.e., employees who qualify for the “executive exemption” under California wage and hour law; 
  3. Sworn peace officers or other law enforcement personnel;
  4. Positions where the information sought in the credit report must be revealed by law;
  5. Positions that involve regular access to the personal information of others (i.e., bank or credit card account information, social security numbers, dates of birth), other than the regular solicitation of credit card applications at a retail establishment;
  6. Positions requiring the employee to be a named signatory on the employer’s bank or credit card or otherwise authorized to enter into financial contracts on behalf of the employer;
  7. Positions involving access to confidential or proprietary information of the employer; and
  8. Positions that involve regular access to $10,000 or more in cash.

Credit reports also may be obtained for employees of financial institutions subject to Sections 6801-6809 of the United States Code.  Technically, such businesses are not required to disclose the statutory support for obtaining a credit report.

California employers also are reminded that Senate Bill 909 is effective January 1, 2012.  This enactment requires employers to disclose to the subject of an investigative consumer report the website address, or, if there is no website, the telephone number of the investigative consumer reporting agency where the employee may find information about  the agency’s privacy practices.  The investigative consumer reporting agency also will be required to conspicuously post information regarding its privacy practices on its website or make such information available by mail. California employers should ensure that they modify any practice of obtaining and using credit reports to comply with this new enactment.

 

California’s Supreme Court will issue its long-awaited decision in its Brinker Restaurant Corporation meal and rest period case within the next four months. The Court will hold oral arguments in the case on November 8, according to an announcement the Court issued on October 4. The Court granted review in the case in October 2008.

The oral argument date sets the 90-day period within which the Court must issue a decision. Under California law, Supreme Court justices will not be paid when a case has been “submitted” for more than 90 days without a ruling. A case is deemed “submitted” as of the close of oral argument – meaning a decision must issue by the end of January 2012.

The Court will decide in Brinker Restaurant Corp. the meaning and requirements of California’s rules on meal and rest periods. The eventual decision also likely will have a significant impact on class certification rules in the state.

Most California employers know they must provide meal periods for employees who will work more than five hours. Most understand California law dictates that when a meal period is required, the meal break must be at least 30 uninterrupted minutes long, with the employee relieved of all duty. And most California employers know state law also calls for them to give employees opportunities to rest during the work day.

But just when during the work day should the meal break be given? Is there any flexibility in the timing of the meal period? What if an employee prefers to take her break earlier, or later – or maybe not at all? And must the employer force employees to stop working for meal periods, even where an hourly employee prefers to work through lunch?  

California’s Supreme Court is set to address these questions in the Brinker Restaurant Corp. case. The court of appeal in that case vacated a trial court order certifying a class of restaurant workers who contended their employer had caused them to take meal periods too early or too late in the work day, misplaced the timing of rest breaks, and made employees work “off the clock” – working time without getting paid for it. See Jackson Lewis article describing the case and the issues entitled, Special Report: Have Your Meal and Time to Eat It, Too! California Courts and the Law on Meal and Rest Breaks: 

The Brinker Restaurant Corp. case has received considerable attention from the business community and from the labor and employment bar. Its outcome will affect every employer of workers in California, and most employees as well. Stay tuned – we will continue to provide updates regarding this important development.

California courts continue to build on the Ninth Circuit’s recent decision regarding the California Learned Professional Exemption.  A California appellate court found a law clerk as exempt from state and federal overtime provisions who had not passed the California Bar Exam but graduated from law school.  Zelasko-Barrett v. Brayton-Purcell, LLP, 2011 Cal. App. LEXIS 1080 (Cal. App. 1st Dist. Aug. 17, 2011). 

On June 15, 2011, the Ninth Circuit breathed new life into the California Learned Professional Exemption when it decided Campbell v. PricewaterhouseCoopers LLP, 9th Cir., No. 09-16370, 6/15/11. See blog entry, "The Ninth Circuit Has Revitalized The California Learned Professional Overtime Exemption and Remanded To A Jury Key Issues Under The Administrative Exemption"

Historically, overtime disputes regarding the use of the Learned Professional Exemption have centered in particular fields, such as engineering or, more recently, accounting . On August 17, 2011, the Court of Appeal for the First Appellate District considered and rejected a challenge to the application of the California Labor Code’s Learned Professional Exemption in the legal field. Zelasko-Barrett v. Brayton-Purcell, LLP, 2011 Cal. App. LEXIS 1080 (Cal. App. 1st Dist. Aug. 17, 2011).

In Zelasko, the Defendant firm utilized law students and law school graduates who had not yet passed the bar in the positions of Law Clerk I and Law Clerk II, respectively. Plaintiff held the Law Clerk II position prior to his admission to the bar for approximately 2 years, then moved on to the position of Associate Attorney. The Marin County Superior Court held that the plaintiff was properly classified as exempt when he held the position of Law Clerk II. 

Observing that the “federal regulations after which [the California learned professional exemption] was explicitly patterned . . . condition the learned professions exemption under federal law upon completion of an advanced course of education, not upon licensure,” the appellate Court ruled that possession of the degree, along with Defendant’s undisputed evidence that a Law Clerk II was required to perform all the same duties as a junior attorney, satisfied the exemption’s requirements.

Zelasko is an encouraging result for all employers since more California courts are now applying the principals set forth in the Ninth Circuit’s decision in Campbell v. PricewaterhouseCoopers LLP. Employers should always ensure that employees classified as exempt are properly classified under federal and state law.

Written by Noel Tripp

For the first time, a California appellate court has addressed when paid leave offered as a sabbatical is considered “paid vacation.” The distinction is important because California has long held that separating employees must be paid for any accrued “paid vacation," whereas leave granted as part of a true sabbatical may be forfeited if not used prior to separation.

In Paton v. Advanced Micro Devices, Inc. No. H034618 (6th App. Dist., Aug. 5, 2011), the appellate court emphasized that a sabbatical is more than additional vacation time. To qualify as a sabbatical, the paid leave must be “intended to retain the most experienced or valued employees or to enhance their future service to the employer.” Altering the Labor Commissioner’s test for a sabbatical, Paton found four factors distinguish a sabbatical from regular paid vacation:

 

1.      A sabbatical is granted infrequently (noting that once every seven years is the traditional frequency);

2.      The length of the leave is sufficient to achieve the purpose of the sabbatical—and when no conditions are set regarding how an employee spends his or her sabbatical, the length of leave should also be longer than that normally offered as vacation;

3.      A sabbatical is granted in addition to regular vacation; and

4.      The sabbatical program incorporates a feature that demonstrates the employee is expected to return to work after the leave is over.

 

Paton makes clear that employers must carefully consider whether sabbatical programs meet the new test. Any employer with a sabbatical program should document the purpose(s)/goals of the program and administer the program consistent with the identified purposes, noting that sabbaticals with no conditions on how the employee uses the leave (similar in nature to vacations) must meet additional standards. While general guidance can be gleaned from the specific facts in Paton, the court noted that the validity of each sabbatical program "will have to be decided on its own facts." Thus, employers should carefully review all of the circumstances associated with their particular sabbatical programs to ensure they are true sabbaticals.

  

In a recent pro-employer decision, the California Court of Appeals held that California’s exemption from overtime requirements for commissioned employees applied to a car sales consultant and the decision provided flexibility for employers when crafting commission plans. Areso v. Carmax, Inc., 195 Cal. App. 4th 996 (Cal. App. 2d Dist. 2011). In Areso, the plaintiff received a fixed dollar amount for each sale of a car and a percentage of the purchase price for accessories sold. The trial court granted summary judgment for defendant, holding that plaintiff was properly classified as exempt and the Court of Appeal affirmed.

The Carmax decision is significant because it rejects the California Division of Labor Standards Enforcement’s traditional guidance that a commission must be a percentage of the actual sales price. Rather, Carmax holds that compensation under fixed incentive systems, which provide a uniform dollar payment for each product or service sold, may constitute commission wages. For more information on this case and its impact on California wage and hour laws, please see “California Court of Appeal Upholds Applicability of State Commission Exemption to Sales Consultant.”

The following is a reminder about a wake-up call to employers. The California Fair Employment & Housing Commission (“FEHC”) issued a decision which held that an employer can be liable for failing to take all reasonable steps to prevent discrimination and harassment even if there is no underlying discrimination or harassment. Department of Fair Employment and Housing (DFEH) v. Lyddan Law Group, LLP. 

In this case, a paralegal alleged that her supervisor sexually and racially harassed her. The FEHC found that alleged conduct did not constitute sexual or racial harassment. However, the employer was found liable in failing to take all reasonable steps to prevent discrimination and harassment from occurring. The employer: (1) did not have a written anti-harassment policy; (2) did not conduct trainings for its managers or employees in harassment or discrimination prevention; and, (3) failed to investigate after the paralegal complained of the harassment.

The FEHC is a quasi-judicial administrative agency which enforces California civil rights and other laws regarding discrimination in employment, housing, and public accommodations. The FEHC conducts hearings and issues administrative decisions in cases prosecuted before it by the California DFEH. If it finds an unlawful practice occurred, it can order a range of remedies including back pay, compensatory damages, administrative fines and civil penalties, injunctive relief, and reinstatement. The FEHC’s decision can be appealed to California Superior Court for review.

What does this mean to employers? Employers may be liable for failing to take all reasonable steps to prevent discrimination and harassment, even if there is no underlying discrimination or harassment according to the FEHC. The administrative case further reinforces the importance of employers to maintain written anti-harassment policies, conduct trainings for managers and employees in harassment and discrimination prevention, and timely investigate claims of such conduct.

 

California based employers who send workers from other states into California must pay  the employees pursuant to California law, not the law of the state where those employees reside, according to the California Supreme Court ruling in Sullivan v. Oracle Corp. (SC  S170577 6/30/11).  The Supreme Court’s decision is a mixed bag of chocolates in that the Court went to great lengths to try to limit its holdings to employers headquartered in California but may have left the door open for litigation regarding employers headquartered in other states who send workers into California. The plaintiff’s bar may seize upon such statements by the Court as:

To permit nonresidents to work in California without the protection of our overtime law would completely sacrifice, as to those employees, the state’s important public policy goals of protecting health and safety and preventing the evils associated with over work . . . Not to apply California law would also encourage employers to substitute lower paid temporary employees from other states for California employees, thus threatening California’s legitimate interest in expanding the job market.

 

What is clear is if you are an employer headquartered in California and have employees residing in other states, you have to be sensitive that those employees must be paid pursuant to California law if they enter California for a full day or more.

This decision will affect perhaps thousands of workers sent from out of state to work on assignments in California for days or weeks. The greatest impact will be on non-exempt workers who will be entitled to daily overtime, a rarity in most other states.

Specifically, California’s highest court ruled that (1) the California Labor Code applies to overtime work performed in California for “a California-based employer” by out-of-state plaintiffs “in the circumstances of this case;” (2) California’s Business and Professions Code section 17200 (Unfair Competition Law) applies to such overtime work performed in California by out-of-state plaintiffs; and, (3) Section 17200 does not apply to overtime work performance outside of California for a California-based employer by out-of-state plaintiffs in the circumstances of the case if the employer failed to comply with FLSA overtime provisions.

The Court limited its holding to Labor Code provisions governing overtime and expressly stated California’s interest in the content of out-of-state pay stubs, or treatment of vacation time was not at issue.   All employers who send non-exempt, out of state employees to work in California should seek legal advice regarding the impact, if any, of this decision on the employer’s procedures. The decision also may be an ominous sign for employers with respect to how the Court may rule in the meal and rest break cases pending before the Court.

 

Cynthia Filla, Robert Pattison and Jonathan Siegel drafted this blog entry

Agricultural employers received a victory when Governor Brown vetoed SB 104, the controversial bill which would have made it dramatically easier for unions to organize employers subject to the California Agricultural Labor Relations Act (“ALRA”). SB 104 was patterned, in part, after the Employee Free Choice Act which has stalled in Congress. SB 104 would have permitted unions to be recognized as the exclusive bargaining representative of the targeted employees if the union provided the Agricultural Labor Relations Board (“ALRB”) with representation cards signed by a majority of the bargaining unit. The ALRB would have been required to certify the union as the exclusive bargaining representative for the employees without a secret ballot election or the ALRB could have provided the union 30 days to obtain additional cards if there was an issue regarding the cards submitted.

Although Governor Brown reminded the public that he signed into law the ALRA in a prior administration, the Governor acknowledged that SB 104 failed to balance the rights of employers. Specifically, the Governor stated:

 

SB 104 is indeed a drastic change and I appreciate the frustrations that have given rise to it. But, I am not yet convinced that the far reaching proposals of this bill–which alter in asignificant way the guiding assumptions of the ALRA—are justified. Before restructuring California’s carefully crafted agricultural labor law, it is only right that the legislature consider legal provisions that more faithfully track its original framework. The process should include all those who are affected by the ALRA. I am deeply committed to the success of the ALRA and stand ready to engage in whatever discussions—public and private—that will accomplish the appropriate changes.

 

See Governor Brown’s veto statement. Employers subject to the ALRA can celebrate during the Independence Day weekend knowing, at least for now, Sacramento recognized that there should be a fair balance between the rights of employers and employees.