As the temperature outside heats up, we hope this newsletter will help you “keep cool” when trying to understand and apply California employment laws.

This edition includes a discussion of several interesting and important new employment laws including the new IRS Mileage Reimbursement Rate. It also contains summaries of a few noteworthy cases.

Also in this issue, we introduce our “Timely Reminders” section, which will provide you with useful tips and information about California wage and hour practices and requirements.

On June 23, 2008 the IRS announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes instead of tracking actual mileage and costs for reimbursement purposes.

The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through December 31, 2008.

While gasoline is a significant factor in the mileage reimbursement rate, other items enter into the calculation as well, such as depreciation and insurance and other fixed and variable costs.

Employers are reminded that the Labor Commissioner has always required employers to reimburse employees for business miles driven at the IRS mileage rate in order to comply with Labor Code §2802 which provides that an employee must be reimbursed for reasonable expenses incurred in the course of conducting business. However, as previously reported, the California Supreme Court ruled in Gattuso v. Harte-Hanks that the reimbursement rate does not have the be the IRS mileage rate but can be negotiated by parties as long as it fully reimburses the employee.

The Court in the Gattuso case stated that as with other terms and conditions of employment, a mileage rate for automobile expense reimbursement may be a subject of negotiation and agreement between employer and employee. However, any agreement made by the employee is null and void if it waives the employee's rights to full expense reimbursement under section 2802.

• Require all employees who do not receive a mileage allowance to track their mileage;

• Reimburse all mileage at the new IRS rate.

Effective July 1, 2008, the new cell phone law will become effective. The law will apply to anyone driving in California, even out-of-state drivers whose home states do not have such laws.

The law provides:

• Drivers 18 years of age or older cannot use a cell phone while driving, unless it is designed and configured to allow hands-free listening and talking operation (ear piece or speaker phone).

• Drivers under the age of 18 are completely prohibited from using a cell phone while driving, even with a hands free device.

The new law contains no prohibitions relative to dialing or texting.

A base fine of $20 will be issued for the first offense and $50 for each subsequent offense. While these violations will appear on driving records, the DMV will not assign a violation point on an individual’s drivers license.

There are exceptions for calls to law enforcement agencies or emergency personnel. There are also exceptions for drivers on private property, and (until July 1, 2011) truck drivers, farm vehicles, and two-way wireless and push-to-talk radios.

• Implement written policies that require use of a hands free device.

• If you require an employee to have a cell phone to conduct business, you should

provide them with a hands-free device or update their phones to ensure that they are compatible with a hands-free device and/or a speaker phone.

• Strictly enforce your cell phone policy.

• Keep in mind that while hands-free headsets may satisfy legal obligations, they are not a cure-all. Any driver talking on a cell phone is distracted by virtue of the call itself, let alone dialing or searching for a phone number.

• Employees should be strongly urged not to dial or text while driving, for obvious reasons. A driver can be cited for unsafe operation of a vehicle as the result of dialing or texting.

In November, 2007, the IRS launched the Questionable Employment Tax Practice (“QETP”) initiative as part of its intent to crack down on employers who try to avoid paying employment taxes. A unique aspect of this initiative is that the IRS is partnering with the numerous state agencies to reduce fraudulent filings, uncover employment tax avoidance schemes and ensure proper work classifications.

As an example, the IRS is working with the California Employment Development Department (EDD) to promote the exchange of audit reports and plans, and to create a way for state and federal audit agencies to participate in side-by-side examinations.

Also, employers’ Form 1099 and Form W-2 filings will receive heightened attention in an effort to increase collection of federal and state employment/unemployment tax debts.

State and federal auditors will work together to scrutinize independent contractor agreements, with resulting tax penalties where mis-classifications are discovered. It is also worth noting that in addition to these new tax penalties, employers who incorrectly classify workers as independent contractors face other obligations that are applicable to employees, such as wage and hour and workers’ compensation requirements.

On January 1, 2008 this new Act took effect which imposes a penalty upon any person or business entity that knowingly assists an individual with evading child support obligations. The state will look for under the table-cash or barter agreements and the misclassification of employees as independent contractors as a way to avoid wage garnishment obligations.

The law holds both the person and the entity who assists in child support avoidance with liability of 10 times the value of the assistance provided, up to the total amount of the unpaid child support obligations. Under the Act, employers will be found liable if they knowingly mis-classify or fail to report an employee to assist in efforts to evade child support obligations.

The California Department of Industrial Relations (“DIR”) recently launched the “Insurance Coverage Program”, which is an enforcement program intended to identify and target employers who fail to carry workers’ compensation insurance.

Under state law, all employers are required to purchase workers’ compensation insurance or file a certificate to self-insure. The DIR’s Division of Labor Standards Enforcement (“DLSE” - the Labor Commissioner’s Office) is charged with identifying and targeting violators. Senate Bill 869, signed into law by the Governor last year, authorizes DIR to use funds from the Workers’ Compensation Administration Revolving Fund for the enforcement of this new program. Any penalties collected will be credited back to the fund.

One way that noncompliant employers will be identified is by matching data from various agencies such as the Employment Development Department, Uninsured Employer’s Fund, rating agencies licensed by the Insurance Commissioner, and other agency sources. The new law also requires the Labor Commissioner to create and post a report on the division’s website on an annual basis.

Assembly Bill 2127 will allow a small employer (25 employees or less) to agree to an employee’s request to work an alternative work schedule, in order to promote flexibility and help accommodate employees’ various obligations outside of work, such as family obligations, personal pursuits, commuting issues and also environmental concerns. The bill applies specifically to small business that are not covered by collective bargaining agreements. The goal of this Small Business Scheduling Option is to give a leg up to employers who are struggling to find qualified employees in today’s shrinking labor market.

Senate Bill 1539 aims to provide clarity and flexibility to employers and employees across all industries who are struggling to comply with the confusing meal period requirements. Currently, for example, there is confusion over when the meal period should commence, whether the employer is subject to a penalty any time an employee fails to take a meal period, or whether the employer is only required to “provide” a meal period. Other issues that require clarification are whether a business can qualify for an on-duty meal period, whether there has to be individual agreements for each meal period waived, or whether blanket waivers are permissible, along with other issues that have led to inconsistent enforcement of the rules.

A California Court of Appeal recently granted a new trial to an employee who claimed he was denied promotions because of his marriage to a co-worker.

Terry Dickson had worked for the California Department of Corrections for 13 years when he married one of four associate wardens at the prison. Over the next several years, Dickson repeatedly applied for and was denied promotions to associate warden, despite excellent performance reviews and other commendations. He eventually sued his employer and the chief deputy warden, alleging that he was subjected to discrimination based on his marriage to a co-employee.

In presenting the employer’s defense, the chief deputy warden had relied partly on the Department’s anti-nepotism policy which precluded having a married couple report to the same supervisor. The jury found no discrimination against the employee.

In analyzing the law regarding anti-nepotism policies and marital status discrimination, the Appellate Court noted that anti-nepotism policies do not automatically violate California law. Instead, a violation may occur where the employer applies its policy “automatically” without any consideration of the particular circumstances to determine whether spouses can be permitted to work in the same department, or otherwise be accommodated.

An employer’s obligation is to make a reasonable attempt to provide its married workers with opportunities equal to those available to other employees. (Dickson v. California Department of Corrections and Rehabilitation)

• Remind your managers and supervisors that discrimination is not just about age, race and sex but also includes all other protected classifications. Employees are protected from being discriminated against based on their marital relationship.

• Review your “Hiring of Relatives” or anti-nepotism policies to ensure that they do not automatically prevent married couples from receiving promotions or working in certain positions. Employers must assess the situation to and make reasonable efforts to accommodate them.

• If these situations arise, carefully document your accommodation attempts, and if you decide that accommodation is not possible, make detailed documentation of the reason.

TEMPORARY WORKER DEEMED “EMPLOYEE”

Employers who contract with temporary employment agencies may be held liable for violations of the California Fair Employment and Housing Act (“FEHA”), according to the recent California Court of Appeal decision in Bradley v. California Department of Corrections and Rehabilitation.

Bradley was assigned as a temporary employee at a California prison under a contract between the California Department of Corrections (“CDC”) and a placement agency. (Yes, the Department of Corrections gets sued often!) She sued CDC for sexual harassment under the FEHA and the jury issued a verdict in her favor. CDC appealed.

A major issue on appeal was whether Bradley, as a temporary employee, had standing to sue CDC under California law for harassment. The courts held that Bradley was considered a “special employee” of CDC and thereby entitled to legal protection under FEHA.

The Court analyzed the definition of “employee” under the regulations developed by the Fair Employment and Housing Commission and found the language broad enough to deem Bradley an employee.

• Review your contracts with temporary placement firms to determine whether specific language exists to define who is the “employer”. A joint-employer relationship may be created when contracting with employment agencies to hire temporary workers, making both the temporary agency and the company potentially liable for harassment and discrimination claims.
• Be vigilant about enforcing your policies against harassment and discrimination.

• Employers need to educate all individuals working on their premises about the prohibitions against harassment and discrimination and about the procedures for reporting violations.

On April 7, 2008, the California Supreme Court decided Lonicki v. Sutter Health Central, a case involving an employee who claimed major depression and work-related stress. When the employee coming to work and requested medical leave, the employer did not believe that she had a qualifying serious health condition and ordered her to return terminating her when she did not report back to work. After the employee sued, the California Supreme Court addressed two issues:

First, the Court considered whether the employer’s failure to invoke the CFRA’s dispute resolution mechanism of having a healthcare provider jointly chosen by the employer and employee determine the employee’s entitlement to leave prevented the employer from later claiming that the employee did not suffer from a serious health condition and could perform her job. The Court answered “No.” Therefore, the Court rejected the employee’s position that her employer must seeka tie-breaking third opinion or forever gives up its right to argue that the employee was not qualified for leave in the first place.

Next, the Court asked: if a full-time employee, during the period in which medical leave was sought, continued to perform a similar job for another employer on a part-time basis, does that conclusively establish the employee’s ability to do the job for the original employer? The Court decided that, although the part-time job is evidence of the ability to do similar work for the original employer, that evidence is not conclusive. Therefore, the Court determined that the jury had to decide whether the employee’s testimony about differences between the two jobs was credible.

• Lonicki is a helpful reminder that you must carefully evaluate whether an employee who requests leave under the CFRA (or the federal FMLA) is entitled to take it, including whether the employee has a qualifying “serious health condition.’ Even though a tie-breaking opinion is not required in California, mistakes can be costly. Also, the issue of a neutral third-party opinion is still undecided in terms of the FMLA.

• Lonicki also emphasized that the CFRA and FMLA only permit a limited inquiry into an employee’s medical issues, unless the employee consents to broader disclosure. Therefore, employers are cautioned to gather pertinent information, but not to overreach by intruding into the employee’s medical privacy.

Most non unionized employers are unaware that certain provisions of the National Labor Relations Act (“NLRA”) apply to them. In a recent decision, the California Court of Appeal ruled that a non union employer who forbids employees from discussing their working conditions may violation provisions of the NLRA.

In Luke v. Collotype Labels, USA, Inc., Luke sued his employer for wrongful termination in violation of

public policy after he was discharged for encouraging his co-workers to discuss with him their complaints about various working conditions. The public policy at issue is based on California Labor Code §232.5, which prohibits employers from discouraging employees from discussing their working conditions.

The Court of Appeal determined that Luke’s activities were in fact protected concerted activity under the NLRA. Generally, Section 7 of the NLRA guarantees employees the right to self-organize and to engage in other “concerted activities” for their mutual aid and protection. Section 8 of the Act makes it an unfair labor practice for an employer to interfere with employees’ Section 7 rights.

Regardless of whether they are covered by a collective bargaining agreement or not, employers must ensure that they do not establish practices and policies that discourage or prohibit employees from discussing the terms and conditions of their employment - such as compensation, bonuses, and working hours.

To assist our clients to understand the ever-changing dynamics of workers’ compensation law particularly in light of the state’s increased enforcement efforts -we will be presenting a seminar in the Fall covering this complex topic.

“Work Comp 101 - From the Employer’s Perspective” will be jointly presented by Cynthia Elkins and Yvonne Lang. Ms. Lang is a Certified Workers’ Compensation Specialist, and a partner at Pearlman, Borska and Wax. Keep on the look out for a “save the date reminder” about the Seminar in upcoming newsletters.

In this new section of the newsletter, we will provide you with useful wage and hour tips and guidelines for complying with this very complicated area of employment law.

There are two issues that often arise in the context of “clocking in” :

1. Rounding practices

2. Employees should record their exact starting and stopping times. However, when computing time worked for payment purposes, an employer may “round off” an employee’s starting and stopping times to the nearest 5 minutes or nearest one-tenth or one-quarter of an hour, provided that this practice averages out over a period of time - it must not ultimately result in failure to pay the employee for all time actually worked, which could include overtime hours.
1. Erroneous time punches