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DECEMBER 2003
2003 LEGISLATIVE UPDATE AND CASE REVIEW
I. NEW LAWS IMPACT CALIFORNIA EMPLOYERS (AGAIN!)
On October 12, 2003, the last day that former Government Gray Davis could sign legislation, he
did so creating several new laws, which once again adversely affect California employers and which will
continue to increase the potential for frivolous litigation, increased costs and liability for employers.
Below is a brief summary of the significant new laws.
A. Employer Liability for Sexual Harassment by Non Employees
AB 76 reverses the holding in last year’s California Court of Appeals decision in Salazar v.
Diversified Paratransit, Inc. which found that California’s Fair Employment and Housing Act (FEHA)
did not hold an employer liable for the sexually harassing conduct of customers or clients. This case has
been pending before the California Supreme Court but Governor Davis and the State Legislature were not
willing to await the high Court’s decision and enacted this new law.
Employers can now be held responsible and personally liable for the sexually harassing conduct
of non employees (customers, vendors, suppliers, etc.) towards employees, applicants or other persons
who provide services to the employer in the workplace. Liability will arise only if the employer or its
agents and supervisors knew or should have known of the sexually harassing conduct and failed to take
immediate and appropriate action to stop and correct the situation.
The Equal Employment Opportunity Commission (EEOC) had already taken the position that
sexually harassing acts by non employees may create liability for employers. So this new law brings
California into conformity with the federal regulations.
What Should You Do:
Review your employee handbook’s policy on sexual harassment to ensure that your policy
statement includes misconduct by non employees.
Include in your annual Sexual Harassment and Discrimination training the concept of
liability for employers and their supervisors if they knew about or should have known of
the sexually harassing conduct by non employees in the workplace.
B. Private Attorney General Act or “Bounty Hunter Law” Expands Employee’s Right to Sue
Currently, most provisions of the Labor Code are exclusively enforced by the State Labor
Commissioner (Division of Labor Standards Enforcement-DLSE). SB 796 now allows employees to sue
for alleged violations of the California Labor Code without processing the claim through the DLSE or even
notifying the Labor Commissioner’s office. If the employee prevails on the legal claim the employee
is entitled to recovery of attorneys fees and costs incurred. This new alternative to correct wage and
hour violations will provide employees and their attorneys new incentives to bring costly lawsuits.
The new law (Labor Code Section 2698 and 2699) specifically provides that any provision of the
Labor Code which provides for a civil penalty to be assessed and collected by the Labor and Workforce
Development Agency may, as an alternative, be recovered through a civil action brought by an aggrieved
employee on behalf of himself or herself and other current or former employees.
SB 796 also creates civil penalties for Labor Code violations including the assessment of a fine of
$100 per employee per pay period for up to three years for a first violation and $200 per employee per
pay period for three years for subsequent violations. The award of penalties will be divided 50% to the
State’s General Fund; 25% to a fund to provide employer-employee education on the requirements of the
Labor Code and 25% to the adversely affected employees.
What Should You Do:
Review your wage and hour procedures to ensure compliance with minimum wage,
overtime, meal and break requirements.
C. Employees Reporting Whistle Blower Claims Protected from Retaliation
Existing law prohibits employers from having any type of a policy that prevents an employee
from reporting violations of a state or federal statute or noncompliance with a state or federal regulation
to a government or law enforcement agency. Employers are also specifically prohibited from retaliating
against an employee who makes such a report. It makes a violation punishable as a misdemeanor. (Labor
Code §1102.5(a) “Whistle blower Protection Statute”)
SB 777 creates an expansion of the statute which now extends these protections to employees:
who report a violation of a state or federal rule,
who refuse to participate in an activity that would result in a violation of state or federal
statute, or a violation or noncompliance with a state or federal rule or regulation, or
who exercised these rights in a former place of employment.
Employers are:
Prohibited from retaliating against an employee for exercising any of these rights, including
those provided under existing law,
Required to display a list of an employee's rights under whistle blower laws, including the
telephone number of the"whistle blower hotline" that will be established within the office
of the Attorney General to receive telephone reports of violations of state or federal
statutes, rules, or regulations, by an employer.
Required to make a showing by clear and convincing evidence (rather than a mere
preponderance of t he evidence) that the alleged action by the employer would have
occurred for legitimate, independent reasons, even if the employee had not engaged in the
activities protected by the whistle blower statute.
An employer that is a corporation or limited liability company may be held liable for a civil
penalty not exceeding ten thousand dollars ($10,000) for each violation of this law.
What Should You Do:
Post the whistle blower hotline phone number once it is established and display the list of
employee rights.
Train your supervisors and managers on the prohibition against retaliation for any action
that could be considered “whistle-blowing”.
D. Increased Penalties for Labor Code Violations are Implemented
Current penalties for violations of the Labor Code have been doubled. The new law (AB 276)
amends the Labor Code which now provides that any person who fails to pay the wages of each
employee as provided in the following section shall be subject to a civil penalty as follows:
(a) For any initial violation, one hundred dollars ($100) for each failure to pay each
employee.
(b) For each subsequent violation, or any willful or intentional violation, two hundred
dollars ($200) for each failure to pay each employee,
(c) plus 25 percent of the amount unlawfully withheld.
Failure to comply with the following Labor Codes shall result in the penalty:
Sections:
204 (Semimonthly payments)
204b (Weekly payments)
204.1 (Employees of vehicle dealers, commission wages; monthly payments)
204.2 (Executive, Administrative and professional employees monthly wage)
205 and 205.5 (Agricultural and domestic employment)
1197.5 (Equal wage rates for all employees)
212 (Prohibited forms of payment of wages; dishonored checks)
216 (Refusal to make payment after demand has been made)
221 (Repayment of wages to employer)
222 (Withholding part of wage with intent to defraud employee)
223 (Payment of less than statutory wage scale).
The penalty will be recovered by the Labor Commissioner as part of a hearing held to recover
unpaid wages and penalties or in an independent civil action.
E. Costs and Attorneys Fees Become More Easily Recovered
Current law provides that if a wage claim matter decided by the Labor Commissioner is appealed,
and the party seeking the appeal is unsuccessful, the trial court must assess cos t s and reasonable
attorney's fees against the unsuccessful party. A California Supreme Court decision in 2002 interpreted
this law to mean that the appealing party is unsuccessful unless the court judgment is more favorable to
the appealing party than the Labor Commissioner's award. (Smith v. Rae-Venter Law Group)
The Supreme Court’s interpretation has been overturned by the new law (AB 223) which now
provides that an employee is successful so long as the employee recovers a judgment in his or her favor
without regard to the judgment being “more favorable”. Labor Code Section 98.2(a) now states that “an
employee is successful if the court awards an amount greater than zero.” Employers will continue to be
“unsuccessful if a court judgment is not more favorable than the award from the DLSE. This decision will
further discourage employers from filing appeals following an unsuccessful decision before the Labor
Commissioner.
What Should You Do:
Ensure that your wage and hour policies are in full compliance with State law
Review your documentation of wage payments, commission pay plans, time cards of
hours worked, and attendance to ensure that your records can support your defense of any
wage claim
Review your exempt and non exempt classifications to ensure compliance.
F. Mandated Health Care Coverage - Health Insurance Act of 2003
SB 2 has probably received the most widespread media coverage as this new law will require most
employers to provide health insurance to their employees or pay into a state pool to purchase insurance
coverage. The employer’s obligation regarding health care coverage will depend on the number of
employees.
Employers with:
200 or more employees must provide health insurance for employees and their dependents
by January 1, 2006 or contribute an amount to be determined by the state to a state fund;
50 to 199 employees must provide coverage to their employees but not their dependents
by January 1, 2007;
20 to 49 employees will be required to provide coverage to employees if the state adopts
a tax credit for those employers equal to 20% of the net cost of this new legal obligation;
l to 19 employees are exempt from compliance with this new law.
For employees to receive the health care benefit the employee must work at least 100 hours a
month for a minimum of 3 months for the same employer. Workers may not be required to pay more than
20% of the premium costs (except there is an exemption for law wage earners - those earning less than
200% of the federal poverty level may not be required to contribute more than 5% of their wages).
What Should You Do:
Review your employee count and your health insurance coverage options to determine that
the range of insurance options you provide to workers includes one that complies with the
legal requirements and includes prescription drug coverage. In the alternative, an employer
may elect to pay into the State Health Purchasing Fund.
G. Transsexuals and Transgendered Individuals are Protected From Discriminatory
Workplace Actions
Individuals who are transsexuals or t ransgendered may now be protected under the Fair
Employment and Housing Act (FEHA) from discriminatory practices and treatment in the workplace.
AB 196 expands the definition of sex discrimination to include “gender”. Since the FEHA does not
provide a definition of “gender” for the purpose of enforcing the laws against discrimination and
harassment, the law looks to the Penal Code for a definition (as it is used in related to hate crimes).
Under the definition provided in the Penal Code, the new law’s protection will extend to
transsexuals and transgendered individuals and generally prohibits discriminatory practices or bias based
on perceptions of an individual’s identity. The law bans treating someone differently because he or she
looks or acts differently from what an employer could consider to be traditionally associated with the
employee’s sex at birth.
The law does provide that employers may still require an employee to adhere to reasonable
workplace appearance, grooming and dress standards not precluded by other provisions of state or federal
law; provided that an emp loy er shall allow an employee to appear or dress consistently with the
employer’s gender identity. This provision shall allow employers some degree of control over workplace
conduct.
H. Time Off Allowed For Crime Victims
SB 478 allows employers who are victims of certain crimes to be absent from work to attend court
hearings. The crimes covered include violent or serious felonies or a felony involving theft or
embezzlement. Employees who have significant relationships to crime victims (immediate family, a
registered domestic partners or a child of a domestic partner) may also take time off.
The law, added as Labor Code § 230.2, permits employees to use accrued vacation, sick leave,
Personal Time Off (PTO), compensatory time off, of take the time as unpaid.
II NEW CASES - SOME GOOD AND SOME “NOT SO GOOD” DECISIONS
A. Whistle Blowers Must Exhaust Internal Grievance Procedures Before Filing a
Lawsuit - (This is the Good one!)
The California Court of Appeal has found that an employee’s failure to exhaust her employers
internal grievance procedure prevented her from pursuing a claim of wrongful termination in violation of
public policy. This decision essentially creates a new affirmative defense for employees to defeat such
claims of wrongful termination. (Palmer vs. Regents of University of California)
In the case before the court, the employee did not pursue her employer’s detailed internal grievance
procedure regarding her claim that she was terminated and not re-hired as a result of her whistle blowing
activities while employed. The employer had detailed its grievance procedure in its Personnel Policies
Manual and its “Procedures for Reporting Whistle blower Complaints”. The emp loy ee began the
process but abandoned the process before the Grievance Board of the Employer had resolved the matter.
She sued instead.
It has long been the law that an employee must exhaust the external grievance procedures
established by statute to pursue claims of harassment and discrimination pursuant to the Fair Employment
and Housing Act (FEHA). The finding of this court that an employee must now exhaust the internal
grievance process established by an employer will serve to defeat claims in the same manner that failing
to exhaust external grievance or administrative procedures had done in the past.
While the Court did not specifically define the procedures to be used, an effective process should
involve more than just a complaint reporting procedure.
The questions that remain are:
What type of Internal Grievance Procedure will be enough?
How formal must the Internal Grievance Procedure be?
What Should You Do:
Employers should create, design and implement a Internal Grievance or Complaint Resolution
process that provides whistle blowing employees a full and fair opportunity to present their complaint
and evidence to support their claim. Once the complaint of retaliation is received, the employer still must
undertake a good faith investigation into the underlying claims of employee misconduct or wrongdoing.
A record of the grievance process and hearing should be kept and all documents, evidence and
testimony must be retained. An appeal process should also be included to allow the employee to present
an appeal to an internal committee.
B. Employee Need Not Show Actual Safety Violation to Claim Wrongful Termination
in Violation of Public Policy
In a recent case, an employee received a negative performance evaluation and was placed on
probation after reporting to management that she believed safety had been compromised. After the
employee submitted additional safety complaints, he was fired. He then sued claiming Wrongful
Termination in Violation of Public Policy based on a violation of the Labor Code which prohibits an
employer from terminating and employee for raising bona fide complaints about safety.
The employer argued that no actual safety violation had occurred and therefore there could be no
claim of wrongful termination in retaliation for making such complaint.
The Court rejected the employer’s argument and found that the public policy underlying the Labor
Code was not merely the reporting of actual safety violations but was the protection of employees who
in good faith, report working conditions they believe to be unsafe. As long as the employees’ complaint
is made in good faith there is no California legal requirement that the complaint identify an actual violation
(Freund vs. Nycomed Amersham).
It is important to understand from this decision that any complaint of health or safety violations
by an employee can support a claim of wrongful termination if the employee is fired and the employee’s
complaint was made in good faith. Liability arising from this type of claim includes front and back pay
and punitive damages.
C. Failure to Provide Proper COBRA Notice Results an Employer Liability for Medical
Claims
Under COBRA, an employee must be provided 60 days to elect conversion from the group
coverage to private medical insurance. The 60 day notice period runs from the occurrence of a qualifying
event or when notice of the qualifying event is provided to the beneficiary (whichever is later). If the
notice does not meet the federal standards of COBRA, the employer may be held liable for the employee’s
medical expenses incurred but not covered by the insurance company due to a failure of the employee to
elect conversion rights.
In a recent case, an employers notice was deemed insufficient because it did not contain any
definition of the term “Qualifying Event”.
What Should You Do:
Review all COBRA procedures and notices to ensure compliance to avoid unnecessary liability.
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December 2003 Legislative Update and Case Review |
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This information is intended to provide guidance in the area of employment law and is provided as a service of the Firm. While every effort
has been made to ensure the accuracy of the information contained in this bulletin, it is not intended to serve as "legal advice". If additional
information or assistance is needed on any of the topics contained in this informational package or any other matter, please feel free to
contact Cynthia Elkins for further information. All rights reserved. ©2005.
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