California UPDATE Newsletter – First Quarter 2008

March 2008Newsletters

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Out Of State Employers Beware!

The California Labor Code requires that employee paychecks be immediately payable in cash to the employee without a fee at some place of business in the state. Employers must provide on the face of California employees’ paychecks the name and address of an in-state bank, or an “established place of business” in the state, where the employer has sufficient funds on deposit to cover the full amount of its employees’ paychecks for 30 days after issuance. The checks are not required to be drawn on a California bank, but only that employees are able to immediately cash them without having to pay a fee. Calif. Labor Code Sec. 212.

A northern California federal district court recently found that a national employer violated this statute when it paid its California employees with checks drawn on a Chicago-based bank. The bank had no branches in the state of California, and some employees were charged fees to cash their checks. The Court viewed the employee’s payment of a fee as a “discount” on the employee’s wages, and a clear violation of the Labor Code governing the timely payment of wages. The Court also noted that having a hold placed on the payment of the funds because they are drawn on an out of state bank violated the same statute.

The civil penalties for violation of this statute can be steep- $100 per aggrieved employee per pay period for the first violation, and $200 plus 25% of the amount per pay period for each further violation. Employers who violate this statute can also be held criminally liable and charged with a misdemeanor. The statute of limitations is three years.

The Court further noted that even though some employees were able to immediately cash their checks without having to pay a fee, the employer could still be subject to suit under the California Private Attorneys General Act’s “catch-all” penalty provisions.

To comply with the law, employers should make certain that their California paychecks reflect the name of a California bank, or the name and address of a place of business that will cash the paycheck for the employee at full face value.

Coming Soon To Indian Casinos: Union Elections

In 2007, the D.C. Circuit upheld the National Labor Relations Board’s decision to assert jurisdiction over Indian casinos controlled by sovereign Indian nations. Among other things, the court determined that the National Labor Relations Act would not impair tribal sovereignty because the operation of a casino is not a traditional attribute of self-government. The decision, San Manuel Indian Bingo and Casino v. NLRB, Case No. 05-1392 (D.C. Cir. 2007), is groundbreaking, as it overturned long-standing precedent and provides unions a new segment of the gaming industry to organize. The case was not appealed to the U.S. Supreme Court.

The United Auto Workers recently won an election at the Foxwood’s Resort Casino in Connecticut, a casino owned by the Mashantucket Pequot Tribal Nation. The Foxwoods election is reported as the first election ever conducted by the NLRB at an Indian reservation. Foxwoods is challenging the election result on several grounds, including that the San Manuel case was wrongly decided.

In December 2007, workers at the Soaring Eagles Casino and Resort in Michigan, owned by the Saginaw Chippewa tribe, voted against forming a Teamsters’ union. These events act as a reminder that union organizing power should not be underestimated.

USERRA Protects Those Who Protect You

In this time of war, employers should pay particular attention to the rights of employee-members of the U.S. Military. The federal Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) protects the job rights of individuals who voluntarily or involuntarily leave their employment for military service. USERRA prohibits employers from discriminating against members of and applicants to the uniformed services.

In December, a California Appellate Court held that an employee’s rights under USERRA cannot be waived. Thus, releases in severance agreements that include waiver of USERRA rights are to that extent invalid. This case, Perez v. Uline, Inc., No. G036939 (12/7/07), highlights just one of the several issues raised by employees serving in the military.

Under USERRA, employees have the right to reemployment, being restored to the job and benefits they would have attained had they not been absent for military service, if they meet all of the following conditions:

  • The employee left to perform service in the uniformed services;
  • The employee provides the employer with advance written or verbal notice of the service;
  • The employee has five years or less of cumulative service in the uniformed services while with that particular employer;
  • The employee returned to work or applied for reemployment in a timely manner after service ended; and
  • The employee was not separated from service with a disqualifying discharge or under less than honorable conditions.

When an employee serves in the uniformed services for up to 30 days, the employee must return to work on the next business day after release from service. When an employee serves between 31 and 180 days, the employee must apply for reemployment within 14 days of release from service. Service longer than 180 days allows an employee 90 days to apply for reemployment.

Keep in mind that California has adopted an amendment to the Military and Veterans Code permitting up to 10 days of unpaid leave. Also, Congress recently amended the Family and Medical Leave Act to include care of a covered service member or exigent circumstances related to a military operation.

Military service is also a protected category. Past and present members of the uniformed services, as well as applicants to the uniformed services, cannot be discriminated or retaliated against because of their military status.

Police Officers May Get Overtime For Getting Dressed

Activities of employees performed before or after their regular work shifts are compensable when those activities are an “integral and indispensable” part of the job. In California’s federal courts, this means that the activity must be (1) necessary to the principle work performed and (2) done for the benefit of the employer.

Last year, California’s federal courts had three occasions to consider whether the “donning and doffing” of police uniforms performed before and after police officers’ work shifts was compensable time. In two of the three cases, it was determined that such time was not compensable. Martin v. City of Richmond (N.D. Cal. Aug. 10, 2007) 2007 WL 2317590; Abbe v. City of San Diego (S.D. Cal. Nov. 9, 2007) 2007 WL 4146696.

Most recently, however, a federal court in San Francisco held that police officers are entitled to overtime pay for time spent putting on their uniforms, even if done at home before arriving at work, because the police officers’ uniforms and gear are integral to their jobs. Lemmon v. City of San Leandro (N.D. Cal. Dec. 7, 2007) 2007 WL 4326743. The decision is troubling because it does not specifically address how employers are to measure accurately the amount of compensable time in such a situation.

Class Action Denied!

Recently, several thousand Merchandising Assistant Store Managers (MASM) at Home Depot asked for class certification in challenging their exempt employee status. The trial court denied certification finding that each store had unique issues relevant to the MASM’s exempt status. The trial court found that individual issues predominated over common ones, making a class action inappropriate.

A California Court of Appeal upheld the trial court’s decision to deny certification. The Court of Appeal said that the trial court properly considered actual and realistic requirements of the MASM job. Although the opinion, In re The Home Depot Overtime Cases, is unpublished, it should provide hope to employers faced with potential class action lawsuits.

Punitive Damages Against Employers

A California Appellate Court recently held that a jury properly awarded $1 million in punitive damages against an employer for retaliating against an employee because he complained about age discrimination. The Court found that jurors could reasonably infer that the employer used pretexts to deny him transfer and created a hostile work environment.

Here, a vice president threatened to "crush" those opposed to his plan, stating "it doesn't matter what you did for this company in the last 30 … years … You can die at your desk.We'll replace you tomorrow. Nobody cares." The jury found that the offending vice president was a managing agent. The punitive award was found to be constitutionally proportional to the $280,000 compensatory award. Wysinger v. Automobile Club of S. Calif. 102 FEP Cases 241 (Cal. Ct.App. 2007).

Medicinal Marijuana Users Not Protected From Employer Drug Screens

Ever since the California legislature created the “right” to use marijuana for medicinal purposes, employers have been wondering whether failure of a drug test would permit the employer to reject an applicant. Marijuana is still illegal under federal law. On January 24, the California Supreme Court answered the question. Employers are not required to retain workers who test positive for marijuana use even if the drug is recommended by a doctor for medical reasons.

The case involved an employee who tested positive for marijuana and was thereafter dismissed by his employer. RagingWire Telecommunications, Inc. believed the employee’s drug use left the company vulnerable to issues that could generate lawsuits. The employee claimed he was discriminated against and illegally fired because his drug use was recommended by his physician and he carried a medical marijuana card. The Supreme Court upheld the employer’s actions.

Picketing Of Employers Permitted

In a case involving the clash between “private property” and “free speech” the California Supreme Court recently expanded its Pruneyard doctrine and held that labor unions and political protesters may leaflet shoppers at malls and advocate boycotts of specific stores.

In Fashion Valley Mall v. NLRB, No. S144753 (Cal. Sup. Ct. 12/24/07), the (DE 2511)Court held that the Teamsters were allowed access to private property to leaflet a department store with which they had a dispute. California companies that are open to the public should reevaluate their policies on solicitation and access to their property.

New Pamphlets Issued by State

As a follow up to our Summer 2007 article regarding documents that you must provide to new employees, please note that California has updated two of the five pamphlets to be distributed.

The Employment Development Department’s Paid Family Leave (DE 2511) and State Disability Insurance (DE 2515) pamphlets have been updated for 2008.

These documents are available from the EDD Web site in various languages and can be ordered in bulk. See

Arbitration Clause In Attorney's Agreement Sticks

On February 20, 2008, the U.S. Supreme Court held that the Federal Arbitration Act (FAA) superseded a state administrative process to resolve a dispute between Judge Alex Ferrer of television fame and his attorneymanager. Preston v. Ferrer, No. 06-1463 (2/20/08). The Justices voted 8-1 that when parties agree to arbitrate issues in a contract, the FAA preempts any judicial or administrative process rooted in state law.

In March 2002, Ferrer and Arnold Preston signed a contract for entertainment management services. Ferrer then gained employment as Judge Alex on a nationally syndicated television show. The contract provided that any dispute relating to the terms of the agreement would be submitted to arbitration before the American Arbitration Association. Preston later demanded fees based upon Ferrer's earnings from the Judge Alex program. Ferrer rejected the demand stating that Preston failed to register as a talent agent and comply with the California Talent Agencies Act (CTAA). A state court granted Ferrer's request to enjoin arbitration. The state appellate court affirmed the lower court ruling and the California Supreme Court declined review.

Preston filed a petition with the U.S. Supreme Court and prevailed. The Court did not agree with Ferrer that the state labor commissioner had exclusive jurisdiction over disputes regarding CTAA. Justice Ginsburg stated that "the question is simply who decides whether Preston acted as a personal manager or as talent agent." Prior Supreme Court precedent requires that a dispute regarding the validity of a contract that contains an arbitration clause is to be resolved by the arbitrator. Otherwise, Preston would lose his claim for compensation if forced to concede he was governed by the CTAA.

The case will be remanded to state court for further proceedings consistent with the Supreme Court's ruling. This case illustrates that, despite the limitations on employment arbitration agreements in California, broad arbitration clauses in contracts for services are still powerful enough under the FAA to rise above state law constraints.

Did you know that California is not at the top of minimum wage?

Did you know that California is not at the top of minimum wage? You all know that California’s minimum wage is at $8.00 for 2008. And many thought we were at the top of the states in that category. Actually, the state of Washington has taken that prize. In 2008, Washington has the highest state minimum hourly wage. The next highest are California and Massachusetts ($8.00), Oregon ($7.95), Illinois ($7.75), Vermont ($7.68) and Connecticut ($7.65).

Although the City of San Francisco has set minimum wage at $9.36 per hour effective January 1, 2008, this is not the nation’s highest rate. In Santa Fe, New Mexico, they have raised the minimum wage in the city to $9.50 per hour. That measure applies to all businesses with 25 or more employees in Santa Fe. San Francisco's ordinance, however, is applicable to all employees who work more than two hours per week in the City of San Francisco regardless of where their employer is located or where their home office is located. Take note of this issue as this impacts many more employers in the Bay Area.