California UPDATE Newsletter – Third Quarter 2008

September 2008Newsletters California UPDATE Newsletter

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Employers Need Not Maintain Uniforms Requiring Minimal Care

The U.S. District Court for the Northern District of California held that Starbucks was not responsible for washing the aprons of its employees. In 2006, a former Starbucks barista filed a class action lawsuit against the company alleging that the company policy requiring employees to launder their work aprons without compensation violated California law. California regulations make it an employer’s duty to provide and maintain a uniform when an employer requires the uniform. The court read this law in light of the separate statement of intent issued by the agency, which promulgated the regulation that explains that employers are only required to “maintain” those uniforms that require more than “minimal care” and “minimal time for care.” The plaintiff failed to submit any admissible evidence sufficient to demonstrate that the apron required separate laundering because of heavy soil or color. Although the plaintiff always sent his apron to the dry cleaners, the green aprons issued by Starbucks to its employees are capable of being machine-washed and tumble-dried. Consequently the court granted summary judgment in favor of Starbucks. The case (decided July 14, 2008) is O’Connor v. Starbucks Corporation, Case No. 06-3706.

Employers Encouraged To Review Privacy Policies And Practices

In a victory for employees’ privacy at the workplace, the Ninth Circuit recently determined that a text-message provider violated federal law by disclosing a police officer’s text messages on a city-issued pager to the City of Ontario Police Department without the police officer’s permission. Even though the Ontario Police Department’s formal policy disclaimed the expectation of privacy in officer text messages, a supervisor nullified that policy when he said that the Department would not actually examine text messages.

This decision does not restrict the ability of a private employer to monitor employee e-mails or text messages if it distributes and practices a policy that unambiguously states that employee communications on company resources are employer monitored and are not private. This case, however, should act as a reminder to all employers to review their policies on electronic communications in the workplace and to enforce these policies in a uniform, non-discriminatory manner.

Don’t Assume That An Employee Is Undocumented On The Basis Of A “No-Match” Letter

The Ninth Circuit recently issued an opinion that adds fire to the “no-match” letter debate. The court affirmed the reinstatement of 33 janitors in Los Angeles who were fired because their social security numbers did not match the government’s database.

In early 2003, the employer in the case received “no-match” letters from the Social Security Administration for many of its employees, including 48 employees in southern California. In response, the employer requested that these employees correct the discrepancy or produce documentation that they had applied for a new social security card within three days. Only 15 of the 48 employees met the three-day deadline, and the employer terminated the other 33. The union filed a grievance claiming that the 33 employees were terminated without just cause in violation of their collective bargaining agreement. The employer argued that it was complying with the federal law that prohibits an employer from knowingly employing undocumented workers. Under federal law, employers are subject to civil and criminal liability if they employ undocumented workers knowing or having “constructive knowledge” of their undocumented status.

Ultimately, an arbitrator concluded that there was no convincing information that any of the terminated workers were undocumented, and therefore awarded the terminated employees back pay and reinstatement. The Ninth Circuit upheld the arbitrator’s award, stating that the “nomatch letters themselves could not have put the employer on constructive notice that any particular employee mentioned was undocumented.” The court further opined that the three-day response time allowed to employees was “extremely demanding,” and that the employees’ failure to respond within the time frame could have been the result of factors other than their alleged undocumented status, including work and family obligations.

The decision provides no useful guidance as to when employers may discharge employees who are the subject of “no-match” letters. This puts employers in a difficult position, as they may face damages for terminating employees too soon after receiving “no-match” letters, or else face civil or criminal charges for providing employees too much time to explain their status. Consequently, all employers are strongly encouraged to consult with legal counsel before taking any action against an employee who is the subject of a “no-match” letter.

U.S. Supreme Court Invalidates California Labor Law

In 2000, California enacted Assembly Bill 1889, which prohibits government employers and private employers that contract with the government from using government funds to assist, promote or deter union organizing. The United States Chamber of Commerce challenged this statute for being unlawful because it conflicted with federal labor law. Ultimately, the challenge reached the United States Supreme Court, and a majority of Justices agreed with the Chamber of Commerce.

The Supreme Court held that the federal National Labor Relations Act preempts California’s law prohibiting certain employers from using state funds to influence unionization. Congressional intent was to foster free and open debate regarding labor disputes, and California’s law regulating non-coercive speech impeded this objective. The NLRA specifically permits non-coercive speech by employers concerning the advantages and disadvantages of union participation. While the impact of the decision will be felt most immediately in California, it is expected to have far-reaching effects because at least 20 other states have current or proposed laws similar to California’s. The case is U.S. Chamber of Commerce v. Edmund G. Brown, 554 U.S.___ (2008).

Ninth Circuit Reverses A Denial Of Class Action And Makes History

Plaintiffs seeking class action certification must establish that their claims share common questions of law and fact (i.e., commonality). The Ninth Circuit recently made history when it reversed a district court’s finding that commonality was lacking in an employment discrimination class action lawsuit, Parra v. Bashas’ Inc.

Hispanic employees of the Food City grocery chain in Arizona filed a class action lawsuit against Bashas, the owner of Food City, alleging that Hispanic workers were paid less because of their national origin, and that their pay reflected the affects of past discrimination. While the majority of Food City employees are Hispanic, the majority of employees of the other two grocery chains owned by Bashas’ Inc. are non-Hispanic and earn higher wages. Originally, the district court found that the Hispanic employees lacked the appropriate commonality to bring a class action because the pay scales for Food City employees had been equalized. The Ninth Circuit disagreed and found that the district court failed to consider evidence of past pay disparities.

The Ninth Circuit found that, even though their factual situations differed, the plaintiffs established commonality because they all sought a common legal remedy for a common wrong. The Ninth Circuit sent the case back to the district court to consider whether other requirements for class certification on this issue can be met. This was the first time that the Ninth Circuit had ever reversed a district court’s finding of lack of commonality in an employment suit.

California Reaffirms (Again) Employees’ Right To Compete

Employers who do business in California are advised to review their employment contracts to ensure that they do not contain illegal non-competition and non-solicitation clauses. Such agreements are prohibited by California Business and Professions Code Section 16600, unless they fall within an applicable statutory exception. Non-competition provisions are interpreted broadly, and unenforceable provisions include those prohibiting the solicitation of clients and those that impose a penalty on competition instead of prohibiting the competition outright. Enforceable non-competition agreements meeting statutory exceptions include those obtained in connection with the sale of a business or its assets and those obtained in connection with the dissolution of a partnership or LLC, or the withdrawal of a partner or a member of an LLC. The California Supreme Court recently affirmed the strict interpretation of the statutory ban on non-competition clauses in Edwards v.Arthur Andersen LLP, Case No. 147190. Employers worried about competition from former employees should explore with their attorneys the extent to which they can achieve their goals through restrictions on the use of trade secrets.

General Releases Are Valid And Enforceable

The California Supreme Court recently reviewed a release agreement whereby an employee released “any and all claims” against the former employer. The Court considered whether the release of “any and all claims” was unlawful because it included claims that California law deems nonwaivable. For example, California employees have a non-waivable right to indemnity (reimbursement for costs or losses incurred in connection with their employment), workers’ compensation benefits and timely payment of wages. The Court held that a contract provision whereby an employee releases “any and all” claims does not encompass non-waivable statutory protections, and that such general releases are enforceable and valid. As a result, employers need not specifically except non-waivable rights from their general releases. Unless an agreement otherwise expressly includes a waiver of statutorily non-waivable rights, a contract provision releasing an employer of “any and all claims” by its employee will be upheld. The case is Edwards v.Arthur Andersen LLP, Case No. 147190.

Employers Do Not Have To Force Their Employees To Take Breaks . . . For Now

Until now, the question of what it meant for California employers to “provide” meal and rest breaks to their employees was unresolved. A state Court of Appeal recently handed employers a significant victory and clarified employers’ obligations regarding meal and rest breaks. In the recent case, Brinker Restaurant Corp. v. Superior Court, the court concluded that employers need not ensure that these breaks are actually taken, but need only make them available.

California law generally requires employers to provide a 30-minute, unpaid meal period to non-exempt employees who work more than five hours in a day, and a second 30-minute meal period to those who work more than 10 hours. In addition, employers must permit non-exempt employees a 10-minute paid rest break during every four hours worked,“which insofar as practicable shall be in the middle of each work period.” During these breaks, employees must be relieved of all responsibilities. Employers who fail to provide these breaks are liable to aggrieved employees for one-hour’s pay for each day there was a violation.

The employer in Brinker challenged an order certifying a class action that consisted of employees from Brinker’s 137 California restaurants who claimed they were denied meal and rest periods and were required to work off the clock. The Court of Appeal held that, since employers only needed to offer breaks to their employees, the determination as to why specific employees had not taken them necessarily involved individualized inquiries that were ill-suited to class-wide treatment.

In Brinker, the Court of Appeal articulated a standard that is easier for employers to meet and is harder for plaintiffs to challenge on a class-wide basis. This is unlikely to be the final word on the topic though. The Brinker decision had already gone from the trial court, to the appellate court, to the state supreme court, and back to the appellate court. A return trip to the California Supreme Court, which has not been friendly to employers, seems certain. In fact, the plaintiff filed a petition for review with the Supreme Court on August 29. Unless and until the Supreme Court grants review, however, employers should feel encouraged by the appellate court decision. In fact, one California federal court has already relied on Brinker to deny class certification for missed meal and rest breaks because the proposed members could not show that class-wide policies caused them to miss their breaks. That case is Richard Castle et al. v.Wells Fargo Financial Inc., Case No. 06-cv-04347, in the U.S. District Court for the Northern District of California.

State Legislation Watch List

State Bill SB 1583 would provide that any person who, for money or other consideration, knowingly advises an employer to treat an individual as an independent contractor to avoid employee status will be jointly and severally liable with the employer if the individual is not found to be an independent contractor. Attorneys providing legal advice would be exempted from this provision. This Bill would particularly affect accountants and other outside consultants.

State Bill AB 2918 would amend Section 1785.20.5 of the California Civil Code to prohibit the user of a consumer credit report from obtaining a consumer credit report for employment purposes unless the information is substantially job related or required by law to be disclosed to or obtained by the user of the report. The measure would exempt financial institutions subject to federal financial privacy rules. Ultimately, this Bill would restrict the ability of employers to use legally available information in consumer credit reports in employment decisions.

State Bill AB 2279 would prohibit employment discrimination against authorized users of medical marijuana. Employers could not discriminate against an applicant or employee in any term or condition of employment based upon the person’s status as a qualified patient or penalize them for a positive drug test for marijuana. The Bill would allow such a person to file a civil action for damages, injunctive relief, reasonable attorney’s fees and costs, as well as any other proper form of relief. This Bill was created in response to California Supreme Court case Ross v. Ragingwire Telecommunications, Inc., where the Court determined that employees using marijuana for medical purposes do not have causes of action against their employers for disability discrimination or for wrongful termination.

New Wage Requirements For Staffing Agencies

Effective January 1, 2009, staffing firms doing business in California will have new wage payment obligations. The Labor Code will be amended to clarify that the end of a temporary assignment is not a discharge from employment that requires an immediate payment of wages. The law will now require temporary employees to be paid on a weekly basis, instead of bi-weekly or monthly, if their assignment is less than 90 consecutive calendar days. Staffing agencies will be required to pay temporary employees on a daily basis when those employees work for a client on a day-to-day basis. The amendment does not affect those temporary employees who are discharged from the staffing agency or who are not eligible for reassignment. These employees must still be paid immediately upon such termination or within 72 hours of voluntary resignation.

Reminder: Most Deductions From Wages Are Illegal

Several common payroll deductions are actually unlawful in the state of California. Such improper deductions include:

  1. gratuities
  2. required uniforms
  3. cash shortage, if due to mistake or accident
  4. breakage or loss of company property or equipment, if due to mistake or accident
  5. photographs
  6. bond
  7. business expenses
  8. medical or physical examinations taken as a condition of employment

Proper deductions are: (1) those required of the employer by federal or state law, such as income taxes or garnishments; (2) those expressly authorized in writing by the employee to cover insurance premiums, hospital or medical dues, or other deductions not amounting to a rebate on the employee’s wages; and (3) those authorized by a wage or collective bargaining agreement, specifically to cover health and welfare or pension payments.

Punitive Damages Against Employer Reduced!

On July 25, 2008, a federal district court in California reduced punitive damages against an employer in a religious discrimination lawsuit from $6.5 million to $647,000. The plaintiff, Lynn Noyes, sued her employer, Kelly Services, under Title VII and the California Fair Employment and Housing Act, alleging religious discrimination after she was denied a promotion. She claimed that she was passed over because she did not participate in the same religious group as the hiring official. A jury awarded Noyes approximately $147,000 in economic damages, $500,000 in emotional distress damages, and $5.9 million in punitive damages under California law. Although the court denied the employer’s motion for a new trial, it did find the punitive damage award unconstitutionally excessive. In reducing the punitive award, the court considered the degree of reprehensibility of the defendant’s conduct, the disparity between the harm or potential harm experienced and the punitive award, and the punitive awards in comparable cases. The court also noted that the award for emotional distress already contained a punitive element. Ultimately, the district court found that the proper gauge for measuring the award was the ratio between the punitive award and the total compensatory damages, and that this case only compelled a 1-to-1 ratio. An appeal by the employee seems likely.

The Subpoena Power Of The EEOC

The EEOC does not lose the power to investigate a complaint once a charging party initiates a private action. According to a recent decision from the Ninth Circuit, the EEOC retains the authority to issue an administrative subpoena against an employer after a charging party has been issued a right-to-sue notice and has instituted a private action. Not all courts agree with the Ninth Circuit’s decision. For instance, the Fifth Circuit has held that the EEOC loses the power to investigate once a charging party initiates a private action. Until this conflict among the circuits is corrected by the U.S. Supreme Court, however, employers in California should be aware that its federal courts will follow Ninth Circuit precedent. California courts will now enforce an administrative subpoena issued by the EEOC against an employer, even after a private action has ensued, as long as the subpoena seeks relevant and material information.