Laborsphere

In FLSA Settlements, the Permissible Scope of Releases and Confidentiality Provisions May Be Broader Than You Think

Courts and the U.S. Department of Labor (“DOL”) often refuse to approve Fair Labor Standards Act (“FLSA”) settlements: (1) in which the employee’s release of claims is not narrowly limited to wage claims; or (2) that seek to restrict public disclosure of the settlement terms. Because FLSA settlements are arguably only enforceable if approved by a court or the DOL, these conditions sometimes impede the ability of parties to resolve FLSA disputes. A recent court decision may offer a solution. In Lola v. Skadden, Arps, Meagher, Slate & Flom LLP, 2016 BL 29709 (S.D.N.Y. Feb. 3, 2016), the Honorable Richard J. Sullivan, U.S.D.J., allowed the parties more leeway in resolving FLSA claims, adopting an approach likely to facilitate settlements.

Case Background

Plaintiff David Lola, an attorney, worked for a staffing agency that placed him at the law firm of Skadden, Arps, Slate, Meagher & Flom LLP, where he performed document review work for 15 months. He later filed a lawsuit in the United States District Court for the Southern District of New York against the staffing agency and the law firm (as joint employers), alleging that they had misclassified him as exempt under the FLSA and failed to pay him overtime when he worked more than 40 hours a week. He filed the lawsuit on behalf of himself and as a putative collective action on behalf of other, “similarly-situated,” contract attorneys.

The parties ultimately negotiated a settlement agreement and submitted it to the Court for approval. The agreement provided that Lola and two other individuals who opted into the lawsuit (and plaintiffs’ attorneys) would receive a total of $75,000 in exchange for, among other things, dismissing the lawsuit, releasing claims against the defendants and limiting disclosure of the terms of the settlement.

Judge Sullivan approved the settlement, issuing a written decision to address the release of claims and confidentiality provisions of the parties’ agreement.

Release of Claims

Under the settlement, the plaintiffs agreed to waive both FLSA and non-FLSA claims against the defendants. Judge Sullivan observed that some courts “have refused to approve [FLSA] settlements with broad releases of claims, concluding that they conflict with the FLSA’s remedial purposes.” However, Judge Sullivan explained, “there is nothing inherently unfair about a release of claims in an FLSA settlement.” The Court concluded that the release of claims in this case “was the fair result of a balanced negotiation, in which Plaintiffs were represented by able counsel.” In reaching this conclusion, the Court highlighted these facts: (1) the release was mutual; (2) plaintiffs were not aware of any “actual, existing, or meritorious claims” that they were waiving; and (3) plaintiffs were not waiving any future claims. Under these circumstances, the Court determined that plaintiffs “could reasonably conclude that the provisions releasing claims were an acceptable compromise.”

Non-Disclosure of Settlement Terms

Judge Sullivan also observed that several courts have “rejected FLSA settlements containing confidentiality provisions that restrict plaintiffs’ ability to talk about the settlement.” The Court acknowledged that, “in certain cases, confidentiality provisions may excessively restrict plaintiffs’ ability to discuss settlements” and, therefore, undermine the purposes of the FLSA and the public interest in assuring that employees receive fair wages. According to the Court, however, the FLSA “imposes no per se bar on confidentiality provisions in settlements.” Instead, “the fairness of restrictions on the parties’ ability to disclose details of a settlement depends on the particular circumstances of any given case.” Under the circumstances in this case, the Court ruled that the restrictions were fair. Here, the agreement stated that plaintiffs and their counsel: “will not contact the media or utilize any social media regarding this Settlement or its terms” and, if contacted, they will respond, “no comment” or “[t]he matter has been resolved.”

Judge Sullivan reasoned that, in the absence of the non-disclosure provision, “Plaintiffs would be free to decline commenting on the case in response to any future inquiries by the press or otherwise” and, therefore, “it is difficult to see why they should be barred from adopting such a posture in advance of settling the matter.” The Court explained that, “since no one can force Plaintiffs to opine on the case in the future anyway, it is by no means irrational or improper for Plaintiffs to compromise words for dollars as part of a global, arms-length settlement” (emphasis in original). Given that a plaintiff is “allowed to accept less than the maximum potential recovery on the basis of litigation risk,” the Court explained that a plaintiff should also be permitted “to make nonmonetary concessions, such as minor restrictions on his right to comment on the case.” Again, the Court stressed, “this provision is the result of fair bargaining between well-represented parties and embodies a reasonable compromise that does not conflict with the FLSA’s purpose of protecting against employer abuses.” Notably, the settlement agreement was publicly-filed, so anyone interested in discovering its terms was free to do so. The parties simply limited the ability of plaintiffs to disclose them.

Conclusion

Employers sometimes litigate FLSA cases that they would rather settle, because they are concerned that a settlement will not ensure finality. Employers worry that a narrow release will not bar the plaintiff from filing another lawsuit after collecting the settlement payment or that the plaintiff may publicize the settlement, thereby encouraging copycat lawsuits. Judge Sullivan’s decision in Lola offers a potential solution for employers. Under the right circumstances, a settlement agreement can include a broad release of claims and the parties can agree to limit disclosure of the settlement terms.

In Wiest v. Tyco Electronics Corp., the Third Circuit Further Clarifies a Plaintiff’s Prima Facie Burden for a Retaliation Claim under SOX

Wiest v. Tyco Electronics Corp., a case that has been closely watched by Sarbanes-Oxley (“SOX”) practitioners, may have finally come to a close after nearly six years of litigation. In its decision (click here to view), the Third Circuit affirmed the District Court’s granting of summary judgment for Tyco, and provided additional clarification on what a plaintiff must do to make out a prima facie retaliation claim under SOX.

Tyco asserted that it fired Plaintiff Jeffrey Wiest in 2008 for inappropriate sexual relations with two female co-workers and sexual harassment. He then brought suit under SOX, alleging that Tyco terminated him for raising concerns to his managers about excessive corporate expenditures.

The case has twice been on appeal to the Third Circuit. In 2010, Tyco successfully moved to dismiss Wiest’s complaint on the basis that his complaints did not amount to “protected activity” under SOX. Upon appeal, the Third Circuit reversed and remanded, adopting the worker-friendly standard that an employee engages in “protected activity” where he has a “reasonable belief” that the employer has violated or may violate the law or SEC rules (rejecting the standard, announced and later abandoned by the DOL’s Administrative Review Board, that the complaint must “definitively and specifically” relate to an existing violation of a particular anti-fraud law).

After remand, Tyco was eventually granted summary judgment on the basis that Wiest’s complaints were not a “contributing factor” in his termination. Wiest again appealed to the Third Circuit, which affirmed, and in the process adopted the standard of several other Circuits that a “contributing factor” was “any factor, which alone or in combination with other factors, tends to affect in any way the outcome of the decision.”

The “contributing factor” standard is a relatively low bar, specifically when compared to the causation standard for retaliation claims under some other statutes. Under Title VII, for example, an employee must establish that his protected activity was a “but-for” cause of the adverse action. See Univ. of Texas Southwestern Med. Ctr. v. Nassar, 133 S.Ct. 2517, 2521 (2013) (“Title VII retaliation claims require proof that the desire to retaliate was the but-for cause of the challenged employment action.”). Nonetheless, the Third Circuit had no trouble finding that Wiest was unable to meet his burden, noting that there was a ten-month gap between Wiest’s alleged protected activity and the adverse action; that he received praise and commendations in the interim; that the persons who initiated the investigations into Wiest’s inappropriate behavior had no knowledge of his protected activity; and that other persons in the accounting department who were involved (or more involved) in the same activity as Wiest did not receive any negative treatment.

Further, the Court also held that, even if Wiest were able to establish a prima facie case, his claim would have failed regardless. An employer may still rely on the defense that it would have taken the adverse action in the absence of protected activity, and the Court held that “Tyco has demonstrated that it would have taken the same actions with respect to Wiest in the absence of Wiest’s accounting activity given the thorough, and thoroughly documented, investigation [into his inappropriate activity] conducted by its human resources director.”

The Wiest decision is useful guidance for employers defending against SOX retaliation claims, as it outlines potential arguments (concerning the temporal relationship between the protected activity and adverse action, intervening events, and the thoroughness of internal investigations) that may be used to defeat an inference of causation or to establish the affirmative defense that the adverse action would have occurred regardless.

EEOC and DOL Propose Increased Reporting Requirements for EEO-1 Reports

On the seventh anniversary of the federal Lilly Ledbetter Fair Pay Act, the Equal Employment Opportunity Commission (“EEOC”), in partnership with the U.S. Department of Labor, Office of Federal Contract Compliance Programs (“OFCCP”), announced a proposed rule to collect data from employers that will be used to identify discriminatory pay practices. Under the proposed rule, companies with 100 or more employees, both private employers and federal contractors, would be required to report wages from W-2 earnings and total hours worked for all employees by sex, race, and ethnicity within a 12-month period. It is projected that these new proposed requirements will affect over 63 million employees.

This proposed rule is now in the comment period until April 1, 2016. The EEOC also plans to conduct a public hearing regarding the new rule at some point. If things progress as expected, this rule becomes effective for the September 30, 2017 reporting period.

While the EEOC highlights that the proposed rule also is a benefit to employers because it assists employers “in evaluating their pay practices to prevent pay discrimination” and to avoid enforcement actions, there are legitimate concerns regarding how such data will be interpreted and used by government agencies. Some concerns include the strong likelihood of this data producing false positives and the ability to keep this information confidential.

Pay Data

Currently, the EEO-1 form collects data regarding the number of employees, along with their sex, race and ethnicity, in 10 specifically designated job categories. Under the proposed rule, an employer also would be required to report the number of employees by their sex, race, and ethnicity, within 12 specified pay bands in each of the 10 job categories. These pay bands track the 12 pay bands used by the Bureau of Labor Statistics in the Occupation Employment Statistics survey. The specific pay bands are:

• $19,239 and under;
• $19,240 – $24,439;
• $24,440 – $30,679;
• $30,680 – $38,999;
• $39,000 – $49,919;
• $49,920 – $62,919;
• $62,920 – $80,079;
• $80,080 – $101,919;
• $101,920 – $128,959;
• $128,960 – $163,799;
• $163,800 – $207,999; and
• $208,000 and over.

The proposed new section of the EEO-1 form is available on the EEOC’s website (click here).

The pay data will be taken from employees’ total W-2 earnings for a 12-month period looking back from a pay period between July 1st and September 30th. The EEOC believes the benefit to using W-2 earnings is that it includes total earnings, including wages, salaries, and other compensation such as commissions, tips, taxable fringe benefits, overtime pay, shift differentials and bonuses. Also, the EEOC insists that using W-2s places the least amount of burden on an employer because this information is already gathered and most human resources information systems allow for calculations for any 12-month period, not just the calendar year.

A concern for employers is that there is no way to indicate on the EEO-1 form neutral factors, such as experience, education, or performance that might account for or explain any pay differentials. Accordingly, it is anticipated that this data may produce many false positives which will force employers to exert additional time and resources to defend their pay practices.

Total Number of Hours Worked

Under the proposed rule, an employer would also have to record the total number of hours worked by employees, broken down by sex, race, and ethnicity, in each pay band. The EEOC states that the reason for providing the number of hours worked is to take into account part-time or partial-year employees. Specifically, data on number of hours worked “will allow analysis of pay differences while considering aggregate variations in hours.”

As the rule is currently drafted, it is unclear how this information will achieve that purpose when it does not take into account factors which could skew results such as overtime hours, or other supplemental earnings like bonuses or commissions, which may be less due to part-time work. Another issue not addressed by the EEOC is how hours for salaried employees would be calculated. In fact, the EEOC acknowledges that it is not certain how to report hours worked for salaried employees and is requesting employer input on that issue.

Data Analysis

The EEOC states that it plans to use the pay data to: (1) assess complaints of discrimination; (2) focus agency investigations; and (3) identify existing pay disparities that may warrant further examination. The agency claims the information from the pay bands will be used to “compute within-job-category variation, across-job-category variation, and overall variation” to discern potential discrimination. The EEOC plans to develop statistical tools for staff to use on their computers so that they can conduct this type of analysis. The EEOC will also publish aggregate data so that employers can conduct their own analysis of their pay practices

Yet, the EEOC has not identified what statistical methodology it plans to use. Thus, it is not possible to assess whether the EEOC’s statistical analysis would hold up under judicial scrutiny or would be rejected by the courts.

Confidentiality Concerns

The EEOC does not guarantee that the pay data will be kept confidential and not subject to FOIA requests through both the EEOC and the DOL. Specifically, the EEOC states that Title VII forbids it from making public the EEO-1 data before a Title VII proceeding is instituted. As for OFCCP, it promises to keep the EEO-1 data confidential “to the maximum extent permitted by law, in accordance with the Freedom of Information Act Exemption 4 and the Trade Secret Act.”

The EEOC attempts to counter any confidentiality concerns by claiming that since the data is provided in the aggregate and not on based on individual employees, there is no confidentiality issue. Aside from the fact that it’s really more of a privacy issue, that response underplays the importance that the compensation data could provide to competitors and ignores the free discovery that it would provide to the plaintiff’s bar by allowing access to this pay data.

Next Steps

Given the complexity of defending discriminatory pay claims, in preparation of the enactment of this new rule employers should conduct pay equity analysis to assess any issues prior to submitting any pay data. Additionally, companies affected by the proposed rule may wish to consider submitting comments.

Who’s The Boss? The Department of Labor’s Effort to Expand Joint Employer Liability Under the FLSA

On January 20, 2016, the U.S. Department of Labor’s (“DOL”) Wage and Hour Division issued an Administrator’s Interpretation (“Interpretation”) significantly expanding the definition of a “joint employer” under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201 et seq. The DOL’s new approach, which relies in part on regulations promulgated under the Migrant and Seasonal Worker Protection Act (“MSPA”), 29 U.S.C. §§ 1801, shifts the focus of the analysis toward “economic realities.” If followed, the DOL’s approach potentially expands liability for wage and hour violations such as overtime pay to entities that do not directly employ workers, but that have contracted with third parties for labor.

In the introductory paragraphs of the Interpretation, the DOL implies its motive in promulgating the new standard is to protect a larger number of workers and to address purported efforts by employers to shield themselves from wage and hour liability using multi-tiered workforce structures. Although the Interpretation is not binding on courts, it may be cited as persuasive authority in litigation, and could significantly expand the number of companies subject to joint employer liability under the FLSA.

Two Types of Potential Joint Employer Arrangements

The Interpretation focuses on two types of potential joint employer relationships: (a) horizontal joint employment; and (b) vertical joint employment.

Horizontal joint employment “exists where the [putative] employee has employment relationships with two or more employers and the employers are sufficiently associated or related with respect to the employee such that they jointly employ the employee.” In the case of horizontal joint employment, there is typically an undisputed employer-employee relationship between each potential joint employer, individually, and the employee in question. For example, a horizontal joint employment scenario may exist for a waitress who works for two different restaurants that are owned by the same entity.

Vertical joint employment “exists where the employee has an employment relationship with one employer . . . and the economic realities show that he or she is economically dependent on, and thus employed by, another entity involved in the work.” In this type of potential joint employment arrangement, the putative joint employer is usually the (indirect) beneficiary of the employee’s work, contracted through an intermediary. However, unlike in the context of horizontal joint employment, the putative joint employer in a vertical joint employment inquiry would not have an admitted employment relationship with the putative employee. One example of this type of potential joint employment is a nurse placed at a hospital by a staffing agency.

Factors to Consider When Determining Whether Horizontal Joint Employment Exists

Relying largely on regulations and case law developed under the FLSA, the Interpretation identifies a number of non-exhaustive facts that should be considered in determining whether a horizontal joint employment relationship exists. They include:

Who owns the potential joint employers (e., does one company own part or all of the other or do they have any common owners);
Do the potential joint employers have any overlapping officers, directors, executives, or managers;
Do the potential joint employers share control over operations, including hiring, firing, payroll, advertising, and/or overhead costs;
Are the potential joint employers’ operations inter-mingled;
Does one potential joint employer supervise the work of the other;
Do the potential joint employers share supervisory authority for the employee;
Do the potential joint employers treat the employees as a pool of employees available to both of them;
Do the potential joint employers share clients or customers; and
Are there any agreements between the potential joint employers.

The Interpretation states that the above factors need not all be present for a horizontal joint employment relationship to exist. However, if the employers are “acting entirely independently of each other and are completely disassociated” with respect to an employee, no horizontal joint employment relationship will exist. The central focus is the relationship between the two potential joint employers.

Vertical Joint Employment: A Major Departure

Before the Interpretation, various federal circuit courts had developed their own multifaceted tests for determining whether two employers could be liable as joint employers pursuant to the FLSA. Though the standards varied, a majority shared a common focus on the degree of putative employers’ control over the putative employees.

While the Interpretation continues to focus on control in the context of horizontal joint employment relationships, the DOL departed from that focus with respect to vertical joint employers. Under the new formulation, determining whether a vertical joint employment relationship exists is a two-part process. First, consideration must be given to whether the “intermediary employer” (either an individual or an incorporated entity) is an employee of the putative joint employer (e.g., is a farm labor contractor actually an employee of the grower, and not an independent contractor?). If so, “all of the intermediary employer’s employees are employees of the potential joint employer too, and there is no need to conduct a vertical joint employer analysis.”

If the intermediary employer is not an employee of the putative joint employer, focus shifts to the “economic realities” analysis. Control cannot be the predominant consideration – as it had been in the past. Rather, the “core question” is “whether the [putative] employee is economically dependent on the potential joint employer who, via an arrangement with the intermediary employer, is benefitting from the work” (emphasis added).

In determining whether there is the requisite degree of economic dependence, the Interpretation recites seven factors that developed under the MSPA – a law governing agricultural workers – based on regulations implemented almost 20 years ago:

Whether and to what extent the work performed by the putative employee is controlled or supervised (directly or indirectly) by the putative joint employer beyond a reasonable degree of contract performance oversight.
Whether the putative joint employer controls the employment conditions, including whether the putative joint employer has the authority to hire or fire the employee, modify employment conditions, or determine the rate or method of pay.
The degree of permanency and duration of the relationship, taking into consideration the industry in which the relationship exists.
The extent to which the putative employee’s work for the putative joint employer is repetitive and rote, is relatively unskilled, and/or requires little or no training.
Whether the work performed by the putative employee is an integral part of the putative employer’s business.
Whether the work is performed on the putative joint employer’s premises. (It is immaterial whether the putative joint employer leases as opposed to owns the premises where the work is performed, so long as the putative employer controls the premises.)
Whether and to what extent the putative joint employer performs administrative functions for the employee, such as handling payroll, providing workers’ compensation insurance, providing necessary facilities and safety equipment, housing, or transportation, or providing tools and materials required for the work.

The Interpretation notes that some previous judicial standards focused only or primarily on factors relevant to the putative employer’s level of control (e.g., ability to hire and fire, supervision of the work, determining method and rate of pay). But the Interpretation takes the position that a limited, control-dominated analysis is inconsistent with “the breadth of employment under the FLSA.”

The result of the DOL’s broad, economic-driven approach may be that many companies that have contracted with third-party staffing providers will find themselves swept within the ambit of the FLSA if the Interpretation’s seven-factor analysis is applied. For example, the analysis above may result in a finding of a joint employment relationship where two entities are entirely economically dependent, but share little or no control over the putative employees. Note that the DOL’s new standard departs from many of the state common law formulations of the joint employer relationship, which may be more lenient for employers. On the other hand, some states, like California, have already expanded the scope of joint employer liability through the use of statutes imposing liability on customers of labor contractors. See, e.g., Cal. Lab. Code § 2810.3.

Takeaways

The Interpretation is not binding on courts, but may, nonetheless, be regarded (and cited) as persuasive authority, and will certainly guide the DOL’s own approach to potential joint employment enforcement under the FLSA. Although the Interpretation arguably does not alter the analysis for potential horizontal joint employment, it significantly changes the analysis for potential vertical joint employment. Accordingly, companies using third-party labor providers should carefully examine their risk of potential vertical joint employment liability, with an eye on the seven factors above. Unlike in the past, the focus should be on the level of economic dependence, as opposed to just control.

In addition to exploring restructuring of relationships with third-party labor providers, companies may wish to consider adding terms to contracts with labor providers entitling the companies to guarantees of wage and hour compliance, and providing the companies the right to audit labor providers’ compliance with wage and hour law. To further mitigate risk under the DOL’s new standard, companies may consider including indemnification provisions in agreements with third-party labor providers.

Employers Should Not Rely on Employer Handbooks to Create Enforceable Arbitration Agreements

In a recent published opinion, the New Jersey Appellate Division held that an arbitration clause in an employee handbook was unenforceable because the handbook also contained standard disclaimer language stating that the handbook did not create an employment contract. The Court’s decision, in Morgan v. Raymours Furniture Co., Slip Op. A-2830-14T2, 2015 WL 9646045 (N.J. App. Div. Jan. 7, 2016), makes clear that arbitration agreements should ideally be separate, stand-alone documents, not provisions in employee handbooks.

On three occasions during the course of his employment with defendant Raymours Furniture Company (“Raymours”), plaintiff Grant Morgan acknowledged receipt of an employee handbook. The handbook included a mandatory arbitration clause and a waiver of the employee’s right to sue in court. According to Morgan, after he complained about age discrimination in the workplace, Raymours presented him with a separate, stand-alone arbitration agreement and told him to sign the agreement or Raymours would terminate his employment. Morgan refused to sign and Raymours fired him.

Morgan filed a lawsuit against Raymours (and two individual Raymours managers) asserting age discrimination under the New Jersey Law Against Discrimination, wrongful termination and other causes of action. The defendants filed a motion to compel arbitration. The trial judge denied the motion, and the defendants appealed.

In reviewing the trial court’s decision, the Appellate Division considered the disclaimer contained in the employee handbook, which stated:

“Nothing in this Handbook or any other Company practice or communication or document, including benefit plan descriptions, creates a promise of continued employment, [an] employment contract, term or obligation of any kind.”

The Court also considered the text of the electronic form on which Morgan had acknowledged receipt of the employee handbook, which stated that the employee received the handbook and:

“understand[s] that the rules, regulations, procedures and benefits contained therein are not promissory or contractual in nature and are subject to change by the company.”

The Court recognized that Raymours included these disclaimers because of New Jersey Supreme Court precedent in Woolley v. Hoffman-LaRoche, Inc., 99 N.J. 284, 309, modified, 101 N.J. 10 (1985), holding that they may be necessary to defeat a claim that the handbook created implied contractual rights and duties. Nonetheless, the Morgan Court explained that “it is simply inequitable for an employer to assert that, during its dealings with its employee, its written rules and regulations were not contractual and then argue, through reference to the same materials, that the employee contracted away a particular right.” Moreover, the Court explained, for an arbitration clause to be enforceable, the employee must “clearly and unambiguously” agree to a waiver of his or her right to sue.

In light of the disclaimers, the Court concluded that Morgan had not clearly and unambiguously agreed to waive his right to sue. The Court reasoned that by “inserting such a waiver provision in a company handbook, which, at the time, the employer insisted was not ‘promissory or contractual,’ an employer cannot expect – and a court, in good conscience, will not conclude – that the employee clearly and unambiguously agreed to waive the valued right to sue.” The Court further reasoned that merely obtaining Morgan’s acknowledgment that he received the handbook did not constitute his agreement not to sue. The Appellate Division affirmed the trial court’s decision denying the motion to compel arbitration.

One’s immediate reaction to the Morgan decision may be that it leaves employers with two untenable options. They can either: (1) issue handbooks with enforceable arbitration provisions that may inadvertently create contractual rights for employees; or (2) issue handbooks with unenforceable arbitration provisions that will not inadvertently create contractual rights for employees. However, employers also have a third, better option. An employer wishing to implement a mandatory arbitration program should require employees to sign a separate, stand-alone agreement in which the employee clearly and unambiguously agrees to arbitration. Meanwhile, employers should continue to include Woolley disclaimers in their handbooks. Overall, while arbitration programs offer many benefits, it is critical that employers exercise great care to ensure that they are enforceable.

Don’t Labor Under New Laws — What Employers Need to Know About 2016 California Labor Laws

*Originally published by CalCPA in the January/February 2016 issue of California CPA — the original article can be found here.

Many California employers feel over-regulated—and under-appreciated. Yet, surprisingly, proposed new regulation of employers has declined. In 2015, 224 bills introduced in the California Legislature mention “employer,” compared to 574 in 2014. Most of those bills did not pass, and of the ones that did, most were not signed into law by Gov. Brown. One veto blocked a bill (AB 465) that would have made pre-dispute arbitration agreements made as a condition of employment—the kind that are in widespread use across the state—unlawful. Another veto rejected a bill (AB 676) reintroduced this year that would have penalized employers for limiting job prospects of, or discriminating against, applicants who are not currently employed.

Key elements of some of the bills that became law affecting private employers, effective Jan. 1, 2016, unless otherwise mentioned and organized by bill number, follow.

Minimum Wage Boost

As of Jan. 1, the state minimum wage for non-exempt workers will increase to $10 per hour, up from $9. This change also impacts classification of most exempt workers. In addition to strict “duties tests” for administrative, executive and professional wage and hour exemptions, a salary of at least twice the state minimum wage must be paid to meet the “salary basis test.” That increases the annualized exempt salary requirement to $41,600, up from $37,440. Also affected is the retail inside-sales exemption, which requires employees be paid at least 1.5 times the state minimum wage, and at least half of their other earnings be from commissions.

An increasing number of municipalities have increased the minimum wage for companies who employ workers in their jurisdiction. As of July 1, minimum wage at Los Angeles employers with 26 or more employees will increase to $10.50 per hour, and will increase annually up to $15 per hour by July 1, 2021. Minimum wage for employees in San Francisco increased to $12.25 from $11.05 per hour May 1, 2015, and will incrementally increase to $15 per hour by July 1, 2018. Many other cities, including Berkley, Oakland and San Diego have either enacted or have pending minimum wage laws. In addition, living wage laws may require higher minimum wages be paid as a condition of contracting with local, state or federal agencies. Employers should monitor each of the requirements to assure compliance.

Penalties for Pre-offer E-Verify Use

Employers may hire only individuals who have the right to work in the United States—either U.S. citizens or foreign citizens with authorization issued by the federal government. E-Verify, administered by the United States Citizenship and Immigration Services, Department of Homeland Security (DHS) and Social Security Administration (SSA), is an internet-based system that allows employers to determine the eligibility of their employees to work in the United States.

AB 622 continues a California law trend to prevent employment discrimination of immigrants. The new law prohibits employers from using E-Verify to check the employment authorization status of employees or applicants who have not received an offer of employment. Post-offer use of E-Verify remains lawful, as does use required by federal law (such as certain federal contractors) or as a condition of receiving federal funds. In addition to other remedies that may be available, the new law establishes a civil penalty not to exceed $10,000 for each unlawful use of the E-Verify system.

AB 622 also mandates employers provide to the affected worker—as soon as practicable—any DHS or SSA notification containing information specific to the worker’s E-Verify case or any nonconfirmation notice, indicating that the E-Verify data entered does not match federal records.

More Labor Commissioner Enforcement Powers

AB 970 expands the Labor Commissioner’s power to enforce local laws regarding overtime and minimum wage, and to issue citations and penalties for violations, except when the local entity has already issued a citation for the same violation.

Labor Code Sec. 2802 requires employers to indemnify for expenses or losses incurred by the employee in direct consequence of the discharge of the employee’s duties or as a result of obeying the employer’s directions. In addition to a private right of action by the employee to recover these expenditures, AB 970 authorizes the Labor Commissioner to issue citations and penalties against employers who violate Sec. 2802.

Employment Discrimination Clarified

AB 987 clarifies that it is an unlawful employment practice under the Fair Employment and Housing Act for an employer to retaliate or otherwise discriminate against an employee for “requesting” an accommodation for a disability or religious belief or observance, regardless of whether the request was granted.

Employers Can Cure Some Violations to Avoid PAGA

California’s Private Attorneys General Act of 2004 (PAGA) permits an employee to sue to recover civil penalties for certain alleged Labor Code violations that could otherwise be pursued by the Labor and Workforce Development Agency on behalf of the employee and other current or former employees. Employee-side litigants have used the act to leverage penalties on a workforce-wide basis for technical Labor Code violations, even where the employee has not been damaged.

As of Oct. 2, 2015, AB 1506 allows employers the opportunity to correct itemized wage statements (i.e., paystubs) to include missing inclusive dates of the pay period and the name and address of the legal employer, to avoid a PAGA action over those defects. The employer may cure the alleged violation within 33 calendar days of the postmark date of the PAGA notice it receives. The bill requires only a showing that the employer has provided fully compliant paystubs to each aggrieved employee to establish cure.

Whistleblowers’ Family Members Protected

Labor Code secs. 98.6, 1102.5 and 6310 generally prohibit an employer from discharging or taking other adverse action against any employee or applicant who has complained about unlawful discrimination, retaliation or any adverse action; engaged in whistleblowing activity; or complained about unsafe working conditions.

AB 1509 provides that an employer, or a person acting on behalf of the employer, shall not retaliate
against an employee because the employee is a family member of a person who has, or is perceived to have, engaged in any acts protected by these provisions. The term “employer” or “person acting on their behalf ” includes “client employers” (i.e., a business entity that obtains or is provided workers to perform labor within its usual course of business from a labor contractor) or a “controlling employer” (i.e., an employer listed in Labor Code Section 6400(b) regarding multiemployer worksites).

Piece-Rate Worker Pay Requirements

AB 1513, which adds new Labor Code Sec. 226.2 and repeals others, applies to employees who are
compensated on a piece-rate basis for any work performed during a pay period. This new law requires that employees be compensated for rest and recovery periods and “other nonproductive time” separate from any piece-rate compensation as follows:

Rest and recovery periods must be compensated at a regular hourly rate that is no less than the higher of: (i) an “average hourly rate” determined by dividing the total compensation for the workweek, exclusive of compensation for rest and recovery periods and any premium compensation for overtime, by the total hours worked during the workweek; or (ii) the “applicable minimum wage,” defined by the bill as “the highest of the federal, state or local minimum wage applicable to the employment.”

Certain employers, who comply with the applicable minimum wage requirement, have until April 30 to program their payroll systems to perform and record the calculation required under the average hourly rate requirement and comply with the itemized wage statement requirements (see below), so long as such employers pay piece-rate employees retroactively for all rest and recovery periods at or above the applicable minimum wage from Jan. 1–April 30, inclusive, and pay the difference between the amounts paid and the amounts that would be owed under the average hourly rate requirement, together with interest.

Other nonproductive time is that which is under the employer’s control, exclusive of rest and recovery periods, and not directly related to the activity being compensated on a piece-rate basis. That time must be compensated at an hourly rate that is no less than the applicable minimum wage. The amount of other nonproductive time may be determined either through actual records or the employer’s reasonable estimates, whether for a group of employees or for a particular employee, of other nonproductive time worked during the pay period.

Finally, in addition to the list of items required by Labor Code Sec. 226 for itemized wage statements, Sec. 226.2 requires that the statements include the:

Total hours of compensable rest and recovery periods;
Rate of compensation; and
Gross wages paid for those periods during the pay period.

Employers who do not pay an hourly rate for all hours worked in addition to piece-rate wages must also list on the itemized statements the total hours of other nonproductive time, rate of compensation for that time and gross wages paid for that time during the pay period.

Hospital Meal Period Waivers

For non-exempt employees, Labor Code Sec. 512 requires two meal periods for work periods of more than 10 hours. However, employees are allowed to waive their second meal period if the total hours worked in their shift are no more than 12. Effective Oct. 5, 2015, SB 327 made statutory the longstanding rule under Sec. 11(D) of Wage Order 5 that health care industry employees who work shifts in excess of eight total hours in a workday are permitted to waive their second meal period. The bill effectively sets aside a contrary appellate court decision.

Equal Pay Act for Substantially Similar Work

SB 358, known as the California Fair Pay Act (CFPA), subjects employers to one of the strictest and most aggressive equal pay laws in the country.

Under the CFPA, an employer is prohibited from paying employees of the opposite sex lower wage
rates for “substantially similar work, when viewed as a composite of skill, effort and responsibility, and performed under similar working conditions.”

Previously, the equal pay statute was more limited. It prohibited employers from paying employees of the opposite sex in the same establishment for equal work on jobs the performance of which requires equal skill, effort and responsibility, and performed under similar working conditions. The standard permits employees to bring an unequal pay claim based on wage rates in any of their employer’s facilities and in other job categories as long as the work is substantially similar.

The employer’s defense burden has increased under the CFPA. An employer must establish that the entire wage differential is based on the reasonable application of one or more of the following:

A seniority system;
A merit system;
A system which measures earnings by quantity or quality of production; or
A bona fide factor other than sex—such as education, training or experience.

The last factor will apply if the employer shows that the factor is not the result of a sex-based differential in compensation, is related to the position and is consistent with business necessity. An employee can defeat this defense by proving that an alternative business practice exists that would serve the same business purpose without producing the wage differential.

Seeking to decrease pay secrecy, the CFPA further prohibits employers from enacting rules, policies or otherwise engaging in conduct that prohibits employees from disclosing their own wages, discussing the wages of others, asking about other employees’ wages or aiding and encouraging employees to exercise rights under the CFPA. Yet, no one, including an employer, is obligated to disclose employees’ wages.

Finally, the CFPA prohibits discharge, discrimination and retaliation of employees for asserting rights under the act. The statute, as amended by the CFPA, permits a civil action seeking reinstatement, lost wages and interest, an equal amount as liquidated damages, lost benefits, other equitable relief and attorneys fees recovery. Finally, the CFPA requires that employers maintain records of employees’ “wages and rates of pay, job classifications, and other terms and conditions of employment” for a three-year period.

Wage Garnishment Restrictions

SB 501 amends, repeals and adds Sec. 706.050 of the Code of Civil Procedure, relating to wage garnishment. The new law reduces the prohibited amount of an individual judgment debtor’s weekly disposable earnings subject to levy under an earnings withholding order from exceeding the lesser of 25 percent of the individual’s weekly disposable earnings or 50 percent of the amount by which the individual’s disposable earnings for the week exceed 40 times the state minimum hourly wage, or applicable local minimum hourly wage, if higher, in effect at the time the earnings are payable.

Employee Time Off

California’s Kin Care Law allows employees to use half of their accrued sick leave to care for a “family member” (as defined). The Healthy Workplaces, Healthy Families Act (Paid Sick Leave Act) SB 579, which went into effect July 1, requires certain mandatory accrual of paid sick days. The bill effectively trues-up the two statutes by defining “sick leave” as leave provided for use by the employee during an absence from employment for purposes permitted by the Paid Sick Leave Act; prohibiting an employer from denying an employee the right to use sick leave; and taking specific discriminatory action against an employee for using, or attempting to exercise the right to use, sick leave for these purposes.

In other words, employees may use paid sick leave for their own health condition or preventative care, a family member’s health condition or preventative care, and if the employee is a victim of domestic assault, sexual violence and stalking. Further, “family member” now includes a child, regardless of age or dependency (including adopted, foster, step or legal ward), parent (biological, adoptive, foster, step, in-law or registered domestic partner’s parent), spouse, registered domestic partner, grandparent, grandchild or siblings.

The Family School Partnership Act applies only to employers with 25 or more employees and permits an employee—defined as a parent, guardian or grandparent having custody of a child in school (grades 1–12) or child day care facility—unpaid leave of up to 40 hours each year (and no more than eight hours in a calendar month) to participate in school activities, subject to specified conditions. SB 579 amends this act by changing its scope from “child day care facility” to “child care provider” and adding leave rights for stepparents or foster parents, or one who stands in loco parentis to a child. The new law also allows employees to take unpaid time off to enroll or reenroll their children in a school or with a licensed child care provider.

Even More Labor Commissioner Enforcement Powers

SB 588 provides the California Labor Commissioner with additional powers to enforce judgments against employers arising from the employers’ nonpayment of wages. The new law, among other things, authorizes the Labor Commissioner to use any of the existing remedies available to a judgment creditor and to act as a levying officer when enforcing a judgment pursuant to a writ of execution; and issue a notice of levy if the levy is for a deposit, credits, money or property in the possession or under the control of a bank or savings and loan association or for an account receivable or other general intangible owed to the judgment debtor by an account debtor.

If an employer fails to pay a judgment for unpaid wages within 30 days of it becoming “final” (i.e., exhaustion of appeals), the employer must stop doing business in California unless it posts bond up to $150,000 (depending on the unsatisfied portion of the judgment). And the Labor Commissioner can issue a “stop order” to suspend all business operations to enforce this new provision.

What’s Next?
Employers should consider how these new laws impact their workplaces, and then review and update their personnel practices and policies with the advice of experienced attorneys or human resource professionals.