Palmer Kazanjian Wohl Perkins, LLP

Union Employers Score Big Win

2009-05-11T11:12:00.000-07:00

On April 1, 2009, the United States Supreme Court decided Penn Plaza LLC v. Pyett (2009) 129 S. Ct. 1456, which held that a provision in a collective bargaining agreement (“CBA”) that clearly and unmistakably requires union members to arbitrate discrimination claims is enforceable as a matter of federal law and, therefore, preempted by the National Labor Relations Act (“NLRA”).

Penn Plaza is a significant victory for union employers in that claims for harassment, discrimination, and retaliation may be preempted and must be adjudicated through the grievance arbitration provisions of a CBA and not through civil courts. This decision can potentially save union employers thousands, if not hundreds of thousands, of dollars in litigation costs and potential damage awards.

The CBA in Penn Plaza required union members to submit all claims of employment discrimination to binding arbitration as follows:

§ 30 NO DISCRIMINATION. There shall be no discrimination against any present or future employee by reason of race, creed, color, age, disability, national origin, sex, union membership, or any other characteristic protected by law, including, but not limited to, claims made pursuant to Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the New York State Human Rights Law, the New York City Human Rights Code, ... or any other similar laws, rules, or regulations. All such claims shall be subject to the grievance and arbitration procedures (Articles V and VI) as the sole and exclusive remedy for violations. Arbitrators shall apply appropriate law in rendering decisions based upon claims of discrimination.

This provision was freely negotiated and qualified as a condition of employment subject to mandatory bargaining under the NLRA. According to the Court, unless the discrimination statute, prohibiting discrimination, harassment, or retaliation, removes itself from the labor arbitration process, these claims may be arbitrated.

Union employees have further redress if his/her union fails to fairly represent him/her for such claims. Union members have always had a right, when his/her union takes action that is arbitrary, discriminatory, or in bad faith, to file suit for a breach of the duty of fair representation.

Therefore, union employers should review their CBAs for the following:

- Does the CBA have a provision that prohibits discrimination, harassment, and retaliation?
- Does this provision prohibit discrimination, harassment and retaliation for all protected categories, i.e., state and federal?
- Does it include a list of all legislative Acts that prohibit discrimination, harassment and retaliation under both federal and state law?
- Does the provision specifically provide that all claims for discrimination, harassment and retaliation are subject to the grievance and arbitration procedures of the CBA as the sole and exclusive remedy for such violations, that the Arbitrator will apply appropriate law, and that his/her decision is final and binding on all of the parties?

Union employers should also:

- Notify the Union when claims of discrimination, harassment and retaliation are made;
- request the Union represent its member making such claims;
- request the Union to conduct, in addition to the investigation the employer conducts, its own appropriate investigation into the claims;
- follow the grievance arbitration provisions to resolve the matter, and, if resolution cannot be achieved;
- submit the claims to final and binding arbitration before an Arbitrator.

Although numerous questions remain unanswered, Penn Plaza does much to streamline claims of discrimination, harassment and retaliation. This case offers unionized employers the opportunity to negotiate an arbitration process that includes individual employee claims associated with civil rights. If your CBA does not have such provisions you should strongly consider negotiating these terms in successive agreements.

For more information about the topic above, contact Heather S. Candy (hcandy@pkwp-law.com) or call (877) 442-3552. To read Ms. Candy's professional profile on the Palmer Kazanjian Wohl Perkins website, click here.

Yes, You Can Settle A Wage Claim

2009-05-11T11:01:00.000-07:00

Periodically, employers are faced with a difficult decision regarding employee compensation issues. When an employer determines an employee may be misclassified, the employer often considers modifying the classification and attempting to resolve the issue through a release of claims. Unfortunately, certain California Labor Code sections leave doubt about whether such an attempt is appropriate.

For example, Labor Code section 206.5 states

(a) An employer shall not require the execution of a release of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of those wages has been made. A release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee. Violation of this section by the employer is a misdemeanor.

(b) For purposes of this section, “execution of a release” includes requiring an employee, as a condition of being paid to execute a statement of the hours he or she worked during a pay period which the employer knows to be false.

Similarly, Labor Code section 206 states:

(a) In case of a dispute over wages, the employer shall pay, without condition and within the time set by this article, all wages, or parts thereof, conceded by him to be due, leaving to the employee all remedies he might otherwise be entitled to as to any balance claimed.

As a result, an employer may avoid modifying the classification or attempting to resolve the wage claim through an enforceable release. At long last, a California appellate court has clarified that indeed, an employer may work directly with the employee to settle individual wage claims and that a written release signed by the employee is enforceable against the employee’s future claims, including the employee’s right to join a class action lawsuit.

In Chindarah v. Pick Up Stix, Inc., the company was faced with a class action involving overtime compensation. The company attempted to settle the claims directly with employees. In exchange for settlement monies, some employees agreed to sign agreements releasing all their claims, including their right to join in the class action.

Despite the release agreements, the attorneys pursuing the class action included employees who had released their rights. In turn, the company sued the employees for breach of the release agreements. Upon review, the appellate court found in favor of the company and dismissed the employees from the class action.
The court enforced the releases because there was a bona fide dispute as to whether the employer owed overtime compensation. Apart from the settlement monies, the company paid all conceded wages and had a legitimate defense to the claim for additional compensation. The court rejected the argument that only the California Labor Commissioner could settle wage claims and the argument that all disputed wages had to be paid in order to release claims.

Thus, the employees may have been entitled to full overtime compensation had they refused the settlement, but by accepting the settlement and signing the release in the midst of a bona fide dispute, the release became enforceable and they were properly excluded from the class action.

In practical terms, this helps employers who may have pending wage claims. Employers who find potential errors in overtime classifications are free to negotiate regarding overtime, meal and rest period violations or other compensation issues. So long as there is a legitimate dispute regarding the unpaid compensation, employees can waive their right to compensation with appropriate consideration and a properly worded release agreement. This permits employers to rectify prior errors or questionable classifications with less concern for notifying employees of potential claims. Employers can state the dispute and offer a payment to employees, who, upon acceptance, sign a release and waive their rights to future claims and thereby curtailing future litigation.

For more information about the topic above, contact Treaver Hodson (thodson@pkwp-law.com) or call (877) 783.6699. To read Mr. Hodson's professional profile on the Palmer Kazanjian Wohl Perkins website, click here.

EXPANDED COBRA BENEFITS AND SUBSIDY

2009-03-04T12:55:00.000-08:00

The recent "Stimulus Package" formally titled the American Recovery and Reinvestment Act of 2009 adds new requirements relating to COBRA continuation coverage for employees terminated involuntarily on or after September 1, 2008. A brief summary of the important issues being addressed by the new legislation is provided below.

* Effective March 1, 2009, employers are required to cover 65% of the cost of COBRA coverage for involuntarily terminated employees. Employers may recover the cost of subsidizing the COBRA coverage via a credit on their payroll tax returns.

* Individuals at certain income levels will be required to repay the COBRA subsidy through increased income tax liability. Such individuals may elect to permanently waive the subsidy in order to avoid this tax.

* As an additional option, at the time of COBRA election coverage employers may allow individuals to enroll in qualifying health coverage different than the coverage in which they were enrolled at the time of the terminating event.

* Those who have lost their job prior to the enactment of the legislation and who did not elect COBRA coverage have the right to make a special election during a specified period commencing February 17, 2009. Although the details have yet to be addressed, plan administrators will likely be required to provide appropriate notice to qualifying individuals regarding this special election option and period.

* With these new obligations and rights, revised notices must be provided by plan administrators regarding the COBRA subsidy and option to enroll in different coverage. Model notices from the US Department of Labor should be available within 30 days.

Details on the new COBRA provisions are provided by the US Department of Labor at: http://www.dol.gov/ebsa/cobra.html

Also, the Internal Revenue Service released recent guidance (February 26) to assist employers in administering the new COBRA requirement. The IRS guidance includes a FAQ section and a revised Employer's Quarterly Federal Tax Return (Form 941). Employers will use the revised Form 941 to claim the COBRA tax credit. The IRS guidance is available online at: http://www.irs.gov/newsroom/article/0,,id=204505,00.html

For more information on this rapidly developing topic, contact either Treaver K. Hodson at thodson@pkwp-law.com or George F. Cicotte at gcicotte@pkwp-law.com. Our offices can be reached at (916) 442.3552 To read Mr. Hodson's or Mr. Cicotte’s professional profile or any other of our attorneys on the Palmer Kazanjian Wohl Perkins website, click here.

New Employment Laws Passed by California Legislature

2008-11-14T10:10:00.000-08:00

Laws signed by Governor Schwarzenegger to take effect in September and October 2008

AB 10: Overtime Compensation for Computer Software Employees

Current overtime laws in California require employers to pay their employees overtime for any work in excess of 8 hours in one workday, and for any work in excess of 40 hours in one workweek, and for the first 8 hours worked on the 7th day of work in any one workweek.[1] California law, however, provides several exemptions from these overtime requirements, such as the executive or professional exemptions for employees who meet specific requirements.

One such professional exemption is for employees in the computer software field. Existing law provides that such an employee is exempt from the overtime provisions if the employee is primarily engaged in work that is intellectual or creative and regularly exercises independent discretion and judgment in carrying out certain specified duties.[2] Existing law provides the exemption for such employees in the computer software field whose hourly rate of pay is not less than $36.[3]

AB 10 keeps the same requirements listed above; however, the bill adds that a computer software field employee who is paid on a salaried, rather than hourly, basis, is also exempt if that employee earns an annual salary of at least $75,000 for full-time employment, which is paid at least once a month and in an amount of at least $6,250.

Initially, the change in law does not seem to be significant because the pay rate of $36 per hour at 40 hours per week totals just under $75,000. However, it is important to make note of the change because the original exemption applied only to individuals paid on an hourly basis. Under new law, it is irrelevant whether the individual is paid hourly or on a salary—assuming the employee meets the other requirements, the individual qualifies for the exemption regardless of how the employer calculates the individual’s pay (assuming, of course, the salaried employee is paid at least once a month).

SB 1352: Prevailing Wage Rates and Wage & Penalty Assessments

Under existing California law, the Labor Commissioner is required to issue a civil wage and penalty assessment to a contractor or subcontractor, or both, if the Labor Commissioner determines that either the contractor or subcontractor, or both, violated the laws regulating public works contracts, including the payment of prevailing wages.[4] California Prevailing Wage Law is designed to impose minimum wage standards on construction projects funded, in whole or in part, with public funds.[5] Under the law, all workers employed on public works costing more than $1,000 must be paid not less than the general prevailing rate of per diem wages for work of a similar character in the locality in which public work is performed.[6] Per diem wages include employer payments for health and welfare, pension, vacation, travel time, and subsistence pay as provided for in the applicable collective bargaining agreement.[7]

Currently, the affected contractor or subcontractor is permitted to seek review of such an assessment for violations of California Prevailing Wage Law by submitting a written request for a hearing before an administrative law judge to the Labor Commissioner within 60 days.[8] SB 1352 changes existing law, providing that only a hearing officer is required to hold these hearings after January 1, 2009, rather than an administrative law judge. While it remains to be seen, this change may be significant because it demonstrates a trend toward a more informal process for resolving disputes surrounding assessments issued for prevailing wage violations.

Additionally, SB 1352 allows a contractor, subcontractor, or surety to deposit the full amount of the assessment for the Department of Industrial Relations to hold in escrow pending review. If so deposited, there would be no liability for liquidated damages. This liquidated damages change is significant because under existing law, an affected contractor or subcontractor will automatically be liable for liquidated damages on any unpaid wages 60 days after the assessment is issued, regardless of whether the affected contractor or subcontractor has requested a hearing for review of the assessment.[9]

Additionally, SB 1352 allows the Director of Industrial Relations, at his or her discretion, to waive payment of liquated damages, or a portion thereof (whether deposited with the Department of Industrial Relations or not), if the contractor or subcontractor can demonstrate that there were substantial grounds for its appeal.

Thus, under the new law, a contractor or subcontractor who has been issued an assessment by the Labor Commissioner can avoid liquidated damages in 3 ways: (1) by full payment of the assessment within 60 days; (2) by depositing the full amount of the assessment for the Department of Industrial Relations within 60 days and pending review if the contractor or subcontractor requests a hearing for review of the assessment; or (3) at the Director’s discretion if the contractor or subcontractor can demonstrate that he or she had substantial grounds for appealing the assessment.

SB 1173: Unemployment Insurance for the Motion Picture Industry

Existing law provides that until January 1, 2012, for purposes of the Unemployment Insurance Code, any employing unit that is a motion picture payroll services company, as defined, shall be treated as an employer of a motion picture production worker, as defined.[10] Existing law requires any employing unit operating as a motion picture payroll services company that quits business to file with the director of the Employment Development Department a final return and report of wages, as provided, and, within 30 days of quitting business, to notify the motion picture production companies and allied motion picture services of its intent to quit business.[11] SB 1173 extends to 45 days the time period within which a motion picture payroll services company that quits business must notify the motion picture production companies and allied motion picture services of its intent to quit business.

SB 1173 also allows a motion picture payroll services company that has elected to be treated as an employer to apply to the director to extend an existing voluntary plan for the payment of disability benefits to motion picture production workers of the company’s affiliated entities. SB 1173 requires the director to approve the extension of the plan upon specified conditions. SB 1173 deems the extension of a plan approved by the director to have met employee consent requirements for the adoption of a voluntary plan, if the plan met the consent requirements when initially adopted, and the plan provides for giving specified written notices and statements that are approved by the director.

SB 1247 & SB 585: Farmworker Housing Assistance & Tax Credits

Existing law establishes a low-income housing tax credit program, administered by the California Tax Credit Allocation Committee, which provides procedures and requirements for the allocation of state tax credit amounts among low-income housing projects based on federal law.[12] Existing law also establishes a farmworker housing assistance program and prescribes requirements for claiming tax credits under the program, including a requirement that expenditures upon which the amount of the credit is based shall be eligible costs, as defined, and a limitation on the amount of development fees that may be included as eligible costs.[13]
SB 1247 repeals the farmworker housing assistance program and, instead, requires that an amount specified within those tax credit provisions be set aside for projects housing farmworker households, as provided. SB 1247 also repeals specified existing tax credits for farmworker housing authorized under the Personal Income Tax Law and the Corporation Tax Law.

SB 585, in the case of a partnership, requires the allocation of the credits, on or after January 1, 2009, and before January 1, 2016, to partners based upon the partnership agreement, regardless of how the federal low-income housing tax credit, as provided, is allocated to the partners, or whether the allocation of the credit under the terms of the agreement has substantial economic effect, as specified. SB 585 also makes findings and declarations with regard to the public interest served by this credit as proposed to be amended by this bill.
SB 585 also incorporates specified changes proposed by SB 1247. SB 585 took effect immediately as a tax levy.

For more information about the topic above, contact Treaver Hodson (thodson@pkwp-law.com) or Amanda Gimbel (agimbel@pkwp-law.com) or call (877) 783.6699. To read Mr. Hodson's professional profile on the Palmer Kazanjian Wohl Perkins website, click here.

[1]Cal. Labor Code § 510.
[2]Cal. Labor Code § 515.5.
[3]Id.
[4]Cal. Labor Code § 1741.
[5]Road Sprinkler Fitters Local Union No. 669 v. G & G Fire Sprinklers, Inc. (3d. Dist. 2002) 102 Cal.App.4th 765.
[6]Cal. Labor Code § 1771.
[7]Road Sprinkler Fitters, supra, 102 Cal.App.4th 765.
[8]Cal. Labor Code § 1742.
[9]Cal. Labor Code § 1742.1.
[10]Cal. Un. Ins. Code § 679.
[11]Id.
[12]Cal. Rev. & T. Code §§ 12206, 23610.5.
[13]Cal. Rev. & T. Code § 23608.2.

Brinker Restaurant v. Superior Court (Hohnbaum) (2008) 80 Cal.Rptr.3d 781, review granted, Oct. 22, 2008, S166350/D049331 Meal and Rest Breaks

2008-10-27T10:20:00.000-07:00

Petition for review following vacation of a class certification order and entry of a new order denying with prejudice certification of plaintiffs' rest, meal period, and off-the-clock subclasses. Question has not been posted on docket, but likely relates to whether employers must ensure that employees take breaks, and whether employers would be held liable if they knew or should have known that employees worked off the clock. Werdegar, J., was absent and did not participate. Votes: George, C.J., Kennard, Baxter, Chin, Moreno, and Corrigan, JJ. Petition granted/brief due.

Click here for more info.

2009 IS THE 50TH ANNIVERSARY OF THE FAIR EMPLOYMENT AND HOUSING ACT. THE STATE BAR LABOR & EMPLOYMENT LAW SECTION AND THE CALIFORNIA DEPARTMENT OF FAIR EMPLOYMENT & HOUSING WILL BE CO-SPONSORING MANY PROGRAMS TO MARK THIS IMPORTANT MILESTONE THROUGHOUT THE YEAR. THE DFEH IS THE CLEARINGHOUSE OF ALL THESE COLLABORATIVE EFFORTS. PLEASE SEE THE BROCHURE AND RSVP FORM FOR COLLABORATION ON THE CIVIL RIGHTS YEAR BELOW.

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California Court Clarifies Meal and Rest Period Obligation – Enforcement Efforts Modified

2008-08-04T10:06:00.000-07:00

In Brinker Restaurant Corp. v. Superior Court of San Diego County, a California appellate court decided three significant issues that bring needed clarification to an otherwise uncertain area of state wage and hour law. The court held that:

1. Rest Periods. While employers cannot impede, discourage or dissuade employees from taking rest periods, they need only provide, not ensure, rest periods be taken. Employers need only authorize and permit rest periods every four hours or major fraction thereof. Rest periods need not, where impracticable, be taken in the middle of each work period.

2. Meal Periods. While employers cannot impede, discourage or dissuade employees from taking meal periods, they need only provide, not ensure, meal periods are taken. Also, employers are not required to provide meal periods for every five consecutive hours worked.

3. Hours Worked. While employers cannot coerce, require or compel employees to work “off the clock,” they can only be held liable for employees working “off the clock” if they knew or should have known employees were doing so.

These holdings are significant to California employers because, until now, employers have been unsure of their legal obligation regarding employee meal and rest periods. In particular, certain administrative interpretations of the applicable statutes and regulation required employers to ensure employees took mandated meal and rest periods, rather than merely providing or making the mandated periods available. This interpretation simplified administrative enforcement because, once an employee missed a required meal or rest period, liability was assessed without consideration of the employer’s efforts to provide employees the opportunity to take the meal or rest period. Essentially, under this former interpretation, employers were liable for employees’ failure to take advantage of offered meal and rest periods. For many employers this interpretation was not only unreasonable, but at times costly.

Now, as the California appellate court has followed earlier federal court interpretations, employers can pursue more rational policies and practices for offering meal and rest periods. Written policies are strongly recommended. Through written policies, employers can make available to employees appropriate meal and rest periods, thereby meeting substantial compliance with their legal obligations. Of course, employer practices must be consistent with the written policies to ensure lawful compliance. Employers who impede, discourage, or dissuade employees from taking meal and rest periods are still liable for the one (1) hour premium imposed each day an employer fails to properly provide meal or rest periods.

Effective immediately, in order to assess the regulatory premium, enforcement agencies are required to demonstrate that an employer impeded, discouraged or dissuaded its employees from taking the meal or rest period. This standard for enforcement is certainly more difficult to meet than merely showing that an employee missed the meal or rest period and nothing more. In fact, the Brinker Restaurant Corp. case has already prompted the California Division of Labor Standards Enforcement (DLSE) to issue a memorandum to its staff incorporating the new decision’s interpretation into its enforcement efforts. A copy of the DLSE memorandum can be found at the following website: click here.

Undoubtedly additional issues will arise from this new interpretation of the California meal and rest period obligation. Still, employers should consider prompt and appropriate action in order to take advantage of this opportunity as soon as possible.

For more information about the topic above, contact Treaver K. Hodson at thodson@pkwp-law.com or (877) 783.6699. To read Mr. Hodson's professional profile on the Palmer Kazanjian Wohl Perkins website, click here.

Conflicted Plan Administrators Face A Slightly More Rigorous Judicial Review of Benefit Determinations

2008-07-11T13:02:00.000-07:00

Many ERISA plans allow insurers to act as plan administrators. As administrators, insurers have the dual obligation to determine the validity of employee benefit claims and to pay valid claims. This dual role is not prohibited. In fact, ERISA authorizes companies to fulfill both fiduciary and nonfiduciary functions as long as they do not in actuality commingle those functions. See 29 U.S.C. § 1108(c)(3). ERISA permits dual roles because ERISA’s protections in combination with judicial scrutiny, provide adequate structural safeguards to ensure the just administration of employee benefit plans.

In the recent case Metropolitan Life Ins. Co. et al. v. Glenn, 461 F. 3d 660 (2008), the United States Supreme Court tackled the question of whether a court should more critically review a denial of benefits by a plan sponsor when that sponsor has dual roles. The Court noted the importance of the case because the “lion’s share” of ERISA plan claim denials are made by plan administrators that both assess and pay claims.

MetLife served as an administrator and insurer of an ERISA-governed, long-term disability plan which granted MetLife authority to determine the validity of employee benefit claims and also permitted MetLife to pay claims. Plan participant Wanda Glenn was diagnosed with a heart disorder. She applied for and began receiving an initial 24 months of disability benefits under the plan. MetLife instructed Glenn to apply for permanent Social Security disability benefits which she began receiving based on a determination by an administrative law judge that she was unable to perform any job for which she was qualified. The judge’s decision was based in part on information submitted by MetLife. MetLife’s financial obligation to Glenn was diminish by her Social Security disability benefits.

When the 24 month period concluded, Glenn applied for extended plan benefits. The application had a stricter standard that resembled the Social Security standard. In parting with the agency determination, MetLife terminated Glenn’s benefits and denied her extended coverage finding that she was capable of engaging in sedentary work.

Glenn eventually brought a lawsuit in federal court against MetLife arguing that her benefit denial was arbitrary and capricious and in violation to ERISA. The district court disagreed with Glenn and denied relief. The Sixth Circuit reversed the district court’s decision specifically noting that MetLife operated under a conflict of interest because it evaluated benefit claims and paid them out of its own pocket. Due to this conflict, the Sixth Circuit determined that greater scrutiny of MetLife’s decision was warranted.

The appeals court overturned MetLife’s denial of benefits based on the following factors: 1) The conflict of interest, 2) MetLife’s and the administrative law judge’s incongruent determinations, 3) MetLife’s reliance on a single physician’s report suggesting Glenn’s ability to perform sedentary jobs rather than other detailed physician reports suggesting she could not perform any job, 4) MetLife’s role in supporting Glenn with her permanent disability request.

In Glenn, the Supreme Court found no errors in the Sixth Circuit’s approach. The Court held that the dual roles of administrator and insurer create a conflict of interest that courts may consider with other factors when reviewing benefits determinations for abuse of discretion. The Court took steps to limit its holding by refusing to adopt a rule which would require automatic de novo review of benefits denials by conflicted plan sponsors. Had the Court failed to limit its holding, it could have been interpreted as requiring judges not to grant any deference to conflicted plan sponsor benefits determinations.

The Glenn Court further limited its holding by explaining that a conflict of interest can become an unimportant judicial review factor “where the administrator has taken active steps to reduce potential bias and to promote accuracy, for example, by walling off claims administrators from those interested in firm finances, or by imposing management checks that penalize inaccurate decision-making irrespective of whom the inaccuracy benefits.” However, the Court noted that a conflict of interest should give judges more pause when “circumstances suggest a higher likelihood that it affected the benefits decision, including, but not limited to, cases where an insurance company administrator has a history of biased claims administration.”

Glenn is significant because in instances where other factors are closely balanced, a conflict of interest will now act as a tiebreaker requiring judges to give less deference to benefits decisions by conflicted plan administrators. In his concurring opinion Chief Justice Roberts points out that “[j]udicial review under the majority’s opinion is less constrained, because courts can look to the bare presence of a conflict as authorizing more exacting scrutiny.” In other words, the Glenn decision has—to some degree—universally raised judicial scrutiny of decisions by plan sponsors with a conflict of interest.

The impact of the Glenn decision is far from certain. Some argue that this case embodies a victory for employees because employees will now receive more meaningful judicial protection. With that protection, employees will, on average, enjoy greater benefits. Others argue that claims will be more likely to settle for more money and go to trial more often. If one follows that line of reasoning to its logical conclusion, Glenn is a victory for no one. If employers incur additional claims defense costs, they will likely pass those costs onto employees in the form of higher premiums and less generous benefits. In any case, Glenn will likely cause some difficulties for conflicted plan sponsors of ERISA-governed plans—at least in the short-run.

For more information about the topic above, contact George F. Cicotte at george@cicottelaw.com or (877) 783.6699. To read Mr. Cicotte's professional profile on the Palmer Kazanjian Wohl Perkins website,click here.

California Enforcement Agency Continues Trend to Classify Independent Contractors As Employees

2008-04-23T10:43:00.000-07:00

Recently the California Division of Labor Standards Enforcement (“Division”) audited beauty and nail salons in 10 counties throughout Northern California. Nearly every salon audited in Sacramento County was issued a citation with assessed fines totaling $61,000.00. What was the Division’s basis for issuing citations and assessing fines? The improper classification of workers as independent contractors.

The Division’s audit appears to be a continuation of a larger trend in California labor and employment law which has no clear end in sight. Advocates cite unfair competitive advantage, avoidance of payroll tax and employment-related benefits, and lack of labor and employment law protections as reasons supporting the recent focus on misclassified independent contractors.

How Does A Business Know Whether Workers Are Independent Contractors?

The Division has long relied upon the standard established in S.G. Borello & Sons, Inc. v. Department of Industrial Relations[1] decided by the California Supreme Court in 1989 to determine the status of independent contractors. The Borello case has been favorably cited and relied upon in two recent California appellate court decisions dealing with courier drivers who were treated as independent contractors.[2] One of these cases involved the assessment of unemployment taxes and the other involved the violation of the California Labor Code provision requiring reimbursement of business expenses. In each of these cases, the California court determined that an employment, not an independent contractor, relationship existed.

From these cases and the recent trend perpetuated by the Division, it appears that the standard established in Borello is the most reliable under California law for determining whether a worker is an employee or independent contractor.

Under this analysis, the most significant factor considered is whether the business or principal involved retains the right to control the manner and means of accomplishing the task assigned to the worker. When a principal retains the right to control, it is a strong indication that an employment relationship exists. Other considerations reviewed under California law include:

1. Whether the worker is engaged in an occupation or business distinct from that of the principal;

2. Whether or not the work performed is part of the regular business of the principal;

3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;

4. The worker’s investment in the equipment or materials required by the task;

5. The skill required in the particular occupation;

6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

7. The worker’s opportunity for profit or loss depending on managerial skill;

8. The length of time for which the services are to be performed;

9. The degree of permanence of the working relationship;

10. The method of payment, whether by time or by the job; and

11. Whether or not the parties believe they are creating an employment relationship.

In 1989, the Borello court noted: “The modern tendency is to find employment when the work being done is an integral part of the regular business of the employer, and when the worker, relative to the employer, does not furnish an independent business or professional service."[3] This statement has held true since Borello was decided and continues in the current trend focusing on misclassification.

What Should Businesses Do In Response to This Recent Trend?

As a result, it is prudent for all businesses that rely upon independent contractors to perform significant or integral parts of their regular operations to analyze carefully these relationships. The beauty salon and courier industries are not unique in this regard. Each industry will be subject to the same criteria for determining whether an independent contractor relationship exists. Also, the trend establishes that written contracts purporting to characterize a relationship as an independent contactor relationship will be of little value in the analysis. There exists a presumption of employment that must be overcome by the business seeking to establish the independent contractor relationship[4] and the factors noted above, not the written agreement, will be determinative.

Beyond the civil fines assessed by the Division, improper classification of independent contractors can result in liability for unpaid overtime compensation and business-related expenditures, premiums for missed meal and rest period, and other related compensation issues. When an unexpected employment relationship is established, the application of equal employment opportunity laws and other labor and employment laws follows which may also create significant liability. Finally, misclassified independent contractors may be entitled to pension and health insurance benefits which were withheld because of the misclassification. It seems obvious that misclassification can be devastating to a business and even an entire industry.

If you have questions regarding the classification of independent contractors, you should not hesitate to contact labor counsel to protect your business from the reach of the Division and its renewed efforts to audit and investigate misclassified workers.

For more information regarding the above, please contact Treaver Hodson at (916) 442-3552.

[1] 48 Cal. 3d 341 (1989).

[2] Air Couriers International v. Employment Development Department, 150 Cal. App. 4thCal. App. 4th 1 (2007). 923 (2007); Estrada v. FEDEX Ground Package System, Inc., 154

[3] Borello, 48 Cal.3d at 357.

[4] California Labor Code section 3357.

The Family and Medical Leave Act and National Defense Authorization Act Of 2008

2008-03-17T23:06:00.000-07:00

On January 28, 2008, President Bush signed into law H.R. 4986, the National Defense Authorization Act for FY 2008 (NDAA), Pub. L. 110-181. Among other things, section 585 of the NDAA amends the Family and Medical Leave Act of 1993 (FMLA) to permit a spouse, son, daughter, parent, or next of kin to take up to 26 workweeks of leave to care for a member of the Armed Forces, including a member of the National Guard or Reserves, who is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness.

Please note that the provisions in the NDAA providing this leave are effective as of the date of the President’s signing, but the Department of Labor (DOL) has yet to issue regulations governing this leave. In the interim, Wage & Hour Division will require employers to act in good faith in providing leave under the new legislation. Because the NDAA amends the FMLA, FMLA-type procedures should be used as may be appropriate (for example, procedures regarding substitution of paid leave and notice).

In addition, the NDAA also permits an employee to take up to 12 workweeks of FMLA leave for any qualifying exigency (as the Secretary [of Labor] shall, by regulation, determine) arising out of the fact that the spouse, or a son, daughter, or parent of the employee is on active duty (or has been notified of an impending call or order to active duty) in the Armed Forces in support of a contingency operation. By its express terms, this provision of the NDAA is not effective until the Secretary of Labor issues final regulations defining any qualifying exigency. Again, the DOL is in the process of preparing such regulations. In the interim, DOL encourages employers to provide this type of leave to qualifying employees.

Although, as stated above, the DOL is in the process of creating the regulations that will govern this leave, employers with FMLA obligations should revise their personnel policies immediately to comply with H.R. 4986.

For more information regarding the above, please contact Heather Candy at hcandy@pkwp-law.com or (916) 442-3552.