California Employment Law Report

California Employment Law Report

The latest litigation trends, court decisions, & issues on California Employment Law

Five action items to conduct an appropriate harassment investigation

A couple of weeks ago I wrote about an employer’s obligations to conduct effective investigations into harassment claims.  I was typing at computerside tracked since that post, and promised to write about how employers should conduct the investigations.  This Friday’s Five lists five action items employers should utilize when conducting harassment investigations:

1. Selecting the investigator

Employers should take time to train an in-house person who can conduct harassment investigations.  This person, usually someone from Human Resources (but it does not need to be) should have additional experience and training about how to investigate these claims.  First, the person needs to be able to conduct appropriate investigations to limit the liability to the company.  Second, the person’s experience and training will likely be closely examined, if not challenged by opposing counsel if the case develops into litigation.  Therefore, someone with experience and who is well credentialed is preferred.

2. Investigation must be free of any appearance of influence or bias

The investigator must not have any personal involvement with any of the parties who are a part of the investigation.  To avoid any appearance of undue influence, the investigator must not be subject to any control or supervisory control from the alleged harasser.  This means that for smaller companies, or in cases where the owner or president of the company is alleged to have harassed someone, it is recommended that an outside third-party that is independent from the company be hired to conduct the investigation.

3. Ask the right questions

The EEOC provides the following examples of questions to ask during a sexual harassment investigation:

Questions to Ask the Complainant:

  • Who, what, when, where, and how: Who committed the alleged harassment? What exactly occurred or was said? When did it occur and is it still ongoing? Where did it occur? How often did it occur? How did it affect you?
  • How did you react? What response did you make when the incident(s) occurred or afterwards?
  • How did the harassment affect you? Has your job been affected in any way?
  • Are there any persons who have relevant information? Was anyone present when the alleged harassment occurred? Did you tell anyone about it? Did anyone see you immediately after episodes of alleged harassment?
  • Did the person who harassed you harass anyone else? Do you know whether anyone complained about harassment by that person?
  • Are there any notes, physical evidence, or other documentation regarding the incident(s)?
  • How would you like to see the situation resolved?
  • Do you know of any other relevant information?

Questions to Ask the Alleged Harasser:

  • What is your response to the allegations?
  • If the harasser claims that the allegations are false, ask why the complainant might lie.
  • Are there any persons who have relevant information?
  • Are there any notes, physical evidence, or other documentation regarding the incident(s)?
  • Do you know of any other relevant information?

Questions to Ask Third Parties:

  • What did you see or hear?
  • When did this occur? Describe the alleged harasser’s behavior toward the complainant and toward others in the workplace.
  • What did the complainant tell you?
  • When did s/he tell you this?
  • Do you know of any other relevant information?
  • Are there other persons who have relevant information?

4. Make credibility assessments

The EEOC again provides some guidance on the factors to use when determining which witnesses are more credible:

  • Inherent plausibility: Is the testimony believable on its face? Does it make sense?
  • Demeanor: Did the person seem to be telling the truth or lying?
  • Motive to falsify: Did the person have a reason to lie?
  • Corroboration: Is there witness testimony (such as testimony by eye-witnesses, people who saw the person soon after the alleged incidents, or people who discussed the incidents with him or her at around the time that they occurred) or physical evidence (such as written documentation) that corroborates the party’s testimony?
  • Past record: Did the alleged harasser have a history of similar behavior in the past?

None of the above factors are determinative as to credibility. For example, the fact that there are no eye-witnesses to the alleged harassment by no means necessarily defeats the complainant’s credibility, since harassment often occurs behind closed doors. Furthermore, the fact that the alleged harasser engaged in similar behavior in the past does not necessarily mean that he or she did so again.

5. Make a final determination

After making credibility determinations and evaluating the facts, management of the company must make a determination about whether or not the harassment occurred.  The parties should be informed of the determination.  Even if the employer determines that harassment did not occur, the EEOC takes the position that the employer should take steps such as preventative training and continued monitoring.  For example, even though the underlying harassment may not have occurred, a supervisor could still be held liable for retaliating against the employee who filed the harassment complaint.  Therefore, it is important for employers to inform the parties involved of the outcome, unacceptable behavior as a result of the determination, and to ensure ongoing compliance with the company’s findings and legal obligations.

 

Friday’s Five: I’m now legally “old”

The law has to define certain terms and categories of people in order to make legal concepts predictable so people and happy birthdaycompanies can adjust their actions accordingly.  However, after turning 40 years old this month, the definition of “old” hits home with me.  According to the law, I’m old.  Moving on quickly, this Friday’s Five focuses on age related issues:

1. People 40 years old and older are in a protected category

Both Federal law, Age Discrimination Employment Act (ADEA) 29 USC section 621, et sec. and California state law, Cal. Gov. Code Section 12926(b), protect employees who are 40 years old or older.

2. Even if worker over 40 is terminated and replaced by another worker who is over 40, there could still be an age claim if the difference in age is “substantial”

The United States Supreme Court held in O’Connor v. Consolidated Coin Caterers Corp. that the ADEA prohibits discrimination because of an employee’s age, not class membership.  Therefore, if one employee who is over 40 is terminated and replaced by another employee who is also over 40, the terminated employee may still assert an age claim if they can prove that the determining factor was age.  However, if the person was replaced by another who is close in age, this would cut against any argument that the reason for the termination was based on age.

3. When employers can use age as a factor in an employment decision: the bona fide occupational qualification (BFOQ)

To establish a BFOQ, the employer must prove

First, the employer must demonstrate that the occupational qualification is ‘reasonably necessary to the normal operation of [the] particular business.’ Secondly, the employer must show that the categorical exclusion based on [the] protected class characteristic is justified, i.e., that ‘all or substantially all’ of the persons with the subject class characteristic fail to satisfy the occupational qualification.

Johnson Controls, Inc. v. Fair Employment & Housing Com., See 2 Cal. Code Regs section 7286.7(f).  This is a narrow defense for employers, and they still also must prove that the nature of the operation of the business could not be rearranged in order to reduce the BFOQ impact.

4. Layoffs based on high salary could possibly constitute age discrimination

If salary is used as the basis for conducting terminations or layoffs, this could constitute age discrimination if older employees as a group are adversely impacted because of this factor.  Cal. Gov. Code section 12941.

5. Release of age claims require additional steps – approach with caution

The Older Workers Benefit Protection Act (OWBPA) provides additional rights to workers.  The OWBPA prohibits any waiver of a right under the ADEA, unless certain requirements are met.  Some of these requirements include that the employee is advised to consult with an attorney, the waiver is easily understood, the individual is given at least 21 days to consider the agreement; and the individual is given at least 7 days following the execution of the agreement to revoke the agreement. The 21 day consideration period can be waived by the employee, but the seven day revocation period after the agreement is signed cannot be waived by the employee. Therefore, it is important to consider potentially not paying any money until after the seven day revocation period expires. If the employer is offering the release to a group or class of employees a longer consideration period and other requirements apply. It is highly recommended that employers receive the assistance of counsel to ensure that employees 40 years old or older effectively waive any rights under the OWBPA. For more information, the EEOCs’ website provides a good explanation and some examples.

Happy Friday.

Commissioned sales employees must be compensated separately for rest breaks – Vaquero v. Stoneledge Furniture

This week, in Vaquero v. Stoneledge Furniture LLC, a California appellate court issued a decision explaining employer’s obigations to separately compensate employees paid on a commission basis for rest breaks.

Plaintiffs worked as sales associates for Stoneledge Furniture, LLC, a retail furniture company doing business in California as Ashley Furniture HomeStores.  Stoneledge paid the sales associates on a commission basis.  The compensation agreement set out that if a sales associate failed to earn “Minimum Pay” of at least $12.01 per hour in commissions in any pay period, Stoneledge paid the associate a “draw” against “future Advanced Commissions.”  The commission agreement required that “[t]he amount of the draw will be deducted from future Advanced Commissions, but an employee will always receive at least $12.01 per hour for every hour worked.”

The issue addressed by the court was employees paid on a commission basis entitled to separate compensation for rest periods as required by California law, and if so, did Stoneledge’s draw-based compensation system pay for rest breaks?  This Friday’s Five addresses five takeaways from the court’s holding for California employers.

1. IWC wage orders

The appellate court explained that the legislature authorized the Industrial Welfare Commission (IWC) to regulate “the wages, hours, and working condition of various classes of workers to protect their health and welfare.”  The IWC has promulgated wage orders that set out regulations based on industries, and there are currently 18 wage orders.  The court explained: “As a consequence, ‘wage and hour claims are today governed by two complementary and occasionally overlapping sources of authority: the provisions of the Labor Code, enacted by the Legislature, and a series of 18 wage orders, adopted by the IWC.’”  Even though the IWC was defunded in 2004, the wage order are still in effect.  A list of the  Wage Orders for the various industries can be found here.

2. Rest periods

With respect to rest periods, Wage Order No. 7 provides:  “Every employer shall authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The authorized rest period time shall be based on the total hours worked daily at the rate of ten (10) minutes net rest time per four (4) hours or major fraction thereof.  However, a rest period need not be authorized for employees whose total daily work time is less than three and one-half (3 1/2) hours.  Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.

Wage Order No. 7 requires employers to count “rest period time” as “hours worked for which there shall be no deduction from wages.”  (Cal. Code Regs. tit. 8, § 11070, subd. 12(A), italics added.)  In Bluford v. Safeway Stores, Inc. (2013) 216 Cal.App.4th 864 the court interpreted this language to require employers to “separately compensate[ ]” employees for rest periods where the employer uses an “activity based compensation system” that does not directly compensate for rest periods.  (Id. at p. 872.)

3. Piece-rate workers must be paid for rest periods and non-productive time under Labor Code Section 226.2

Piece-rate workers are paid “according to the number of units turned out.”  For example, piece-rate workers are paid for the amount of produce harvested, the number of miles driven, or the yard of carpet installed.  Employers cannot deduct wages for rest periods from piece-rate workers, and therefore employers must separately compensate employees for rest periods.

Employers who paid employees on a piece rate basis must comply with Labor Code section 226.2.  Under Labor Code section 226.2, piece-rate workers must be paid for “rest and recovery periods and other nonproductive time separate from any piece-rate compensation.”  The law requires employers to calculate the regular rate of pay for each workweek, and then pay the piece-rate employees the higher of this regular rate of pay or the applicable minimum wage for rest break time.  The law also requires employers to pay piece-rate employees for “nonproductive time” which is defined as “time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.”  The nonproductive time is required to be paid at a rate no less than the applicable minimum wage rate.  In addition, employers who pay employees on a piece-rate basis need to report the pay for rest breaks, recovery periods, and nonproductive time separately on the employees’ pay stubs.

The court explained that piece-rate compensation plans do not directly account for and pay for rest periods because the employee is not working during the rest period and therefore is not being paid.  The Wage Order requires employers to separately compensate employees for rest periods if an employer’s compensation plan does not already include a minimum hourly wage for such time.

4. The court in Stoneledge held that the requirement to separately pay for rest periods applies to employees paid on commission as well

The primary holding Stoneledge is that Wage Order No. 7 applies “equally to commissioned employees, employees paid by piece rate, or any other compensation system that does not separately account for rest breaks and other nonproductive time.”

The court found that the commission agreement used by Stoneledge was “analytically indistinguishable from a piece-rate system in that neither allows employees to earn wages during rest periods.”  The court explained that “[w]hen an employer pays its employees by the piece… those employees cannot add to their wage during rest breaks; a break is not for rest if piece-rate work continues.” The court held that Labor Code Section 226.2, which requires piece-rate workers to be compensated for rest, recovery, and other nonproductive time, applies to commissioned employees as well.

5. Commission arrangements that advance wages that are offset against future commission earnings do not compensate employees for rest breaks

The court held that Stoneledge’s commission agreement did not properly compensate for rest periods taken by sales associates who earned a commission instead of the guaranteed minimum payment.

Stoneledge argued that under the compensation plan “all time during rest periods was recorded and paid as time worked identically with all other work time. . . .  Thus, Sales Associates are paid at least $12 per hour even if they make no sales at all.”  Even though Stoneledge deducted previous draws on commissions paid to the sales associates, Stoneledge argued that the “repayment [was] never taken if it would result in payment of less than the [Minimum Pay of $12.01 per hour] for . . . all time worked in any week.” Therefore, Stoneledge contended that the rest breaks were paid.

However, the court did not agree:

For sales associates whose commissions did not exceed the minimum rate in a given week, the company clawed back (by deducting from future paychecks) wages advanced to compensate employees for hours worked, including rest periods.  The advances or draws against future commissions were not compensation for rest periods because they were not compensation at all.  At best they were interest-free loans.

Piece-rate and commissioned based compensation structures must comply with very strict rules in California.  Employers are wise to have assistance from experienced counsel in drafting the compensation plans to ensure compliance.

Allegations made from Uber employee reminds CA employers about their obligations to conduct effective investigations into harassment claims

A former employee at Uber has made news this week in claiming that she was subjected to sexual question markharassment while working at Uber, and her complaints were not satisfactorily resolved.  I don’t want to get into the judgment of who was possibly right or wrong in this case, but use it as a good opportunity for employers to review the basics of their obligations to investigate when an employee complains.  This Friday’s Five is the first of two posts on employer’s obligations to conduct prompt and effective investigations into harassment complaints.

1. Employers have a duty to conduct investigations.

Employers can be liable under California’s Fair Employment and Housing Act (FEHA) if they “fail to take all reasonable steps necessary to prevent discrimination and harassment from occurring.”  In addition, Government Code section 12940, subdivision (k), requires employers to take “all reasonable steps to prevent harassment from occurring.”  If the employer fails to take the preventative measures, they can be held liable for the harassment between co-workers.  If the harassment occurs by a manager, the company is strictly liable for the harassment.  If the harassment occurred by a non-management employee, the employer is only liable if it does not take immediate and appropriate corrective action to stop the harassment once it learns about the harassment.

2. The employer may have to take action before conducting the investigation.

Based on the allegations and the facts of the case, as a precautionary measure, the employer should analyze if any immediate steps needs to be taken.  The EEOC set forth examples of precautionary steps that may be necessary include: “scheduling changes so as to avoid contact between the parties; transferring the alleged harasser; or placing the alleged harasser on non-disciplinary leave with pay pending the conclusion of the investigation.”  However, the employer needs to ensure that the complainant “should not be involuntarily transferred or otherwise burdened, since such measures could constitute unlawful retaliation.”

3. The investigation must be effective.

The California Fair Employment and Housing Commission (FEHC) maintains that employers must “[f]ully and effectively investigate.  The investigation must be immediate, thorough, objective and complete.  Anyone with information on the matter should be interviewed.  A determination must be made and the results communicated to the complaint, to the alleged harasser, and, as appreciate, to all others directly concerned.”

4. The investigation must be immediate.

How soon the investigation must start depends on the circumstances.  In Van Zant v. KLM Royal Dutch Airlines, 80 F.3d 708, 715 (2d Cir. 1996) the employer’s response was held to be prompt where it began investigation on the day that complaint was made, conducted interviews within two days, and fired the harasser within ten days.  In Steiner v. Showboat Operating Co., 25 F.3d 1459, 1464 (9th Cir. 1994), the court held that an employer’s response to complaints were not immediate when it did not seriously investigate or reprimand the supervisor until after plaintiff filed charge with state FEP agency, even though the harasser was eventually discharged.  In Saxton v. AT&T, 10 F.3d 526, 535 (7th Cir 1993) the court found that the investigation was prompt when it started one day after complaint and a detailed report was completed two weeks later.  In Nash v. Electrospace Systems, Inc. 9 F.3d 401, 404 (5th Cir. 1993) the court held that the investigation was prompt when completed within one week.  The court in Juarez v. Ameritech Mobile Communications, Inc., 957 F.2d 317, 319 (7th Cir. 1992) found the investigation was adequate when completed in four days.

5. The investigator must be experienced, unbiased and trusted. 

There is no legal prohibition that internal employees, such as the human resources manager, can conduct investigations into employee’s complaints.  If an internal employee of the company, the investigator does not have to meet any certain training requirements or are they required any particular background.  However, if the case results in litigation, employers should carefully consider who they appoint as the investigator as their background, credentials, and experience will be closely examined in court.

The employee obviously cannot have a conflict of interest or any bias towards the victim or alleged harasser.  Also, the alleged wrongdoer should not have any managerial control over the investigator in the organization.  If the alleged wrongdoer is a high level executive in the organization, then it may be appropriate to hire an outside lawyer versed in conducting harassment investigations to avoid any challenges to the adequacy of the investigation.  The investigator should have some experience in conducting investigations, some background knowledge of the law regarding harassment, understand the appropriate structure of how to conduct the investigation (i.e., who to start with first), and be a person who can communicate well with the parties involved, and if needed can testify confidently to defend the appropriateness of the investigation.

Next week, I will be discussing more of the particulars of how to conduct the investigation, examples of appropriate questions, and how to document the results.

Why you should attend jury duty (and do it with a smile)

In this Friday’s Five, I discuss why people should be more open to attending jury duty.  I sat for jury duty this week, but was dismissed after vior dire.  I’ve served on two juries prior to this, and maybe it is the litigator in me, but I’ve found the process fascinating.  Also, I’m tired of people complaining about the crazy jury verdicts they hear about, and then I ask if they have very been on a jury.  The typical response is that they have been successful in getting out of service.  My response then is for them not to complain about the results if they are not willing to participate in the system.

Jury duty is a great learning experience.  Plus, if you ever find yourself in litigation, you will want an impartial jury to help hear your case, so consider paying it forward in case you ever need the system.

Finally, I discuss employer’s obligations to allow employees to attend jury duty.  Additional information about the law regarding employee’s leave required to attend jury duty can be found in my prior post.

Stay dry out there California.

The tail wagging the dog: five rules of when attorney’s fees can be awarded in wage and hour cases

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Often the threat of the plaintiff’s potential ability to recover attorney’s fees is greater than the actual damages that they can prove.  This can be frustrating for employers defending wage and hour claims, in both the individual and class action context.  Indeed, an employer must understand the potential damages and exposure of fees they may have to pay if a case proceeds to trial or arbitration, as well as the potential to recover fees against the plaintiff.  This Friday’s Five addresses common attorney’s fees issues facing employers in wage and hour litigation.

1. When are attorney’s fees recoverable in wage and hour cases?  And can a defendant recover fees if they prevail? 

 Attorney’s fees in wage-and-hour cases are covered by two sections of the Labor Code:  sections 218.5 and 1194.  Aleman v. AirTouch Cell., 209 Cal. App. 4th 556, 579 (2012).  “Sections 218.5 and 1194 cover similar, though functionally exclusive subjects.”  Id.  Section 218.5 covers, among other things, claims “for the nonpayment of wages,” except those claims subject to Section 1194.  Section 1194, in turn, covers claims for failure to pay minimum wage or overtime.  Fees are assessed on a claim-by-claim basis.  Id. at 584.

Section 218.5 allows for “two-way” fee shifting – i.e., to the prevailing party, whether employee or employer – while Section 1194 only permits a prevailing employee to recover fees.  Kirby v. Immoos Fire Protection, Inc., 53 Cal.4th 1244, 1248 (2012).  For an employer to recover fees under Section 218.5, the claim must have been made in “bad faith.”  Cal. Lab. Code § 218.5(a).

 2. Attorney’s fees are not available to plaintiff for prevailing on missed meal or rest break claims.

 In Kirby, the California Supreme Court considered the issue of whether a can a party recover fees and costs under Labor Code, section 218.5 or 1194 when it prevails only on a claim for meal or rest break premium pay.  The court determined that neither of these sections allow for fees, and neither party can recover fees based on a claim only for premium pay.  Id. at 1251-59.

First, the court held that by its plain terms, section 1194 applies only to claims within the usual meaning of minimum wage and overtime – i.e., failure to pay the minimum wage or overtime compensation set by statute.  Id. at 1251-55.

Second, the court found section 218.5 inapplicable because it only applies to claims for “nonpayment of wages.”  Id. at 1255-57.  The court noted that the basis of a section 226.7 claim is the failure to provide meal or rest breaks, rather than the non-payment of wages.  Id. at 1256-57 (“Nonpayment of wages is not the gravamen of a 226.7 violation.  Instead . . . section 226.7 defines a legal violation solely by reference to an employer’s obligation to provide meal and rest breaks.”)  Accordingly, while premium pay owed for missed meal or rest breaks is measured in terms of an hour’s pay, and deemed a “wage” for other purposes (such as the statute of limitations) this is only the statutory remedy.  Id.  The injury is not a failure to provide premium pay, but the failure to provide breaks, and therefore a prevailing plaintiff is not entitled to attorney’s fees under these provisions.

3. An employee cannot recover attorney’s fees for successfully winning waiting time penalties under Labor Code section 203. 

 In Ling v. P.F. Chang’s China Bistro, Inc., 245 Cal. App. 4th 1242, 1260-61 (2016), the court considered the issue where a plaintiff arbitrated her claims before JAMS and the arbitrator rejected plaintiffs’ primary theory of misclassification.  Id. at 1248-49.  Instead, the arbitrator awarded plaintiff $1,038 in break premium for her nine-week training period, which “received little attention at the hearing,” was raised by plaintiff only in post-hearing briefing, and where it was largely undisputed that the plaintiff was entitled to breaks.  Id. at 1248.  The arbitrator awarded $7,688 in waiting time penalties under section 203Id.

Among many other issues on appeal, the plaintiff claimed that the arbitrator erred in failing to award her attorneys fees on her successful claim under Labor Code section 203.  The Court of Appeal disagreed.  It noted that employee could not “transmute” a claim for missed breaks into one for unpaid wages by bringing a derivative claim for waiting time penalties.  Id. at 1261.  Just as under Kirby, while waiting time penalties are measured in wages, those penalties are—as Section 203 states expressly—“penalties” and not wages.  Accordingly, the court found that waiting time penalties should not have been awarded.  Id.  More importantly, however, the court further concluded that no fees could be awarded, because the waiting time claim was “purely derivative” of a claim for meal break premium pay.  Because the underlying claim did not involve a failure to pay earned wages, the court held that the waiting time claim did not either, so could not support a claim for fees on either side.  (Id. [“Because a section 203 claim is purely derivative of ‘an action for the wages from which the penalties arise,’ it cannot be the basis of a fee award when the underlying claim is not an action for wages.”])

4. Which party is entitled to fees is the verdict a split decision and the plaintiff does not win all of their claims? 

Where neither party secures a “complete, unqualified victory” on all claims, “it is within the discretion of the trial court to determine which party prevailed . . . or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees.”  (See Scott Co. of California v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109.)  In exercising this discretion, the court is to “compare the relief awarded . . . with the parties’ demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources.”  (Hsu v. Abbara (1995) 9 Cal. 4th 863, 876.)  This rule applies where both parties effectively win on some claims but not others, including the Labor Code context.  (On-Line Power, Inc. v. Mazur (2007) 149 Cal.App.4th 1079, 1087 [noting that where plaintiff brought action for breach of contract and Labor Code violations, and settled for $25,000 pursuant to statutory offer, it was the type of case where the court had discretion to determine the prevailing party].)

5. Plaintiff’s attorney’s fees may be denied if plaintiff recovers less than $25,000 in damages.

When a plaintiff recovers less than the jurisdictional threshold for limited civil cases, which is set at $25,000 – the court has discretion to deny fees outright, or to award only limited fees.  (Cal. Civ. Proc. Code § 1033.)  This rule applies even where a statute expressly provides for fee shifting.  (See Chavez v. City of Los Angeles (2010) 47 Cal.4th 970, 986-87 [reversing and upholding trial court’s ruling denying plaintiff any fees where plaintiff recovered only $11,500 in unlimited civil case].)  Section 1033 applies where “the plaintiff did not bring the action as a limited civil case and thus did not take advantage of the cost- and time-saving advantages of limited civil case procedures.”  (Id. at p. 982).  If a plaintiff only proves limited damages at trial or in arbitration, this rule can shield defendants from being liable of potentially hundreds of thousands of dollars for fees incurred by plaintiff’s counsel.

Ignoring these legal notices can create liability for California employers

man signing document

Happy Friday!  This Friday’s Five provides five legal requests and/or notices that, if ignored, can create huge liability for a California employer.

1. Requests for personnel records and time records

There are many different Labor Code provisions that obligate the employer to provide current and former employees with a copy of their personnel files and/or payroll records.  For example, Labor Code section 432 permits employees to obtain a copy of any document they signed, Labor Code section 1198.5 allows current and former employees to obtain copies of their personnel records, and Labor Code section 226(c) permits employees to inspect or copy payroll records within 21 days after making a request to do so.

2. PAGA notice

Employees seeking recovery under the Private Attorneys General Act (PAGA) must comply with requirements that place the Labor and Workforce Development Agency and the employer on notice that the employee will be seeking remedies under the Act and give the Agency a chance to investigate.  If the Agency does not investigate, then the plaintiff can proceed with the claim.  Employers have the the ability to cure some issues set forth in the plaintiff’s letter to the LWDA, which could bar the plaintiff from obtaining any penalties.  Plus, the PAGA notice usually results in litigation being filed shortly after receiving the notice, so employers should begin discussing defense strategies as soon as it receives a PAGA notice.

3. Labor commissioner or DOL investigation notice

Under the Federal Labor Standards Act (FLSA), the Department of Labor (DOL) has certain permissions to investigate and gather date about wages, hours worked, and other working conditions at workplaces. The FLSA also provides the DOL limited permission to enter employers’ premises, review records, and even potentially question employees about employment practices.  Under California law, the Labor Commissioner has subpoena power and the ability to review records and workplaces in order to enforce California employment laws.  Upon receiving a request from any public agency, such as the DOL or the California Labor Commissioner, an employer should immediately review what obligations and rights it has in responding to the request.

4. Subpoenas from third parties

Employers may receive subpoenas from third parties seeking employment records.  The “custodian of records” is responsible for responding to the requests and producing employment records in certain circumstances.  California law requires that a request for a personnel file include a “Notice to Consumer” notifying the employee that such records are being sought, and providing the individual an opportunity to object to the disclosure of the information.  If the employee or former employee has not been notified, or objects to the production of the requested records, the employer should not produce the information requested unless and until a court orders otherwise, or the affected employee agrees to the production.  If the subpoena seeks the disclosure of confidential or proprietary information, the employer should contact an attorney to see if the company has an obligation to move to quash the subpoena or seek an appropriate protective order to preserve the confidentiality of the information sought.

Employers should not produce requested documents without being satisfied that the proper subpoena procedures and notice requirements, if applicable, have been met.  Employers have a duty to maintain the privacy rights of current and former employees, which includes personnel files.

5. Service of a Complaint

Ultimately, once a lawsuit is initiated, Plaintiffs will serve the complaint on the registered agent of the company.  Generally speaking, defendants have 30 days to respond to a complaint once served.  It is important to immediately begin assessing the company’s rights and obligations once a complaint has been served in order to ensure its rights are protected.  If a company does not timely respond to a lawsuit, entry of default judgment could be entered against the company, which could result in providing the plaintiff a judgment in the full amount of damages sought.

Five reminders about paid sick leave requirements in Southern California

With the arrival of 2017, many employers are recognizing the difficulties in navigating the complex set of paid leave laws in Southern California.  For regular readers of the blog, this may seem like a repeat, but this post is five items employers need to remember about paid sick leave laws in Southern California.

1. The law – either state or local –  that provides the most generous benefits to the employees must be followed by the employer.

California’s paid sick leave law applies to all employers and provides employees with 24 hour or 3 days of paid sick leave.  As set forth below, many local cities and counties have implemented their own paid sick leave requirements.  Employers must comply with the law that provides the most benefits to employees.

2. Southern California cities and counties that have implemented paid sick leave laws

State/City Minimum Wage Paid Sick Leave
California $10/hr January 1, 2016; $10.50 January 1, 2017 for employers with 26 or more employees Current: 3 days or 24 hours
Los Angeles – City July 1, 2016: $10.50/hr; July 1, 2017 $12; July 1, 2018 $13.25; July 1, 2019 $14.25; July 1, 2020 $15.00 * July 1, 2016: 48 hours*
Los Angeles – County Same as LA City No specific requirement – CA law applies
San Diego July 2016: $10.50; January 1, 2017 $11.50; January 1, 2019 indexed to inflation 5 paid sick days (effective July 11, 2016)
Santa Monica $10.50 July 1, 2016; July 1, 2017 $12.00; July 1, 2018 $13.25; July 1, 2019 $14.25; July 1, 2020 $15.00* January 1, 2017: 32 hours for small businesses, 40 hours for large businesses; January 1, 2018: 40 hours for small business, 72 hours for large businesses*
Malibu $10.50 July 1, 2016* No specific requirement – CA law applies
Pasadena $10.50 July 1, 2016* No specific requirement – CA law applies
* Employers with 25 or fewer employees the implementation is delayed one year.

3. How to determine which law applies to your business operating in the County of Los Angeles

There is a lot of confusion about what law applies to businesses operating in Los Angeles County.  The County of Los Angeles’ ordinance only applies to unincorporated cities within the county.  Here is a list of the incorporated cities in the County of Los Angeles. If the employer is located in an incorporated city, the employer must comply with the incorporated city’s paid sick leave requirements, and if the city does not have any requirements, California’s paid sick leave law would apply.

4. Understand the difference between use cap and accrual caps

Under California state law, employers may apply an accrual cap at 48 hours or 6 days per year.  The employees must be allowed to accrue up to this amount and carry it over from year to year.

The accrual cap is different from the annual use cap.  The annual use cap allows employers to limit the amount of paid sick leave used by the employee within one year.  Under California state law, employers can also impose an annual use cap of 24 hours or 3 days (whichever is greater) each year.

Employers need to pay careful attention about the differences in the state and local laws that apply to their companies in this regard.  For example, under Santa Monica’s paid sick leave ordinance, the accrual cap is 40 hours for large employers in 2017.  However, because accrual cap is less than what is permitted under California law, employers must follow California’s more generous requirements of allowing accrual of up to 48 hours or 6 days per year) and 72 hours in 2018.

5. Can employers change accrual methods after one has been implemented?

Yes, there is nothing that prohibits employers from changing accrual methods (i.e., up-front grant or the accrual method).  However, as employers are already required to provide non-exempt employees with an individualized Notice to Employee as required under Labor Code section 2810.5 that sets forth the employer’s accrual method, employers should consult an employment attorney about how to provide advanced notice to employees prior to changing the policy and how to treat already accrued and unused paid sick leave under the old policy.

Friday’s Five: When employers can be liable for supervisor’s conduct

Employers are strictly liable for the actions of its supervisors, managers or agents under the doctrine street cafeof respondeat superior.  Here are five key concepts employers must understand about the liability that could be created by managerial employees.

1. Respondeat superior holds employers automatically liable for actions by managers

The respondeat superior doctrine provides that “an employer may be held vicariously liable for torts committed by an employee within the scope of employment.”  As explained by the California Supreme Court in Patterson v. Dominio’s Pizza, there are “three policy justifications for the respondeat superior doctrine…prevention, compensation and risk allocation.”

2. Employers liability for non-supervisory employees

Under California’s FEHA, the employer is strictly liable for harassing action of its supervisors.  However, an employer is only liable for harassment by a coworker if the employer knew or should have known of the conduct and failed to take immediate corrective action.

3. Managers/supervisors under the respondeat superior doctrine

Under California’s FEHA, an employer is strictly liable for all acts of a supervisor.  A supervisor is generally defined as someone who has the discretion and authority to hire, direct, transfer, promote, assign, reward, discipline, direct, or discharge other employees or to recommend these actions.  See Government Code section 12926(t).

4. Which entities may be considered the employer under the respondeat superior doctrine

 In terms of defining who is the employers, courts in FEHA cases have looked to “the control exercised by the employer over the employee’s performance of employment duties….This standard requires a ‘comprehensive and immediate level of `day-to-day’ authority’ over matters such as hiring, firing, direction, supervision, and discipline of the employee.”  FEHA also defines employer to mean “any person action as an agent of an employer, directly or indirectly….”  This means that people not directly employed by the company can still create agency liability for the employer.

5. Issue: Can a franchisor be held liable for a franchisee’s supervisor’s conduct?

How far does the doctrine of respondeat superior extend when there are levels of agency, such as in a franchisor-franchisee relationship?  This was the issue addressed by the California Supreme Court in Patterson v. Domino’s Pizza.  The Supreme Court held that given the facts in that case, Domino’s Pizza was not liable for the franchisee’s manager’s acts.  The Supreme Court explained:

A major incentive is the franchisee’s right to hire the people who work for him, and to oversee their performance each day. A franchisor enters this arena, and becomes potentially liable for actions of the franchisee’s employees, only if it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees.  Any other guiding principle would disrupt the franchise relationship.

The Supreme Court did not hold the franchisor liable in the case because it did not “control the workforce, and could not have prevented the misconduct and corrected its effects.”  However, the Court issued a warning to franchisors:

A franchisor will be liable if it has retained or assumed the right of general control over the relevant day-to-day operations at its franchised locations that we have described, and cannot escape liability in such a case merely because it failed or declined to establish a policy with regard to that particular conduct.

Understanding joint employer liability

Joint employer liability can arise in many different contexts, such as when using staffing agencies, management companies, or in even in the franchise context.  Companies must understand the factors a court could apply in determining if a potential joint employer relationship exists between the two entities to avoid being potentially liable for employment lawsuits filed because of the actions of another employer.

The California Supreme Court set out the factors that can create a joint employer relationship in Martinez v. Combs.  Under this test, to “employ” means (1) “to exercise control over… wages, hours or working conditions,” (2) “to suffer or permit to work,” or (3) “to engage, thereby creating a common law employment relationship.”  The court in Ochoa v. McDonald’s Corp. explained that “[a]ny of the three is sufficient to create an employment relationship.”  In addition to the factors that California courts apply, employers must understand the federal framework that could also apply to employees by the Department of Labor in enforcing the FLSA and other federal laws.  This Friday’s Five discusses five issues that could create joint employer liability under California and Federal law.

1. An entity can be held a joint employer if it exercises control over wages, hours, or working conditions.

Under California law, an entity can be held liable under the joint employer theory if it “directly or indirectly, or through an agent or any other person, employs or exercises control” over their wages, hours, or working conditions.  While this standard is potentially broad in scope, courts have limited its reach in holding that entities that may be able to influence treatment of employees but that do not have any actual “authority to directly control their wages, hours or conditions” are not joint employers.  Ochoa v. McDonald’s Corp.  The court in Ochoa explained that the California Court of Appeal in Futrell v. Payday California, Inc. held that “control over wages means that a person or entity has the power or authority to negotiate and set an employee’s rate of pay, and that an entity that does not control the hiring, firing, and day-to-day supervision of workers is not an employer.”

2. An entity can be liable for “suffering or permitting” the work.

The California Supreme Court held in Martinez v. Combs that the “basis of liability is the defendant’s knowledge of and failure to prevent the work from occurring.”  The analysis is whether the entity had power to cause the employee to work or the power to prevent the employee from working.

3. Joint employer liability exists if the employee is “engaged.”

The Court in Martinez held that “to engage” means to create a common law employment relationship.  In terms of the franchisor and franchisee context, the California Supreme Court explained the test is whether the alleged employer “has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees.”  Patterson v. Domino’s Pizza.

4. “Ostensible” agency.

Ostensible agency holds a principal liable for acts of the “ostensible agent.”  This liability is created when: (1) the person dealing with the agent must do so with belief in the agent’s authority and this belief must be a reasonable one; (2) such belief must be generated by some act or neglect of the principal sought to be charged; and (3) the third person in relying on the agent’s apparent authority must not be guilty of negligence.  Put another way, “A principal is bound by acts of his agent, under a merely ostensible authority, to those persons only who have in good faith, and without want of ordinary care, incurred a liability or parted with value, upon the faith thereof.”  Cal. Civil Code section 2334.

5. Department of Labor’s Administrative Interpretation issued in 2016.

In January 2016, the DOL issued an Administrative Interpretation regarding how the agency views joint employment liability.  The DOL explains that under the Fair Labor Standards Act (FLSA) and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA), “an employee can have two or more employers for the work that he or she is performing. When two or more employers jointly employ an employee, the employee’s hours worked for all of the joint employers during the workweek are aggregated and considered as one employment, including for purposes of calculating whether overtime pay is due. Additionally, when joint employment exists, all of the joint employers are jointly and severally liable for compliance with the FLSA and MSPA.”  While not necessarily binding on courts, the DOL’s interpretation is instructive of how broadly it views the joint employer test.

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