This video is the third installment of three videos covering issues surrounding terminations in California.  For today’s Friday’s Five, in this final video in the series I discuss five common questions employers have about severance agreements:

  1. When are severance agreements appropriate in California?
  2. What are common terms in severance agreements? Such as a non-disparagement clauses and reference clauses.
  3. How much of a payment is required to the employee in a severance agreement?
  4. What is a section 1542 waiver of all known and unknown claims?
  5. Can employers include confidentiality provisions in severance agreements?

In order to obtain the termination checklist for California employers, please email me.

California’s Fair Employment and Housing Council published new regulations pertaining to anti-discrimination and anti-harassment requirements effective April 1, 2016.  Employers need to review and potentially update their policies in order to meet the new requirements.
The full text of the regulations can be obtained here.

Another Friday, another Friday’s Five.  If you are new to the Employment Law Report, I write about a topic and include five items employers should understand on that topic every Friday.  This Friday’s Five discusses the documents employers should consider providing to employees at the end of employment.

The documents include:

  1. Notice of change of relationship
  2. For Your Benefit, California’s Program for the Unemployed – pamphlet published by the EDD
  3. HIPP notice
  4. COBRA notice
  5. For layoffs, potential WARN Act and California’s Baby-WARN Act

To download these documents and more information click here.

Click here to subscribe to the Employment Law Report Youtube Channel.

Employers should review the issue with legal counsel to ensure that they are providing the required documents for their particular situation.

This week’s Friday Five is a discussion focused on a discussion of considerations employers should make during the termination process, such as:

  • how to document reasons for terminations (and why it is important to be accurate and honest)
  • when final wages are due
  • where to provide final wages
  • payment of expense reimbursements, and
  • direct deposit of final wages

Friday’s 5 is here.  This post covers five issues that commonly arise when dealing with employment Shaking handscontracts and non-competition/non-solicitation agreements.  It is a very broad area to discuss, so, as always, this is a very general overview.  However, employers and executives alike should have a basic understanding about the legalities and enforceability of such clauses in California.

1.      At-Will employment, and Labor Code Sections 2924 and 2925.

California’s Labor Code section 2922 provides that employees are at-will: “An employment, having no specified term, may be terminated at the will of either party on notice to the other.”

However, if the employer and employee enter into a contract for employment, California’s Labor Code specifically sets out that the employer or the employee may terminate any employment contract for any willful breach of the duties owed to each other.  Labor Code Section 2924 provides:

An employment for a specified term may be terminated at any time by the employer in case of any willful breach of duty by the employee in the course of his employment, or in case of his habitual neglect of his duty or continued incapacity to perform it.

Labor Code Section 2925 likewise provides:

An employment for a specified term may be terminated by the employee at any time in case of any wilful or permanent breach of the obligations of his employer to him as an employee.

2.      Agreements restraining individuals from engaging in a lawful profession is void under Business and Professions Code Section 16600. 

Employment contracts, non-competition agreements, and/or non-solicitation agreements can be challenged under Business and Professions Code section 16600.  That Section provides a very broad rule voiding any contract that limits an employee’s ability to engage in their profession:

Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.

3.      Exception to Section 16600 – Narrow Restraint

One exception to Business and Professions Code Section 16600’s prohibition on restraining an employee’s ability to work is if the restraint is narrowly drafted.  Restraints on the pursuit of “only a small or limited part of the business, trade or profession” have been upheld by California courts.  As the court in General Commercial Packaging, Inc. v. TPS Package Engineering, Inc. explained, “[A] contract does not have to impair a party’s access to every potential customer to contravene section 16600…. [A] contract can effectively destroy a signatory’s ability to conduct a trade or business by placing a substantial segment of the market off limits.”  General Commercial Packaging, Inc. v. TPS Package Engineering, Inc., 126 F.3d 1131, 1132–33 (9th Cir.1997)

There is also a strong public policy against enforcing agreements that restrict employee’s ability to work in the profession they chose.  California Courts have noted, “the interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interest of the employers ….”

4.      Exception to Section 16600 – Protection of trade secrets and to prevent unfair competition

As one court has noted, “Section 16600 has specifically been held to invalidate employment contracts which prohibit an employee from working for a competitor when the employment has terminated, unless necessary to protect the employer’s trade secrets.” Metro Traffic Control, Inc. v. Shadow Traffic Network, 22 Cal.App.4th 853, 859 (1994). In addition, any such restrictions must be “carefully limited.” Id. at 861.

For example, in Gordon Termite Control v. Terrones, 84 Cal.App.3d 176, 179 (1978) the court refused to enforce an agreement prohibiting an employee from calling on any accounts he had called on while with former employer, finding “[k]nowledge of potential customers … is not a trade secret ….”

Moreover, the information must be an actual trade secret to obtain this protection.  In Gordon v. Landau, 49 Cal.2d 690, 694 (1958), the court found that an agreement restricting a door-to-door salesman from using his former employer’s confidential customer list was valid under section 16600.  However, in Letona v. Aetna U.S. Healthcare Inc., 82 F.Supp.2d 1089 (1999), the court rejected the employer’s argument that was seeking to protect information that qualified as a “trade secret” because “Aetna’s own admission that such information is ‘publicly available at Aetna’s website on the Internet” destroyed any argument that the information was secret.

5.  Out-of-State employers must be cautious about using form agreements.

Employers should heed the warning issued by the court in Letona v. Aetna U.S. Healthcare Inc. to out-of-state employers using form agreements in California:

Aetna took the contract it uses in other states and, without regard to California law, and contrary to the clear prohibition contained in section 16600, compelled its California employees to sign it or be fired. Aetna’s claim that it should not be held responsible for wrongful termination unless it “knew” the provision was unenforceable misses the mark.  Aetna knew it was operating in California and would be subject to its laws. Section 16600, or a version thereof, has been on the books since 1872. See Bosley Medical Group v. Abramson, 161 Cal.App.3d 284, 288, 207 Cal.Rptr. 477 (1984). It is not asking too much for Aetna to refrain from requiring its employees to sign presumptively illegal provisions and then firing them when they decline to do so.

Photo: Casa Thomas Jefferson

Generally, California employers must comply with the following rules governing whether they may obtain criminal history information when conducting background checks for applicants or employees:

  1. Employers cannot consider prior arrests not leading to conviction in employment decisions.
  2. Employers cannot seek information or rely on information pertaining to referral to diversion programs.
  3. California prohibits employers from relying on information about expunged or sealed records.
  4. Employers cannot collect or rely on information about misdemeanor convictions for marijuana possession more than two years old.
  5. Employers may consider arrests for which the applicant is waiting for trail, and convictions.

In regards to item number 5, employers must be aware that California’s Fair Employment & Housing Council has proposed regulations that could make employer’s use of any criminal history in the employment context if the use of the information would “have an adverse impact on individuals on a basis protected by the Act, including, but not limited to, gender, race, and national origin.”  Employers would be prohibited from using criminal information in employment decisions if it would create an adverse impact on individuals and the employer cannot demonstrate that the criminal history is job-related with business necessity or if the employee can show that there is a less discriminatory means of achieving the business necessity.  The Council is considering written comments about this proposed regulation from any interested party until April 7, 2016.  Comments can be submitted by e-mail to FEHCouncil@dfeh.ca.gov.

Employers must also be aware of their local ordinances, such as those in San Francisco, that create additional prohibitions, Federal requirements and the changing legal landscape in this area.

Today’s Friday’s Five focuses on five aspects of responding to employee’s complaints made on social media.  Yelp has been in the news recently (Another ex-Yelp worker is calling the company out after being fired, CNNMoney; Yelp’s Tweet About Fired Employee Could Spell Legal Trouble, Inc.com [I was quoted in this article]), for how it responded to two former employees’ complaints on social media about the company.  The incident is a great learning opportunity for employers.  Employers need to understand that this is the new reality, employees feel that they need to voice their concerns very publicly on social media, and these complaints can spread quickly.  Employers also need to plan ahead and have a system and policies in place before they are confronted with this type of situation so their response can protect the company without creating legal liability.  Here are five lessons for employers about responding to employee’s complaints on social media:

Terminations.  It is not a subject you cover in management class, or any class for that reason.  But yet the termination process is one of the more common business decisions that will receive the most scrutiny, and are probably the most legally challenged decisions in the workplace.  In addition, terminations trigger immediate legal obligations that the company must be ready to deal with on a moment’s notice.  I’ve written another article about terminations recently, and provided a webinar earlier this week on the subject (you can subscribe to receive email updates and upcoming webinars here) because I believe the topic needs more attention on the legal and management issues it raises.  Just as companies focus on making the hiring process as good as possible, the same attention needs to be given to the termination process.  Doing so will reduce liability.

1)     Do not sugar coat the reasons for a termination.

Document performance as you see it.  If the termination was for cause – document that it is for cause – don’t take the easy route out and say that the employee was laid off.  It is important to document any for cause termination (i.e. for poor performance, theft, etc.…). to defend against potential litigation.  A company does not want to be in the position of stating that the reason for termination was a layoff, but then if litigation is initiated attempting to explain that the true reason was for the employee’s poor performance.  This looks like the company is changing its reason for the termination, and will affect the company’s credibility regarding why the employee was terminated.

2)     Respect the employee during the termination process.

I do not have anything scientific here, but I’m a true believer in good bedside manner.  Most employees might not like the termination, but probably will understand the decision if they have been given proper performance reviews leading up to a termination.

3)     If offering severance, obtain a release of claims from the employee.

If a company is paying money in terms of a severance payment that is not owed to the employee, the company should obtain a release from the employee.  A release can be a simple document, sometimes a page or two, if there is not any anticipated litigation.  While offering an employee some severance pay may cost the company money in the short-term, but doing so could save a lot of time and money in the long run.  If done properly, an employee’s acceptance of a severance agreement would effectively waive any and all claims against the company.

4)     Documentation.

  • Keep payroll and time records for at least four years on a rolling basis (statute of limitations for many wage claims can extend back four years).
  • Keep personnel files for at least three years after termination.  Employers are required to keep personnel files for three years under the law, but it may be advisable to retain the files longer in order to be able to defend other claims with longer statutes of limitations, such as wage claims than can extend back four years.
  • Document paid sick leave – keep these records for at least one year, or longer.  As you may recall under California’s paid sick leave requirements effective in 2015, if an employee leaves employment and is rehired by the employer within one year, previously accrued and unused paid sick days must be reinstated.  The employee is entitled to the previously accrued and unused paid sick days in addition to accruing paid sick days upon rehiring.
  • If litigation is expected, employers should ensure documents and files are retained and kept safe until the litigation is resolved.

5)     Develop a checklist to follow for your company.

Checklists are used by pilots and doctors to ensure that nothing is overlooked.  I believe in checklists in order to avoid missing simple items during a termination, and reducing liability.  Also, the process of thinking through the steps of a termination is helpful to do when there is no pressure, and time can be taken to ensure that all aspects are addressed.  A checklist is also helpful for organizations to ensure their managers are following all of the legal and organizational requirements of a termination.

Today’s Friday’s Five focuses on what steps one can take to become more proficient in operating under California’s complex employment legal structure.

 

Happy Friday.  Big data has entered into the employment context.  The EEOC is proposing changing the EEO-1 report to require employers to report about an employee’s earnings based on their race, gender and ethnicity.  Here are five things employers should know about the EEOC’s proposal:

1.      Proposal to add wage data about employees to EEO-1 reporting.

Currently, employers must collect EEO-1 data from any pay period occurring in the months of July through September of the current survey year. The EEO-1 must be filed by September 30th of the same year.  The EEOC also proposes that beginning in 2017, all employers will be required to submit the proposed EEO-1 report electronically.  The sample form can be found here.

The EEOC’s proposal would require employers to report the number of employees by their sex, race and ethnicity according to the employee’s W-2 income.  The proposal would require this information to be reported for certain wage bands.  The EEOC wants this data in order to “compute within-job-category variation, across-job-category variation, and overall variation, which would support the EEOC’s ability to discern potential discrimination while preserving confidentiality” (more about the EEOC’s claim about confidentiality below).

The EEOC believes that the W-2 income reporting is the most accurate and easiest data for employers to use in preparing the report:

W-2 gross income includes wages, salaries, fees, commissions, tips, taxable fringe benefits, and elective deferrals. Amounts withheld for taxes, including but not limited to income tax, Social Security, and Medicare taxes, are considered “received” and are included as gross income of the given year they are withheld.  The W-2 encompasses all earned income, including supplemental pay components such as overtime pay, shift differentials, and nonproduction bonuses (e.g., year-end bonuses, hiring and referral bonuses, and profit-sharing cash bonuses).  Nonproduction bonuses account for over 11 percent of cash compensation for management, business, and financial operations occupations, while shift differentials are a significant component of compensation for healthcare workers.

2.      Total hours worked must be reported

Employers will also have to report the total number of hours worked by the employees included in each EEO-1 pay band cell.  The EEOC states that this “data will allow analysis of pay differences while considering aggregate variations in hours. The total hours worked also will permit an analysis that accounts for periods when the employees were not employed, thus reflecting part-time work.”  The EEOC is not sure about how to have employers report hours worked for exempt/salary employees, and is seeking comments from employers about this issue.

3.      EEOC proposes to use software to determine “statistics of interest”

According to the EEOC:

The EEOC and OFCCP plan to develop a software tool that will allow their investigators to conduct an initial analysis by looking at W-2 pay distribution within a single firm or establishment, and by comparing the firm’s or establishment’s data to aggregate industry or metropolitan-area data.  This application would highlight statistics of interest.

This raises the question though about how the software will exactly make the determination what constitutes “statistics of interest?”  It obviously does not take into account the wide range of factors that determine an employee’s rate of pay: experience, education, seniority with the company, management skill, etc….  There may be additional factors that skew the statistics as well, such as geographic and local issues about the workforce.  I’m afraid that this type of statistical calculation can place employers in the situation that they will be presumed guilty if the EEOC’s software flags a concern based on the EEO-1 report, and then the employer will have the burden to justify its pay scale.

4.      Confidentiality issues

The EEOC attempts to belie any confidentiality concerns in its proposal, but many issues are unaddressed.  Some of the confidentiality issues that need to be addressed:

  1. Employees’ privacy rights are a concern.  The employees’ information about race, gender and income is shared with yet another governmental agency.  In addition, the EEOC is also in charge with enforcing discrimination based on religion.  The proposal does not seek information about the employee’s religion as this time, but will the EEOC seek this information in the future to assist in religious discrimination cases?  Towards this end, will the EEOC also ask the owner or president of the organization to disclose their religion in order to determine if she discriminates against other religions in the hiring or promotion process?
  2. Competitor’s access to wage information.  Is it possible for the data collected on the report to be released by a Freedom of Information Act request to be used by competing firms?  Could the information be used in setting salaries and wages to in hopes to poach employees?
  3. Attorneys may be able to subpoena these filings in current lawsuits for free discovery.  In addition, could attorneys seek the information from the EEOC to conduct their own analysis regarding pay distribution in order to find cases?

5.      Employers may comment about the proposal

Want to share your comments about the proposed regulation with the EEOC?  The EEOC established a relatively easy way to post a comment on its website here.  I actually have to hand it to the EEOC in making the comment process very easy.  Comments are due by April 1, 2016.