You may recall from your college business law class of the “American rule” regarding attorney’s fees: generally in the United States each side is responsible to their own attorney’s fees, and unlike other countries, the loser does not have to pay the other party’s attorney’s fees. Employers can basically ignore this general rule in employment litigation under California law. I debated about writing this article because once a lawsuit is filed, employers don’t have any control over what claims and damages the plaintiff will assert, so why would employers need to understand when they have exposure to a current or former employee’s attorney’s fees in litigation? However, employers need to understand the underlying liability of potential claims, the motivations behind those claims, and the major part of many employment law claims can be attorney’s fees. And as shown below, the California legislature has used the award of attorney’s fees to shift the risk in many actions against employers, and it is a concept that employers need to understand to address liability and litigation strategies. Here are five California employment related statutes that can expose employers to a plaintiff’s attorney’s fees:

1. Minimum wage/unpaid overtime claims. Labor Code section 1194, provides attorneys fees for plaintiffs who recover damages for minimum wage or overtime violations:

Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action … reasonable attorney’s fees, and costs of suit.

2. Unsuccessful appeal of Labor Commissioner Claim. In order to discourage appeals from Labor Commissioner rulings, California Labor Code section 98.2(c) requires the court “shall” awards costs and reasonably attorney’s fees to the other party. This section permits the employee to obtain fees on an unsuccessful appeal by the employer, or to the employer who prevails on an unsuccessful appeal by employee. The catch for employers however, is that Labor Code section 98.2(c) provides that the employee is “successful” and therefore entitled to attorney’s fees “if the court awards an amount greater than zero.” Yes, even if the employee receives $1, they are successful in the appeal, and are entitled to their attorney’s fees. Therefore, employers have a huge disincentive in appealing Labor Commissioner rulings.

3. Expense reimbursement claims Labor Code section 2802 provides that employers must pay for and reimburse employees for “all necessary expenditures or losses incurred by the employee in direct consequence” of the employee’s job. Therefore, items like mileage reimbursement, even personal cell phone expenses, or other out-of-pocket expenditures employees make while performing their job must be reimbursed by the employer. Labor Code section 2802(c) provides that the employee is entitled to “attorney’s fees incurred by the employee enforcing the rights granted by this section.”

4. Private Attorney General Act (PAGA) claims Plaintiff’s counsel bringing a PAGA claim can seeks attorney’s fees under this statute as well. See Labor Code section 2699(g). Plaintiffs’ attorneys also claims fees under California Code of Civil Procedure section 1021.5, which permits them to recover fees if the case “resulted in the enforcement of an important right affecting the public interest” if certain requirements are satisfied.

5. California’s Fair Employment and Housing Act (FEHA) The Fair Employment and Housing Act (FEHA) prohibits harassment and discrimination in employment based on protected categories and/or retaliation for protesting illegal discrimination related to one of these categories. “In civil actions brought under [FEHA], the court, in its discretion, may award to the prevailing party . . . reasonable attorney’s fees and costs, including expert witness fees.” (Gov. Code, § 12965, subd. (b).) Under FEHA, the fee shifting provision goes both ways, to the plaintiff but also potentially the employer. Courts have discretion to award the defendant employer attorney’s fees and costs as the prevailing party in cases where plaintiff’s claim is deemed unreasonable, frivolous, meritless or vexatious. As a California court recently explained:

Despite its discretionary language, however, the statute applies only if the plaintiff’s lawsuit is deemed unreasonable, frivolous, meritless, or vexatious. . . . ‘ “[M]eritless” is to be understood as meaning groundless or without foundation, rather than simply that the plaintiff has ultimately lost his case . . . .’

Robert v. Stanford University, 224 Cal.App4th 67 (2014).

I just discovered How to Start a Startup, which is a series of videos published by Stanford University on YouTube with some outstanding speakers. The problem is that the class videos are so great, I have a hard time turning them off. Case in point, this week I watched Ben Horowitz’ lecture: How to ManageBen is a rap enthusiast, and venture capitalist in Silicon Valley.  He offers excellent points and perfect examples about how managers have to analyze difficult requests from employees from many different perspectives. Definitely worth devoting the 50 minutes of your time to watch (embedded below). It is by far the best presentation on management I have ever listened to, and I’ve had my share of management classes (by the way, Ben’s book, The Hard Thing About Hard Things is a great read also).

In the lecture, Ben discusses the very difficult situation of addressing an employee’s request for a raise. Ben’s point is that the easy way out of the difficult managerial decision is to simply agree to the raise. This is the easy way out, everyone in the room is happy, the manager is liked by the employee, and the employee is obviously happy.

However, as Ben mentions, this can create other issues across the organization:

However, you knew there was going to be a however, you have to think about it from the point of view of the employee who did not ask for a raise. They may be doing a better job than the employee who did ask for the raise and in their mind they are going, “Ok, so I didn’t ask for a raise and I didn’t get a raise. They asked for a raise and they got a raise. What does that mean?" One, you’re not really evaluating people’s performance. You’re just going, whoever asks, gets. That means I either need to be the guy who asked for the raise, though that’s not how I feel. I do my work and I don’t necessarily want to ask for a raise. Or I just need to quit and go to a company that actually evaluates performance. You can really make the person who doesn’t get the raise feel pretty pissed about it. Don’t think that when someone is walking through your company doing the "Shmoney Dance," that other people aren’t going to notice.

Not familiar with the Shmoney Dance? Click here.

In addition to Ben’s point that CEOs or supervisors responsible to determining pay rates need to have and follow a formal review process for determining raises, it is important to note it would be bad management to ask an employee to keep their pay details confidential because doing so runs afoul of California law.

This leads me to point out five areas of employee compensation or off-work conduct that cannot be regulated by an employer under California law:

  1. Employers cannot prohibit employees from discussing or disclosing their wages, or for refusing to agree not to disclose their wages. Labor Code Sections 232(a) and (b).
  2. Employers cannot require that an employee refrain from disclosing information about the employer’s working conditions, or require an employee to sign an agreement that restricts the employee from discussing their working conditions. Labor Code Section 232.5.
  3. Employers may not refuse to hire, or demote, suspend, or discharge and employee for engaging in lawful conduct occurring during nonworking hours away from the employer’s premises. Labor Code Section 96(k).
  4. Employers cannot adopt any rule preventing an employee from engaging in political activity of the employee’s choice. Labor Code Sections 1101 and 1102.
  5. Employers cannot prevent employees from disclosing information to a government or law enforcement agency when the employee believes the information involves a violation of a state or federal statute or regulation, which would include laws enacted for the protection of corporate shareholders, investors, employees, and the general public. Labor Code Section 1102.5.

In litigation, the following five issues make defending an employment lawsuit much more difficult.

1. No documentation.
No matter what type of employment litigation is at issue – wage and hour claims, leave issues, or harassment claims – the amount of documentation an employer has dramatically increases the odds of prevailing in litigation. I would even go as far as to say there is a relationship in place here (similar to Moore’s law in the computing industry) that the likelihood of avoiding a devastating judgment is proportionate to the amount of documentation the employer has regarding the particular employee or group of employees involved in the litigation.

What should employers document? Conversations with employees, reviews, days absent and the reason for the absence, performance issues (both good and bad – see below), etc…. With email and the ability to scan documents or take pictures of documents on a phone, there is almost no excuse not to have everything documented. The only issue preventing employers from documenting issues is not stressing the need to do document, and the press of business.

2. Inadequate time records.
Employers have the burden to record and maintain accurate time records under California law. If the employer knows employees are not properly recording their time, the employer needs to enforce a policy to have employees accurately record their time, even if it requires disciplinary action. Also, how can time records be “inadequate”?

  • The records that do not record the employee’s actual time working. For example, the employee records their start and stop time and the same time every day even though the employer knows it changes.
  • Not keeping time records long enough. The statute of limitations can reach back four year in wage and hour class actions, and these records will be the primary issues in most cases.
  • Not recording all required information. For example, employers are required to record employee’s meal periods under the IWC Wage Orders (see section 7 – Records).
  • Not keeping the time records in a manner that is usable. Maintaining records in a form that makes reviewing the records almost impossible is almost equivalent to not maintaining them in the first place. Some thought should be put into how an employer is keeping old time record information and how that data could efficiently be reviewed in the future if needed.

3. No institutional knowledge of policies and changes to policies.
Is there one person with full knowledge of the employment policies implemented by the company? Institutional knowledge about the various policies put into place by the company, when they were implemented and why they were implemented is critical knowledge. Also, this information should not reside with just one person in case that person leaves the company.

4. Not communicating goals and performance expectations to employees routinely.
This is pretty basic, but it helps to be reminded about conducting employee reviews routinely and accurately. The reviews will likely be the primary focus in a wrongful termination, discrimination or relation claim, and therefore the reviews should be accurate. It is hard to counsel employees on performance issues, but it is critical that these issues are addressed with employees in writing.

5. No written policies.
Sometimes employers operate with unwritten policies. It is important to have the policies clearly spelled out in an employee handbook or in some other manner. It is critical to have the policies in writing to prevent an employee from claiming that he or she is being arbitrarily singled out for discipline.

President Obama’s announcement of his controversial plan to provide amnesty for illegal immigrants to remain in the country who meet certain requirements raises a few employment and immigration issues for employers. Putting the politics aside, it is a good time for employers to review their obligations under the law to confirm a worker’s eligibility to work, especially given the new laws taking effect in California in 2015. Below are five areas involving federal and state immigration laws and verification requirements California employers need to be aware of going into 2015.

1. The President’s proposal does not change employers’ current obligation to verify employees’ eligibility to work in the United States.

The President’s proposal will take time to implement, and given the change of power in the Senate in the last election, there is a lot of uncertainty about the effect of the President’s proposal. Even with the political uncertainty, the President’s proposal recognizes the need to create a “provisional legal status” for illegal immigrants that may be provided citizenship. The White House’s website states the following:

Undocumented immigrants must come forward and register, submit biometric data, pass criminal background and national security checks, and pay fees and penalties before they will be eligible for a provisional legal status. Agricultural workers and those who entered the United States as children would be eligible for the same program. Individuals must wait until the existing legal immigration backlogs are cleared before getting in line to apply for lawful permanent residency (i.e. a “green card”), and ultimately United States citizenship. Consistent with current law, people with provisional legal status will not be eligible for welfare or other federal benefits, including subsidies or tax credits under the new health care law.

The details of this system still need to be set out and a process put into place. So employers need to continue to follow the current requirements to verify employment eligibility, and it is not likely that any of the requirements under Federal law will change anytime soon.

2. Expect increased enforcement by federal agencies of immigration and labor laws.

President Obama’s proposal also calls for increasing the monitoring and audit of employers to ensure they are complying with the immigration laws. The President’s proposal seeks a new “labor law enforcement fund” to “ensure that industries that employ significant numbers of immigrant workers comply with labor laws.” The White House’s website touts the fact that ICE has increased his audits of employers since January 2009, and has fined more companies than the Bush administration.

Employers need to review their policies to ensure that they comply with federal and California labor laws. In my practice, I have seen an uptick in DOL audits of employers over the last two years. It is important for California employers to understand the different employment law requirements between federal law and California law, and to ensure that they are complying with the law that applies to their particular workforce.

3. In California, employers need to recognize the new California drivers’ licenses being issued on January 1, 2015 to undocumented workers.

Illegal immigrants will be able to obtain a California driver’s license beginning January 1, 2015. AB 60 was passed in 2013 allowing people who cannot prove their eligibility to be in the United States legally the ability to obtain a driver’s license. The California DMV will begin issuing these drivers’ licenses in the beginning of next year. The licenses will be marked with the phrase “federal limits apply” on the front of the license in the same size and color of text as the other text. This statement will be located in the top right corner above the Class designation on the licenses. On the back of the license, it will have the statement that the license is “not valid for official federal purposes.”

The California drivers’ licenses issued under AB 60 are not valid documentation to prove eligibility to work in the United States. It is important for employers to train their personnel who are responsible for verifying documents when completing the Form I-9 to ensure that the documents presented by the worker are valid for I-9 purposes. In addition, it would be a good time for employers to audit their Form I-9 process and document retention policies.

4. It is illegal for employers to discriminate against workers who present licenses obtained through AB60.

A new law passed in 2014, AB 1660, makes it a violation of California’s Fair Employment and Housing Act (“FEHA”) to discriminate against a worker who presents a driver’s license which was issued to them under AB60 and the individual does not have the legal right to work in the United States. Read this last sentence again and it is not hard to see the rock (federal I-9 obligations) and the hard place (California law) that employers find themselves between. AB 1660 amends FEHA to specify that discrimination on the basis of national origin includes, but is not limited to, discrimination on the basis of possessing a driver’s license issued under this new law. California employers need to be clear on what their obligations are under federal law and carefully navigate these obligations to ensure they do not run afoul of AB 1660 and Vehicle Code section 12801.9.

5. California employers need to treat driver’s license information as confidential employee information.

AB 1660, which amends Vehicle Code section 12801.9, provides that employees’ drivers’ license information obtained by the employer is confidential:

Driver’s license information obtained by an employer shall be treated as private and confidential, is exempt from disclosure under the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code), and shall not be disclosed to any unauthorized person or used for any purpose other than to establish identity and authorization to drive.

Therefore, employers need to review their record keeping procedures to ensure that any driver’s license information for their employees is keep in a secure manner and limit other employees’ access to the data.

1. Automatic liability for a company when harassing or discriminatory conduct is taken by supervisors.
A company is automatically liable for any harassment or discriminatory actions taken by its supervisors. Under California’s Fair Employment and Housing Act (FEHA), a supervisor is defined as anyone who has the authority to hire, transfer, suspend, layoff, recall, promote, discharge, assign, reward, or discipline other employees, or the responsibility to direct them, or to adjust their grievances, or effectively to recommend these actions to the employer.

2. When is a company liable for harassment by non-supervisory employees?
Employers are only liable for harassment in the workplace that it knew about or should have known about, and failed to take corrective action to stop the harassment.

3. Is there personal liability for harassment or discrimination?
There is a difference regarding personal liability for alleged harassment and discrimination.  Employees can be held personally liable for harassment, but there is no personal liability for discrimination.

Any employee working for a company covered by FEHA can be held personally liable for harassment that employee engages in. However, a supervisor who did not engage in harassment and who is aware of harassment taking place but fails stop the harassment, cannot be held personally liable for aiding and abetting the harassment.  However, obviously, this will create liability for the company. 

On the other hand, supervisors are not held personally liable for discrimination or retaliation. This is because the basic job duties of a supervisor could be viewed as discriminatory, acts such as hiring, firing, and setting schedules. Therefore, the courts did not want to impose personal liability on to supervisors for their day-to-day duties. However, it is important to remember that even though the supervisor does not have personal liability for discrimination or retaliation, the employer will always be liable for any proven misconduct.

4. The avoidable consequences doctrine could reduce liability in certain cases.
Under the avoidable consequences doctrine, an employee’s damages can be limited if the employer can show that: (1) it took reasonable step to prevent harassment, (2) the employee unreasonably failed to utilize the procedures put in place by the employer to prevent harassment, and (3) had the employee used the procedure to prevent the harassment some of the damages would have been prevented. Under this defense the employer’s complaint system put in place will be challenged and viewed under high scrutiny.  Therefore it is important for employers to show that employee’s who complained in the past had their complaints properly addressed and there was never any retaliation for making the complaint.  

5. Revise sexual harassment training in 2015 to include discussion about abusive conduct.
Even though workplace bullying is not illegal under California law, a new law going into effect in 2015 amends the law requiring employers with 50 or more employees to provide sexual harassment prevention training to include a discussion about workplace bullying and abusive conduct.

Severance pay is not required under California law. However, employers who have potential disputes with employees that are leaving employment should consider whether offering severance pay in exchange for a signed severance agreement containing a release of claims against the company may be useful in avoiding costly litigation. Here are answers to five common questions about severance:

1. Are employees entitled to severance pay?
No. If an employee is an at-will employee, and either the employer or the employee decides to end the employment relationship, the employer is not required to provide any type of severance to the employee.

2. If severance pay is not required, why would employers offer it?
There are a number of reasons that employers offer severance pay. If the employer’s business has slowed down and it needs to layoff employees, but the employer wants to cushion the effect of the layoff, severance can be offered. Also, if the employer believes that there is a potential dispute between it and an employee, the employer may choose to pay some severance in exchange of a release of claims by the employee in order to avoid any potential litigation.  If done properly, an employee’s acceptance of a severance agreement would effectively waive any and all claims that he or she may have against the company.  If there is any potential for a dispute about any issues that arose during employment, entering into a severance agreement could be an effective way to avoid costly and time consuming litigation. 

3. Does the employer have to pay the employee for a release of claims?
If the employer asks the employee to release all claims the employee may have against the company, generally there needs to be some consideration provided to the employee for the release of his or her rights. Consideration is a legal term, and very generally means something of value that each side agrees to exchange (this is a very oversimplified definition). In severance agreements, the consideration is usually, but is not required to be, some form of payment by the employer that is not already legally obligated to be made in exchange for the release of claims (i.e., an agreement not to sue) by the employee.

4. What terms are generally included in a severance agreement?
Here is a list of common terms included in severance agreements:

  • A general release with a Civil Code section 1542 waiver releasing all known and unknown claims.
  • Confidentiality
  • No admission of liability
  • No present or future employment
  • Non-disparagement clause which can also set forth what job reference, if any, will be given to any prospective employers
  • Return of company property and non-solicitation of customers clause

5. Are there any special considerations for employees 40 years old or older that need to be included in a release?
Yes. The Older Workers Benefit Protection Act (OWBPA) protects individuals 40 years old or older. The OWBPA provides that in order to release a claim for age discrimination must meet certain requirements. 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.

1. Current and former employees have the right to inspect or copy personnel files.
Under Labor Code section 1198.5 employees have the right to inspect or receive copies of personnel files and records relating to the employee’s performance or grievance concerning the employee. Employers are legally required to maintain personnel files for at least three years after the employee stops working for the employer. However, since the statute of limitations for wage and hour claims can extend back four years, many employers keep the files at least four years.

2. The terms “personnel file” or “personnel records” are not defined in the Labor Code.
Without the terms “personnel records” or “personnel file” ever being defined, there is considerable ambiguity about what documents should be keep in an employee’s personnel file.
While not legally binding on employers, there is some guidance from the Division of Labor Standards Enforcement(“DLSE”) expressing the following view:

Categories of records that are generally considered to be "personnel records" are those that are used or have been used to determine an employee’s qualifications for promotion, additional compensation, or disciplinary action, including termination. The following are some examples of "personnel records" (this list is not all inclusive):

  1. Application for employment
  2. Payroll authorization form
  3. Notices of commendation, warning, discipline, and/or termination
  4. Notices of layoff, leave of absence, and vacation
  5. Notices of wage attachment or garnishment
  6. Education and training notices and records
  7. Performance appraisals/reviews
  8. Attendance records

Employers should also consider placing the following documents in personnel files:

  • Signed arbitration agreements
  • Sexual harassment compliance records for supervisors
  • Sign acknowledgements of policy by employee (for example, confidentiality/proprietary information agreements, meal and rest break acknowledgments, handbook acknowledgments)
  • Wage Theft Protection Act notice
  • If commissioned employee, written commission agreement signed by both the employer and employee beginning January 1, 2013.
  • Warnings and disciplinary action documents.
  • Performance reviews
  • Documents of any grievance concerning the employee
  • Documents pertaining to when the employee was hired
  • Records pertaining to last day of work and documenting reason for departure from employment

3. Personnel records must be made available not less than 30 days from date employer receives a written request to view the file.
The employer may charge the employee for the costs of copying the file, but the charge cannot exceed actual cost of reproduction.

4. Employers have the right to redact the names of any other nonsupervisory employee that are listed in the employee’s personnel file before making it available to the employee.

5. Employers may be subject to a $750 penalty for not making requested records available.
The penalty can be assessed by the Labor Commissioner, and the employee could also bring an action to compel production of his or her file and recover attorney’s fees.

My firm is conducting a webinar on Thursday June 19, 2014 at 10:00 a.m. for a mid-year update on emerging employment law issues and the newly enacted LLC statute effecting most California Limited Liability Companies. 

For more information and to register, please complete the form below:

https://docs.google.com/forms/d/1LU6GudLKMnb4yt4qpvQTagUj9OlxJmaR13JQs79urKI/viewform?embedded=true

 

I was interviewed for a news story that aired on KTLA here in Los Angeles about employer’s use of social media in evaluating applicants and employees. I’ve been writing and speaking about this topic for at least five years now, but given the pervasiveness of social media, the topic is only becoming more relevant with the increased use of social media today.

http://launch.newsinc.com/?type=VideoPlayer/Single&widgetId=1&trackingGroup=69016&siteSection=ktla_virtualrealitycheck&videoId=25655497

 Employers need to remember to keep a few items in mind regarding social media and the workplace. California passed a law, Labor Code section 980, effective January 1, 2013 that prohibits employers from “requiring or requesting” employees and applicants to provide their passwords to social media accounts. Can California employers monitor employees’ internet usage under new Labor Code section 980?

Also, employers need to be aware of employee’s privacy rights. Can employers use employee’s posts to social media as basis for employment decisions or would this violate an employee’s right to privacy?

Finally, when a company encourages employees to use social media for work, there are some considerations the employer should take into account regarding the ownership of the social media accounts.

Generally speaking, employers may utilize social networking sites to conduct background checks on employees if:

  1. The employer and/or its agents conduct the background check themselves;
  2. The site is readily accessible to the public;
  3. The employer does not need to create a false alias to access the site;
  4. The employer does not have to provide any false information to gain access to the site; and
  5. The employer does not use the information learned from the site in a discriminatory manner or otherwise prohibited by law.