Private Employers Mount Challenge to Los Angeles Living Wage Ordinance Requiring A Minimum Wage Of $10.64

In a unprecedented step last November, the Los Angeles City Counsel passed an ordinance that requires private hotels located on Century Boulevard near LAX to comply with the city's living wage ordinance (which requires employers pay $10.64 per hour in wages and benefits). Prior to this ordinance, only employers who have contracts to do business with the city had to comply with the city's living wage requirements. The city argues that it has the power to require these private hotel employers to pay higher wages due to the benefits that the hotels receive due to their proximity to LAX, which is owned by the city.

The ordinance consists of three measures. The first measure extends the city's living wage requirements of $9.35 per hour for hotel employees who have health benefits or $10.64 per hour if the employees do not have health benefits. The second measure requires new purchasers of the hotels to retain existing employees for at least 90 days after taking control of the hotel. The third measure requires hotels to pass all service charges for banquets and special events on to servers and other line employees.

Los Angeles business leaders have gathered over 100,000 signatures to challenge the ordinance, placing it in a holding pattern for now. If the signatures are verified, the City Counsel will then have to decide whether to repeal the ordinance or to place a referendum on the ballot in the citywide elections in May 2007.

This ordinance poses a threat to businesses not only along the Century Boulevard Corridor, but to all businesses in the state of California. If the ordinance succeeds, it is very likely that cities throughout the state will similarly attempt to regulate private employers. This is simply a backdoor approach by the labor unions and other forces supporting this ordinance to attempt to increase the minimum wage even further, and to overturn the outcome of the voter's rejection of a referendum in 2004 that would have required businesses to provide health care coverage to their employees. We will continue to monitor the status of the ordinance and publish updates as more information becomes available.

Mark S. Spring to Speak in Sacramento on New Employment Law Developments for the New Year

On December 13, Mark S. Spring, managing partner of our Sacramento office, will be co-hosting a presentation sponsored by the Sacramento Area Human Resources Association: The Key Workplace Law Developments for 2007 That HR Professionals Need to Know. For more information and to register click here.

‘Tis The Season:  Employer Liability For Injuries Caused By Intoxicated Employees

The holiday season is almost here and many employers are planning holiday parties for their employees. Such parties are often important to espirit de corps and have become part of the "corporate culture." Unfortunately, holiday parties have become associated in the minds of some with excessive use of alcohol. Employees, including managers and supervisors, fail to drink responsibly and become a hazard to themselves and others. In such cases, they may also become a source of liability for their employers.

Under California law, a "host" generally is not responsible for the injuries caused by a guest's consumption of alcoholic beverages. However, this general immunity may not shield employers from liability for injuries caused by employees who consume alcohol at company functions. In several cases, California courts have allowed non-employee third parties to sue employers for the injuries and damages caused by employees, where their conduct was a "foreseeable risk" of the employee's consumption of alcohol occurring after ordinary working hours, but within the "scope of employment." In this context, a risk is "foreseeable" if the employee's conduct is not so unusual that it would be unfair to include the loss within the employer's cost of doing business. Attending a company function and consuming alcoholic beverages is considered "within the scope of employment" if (1) the activity is endorsed by the express or implied permission of the employer, and (2) there is some conceivable benefit to the employer or the activity is a customary aspect of the employment relationship. Thus, in addition to their social responsibilities as good citizens, employers who serve alcohol at company functions may have legal responsibilities to assure the safety of others.

In light of this potential for disaster, the safest course is to prohibit the consumption of alcohol at company functions. For those employers for whom an outright prohibition is unattractive, the following safeguards should reduce, but will not eliminate, legal exposure:

  1. Make attendance voluntary and hold the function at a facility off company property.
  2. Use a cash bar and give written instructions that servers should not serve more than a specified number of drinks to any individual.
  3. Serve alcohol only at specific times during the evening (e.g., before dinner), and serve food throughout the evening.
  4. Arrange for transportation home, e.g., taxi vouchers and designated drivers.
  5. Remind managers and supervisors of their obligation to set an example and to prevent others from becoming intoxicated or driving a vehicle while intoxicated.

Have a happy and safe holiday season and a prosperous new year.

IRS Announces New Mileage Rate for 2007

Earlier this month, the IRS announced that beginning Jan. 1, 2007, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:

  • 48.5 cents per mile for business miles driven;
  • 20 cents per mile driven for medical or moving purposes; and
  • 14 cents per mile driven in service to a charitable organization.

The new rate for business miles compares to a rate of 44.5 cents per mile for 2006. The new rate for medical and moving purposes compares to 18 cents in 2006. The primary reasons for the higher rates were higher prices for vehicles and fuel during the year ending in October.

This is important for California employers because the California Labor Code section 2802 provides:

An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.

Under this section, a California employer must pay an employee for the cost of the use of his or her vehicle within the course and scope of employment. The Division of Labor Standards Enforcement has stated that use of the IRS mileage allowance for business miles will satisfy the expenses incurred in use of an employee's car in the absence of evidence to the contrary.

NLRB Revises Definition of “Supervisors”

The recent National Labor Relations Board (NLRB) ruling in Oakwood Healthcare, Inc. [click here for opinion] provides a much needed clarification of the standards to determine which employees qualify as "supervisors" under the National Labor Relations Act. By a 3-2 vote, the Board held that the permanent charge nurses employed by the Employer, Oakwood Heritage Hospital, an acute care hospital, exercised supervisory authority in assigning employees within the meaning of Section 2(11) of the National Labor Relations Act.

The definition of supervisor under the Act is critical because employees who qualify as supervisors under the National Labor Relations Act are excluded from bargaining units and may be prohibited from supporting unionization. Employers across the country are pleased with the outcome because the ruling provides a rational and clear standard for determining which employees are supervisors. However, unions are already expressing concerns that the Board's decision is too narrow and excludes too many employees from the union's control.

Supervisors Under the National Labor Relations Act
Section 2(11) of the Act defines supervisors as "any individual having the authority, in the interest of the employer, to hire, transfer, suspend, lay off , recall, promote, discharge, assign, reward, or discipline other employees, or responsibly direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment." In Oakwood, the Board clarified the terms "assign," "responsibly to direct," and "independent judgment."

The Board defined "assign" as the act of "designating an employee to a place (such as a location, department, or wing), appointing an individual to a time (such as a shift or overtime period), or giving significant overall duties, i.e. tasks, to an employee." Further, to "assign" for purposes of the Act, "refers to the . . . designation of significant overall duties to an employee, not to the . . . ad hoc instruction that the employee perform a discrete task."

Responsibly to Direct
The Board also determined that the term "responsibly to direct" means the individual at issue must provide oversight to other employees and must be directly responsible for the other employee's performance of the task. The individual must have the ability to take necessary corrective action against employees for poor performance, and the employer must show that the individual could face disciplinary measures for failing to take the necessary corrective actions with the subordinate.

Independent Judgment
In reversing prior cases, the NLRB held that independent judgment means "not subject to control by others" and "the action of judging; the mental or intellectual process of forming an opinion or evaluating by discerning and comparing." The supervisor is not using independent judgment if he or she is governed by policies or detailed instructions promulgated by supervisors or the employer. The Board also held that the degree of discretion exercised must rise above the "routine or clerical" in order to constitute "independent judgment" under the Act.

Persons Who Are Supervisors Part of the Time
The Board also explained that when an individual is engaged a part of the time as a supervisor and the rest of the time as a unit employee, the legal standard for a supervisory determination is whether the individual spends a regular and substantial portion of his/her work time performing supervisory functions. The board stated:

Under the Board's standard, "regular" means according to a pattern or schedule, as opposed to sporadic substitution. The Board has not adopted a strict numerical definition of substantiality and has found supervisory status where the individuals have served in a supervisory role for at least 10--15 percent of their total work time. We find no reason to depart from this established precedent.

Next Step For Employers
The Oakwood ruling applies not only to hospitals and medical providers, but to employers subject to the NLRA. Therefore, employers should re-examine their job descriptions for supervisory employees and ensure that the responsibilities discussed above are reflected in the job descriptions. The job descriptions should be clear that the individuals are granted authority to perform the supervisory duties, and the employer should evaluate and hold the supervisors accountable for performing such duties.

For example, an employer would need to show the follow in order for its employee to qualify as a supervisor under the NLRA:

  • Supervisors must possess the authority to require other employees to stay past the end of their shifts, to come in from off-duty status, or to shift section assignments.
  • Supervisors are actually held accountable for the job performance of other employees. Merely having this factor as one of many factors in their annual performance review might not be sufficient, and employers need to show that there is an actual prospect that the supervisors' terms and conditions of employment could be affected, either positively or negatively, as a result of their performance in directing other employees.
  • Supervisors in a warehouse are required to manage their assigned teams, to correct improper performance, to shift employees, and to decide the order in which work was to be performed in order to achieve production goals and that the supervisors are held accountable for the performance of their crew or line members.
  • A factory or warehouse supervisor's exercise of judgment cannot be either fundamentally controlled by pre-established guidelines, such as delivery schedules, or are simply routine.

Employers need to be aware that many employees previously thought to be members of a bargaining unit may actually be excluded members of management. Employers should conduct an audit to determine if some employees previously not treated as supervisors may now qualify as a supervisor given the recent Oakwood ruling.

Facts About FACTA

Posted by Nancy G. Berner

Federal legislation aimed at identity thieves has created new concerns for employers. All employers, from Wal-Mart to Mom & Pop, Inc. are subject to the Fair and Accurate Credit Transaction Act (or FACTA), imposing strict requirements on the disposal of employee records. The legislation seeks to cut down on the incidence of "dumpster diving" where enterprising thieves search for sensitive discarded information enabling theft of an employee's identity. The results are not yet clear, but the potential impact on employers is being felt.

What is the Disposal Rule?
FACTA was developed by the Federal Trade Commission, in part to amend the Fair Credit Reporting Act. Parts of the law are quite familiar; this is the same law that allows consumers yearly free access to their credit reports. Other parts, however, are new and considerably more ominous to employers. On June 1, 2005, the "Disposal Rule" section of FACTA, became law. The Disposal Rule requires any person who maintains employee information for a business purpose to properly dispose of the information, or face civil liability, potential class action lawsuits, and state and federal enforcement actions as well as fines if sensitive information makes its way into the wrong hands.

Who Must Comply with the FACTA Disposal Rule?
If you employ someone, then the Disposal Rule applies to you. Every employer in the United States is required to properly and effectively destroy all documents and materials that contain sensitive employee information. Unlike earlier laws protecting security, such as HIPPA or Sarbanes-Oxley, the Disposal Rule applies to all industries, and even to households employing only a nanny, tutor or gardener.

What Does the Disposal Rule Require of Employers?
The Disposal Rule requires practices that are "reasonable and appropriate" to prevent theft of employees' identities. The Federal Trade Commission considers burning, shredding or pulverizing paper, and destroying or erasing electronic files to be both "reasonable" and "appropriate." It may be simpler and more cost effective to conduct due diligence on a disposal company, and hire a reputable document destruction contractor, a practice that is also acceptable to the FTC. It is likely that such contractors will proliferate to fill this need. Already personal shredders have become so ubiquitous that they are offered by such diverse retailers as Williams-Sonoma and Target.

Sensitive employee information, for any and all employees, must be made inaccessible outside of the organization, whether it exists on old fashioned paper, or the latest hard drive. Regardless of the identity of the employer, the identity of those employed is now protected under FACTA.

Records Retention: What to Keep, How to Keep It

California employers face a myriad of state and federal requirements pertaining to the types documents they must retain and the length of retention. Carothers DiSante & Freudenberger LLP's HR Roundtable that took place on September 19, 2006, provided an overview of the general retention requirements for California employers. The handout ("Record Retention Guidelines") provided to attendees can be downloaded here.

On a similar note, the next free HR Roundtable is scheduled for October 17, 2006. The topic will cover immigration issues for California employers. The HR Roundtable will again take place in Irvine, San Francisco, Sacramento, San Diego, and Los Angeles. We will post more information about the topic and times in the next few days, but if you would like to be informed about the details in advance, click here.

SB 1745 - Bill On Domestic Violence Discrimination Passes Legislature

SB 1745, authored by Shelia Kuehl, passed both the Assembly and Senate on September 7, 2006. As it left the Senate, the bill declared that it was the intent of the Legislature to develop legislation that protects victims of domestic violence, sexual assault, and stalking from housing and employment discrimination.

This bill provides that it is against public policy of the state to discriminate against a person in employment because he/she is a victim of domestic violence, sexual assault, or stalking as defined in the bill. Specifically, SB 1745 prohibits any person from discharging, refusing to hire or harass any individual, or otherwise discriminate or retaliate against any individual "because the individual is a victim of domestic violence, sexual assault or stalking." Supporters of the bill state that "the ability to gain and keep a job is vital to the independence and recovery of victims" of domestic violence, while opponents of the bill claimed it would add new employer liability over issues over which an employer has no control. No word on whether the Governor will sign the bill.

Monthly Sexual Harassment Prevention Training Sessions Offered At All Five Locations Throughout California

Who Should Attend?
Supervisors that did not receive training by December 31, 2005
Newly hired supervisors
Newly promoted supervisors

Training Sessions That Comply With California Law:
Experienced attorneys at Carothers DiSante & Freudenberger LLP have created an interactive training curriculum that is engaging, cost-effective, and fully complies with the requirements of California Government Code Section 12950.1 (AB 1825). This law requires all California employers with 50 or more employees to provide at least two hours of sexual harassment prevention training to all supervisors every two years. Supervisors employed as of July 1, 2005, must receive this training on or before January 1, 2006.

To assist employers in complying with the on-going requirements of this law, we will be offering monthly training sessions at all five of our locations in California from May through December 2006. The training sessions will be conducted on the third Friday of each month.

Training Locations:
Irvine Los Angeles
San Diego Sacramento
San Francisco

Training Times:
The times for each training session will be:
7:30 a.m. to 7:50 a.m. - Continental Breakfast
7:50 a.m. to 10:00 a.m. - Training Session

Remaining Training Dates for 2006:
October 20, 2006
November 17, 2006
December 15, 2006

Each Two-Hour Training Session Includes:
Continental Breakfast
Informative Materials About Preventing Sexual Harassment and Conducting Investigations
Interactive Discussion of Practical Situations
Certificate of Completion

$70 per person (or $60 per person if two or more individuals from the same company attend)

On-Site Training:
Carothers DiSante & Freudenberger LLP can conduct this training at an employer's facility. We typically charge a flat fee to provide this type of on-site training. For employers with a large number of supervisors, this may be a more affordable, efficient way to meet the requirements of this law.

For additional information about on-site training or future training dates at one of our offices, email us by clicking here.

For a downloadable version of our brochure please click here.

New Liability for Non-Compete Agreements

Question: Are there any risks to having an employee sign a covenant not to compete, as long as it is narrowly written?

Answer: Yes. Covenants not to compete are attractive to an employer because they limit an employee's potential to compete with his or her employer after termination of his or her employment. However, California Courts have ruled that such covenants are not enforceable except under limited circumstances surrounding the sale of a business or where necessary to protect trade secrets.

In addition, the most common exception, known as the "narrow restraint" exception, permits non-compete agreements if the covenant is narrowly crafted so that an employee who leaves a company still can work in his or her profession. However, on August 30, 2006, the narrow restraint exception was explicitly rejected by the California Court of Appeal. (See Raymond Edwards II v. Arthur Andersen.) The Court of Appeal's decision makes clear that non-compete agreements between an employer and employee are invalid in California even if narrowly drawn, unless they fall within the statutory or trade secret exceptions. The Court stated that such agreements violate California's public policy in favor of protecting employee mobility. Public policy ensures that every citizen retains the right to pursue any lawful employment and enterprise of his or her choice. The Court specifically held that covenants not to compete are prohibited between employers and employees even where the restriction is narrowly drawn and leaves a substantial portion of the market available for the employee.

Importantly, prior cases have held that requiring execution of a non-competition agreement violates public policy and constitutes an independent wrongful act. An employer's termination of an employee who refuses to sign an agreement that includes an invalid covenant not to compete constitutes a wrongful termination in violation of public policy. Now, with the elimination of the narrow restraint exception, many employers will find that agreements they have used for years have become invalid. Further those newly invalid agreements may actually result in liability for the employer.
Because requiring an employee to execute an invalid non-competition clause as a condition of an employee's hire is an independent wrongful act, an employer must be cautious of requiring employees to sign such covenants. For example, requiring a prospective employee to sign an illegal agreement as a condition of employment will satisfy a necessary element of a tort cause of action for intentional interference with prospective economic advantage.

Accordingly, employers should review any agreements they use that contain covenants not to compete to ascertain whether they fall within one of the exceptions before requiring an employee to sign such a contract. Reviewing the employment agreements before requiring execution of an illegal contract may save the time and money involved in defending a lawsuit.

Cal Labor Law

Robin E. Largent is a Partner in CDF’s Sacramento office and may be reached at 916.361.0991 or BIO »


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