2006 IRS Mileage Rate

The IRS recently announced the 2006 mileage rate is set at 44.5 cents per mile. This rate is important for California employers because the California DLSE has opined that if employers reimburse employees' travel expenses at the IRS rate they will have met their obligations under the California labor code requiring employers to reimburse employees for all expenses incurred on behalf of the employer. (Click here to see a prior post on this topic)

For the first eight months of 2005, the rate was set at 40.5 cents per mile. In September the IRS made a special one-time adjustment for the last four months of 2005, raising the rate for business miles to 48.5 cents per mile in response to a sharp increase in gas prices, which topped $3 a gallon.

"The IRS took the extraordinary step of temporarily increasing the standard mileage rates in the aftermath of Hurricane Katrina," IRS Commissioner Mark W. Everson said. "We promised to continue closely monitoring the situation. The 2006 mileage rates reflect that gas prices have dropped."

The IRS announcement can be found here.

California Supreme Court Agrees to Hear Medical Marijuana Case

Yesterday, the California Supreme Court granted review of the ruling of the Third District Court of Appeal in Ross v. Ragingwire Telecommunications, Inc. that held an employer did not violate California law for terminating an employee who used marijuana for medical purposes.

The lower court held that "because the possession and use of marijuana is illegal under federal law, a court has no legitimate authority to require an employer to accommodate an employee's use of marijuana, even if it is for medicinal purposes and thus legal under California law." The court continued, "If FEHA is to be extended to compel such an accommodation, that is a public policy decision that must be made by the Legislature, or by the electorate via initiative, and not by the courts."

Cal Labor Law will provide updates on the status of the appeal.

Ford to Monitor Union Member’s 48 Minute Bathroom Breaks

A another example of the hyper-technical rules being developed in the area of employee's breaks, Ford management has recently issued a memo that the 3,500 Wayne, Mich., factory's hourly workers are spending more than the 48 minutes allotted per shift to use the bathroom (click here for article). The 48 minute bathroom break allotment is set by the UAW union contract with Ford.

First, it is astounding that the employees are given a 48 minute allotment to use the bathroom. (And the fact that the contract sets 48 minutes as the magical number illustrates absurd detail surrounding breaks. Why not 45 minutes or 50 minutes?) Second, it is amazing employees are taking more than 48 minutes for bathroom breaks. (If you need a 48 minute allotment to use the bathroom, I would suggest that you should have probably stayed home that day.)

Plaintiff's allegations that they are not receiving their meal and rest breaks and initiating lawsuits over a minute or two missed during breaks, as employers throughout California have been a target of, is leaving companies no alternative but to monitor every minute of the employee's working time. As noted in the article, Ford's management will now be recording the time employee's spend in the bathroom. It is unfortunate, but employers have no other option when put into this situation.

Court Permits Employers to Reimburse Expenses Through Increased Wages.

California's employee-indemnification law, Labor Code section 2802, generally requires employers to reimburse any expenses incurred by employees in carrying out their job duties. A California appellate court has ruled, however, that employers may satisfy this obligation by paying increased wages or commissions instead of tracking and reimbursing the actual expenses incurred.

In Gattuso v. Harte Hanks Shoppers, Inc., ___ Cal.App.4th ___ (2005), the plaintiff had sought to certify a class of outside sales people who used their own vehicles to deliver papers. The plaintiffs claimed that the employer had violated California's employee expense reimbursement law because it neither reimbursed their actual out-of-pocket expenses, including gas and maintenance, nor paid a fixed mileage-based reimbursement amount. The employer countered that it had entered into compensation arrangements with individual workers which had been specifically designed to incorporate reasonable amounts for expense reimbursement in the form of increased wages and commissions. After examining the history and purpose of the Labor Code's reimbursement provision, the Court agreed that this was a legitimate method of expense reimbursement.

The court reasoned that "the statute does not specify any particular method by which the employer must indemnify employees for necessary expenditures or losses. And nothing in the statute indicates that the Legislature intended to create one exclusive method for such indemnification." Id. at __. As the Court explained:

[Labor Code] section 2802 does not preclude Harte-Hanks from indemnifying its [employees] for their automobile expenses by paying increased compensation, even if other provisions of law may treat that compensation as taxable wages. A violation of section 2802 would occur only if the increased compensation was insufficient to indemnify the [employees] for the automobile expenses incurred in the discharge of work-related duties. Any taxes the [employees] are obligated to pay on the increased compensation should be taken into account in determining whether Harte-Hanks is indemnifying the [employees] for all of their automobile expenses.

Under the Court's ruling, employers and employees are thus free to work out reasonable compensation arrangements that obviate the administrative burden of submitting time-consuming expense reports and processing frequent expense reimbursement checks.

The Court in Gattuso, however, did not go on to decide whether these special compensation arrangements sufficiently covered each employee's actual automobile expenses (click here for related article on the IRS mileage rate). And employers who want to use this compensation-based reimbursement method will have to be careful to fully document the arrangement and to make certain that it reasonably reflects the expenses actually incurred by each employee.
Notwithstanding these caveats, however, Gattuso is an unusually pragmatic and common sense development. This is a welcome development for employers in the area of California employment -- in which the general historical trend has been toward imposing ever more complicated and burdensome administrative requirements.

Who’s The Boss? California Supreme Court Clarifies Joint Employment and Independent Contractor Status

In Reynolds v. Bement 36 Cal.4th 1075 (2005), the California Supreme Court recently clarified the standard for determining who is an "employer." (See link to related entry). In doing so, the Court rejected the extremely broad definition of "employer" used under the federal Fair Labor Standards Act ("FLSA"), opting instead to apply only the much the narrower common law definition. This development has import implications for two increasingly common categories of class actions: claims based on theories of "joint employment" and claims based on the alleged mis-clasification of independent contractors.

Under a joint employment theory, plaintiffs may sue a California company for the wage and hour violations of its contractors or suppliers, claiming that the two entities are actually "joint employers" who are jointly and severally liable for wages. In this way, plaintiffs are able to seek liability against a "joint employer" who is a more attractive "deep pocket" defendant than the contractor or supplier who was contractually responsible for paying their wages. Previously, courts had held that any company could be held liable for wages if it received the benefit of the personal services and "directly or indirectly . . . exercises control over the wages, hours, or working conditions of" those workers. See Bureerong v. Uvawas, 922 F.Supp. 1450, 1467-69 (CD Cal. 1996). Under Reynolds, however, it appears that such an "indirect" relationship is no longer sufficient. Rather, under the common law test an entity should no longer be considered an employer for wage payment purposes unless it has the actual "right to control the manner and means" by which the worker performed his job. See Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323-24 (1992).

By substituting this new common law test, Reynolds should also make it harder for plaintiffs to claim that a company's independent contractors are really misclassified employees. Indeed, for purposes of applying the wage obligations under the Labor Code, the Court explicitly rejected the use of the more liberal "economic reality" test set forth in its prior decision of SG Borello & Sons Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989). The Court held that this test liberal test was meant to apply only in the context of applying the workers' compensation laws, but that application of the Labor Code, once again, depends on whether an entity meets the more stringent common law definition of an employer.

California Supreme Court Holds That Individual Managers Are Not Liable For Unpaid Wages.

In Reynolds v. Bement 36 Cal.4th 1075 (2005), the California Supreme Court held that corporate managers generally cannot be held personally liable for unpaid wages allegedly owed to the company's employees. (See link to related entry)

The plaintiffs in Reynolds had filed a class action lawsuit against their corporate employer, alleging entitlement to unpaid overtime because they had been misclassified as salaried-exempt managers. In addition, they also named the company's individual officers, directors and shareholders as individual defendants in the lawsuit. To justify keeping these individuals in the action, the plaintiffs had relied on the legal theory, based on caselaw interpreting the federal Fair Labor Standards Act ("FLSA"), that any person who merely "exercises control" over the employment relationship may be deemed to be an "employer."

The Court rejected this expansive definition of "employer" for purposes of California law, however. It held instead that the obligations of the California Labor Code apply solely to individuals or entities who fit the traditional common law definition of an employer. "Under the common law, corporate agents acting within the scope of their agency are not personally liable for the corporate employer's failure to pay its employees' wages." Id. at 1169. Thus, the Court concluded that the individual managers could be held liable. Id.

As a result of this decision, the vast majority of individual managers are now shielded from personal liable for unpaid wage payments under California law. But several caveats still apply. First, an individual may still be held personally liable under federal law if he or she exercises sufficient control over the employment relationship. Second, certain California statutes include penalty provisions that explicitly apply to culpable individual managers in addition to corporate employers. And, finally, an individual may still be subjected to personal liability for wages if the corporate employer is found to be a mere "alter ego" of the individual.

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How long should California employers maintain employee records?

California employers are subject to a myriad of federal and state requirements for the retention of employment records. Here is a brief list of important records employers should maintain and the time periods they should be retained in order to avoid civil penalties and to protect against litigation. This is a general list that pertains to most employers in California. Employers should consult with an employment attorney to ensure that they are in compliance with all applicable document retention laws. Download file

Employment Law Statutes That Apply To A Growing Company

Many employment law statutes apply only to those businesses that have a certain minimum number of employees. That minimum number can vary widely depending on the statute at issue. Note that there are additional exceptions that may apply to particular businesses, such as those run by religious organizations or private clubs. Some of the primary statutes are as follows:

1+ Employees - The wage and hour provisions of the California Labor Code, the federal Fair Labor Standards Act ("FLSA"), and federal Equal Pay Act generally apply to any business with even one employee.

1+ Employees - The prohibition against sexual harassment contained in the Fair Employment and Housing Act ("FEHA") apply to any business with one or more employees.

1+ Employees - The National Labor Relations Act ("NLRA"), which governs collective bargaining and relationships with unions, applies to any business with one or more employees.

1+ Employees - SB 1661, which takes effect January 1, 2004, provides up to six weeks of paid family temporary disability insurance leave and applies to any business with one or more employees.

2+ Employees - California Health & Safety Code Section 1366.21 ("Cal-COBRA") applies to any business with two or more employees.

5+ Employees - The FEHA's anti-discrimination provisions apply to employers regularly employing 5 or more employees on their payrolls, including part-time employees.

5+ Employees - An employer with 5 or more employees must allow an employee up to six weeks of leave for a normal pregnancy, or up to four months of Pregnancy Disability Leave if the employee is disabled by the pregnancy.

15+ Employees - Title VII of the Civil Rights Act (the federal anti-discrimination law) applies to employers of 15 or more employees who work each work day in a 20 day calendar period for the current or proceeding year.

15+ Employees - The federal Americans with Disabilities Act ("ADA") applies to employers of 15 or more employees for each working day in each of 20 or more calendar weeks for the current or preceding year.

20+ Employees - The federal Age Discrimination in Employment Act ("ADEA") applies to employers with 20 or more employees.

20+ Employees - The federal Consolidated Omnibus Budget Reconciliation Act ("COBRA") applies to employers with 20 or more employees.

50+ Employees - The California Family Rights Act ("CFRA") and the Family and Medical Leave Act ("FMLA") apply to employers of 50 or more persons within a 75-mile radius for each working day of a 20 day calendar period for the current or previous year. Part-time employees and those on paid or unpaid leave are counted when determining whether an employer is subject to this act.

75+ Employees - The California Worker Adjustment Retraining and Notification Act (AB 2957) becomes effective January 1, 2003. It will apply to employers of 75 or more employees, possibly including part-time employees.

100+ Employees - The federal Worker Adjustment Retraining and Notification Act ("WARN") applies to employers who employ either (1) 100 or more employees, excluding part-time employees, or (2) 100 or more employees who combine to work for 4,000 hours per week, exclusive of overtime.

Governor Vetoes Minimum Wage Increase

Governor Arnold Schwarzenegger vetoed a bill (AB 48) that would have raised California's minimum wage from $6.75 to $7.75 over the next two years. The bill also tied all future increases in minimum wage to an inflation index, which was the primary reason the Governor vetoed the bill. Schwarzenegger said the legislature should carefully review the ramifications of increasing the minimum wage each time it is raised instead of putting all increases on "autopilot."

The Governor also use this opportunity to express his desire to provide employers some relief from the other employment laws in California, saying California has "the most inflexible workplace scheduling rules in the country" and "Byzantine labor law defining employer classifications." (Click here to see the Governor's proposed meal and rest break regulations)