CDF Attorneys Convince Court to Invalidate Use of Representative Testimony in Class Action Trial

CDF is pleased to report its recent victory in Duran v. U.S. Bank, a seminal decision striking down the use of statistical sampling and representative testimony to establish liability and restitution in a class action trial involving claims of alleged misclassification and unpaid overtime.  Reversing a $15 million judgment awarded to a class of business banking officers (BBOs), the court held that the trial court’s use of statistical sampling and representative testimony to extrapolate liability and restitution from a sample group of 21 witnesses to a class of 260 bankers violated U.S. Bank’s constitutional due process rights.  The court held that this trial plan improperly prevented U.S. Bank from presenting relevant evidence to contest classwide liability and to challenge the claims of individual class members outside of the sample.  The court also held the trial court erred in focusing on U.S. Bank’s policies and uniform exempt classification in maintaining class treatment.  Because the validity of each class member’s exempt misclassification claim required individual analysis, class treatment was improper and unmanageable.  As a result, the court, in addition to reversing the judgment, ordered that the class had to be decertified.  This case is significant because it is the first known California appellate decision reviewing a trial verdict in an overtime misclassification case, where the trial court employed one of the purported “innovative procedural tools” (statistical sampling) to manage class action trials referenced by the California Supreme Court in Sav-On Drug Stores, Inc. v. Superior Court, 34 Cal.4th 319, 339 (2004).  The Court stated that “while innovation is to be encouraged, the rights of the parties may not be sacrificed for the sake of expediency.”  


This case was originally filed as a putative class action alleging claims of misclassification brought under various provisions of the California Labor Code, as well as conversion and unfair competition under Business & Professions Code § 17200 (the “UCL” claim).  U.S. Bank claimed that the BBOs were properly classified under the administrative exemption, commissioned salesperson exemption, and outside sales exemption.  In opposing class certification, U.S. Bank argued that individual issues predominated as shown by the declarations of over 70 putative class members, in addition to deposition testimony of the four prior named class representatives, who all stated under oath that they spent a majority of their time outside U.S. Bank premises, and were therefore properly classified as exempt.  After certifying the class, the trial court granted Plaintiffs’ motion for summary adjudication as to the administrative and commissioned salesperson exemptions.  Just months before trial, Plaintiffs dismissed their legal claims and proceeded to a bench trial only on the equitable UCL claim that was premised on the alleged Labor Code violations and U.S. Bank’s defense based on the outside salesperson exemption. 

The “Fatally Flawed” Trial Plan Violated U.S. Bank’s Due Process Rights

Although the trial court requested briefing and proposals from both parties as to an appropriate trial management plan, it ultimately decided to implement a trial plan that was neither proposed by the parties nor endorsed by their experts.  Over U.S. Bank’s objections, the trial court determined that it would take a random sample of 20 class members (drawn out of a “hat”) plus the two named plaintiffs to testify at trial to determine both classwide liability and damages.  The trial court also selected 5 class members as “alternates” in case any of the 20 originally drawn class members were unavailable.  After this random witness group (“RWG”) was selected, however, the trial court ordered a second opt-out notice to be sent to the class because Plaintiffs had chosen to dismiss their legal claims.  U.S. Bank argued that any member of the RWG group that opted out after receiving the second opt-out notice should be required to provide deposition and trial testimony to maintain the integrity of the original sample and ensure statistical reliability of the  extrapolation process.  Four of the 20 class members (or 20%) of the RWG opted out, while only 5 of the remaining 250 (or 2%) absent class members opted out.  Notwithstanding the disproportionately higher opt-out rate among the RWG, the trial court denied U.S. Bank’s motion to allow two of the RWG witnesses to opt back into the class.  When those witnesses were later called to testify by U.S. Bank as to their percipient knowledge of other RWG members, they were precluded from testifying as to their own BBO experiences.

Consistent with its determination that the trial plan only allowed for testimony and evidentiary submissions regarding the RWG, the trial court steadfastly rejected U.S. Bank’s repeated attempts to introduce relevant evidence from absent class members outside of the RWG, including sworn deposition testimony and declarations from nearly one-third of the class (including that of the four prior named class representatives) indicating they spent a majority of their time outside of their offices and were therefore properly classified as exempt.  At the conclusion of the liability phase, the trial court concluded that the two plaintiffs and all 19 class members in the RWG were misclassified (one RWG member failed to appear at trial and was then treated as an absent class member) and therefore extrapolated those liability findings to conclude that all 260 members of the class were misclassified.  In Phase II of the trial, the trial court accepted Plaintiffs’ experts’ testimony that concluded, using the testimony provided by the RWG and the two named plaintiffs, at a 95% confidence level, that the class members worked an average of 11.87 hours of overtime per week, with a margin of error of 5.14 hours or 43.3%.  This “average” hours of weekly overtime was then extrapolated to the remaining 239 absent class members.

The Court of Appeal found the lower court’s trial methodology to be both legally unprecedented and statistically unsound.  The court was extremely troubled that U.S. Bank was “hobbled” in its ability to prove its affirmative defense not only as to individual absent class members but as to classwide liability because it was “prohibited from introducing evidence pertaining to any non-RWG members, evidence that arguably would have shown some class members were either properly classified or did not work overtime.”  The trial court’s blind adherence to its trial plan sacrificed “fair and accessible justice” for convenience and efficiency. The court noted that neither state nor federal law supported the use of statistical sampling or representative evidence to determine liability in a misclassification case where time spent performing exempt duties may differ between employees.  Experts from both sides agree that, statistically speaking, even if 21 out of the 21 testifying class members were found to be misclassified, up to 13% of the class could nonetheless be properly classified.  Hence, there is no statistical basis to conclude that 100% of the class is misclassified based on a fact-finding process involving only a small sample of class members.  The court explained that using statistics to determine classwide liability in a misclassification case is problematic because a certified class that included both injured and uninjured class members would necessarily require individual mini-trials to determine which class members fell in which category.

Significantly, the court stated that  “due process principles require individualized inquiries where the applicability of an exemption turns on the specific circumstances of each employee, even in cases where the employer’s misclassification may be willful.”  The court distinguished this case from Bell v. Farmers Insurance, 115 Cal.App.4th 715 (2004) (Bell III), where this same court had approved the use of statistical sampling to determine classwide damages.  The trial court in Bell III had conducted an appropriate pilot study to determine an appropriate sample size and desired margin of error at the outset.  Importantly, both parties’ experts largely agreed on the sampling methodology and proposed margin of error.  In contrast, the trial court in Duran committed a number of errors in its unscientific and inconsistent use of statistics in its trial plan, including arbitrarily using a 20-member sample group without any surveys or pilot studies, permitting selection bias by allowing randomly selected members to opt out and for including the two non-randomly selected class representatives in its sample, arbitrarily using a mid-point to determine average work hours for class members who provided a range of hours worked, and failing to extrapolate results unfavorable to Plaintiffs (such as a RWG member signing a release that prevented him from personal recovery, or that a RWG member was properly classified for two weeks of his employment).  These and other errors resulted in a statistically invalid and inaccurate judgment, as evidenced by the 43.3% margin of error associated with the 11.87 “average” overtime hours worked.  This meant that the overtime hours worked by class members could range anywhere from 6.73 hours to 17 hours per week.  Using the low end of this margin of error meant that the $15 million judgment awarded to the class could actually be half as much and still fall within the undisputed margin of error.  While the court again declined to issue a bright-line rule as to an unconstitutional level of inaccuracy, it noted its consistent rejection of results containing a large margin of error, such as 32% in Bell III’s calculation of double-time damages, and 43.3% in Duran.

In concluding that the multitude of errors committed by the trial court resulted in serious due process violations, the Court of Appeal found persuasive the reasoning and analysis laid out in the recent U.S. Supreme Court opinion in Wal-Mart Stores v. Dukes, which had rejected a similar “trial by formula” theory advanced by plaintiffs to determine liability and damages from a sample group to the class as a whole in a gender discrimination class action.  The Court’s parallel reasoning and analysis of Dukes dispels any contention that the holding in Dukes would be limited to federal cases or discrimination claims.

Individual Analysis Required to Determine Exempt Classification Compels Decertification

The court acknowledged that Sav-On held there was not a requirement that “courts assess an employer’s affirmative exemption defense against every class member’s claim before certifying an overtime class action,” but concluded this passage does not apply to the trial phase of a class action lawsuit.  In so doing, the Duran court addressed the problem frequently ignored by many trial courts that certified class actions with no indication as to how a class action trial would be properly managed that comported with a defendant’s due process rights.  The court concluded that the evidence at trial showed that because BBOs were not monitored or tracked in any way, the “only way to determine with certainty if an individual BBO spent more time inside or outside the office would be to question him or her individually.”  The court held that the trial court erred in failing to grant U.S. Bank’s second motion to decertify at the close of the liability phase of trial because it erroneously relied on U.S. Bank’s policies (primarily its uniform classification of BBOs as exempt) and ignored variances in admissible evidence that “cast serious doubts as to the prevalence of common issues affecting liability.” 

This case is a welcome development to California employers that have been besieged with wage-and-hour class actions in the last decade.  It calls into question the viability of using statistical sampling and representative testimony in misclassification cases where a proper exemption inquiry turns on an individual analysis.  It also forces trial courts to carefully consider trial management issues and due process arguments that have been largely ignored at the class certification stage.  The entirety of the Duran opinion can be read here.

CDF represented U.S. Bank during the entire pendency of the case at the trial court level and on appeal.

Federal Court Invalidates Proposition 8’s Ban on Same-Sex Marriage

Following a much-publicized and anticipated trial, federal District Court Judge Vaughn Walker of the Northern District of California found that Proposition 8 ("Prop. 8"), the ballot initiative passed by California voters in November 2008 providing that "only marriage between a man and a woman is valid or recognized in California," is unconstitutional under both the due process and equal protection clauses of the federal Constitution. In Perry et al. v. City and County of San Francisco, Plaintiffs are two same-sex couples who seek to marry their partners but have been denied marriage licenses by their respective county authorities pursuant to Prop. 8. They therefore challenged the constitutionality of Prop. 8's ban against same-sex marriages under the due process and equal protection clauses of the Fourteenth Amendment of the United States Constitution and its enforcement by state officials under the federal civil rights statute 42 U.S.C. AASUNsect; 1983. Plaintiffs contend that Prop. 8 singles out gay men and lesbians for unequal treatment because they are prevented from marrying the person of their choice and that California's domestic partnership laws do not provide an adequate substitute for marriage. Plaintiffs further contend that Prop. 8 should be subjected to heightened scrutiny under the Equal Protection clause because gay men and lesbians are a suspect class. Proponents of Prop. 8 intervened as Defendants in the action and argued that Prop. 8 maintains California's definition of marriage as excluding same-sex couples, affirms the will of California citizens, promotes stability in opposite-sex relationships, and promotes "statistically optimal" child-rearing households.

In ruling for Plaintiffs, Judge Walker found that Prop. 8 proponents failed to present credible factual evidence that Prop. 8 served a legitimate government interest, and in fact, Prop. 8 harms the state's interest in equality "based only on antiquated and discredited notions of gender." While this decision may ultimately reach the U.S. Supreme Court (indeed, proponents of Prop. 8 will likely seek review of Judge Walker's decision with the Ninth Circuit), the impact on employers is likely to be seen in the provision of employment benefits and leave rights to same-sex spouses if this decision is ultimately confirmed.

For a full discussion of the legislative and judicial history of the legality of same-sex marriage in California and trial court proceedings, it is contained in Judge Walker's decision in the Perry case and can be found here.

New Favorable Interpretation of “Commissions” for Commissioned Salesperson Exemption

The California Second Appellate District recently issued an opinion that favorably expanded the definition of "commission wages" for employers who exempt their sales force from overtime requirements under the commissioned salesperson exemption.In Areso v. CarMax, Inc., the Court held that CarMax's commission plan that pays its salespeople a uniform payment for each used car sold (in addition to other components not at issue in the opinion) qualifies as "commission wages" for purposes of the commissioned salesperson exemption.

Plaintiff Areso filed a putative class action lawsuit, alleging misclassification and failure to pay overtime wages because her employer's commission plan did not qualify as "commission wages" under Labor Code Section 204.1, which requires commissions to be "based proportionately on the amount or value" of the sale of the employer's property or services. The trial court granted CarMax's motion for summary adjudication, finding CarMax's compensation arrangement is a "performance-based incentive system and thus fairly understood to be a commission structure" based on the statutory language that commissions may be based on the "amount" rather than "value" of vehicles sold, construing "amount" to mean the number of vehicles sold. The Court of Appeal agreed and affirmed the summary adjudication order, agreeing with CarMax's argument that prior decisions requiring commissions to be based on "a percentage of the price of the product or service" (as first articulated in Keyes Motors, Inc. v. DLSE, 197 Cal.App.3d 557, 563 (1987)) as dicta as it related only to the part of the statutory language in Labor Code § 204.1 interpreting the "value" of the product or service.

The Areso Court confirmed the two-part inquiry adopted in Keyes Motors and later endorsed by the California Supreme Court in Ramirez v. Yosemite Water Co., 20 Cal.4th 785, 794-95 (1999). To qualify for the commissioned salesperson exemption, the employee: (1) must be involved principally in selling a product or service (not making a product or rendering a service); and (2) the amount of their compensation must be based proportionately on the amount or value of the product or service. However, the Areso Court distinguished this case from other cases where the employer's commission plan was held not to constitute commission wages because those cases interpreted whether the commissions were based on the "value" of the product or service. For example, commissions that were based in part on winning sales contests (in Harris v. Investor's Business Daily, Inc., 138 Cal.App.4th 28 (2006)) did not qualify as commission wages. The Court noted no other court has construed the word "amount" in the statute, and that CarMax's payment of a flat dollar figure for each vehicle sold satisfies the statutory requirement because the commissions are paid based on the "amount" or number of vehicles sold. Further, paying a uniform fee for each vehicle is "proportionate" because it is a one-to-one proportion where the "compensation will rise and fall in direct proportion to the number of vehicles sold."

This case is a good development for employers who classify their sales employees as exempt commissioned salespeople and compensate them with commission plans that may have various components, including a "flat fee" component. As this is a new interpretation and development, it remains to be seen whether other courts will follow the Areso Court's lead. A copy of the Areso opinion can be found here.

Ninth Circuit Court Ruling on Employer’s Grooming Standards

Topic: grooming standards based on gender.
The Ninth Circuit, in an en banc decision, affirmed a prior decision that found appearance standards, including makeup requirements, do not impose an unequal burden on women, and do not amount to sexual stereotyping or harassment under Title VII. Employers should, however, ensure that their grooming standards are reasonable. If different grooming standards apply to men versus women, the employer must demonstrate a legitimate business reason for doing so. Jespersen v. Harrah's Operating Co., --F.3d --, 2006 WL 962538 (April 14, 2006).

Explicit Mutual Wage Agreement Can Defeat Overtime Claim

In a surprisingly helpful opinion for employers, the Second Appellate District ruled that an employer and employee can explicitly agree to a compensation arrangement whereby a non-exempt employee can receive a fixed salary for all work (including overtime hours) if the agreement properly provided for the payment of overtime wages at the correct premium rate.
In Arechiga v. Dolores Press, Arechiga sued his employer for additional overtime wages. Arechiga worked as a janitor for Dolores Press, and orally agreed to work eleven hours a day and six days a week, or a total of 66 hours weekly. The parties' written agreement stated "Employee shall be paid a salary/wage [with salary circled] of $880.00" weekly. After Arechiga's employment was terminated, he sued Dolores Press for unpaid overtime, asserting that his salary of $880 compensated him only for a regular 40-hour workweek at an imputed base pay of $22 per hour, and that he was entitled to unpaid overtime of 26 hours at the overtime premium rate each week during the statutory period.

Arechiga premised his claim on Labor Code § 515, which states that "[f]or the purpose of computing the overtime rate of compensation required to be paid to a nonexempt full-time salaried employee, the employee's regular hourly rate shall be 1/40th of the employee's weekly salary." Dolores Press disagreed, asserting that under California's "explicit mutual wage agreement" doctrine, the parties may agree to a guaranteed fixed salary so long as the employer pays the employee for all overtime at least one and one-half times the employee's base rate of pay. The trial court entered judgment for Dolores Press, which was upheld on appeal. In doing so, the Court of Appeal rejected Arechiga's assertion that Labor Code § 515 outlawed explicit mutual wage agreements. Although the judicial opinions validating the use of mutual wage agreements predated the passage of Section 515 in 2000, no case law supports Arechiga's position. The Court of Appeal expressly rejected a provision from the DLSE's Enforcement Policies and Interpretations Manual that purported to interpret Section 515 as rejecting explicit mutual wage agreements. Because there was sufficient evidence in the record to establish the employer's contention that the parties agreed to a base rate of $11.14 per hour and the $880 weekly salary fully compensated Arechiga for all hours of overtime worked, judgment for the employer was upheld.

Employers should be careful when entering into mutual wage agreements to make sure they comply with the legal requirements, such as: (1) specifying the basic hourly rate of compensation upon which the guaranteed salary is based before the work is performed; (2) specifying that the employee will be paid at least one and one-half times the agreed-upon rate for hours in excess of 8 in a day and 40 in a week; and (3) informing the employee that the salary would cover both his regular and overtime hours. If the employee works a set number of hours each week and the compensation reflects he or she was paid at the correct premium rate, this case validates the use of mutual wage agreements for non-exempt employees in California. A full copy of the court's decision can be found here.

Employer Must Take Corrective Action to Cure Third-Party Harassment

A California Court recently confirmed an employer's duty to take corrective measures to prevent a hostile work environment caused by third parties -- even when this type of harassment or hostile work environment may be "inherently part of the job."

In Turman v. Tuning Point of Central California, Plaintiff Turman was a resident monitor at a halfway house for Defendant Turning Point. Residents of the halfway house were predominantly male prisoners who were being transitioned into the workforce and society prior to their full release on parole. Turman alleges that while she was at work, male residents propositioned her for sex, exhibited sexual gestures in front of her, and called her lewd and sexually offensive names. When Turman complained to her supervisor, her supervisor simply suggested she issue fewer disciplinary citations for the residents' violation of various rules, which he surmised was the cause of their harassing conduct. The case was tried before a jury, which found that, while Plaintiff was subjected to severe and widespread harassment because she was a woman and that created a hostile work environment, Turning Point did not "fail to take immediate and appropriate corrective action."

The Court of Appeal reversed the judgment, finding there was no substantial evidence to support the jury's verdict since Defendant's only response to the reported abuse was her supervisor telling Plaintiff to issue fewer disciplinary citations to residents so they would be nicer to her, which does not amount to corrective action to alleviate the abuse. While the Court acknowledged that male residents living under restricted/penal conditions are likely to harass or mistreat their female supervisor, and that enduring inappropriate behavior by prisoners may be "inherently" part of the job, that does not absolve an employer from its legal responsibility under FEHA to take immediate and appropriate action to correct the situation. Thefullopinion can be found here.

This case is a good reminder to employers that they must address complaints of harassment and hostile work environment even when the harassment is perpetrated by third parties, and evenin the unusual situation wherethe hostile work environment may be an expected and inherent part of the job.

Non-Union Employees Entitled to Opt-Out Notice Before Disclosure of Personal Information to Union

ByAlison Tsao

Employers and plaintiffs' attorneys in putative class action matters frequently disagree over whether and the type of notice that is required to be given to putative class members before their personal contact information is disclosed to Plaintiffs' counsel before a class is certified. In County of Los Angeles v. Los Angeles County Employee Relations Commission, Service Employees Int'l Union Local 721, the Second Appellate District held that non-union members are entitled to receive notice and be given an opportunity to object before their personal contact information is released to the union.

During the collective bargaining process, the union demanded that the employer provide the contact information (home addresses and telephone numbers) of county employees who chose not to join the union but otherwise pay their fair-share fee, an agency-shop fee, or pay the agency-shop fee to a charitable fund based on a claim of religious exemption. While part of the union's asserted need for this information was to more efficiently provide them with necessary annual notices about their fees and the reasons for the fees, the other reasons were to facilitate the union's communications with these non-union members about union activities, layoffs, job-related activities, and recruitment. The County employer objected to these requests based on the non-union members' constitutional privacy interests, and proposed that an opt-out form be used so the members can object to the provision of their contact information. The union rejected this proposal and filed an unfair employee-relations practice charge, arguing that under both the National Labor Relations Board and the state's Public Employee Relations Board have ruled that unions are entitled to personal information of non-members who are part of the bargaining unit. The administrative hearing officer agreed with the union and recommended to the Employee Relations Commission that the information be disclosed without notice to the non-union members, which was adopted by the Commission. The County then appealed this decision to the trial court under a writ of mandamus. While the trial court held that the Commission erroneously applied federal labor law to the issue and that it should have been decided under California's privacy laws, it nevertheless held that the union's right to communicate with all represented employees outweighed the employee's privacy interest. The County thereafter appealed this ruling to the Court of Appeal.

The Court of Appeal agreed that California law applied to this question, but reversed the trial court's ruling. In reviewing the text and history of the Privacy Initiative that led to the amendment to the California Constitution, the Court recognized that "the residential privacy interest includes the right not [to] be disturbed in one's home by unwanted advertising and solicitation by mail . . . [and] the disclosure of names, addresses, and telephone numbers of association members implicates the privacy interest in the sanctity of the home." Further, the Court reasoned that employees who give their home address and home telephone numbers as a condition of employment have a reasonable expectation of privacy that the information will remain confidential and will not be disseminated except as required by governmental agencies or benefit providers. The Court reviewed the California Supreme Court's decision in Pioneer Electronics v. Sup. Ct., 40 Cal.4th 360, 371-72 (2007) and its progeny in balancing individual privacy rights in the context of consumer and employment class actions against the need for disclosure of this information by developing procedural safeguards such as opt-out notices when these safeguards are warranted. The Court concluded that, unlike employment and consumer class actions where there could be a presumption that disclosure of contact information might lead to affirmative relief or vindication of statutory rights, that same presumption would not apply to non-union members because they would not necessarily perceive a benefit to having their information disclosed. As a result, the opt-out procedural safeguard used in Pioneer was appropriate and necessary to protect the privacy rights of these non-union members. A copy of the case can be found here.

This case is a positive development for employers who seek to assert the right to privacy of personal contact information of its employees and former employees. However, the Court was quick to point out that trial courts are granted discretion to consider whether procedural safeguards such as those used in Pioneer are always required in other class action contexts, and this issue therefore remains far from settled.

Employment Screening Company Has Free Speech Right to Republish Sex Offender Information

Employers frequently use third-party vendors to conduct background checks and screening services before hiring prospective employees. In Mendoza v. ADP Screening and Selection Services, Inc., a California court held that an employment screening service has a constitutional free speech right to republish to employers information contained in a "Megan's Law" website ("MLW") with respect to sex offenders notwithstanding the statutory prohibitions on the use of such information in the employment context.

Mendoza filed a complaint against ADP Screening and Selection Services, Inc. ("SASS") alleging that a prospective employer denied him a job because the employer had received a pre-employment background check conducted by SASS that identified Mendoza as a registered sex offender on a MLW. The statute governing the MLW prohibits the "use of any information that is disclosed [on the MLW] . . . for purposes relating to . . . [e]mployment." Cal. Pen. Code § 290.46(1)(2)(E), (4)(A). SASS filed a special motion to strike Mendoza's complaint pursuant to the anti-SLAPP statute, which provides that "[a] cause of action against a person arising from any act of that person in furtherance of the person's right of . . . free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim." Cal. Code Civ. Proc. § 425.16(b)(1). The Court of Appeal upheld the trial court's ruling granting SASS' anti-SLAPP motion because providing employment screening reports is a "protected activity" notwithstanding the fact that the activity was undertaken for profit. The Court found that SASS had engaged in constitutionally protected speech on a subject of public interest because of the public's strong interest in the dissemination of information regarding registered sex offenders to preserve safety in the workplace and to prevent liability to employers who fail to properly investigate prospective employees. While the California Supreme Court previously ruled in another case that a defendant may not use the anti-SLAPP statute to strike a complaint where the defendant's underlying conduct at issue was illegal, the Mendoza court interpreted "illegal" to mean violation of a criminal statute, not action which would subject the defendant to civil remedies. Finally, the Mendoza court held that SASS was entitled to strike Mendoza's complaint because Mendoza could not, as a matter of law, prevail in a claim against SASS under the MLW statute at issue because SASS, in simply accessing and republishing information it found to the prospective employer, did not "use" that information in making an employment decision. Mendoza's claim against SASS for violation of the California Investigative Consumer Reporting Agencies Act ("ICRAA," Civil Code § 1786.2) also fails because registered sex offenders are not a protected class for purposes of federal or state equal employment opportunity laws. Of significant note, however, the Court stated that Mendoza could potentially allege a violation of Penal Code § 290.46 against the prospective employer.

While the Mendoza decision is good news for companies in the business of conducting pre-employment background checks, employers must proceed with caution in requesting and using information with respect to registered sex offenders contained on a MLW. If you have any questions about the proper use of background checks in the pre-hiring process, please contact us.

Commuting in Employer-Provided Car and “Postliminary” Work May Be Compensable

The Ninth Circuit recently revisited its prior decision in Rutti v. Lojack Corp., regarding compensability of commute time and preliminary and postliminary work. The Ninth Circuit altered its prior decision in some respects. Our prior post on the Rutti case is here. On rehearing, the Ninth Circuit ruled that an employee may seek wages for time spent commuting to and from work in a company car he is required to use when he is "effectively subject to the control of the employer," as well as time spent on the "postliminary" activity of transmitting required daily portable data transmissions to his employer from home.

Specifically, the Ninth Circuit considered Rutti's claims for compensation for commuting in a car which use was mandated by his employer, and for certain "off-the-clock" work he performed both prior to and after his commuting time. Rutti brought a putative class action for unpaid wages on behalf of all technicians employed by Lojack to install and repair alarms in customers' cars. Most, if not all of the installations and repairs are done at the clients' locations. The technicians were required to travel to the job sites in a company-owned vehicle. Rutti was paid on an hourly basis for the time period beginning when he arrived at his first job location and ending when he completed his final job installation of the day. In addition to the time spent commuting to his first job assignment and from his last assignment to home, Rutti also sought compensation for "off-the-clock" activities he performed before he left the house and after he returned home. Rutti alleged he spent time in the morning receiving assignments for the day, mapping his routes to assignments, prioritizing jobs for the day, and minimal paperwork. Rutti further alleged that he spent time after he returned home in the evenings to upload data to his company from a portable data terminal ("PDT") from which his work activities were recorded during the day.

Although Rutti filed a motion for class certification at the same time Lojack filed a motion for partial summary judgment, the district court only ruled on the summary judgment motion in disposing of Rutti's federal claims and state law claim for commuting compensation, and later dismissed the remaining state law claims for lack of subject matter jurisdiction.

The Ninth Circuit affirmed the district court's ruling that Rutti's commute time was not compensable under federal law pursuant to the Employee Commuter Flexibility Act ("ECFA," 29 U.S.C. § 254(a)(2)). ECFA provides that the use of an employer's vehicle that is subject to an agreement between the employer and employee and is not part of the employee's principal activities is not compensable. This interpretation is consistent with federal authorities that the cost of commuting is not compensable unless employees "perform additional legally cognizable work while driving to their workplace." However, the Court ruled that Rutti is entitled to seek compensation for his commute time under California law as compulsory travel time. Rutti asserts that Lojack restricts him from using the vehicle for personal pursuits and transporting passengers, requires that he drive directly from home to work and from work to home, and requires that he keep his cell phone on during the commute. The Ninth Circuit, relying on the California Supreme Court's decision in Morillion v. Royal Packing Co., 22 Cal.4th 575, 578 (2000), held that Rutti was entitled to seek compensation because he was subject to his employer's control during his commute because he was foreclosed from engaging in personal pursuits that he would otherwise have been able to undertake if he was permitted to travel to the field using his own transportation.

The Court held that Rutti's preliminary activities (those that take place before he leaves home) of "receiving, mapping, and prioritizing jobs and routes for assignment" are related to his commute and not related to his principal activities. Moreover, even if they are related to his principal work activities, appear to be de minimis. As a result, they are not compensable. In contrast, Rutti's postliminary activities in performing the PDT transmissions were a regular part of his work duties and necessary to Lojack's business. The Court ruled that upon remand, Lojack might still be entitled to summary judgment if the time spent performing such tasks was de minimis. However, the factual record did not compel this conclusion because, although it may take only five to ten minutes to initiate the transmission, employees were required to come back to see if the transmission was successful and, if not, to send it again. There was evidence of frequent transmission failures. In so holding, the Court stated there was no bright-line rule that activities requiring less than ten minutes' time was per se de minimis. Rather, courts are to employ a three-prong test as established in Lindow v. U.S., 738 F.2d 1057, 1063 (9th Cir. 1984) and consider: (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work. Because there was evidence that Lojack paid one technician 15 minutes a day to cover PDT transmission time, and Rutti testified that he spent about 15 minutes a day performing such tasks (which, over the course of one week was substantial enough to warrant compensation), the Court reversed the grant of summary judgment and remanded for reconsideration in light of these factors.

Employers who require employees to use company vehicles for commuting purposes should carefully review their policies to see whether they are exerting sufficient "control" over the time and manner in which employees are commuting to determine whether that time needs to be compensated. Employers should also determine whether employees' preliminary and postliminary activities are integral to the employees' principal job duties and, if so, whether that work required more than de minimis time to determine whether additional compensation should be paid.

The Ninth Circuit's new opinion in Rutti v. Lojack Corp. is here.

Public Agencies Exempt From Most California Labor Code Provisions

The Fifth Appellate District recently confirmed that unless a statute specifically provides otherwise, public agencies are exempt from wage and hour provisions of California's Labor Code. In Johnson v. Arvin-Edison Water Storage District, Plaintiff Randell Johnson filed a putative wage and hour class action against the Arvin-Edison Water Storage District ("District"), a public agency, alleging violations of various provisions of the California Labor Code, including failure to pay overtime, failure to provide proper meal breaks, and failure to provide all wages due upon termination. The Court of Appeal upheld the trial court's granting of the District's demurrer that public agencies are exempt from the provisions of the Labor Code alleged by Plaintiff in the Complaint.

The Court of Appeal held that absent express statutory authorization, governmental agencies are not subject to a general statute like the Labor Code. For example, in Labor Code Section 555, the Legislature specifically stated that provisions of that chapter (sections 550-552 and 554) pertaining to maximum consecutive working days (generally stating that employees are entitled to one day of rest in seven days of work)," are applicable to cities which are cities and counties and to the officers and employees thereof." Because Labor Code sections 510 and 512 pertaining to overtime and meal periods do not expressly contain language applying these statutes to public agencies, they are held to apply only to the private sector. Moreover, Labor Code section 220(b) states that provisions in that chapter (including final pay provisions under Labor Code sections 201 and 202) do not apply to "employees directly employed by any county, incorporated city, or town or other municipal corporation." The Court held that the District exercises a governmental function and therefore qualified as an "other municipal corporation."

The Court of Appeal further noted that the District is also exempt under the "sovereign powers" maxim. Under the "sovereign powers" maxim, a statute infringes upon a public entity's sovereign powers if it affects the entity's governmental purposes and functions, and the Court held that setting employees' compensation was a fundamental function of the District. While public agencies like the District must still comply with the wage and hour laws set forth in the federal Fair Labor Standards Act ("FLSA"), this decision confirms that absent specific statutory authorization, most public agencies will not be subject to provisions of the California Labor Code.

DLSE Confirms That Employers May, Under Some Circumstances, Recover Wage Overpayments

Employers sometimes overcompensate their employees due to pre-determined payroll practices that pay employees for an assumed number of work hours before actual timesheets are submitted or processed. California law generally prohibits an employer from making deductions from an employee's wages except as required by state and federal law for certain withholdings (eg. taxes) or as authorized by the employee for medical/health benefits or pension plan contributions. However, the Department of Labor Standards Enforcement (DLSE) recently issued an Opinion Letter that concludes that employers may generally recoup these overpayments provided these conditions are met: (1) the deduction cannot cause the employee to earn less than the Minimum Wage; (2) the deduction is expressly authorized by the employee in writing; and (3) the deduction cannot be taken out of an employee's final paycheck.

In coming to its conclusions, the DLSE analogized the situation of a deduction due to an overpayment as a result an employer's regular payroll practice that pays a predetermined amount to an employer's recoupment of commission advances. In both situations, the subsequent recovery was for "'advances' for hours not worked." Moreover, the employees of the employer requesting this opinion letter saw the wage recoupment in the next payroll period based on the employee's submitted timesheets showing he or she did not work all hours for which he or she was paid. As a result, the overpayment recovery was both predictable and proper.
For the overpayment recovery to be valid, it must be authorized in writing by the employee. The DLSE opined that the submission of timesheets showing he or she worked fewer hours than he/she was paid is insufficient, unless it "expressly and voluntarily authorizes a specific prospective deduction."

The DLSE also stated that no deductions of any sort may be taken from an employee's final paycheck, and doing so would subject the employer to waiting time penalties of up to 30 days' wages under Labor Code Section 203, referencing the decision of Barnhill v. Saunders, 125 Cal.App.3d 1 (1981) (employer may not deduct balance of employee loan in "balloon type payment" from final paycheck even with prior authorization). Note, however, that language in the Barnhill decision suggests that the Court was more concerned with the "balloon type" payment required by the employer. Other case authority on this subject suggests that it may be permissible for an employer to make deductions from a final paycheck if the employee voluntarily signs a new writing authorizing the specific deduction, again, assuming doing so does not cause the employee to earn less than the minimum wage or result in a "balloon type" payment.

The DLSE's Opinion Letter on this subject was limited to the situation where the overpayment resulted from a regular payroll practice where overpayment was both predictable and expected, as opposed to situations where employers overpaid employees due to clerical, accounting, or administrative error. Accordingly, employers are cautioned to consult with legal counsel before attempting to recover wage overpayments.

“Joint Employers” of Staffing Agency Employees Liable for FMLA Violations

The Sixth Circuit of the U.S. Court of Appeals recently ruled that an employer who hired an employee through a staffing agency may be liable for violations of the federal Family Medical Leave Act (FMLA). In Grace v. USCAR and Bartech Technical Services, LLC, --F.3d--, 2008 WL 782470 (6th Cir. 2008), Plaintiff Rosalyn Grace was a long-term "contractor" who provided information technology (IT) services to Defendant USCAR through a couple of different placement agencies for a period of eight years. In the fall of 2004, Grace developed a respiratory disability (asthma) that eventually resulted in her hospitalization, whereupon she took a leave of absence through her staffing agency, Bartech. In late December 2004, just days before Grace's original anticipated date of return to work, Bartech informed Grace that USCAR had decided to outsource its IT duties and that, as a result, her position was terminated.

USCAR contended that its management decided in the fall of 2004 to restructure its IT division to switch from using full-time contractors to contracting directly with individual providers on an as-needed basis. Grace's position was allegedly targeted for restructuring. While Grace was on FMLA leave in December 2004, USCAR decided to use the services of another Bartech contractor, Spolarich, to handle regular IT maintenance issues due to Grace's absence. In May 2005, USCAR contracted directly with Spolarich for a 20-hour per week job to permanently fill the new IT position at USCAR.

Grace filed suit against Bartech and USCAR in federal district court, alleging among other things, violations of the FMLA for failing to return her to her pre-leave (or comparable) position and retaliation, and for gender discrimination under Title VII and Michigan's civil rights law. The district court granted both employers' motions for summary judgment. The Sixth Circuit Court of Appeals reversed the district court's ruling with respect to the FMLA claims but affirmed the grant of summary judgment as to Grace's Title VII claim.

The Court recognized that the FMLA is silent about the issue of joint employment. However, the Department of Labor (DOL) has promulgated regulations such that liability could attach to Bartech and USCAR under either an "integrated employer test" or "joint employment" test under 29 C.F.R. § 825.104(c)(1). The Court found that the integrated employer test did not apply because there was not sufficient interrelation between the operations of the staffing agency and client employer. However, the Court found sufficient evidence under a joint employment test because each employer exercised a sufficient level of control over Grace's work or working conditions. Specifically, 29 C.F.R. § 825.106(a) describes three employment relationships where joint employment will "generally . . . be considered to exist:" (1) "where there is an arrangement between employers to share an employee's services or to interchange employees;" (2) "where one employer acts directly or indirectly in the interest of the other employer in relation to the employee;" or, (3) "where the employers are not completely disassociated with respect to the employee's employment and may be deemed to share control of the employee, directly or indirectly, because one employer controls, is controlled by, or is under the common control with the other employer." Under specific regulations pertaining to cases involving staffing agencies and client employers, Bartech was determined to be Grace's primary employer because it had the ultimate decision to hire and fire, the sole ability to assign Grace, and was the entity in charge of her payroll and benefits. USCAR was determined to be a secondary employer because it supervised Grace's day-to-day work and determined her salary and hours. Although only the primary employer is responsible for giving required notices, providing FMLA leave, and maintaining health benefits, both primary and secondary employers must honor the FMLA leave and not engage in "retributory action." Significantly, the Court notes that the anti-retaliation provisions applicable to secondary employers apply even if the secondary employer may not be covered by FMLA. Under 29 C.F.R. § 825.106(e), the secondary employer is responsible for "accepting the employee returning from FMLA leave in place of the replacement employee if the secondary employer continues to utilize an employee from the temporary or leasing agency."

The Court ruled that Grace produced sufficient evidence to raise triable issues of fact as to whether USCAR's decision to restructure its IT functions was unlawful discrimination or retaliation for Grace's exercise of her FMLA rights. Grace contended that the replacement employee, Spolarich, performed functions similar to those performed by her before her FMLA leave. While Spolarich was contracted for fewer hours, he was paid at a higher rate such that the cost savings to USCAR was not significant. Most damning was evidence of meetings notes where USCAR's Director of Operations inquired as to Grace's termination, and when apprised of a need for a "legitimate business reason" to avoid the risk of being sued, asked "can lawyers construct a way to make it [Grace's termination] doable?" The Court held these facts warranted a trier of fact to determine the true motive behind USCAR's decision not to reinstate Grace after the expiration of her FMLA leave.

Employers who rely on staffing and placement agencies for its personnel needs are advised to review their policies with respect to FMLA compliance in relation to its "contracted" personnel. If you have any questions about FMLA compliance with respect to an employee employed through a staffing agency, please contact us.

California Legislature Indicates Intent To Clarify Meal Period Law

On April 15, 2008, the California Senate Labor and Industrial Relations Committee unanimously approved SB 1539 as amended to "declare the intent of the Legislature to enact legislation to address issues related to meal periods in employment." SB 1539, authored by Senator Ron Calderon (D-Montebello), sponsored and supported by the California Chamber of Commerce, California Restaurant Association, and approximately 40 trade and professional organizations, was introduced to provide a comprehensive solution to compliance with and enforcement of California's meal period laws.

SB 1539 has generated bipartisan support from Committee members who have expressed concern over the inflexibility and ambiguity of meal period laws in California that have spawned a tidal wave of expensive litigation and liability for California employers. As a result, Committee members have recognized the need for clarity and greater flexibility to meet the needs of both employers and employees. SB 1539, as originally drafted, would have provided for the following changes to existing meal period law (among others): (1) allowing the employee to waive either the first or second meal period if the employee is otherwise entitled to two meal periods in a day; (2) expanding conditions for employees to take on-duty meal periods; (3) allowing collective bargaining agreements to override provisions of the meal period rules; and (4) defining "providing an employee with" a meal period to mean "giving the employee an opportunity to take" a meal period. The Committee amended SB 1539 to delete all of the substantive changes to the meal period laws, and amended the bill to simply declare the intent of the Legislature to enact legislation to address issues related to meal periods in employment. While the meal period laws have not been changed, the Legislature's declaration of intent is a goodsign that lawmakers recognize the need for change and will continue to have further discussions to try to find consensus on a solution that contains adequate protections for employers and employees. SB 1539 has been referred to the Senate Appropriations Committee. Employers and employees are encouraged to contact the Senate Appropriations Committee to voice their opinions regarding SB 1539 to continue to build the momentum for change in meal period laws. We will continue to monitor this legislation and apprise you of any developments.

New “Get Tough” Federal Policy on Undocumented Workers

On April 20, 2006, DHS Secretary Michael Chertoff announced a nationwide enforcement program directed at enforcement of laws which prohibit employment of unauthorized foreign workers. This announcement comes against the backdrop of raids conducted on April 19, 2006, against IFCO Systems, Inc., a German-owned palleting firm, at locations in New York, Pennsylvania, North Carolina, Ohio, Texas, Indiana, Arizona, Virginia and Massachusetts. The raids were carried out pursuant to criminal enforcement measures accusing the company and its executives of criminal conspiracy with the objective of harboring and transporting undocumented workers. Government officials reported that the case against IFCO began when DHS learned of the company's failure to resolve ongoing notices from the Social Security Administration of large numbers of non-matching social security account numbers in their quarterly payroll tax reports. Many employers have received such reports in recent years. The new "get tough" policy comes in the midst of congressional debate over immigration reform and whether the U.S. should grant legal status to millions of undocumented foreign nationals currently living here.

Important Employment Cases Pending Review

1. Whether waiver of participation in a class action in a pre-employment arbitration agreement is enforceable in California. Gentry v. Superior Court (Circuit City Stores), previously published at 135 Cal.App.4th 944 (2006) (class action for overtime wages filed by retail store managers who claim they were misclassified under the managerial/executive exemption), rev. granted April 26, 2006; Jones v. Citigroup, Inc. previously published at 135 Cal.App.4th 1491 (2006) (class action brought by credit card holders alleging violation of unfair competition law), rev. granted April 26, 2006.

2. Whether (1) Proposition 64 that limits standing to bring an action under the Unfair Competition Law to "any person who has suffered injury in fact and has lost money or property as a result of such unfair competition" (Bus. & Prof. Code, § 17204, as amended) apply to actions pending when the provisions of the proposition became effective on November 3, 2004? and (2) If the standing limitations of Proposition 64 apply to actions under the Unfair Competition Law that were pending on November 3, 2004, may a plaintiff amend his or her complaint to substitute in or add a party that satisfies the standing requirements of Business and Professions Code section 17204, as amended, and does such an amended complaint relate back to the initial complaint for statute of limitations purposes? Young America Corp. v. Superior Court, 2006 WL 217967, rev. granted May 10, 2006, briefing deferred pending decision in Californians for Disability Rights v. Mervyn's, previously published 126 Cal.App.4th 386 (2005), rev. granted April 27, 2005, and Branick v. Downey Savings & Loan Assn., previously published at 126 Cal.App.4th 828 (2005), rev. granted April 27, 2005.

New Noteworthy Cases for California Employers

Topic: employee's personal use of company property.
An employer may be held liable for an employee's use of a company vehicle for personal use. The Court determined that the company's policy and protocol regarding use of company cars implied permission to the employee to use the company car for personal errands. For example, the employee handbook lacked specificity regarding "personal use" of company property. The company also lacked specific protocol when using company vehicles such as failure to have a verification system subsequent to use of company vehicles, such as review of gas, oil, or mileage usage, all of which were indicators that the company's business practice amounted to indifference as to how the vehicles were actually used. Employers should carefully review their employee handbooks to ensure that it expressly prohibits personal use of company property. Employers should also implement consistent protocols to document and monitor use of company property to avoid liability for employees' personal use of company property. Taylor v. Roseville Toyota, Inc., 42 Cal.Rptr.3d 68, 06 C.D.O.S. 3362 (April 4, 2006).

Topic: employment agreements with foreign choice of law and forum selection provisions.
The Court held that an employment agreement containing a New York choice of law provision and New York forum selection provision is enforceable as between a New York employer and California employee. The Court held that the public policy of California in enforcing its anti-discrimination statutes under FEHA and convenience of the party/witnesses in adjudicating the case in California do not invalidate the parties' enforceable agreement where the selected forum affords an adequate remedy to the employee. Out-of-state employers who employ individuals in California may use foreign choice-of-law and forum selection provisions in their employment contracts, so long as the forum selected offers the employee adequate remedies otherwise available to him or her under California law. Olinick v. BMG Entertainment, 42 Cal.Rptr.3d 268, 06 C.D.O.S. 3497 (April 27, 2006).

Topic: discovery of putative class members' names, addresses, and telephone numbers.
This case involves a putative class action lawsuit alleging wage and hour violations, including missed meal and rest breaks and unpaid overtime. The Court ruled that the discovery requested was relevant and did not violate the attorney-client privilege or attorney-work product doctrine. Nevertheless, the Court held that defendant employer's special interrogatories seeking the names, addresses and telephone numbers of all putative class members who contacted plaintiffs' counsel violated the putative class members' privacy rights. Most or all of the class members who contacted plaintiffs' counsel did so in response to a neutral letter sent to a sample of class members, administered by a neutral third party. The Court reasoned that the class members' right to privacy outweighed the employer's need to learn the identities of class members who contacted plaintiffs' counsel, because the employer already knew who the universe of class members were, and presumably knew how it compensated its own employees and administered its meal and rest break policies. The Court evidently found plaintiffs' counsel's declaration persuasive where he states that putative class members were reluctant to reveal their identities unless it remained confidential, and were fearful of retaliation by their employer. Defense counsel should therefore proceed with caution when seeking the identities of putative class members who contacted plaintiffs' counsel, unless there is a compelling reason seeking the disclosure that outweighs the class members' privacy interests. Tien v. Superior Court (Tenet Healthcare Corp.), 06 C.D.O.S. 4006 (May 15, 2006).

Important Legislative Developments

A.On May 15, 2006, Governor Schwarzenegger signed SB 144 into law (revised food and safety code). SB 144 was sponsored by the California Restaurant Association and a broad coalition of interested parties that overhauled California's entire food and safety code in an effort to improve food safety for consumers and eliminate bureaucratic red tape for businesses. SB 144 will enact the updated California Retail Food Code (California Code) and repeal the existing California Uniform Retail Food Facilities Law (CURFFL). SB 144 consolidates food safety regulations and makes them more user friendly, provides better uniformity and consistency, updates and uses the best available science to ensure Californians are safe, and provides businesses with greater flexibility.

B.Currently pending: AB 2095 (sexual harassment prevention training for managers). This bill would limit the provisions regarding mandatory sexual harassment prevention training to employers having 50 or more employees in California and would limit the training requirement to supervisory employees within California. Please see our firm blog for more details about this pending bill.

C.Currently pending: AB 2186 (misclassification of employees as independent contractors). Existing law prescribes comprehensive requirements relating to minimum wages, overtime compensation, and standards for working conditions for the protection of employees applicable to an employment relationship. This bill would state the intent of the Legislature to prohibit deliberate misclassification of employees as independent contractors to avoid the application of such laws and to penalize intentional misclassification. Employers should assess whether they are controlling the manner and means of the work performed by their contractors' employees, a key factor in determining whether an employment relationship exists. Employers also should take a careful look at their contracts with independent contractors to ensure that (1) their contractors must comply with all laws, including wage-and-hour laws, and must insure that their subcontractors also comply with all applicable laws, and (2) they have strong indemnification language in the event they are sued for violations of the law by their contractors or subcontractors.

D.Currently pending: AB 2217 and SB 1254 (expansion of alternative workweek arrangements). Two bills have been introduced in the California legislature that would allow employees greater flexibility in scheduling their workweek. These bills would allow individual workers to request and their employers to mutually agree to a compressed workweek that comprises of four 10-hour days. Any work performed beyond the compressed work schedule would remain subject to current state overtime rules. Please see our firm blog for more details about this pending bill.

E.Currently pending: AB 2371 (employment arbitration agreements). Existing law provides that written agreements to submit controversies to arbitration are valid and enforceable. This bill would invalidate arbitration agreements between employers and employees that relate to employment practices covered by the Fair Employment and Housing Act (FEHA) that are required as a condition of hiring. It would further establish that on and after January 1, 2008, any waiver of rights or procedures under the FEHA must be knowing, voluntary, and not made as a condition of hiring. The bill also provides that an employer has the burden to prove that a waiver or arbitration agreement was knowing, voluntary, and not a condition of employment or continued employment. If passed, this bill would undermine an employer's ability to enter pre-dispute arbitration agreements with employees regarding any rights covered by FEHA.

F.Currently pending: SB 300 (family and medical leave). This bill would increase the circumstances under which an employee is entitled to protected leave pursuant to the Family Rights Act by (1) eliminating the age and dependency elements from the definition of "child," thereby permitting an employee to take protected leave to care for his or her independent adult child suffering from a serious health condition, and (2) permitting an employee to take leave to care for a seriously ill grandparent, sibling, or domestic partner, as defined.

G.Currently pending: SB 1414 (large employer healthcare mandate). Following the lead of Maryland, California State Senator Carole Migden, D-San Francisco, has introduced a bill that would require businesses with 10,000 or more employees to spend at least 8 percent of total wages on health benefits. It has been reported that this bill would affect approximately 69 employers in California, and is being drafted with Wal-Mart in mind. Maryland passed a similar law in January, and at least 30 other states are planning to introduce similar legislation. Senator Migden argues that many employers who do not provide health benefits to their employees are placing the burden on the government to fill this need. The Retail Industry Leaders Association has filed suit to challenge the Maryland law, arguing the law violates the commerce clause, the equal-protection clause of the U.S. Constitution, and the Employee Retirement Income Security Act (ERISA). As you may recall, in 2004 California voters narrowly rejected Proposition 72, which would have required employers with 20 or more employees to provide health benefits to employees or to pay a fee to the medical insurance board that would provide insurance to individuals. There is no doubt that employers in California will have to carefully watch this issue and communicate with their elected representatives the impact that such a requirement would have on their businesses. Although this bill is targeted at the large employers, passage of this type of legislation would pave the way for mandatory employee health benefits for all employers.