Judge Further Delays Implementation of “No Match” Rule

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United States District Court Judge Charles R. Breyer has extended a temporary restraining order that prevents the Department of Homeland Security from implementing a rule requiring employers to fire employees after they receive notices from the Social Security Administration ("SSA") of discrepancies between the employees' names and social security numbers (so-called "no match" letters). According to the rule, if an employer cannot resolve such a mismatch within 90 days, it is required to fire the employee or risk prosecution for employing illegal immigrants.

The rule -- originally scheduled to go into effect on September 14, 2007 -- was challenged by a coalition of immigration and labor groups (including the American Civil Liberties Union, the AFL-CIO and the United States Chamber of Commerce), which claimed that the SSA's records are filled with errors that could lead to numerous legal workers, including American citizens, being unfairly fired. The coalition initially obtained a temporary restraining order on August 31^st; after concluding that there was no immediate harm to the government, but a "potentially enormous burden on the employer," Judge Breyer extended that restraining order for 10 additional days. A final ruling will be issued within 10 days to determine whether or not the previously enacted rules will be implemented.

Please contact us directly to discuss any questions relating to the effect this ruling may have on your workplace.

California Supreme Court Limits Availability of Class Action Waivers

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On August 30, 2007 the California Supreme Court issued its decision in Gentry v. Superior Court of Los Angeles, in which it significantly reduced the availability of class-action waivers in arbitration agreements for overtime wage litigation. In Gentry, a former customer service manager of Circuit City filed a class action lawsuit against Circuit City, his employer, for overtime wages and unfair business practices. Based upon an arbitration agreement Gentry signed at the beginning of his employment that contained a class-action arbitration waiver, Circuit City compelled Gentry to arbitration to pursue his claims on an individual basis. On review, the appellate court determined the class action waiver contained in the arbitration agreement was valid and that the agreement was not procedurally unconscionable, as it had a 30-day opt out provision.

The California Supreme Court, however, did not necessarily agree.Although the Court did not conclude that all class action arbitration waivers are invalid, its decision requires trial courts to extensively scrutinize such provisions in arbitration agreements with regards to overtime wage litigation.

Specifically, the Court opined that the right of an employee to pursue unpaid wages is an unwaiveable statutory right under the Labor Code and improper class action waivers could have the tendency to create a "de facto waiver" as employees are more likely to pursue such claims in a class rather than on an individual basis. Given the "modest" damages at issue in overtime cases, the expense of litigation, and potential for retaliation by the employer, the Court determined employees may be too intimidated to pursue such claims on an individual basis, even through the DLSE. As such, the Court set forth several factors a trial court must consider when evaluating whether a class action waiver to pursue overtime wages that is contained in an arbitration agreement is valid.

With regards to the issue of whether the arbitration agreement between Gentry and Circuit City was procedurally unconscionable, the Court determined that it was due to the "one-sided" explanation of the benefits of arbitration, as well as a reduction in the statute of limitations to pursue unpaid wages. The agreement had also eliminated the mandatory entitlement to attorney's fees for employees who successfully obtained unpaid wages.As a result of the procedural unconscionability, the Court remanded the case to the trial court for the trial court to review whether the agreement was substantively unconscionable.

For specific questions regarding the applicability of the Gentry decision to your workplace, please contact us directly.

Disabled Employees Must Now Show Ability to Perform Essential Functions of the Job

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In a recent 4-3 decision, the California Supreme Court concluded that employees who allege disability discrimination based on California's Fair Employment and Housing Act ("FEHA") must prove that they can perform their essential job functions, with or without accommodation. With this ruling, the Court resolved a split in authority, and aligned FEHA requirements with those of the Americans with Disabilities Act, its federal counterpart.

What Happened

The controversy in Green v. State of California stemmed from a disagreement between the plaintiff and his employer, the Department of Corrections ("DOC"), about whether or not the employee was able to perform the job functions of a stationary engineer. The DOC maintained that the fatigue caused by the employee's ongoing treatment for Hepatitis C rendered him permanently unable to work, and denied his request to return to his position. The employee filed a lawsuit seeking recovery for disability discrimination; both the trial and appellate courts held that FEHA required the DOC to establish that plaintiff was incapable of doing his job. The California Supreme Court, however, disagreed:Plaintiff and all employees who claim disability discrimination in the future bear the burden of proving that they are able to perform the essential functions of their jobs.

What it Means for California Employers

The Supreme Court's ruling is unambiguous. FEHA prohibits employers from drawing distinctions based on physical and mental disability "only if the adverse employment action occurs because of a disability and the disability would not prevent an employee from performing the essential duties of the job, at least not without reasonable accommodation." Therefore, it is now incumbent upon employees to prove that they can perform their jobs. Nonetheless, from a practical point of view, itstill behooves employers to carefully evaluate a disabled employee's ability to perform the job, and carefully review potential reasonable accommodations. In other words, even though employees must demonstrate that they can do the job, employers are well advised to conduct careful, good faith investigation to determine whether a reasonable accommodation can be provided to help minimize a plaintiff's potential for recovery in such cases.

For specific questions concerning compliance, please contact us directly.

Employers’ Profit Sharing Plans Declared Lawful Under California Labor Law

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Employers generally recognize that profit-sharing plans can be important tools for motivating employees and improving their morale. Such plans help focus employees on their employers' bottom line and foster a common goal among employers and their employees. In California, however, such plans were also possibly unlawful until the California Supreme Court issued its recent decision in Prachasaisoradej v. Ralphs Grocery Co., Inc. In that ruling, the Court held that an employee bonus plan based on a profit figure that considered store expenses such as the cost of workers' compensation insurance, cash shortages and inventory losses was lawful.

Prior to Prachasaisoradej, two California appellate courts had held that Ralphs' profit-based employee bonus plans that used workers' compensation costs, cash shortages, and merchandise damages to calculate the amount of profits to be shared with the employees in effect off-set a portion of those expenses against their employees' wages. The appellate decisions held that such profit-based employee bonus plans violate California law because the state's Labor Code and wage and hour regulations prohibit employers from deducting such expenses from their employees' wages

In analyzing the issues presented in Prachasaisoradej, the California Supreme Court first recognized that compensation plans that charge a portion of an employer's expenses against an employee's commissions or bonus that was dependent upon that employee's individual efforts are unlawful. In such cases, employers pay less to employees than what they had offered or promised to pay, and as a result, the "employee[s], having performed the labor, actually received or retains less than the paid, offered or promised compensation."

The Court then distinguished those compensation plans from the one utilized by Ralphs, finding that the Ralphs' plan did not involve deductions from the wages offered, promised and paid to the employees, and therefore did not affect the wages paid to Ralphs' employees. Under the Ralphs' bonus plan, "after the store had completed the relevant period of operation, and the resulting profit or loss figure was then derived, that it was possible to determine ...; whether [bonus plan] participants were entitled to a supplementary incentive compensation payment, and if so, how much. This final figure, and this figure only, once calculated, was the amount offered or promised as compensation for labor performed by eligible employees, and it thus represented their supplemental 'wages' or 'earnings.'"

Accordingly, the Ralphs' plan did not involve a deduction of employer's expenses from its employees' individual commissions or bonuses. Rather, it provided supplemental compensation the company used to "encourage and reward certain employees' cooperative and collective contributions to the profitable performance of their stores" by providing them a portion of their store profits that "Ralphs would otherwise be entitled to retain for itself."

Thus, Prachasaisoradej represents a victory for employers both because it held that an important compensation tool is lawful, and because it addressed and attempted to reconcile several of California's complex and sometimes incongruous labor laws. For specific questions regarding the impact Prachasaisoradej may have on your business, please contact us directly.

Court Issues Ruling Narrowly Interpreting Administrative Exemption.

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On June 12, 2007, the Third District Court of Appeal further narrowed the administrative exemption that employers may use to exempt certain employees from California overtime requirements.In Eicher v. Advanced Business Integrators, Inc., (2007) ____ Cal. App. 4th ______, the plaintiff provided customer service and training concerning the defendant employer's software.The defendant classified the plaintiff as exempt under the administrative exemption. The Court of Appeal sustained the superior court's ruling that the plaintiff did not meet the requirements of the administrative exemption.

To qualify for the administrative exemption, an employee must, among other things, perform "office or non-manual work directly related to management policies or general business operations" of the employer or its customers.In Eicher, the court narrowly interpreted this requirement to insist that the employee have "personal effect on the policy or general business operations" of the employer.In Eicher, theplaintiff's primary responsibilities consisted of implementing and troubleshooting his employer's software at customer venues, as well as providingon-site and off-site customer support.The court opined that the plaintiff was more akin to a production worker previously found not to qualify for the administrative exemption because he was simply "engaged in the core day-to-day business" of the defendant.Because the plaintiff had nopersonal effect on policy or general business operations,the court found that the requirementwas not satisfied and, therefore, the administrative exemption did not apply.For more information concerning Eicher v. Advanced Business Integrators, Inc., click here.

The Buck Stops There: California Employees May Not Transfer Their Standing as Class Representatives to Third Parties

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The Second District of the California Court of Appeal recently handed a significant defeat to a California union by barring it from acting as class representative in a lawsuit seeking to enforce employee claims under the Labor Code.

In Amalgamated Transit Union, Local 1756 v. Superior Court, the Union had persuaded a number of its members to execute agreements that assigned their claims for alleged meal and rest break penalties to the union. These agreements also purported to transfer the employee's right to act as a class representative to the Union. Relying on these assignment agreements, the Union then filed a class action lawsuit, seeking over $10 million in alleged meal and rest break penalties from the employer on behalf of an entire class of workers.

The Court first noted that employees may lawfully assign their individual claims for damages to others. Such damages claims are a form of transferable property just like any debt. Thus, the Union did have standing to sue to collect any unpaid wages or penalties owed to the individuals who had expressly assigned their claims to the Union.

The Court held, however, that the Union did not have standing to act as a class representative. In reaching this conclusion, the Court held that standing to act as a legal representative for others -- whether in a class action or an uncertified "private attorney general" action -- is not a form of transferable property right. As the Court explained, "because the purported assignor (the employee) although authorized by [the law] to bring an action behalf of others, has no ownership interest in the causes of action owned by others, the employee necessarily has no right to transfer those causes of action to a third party." Thus, the right to act as a class representative could not be transferred to the Union.

If the Court had not ruled as it did, employees would have been permitted to sell their status as potential class representatives to the highest bidder. Indeed, the buyers of these rights could presumably have re-sold them like some form of tradable commodity, thereby spawning a whole new source of class action plaintiffs. The Amalgamated Transit ruling is no doubt especially disappointing to unions who have recently been looking for ways to exploit their access to their members in order to gain a share of the lucrative California wage and hour class action market.

Oral Arguments Set In Murphy v. Kenneth Cole

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The California Supreme Court has set oral arguments in Murphy v. Kenneth Cole Productions to take place on Wednesday, March 7, 2007, at 1:30 p.m., in San Francisco. The Supreme Court's ruling will (hopefully) settle the issue about whether Labor Code AASUNsect; 226.7 penalties for meal and rest break violations are subject to a three year or a one year statute of limitations.

Click here, here, and here for prior posts regarding Murphy and related cases.

The Hazards of Dukes: Ninth Circuit Certifies Largest-Ever Discrimination Class Action Lawsuit against Wal-Mart

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The Ninth Circuit Court of Appeals recently handed down its much-anticipated opinion in Dukes v. Wal-Mart. In a 2-1 decision, the majority of the panel approved the lower court's decision to certify a sex discrimination class action by 1.5 million women against Wal-Mart.

The certified class included all current and former female employees who worked for Wal-Mart during the relevant statute of limitations. Neither the lower court nor the Ninth Circuit made any attempt to address whether these discrimination claims might have merit. Rather, the only issue at stake was purely procedural -- i.e., whether the case could be tried as a single class action despite the different facts involved in proving whether each particular woman was truly a victim of discrimination.
Under Rule 23 of the Federal Rules of Civil Procedure, class certification depends mainly on whether the "common issues" shared by the plaintiffs outweigh the differences in their respective cases. But the majority opinion in Dukes appears to significantly lower the standard of "commonality" necessary to obtain class certification for large and diverse groups of plaintiffs.

For example, to the extent that Wal-Mart promulgated centralized personnel policies and procedures, the majority found that these supported a finding of "commonality." Yet, to the extent Wal-Mart lacked such centrally imposed policies, the majority held that that, too, was evidence of "commonality" -- because it demonstrated a "common" policy of permitting subjective decisions by local managers. Predictably, Wal-Mart had no way of escaping this logical Catch-22.

In his dissenting opinion, Judge Kleinfeld issued a sharp criticism of the majority's decision. As Judge Kleinfeld wrote:

This class certification violates the requirements of Rule 23. It threatens the rights of women injured by sex discrimination. And it threatens Wal-Mart's rights. The district court's formula approach to dividing up punitive damages and back pay means that women injured by sex discrimination will have to share any recovery with women who were not. Women who were fired or not promoted for good reasons will take money from Wal-Mart they do not deserve, and get reinstated or promoted as well. This is "rough justice" indeed. "Rough," anyway. Since when were the district courts converted into administrative agencies and empowered to ignore individual justice?

The Ninth Circuit may decide to grant en banc review. Moreover, the United States Supreme Court will no doubt have an opportunity to weigh in by granting certiori at the conclusion of the Circuit Court proceedings. Given the size and scope of the issues involved and Wal-Mart's demonstrated preference for fighting rather than settling high-profile litigation, this will probably not be the last word on the Dukes case.

California Court Creates New Cause of Action for “Negligent Failure To Prevent Retaliation.”

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In Taylor v. Los Angeles Dept. of Water and Power, 144 Cal.App.4th 1216 (2006), the Court of Appeal recently handed plaintiffs lawyers a favorable holdings for use against California employers in retaliation lawsuits.

Discrimination, Retaliation and Harassment.
By way of background, the California Fair Employment and Housing Act ("FEHA"), generally creates three distinct causes of action for discrimination, retaliation and harassment. A discrimination claim arises where an adverse employment action such as termination or demotion is allegedly based the employee's race, sex or other protected characteristics. An harassment claim exists where the employee is subjected to a hostile work environments based on a "severe or pervasive" pattern of offensive actions such as verbal insults or unwanted sexual propositions. Finally, a retaliation claim may exists where an employee is subjected to an adverse employment action because of making protected complaints about discrimination or other illegal conduct.

Each of these three major FEHA claims has distinct elements of liability and distinct remedies. Courts have often struggled, however, in defining the precise boundary lines between these different claims. The Taylor case involved the boundary between retaliation and the other claims.

Retaliation: The Same as Discrimination, Except When Its Different.
Probably the most significant aspect of the Taylor decision is its creation of a new cause of action for "negligent failure to prevent retaliation." The FEHA already contains an express provision stating that employers must "take all reasonable steps necessary to prevent discrimination and harassment." In drafting this section, the Legislature elected to omit any reference to "retaliation" claims. Despite this conspicuous omission, the Taylor Court decided to extend the reach of this statutory provision to also include retaliation claims, reasoning that "retaliation is a form of discrimination." Id. at 1240.

In reaching this result, the Court's opinion is hardly a model of consistency. For example, the Court based its creation of this new "negligent retaliation" claim on its characterization that retaliation claims were equivalent to discrimination claims. Yet, elsewhere in the same opinion, the Court specifically holds that retaliation is different from discrimination when it comes to imposing personal liability on supervisors. Thus, unlike a mere discrimination claim, the Taylor Court found that that "a supervisor may be held personally liable for retaliation under the FEHA." Id. at 1237.

In short, retaliation may be treated as either the same or different from discrimination, depending on which characterization provides the most "liberal construction" for plaintiffs in suing their employers. Id. at 1240.

What Does the Decision Mean For Employers and Supervisors?
Once an employee lodges a potentially protected complaint, any subsequent changes in his job assignments or status may be cited as a form of alleged "retaliation." Employers are now required to "take all reasonable steps" to train and supervise their personnel in order to prevent retaliation against such protected employees. Supervisors should be especially motivated to avoid retaliation claims because they may be held personally liable for damages in any retaliation lawsuit under the FEHA.

Thus, employers and supervisors need to be especially vigilant whenever an employee has lodged an arguably protected complaint. Performance issues should be carefully documented and, in an abundance of caution, changes in a complaining employee's job status should be reviewed and approved by Human Resources or some higher level of management.

NLRB Revises Definition of “Supervisors”

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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."

Assign
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.

Conclusion
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.