A recent opinion from the Fourth Appellate District Court of Appeal emphasized that employers cannot by agreement limit the time period in which an employee can file a lawsuit for wage and hour issues.  The opinion also exemplifies the difficulty associated with satisfying the requirements of the administrative exemption. 

In Pellegrino v. Robert Half International, Inc., six former employees of a temporary staffing company sued their employer under Business and Professions Code section 17200 as well as various Labor Code sections on the grounds that the employer failed to properly compensate them for overtime worked, pay proper commissions, provide meal periods, or provide itemized wage statements.  The employer asserted two main defenses to the employees’ claims:  (1) the employees were properly classified as exempt under the administrative exemption; and (2) the employees’ claims were barred by the “Limitation on Claims” provision in their employment agreement that shortened the statute of limitations for such claims to six months.  The plaintiff filed a motion for summary judgment on the grounds that the shortened time frame to file these claims was unenforceable because it violated public policy, and that they were not properly classified as exempt under the administrative exemption.  The court granted the motion with regard to the shortened time frame, but found there was a triable issue of fact as to whether the employees were properly classified as exempt. 

At trial, the issue of the administrative exemption was tried first.  After all evidence was presented, the Court granted the employees’ motion for judgment and ruled that the employees were not properly classified as exempt as a matter of law.  The employer appealed the ruling on the motion for judgment at trial and the prior motion for summary judgment.

On appeal, the court affirmed both rulings.  With regard to the ruling concerning the shortened time frame to file the claims, the Court agreed that statutory wage and hour rights cannot be waived.  To support this conclusion, the Court cited to Labor Code section 219 that provides “Nothing in this article shall in any way limit or prohibit the payment of wages at more frequent intervals, or in greater amounts, or in full when or before due, but no provision of this article can in any way be contravened or set aside by a private agreement, whether written, oral, or implied.”  The Court also relied on prior cases, such as Gentry v. Superior Court, 42 Cal.4th 443 (2007), Franco v. Athens Disposal Co,. Inc., 171 Cal.App.4th 1277 (2009), and Zavala v. Scott Brothers Dairy, Inc., 143 Cal.App.4th 585 (2006), that previously determined certain wage and hour issues under the Labor Code, including the right to minimum wage, overtime compensation, meal and rest breaks, and itemized wage statements, could not be waived.  The Court additionally referenced Martinez v. Master Protection Corp., 118 Cal.App.4th 107 (2004), which determined an arbitration agreement that required an employee to file any employment related claims within six months of the date the claim arose was unenforceable.  The Court agreed with Martinez’s holding that “the enforcement of a provision in an employment agreement, which serious truncates the time period in which an employee may assert any claim, unlawfully restricts the employee’s ability to vindicate his or her statutory rights.”

With regard to the issue of whether the employees were properly classified as exempt under the administrative exemption, the Court agreed they were not.  The employees had presented evidence at trial that they did not perform work “directly related to the management policies or general business operations” of the company, as required to fall under the administrative exemption.  Rather, the employees performed duties that constituted sales work such as placing a candidate with a client, selling the services of the company to clients, and soliciting potential clients for sales.  The employees’ performance was evaluated on how well they met or exceeded their sales goals.  They had no supervisory duties and did not form any company policy.

The Pellegrino decision is here.

One of the big audit issues raised by the U.S. Department of Labor (the "DOL") in audits of 401(k) plans has been how quickly an employer transfers amounts withheld from an employee's paychecks as an elective deferral to the plan's trustee.  The DOL has regulations that require amounts withheld to be deposited with the trustee for the 401(k) plan as soon as is practical, but in no event later than 15 days.  Many employers think this rule permits them fifteen 15 days.  The DOL has a different opinion.  On audit, the DOL usually examines an employer's deposit history and uses an average which often is as little as one or two business days.  Remittances made outside the due date are treated as prohibited transactions (a loan from the plan to the employer) and are subject to a punitive sanction.

Now the good news.  Recognizing that small employers (employers with less than 100 participants in their 401(k) plan) often have difficulty meeting the standard above, the DOL has officially confirmed a seven day safe harbor rule for small plans only.  Effective immediately, as long as an employer has less than 100 participants, if amounts withheld as elective deferrals are deposited with the plan's trustee within seven days, the deposit will be deemed to be timely.  No relief, however, for large employers.  The "as soon as is practical" rule will continue to apply to employers with 100 or more participants in their 401(k) plans.

The Arbitration Fairness Act (HR 1020) (http://www.govtrack.us/congress/bill.xpd?bill=h111-1020), which would ban pre-dispute mandatory arbitration agreements in non-union employment, remains stalled in Congress.  It likely will not get looked at further until the healthcare bill debate is resolved.

However, Congress and President Obama did act last month to restrict pre-dispute mandatory arbitration for non-union workers employed by certain government contractors. Buried in the Fiscal Year 2010 Department of Defense Appropriations Act (HR 3326)(http://www.govtrack.us/congress/bill.xpd?bill=h111-3326), signed by Obama in mid-December, is language that prohibits any employer that receives more than one million dollars from the Department of Defense from requiring employees or independent contractors working for them to sign agreements that require that disputes under Title VII of the Civil Rights Act of 1964 be subject to mandatory binding arbitration.  Section 8116 of the Act provides

(a) None of the funds appropriated or otherwise made available by this Act may be expended for any Federal contract for an amount in excess of $1,000,000 that is awarded more than 60 days after the effective date of this Act, unless the contractor agrees not to:

(1) enter into any agreement with any of its employees or independent contractors that requires, as a condition of employment, that the employee or independent contractor agree to resolve through arbitration any claim under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention; or

(2) take any action to enforce any provision of an existing agreement with an employee or independent contractor that mandates that the employee or independent contractor resolve through arbitration any claim under title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or harassment, including assault and battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring, supervision, or retention.

In addition, there is also language requiring contractors that are covered by this provision to certify that their subcontractors also will abide by these restrictions. The Act gives the DOD the ability to waive these requirements, but only if waiver is necessary for national security interests.

This amendment was added by Senator Al Franken of Minnesota.  In a clear example of bad facts make bad law, the motivating factor for this amendment was the case of Jamie Leigh Jones.  Jones worked for Halliburton in Iraq and alleged that she was gang raped by co-workers in 2005.  A pre-dispute mandatory arbitration agreement was used by Halliburton to try to keep Jones from filing a Title VII claim.  Although the 5th Circuit Court of Appeals ultimately ruled that the arbitration agreement did not apply to the gang rape, it took almost three years of court battles for Jones to simply be able to move forward with her claims.  For a complete copy of the Court of Appeals opinion, issued in September, click here:  http://www.ca5.uscourts.gov/opinions%5Cpub%5C08/08-20380-CV0.wpd.pdf

For many of us in California, Tuesday is the first day back from a three day holiday weekend.  However, in Massachusetts, it is also an election day.   Massachusetts citizens today will choose a replacement for the late Senator Ted Kennedy.

Most people believe it is a very close race between Democrat Martha Coakley and Republican Scott Brown.  The result of this race is much bigger than Massachusetts politics.  If Brown wins, the Senate will then have 41 Republicans, enough to fillibuster any Democratic sponsored legislation, including the Employee Free Choice Act (EFCA).  In reality, the success of many of the pro-employee legislation now sitting in Congress (FMLA expansion, WARN Act expansion, mandatory sick leave, EFCA, Arbitration Fairness Act, and many other bills) may be riding on Martha Coakley's ability to keep both Massachusetts Senate seats with the Democrats.

It may not be an election day in California, but California employers should pay close attention to what is happening in Massachusetts Tuesday.

Non-exempt hourly employees in California must be paid at an overtime rate of pay for overtime hours.  The overtime rate is calculated by applying a multiplier of 1.5 or 2.0 to the employees' "regular rate of pay."  The regular rate of pay is often the employees' straight time rate of pay, but not always.  Many employers unwittingly fail to include other types of compensation when calculating the regular rate of pay, which can result in significant liability. Recent class action filings demonstrate the risk of these miscalculations.

The rule in California is that the regular rate of pay must include all remuneration from the employer.  Take for example, restaurant employees who receive a free lunch and dinner during their shifts.  If their rate of pay is $10 per hour, in an eight hour shift they will be paid $80.  However, their regular rate of pay must be calculated by adding $80 to the cost of the meals (figured as the lesser of their actual cost to the employer or the fair market value).  If each meal costs the employer $7, that is the equivalent of an extra $14 per day in compensation.  The employees are therefore receiving a total of $94 per day in compensation, or a "regular rate of pay" of $11.75 per hour.  Accordingly, the employees' overtime rate would be $17.63, not the $15 that might be expected for a $10 per hour employee.

In this example, failure to properly calculate the regular rate of pay would result in a shortfall of $2.63 for every overtime hour worked, leading to potential liability for penalties under PAGA and Labor Code Section 203, liquidated damages under the FLSA, interest, and attorneys' fees.  These shortfalls are more common than is often realized and can result from payment of many kinds of bonuses or incentives, mandatory gratuities (such as a mandatory 15% tip for groups of 5 or more at a restaurant), free or subsidized lodging, or winning a free trip or prize for hitting a sales target.  If you offer any kind of discount, bonus, incentive, reward, or anything of any kind of value to your hourly employees beyond their base wages, we recommend that that you include it in your regular rate of pay calculations or ensure that an exception applies.  Although exceptions do exist for certain categories, the exceptions are limited and highly fact-specific.

This month's Roundtable is Tuesday, January 19 from 8:00 a.m. to 9:00 a.m., with networking and contintental breakfast beginning at 7:30 a.m.  To register to attend at one of our five offices, please email your name, company name, roundtable date and location, to register@cdflaborlaw.com.

Ms. Black is a partner in the Los Angeles office and focuses her practice on defending employers in complex litigation matters such as wage and hour class actions and all forms of discrimination and harassment, wrongful discharge, employment contract disputes, and trade secrets, as well as employer advice and counseling. Ms. Black received her J.D. from the University of California at Los Angeles in 2000.

We look forward to Ms. Black continuing to strengthen the firm in her new role as partner by providing ongoing legal expertise and experience to the firm and to our clients.

CDF is delighted to welcome Dorothy Black as a partner in the firm.

California's Department of Labor Standards Enforcement issued a new opinion letter this week analyzing the requirements of the faltering business exception under the WARN Act.  As most employers know, in certain circumstances employers are required to give employees 60 days notice of a mass layoff or shutdown.  There is a notable exception to the 60-day notice requirement, known as the faltering company exception.  In California, the faltering company exception is codified at Labor Code section 1402.5.  Companies may apply to the DLSE for a determination that the company meets the faltering company exception and thereby are excused from the requirement of giving their employees 60 days advance notice of a layoff.  The DLSE's new opinion letter is fairly detailed and provides useful guidance on factors the DLSE will look at to determine whether the exception actually applies.  Employers who believe they may qualify should review the new opinion letter for guidance.  The letter (which concludes that the exception does not apply on the facts presented) is available here.  Interestingly, the DLSE has also re-posted an older opinion letter wherein the DLSE found the faltering business exception applicable.  That letter is available here.

President Obama recently signed legislation enacted by Congress to extend the eligibility period for the COBRA subsidy by two months, to February 28, 2010.  The legislation also extends the maximum period for receiving the subsidy to 15 months (the maximum was previously 9 months).  The Department of Labor has issued a new fact sheet regarding COBRA subsidies, which is available here.  Additional reference material is available on the Department of Labor website at www.dol.gov/cobra.  Employers should review their employee notices and practices for compliance with the new legislation and extended eligibility and coverage periods.

In a fascinating and lengthy opinion, a California appellate court held that a company that sells its trade secrets still has standing to sue for misappropriation that occurred prior to the sale.  In Jasmine Networks, Inc. v. Marvell Semiconductor, Inc., Jasmine sued Marvell and several of Marvell's employees for misappropriation of trade secrets and related causes of action based on allegations that Marvel had wrongfully acquired Jasmine’s trade secrets and hired away key employees, destroying or greatly reducing the value of Jasmine's trade secrets.  Less than 1 year later, Jasmine filed a Chapter 11 bankruptcy proceeding and, as part of its reorganization, sold substantially all of its assets, including its trade secrets and intellectual property.  However, Jasmine reserved its right to pursue its claims in the lawsuit against Marvell.  With an analogy to a victim of an automobile accident who does not need to keep her damaged vehicle until trial to recover for the damages caused by a negligent driver, the Court of Appeal made it clear that the sale of the trade secrets or intellectual property to a third party, after commencing a lawsuit over the harm caused by misappropriation, does not destroy the Plaintiff’s standing to pursue its case for misappropriation of trade secrets.  The Jasmine Networks case is here. 

The United States Supreme Court has granted review in Quon v. Arch Wireless, which deals with the increasingly emerging issue of the scope of an employee's privacy in electronic messages sent using employer-provided equipment.  Our previous post regarding the Quon case is here.  Although the case deals with a public employer and is, therefore, specifically focused on the scope of Fourth Amendment privacy protection involving the use of text messaging in a fairly case-specific factual setting, the case may well provide some broader insight on the Supreme Court's view toward privacy issues in the electronic era that will be of use to private sector employers as well.  In the meantime, employers grappling with monitoring of employee electronic usage are best advised to have clear policies signed off on by employees, making clear that employees do not have an expectation of privacy in their usage of employer provided equipment and that the employer can and will monitor such usage.  Because there generally is not a "one-size-fits all" policy for all employment situations, employers are best advised to consult with counsel in drafting a comprehensive policy.  We will continue to provide updates regarding significant developments in the Quon case, and similar workplace privacy cases affecting California employers.

In Barbosa v. IMPCO Technologies, Inc., a California court held that public policy protects an employee from being terminated for making a mistaken but good faith claim to overtime compensation.

Manuel Barbosa worked at IMPCO Technologies, Inc. as a "cell leader" supervising up to eight other carburetor assemblers.  Barbosa was paid by the hour and sometimes he and the other employees worked overtime.  Barbosa testified that in June 2007, two of the employees in his cell told him they were missing two hours of overtime.  After their discussion, Barbosa thought he was missing two hours of overtime.  Barbosa told the payroll administrator that he and a few other employees had worked overtime.  Barbosa also told the payroll administrator that the time clock was wrong and perhaps that was the reason why the employees failed to receive their overtime pay.  IMPCO had occasional problems with a prior time clock system, but had recently installed a new one with no issues.  The payroll administrator spoke to the human resources manager who ran a report that established that Barbosa and the other employees could not have worked the overtime that Barbosa claimed.  Soon thereafter, Barbosa was called to a meeting with his supervisor, the payroll administrator, the human resources manager, and the operations manager. Barbosa was asked if he was sure he and the other employees worked overtime.  Barbosa responded affirmatively.  The operations manager showed Barbosa the report and Barbosa said he was confused and apologized.  Barbosa offered to pay back the overtime pay.  Barbosa was terminated on June 19, 2007, for falsifying time records.  The overtime money was eventually taken back from the employees.

At trial, IMPCO moved for nonsuit.  The court graned the nonsuit stating that, "I will accept plaintiff's version.  It still comes down to a question of law.  Good faith belief turns out to be wrong; termination thereafter of an at-will employee.  I don't see that there's a public policy that requires the employer to then make a determination whether this was good faith, not good faith, and require[s] the employer then to continue to employ this employee, who from [its] perspective made an unjustified claim for monies."

The Court of Appeal recognized that the duty to pay overtime wages is a well-established fundamental public policy affecting the broad public interest.  The Court of Appeal determined just as an employee's good faith but mistaken belief is protected from employer retaliation in the whistleblowing context, it follows that the same result should occur when an employee exercises his statutory right to overtime wages out of a reasonable good faith belief he is entitled to it, notwithstanding the later discovery that he is wrong.

In reaching its conclusion, the Court of Appeal noted that Barbosa's mistaken belief was reasonable and in good faith because under the previous time clock system, mistakes in timekeeping had been made; the new system had been in place less than a month; Barbosa's co-workers convinced him the overtime was unpaid, and he in turn convinced his supervisor; and Barbosa testifed he was confused.  As a result, the Court of Appeal found that Barbosa had presented sufficient evidence to have his case submitted to a jury.

You may read the entire case here.

Today the California Supreme Court issued its decision in Costco v. Superior Court (Randall), holding that a trial court erred by having an attorney-client privileged memorandum reviewed and redacted by a discovery referee, and then ordering portions of the memorandum produced to the other side.  Specifically, Costco had retained legal counsel to provide advice regarding the proper exempt/non-exempt classification of its managerial employees for wage and hour purposes. Costco’s outside legal counsel interviewed some managerial employees and prepared a memorandum to Costco, including information about those interviews and providing legal advice based thereon.  Later, Costco was sued by some managers for alleged misclassification and wage and hour violations.  The plaintiff in the case tried to obtain the memorandum in discovery from Costco.  Costco objected based on attorney-client privilege and refused to produce the memorandum.  The trial court ordered that Costco produce the memorandum for review by a discovery referee and the discovery referee ultimately determined that portions of the memorandum relating to a recitation of facts provided to the attorney by the manager employees were not privileged and should be produced.

On review by the California Supreme Court, the Court held that the trial court (1) should not have ordered the memorandum disclosed to a discovery referee in order to rule on the claim of privilege, and (2) the entire memorandum was privileged.  More specifically, the Court indicated that Evidence Code section 915 prohibits a court from ordering in camera review of a privileged document for the purpose on determining whether the document is actually privileged. Furthermore, the court ruled that regardless of whether or not conversations between an attorney and a corporation’s employees were themselves privileged, a legal memorandum between an attorney and client is privileged regardless of whether it includes potentially unprivileged information.  The fact that certain information may ultimately be discoverable through other means does not translate to a finding that the same information is discoverable in the form of a legal memorandum from an attorney to the client.

The Supreme Court’s decision in Costco is here.
 

The California Supreme Court issued its decision today in Roby v. McKesson Corp., addressing two important issues—(1) whether personnel management conduct can constitute “harassment” within the meaning of FEHA, and (2) the constitutional limits on awards of punitive damages.  With respect to the first issue, the Court held that personnel management conduct, including reprimanding an employee in front of coworkers, belittling an employee’s job, and shunning an employee during staff meetings, is conduct that can support a finding of hostile work environment harassment.  The Court further held that evidence supporting discrimination claims and harassment claims often overlaps and is not necessarily exclusive.  Such evidence does not need to be separately allocated between the two claims.  This ruling blurs the distinction between conduct traditionally thought to support a “discrimination” claim on the one hand (e.g. written warnings, termination, etc.), and conduct traditionally thought to support a harassment claim on the other (e.g. discriminatory slurs, inappropriate physical contact, etc.).  This decision will likely make it more difficult for employers (and individual supervisors) defending claims of harassment under FEHA to obtain summary judgment.

With respect to the second issue on the size of the punitive damages award, the Court reiterated the standards articulated by the United States Supreme Court in State Farm v. Campbell, 538 U.S. 408 (2003), for reviewing the appropriateness of a punitive damages award:  (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.  The decision contains a detailed explanation of how each of these factors is properly analyzed and applied.  In this particular case, the Court held that the jury’s $15 million punitive damage award was constitutionally excessive and that on the facts of the case, punitive damages could not properly exceed the amount of compensatory damages awarded to the plaintiff.  The punitive damages were, therefore, reduced from $15 million to $1.9 million.

The Roby decision is here.