Recent Developments In Employment Law

Dated: September 19, 2001

We are pleased to provide the following information to our clients and friends regarding recent legal developments affecting employers.

1. Administrative Regulations.

   California's Minimum Wage Increases to $6.75 An Hour On January 1, 2002.
   
   

   On January 1, 2002, California's minimum wage will increase to $6.75 an hour from the current $6.25. This hike in the minimum wage will affect more than California's lowest wage earners. For instance, it will affect the threshold for determining if an administrative, executive or professional employee is exempt from the requirement to be paid for overtime. California law requires that such exempt employees be paid a monthly salary equal to at least two times the state minimum wage for full-time (40-hour) employment. Thus, in order to retain the exemption under California law, an otherwise exempt employee would be required to be paid a salary of not less than $2,340 per month as of January 1, 2002, an increase from the current minimum of $2,166.66 per month. Another effect will be on the requirements to satisfy the commission-paid salesperson exemption. Additionally, all employers will be required to post a new California minimum wage poster, setting forth the new California minimum wage. This poster is required in addition to the federal minimum wage poster.

2. Legislation.

   1. Co-workers Are Now Personally Liable for Harassment.
      The California law prohibiting workplace discrimination and harassment, the California Fair Employment and Housing Act ("FEHA"), was amended effective January 1, 2001, to include co-workers among the employees who can be personally liable for workplace harassment. Prior to this amendment, the law had been that an employer's officers and supervisors who personally engaged in workplace harassment could be held personally liable. This means that an officer or supervisor who sexually harasses an employee could be ordered by a court to pay money damages, as well as punitive damages, to the harassed employee. Because of certain language of the FEHA, the courts were uncertain as to whether a co-employee, one at the same level as the harassed victim, could be held personally liable. To clear up this uncertainty, the legislature amended the FEHA to make clear that a co-employee who harasses a fellow co-employee can also be held personally liable to the harassed employee. This amendment actually helps employers, who now have an additional factor to impress upon lower-level non-supervisory employees when conducting anti-harassment training. The specter of personal liability may persuade such employees to be more careful and professional, leading to fewer instances of harassment.

   2. Losing A Wage Claim Case Before The California Labor Commissioner Is Now More Costly Than Ever.
      Employers sometimes act cavalierly to a wage claim brought by an employee before the California Labor Commissioner. Those employers invest little in defending against such claims, reasoning that any adverse ruling can always be appealed to a court for an entirely new trial. However, recent legislation has increased the costs of such a strategy. An employer who appeals the labor commissioner award will now have to post a bond equal to any award contested. The purpose of the bond is to provide a ready source of funds against which the employee can collect if the employee wins in the court trial. Bonding companies typically require that such a bond be collateralized by cash in the full amount of the bond. This means that if an employee wins an award of $25,000 in unpaid wages from the labor commissioner, an employer will have to deposit with a bonding company $25,000 in order to obtain a bond in that amount, and have a right to a new trial in court. This new requirement puts a premium on winning before the labor commissioner, and requires employers to treat labor commissioner hearings more seriously. Because of this new requirement employers should always consider being represented by counsel in labor commissioner hearings.

   3. Disabled California Employees Now Have Significantly Broader Rights Than Under The ADA.
      Effective January 1, 2001, a new law gives disabled California employees substantially broader rights than under the Federal Americans With Disabilities Act ("ADA"). Indeed, these sweeping changes dramatically strengthen the disability discrimination protections for California employees, and herald a new wave of employment litigation. The new law lowers the threshold for who will now be considered disabled. For example, under the ADA a physical or mental impairment had to "substantially" limit a major life activity to be considered a disability. The new California law eliminates the requirement of a substantial limitation. It only requires that the impairment make engaging in a major life activity "difficult." Next, under the ADA, mitigating measures to counteract an impairment, such as medication, hearing aids, or eyeglasses, can be taken into account in determining whether a person is disabled. Under California's new law, these measures must be ignored in making the disability evaluation. Also, under the ADA, an employee is disabled from the major life activity of working only if the employee is unable to work in a broad range of jobs, rather than a single position. Under California's new law, a person is disabled even if the limitation affects only one particular job. The new law also protects a wide range of impairments and medical conditions that some courts have held are not covered by the ADA, including HIV infection, AIDS, hepatitis, epilepsy, seizure disorders, diabetes, clinical depression, bipolar disorder, multiple sclerosis and heart disease. Additionally, the new law provides that an employer commits an unlawful employment practice by not engaging in a timely good-faith interactive process to determine effective reasonable accommodations, if any, at the request of a disabled employee or applicant. This change may create liability simply for failing to discuss potential accommodations with employees and applicants, even if an applicant is not hired, and even if no reasonable accommodation would have allowed the applicant or employee to perform the job.
      Also, post-offer preemployment medical and psychological examinations must be job-related and consistent with business necessity under California law, but not under federal law.
      Suffice it to say, this new law expands protections for employees in significant ways, and makes California's disability discrimination law much more difficult for employers to comply with. A California employer can no longer analyze a disability matter by applying the rules developed under the ADA. The bottom line is that conditions that employers may once have refused to consider with regard to requests for accommodations, must now be taken seriously. It is more important than ever to use extreme caution when dealing with potential disability issues. California employers must ensure that all of their managers and supervisors fully understand and comply with these broadened rights given to their employees.

3. Court Decisions.

   1. An Employee With The Flu May Be Entitled To FMLA Leave.
      Under the Federal Family and Medical Leave Act ("FMLA"), which applies to employers with 50 or more employees, qualifying employees with a "serious health condition," as defined by the FMLA, can take up to 12 weeks of unpaid medical leave per year. Until recently the flu had never been thought to qualify as a serious health condition, because federal regulations interpreting the FMLA state that ordinarily the common cold, the flu, ear aches, etc., do not meet the definition of a serious health condition. However, a federal appellate court recently ruled that an employee who suffered from a bad case of the flu was entitled to FMLA leave. According to the court, the employee's condition constituted a serious health condition because she was unable to work for three days, and required continuing treatment by her doctor. Thus, no longer can an employer simply dismiss a request for medical leave under FMLA where the ailment does not seem very serious. Indeed, failure to give an employee medical leave when the employee requests it, or is eligible for it, can result in significant liability. This ruling reemphasizes how important it is for employers to understand, and fully comply with, the complicated and changing rules governing medical leave.

   2. The Statute of Limitations For Many Employment Lawsuits Can Be Extended If The Wrongful Conduct Has Been Continuing Over More Than One Year.
      The statute of limitations for most workplace discrimination and harassment lawsuits is one year. In a recent case the California Supreme Court extended the statute of limitations beyond that one-year period where the wrongful conduct of the employer continued over a several-year period.
      In that case an employee who developed multiple sclerosis sued for disability discrimination, alleging that his employer ignored or refused his requests for reasonable accommodation over a period of five years. A jury awarded him $1.4 million. In reversing the jury award, the court of appeal held that the employee was entitled to damages only for the illegal actions that took place during the one-year period before her lawsuit was filed. However, the California Supreme Court disagreed, and reinstated the jury's award. The Supreme Court held that the ongoing interactive process of determining reasonable accommodations and correcting incidents of harassment can be time consuming. With a strict one year time limit, an employee who continues to work with an employer to come to a mutually satisfactory solution, rather than immediately filing a lawsuit, risks losing the right to sue altogether. Therefore, the court held an employee can recover for a series of unlawful actions, even if some of those actions took place more than a year before the lawsuit was filed, if the actions are sufficiently similar and occur with sufficient frequency. However, if the employee knows (or should know) that further efforts at informal conciliation with the employer would not be successful, such as where the employer makes it clear that it will not grant further requests for accommodation, the time for filing the lawsuit starts to run.
      This case again illustrates the difficulty employers face in dealing with disability issues. On the one hand, the law requires employers to engage in the interactive process of trying to reasonably accommodate an employee's disability. On the other hand, the more the employer engages in that process, the more likely it will be that the statute of limitations will be extended for any lawsuit brought for the employer's alleged failure to properly accommodate the disability. This dilemma heightens the need for employers to be sure they are conducting themselves properly when dealing with disability issues.

   3. Requiring California Employees to Sign Non-competition Agreements Can Be Costly.
      Non-competition agreements in California are generally illegal and not enforceable, except in very limited circumstances. However, many employers insert such provisions in employment contracts, rationalizing that even if the provision is not enforceable, it may have a deterrent effect on an employee who thinks about going to work for a competitor. However, such a strategy can result in substantial liability. In a recent case, a newly-hired employee was asked to sign an employment agreement with an illegal non-competition clause. The employee refused and was promptly fired. The employee sued, alleging wrongful termination in violation of public policy. The court of appeal agreed that the firing was a wrongful termination. But the court went even further. It held that requiring an employee to sign an illegal and unenforceable non-competition agreement was an unfair business practice, in violation of California's Unfair Trade Practices Act. Under that act an employer can be held liable, not just to the specific employee who filed suit, but to all employees who were required to sign similar agreements going back four years. Thus, the cost of requiring employees to sign agreements with invalid non-competition agreements can far exceed the speculative deterrent benefit an employer might hope to achieve. This case points out the need for employers to review all employment agreements, employee handbooks, and related documents, to ensure that they do not contain illegal agreements restricting competition.

4. Miscellaneous.

   1. Overtime Class Actions Are On The Rise. Do You Have Any Risk of Liability?
      On July 11, 2001 the Los Angeles Times reported on the $90 million jury verdict in Oakland, California against Farmers Insurance in a class action in favor of approximately 2,400 insurance adjusters. Farmers had been classifying the adjusters as exempt administrators, and had not paid them for overtime. The verdict signaled that the jury believed that the adjusters were non-exempt employees who were "cheated" out of premium pay for a number of years. The Times reported that the judgment may exceed $130 million, when interest and attorneys' fees are added. By the next day, a "copycat" class action lawsuit was filed in Los Angeles against 21st Century Insurance Company, on behalf of insurance claims representatives, seeking overtime pay, and alleging that the claims representatives were erroneously treated as exempt by the insurance company.
      While these lawsuits gained instant notoriety, they are only a few of the recent wave of class action lawsuits in California against employers by "managerial" employees, seeking unpaid overtime pay. These suits have alleged that the employees had been misclassified and treated as exempt, when they were truly non-exempt employees. Indeed, companies such as Taco Bell, Pepsi-Cola, Borders Books, Pacific Bell and Wal-Mart have recently been named in such lawsuits. It was recently reported that U-Haul International reached a preliminary settlement to pay $7.5 million to employees in just such a case. In that case employees classified by the company as managers claimed that the company had violated California's overtime laws, because the employees did not satisfy all of the requirements for the "executive" exemption, in that they did not spend more than 50% of their time performing exempt duties.
      The tests for determining which employees are exempt are complex and frequently difficult to apply. As such, many employers do not pay employees overtime when it is required by the law, not by intent, but simply because they do not understand the application of the law in this difficult and ever-changing area. The best way to determine if you are in compliance is to have a wage and hour classification audit performed by experienced and knowledgeable counsel. Correcting any misclassification now will be less costly than the liability that can arise if a lawsuit is filed.

   2. Illustrations of the Often Perplexing Nature of the Law and Lawyers, Or Why Lawyers Should Not Take Themselves Too Seriously.
      Franz Kafka described lawyers as people who write a 10,000 word document and call it a brief.

      A law school professor said to a recent graduating class, "Three years ago, when asked a legal question, you could answer, in all honesty, 'I don't know.' Now you can say with great authority 'It depends.'"
      We noticed this in a recent publication concerning excessive regulation of businesses and thought you might appreciate it as we did. The Ten Commandments contains 297 words. The Bill of Rights 463 words. Lincoln's Gettysburg Address has 266 words. A recent federal directive to regulate the price of cabbage contains 26,911 words.

Cohen & Goldfried
Attorneys at Law
A Professional Corporation
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Beverly Hills, CA 90212
Telephone: (323) 930-0933
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Email: rgoldfried@cogolaw.com

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