Recent Developments in Employment Law

Dated: September 27, 2004

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

I. Legislation.

A. Less Punch in the “Sue Your Boss Law,” But Not Much Less. In our last newsletter we reported on the new California Private Attorney General’s Act, which became effective January 1, 2004. That law allowed individual employees and their attorneys to directly sue employers for violations of the California Labor Code, without being required to first seek state agency enforcement. It also created penalties for every Labor Code violation that did not already have them, and enabled the employee suing to share in any penalty awarded by the court. The law resulted in a flurry of anti-employer lawsuits, many over trivial violations. Amendments to that law took effect August 17, 2004. Among the amendments are the following: most violations of posting, notice, and agency reporting or filing requirements are excluded from its coverage, except those relating to mandatory payroll or workplace injury reporting; a court must review and approve penalties in connection with any settlement agreement; courts are given discretion to award lesser penalties to avoid unjust results. The most significant change covers approximately 150 Labor Code sections governing wages, hours and employment conditions. An aggrieved employee must now notify the employer and the state Labor and Workforce Development Agency (the Agency) of the alleged violation, and give the Agency a chance to investigate. If the Agency decides not to investigate, or, after investigating, decides not to cite the employer, the employee may file a lawsuit. If the Agency cites the employer, no employee lawsuit can be filed. Although part of the bite has been taken out of this law, it remains a constant requirement for employers to comply with the many, and often unique, requirements of California law. Managers, supervisors, and other employees responsible for human resources and payroll activities must be trained in those requirements.

II. Administrative Developments.

A. New Federal Overtime Regulations Have Virtually No Impact in California. There has been much fanfare in recent weeks over the new federal overtime regulations, which went into effect last month. However, because California has higher requirements for qualification as an exempt employee, the new federal regulations have virtually no impact in California. For example, under the federal white-collar exemption, an employee cannot be exempt unless the employee earns at least $23,600 per year. Under the California rules, the employee must earn at least $28,080. Thus, California employers must be careful to ensure that they do not look solely to federal law, when deciding to classify employees as exempt from the requirement to pay overtime.

B. Class Action Lawsuits Regarding Overtime Have Been a Significant Threat. More than 100 overtime class action lawsuits were filed in 2003, according to the Administrative Office of the U.S. Courts. In California alone, in recent years, such large companies as Bank of America, Starbucks, Taco Bell, UPS, Farmers Insurance, etc. have paid enormous sums to settle such lawsuits. In the settlement by Farmers Insurance of a class action involving misclassification of insurance adjusters as exempt, Farmers paid $210 million (yes, $210 million!) for failing to pay overtime to the adjusters. The settlement agreement was approved three years after an Alameda County jury awarded the adjusters $90 million in back pay. This amount swelled to $210 million, with the inclusion of interest and the plaintiff’s attorneys fees. An additional claim that is being made in connection with overtime lawsuits is that an employer who does not comply with California’s overtime laws gains an unfair business advantage over competitors who do follow the law. This is alleged to violate California’s Unfair Business Practices law. Such a claim allows an employee to represent other present and former employees, and extends the statute of limitations for recovery of unpaid overtime from three years to four years. Thus, it is crucial for employers to do everything they can to limit their risk in this area. One of the steps every employer should undertake is an audit designed to determine if its employees who are classified as exempt from overtime, actually qualify for the exemption. Conducting such an audit usually requires the assistance of legal counsel skilled in this area. It should not be undertaken without the participation of counsel, because the rules are simply too complicated, and the law is constantly changing.

C. A Trap for the Unwary! While Non-union Employees Are No Longer Entitled to Have a Co-worker Present During an Employer’s Investigatory Interview, Liability Can Lurk in the Shadows. A few years ago, the National Labor Relations Board (NLRB), the agency which enforces the federal law governing union representation of employees, held that even non-union employees had a right to have a co-worker present during an investigatory interview. In June 2004, the NLRB reversed itself, ruling that non-union employees no longer have that right. However, what might appear to be a victory for employers is really a trap for the unwary. That is because the NLRB also stated that even though a non-union employee does not have a right to co-worker representation in an investigatory interrogation, an employee who asks for such representation cannot be disciplined for making the request. Accordingly, employers must proceed cautiously when disciplining employees who request to have another employee present during the investigatory interview. It would be a shame to hand an employee a claim that the discipline imposed was in retaliation for the request. Rather, employers must ensure that the discipline is fully justified by what the investigation itself uncovered.

III. Court Decisions.

A. Illegal Aliens and Catch-22. Almost everyone knows that illegal aliens do not have a right to work in this country. However, they often use forged documents and do get employed. Moreover, sometimes those illegal alien-employees sue their employers for discrimination. In 2002, the United States Supreme Court held that even where an employee was fired in violation of the National Labor Relations Act, reinstatement and restitution of unpaid wages were not proper remedies, where the employee was not legally permitted to work in this country; otherwise, federal labor law would trump the more important federal immigration policy. However, a federal court of appeals (the one that sits in San Francisco), just ruled that even though the employer may have been duped into employing an illegal alien, and the illegal alien has no right to employment, the employer may not, in defending a class action alleging workplace discrimination, ask the employees deposition questions about their immigration status. This is like saying to employers once you’ve been had, you’re stuck, and the immigration law of this country doesn’t matter. In this post-9/11 world, we question the sense of such a ruling. We expect this decision to be reversed by the Supreme Court, but it serves as a powerful reminder of how the courts in this state favor employees, even illegal ones, over employers.

B. Thanks to the California Supreme Court, California Employers Are More Vulnerable than Ever to Class Action Lawsuits Seeking Overtime Pay. Last month, the California Supreme Court approved a class action lawsuit for overtime on behalf of all operating and assistant managers employed by the Sav-On drug store chain in California. The Sav-On managers claimed they were misclassified as exempt, when they really were nonexempt. They also claimed they were entitled to recover unpaid overtime for the period they were misclassified, and requested their claims be ruled a class action. The court agreed, even though in order to determine whether a manager had been misclassified, the actual hours worked must be individually reviewed to determine whether these employees were spending sufficient time on management duties. In approving the class action, the Supreme Court relied on substantial evidence showing that the classification was based upon job descriptions and standardized operational requirements. This case again emphasizes that employers must carefully evaluate the exempt classification of their employees on an employee-by-employee basis.

C. Interrupting Meal Breaks Can Be Expensive. California law requires employers to provide an uninterrupted meal period of at least 30 minutes to nonexempt employees for each work period of more than five hours. Failure to comply with this rule can be very costly. For example, in a recent case in federal court under federal law, nurses sued the hospital they worked for, claiming that patient demands frequently interrupted their lunch breaks. A significant portion of their meal period was spent watching patient monitors, answering phones, and responding to patient calls. In the lawsuit they requested pay for their lunch breaks, and time-and-a-half for any hours over 40 in a week, once the lunch breaks were counted as work time. The court ruled that federal regulations require that employees must be paid for meal periods, unless the employee is “completely relieved from duty for the purposes of eating regular meals.” While this does not mean that employers may never interrupt employees during meal periods, employers must pay nonexempt employees for meal periods if interruptions are so invasive that the meal period is predominantly for the benefit of the employer. While this is not a decision by a California court, a similar situation would result in a more costly award against a California employer. California law requires employers to pay daily overtime. Accordingly, not only does an interrupted meal period count as time worked, it also could result in overtime pay liability for that day. Thus, the employer would have to pay the employee for the meal period, and for any daily overtime occasioned by counting the meal period as time worked. Also, California Law provides for a penalty of an extra hour’s pay for any day in which the meal period rules are violated. Thus, employers must ensure that they and their managers understand the meal period rules, and that managers see to it that employees are completely relieved of duties during their meal breaks.

D. Differing Employer Discipline for Workplace Sexual Hijinks Is Not Illegal Discrimination. In a recent case an employer discharged an African-American employee for violating the employer’s policy against sexual harassment, when the employer’s investigation established that the employee gabbed, or attempted to grab, a male co-worker’s crotch. The employee sued the employer for race discrimination, because the employer had not also fired a Caucasian employee for exposing her breast on request. In ruling in favor of the employer, the court held that despite the fact that both employees engaged in sexual horseplay, sexually offensive conduct that involves physical contact is worse than offensive comments, gestures, or lewd displays. The court held that the employer was not required to treat the two offenses as substantially similar, when they involved objectively different conduct. This employer was fortunate to win this lawsuit. The ruling points out the need for professional advice in order to carefully evaluate violations of company policy, and the discipline that might be imposed for such violations.

IV. Miscellaneous.

A. If it Walks like a Duck, Looks like a Duck, and Quacks like a Duck, Even If You Call it a Chicken, it Is Still a Duck. There is a commonly held misconception that simply because an employee is paid a salary, that employee is exempt from the requirement to pay overtime. This misconception gets employers into trouble. Payment of a salary is only one of the requirements for classifying an employee as exempt. Simply paying a salary to someone who is otherwise not exempt from the overtime laws does not make the person exempt. Last year, the Department of Labor said it investigated 31,772 cases of employer violations of the federal overtime rules, and ordered $134 million in back wages paid to 219,195 employees found to have been misclassified as exempt, when they were really nonexempt under the law. Given the significant liability for failure to pay overtime because of misclassification of employees, all California employers must ensure that they fully understand and apply all of the complicated rules regarding exempt and nonexempt employees.

B. Repetition is the Best Way to Learn. You may have noticed that discussion about overtime violations, and liability for misclassification of employees as exempt, have a prominent role in this newsletter. That is because lawsuits making these allegations have become a cottage industry for plaintiff’s lawyers. We have emphasized these issues to make clear that there is significant potential for liability for employers who do not understand the requirements of the law in this area, and who do not follow those requirements. We feel that we simply cannot emphasize this enough. If you haven’t recently conducted an audit of your overtime pay practices, and reviewed the propriety of your classification of your exempt employees, what are you waiting for?

C. The Joke Is on Us. In Montana recently, a law student who flunked out of law school because she failed her course on constitutional law, sued the school, claiming that the school’s action in dismissing her as a student was unconstitutional.

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Cohen & Goldfried
Attorneys at Law
A Professional Corporation
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Email: rgoldfried@cogolaw.com

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