2012 Employment Law Updates & Helpful Tips

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Over the last few months, Governor Jerry Brown signed into law several pro-employee laws, most of which took effect on January 1, 2012. 

  1. 1.       Senate Bill 429 - Misclassification of Independent Contractors

Consistent with the trend toward government “crackdowns” on employers who misclassify their employees as independent contractors, California’s SB 429 prohibits “willful misclassification” of individuals as independent contractors.  Additionally, SB 429 prohibits the practice of deducting from the paychecks of misclassified individuals any fees or other charges that could not be deducted from the paychecks of employees (e.g., for workspace, licenses and equipment). “Willful misclassification” is defined as “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor” (emphasis added).   The bill carries with it harsh penalties ranging from $5,000 to $15,000 per violation, and an excess of $15,000.00 for a “repeated pattern or practice” of violations.  The law also imposes personal liability upon individuals (i.e. consultants) who “knowingly advise” an employer to treat an individual as an independent contractor in order to avoid employee status.  But personal liability is prohibited against employees who advise an employer, or licensed attorneys who advise their clients.   

  1. 2.      Assembly Bill 469 - California’s New “Anti-Wage Theft” Law

This one is very important!!  Also known as the “Wage Theft Prevention Act of 2011,” AB 469 adds Section 2810.5 to the Labor Code, which will require employers to furnish to non-exempt employees, at the time of hiring, a notice specifying the employee’s rate or rates of pay and the basis upon which the employee’s wages are to be calculated (e.g., hourly, daily, piece, salary, commission or by some other method). The notice must include applicable overtime rates; allowances, if any, claimed as part of the minimum wage; the employer’s designated regular pay day; the name of the employer, including any fictitious names under which the business operates; and the employer’s physical and mailing addresses.  Further, the employer must notify each employee in the form of a new or amended written notice of any changes made to this information within 7 days of their implementation, unless such changes are reflected on a timely wage statement or other legally-mandated writing.  AB 469 also provides for additional jurisdictional provisions regarding lawsuits for any violation of Section 2810.5, including an increase in the statute of limitations for the DLSE to collect statutory penalties from one year to three years.  It remains unclear whether the longer statute will apply to individual plaintiffs. 

AB 469 also directs the Labor Commissioner to prepare employer guidance and FAQ’s and provide a template that employers may use to satisfy the new notice requirements.  For a template and more information, please visit: http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html.

  1. 3.      Assembly Bill 22 - Limitations on the Use of Consumer Credit Reports in Employment

Because California considers employee privacy so tantamount, the Legislature has acted yet again to protect employees from what it considers to be any improper inquiry into an employee’s background.  Assembly Bill 22 prohibits all employers except financial institutions from obtaining or relying upon pre-employment consumer credit reports.  But as is the case with all laws, there are exceptions.  For example, non-financial institution employers can still obtain a consumer credit report for an employee or applicant who works in or seeks: a managerial position, a position that legally requires a credit report, a position that involves access to $10,000 cash, or a position that involves access to confidential and/or proprietary information.  Since most jobs potentially fall into one of these exceptions, this may be an instance where the exceptions “swallow” the rule.  Just remember: always provide written notice to any employee or applicant before obtaining his or her credit report.  The notice has to specify the basis for requesting the report, inform the employee/applicant of the source of the report, and provide a check box form enabling the employee to request a free copy of the report.

  1. 4.      Assembly Bill 592 and Senate Bill 299 - Additional Pregnancy Disability Leave Protections

As of January 1, 2012, Assembly Bill 592 and Senate Bill 299, which are companion bills, apply to all California employers who have five or more employees, and all California employees regardless of the length of service.  (FMLA and CFRA only apply to employers who have 50 or more employees, and to employees who have been working for at least one full year.)  These new bills guarantee that all pregnant women’s insurance benefits continue at the same level, even while on pregnancy-related leave.  Before this legislation, employers only had to provide pregnant women the insurance benefits that employees were afforded on other types of medical and/or disability leaves.  Currently, employers must make sure that pregnant women receive the same insurance benefits during pregnancy leave that they had before pregnancy leave, and that such benefits remain in place for the entire duration of the leave, up to four months. 

An employer may recover benefits paid to an employee who fails to return to work for reasons other than taking protected leave, if such reasons were within the employee’s control.

At this point, these laws appear to apply for a maximum of 4 months.  But since the FMLA potentially extends a pregnant woman’s potential leave to 7 months, California courts interpreting AB 592 and SB 299 may extend the requirement to the full 7 months.

  1. 5.      Assembly Bill 887 - Gender Identity and Expression

Assembly Bill 887 amends the Fair Employment and Housing Act (“FEHA”) by broadening the definition of “gender” to include both “gender identity” (i.e., how a person sees him or herself) and “gender expression” (i.e., a person’s appearance and behavior).  Under the new law, employees and applicants may not be discriminated against or harassed because of their gender identity and/or expression, and employee may dress in a manner consistent with his or her gender identity and expression.  Moreover, employers must take reasonable steps to prevent any such discrimination or harassment from occurring. 

  1. 6.      Assembly Bill 1236 – Fighting E-Verify: The Employment Acceleration Act

Assembly Bill 1236 prohibits any government entity from requiring employers to use an electronic employment verification system to verify that potential employees are in fact authorized to work in the United States as a condition to receiving a government contract or to obtaining a business license.  The new law specifically exempts the use of E-verify when it is otherwise required by law or a condition to receive federal funds.  Nothing in AB 1236 changes an employer’s existing obligation to require employees to complete an I-9 Employment Eligibility Verification form upon hire.

  1. 7.       Assembly Bill 1396 - Commission Agreements to be in Writing by 2013

Assembly Bill 1396 is critical for employers who employ commission-based employees.  As of January 1, 2013, all employers must provide a written contract with specified details (including how commissions will be computed and paid) for all commissioned employees.  The meaning of the term “commission” is imported from Labor Code Section 204.1, which generally excludes short-term productivity bonuses and profit-sharing plans. 

As always, it is very important to carefully consider and define how commissions are “earned,” particularly with respect to departing employees. 

  1. 8.      Senate Bill 272 - Organ and Bone Marrow Donor Leave

Senate Bill 272 clarifies Labor Code Section 1510 (which took effect on January 1, 2011).  Labor Code 1510 applies to those employers who have at least 15 employees, and permits a 30-day leave of absence during a one-year period for any employee who wishes to donate an organ, and/or a 5-day leave during a one-year period for any employee who wishes to donate bone marrow.  Because there was confusion about whether the 30-day and 5-day periods were considered business or calendar days, the legislature created Senate Bill 272, confirming that employees are permitted 30 business days leave for organ donations and 5 business days leave for bone marrow donation.  The one-year period begins on the date the employee’s leave begins.  

The employer may require the employee to take up to 2 weeks of earned but unused paid days off (for organ donors) and up to 5 days of earned but unused paid days off (for bone marrow donors) as an initial condition of granting leave.  But leaves of absence for either type of donation may not be treated as a break in the donor’s continuous service for purposes of salary adjustments, sick leave, vacation, annual leave, and/or seniority.

  1. 9.      Senate Bill 559 - Discrimination Based on “Genetic Information”

Senate Bill 559 broadens FEHA to add genetic information to the ever-growing list of protected categories.  According to the Bill, “genetic information” includes genetic tests (of the employee and/or his or her family members), the manifestation of a disease or disorder in the employee’s family members, the employee’s requests for genetic services, or the employee’s participation in any clinical research regarding genetic services.  “Genetic Information” does not include sex or age.   

  1. 10.  Senate Bill 757 - Coverage of California Domestic Partners Under Health Insurance Plans Issued to Out-of-State Employers

According to the California Insurance Equality Act (“CIEA”), every group health insurance policy provided to a California resident, regardless of the situs of the contract, is subject to California insurance law, unless the policy was issued to an employer (i) outside the state of California, (ii) whose principal place of business was outside California, and (iii) who had a majority of employees outside California.  The CIEA required all health insurance plans and policies to apply equally to the employee’s spouse as well.

Senate Bill 757 expands the scope of the CIEA, and now requires every group health insurance policy to offer equal coverage for employees’ spouses and registered domestic partners.  Even out-of-state employers (whose principal place of business is outside California and who has a majority of employees outside California) are prohibited from discriminating between spouses or domestic partners of either the same or different sex in terms of coverage.


Governor Brown vetoed the following bills:

(1) AB 267, which would have invalidated forum selection and choice of law provisions in employment contracts with California employees to select jurisdictions with more favorable laws to the employer;

(2) AB 325, which would have required California employers to provide bereavement leave;

(3) SB 931, which would have imposed new requirements for use of payroll cards;

(4) AB 101, which would have permitted greater organizational and administrative oversight for family child care providers;

(5)  SB 111, which would have made it a violation of the Unruh Civil Rights Act to adopt or enforce a policy that requires, limits, or prohibits the use of any language in a business establishment; and

(6) AB 559, which, like AB 1773 (vetoed by Governor Schwarzenegger), would have eliminated judicial discretion to reduce or deny costs and attorney’s fees in FEHA claims that could have been brought in a limited proceeding.



  1. Department of Fair Employment & Housing (“DFEH”):  New Procedural Regulations 

For the first time, the DFEH has issued regulations governing how the DFEH accepts and processes complaints.  The regulations do the following:

  • Permit the DFEH to file its own complaint on behalf of a class of aggrieved employees or applicants, pursuant to guidelines established for these “class-based” claims (the DFEH has granted itself two years to investigate such a complaint before a “right to sue” letter must be issued); 
  • Provide specific guidelines for determining the validity of an employee waiver of his or her right to bring a DFEH claim;
  • Permit claimants to amend existing complaints after the one-year statute of limitations has expired, such that new facts or claims “relate back” to the date of the original filing;
  • Create a voluntary mediation program to facilitate informal resolution of DFEH complaints;
  • Outline the methods by which the DFEH can issue subpoenas and conduct discovery during its investigation; and
  • Permit complainants to “appeal” DFEH dismissals. 

For more information, go to: http://dfeh.ca.gov/res/docs/RuleMaking/DFEH%20Procedural%20Regulations.pdf

  1. IRS Voluntary Program for Reduced Tax Liability on Employees Previously Classified as Independent Contractors

The Internal Revenue Service introduced the Voluntary Worker Classification Settlement Program (the “Program”), which allows employers to voluntarily reclassify workers who were improperly classified as independent contractors and pay a minimal payment (likely 10% of payroll taxes owed) to cover past federal payroll tax obligations and any accrued penalties for the contractor-turned-employee.

The primary benefit of this Program is that by paying the minimal amount to the IRS (only 10% of the back payroll taxes owed), employers who may have misclassified employees as independent contractors can avoid further past-tax liability.  The Program is intended to encourage employers to make this voluntary determination in good faith, decreasing the administrative costs of IRS tax audits that will become more prevalent as state and federal authorities begin increasing enforcement in this area. 

There are significant risks in using this Program because it only provides amnesty from federal back taxes and penalties.  Voluntarily admitting a misclassification could make employers liable to state taxing agencies, to the employer's workers' compensation carrier, and directly to the misclassified worker under state wage and hour statutes.  Voluntarily reclassification could be seen as an admission that, in fact, the workers were not independent contractors, thereby making it easier for state agencies and individual employees to pursue claims for damages.  Further, the Program includes a provision whereby the employer is subject to future payroll tax audits from the IRS for six years as opposed to three. 

  1. IRS Mileage Reimbursement Now 55.5 Cents Per Mile

The IRS announced a 4.5 cent increase in the standard mileage rate for reimbursing employees for business mileage.  The new rate is 51 cents per business mile driven.

  1. National Labor Relations Board Posting Requirements

A new National Labor Relations Board (“NLRB”) regulation requires private sector employers to post a detailed notice informing employees about their rights to unionize.  This requirement took effect in November, 2011.  This notice requirement is already subject to two challenges: there is a lawsuit pending; and Congress has proposed legislation aimed to block its enforcement.  The poster can be found at the following web address: https://www.nlrb.gov/sites/default/files/documents/1562/employee_rights_nlra.pdf

  1. Facebook Posts That Are Critical of Employers or Coworkers  Are Probably Not Considered Protected Speech

Addressing whether employee posts may be considered "protected concerted activity" in the forums of Facebook, Google, Twitter, LinkedIn and similar social networking sites, the NLRB issued three Advice Memoranda applying current case law in this field to common factual scenarios on Facebook.  In each of these three memoranda, the NLRB recognized that protected activity can involve "circumstances where individual employees seek to initiate or to induce or to prepare for group action," or where individuals bring "truly group complaints" to the public’s or management's attention.  The hallmark of protected speech is group incitement as opposed to individual ranting.  In the first case, a bartender complained on Facebook to a relative about his employer's tip policy and no raises for years, as well as referring to the customers as "rednecks" and other disparaging terms.  In the second case, a Wal-Mart employee, upset with a new manager, posted "Wuck Falmart" and other more profane comments on his Facebook wall.  In the third case, an employee of a homeless shelter carried on a Facebook conversation on company time, making inappropriate comments about the residents.  In each of these three cases, the NLRB held that no protected concerted activities took place, finding that each employee was airing individual concerns, and thus the speech was not protected. 



  1. AT&T Mobility LLC v. Concepcion:  This United States Supreme Court decision struck down the old California law holding that class action waivers in arbitration agreements were invalid as unconscionable.  In AT&T, the Supreme Court held that the Federal Arbitration Act (“FAA”) preempts any California law that interferes with the FAA's purpose of promoting arbitration - a very broad holding that permits class action waivers in arbitration agreements.  (Meaning that a person who signs an arbitration agreement containing a class action waiver must bring his or her claim as an individual, and cannot pursue it on a class-wide basis.)  Although the AT&T case involved class waivers in the context of consumer arbitration agreements (as opposed to employment arbitration agreements), the decision supports an argument that California employers may avoid employment class actions by including class waivers in employment arbitration agreements.  The question now is how California courts will interpret this U.S. Supreme Court decision, which overrules California precedent. 


  1. Brown v. Ralphs Grocery Co.:  In California’s first ruling since AT&T, the Court held that the AT&T decision did not apply contractual waivers under PAGA (California’s Private Attorneys General Act that allows employees to bring representative actions for Labor Code penalties), such that an employee may not be contractually precluded from bringing a representative claim under PAGA.  But rather than decide the broader question of whether AT&T extends to class waivers in other kinds of employment claims, the Court limited its holding to PAGA claims.  The Court distinguished the AT&T holding as inapplicable to PAGA claims, because the Court reasoned that PAGA claims are “representative” actions and not class actions.  Because of this unresolved issue, we expect two things: (i) an increase in PAGA claims, since they cannot be relegated by contract to individual claims; and (ii) new case law deciding whether AT&T precludes class arbitration in all employment-related actions.  Employers also should consider including waiver language in Arbitration agreements that specifically waive PAGA as well as class actions.   


  1. Brinker Restaurant v. Superior Court (pending):  In a case that will finally decide the applicable legal standard for determining what exactly employers must do in order to comply with California law regarding meal and rest breaks, the California Supreme Court held oral argument on November 8, 2011, and is expected to issue its decision by February 8, 2012.  During the November 8 oral argument, the Court hinted at its ruling in two respects: (i) it seemed to lean towards the “make available” standard, rather than the “ensure” standard; and (ii) it appeared to favor the “rolling meal break,” by which an employee who takes his or her lunch break during hour 2 or 3 of his or her first 5-hours worked may be entitled to a second meal break 5 hours later, even if the total work period is less than ten hours. 


  1. Campbell v. PricewaterhouseCoopers (PwC) (unpublished):  This case involved the statutory interpretation of the professional exemption from overtime wages.  The Court found that simply because an accountant is unlicensed or because “accountants” are included in another section of the wage order that does not automatically exclude them from the professional exemption.  Holding that unlicensed accountants may qualify as "learned professionals,” the Court reversed a controversial district court decision finding that no unlicensed accountant (or other specifically enumerated licensed professional) could qualify for the “learned professional” definition in any circumstance.


  1. Salas v. Sierra Chem. Co.Salas involved a wrongful termination case by an undocumented worker who, when hired, provided the defendant employer with a false resident alien card, false Social Security card and false Employment Eligibility Verification Form (I-9 Form).  The defendant filed motion for summary judgment under the affirmative defenses of “after acquired evidence” and “unclean hands,” claiming that it never would have hired the plaintiff had the company that he was not properly documented.  Although the plaintiff submitted a declaration stating that the defendant had hired other undocumented workers, the Court granted the defendant’s motion.  The plaintiff appealed and the Court of Appeal affirmed, holding that immigration status is relevant to discovery based upon the after-acquired evidence and unclean hands doctrines.  The California Supreme Court granted plaintiff’s petition for review, so stay tuned for the final say on this issue.   


  1. SeaBright Ins. Co. v. US Airways, Inc.:  SeaBright limited liability for employers who hire independent contractors. Specifically, employees who work for independent contractors can only to sue the contractor who hired the employee, not the company that engaged the contractor.  This case is important because it will limit litigation that previously could be maintained against an independent contractor and the company that engaged the contractor. 


  1. Sullivan v. Oracle Corp.:  In Sullivan, the California Supreme Court extended the protection of California's overtime laws to those individuals who are: (i) residents of the 49 non-California states; (ii) perform work in California; and (iii) perform such work for California-based employers.   Although the defendant-employer argued against this ruling based upon statutory construction and the added burden upon employers that would result from this ruling, the Court held that California overtime laws nonetheless apply to non-resident employees who work in California.  Because the Court did not address how this ruling will affect the applicability of other California wage and hour laws and employment regulations (i.e. pay stubs and vacation time) to non-resident California workers, we will likely see clarification of these particular issues in Appellate decisions interpreting Sullivan.
  2. Wal-Mart Stores, Inc. v. Dukes:  In one of the court decisions of 2011, the United States Supreme Court held that discrimination claims on behalf of roughly 1.5 million female Wal-Mart employees could not be pursued as a class action.  The U.S. District Court of the Northern District of California had certified the case as a class, and the Ninth Circuit substantially affirmed that decision.  The Supreme Court reversed and de-certified the 9th Circuit’s decision, however, holding that in order to satisfy the “commonality” element, all class members had to have suffered the same injury – in this case, the Supreme Court was referring to evidence that the same supervisor had discriminated based upon gender.  But since Wal-Mart’s local managers had broad discretion, there was no company-wide evidence that supervisors implemented any policy or practice of discrimination for which Wal-Mart could be responsible.  Accordingly, the Supreme Court concluded the case could not be tried as a class because the answers to the “common” questions would not resolve the issues for the entire class. 

  3. Ellis v. Costco Wholesale Corp.:  Before Wal-Mart, the District Court in Ellis granted class certification to female employees of Costco who alleged gender discrimination.  Costco appealed and, following Wal-Mart, the Ninth Circuit reviewed the standards for class certification.  The 9th Circuit remanded the case to the District Court with instructions to: (i) apply a rigorous  analysis of the requirements for class certification (numerosity, commonality, typicality, and adequacy of representation); (ii) evaluate whether the plaintiffs had demonstrated that class certification would generate common answers apt to drive the resolution of the litigation; and (iii) ensure that the merits of the class claims were supported (or not supported, as the case may be), of actual evidence of discrimination.



  1. Audit your wage and hour practices!  Figure out if your workers are exempt or non exempt from overtime.  Make sure you are keeping accurate records of all hours worked, and that employee paystubs contain all of the necessary detail.  Document meal periods, and train supervisors regarding the importance of making sure that employees know that they can (or must, depending upon Brinker) take meal and rest periods.  If you pay your workforce on a per-shift basis, be sure that their time records reflect that they are being paid at least $8.00 per hour for every hour worked. 

  1. Make sure that you are providing the required notice to your employees, as discussed above in “New Legislation” Section 2 on page 1.  The DLSE has made this easy by providing a template: http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html   
  2. Review relationships with independent contractors to make sure that they are not misclassified.  Misclassifying someone as an independent contractor can lead to severe penalties, so make sure that any contractors satisfy the “control” test for determining status.  Also, remember that the standard for penalties is “willful,” so it is important to document your diligent efforts to make a good faith determination as to contractor/employee status.  A good practice is to download the worksheets from the EDD to help make this determination, or for a particular class of workers, you can even apply to the EDD for a formal determination as to whether a particular worker or class of workers are contractors or employees.  (But be prepared to implement any answers the EDD provides.)

  1. Update your meal and rest period policies in February, when the California Supreme Court publishes its opinion in the Brinker case. (We will of course send out a notification and proposed policy updates at that time.)      

  1. Update your social media policy.  With Facebook, Twitter, Yelp and other readily-available means of public communication, make sure you have a clear policy of discipline for negative commentary made by your employees or managers on such sites that takes into account the NLRB’s recent protections for “concerted speech.”  Also require a disclaimer that any employee comments or opinions are expressed in writing as theirs alone, and not made in the on behalf of the company.

  1. Always document employees’ substandard performance, even of those employees with whom you are on friendly terms.  We realize that this is always difficult to do, but cannot overstate the importance of having accurate performance documentation.  And make sure that any performance expectations are communicated clearly and in writing.  If you terminate someone based upon performance, and they challenge the decision as unlawful, your first and primary defense will be the documentation that you have supporting the company’s performance expectations, and the employee’s failure to meet those expectations. 

  1. Update your Arbitration Agreements if you have them to include both class action waivers in compliance with the Federal Arbitration Act, and a specific waiver to bringing a “representative” action under PAGA. 

  1. Update your Disability and Family Leave policies to comply with the new pregnancy, childbirth, and bone marrow donation leave laws.    

  1. Document any wage agreement with any employee whose salary is either partly or fully commission-based.  There are other important provisions to include too, such as no-oral modification clauses, and conditions to earning commissions, such as current employment in good standing. 


See Helpful Tips & Employment Updates for 2011