Also in this issue:

• California Supreme Court Embraces Wage/Hour Class Actions

Unlike his predecessor, Governor Schwarzenegger vetoed about 80% of the significant labor and employment law bills sent to him for signature. The key proposed labor and employment vetoed by the Governor included legislation bills designed to increase the minimum wage, provide additional job security to janitors and security guards, and create special rules regarding meal periods and rest breaks for specific industries. Important as well were a series of bills intended to restrict the ability to outsource certain types of work to employees located outside the country. These too were vetoed.

This legislative update, however, will first focus on the legislation that Governor Schwarzenegger did sign, which includes AB 1825, a bill requiring larger employers to provide sexual harassment training to supervisory employees. One of the most significant bills that the Governor signed,

SB 1809, was designed to limit the application of the Private Attorneys General Act (otherwise known as the bounty hunter law), signed by former Governor Gray Davis.

Sexual Harassment Training (AB 1825)

This bill requires employers with 50 or more employees to provide two hours of training and education to all supervisory employees within one year of January 1, 2005, unless the employer has provided sexual harassment training and education to these employees after January 1, 2003. The bill further requires each employer to provide sexual harassment training and education to each supervisory employee once every two years, after January 1, 2006. Newly hired or promoted supervisors need to receive this training within six months of their hire/promotion date. Compliance does not insulate the employer from any liability for harassment.

AB 1825 sets specific quality standards for the required training. The training must be conducted via "classroom or other effective interactive training" and include the following topics

• Information and practical guidance regarding the federal and state statutory provisions concerning the prohibition against and the prevention of sexual harassment.
• Information about the correction of sexual harassment and the remedies available to victims of sexual harassment in employment.
• Practical examples aimed at instructing supervisors in the prevention of harassment, discrimination, and retaliation.

The quality mandate extends to those presenting the training. The training can only be presented by "trainers or educators with knowledge and expertise" in preventing harassment, discrimination, and retaliation. The quality standards require employers to closely examine their training programs. Merely sitting a supervisor down and having her or him view a video or non-interactive web-based product – "show and go" – would likely not meet the statutory requirements.

Key Changes to the Private Attorneys General Act (SB 1809)

The California Legislature amended California’s "bounty hunter" law to eliminate some of its more onerous provisions. These amendments, embodied in Senate Bill 1809, revise and amend the Labor Code’s Private Attorneys General Act (Labor Code § 2699) ("Act"), which made headlines as a key issue in California’s budget standoff. The Legislature struck a compromise and agreed to make major revisions to the Act in order to clear the way for the budget.

The following are six key amendments adopted in Senate Bill 1809: (1) posting, filing, and reporting requirements are eliminated as a lawsuit basis except for mandatory payroll or workplace injury reporting requirements; (2) the requirement that employers file a copy of their employment application with the Labor Commissioner is repealed; (3) the amendments require court review and approval of all settlements and give courts discretion to reduce penalties; (4) the amendments set up new notice and administrative filing requirements as a precondition to a lawsuit being filed; (5) the amendments bar a lawsuit if the Labor Commissioner or Cal/OSHA cites an employer and the employer cures and abates; and (6) SB 1809 applies immediately and retroactively. For a fuller discussion of SB 1809, see the August 2004 issue of the Employment Law Commentary.

Domestic Partner Rights and Responsibilities (AB 205)

Shortly before he left office in 2003, former Governor Gray Davis signed the California Domestic Partner Rights and Responsibilities Act of 2003 (often referred to by its legislative designation, "AB 205"). AB 205 essentially eliminates most distinctions between registered domestic partners and married, opposite-sex couples for purposes of California law. Expanding upon prior laws, AB 205 will become effective on January 1, 2005. The following are some of the highlights of AB 205:

• AB 205 amends the Family Code to provide that registered domestic partners will have the same rights and responsibilities as spouses.
• Pursuant to AB 205, public agencies in California will be required to treat domestic partners as equivalent to spouses for employee benefits purposes and extend the same nondiscrimination rights to registered domestic partners as are available to opposite-sex spouses.
• AB 205 standardizes the eligibility requirements and the procedures for registering and dissolving a domestic partnership.
• AB 205 does not require nongovernmental employers to offer equal employee benefits to domestic partners and spouses, nor does it mandate preferential treatment of registered domestic partners in connection with the terms and conditions on which they are employed.

Employers should monitor developments in this area closely, particularly as the California Supreme Court decides the constitutionality of Proposition 22 (which defines marriage as between a man and a woman). For a fuller discussion of AB 205, see the
September 2004 issue of the Employment Law Commentary.  Click here.

California Insurance Equality Act (AB 2208)

Building on prior legislation (primarily AB 25 and AB 205), AB 2208 requires California insurance carriers and health care service plans (i.e., health maintenance organizations) to provide coverage to registered domestic partners that is equivalent in all respects to coverage provided to "spouses." AB 2208 applies to any form of insurance regulated by the California Insurance Code. (Please note that this bill does not directly apply to employers, private or public, but may have implications for them to the extent that the insurance companies they use must provide equal coverage to registered domestic partners and spouses.) Prior legislation arguably accomplished the same result (see the September 2004 issue of the Employment Law Commentary regarding AB 205), but the Insurance Commissioner (who sponsored the bill) determined that specific revisions to the Insurance Code and the Health and Safety Code were necessary to ensure that insurance carriers and HMOs did not provide less-favorable coverage to registered domestic partners and to clarify any ambiguities created by AB 205’s broad mandate that registered domestic partners be regarded as "spouses" for all purposes under California law.

Of particular note in AB 2208 is its modification of Section 10121.7(d) of the Insurance Code and Section 1375.58(d) of the Health and Safety Code. These sections permit an insurance carrier or HMO to require domestic partners to provide evidence that they have registered with the Secretary of State under the procedures initially created by AB 25 and supplemented by AB 205. In many instances, employers seek such evidence from domestic partners, either on their own initiative or on behalf of an insurance carrier or HMO, but rarely seek similar information from married employees. AB 2208 limits this disparate treatment by prohibiting insurance carriers or HMOs from seeking proof of registration by domestic partners unless they also seek equivalent information from married individuals. By its terms, this limitation does not apply to "employers" acting on their own initiative, but AB 205’s broad prohibition on discrimination against registered domestic partners could be interpreted to encompass this practice. See the
September 2004 issue of the Employment Law Commentary for additional discussion of this issue. Click here. 

Restrictions on Displaying Social Security Numbers on Paychecks (SB 1618)

Senate Bill 1618 amends the California Labor Code to change the requirements relating to information displayed on itemized wage statements. Existing law in California requires employers to display on each pay stub the name of the employee and social security number. The new law provides that, by January 1, 2008, employers shall display only the last four digits of an employee’s social security number (or another employee identification number) on pay stubs or other checks, drafts, or vouchers. Click here. 

Unemployment Insurance: Contribution Rates (AB 664)

AB 664 requires the Director of the Employment Development Department ("EDD"), in setting unemployment insurance rates, to assign an employer the maximum contribution rate plus 2% for specified rating periods if the employer had previously obtained a favorable rate due to misrepresentations or deliberate nondisclosures to the EDD.

Additionally, if an employer is found to have obtained a favorable rate due to misrepresentations or deliberate nondisclosures, the employer will be excluded from a number of benefits offered by the EDD. These include, for example:

1. The employer will not be permitted to voluntarily submit unemployment contributions to the EDD in order to lower the employer’s contribution rate.
2. The employer will not be permitted to obtain relief from the required contribution of .1% of specified wages into the Employment Training Fund if the employer has a negative reserve account with the EDD.

Additionally, the new law allows for the EDD to mail a notice of correction of an error regarding the rate after the rating period expires, if the Director finds that there has been fraud, intent to evade, misrepresentation, or willful nondisclosure by the employer. Furthermore, AB 664 imposes a penalty in the case of underreporting of contributions, in the amount of either $5,000 or 10% of the underreported amount, whichever is greater. AB 664 also makes it a criminal violation for any person to willfully counsel, advise, procure, or coerce anyone to make false statements or representations to the EDD for the purpose of lowering or avoiding contribution. Click here. 

Health Care Coverage (AB 254)

Currently, any health care service plan contract or disability insurance policy subject to COBRA or Cal-COBRA is required to offer extended health coverage (Senior COBRA) to former employees and their spouses where the employee was at least 60 years old when employment terminated. AB 254 repeals the Senior COBRA program in California. After January 1, 2005, terminating employees and their spouses will not be able to extend their health care coverage through Senior COBRA once federal or Cal-COBRA is exhausted. Older workers may instead be eligible for guaranteed individual health care coverage under the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Click here.

Workers’ Compensation (SB 899)

Significant changes to California’s workers’ compensation system became effective on Monday, April 19, 2004, with the passage of SB 899. With some exceptions, the changes affect all pending claims but do not require revising or reopening any past decisions. Here are very brief highlights of the new law:

• Allows employers and insurers to contract with approved provider networks for treating work-related injury and illness and thus control treatment indefinitely.
• Specifies that employees may only pre-designate treating physicians who are part of the employer’s health benefits plan.
• Limits temporary disability ("TD") payments to 24 months from the first payment. Certain injuries have extended TD periods of up to 240 weeks within five years from the date of injury.
• Requires an employer/insurer to authorize medical treatment within one day of receiving an occupational injury claim, even though the claim may be delayed for up to 90 days for investigation. Limits liability for pre-acceptance medical treatment to $10,000.
• Requires revisions to the content of the Workers’ Compensation claim form and poster. Click here.

Employment Discrimination (AB 2900)

This bill amends miscellaneous code provisions of existing law which prohibit discrimination in employment on different bases, including the race, color, sex, religion, and marital status of a person, to instead prohibit discrimination on the same bases as in the Fair Employment and Housing Act. Those bases are race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, marital status, sex, age, or sexual orientation. Accordingly, this bill expands discrimination mandates to these miscellaneous code sections to include bases of discrimination which have not historically applied, such as discrimination on the basis of one’s sexual orientation. Click here.

FEHC to Conduct Mediations (AB 2870)

This bill makes a number of changes to the Fair Employment and Housing Act. It authorizes the Fair Employment and Housing Commission ("FEHC") to conduct mediations upon the request of the Department of Fair Employment and Housing ("DFEH"). It requires the commission to conduct all actions and procedures in accordance with its procedural regulations and, if it does not have a regulation on an issue, to rely upon the provisions of the Administrative Procedure Act. Furthermore, it provides that the commission is not liable for the attorney’s fees of the parties to an administrative adjudication and authorizes the commission to issue a civil penalty. Click here.

Assignment Orders for Support (AB 1706)

This bill extends an existing statute to prohibit an employer from using a support order as grounds for denying a promotion to an employee, or for taking any other adverse action affecting the employee’s terms and conditions of employment. Click here.

Public Works: Volunteers (AB 2690)

Under existing law, all workers employed on public works projects must be paid not less than the general prevailing rate of daily wages, except for public works projects of $1,000 or less. This bill would exempt from these provisions any work that is performed by a volunteer, by a volunteer coordinator, or by members of the California Conservation Corps or of certified Community Conservation Corps. It would apply this exemption retroactively to otherwise covered work concluded on or after January 1, 2002 and will remain in effect until January 1, 2009, and as of that date is repealed, unless a later-enacted statute modifies that date. Click here.

Vetoed Bills

Minimum Wage Increase (AB 2832)

If signed by the Governor, this bill would have increased California’s minimum wage from $6.75 to $7.25 per hour on January 1, 2005, and to $7.75 on January 1, 2006. Click here.  

Outsourcing of California Jobs

The anti-outsourcing bills vetoed by the Governor -- AB 1829, SB 888, and AB 3021, among others -- would have prohibited or restricted California businesses’ ability to conduct a portion of their operations abroad.

AB 1829, if signed, would have prohibited a State agency or local government, in expending funds provided by a State agency, from contracting for services with a contractor or subcontractor unless that contractor or subcontractor certified under penalty of perjury that the work would be performed solely by workers within the United States. In addition, the bill would have prohibited the expenditure of State funds to train employees located in foreign countries. Click here.

SB 888, if signed, would have prohibited outsourcing of any work involving "information that is essential to homeland security" to a worksite located outside the United States, unless expertise necessary to perform the work was not available in the United States, or parts or materials necessary to perform the work were manufactured outside the United States. Click here.

AB 3021, if signed, would have required an employer with more than 250 employees, beginning on or after January 1, 2006, to report the number of employees or contractors with employees outside California and outside the United States. Click here. 

Electronic Monitoring of Employees (SB 1841)

This bill, if signed, would have made the intentional electronic monitoring of employees without prior written or electronic notice a misdemeanor. The required notice would have had to describe the form of communication or activity that would be monitored and the kinds of information that would be obtained through the monitoring. Prior notice would not have been required if the employer had reasonable grounds to believe the monitored employee was engaged in unlawful conduct. Click here.  

Gender Pay Equity (AB 2317)

This bill, if signed, would have increased the damages award an aggrieved employee may obtain in a successful civil action for gender-based unequal pay claims. Existing law provides for recovery of the balance of the wages, including interest, and an equal amount as liquidated damages. Assembly Bill 2317 would have changed the damage calculation so that there would be an amount equal to the balance of wages, including interest, as liquidated damages, and an amount equal to double the balance of the wages as a civil penalty. In the case of willful violations, the damage award would have been the balance of wages, including interest, an equal amount as liquidated damages, plus an amount equal to four times the balance of wages as a civil penalty. Click here. 

Hotel Room Attendants (AB 606)

If signed, this bill would have standardized rest and meal periods for hotel room attendants. More specifically, it would have required a minimum 30-minute meal period for those working more than five hours daily and would have made failure to comply a misdemeanor. Additionally, the bill would have established a rest period in the middle of each work period and require 15 minutes of rest per four hours worked. Click here. 

Meal and Rest Periods (SB 1538)

If signed, this bill would have required employers to pay employees for any rest period mandated by statute, regulation, or order of the Industrial Wage Commission and would have established the formula by which the rate of pay should be determined for the rest periods of piece rate workers in the agricultural and garment industries. Click here. 

Access to Exits (AB 2545)

Beginning January 1, 2006, this bill would have required that any employer who established any rule or engaged in any practice that resulted in a serious and willful violation of any regulation regarding the maintenance of and access to exits, that resulted in death or serious bodily injury of an employee, be assessed a penalty of 10 times the applicable civil penalty. Click here. 

Janitorial Service Contractors (AB 2213)

If signed, this bill would have required, until the year 2010, janitorial service contractors to register with the state labor commissioner and pay a registration fee. Failure to do so would have resulted in a $100 fine per day of violation, not to exceed $10,000. Furthermore, it would have established new reporting requirements about wages, hours, and conditions. Click here. 

Agricultural Employees: Direct Deposit (AB 1723)

This bill would have required an agricultural employer employing 25 or more agricultural employees to comply with an employee’s written request for payment of wages by direct deposit. This bill would have also required the Labor and Workforce Development Agency to notify agricultural employees of their rights under this bill to be paid by direct deposit. Lastly, the bill would have required the agency to prepare sample materials and forms to be used by agricultural employees to obtain direct deposit of wages, and by agricultural employers to offer employees the option of receiving payment by direct deposit. Click here.

Displaced Private Security Officers (AB 2850)

This bill would have enacted the Private Security Service Assurance Act, which would have required contractors and subcontractors who provide private security services at a particular job site, to retain, for a period of 90 days, certain employees who were employed at that site by the previous contractor or subcontractor. This bill would also have required that employees retained under the bill’s provisions for that 90-day period be offered continued employment if their performance during that 90-day period is satisfactory. This bill would have applied only to contracts entered into on or after January 1, 2005, and would have authorized an employee who was not retained in accordance with the bill’s provisions, or his or her agent, to bring an enforcement action in court. Click here. 

Confidential Information (SB 1492)

If signed, this bill, among other things, would have prohibited a health care business from transmitting individually identifiable health information to a site outside the United States, unless specified notice and authorization requirements were satisfied. The bill would also have prohibited a health care business from discriminating against an individual or denying an individual health care service because the individual has not consented to the transfer of individually identifiable information outside the United States. Click here.

Privacy Guarantees (SB 1451)

If signed, this bill would have prohibited any person or entity not already expressly covered by one of California’s statutory privacy laws from sharing or otherwise disclosing information in a manner that would be prohibited by statutory privacy law. Thus, the bill was intended to apply the same statutory standards of non-disclosure and confidentiality to both a supplier of information covered by the statute and any person who receives such information from a covered supplier. Click here. 

California Supreme Court Embraces Wage/Hour Class Actions

By James C. Boddy, Jr.

In August, the California Supreme Court decided a much anticipated case expected to clarify the requirements for certifying wage and hour class actions. Its decision in Sav-On Drug Stores, Inc. v. Sup. Ct., 34 Cal. 4th 319 (2004), initially delighted the plaintiffs’ bar and created some angst among those representing employers. However, on closer inspection, the decision broke no new ground, though it is perhaps most remarkable in the degree of deference shown to trial courts in making class certification decisions and in the lack of rigor shown in applying its own standards. Trial courts inclined to certify such class actions will no doubt feel less restrained in doing so.

The case involved alleged violations of California overtime laws. Plaintiffs asserted that Sav-On had misclassified operating managers and assistant managers throughout its California retail stores as exempt from state overtime pay requirements. Sav-On contended that the managers were properly classified as exempt because they performed managerial work requiring the exercise of discretion a majority of the time. In the trial court, plaintiffs successfully moved for class certification, but the court of appeal reversed. Plaintiffs then sought review in the California Supreme Court.

Under California law, to obtain certification of a class, the class proponent must show, among other things, that common issues of law or fact predominate over individual issues, that the claims or defenses relating to the class representatives are typical of those relating to the class, and that the class representatives can adequately represent the class. Sav-On addressed the first of these requirements, whether common issues would predominate over individual issues. In most cases where class certification is contested, predominance is the key issue. In simplified terms, if the facts and claims are such that plaintiffs can establish liability for the entire class through common proof, a class action provides an appropriate and superior means of trying the case, as compared to many individual trials where the same proof would be presented again and again, and where there would be a risk of inconsistent results. On the other hand, if the matter can only be resolved through separate adjudication of the claims and circumstances pertaining to each individual class member, not only does it make no sense practically for the case to proceed as a class action, but doing so would raise also serious due process questions where the rights of class members not before the court are resolved without their having the opportunity to present their own evidence. Predominance of common issues thus has become under California law the principle gatekeeper for class actions.

In Sav-On, plaintiffs contended that common issues would predominate, given their theory of the case. They asserted, among other things, that Sav-On had deliberately misclassified the managers, that it had done so based on job descriptions alone rather than any analysis of their work, and that it had imposed uniform operational requirements on the stores such that managers had to spend a majority of their time doing non-exempt work. All of these issues, plaintiffs argued, were susceptible of class-wide common proof. Sav-On contended that much of plaintiffs’ theory was beside the point. Whatever Sav-On’s intent, or the reliance on job descriptions, or the operational circumstances, liability ultimately would turn on whether the managers were properly classified or not, and that determination could only be made on an individual-by-individual basis: what tasks did each manager perform, and how much time was spent on each task.

Nominally, the Supreme Court resolved the dispute on very narrow grounds – whether the trial court had abused its discretion in determining that the class should be certified. It thus looked to see if the trial court had applied the correct legal standards and whether there was substantial evidence to support the trial court’s decision. Where both requirements are met, the Court noted, the decision of the trial court must be affirmed, even if the reviewing court would have reached a different result had it addressed the matter de novo.

In assessing the legal standards applied by the trial court, the Supreme Court made no new law, largely quoting from its prior opinions instead. What it chose to quote, however, was selective. It emphasized that the predominance and other class certification issues are essentially procedural questions, rather than determinations of the legal or factual merits of the lawsuit. Further, in addressing predominance, courts must consider "whether the theory of recovery advanced by the [plaintiffs] is, as an analytical matter, likely to prove amenable to class treatment." (34 Cal. 4th at 327.) Thus, the plaintiffs’ theory of a case substantially influences how certification issues are to be addressed.

In assessing the plaintiffs’ theories in Sav-On, the Court displayed more deference than rigor. To cite but one example, plaintiffs contended, as noted above, that Sav-On had deliberately misclassified the managers, relying on job descriptions rather than actual work performed. Sav-On argued, as also noted above, that its intent and reliance on job descriptions were irrelevant, because neither was probative of whether the classification results, however reached, were correct. The Court never really addressed defendant’s argument directly, but rather resorted to the technicalities of the substantial evidence rule. It set a low threshold for satisfying the rule, found the rule satisfied by the evidence plaintiffs had presented (such as uniform job descriptions, performance review forms, and training programs, among other materials), and observed that the court of appeal was not free to reverse the trial court where the decision was supported by substantial evidence. In doing so, the Court also declined to resolve the conflict between the four manager declarations submitted by plaintiffs saying manager work was non-exempt, and the 51 manager declarations submitted by Sav-On saying the work was exempt. If, as the Court found, plaintiffs’ declarations and other evidence are "substantial," that is the end of the inquiry, without regard to how substantial the evidence might be on the other side. Nowhere does the Court address, much less explain, how in fact liability for the hundreds of managers would be established through common proof.

A concurring opinion by Justice Brown points to an aspect of the case which alone would have been sufficient to support the result. Plaintiffs and Sav-On essentially agreed on the list of tasks performed by the managers, but disagreed on whether those tasks were exempt or non-exempt. Trial of these issues would in fact be common to the entire class, and could go far to resolve liability, though issues of how much time was spent on each might remain. It is significant that the Court majority chose not to rely on this aspect alone, but elected a far more sweeping approach emphasizing the favored status of class actions, deference to trial courts, deference to plaintiffs’ theories of liability, and the ease with which the substantial evidence rule can be satisfied.

The take-away message from Sav-On is that an ounce of prevention is worth many pounds of opposition to class certification. Trial courts will likely be more inclined to certify employment class actions in light of Sav-On, and once a class is certified, most cases settle on terms far more favorable to plaintiffs than would otherwise be the case. Accordingly, in this era of wage/hour class actions, employers need to be ever more diligent about the legality of their practices lest they find themselves making the same arguments that proved unsuccessful in Sav-On.