California Public Agency Labor & Employment Blog

California Public Agency Labor & Employment Blog

Useful information for navigating legal challenges

Appellate Law — What Are Amicus Curiae Briefs?

Posted in Appeals

2A couple of years ago we blogged about Amicus Curiae briefs, their role in the appellate law, and how they can benefit California’s employers. Since our original post, we witnessed a number of cases in which Amicus Curiae briefs played a significant role in landmark cases.  Such briefs continue to be an important way for employers, and in particular public employers, to help shape the law.  Accordingly, we thought it would be helpful to re-visit this blog entry.

Public agency officials and employees may read newspaper articles about recently decided landmark cases in public sector labor and employment law, and may feel relief, anger, surprise, or vindication in the result.  This is especially true if the decision impacts how the agency functions on a day-to-day basis.  These same individuals may also find developing U.S. Supreme Court and California Supreme Court decisions important and interesting enough to want to join the fight directly in a particular case, and try to persuade the Court which way a case should be decided.  Understandably, though, they would prefer not to do this if it meant their agency had to be a defendant in a lawsuit.

There is a way organizations can join the fight on landmark cases without having actually to be a party, and that is by filing an amicus curiae brief with the Court.

The brief of an amicus curiae (“friend of the court”) is submitted by a company, government agency, trade association, or other organization or individual who is not an actual party to the case but wishes to contribute argument or general information for the Court to consider.  Leave of Court is required to submit an amicus brief.  Although Courts usually grant such leave freely, they expect organizations seeking to file briefs to explain why they have an interest in the case’s outcome, and also to explain how their brief can help the Court decide the case.  Such briefs can be filed not only in the U.S. Supreme Court and state Supreme Courts, but in state and federal intermediate appellate courts.

Why would a lower level appellate court decision in a particular case, or even a Supreme Court decision, be important to an agency?  To understand this requires a short digression on the principle of precedent, something all lawyers learn in law school but rarely have occasion to explain in detail to clients.  Rules of precedent require courts to follow the prior decisions of higher courts.  In both state and federal courts, the decisions of trial courts (the first level of courts which conduct jury trials and bench trials, rule on requests for writs, and conduct other proceedings) are not precedential.  Their decisions affect the parties only, and although for example a large jury verdict or an injunction may send a “signal” to an industry, the outcome does not control anyone except the parties.  A Court of Appeal decision designated for publication, however, is controlling on all trial courts in the state.  Thus, if the Court of Appeal holds that individual supervisors can be held personally liable under the Fair Employment and Housing Act (“FEHA”) for retaliation, then every trial court in the state has to follow that holding and has to take that position in every case.

The losing party may, a short time after the appellate case is decided, ask the California Supreme Court to review the case.  The Supreme Court picks and chooses the cases it takes and does so with an eye toward shaping California law.  If the Supreme Court decides to review the Court of Appeal decision in our example, and ultimately reverses it, holding that supervisors cannot be personally liable, then every Court of Appeal, as well as every trial court in California, must follow this rule.  (The Supreme Court in fact rejected a rule of personal liability for retaliation in Jones v. Lodge at Torrey Pines, 42 Cal. 4th 1158 (2008), a case in which our firm participated in amicus briefing.)

Federal courts work the same way.  The first level of the appellate courts, the one that can issue binding decisions in California, is called the United States Court of Appeals for the Ninth Circuit, which lawyers commonly call just the “Ninth Circuit.”  It covers other states as well, including Arizona, Nevada, Hawaii, and Alaska.  Other federal circuits cover different states, and at the top of all the “circuits” is the United States Supreme Court, which, like the California Supreme Court, picks and chooses the cases it takes, and issues decisions that control all the circuit courts and all the federal trial courts.  As you would expect, the California Supreme Court generally decides issues of state law and the U.S. Supreme Court issues of federal law.

Thus, influencing how an appellate court decides a case can be important, and influencing how the U.S. Supreme Court or a state Supreme Court rules can be very important.

What are the best arguments for amicus curiae briefs to make?  Generally, they are those that present the organizations’ unique perspective in a cogent light.  For example, in an employment case between an individual and a private company, neither side may think to brief the Court on how the Justices’ decision will affect the public sector, where employment laws can apply differently.  Briefing by public organizations can alert the Court to these issues, so that the Court’s holding can be phrased to avoid unintended problems in the public sector.  Briefs can also emphasize the impact of the case’s ruling on particular segments of the workforce, for example, police, fire, utilities, or educators.  Perhaps most importantly, the amicus brief can present practical, real-world examples from the sponsoring party’s industry, that show why as a public policy matter the Court should rule in a certain way, or at a minimum craft its’ ruling to avoid certain pitfalls.

In addition, although it is a less traditional function, amicus briefs can join the legal debate directly by advancing unique and/or creative legal arguments the parties might not have presented.  It can develop one side’s legal case in an alterative way, or even in a more forceful way, if the party was reluctant to take certain approaches or positions.  (That said, counsel for the actual parties have often spent enormous time on the case, and may not have made certain arguments for tactical reasons.  It is best to coordinate with them in presenting arguments.)

As described above, intermediate appellate cases are important areas for amicus briefing as well.  What are a few rapidly developing areas of employment law to which amicus briefing could contribute at this level?  A partial list is the vested rights of public employees in retirement benefits (a very rapidly developing area), enforceability of arbitration agreements, cyber-bullying and the First Amendment rights of students, use and misuse of social media by public employees, anything regarding the scope of laws against harassment and discrimination, and increasingly the protections for concerted activity of individual non-unionized employees under labor relations statutes.  This is definitely a partial list, however.  In fact, any published case that has an important effect on public employers is worth consideration as a candidate for amicus briefing.

What steps can an agency actually take?  Trade associations and leagues designed to benefit the agency can help.  The agency should be sure to consult lawyers with expertise not only in appellate law and preparation of amicus curiae briefs, but in the substantive area of law at issue – be it retirement, wage and hour, disability, employee free speech, privacy, or labor relations.

The Importance of Posting a Salary Schedule

Posted in Retirement

Retirement-Sign.jpgThis post was authored by Heather Coffman

We’ve all heard the saying, “If it’s not written down, it didn’t happen.”  In the context of retirement benefits for PERS members, the saying is slightly modified: “If an employee’s salary isn’t set forth on a properly adopted salary schedule, that individual’s retirement benefits may not pay out as expected.”  While a mouthful, the message is an important one: employees’ salaries must be part of a publicly available, posted salary schedule to be counted by PERS when calculating pension benefits.  PERS’ regulation requiring a publicly available pay schedule is often overlooked, with potentially serious consequences.  Here we will review the requirements under the regulation, and identify actions your agency can take if it’s not currently in full compliance.

Establishing Compensation Earnable:  Requirement for a Publicly Available Pay Schedule

When a member retires, PERS is tasked with determining the amount of “compensation earnable” to determine how much that individual will receive as a monthly pension in retirement.  Compensation earnable is a term defined by the Public Employees’ Retirement Law (“PERL”), section 20636.  Generally, compensation earnable is calculated using the member’s pay rate and special compensation the employee earned while working for the contracting agency.

To determine the pay rate for the compensation earnable equation, PERS will only consider the normal monthly rate of pay or base pay that is established on a publicly available pay schedule.  That pay schedule must meet several criteria, detailed in Title 2 of the California Code of Regulations, section 570.5.  First and foremost, the governing body must have approved and adopted the pay schedule as a standalone document detailing the pay rates for each agency position.  The schedule must be publicly accessible, and available for inspection for at least 5 years.  The schedule itself must also include the following: every position’s title; the base salary for each position (ranges or steps); the time base for how pay is calculated (i.e., hourly, bi-weekly, etc.); and the effective date and dates of revisions.

Consequences for NOT maintaining a compliant salary schedule

If an employer does not establish the publicly available pay schedule outlined above, PERS may consider additional relevant information to determine the appropriate pay rate for the employee or employees.  However, the PERS Board has the sole discretion to decide what the pay rate should be.  PERS usually limits the member’s pay rate to the salary that was part of the publicly available pay schedule that was approved by the agency’s governing board and disregards most other evidence presented to support including the additional compensation into the pay rate.  As a result, individuals may receive a lower monthly pension benefit than expected.

Does your agency employ individuals whose positions are not part of an established salary schedule? 

To avoid any unwelcome surprises when PERS determines pay rates when calculating compensation earnable, we recommend a careful review of your agency’s pay schedule practices.  Here are a few common issues that you should consider:

  • Is the position and title of every person who is enrolled in PERS on the agency’s pay schedule, including employees with individual employment agreements?
  • Do employees in certain classifications receive annual increases to their base pay rates under a memorandum of understanding or collective bargaining agreement? If so, has your agency’s governing board approved, and published, updated salary schedules each year to reflect those annual increases?

If the answer to the questions above is no, then your agency may not have a properly administered pay schedule.  In practice, employers should make sure that their governing bodies adopt one unified pay schedule that includes all employee classifications.  Additionally, the governing body should adopt an updated pay schedule every year that salaries change – including pursuant to a negotiated memorandum of understanding, or per an employment contract for an unrepresented employee.    Further, the governing body should not simply pass a resolution adopting the salaries that are detailed in a separate document, like a memorandum of understanding or collective bargaining agreement.  The salary schedule should be its own, standalone document that the governing body adopts in a publicly-noticed meeting that complies with all open meeting laws.

If you have any questions as to how to ensure compliance with this PERS regulation (section 570.5 of Title 2 of the California Code of Regulations), please consult legal counsel.

Employers, Prepare for the Wave of Unequal Pay Litigation

Posted in Employment, Workplace Policies

African-Woman-Interviewing.jpgDear Human Resource Managers (and other interested management):

How many times has an employee complained to you that he or she was not being paid fairly?  Certainly, at least once and possibly more.  What was your impression of the complaint?  Did you immediately disagree?  Did you understand what the employee was actually complaining about?  Did you believe the complaint to be accurate?  Did you have any idea what to do?

Despite the California Equal Pay Act being enacted in 1949, unequal pay in the workforce is not a myth but a reality.  (Yes, it was 1949.)  Unequal pay is a problem for employers and employees even after nearly 70 years of laws against it.  A recent report found that as of 2013, female employees in California earned on average 84 cents on the dollar compared to male employees.  Women of color fare even worse with African-American women earning 64 cents on the dollar and Latina women earning 44 cents on the dollar.  California’s working women lose $33 billion per year as a result of the wage gap.  These are troubling statistics that should cause concern among human resource managers.

While wage and hour class actions and challenges to arbitration clauses continue to dominate employment litigation, the next wave of lawsuits could be unequal pay claims.  Prior to the January 1, 2016 amendments to the California Equal Pay Act [Gov. Code, sec. 1197.5], the most recently published California appellate court decision regarding unequal pay was in 2003.  Notably, only four cases that directly concern unequal pay claims have been published in California since 1968, which suggests that unequal pay litigation has not been significantly pursued.  Moreover, in just one of the four published cases was the employee successful in proving an unequal pay claim.

At this point, you may be asking why then should employers be concerned when these types of claims are far and few between?  The reason for concern is that the amended Act makes it easier for an employee to assert the claim and much more difficult for the employer to defend it.  The California Department of Industrial Relations describes the major changes to the law as:

  • Requiring equal pay for employees who perform “substantially similar work when viewed as a composite of skill, effort, and responsibility.”
  • Eliminating the requirement that the employees being compared work at the “same establishment”
  • Employers supposedly will have increased difficulty in satisfying the “bona fide factor other than sex” defense.
  • Legitimate factors relied upon by the employer must be applied reasonably and account for the entire pay difference.
  • Retaliation against employees seeking to enforce the Act is prohibited and employees are expressly permitted to discuss or inquire about a co-worker’s wages.
  • Employers must maintain wage and other employment records for three years instead of two.

The majority of the factors are straightforward.  The challenge for employers will be in defining “substantially similar work when viewed as a composite of skill, effort, and responsibility.”  Prior to the amendment, the statute referred to “equal work” and now it is “substantially similar work.” What’s the difference?  At this point, we do not know exactly what that difference will be when examined by a court since no appellate decisions have addressed the statute’s amendments.  We can make educated predictions based upon interpretation of the previous language compared to the new language.  An often cited example is to compare a hotel janitor to a hotel housekeeper.  Under the previous language, the argument that the two positions are not equal likely would have withstood challenge because the skill, effort, and responsibility were not exactly the same.  For example, a janitor may be required to lift heavy objects but the housekeeper does not.  The “substantially similar work” is less restrictive and a reasonable argument could be made that the two positions are substantially similar enough to support an unequal pay claim.

The ostrich approach to dealing with these issues may sound appealing because employees rarely complain about unequal pay.  A proactive approach in most circumstances, however, is better than a reactive one.  In two recent settlements of unequal pay class action claims, one employer agreed to pay $19.5 million in back pay to 3,300 female engineers and another employer agreed to pay $4 million to 300 female claims litigators and $1.8 million to their attorneys.

So, what can you do to avoid these types of claims?  Audit your pay practices, even if you have a set salary schedule.  Placement on the salary schedule could establish an unequal pay claim if the male and female are equal but the female is placed in a lower step than the male.  For example, a female employee with a county office of education learned a male colleague was earning $12,000 more per year than she was despite her having more experience, education, and seniority.  Also, they performed the same work and she was hired four years before he was.  When she discovered that she was placed on step one of the ten step salary schedule when she was hired and he was placed on step nine at the beginning of his employment—a significant disparity—she asked for the situation to be remedied.  When it was not, she filed a lawsuit.

Review and make necessary revisions to job descriptions.  Also, if you have not reviewed the salaries of higher level managers, it may be worth commissioning an outside agency to conduct a class and compensation study.  Correcting errors before a lawsuit is filed will ultimately save the employer money.  Also, having an understanding of your employer’s pay practices, such as seniority, merit, etc., will allow you to explain to employees how wages are determined and that the wages are in fact equal.

Tips from the Table: Listening During Negotiations

Posted in Labor Relations, Negotiations

We are excited to continue our video series – Tips from the Table. In these monthly videos, members of LCW’s Labor Relations and Negotiations Services practice group will provide various tips that can be implemented at your bargaining tables. We hope that you will find these clips informative and helpful in your negotiations.

Do You Have Seasonal Workers? What To Know About Health & Retirement Benefit Obligations

Posted in Retirement

Retirement-Sign.jpgThis blog post was authored by Erin Kunze

As the summer season winds down, so do public agency departments that hire seasonal workers to staff summer camps, pools, extended park and recreation hours, and a myriad of season-specific facilities and activities. But, just how do seasonal workers impact the agency’s health and retirement benefit obligations?

  1. The Affordable Care Act (“ACA”), Seasonal Worker Exception

The number of seasonal workers you hire may impact whether your agency is subject to certain ACA obligations. Under ACA, employers that have at least fifty (50) full-time employees, including “full-time equivalent” employees, on average during a particular year, qualify as “Applicable Large Employers” subject to the Act’s shared responsibly and employer information reporting provisions for offers of minimum essential coverage.* However, ACA provides a limited exception to the Applicable Large Employer calculation for employers with “seasonal workers.” (Note: Admittedly, there’s a lot of ACA jargon here. For a primer on ACA, we recommend reviewing our March 2014 post)

Under the exception, an employer will not be considered an Applicable Large Employer if the following are both true:

  • the employer’s workforce exceeds 50 full-time employees (including full-time equivalents) for 120 days or fewer during a calendar year; and
  • the employees in excess of 50 during that period were “seasonal workers.”

This exception is narrow, and must be carefully applied.  For the purposes of ACA, a “seasonal worker” must be a worker who performs labor or services on a “seasonal basis,” such as a ski instructor or retail workers employed exclusively during holiday seasons. Seasonal based work means work that “ordinarily” pertains to or is of the kind exclusively performed during certain seasons or periods of the year, and which, “from its nature,” may not be continuous or carried on throughout the year.  Accordingly, if your agency’s camp, park, or swimming pool is only operated during summer months, or if it operates at a high demand or for extended hours, only during summer months, the employees associated with the limited seasonal operation may qualify as “seasonal workers” under ACA.  If the employment of those workers also lasts 120 days or less, they may be excluded from the agency’s Applicable Large Employer assessment.

As an aside: we caution that ACA also uses the term “seasonal employee,” which is used in the employer shared responsibility provision, in a different context than “seasonal worker.”

  1. California’s Healthy Workplaces, Health Families Act

Despite the ACA requirements discussed above, seasonal workers may be entitled to paid sick leave under California’s Healthy Workplaces, Healthy Families Act. Even a part-time, seasonal worker will be entitled to accrue paid sick leave if the employee works for at least 30 calendar days in a year.  However, the employee must be employed for at least 90 days before he/she is entitled to use accrued time. When it comes to seasonal workers, be sure to check the 30/90 day requirements against your agency’s sick leave policy.  In some cases, the agency’s policy may be more generous.

  1. The Public Employees’ Retirement Law (“PERL”), Seasonal Employment Exception

Careful consideration is required when determining whether “seasonal” workers are entitled to membership in the Public Employees’ Retirement System (“PERS”).  Under the PERL, certain part-time or limited term employees are excluded from membership in PERS.  Under any circumstance when the employer hires an employee who is already a member of PERS, the employee must be enrolled in membership with the employer, even if a seasonal worker. In addition, if full-time employment has a fixed term of more than six months, or more than one-year for a part-time employment (an average of at least 20 hours per week), the employee is entitled to membership.  If seasonal employment in fact exceeds six months of full-time service or one year of part-time service (at least an average of 20 hours per week), the employee must be enrolled in membership with CalPERS.  The most often cited membership thresholds for “seasonal” employees is 125 days of service (if paid on a “per diem” basis) or 1,000 hours of services (if paid on a basis other than “per diem”) in a fiscal year.   If  paid service equals or exceeds 125 days or 1,000 hours in a fiscal year, the employee will be entitled to membership. As summer comes to a close, and seasonal employees may still be “on the books,” PERS employers should review the actual number of hours and days the employee has worked in the current fiscal year, to determine whether the employee may now, or soon, be entitled to PERS membership.

For those of you ramping up on employees in the fall/winter season, begin planning ahead today.  Fix contract terms for seasonal workers, ensure they do not exceed work hour / day limits established by the PERL or ACA.  At the same time, ensure that your seasonal workers accrue paid sick leave, if they work for your agency for at least 30 days. And fear not; cooler days are ahead!

Court of Appeal Rules Custodial Deputies are Exempt from CCW Permit Requirement

Posted in Public Safety Issues

SheriffIn Stanislaus County Deputy Sheriffs’ Association v. County of Stanislaus, decided August 11, 2016, the California Court of Appeal, Fifth Appellate District, held that custodial deputies may lawfully carry concealed firearms while off duty without obtaining a CCW permit, and invalidated the Stanislaus County Sheriff’s policy of requiring all such custodial deputies to obtain a permit to carry in their off-duty hours.  In reaching this conclusion, the Court of Appeal disagreed with a 2002 California Attorney General opinion on which the County had relied.  Agencies may still limit peace officers’ ability to concealed carry off-duty on an individualized basis.

Stanislaus County Sheriff’s Department had a policy that sworn custodial deputies may carry a concealed firearm while off duty only if that deputy has first obtained a license or a permit to carry a concealed weapon.  The union representing those deputies, the Stanislaus County Deputy Sheriff’s Association, alleged that this policy violates Penal Code section 25450, which exempts peace officers from the general prohibition against carrying a concealed weapon.

The union filed a petition for writ of mandate in the Superior Court and argued that because Section 25450 categorically exempts all peace officers listed in Penal Code section 830.1 from the permit requirement, the County could not require sworn custodial deputies to obtain a permit to carry off-duty.  The County, in opposition, relied on language in Section 830.1 limiting the scope of the custodial deputies’ peace officer authority.  The statute states:

“Any deputy sheriff of [the County of Stanislaus] who is employed to perform duties exclusively or initially relating to custodial assignments with responsibilities for maintaining the operations of county custodial facilities, including the custody, care, supervision, security, movement, and transportation of inmates, is a peace officer whose authority extends to any place in the state only while engaged in the performance of the duties of his or her employment and for the purpose of carrying out the primary function of employment relating to his or her custodial assignments, or when performing other law enforcement duties directed by his or her employing agency during a local state of emergency.” The Superior Court agreed with the County that this language bestowed peace officer status on Custodial Deputies only while on-duty, and therefore did not entitle them to carry concealed firearms without a permit while off-duty.

The union appealed, and the Court of Appeal reversed the decision of the Superior Court.  In reaching this decision, the Court of Appeal held that the language in Section 830.1 relied on by the County and the Superior Court limited the scope of Correctional Deputies’ peace officer authorities but does not limit their peace officer status; they are peace officers at all times, even at times they do not have the authority to act as peace officers.  The Court of Appeal chose not to follow a 2002 opinion of the California Attorney General on which the County had relied, which had expressly interpreted Section 830.1 to mean that custodial deputies described in that section do not have peace officer status or authority when they are away from the county detention facilities at which they perform their peace officer duties.  The Court noted that Attorney General opinions are not binding on the courts, and disagreed with the Attorney General’s analysis that the statute only confers peace officer status on custodial deputies while performing those duties.

Further, the Court of Appeal noted that other sections of the Penal Code (sections 830.3, 830.5, 830.6, 830.33, 830.35, 830.36) place limitations on off-duty carrying of firearms by other categories of peace officers, but Section 830.1 does not.  The Court of Appeal additionally cited a previous Court of Appeal decision, Orange County Employees, Assoc., Inc. v. County of Orange (1993), that stated that even where Legislature specifically limited a type of peace officer’s ability to carry a concealed weapon on-duty, that type of peace officer is still exempt from the requirement to obtain a permit to carry a concealed weapon off-duty unless the statute expressly says otherwise.

However, the Court of Appeal’s decision does not entirely eliminate an agency’s ability to limit the off-duty carrying of concealed weapons by custodial deputies or similarly-limited peace officers.  In a footnote, the decision reads, “Of course, our discussion assumes that the custodial deputies are in good standing with the Stanislaus County Sheriff’s Department and have complied with all legal requirements of peace officers (see [Penal Code] sections 830, 832).”  This language does not define what it means to be in “good standing” but it appears to allow for restriction on off-duty concealed carrying on an officer-by-officer basis based on the department’s assessment of the deputy’s “standing.”  Further, the footnote expressly states, as held in Gordon v. Horsley (2001), that a sheriff or police department may impose restrictions on a particular officer’s privilege to carry a concealed weapon off duty when necessary for public safety.

Ninth Circuit Denies En Banc Review Of Flores v. City Of San Gabriel – A Landmark Case On FLSA Regular Rate And Health Benefits Plans Remains The Law: Are You Really Ready Now?

Posted in Wage and Hour

hourglass-small.jpg

This post was authored by David Urban and Christina Rentz

On August 23, 2016, the U.S. Court of Appeals for the Ninth Circuit issued an order declining to reconsider en banc its decision in Flores v. City of San Gabriel. That case, decided in June of 2016, has had far-ranging and significant impacts on the way public agencies compensate employees and provide benefits.  The opinion in Flores was issued by a three-judge panel of the Ninth Circuit.  If the judges of the Court had voted for what is known as en banc review, then an eleven-judge panel would have reconsidered all or part of the decision, and could very well have reached a different result.

As described below, the Flores decision breaks significant new ground under the Fair Labor Standards Act (“FLSA”) for employers who use health plans that can pay employees cash in lieu of benefits.

The primary issue in Flores is whether the FLSA required the City of San Gabriel to include cash payments made in lieu of health benefits into its regular rate calculations for overtime pay purposes under the FLSA.  Four years after the lawsuit was filed, the Ninth Circuit held that such payments had to be included in the regular rate.

The following is a condensed discussion of the Flores decision that appeared in our firm’s special bulletin when the case was first decided in June 2016.

Legal Background

Under the FLSA, overtime hours must be compensated at a rate that is at least one-and-a-half times the employee’s hourly “regular rate.”  (29 U.S.C. sec. 207(a)(1).)  The FLSA “regular rate” is the hourly rate equivalent to what the employee was actually paid per hour for the normal, non-overtime workweek for which he or she is employed.  (29 C.F.R. sec. 778.108, citing Walling v. Youngerman-Reynolds Hardwood (1945) 325 U.S. 419.)  Generally speaking, all forms of remuneration or compensation for employment paid to an employee are included in the regular rate except for certain specifically excluded payments.  (29  U.S.C. sec. 207(e).)

The Flores Facts

The City of San Gabriel provided a “Flexible Benefits Plan” to employees under which a designated monetary amount was furnished to each employee for the purchase of medical, vision, and dental benefits.  Although employees were required to use the Plan’s funds to purchase vision and dental benefits, they could decline the purchase of medical benefits upon proof of alternate medical coverage.  An employee who elected to forgo medical benefits received the unused portion of the designated monetary amount as a cash payment added as a separate line item in the employee’s regular paycheck.  This cash payment is called “cash in lieu.”  Of the total amount the City paid on behalf of its employees pursuant to its Flexible Benefits Plan, between 42% and 47% of that amount was paid directly to employees as cash in lieu benefits each year.  Between 2009 and 2012, the monthly payment paid to employees who declined medical coverage was between approximately $1,000 and $1,300 per month.

The Ninth Circuit’s Holding On Inclusion of Cash In Lieu Benefits in the Regular Rate

The primary issue on appeal was whether the City’s cash in lieu payments were properly excluded from the City employees’ regular rate.

In its June 2, 2016 opinion, the Ninth Circuit rendered two far-reaching holdings.

First, the Court held that cash payments made to employees in lieu of health benefits must be included in the hourly “regular rate” used to compensate employees for overtime hours worked.  The City argued that the cash in lieu payments were not payments made as compensation for hours of employment and were not tied to the amount of work performed for the employer, and therefore were excludable from the regular rate of pay as are payments for leave used and expenses.  The Ninth Circuit disagreed, finding the payments were “compensation for work” even if the payments were not specifically tied to time worked for the employer.  The Ninth Circuit also determined that the cash in lieu payments could not be excluded from the regular rate as payments made irrevocably to a third party pursuant to a bona fide benefit plan for health insurance, retirement, or similar benefits pursuant to section 207(e)(4) of the FLSA since those payments were paid out directly to employees.  Thus, those payments must be added into the employee’s regular rate of pay for the time period that they cover for purposes of determining the employee’s FLSA overtime rate.

Second, the Court held that even payments on behalf of employees pursuant to the plan that were not paid out as cash had to be included in the regular rate.  The federal Department of Labor (“DOL”) interpretations state that a benefits plan can only pay out an “incidental” part of its benefits as cash to be considered a bona fide benefits plan.  (29 C.F.R. sec. 778.215.)  In 2003, the DOL issued an opinion letter that defined cash in lieu benefits as “incidental” if they amount to no more than 20% of the employer’s total contribution to the benefit plan.  The Ninth Circuit rejected the DOL’s 20% rule as unpersuasive, but nevertheless held that the City’s cash in lieu payments to employees were not incidental as they amounted to too great of a percentage of the City’s total benefits contribution (42-47%).  Since the cash in lieu payments were not “incidental,” the plan does not qualify as a bona fide plan under section 778.215.  Thus, the City must also include all amounts that it paid into the flexible benefits plan for employees in their regular rate of pay, not just the cash in lieu payments.  The Ninth Circuit acknowledged that this decision could force employers to discontinue cash in lieu plans, but stated that that is a policy decision for Congress or the DOL – not the courts – to address.

Other Holdings of the Decision

  • The Ninth Circuit affirmed that a City may establish a 207(k) work period for its public safety employees without specifically referencing the term “207(k),” as long as the work period is otherwise established and regularly recurs.
  • The fact that the City’s payroll department consulted the human resources department to categorize the cash in lieu payments as a “benefit” instead of compensation was insufficient to establish the City’s good faith defense to liquidated damages.
  • The officers proved the City’s exclusion of the cash in lieu payments was “willful” under the FLSA, entitling the officers to three years of back overtime pay (rather than the standard two-year period) because the City supposedly did not take affirmative steps to determine whether the payments should be included in the regular rate of pay.  In an unusual concurring opinion, a majority of the panel noted that the willfulness standard adopted by the Ninth Circuit in  Alvarez v. IBP, Inc. in 2003 is “off track” with the standard for willfulness previously established by the U.S. Supreme Court.  The majority explained that it felt compelled to find willfulness based solely on the precedent set by the Alvarez decision.

Review in the U.S. Supreme Court

The next part of the appellate process is for the City to file a petition for a writ of certiorari in the U.S. Supreme Court, asking the Court to take up the Flores decision and reach a different result, in particular one that allows employers to have benefits plans that pay some amounts as cash-in-lieu of benefits but that does not present employers with a considerable threat of liability.  U.S. Supreme Court review could resolve the issues raised by Flores in a way that allows cash-in-lieu plans to exist and confer their desired benefits without doubt as to their FLSA consequences.

The U.S. Supreme Court decides to hear very few cases.  Flores is currently the law for employers in California (and other states like Arizona, Oregon, Washington, and Nevada that are in the Ninth Circuit).  It is important to know whether and how it applies to your agency.

Next Steps

If your agency provides cash payments to employees who opt-out of a health insurance plan, your agency should carefully evaluate the impact of Flores on payroll practices and FLSA liability.  The Flores decision could require either the cash in lieu amount or all plan benefits to be included in employees’ regular rate of pay for FLSA overtime purposes.  Many agencies provide contractual overtime in excess of FLSA minimum overtime requirements, such as overtime for working beyond scheduled hours in a workday (as opposed to overtime for working more than 40 hours in a week).  It is important to remember that the requirement to include cash in lieu or benefit plan amounts in the regular rate of pay only applies to FLSA overtime hours, not contractual overtime hours.  Finally, the Flores holdings on good faith and willfulness reiterate the importance of conducting and documenting regular reviews of all aspects of FLSA compliance for your agency.

Employers who offer cash-in-lieu may also face potential penalties under the Patient Protection and Affordable Care Act.  For more information on this topic, see our article here.

Employers should consult with wage and hour legal counsel before undertaking any remedial efforts based on the Flores ruling.

Courts Continue to Chip Away at Vested Rights

Posted in Retirement

Retirement-Sign.jpgThis post was authored by Erin Kunze

In the past few years, the courts have made it more difficult to establish a vested right to retiree medical benefits. We now have a decision that greatly reduces employee / retiree defenses that a change in benefits is unconstitutional.  The First District Court of Appeal last week upheld the Marin County Employees’ Retirement Association’s (“MCERA”) decision to prospectively limit the forms of pay and benefits included in the definition of “compensation earnable” and “pensionable compensation” – used to determine an employee’s final compensation for the purpose of determining pension benefits, finding that the change did not substantially impair current employees’ vested rights to a “reasonable” and “substantial” pension. Under this decision, the change was, thus, constitutional under state and federal law.

The Marin County Employees’ Retirement Association’s is subject to the County Employees Retirement Law of 1937 (“’37 Act”).  Following passage of the State’s Pension Reform Act of 2013, MCERA adopted a policy changing the definition of “compensation earnable” and “pensionable compensation,” used to determine an employee’s final compensation for the purpose of determining the employee’s retirement benefit.  Through the policy, MCERA specified new items of pay and benefits that would be excluded from the definition of compensation earnable and pensionable compensation.  Shortly after this change, employees and recognized employee organizations brought suit alleging, among other things, that the value and associated costs of these now excluded payments had been factors in determining the wage and benefits packages offered to MCERA members through collective bargaining.  In short, employees and their unions argued that the Pension Reform Act, and resultant change to MCERA’s compensation earnable and pensionable compensation definition, impaired members’ vested contract rights, in violation of state and federal constitution contract clauses.

The Court rejected the employees’ argument. While affirming that public employees have a “vested right” to a pension, the Court explained that the right is not an immutable entitlement to the “most optimal formula of calculating the pension.”  In reaching this conclusion, the Court relied on prior case law, reiterating that pension rights are a “limited” vested right, and that, until retirement, an employee’s entitlement to a pension is subject to change.  The Court explained that a governing body may make reasonable modifications and changes to a pension before the pension becomes payable. Until that time the employee does not have a right to any fixed or definite benefits but only to a “substantial or reasonable pension.” (Note: The Court’s decision pertained only to current employees and only prospectively. The Court did not address the power of either the state or local employers to decrease the pensions of retired employees.)

To determine whether changes to pension rights are reasonable, courts must look to the facts of “each case,” to assess what constitutes a permissible change.  To meet a “reasonableness” test, alterations of employees’ pension rights must bear some material relation to the theory of a pension system and its successful operation.  In addition, changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantage.  As employees in this matter noted, a 1955 Supreme Court decision (Allen v. City of Long Beach (1955)) indicated that comparable new advantages “must” be provided when changes in a pension plan resulted in a disadvantage to employees. Accordingly, the Court in this matter examined the language of the 1955 Allen decision, and subsequent cases, to determine whether “should” or “must” is the preferred expression. The Court largely relied on an 1983 Supreme Court decision, Allen v. v. Board of Administration, 34 Cal.3d 114, in reaching its conclusion that changes in a pension plan which result in a disadvantage to employees “should,” but are not required to be, accompanied by comparable new advantages.  Regarding the facts specific to MCERA, the Court explained that a reduction in what is considered compensation earnable would invariably result in an increase to the employee’s net monthly compensation (i.e. take home pay) because it would result in lower contributions to MCERA, thus employees were not immediately disadvantaged by the changed plan. Ultimately, the Court found that the Pension Reform Act, and MCERA’s change to the compensational earnable and pensionable compensation definition thereunder, was reasonable, and thus did not violate state or federal constitution.

The First District Court of Appeal is available online: http://www.courts.ca.gov/opinions/documents/A139610.PDF

2016 is the Year of the FLSA Audit!

Posted in Wage and Hour

This blog post was authored by Jennifer Palagi.hourglass-small.jpg

A number of developments this year – the recent decision in Flores v. City of San Gabriel on the intersection of wage and hour law and employer health plans, the new changes coming December 1, 2016 to overtime exemption rules under the Fair Labor Standards Act (“FLSA”), and the U.S. Department of Labor’s (“DOL”) increased scrutiny of employers’ FLSA practices – together provide a resounding “wake-up call” to employers.  This is the year to assure FLSA compliance.  Indeed, litigation based on alleged violations of the FLSA and state wage laws continues to grow exponentially, with federal wage and hour filings up 450% since 2000 and hitting an all-time high in 2015.  A multitude of legislative, regulatory, and litigation developments highlight the need for agencies to audit their policies and practices for FLSA compliance.

An FLSA audit is an opportunity to examine an agency’s policies and practices to identify any possible FLSA violations.  FLSA audits may examine every applicable wage and hour issue, or may look at one or two pressing concerns.  Audits typically involve reviewing various documents, such as payroll records, memoranda of understanding, and agency rules, as well as interviewing agency employees who are familiar with certain practices.

Payroll Audits

Under the FLSA, all compensation that is “remuneration for employment” must be included in the regular rate unless it falls within one of several narrowly construed statutory exceptions.  The regular rate is not to be confused with the base hourly rate or salary and must include all requisite special pays in the overtime calculation.  Recently, in Flores v. City of San Gabriel the Ninth Circuit held that cash payments to police officers made in lieu of health benefits must be included in the regular rate for overtime purposes under the FLSA (and that under some circumstances, health plan payments made on behalf of employees must also be included).

A payroll audit can assess whether an agency includes all special pays required by the FLSA in determining a non-exempt employee’s regular rate of pay and whether the agency is calculating the FLSA regular rate of pay correctly.

Employee Classification Audits

On May 18, 2016, the DOL issued new regulations modifying the weekly salary and annual compensation threshold levels for white collar exemptions to FLSA overtime requirements.  These regulations become effective December 1, 2016.  One of the most significant changes is that the weekly salary threshold level is more than doubled from $455 per week ($23,660 annually) to $913 per week ($47,476 annually).  The upcoming regulations trigger new wage and hour obligations.  Thus, it is critical for agencies to become familiar with these new regulations and evaluate employee classifications.

Misclassifying employees as exempt or non-exempt is a common FLSA error.  Unless exempt, employees must generally be paid at the rate of 1.5 times their “regular rate” of pay for all hours worked  more than 40 in a week.  The most common exemptions, or “white collar” exemptions, apply to executive, administrative, professional, outside sales, and certain computer-related employees.  The burden is on the employer to show that an employee is properly classified as exempt.

There is no time like the present for agencies to use the upcoming December 1 deadline and FLSA changes as a catalyst to conduct a classification audit.  The audit may be based on the upcoming salary level changes for exemptions.  Alternatively, it could also involve a comprehensive review of the duties employees are actually performing and the percentage of time spent performing those duties to determine if employees qualify under one of the exemptions.

Hours Worked Audits

The DOL continues to increase its rate of audits and general scrutiny of employers’ FLSA compliance.  One area of focus is whether non-exempt employees are getting compensated for all “hours worked.”  Under the FLSA, overtime compensation must be paid for all hours worked over a maximum amount in a work period (usually 40 hours in a seven day FLSA work week).  Hours worked under the FLSA is broadly defined to include all hours employees are “suffered or permitted to work” for their employer, including time they are necessarily required to be on duty on the employer’s premises or time worked even if the employer did not request the employee to perform that work.  Thus, the issue is often ripe for challenge by employees.

An “hours worked” audit can identify whether an agency’s calculation of hours worked is correct when an employee, for example, travels for work or attends a training.  The audit can also examine whether employees work off-the-clock hours and can identify whether these hours are compensable under the FLSA.

Finally, the FLSA provides employers a defense to liquidated damages (double damages) if the employer can show that in good faith it tried to follow the FLSA and was reasonable in believing that it was in fact in compliance.  Thus, agencies should regularly audit FLSA compliance to help support a good faith defense.     

2016 is the year for agencies to take a close look at their policies and practices and ensure they are in strict compliance with the FLSA.   An essential preventive tool for agencies is an FLSA audit.  It is only through a comprehensive analysis into an agencies’ compensation, classification and time-keeping practices, and an examination of whether those particular practices comply with FLSA requirements that an agency can properly navigate the FLSA and its regulations and reduce the risk of FLSA lawsuits.

A Closer Look At The Restrictions On Hiring Retirees (And Also The Exceptions!)

Posted in Retirement

Retirement-Sign.jpgThis blog post was authored by Danny Y. Yoo.

CalPERS issued a Circular Letter on July 12, 2016, which provided information on its compliance review process and its most common findings, including employing retired annuitants.  In our practice, we have also observed some confusion surrounding the specifics on how to hire a retired annuitant.  Let’s take a look at the restrictions on hiring retired annuitants, and more importantly, the exceptions to those restrictions.

First of all, the general rule is that an agency cannot hire a retired annuitant to work for your agency without reinstating that individual back into CalPERS.

This may sound incorrect because you know of agencies (maybe even yours!) that have hired retired annuitants.  The California Public Employees’ Retirement Law and Public Employees’ Pension Reform Act of 2013 do outline exceptions to the general rule.  It is through these exceptions that agencies have been able to hire retired annuitants.  The two common exceptions are found in Government Code sections 21221(h) and 21224.  However, when an agency is utilizing either one of these exceptions, it must be aware of the strict and complicated requirements associated with these exceptions.

REQUIREMENTS COMMON TO SECTION 21221(H) AND 21224 APPOINTMENTS

Whether your agency appoints a retired annuitant to a vacant position under Section 21221(h) on an interim basis or hires an annuitant for a limited duration pursuant to Section 21224 for extra help, the following restrictions apply to both types of employment:

  1. The retiree may only work a combined total of 960 hours for all contracting agencies.If the retiree is working or has worked for two or more agencies that contract with CalPERS, the total combined hours cannot exceed 960 hours in a fiscal year.  Please be aware if the retiree is working for you and any other CalPERS agency.
  1. The compensation shall not exceed the maximum monthly based salary paid to other employees performing comparable duties as listed on a publicly available pay schedule for the vacant position divided by 173.333.Your agency is limited in how much it can pay a retiree.  The maximum rate is set by the publicly available pay schedule, and your agency cannot pay the retiree more than that rate.
  1. The retiree shall not receive any benefits, incentives, compensation in lieu of benefits, or any other forms of compensation in addition to the hourly rate.Your agency must only pay the retiree the hourly rate, as discussed above.  As a retiree, he or she cannot receive any benefits, such as health insurance, vacation days, or personal use of a company vehicle.
  1. The appointment must not be any sooner than 180 days after the retiree’s retirement date, unless there is an exception.There are exceptions to the 180-day wait period, and the two exceptions used most by our clients are the firefighter or public safety officer exception and the critically needed position exception, applicable to non-sworn employees.  If your agency is using the “critically needed position” exception, the governing body must certify the nature of the position and the necessity to fill a critical need.  This certification and resolution should be received by CalPERS before the retiree’s hire date.  Please note that certification for a “critically needed position” is different from the certification that the appointment requires “specialized skills.”

    Also, note that these exceptions to the 180-day wait period are not available to retirees who accept an incentive to retire.

  1. If the retiree is under normal retirement age, there must be a bona fide separation in service.A bona fide separation requires: (1) no pre-determined agreement between the employer and the member to work after retirement; and (2) there is a 60-day separation from employment.  Please note that there are no exceptions to this 60-day separation.  This means that even if the retiree can meet an exception of the 180-day wait period, if he or she is under normal retirement age, he or she must still serve a 60-day wait period.
  1. The retiree cannot have received any unemployment insurance payments for retired annuitant work for any public employer within 12 months prior to the appointment date.The retiree must certify in writing to your agency that he or she did not receive any unemployment insurance payments within 12 months prior to the appointment for previously retired annuitant work with any CalPERS employer.

REQUIREMENTS FOR SECTION 21221(H) APPOINTMENTS

Appointments under Section 21221(h) are interim appointments into vacant positions.  In general, this exception is used for upper-level positions because the appointment must be made by the agency’s governing board.   The requirements for a Section 21221(h) appointment are as follows:

  1. The appointment must be an interim appointment of limited duration.The appointment must have a start and end date.  It should not be left open-ended or indefinite.  Note that this is different from the 960-hour limit discussed above.
  1. The appointment must occur during recruitment for a permanent appointment.Your agency should be conducting open recruitment during the period of the interim appointment.  If there is no longer an ongoing recruitment for whatever reason, the agency may need to terminate the interim appointment.
  1. The governing body must deem that the appointment requires specialized skills or is necessary during an emergency to prevent stoppage of public business.Under Section 21221(h), even though the authority to make interim appointments may be delegated to an individual, the statute requires that the governing body deem that the appointment requires specialized skills or is during an emergency. For many of your agencies, the governing body is a board or a council.
  1. The appointment can only be made once.The retiree cannot be appointed to the same position twice.  This also means the retiree’s appointment cannot be extended, even if he or she has not worked 960 hours in a fiscal year.

REQUIREMENTS FOR SECTION 21224 APPOINTMENTS

Appointments under Section 21224 are for “extra help,” such as eliminating a backlog, working on a special project, or performing work that is an excess of what permanent employees are able to do.  This exception should not be used to fill a vacant position.  The requirements for a Section 21224 appointment are as follows:

  1. The appointment must of limited duration.Similar to above, the appointment must have a start and end date, and it should not be left open-ended or indefinite.
  2. The appointing power must deem that the appointment requires specialized skills or is during an emergency to prevent stoppage of public business.Under Section 21224, the appointment may be made by anyone with the power to hire persons for employment.

As you can see, these requirements require analysis on the individual retiree and the work that will be performed. If your agency is considering hiring a retired annuitant, seek legal counsel to ensure that your agency is in compliance with the law to avoid potential ramifications.