California Public Agency Labor & Employment Blog

California Public Agency Labor & Employment Blog

Useful information for navigating legal challenges

Reinstated CalPERS School and Local Agency Members May be Able to Recover Service Credit and Compensation Earnable under AB 2028

Posted in Retirement

Retirement-Sign.jpg

This blog post was authored by Liara A. Silva.

On February 16, 2016, Assembly Member Cooper introduced Assembly Bill 2028.  If passed, the bill will allow reinstated CalPERS school and local agency members to receive service credit and compensation earnable as though they were never terminated.

The current version of the bill addresses a gap in existing law.  Existing law allows state employees that have been subject to an involuntary termination that has been subsequently overturned to receive service credit retroactively, but this does not apply to employees of a contracting agency.

AB 2028 addresses this by making the proposed changes to the Public Employees’ Retirement Law which would:

  • Apply to a CalPERS member who is involuntarily terminated on or after January 1, 2017.
  • Apply where an involuntary termination is set aside in any administrative, arbitral or judicial proceeding.
  • Require service credit and credit for compensation earnable be granted to CalPERS members who are employed by any agency, if the member was involuntarily terminated, effective as of the date from which retroactive salary is awarded.

AB 2028 would also require employers to notify CalPERS of a final decision ordering reinstatement within five days of the decision becoming final.  That notice must include the date of involuntary termination, the date on which the employee was reinstated, and any additional information CalPERS may require to implement the bill.

LCW will keep you updated on any developments regarding Assembly Bill 2028.

Righting Wrongs Before It Costs Serious Dough – How Affordable Care Act Audits Can Help Employers Avoid Steep Reporting Penalties

Posted in Healthcare

iStock_000066252725_LargeAt the beginning of each calendar year  all employers who are considered “Applicable Large Employers” (“ALE”) under the Affordable Care Act (“ACA”) Employer Mandate Regulations will be required to file with the Internal Revenue Service (“IRS”) annual information returns concerning the health care coverage offered to full-time employees.  Employers may be assessed penalties for failures to offer minimum essential coverage (“MEC”) to substantially all of their full-time employees or for failures to timely file correct returns.

Although the IRS issued its final ACA regulations (“Final Regulations”) in February 2014, this area of the law is consistently evolving as the IRS continues to issue guidance on the regulations.  In the last year, the IRS has issued Notices 2015-17 and 2015-87, attempting to clarify questions left open by the Final Regulations.  The IRS also issued its final instructions regarding ALE reporting obligations.  Whether you are starting to set up operational guidelines and policies to ensure that you are ACA-compliant or finalizing your reporting processes, there may be some information that is new to you.  Here are a few examples of some nuances you may not have considered:

Offers of Coverage

  • Are you allowing employees to opt out of coverage? Did you know that if you require an employee to enroll in your health plan, the plan must be affordable under the Federal Poverty Line Safe Harbor, otherwise the IRS will not count your “offer” as a valid offer?
  • How are you dealing with COBRA? If you have adopted the Look Back Safe Harbor and an employee has a COBRA qualifying event due to a reduction in hours, if that employee’s status is full-time during a stability period, you should continue to offer coverage until the end of the stability period to avoid potential penalties.
  • Are you offering employees who change employment status coverage at the right time? If you have adopted the Look Back Safe Harbor, did you know that an employee who begins work with your agency as a part-time, seasonal or variable hour employee, but who has a “change in status” during his or her initial measurement period to become a full-time employee need not be offered coverage on the day that he or she becomes full-time?  The regulations provide that when an employee transitions to full-time status, an employer need only offer that employee coverage no later than the first day of the fourth full calendar month of employment.  It is not that simple though.  If the employee changes to full-time status during his or her initial measurement period, and the initial measurement period ends sooner than the end of the employee’s first full three months of full-time status, the employer must offer the employee minimum essential coverage by the first day of the first month following the end of the initial measurement period, or risk penalties.
  • If you have adopted the Look Back Safe Harbor, are you including paid leave when determining Hours of Service? Whether an employee is full-time under the ACA requires an employer to calculate “Hours of Service,” not just hours worked.  Hours of Service include hours paid for the performance of duties, hours an employee is entitled to pay for the performance of duties and hours an employee is paid or entitled to pay for time off, such as vacation, holiday, paid sick leave, jury duty, military duty and disability.  Furthermore, if your agency has adopted a Look Back Safe Harbor, “Special Unpaid Leave” must be considered in averaging calculations.  “Special Unpaid Leave” is defined as leave under the federal Family and Medical Leave Act (FMLA), the federal Uniformed Services Employment and Reemployment Rights Act (USERRA), and unpaid jury duty leave.  For example, if an employee goes out on FMLA leave for a period of eight (8) weeks, the averaging method requires an employer to subtract the eight weeks of special unpaid leave from the measurement period, average the employee’s hours of service over the remaining time period and either (1) credit the average hours of service per week to each of the eight weeks or (2) apply the average over the entire measurement period.  In other words, even if an employee does not hit 1560 hours over a measurement period, that employee may still qualify as full-time because of the averaging method.

Affordability

  • Are you including contributions to an HRA account or flex contributions to a Section 125 cafeteria plan in your affordability calculations? Did you know that even if you pay 100% of your employee’s premium, coverage may still not be considered affordable if you are contributing money into an HRA account or flex contributions into a cafeteria plan?  IRS Notice 2015-87 clarifies that certain employer contributions must be included in calculations when determining whether anALE has made an offer of affordable minimum value coverage.For example, HRA contributions will only count toward the employee’s required contribution if (1) the HRA can be integrated into the employer-sponsored major medical group health plan and (2) the funds the employer makes available under the HRA may be used by the employee to pay his or her share of contributions for major medical coverage or pay the employee’s share of the contributions for major medical, cost-sharing, or other health benefits not covered by the plan in addition to premiums.  Other limitations may also apply.Flex contributions will only make premiums affordable and offset the amount the employee pays toward his or her premium if the contributions qualify as a “health flex contribution.”  A “health flex contribution” is an employer contribution that meets the following requirements:   (1) the employee may not opt to receive the amount as a taxable benefit, (2) the employee may use the amount to pay for minimum essential coverage, and (3) the employee may use the amount exclusively to pay for medical care.  If the flex contribution can be taken as cash or used for expenses other than medical care it is not a “health flex contribution,” and therefore, cannot be used to reduce the employee’s premium contribution when calculating affordability under the Employer Mandate.
  • Do you provide employees with cash in lieu incentives to opt-out of employer-sponsored health care coverage? Did you know that cash in lieu incentives cannot be taken into account when calculating affordability?  In fact, the IRS has indicated that it may treat such incentives as salary reductions if receipt of the cash in lieu is not conditioned upon proof of other group health coverage.  This would make premiums even less  The IRS plans to issue further guidance on these opt-out payments.

Reporting

  • Are you properly reporting your seasonal employees? Did you know you do not have to file form 1095-C for seasonal employees who work three or fewer full months during your agency’s measurement period, even if they were reasonably expected to be full-time on their date of hire? However, for the months in which the full-time seasonal employee was an employee of the agency, he or she would be included in the total employee count and reported on Form 1094-C.    
  • Are you properly accounting for full-time employees who return to work after extended absences? Did you know that if you have an employee return to work after an extended absence – a “break in service” of at least 13 weeks (or 26 weeks for educational institutions) – that employee will be considered a new employee when returning from work?  In such instances, employers must conduct the reasonable expectation analysis upon the employee’s return.  If the employee is reasonably expected to be full-time, it must measure these “new” employees on a monthly basis until that employee has been employed for one full standard measurement period.

It is a great time to ensure that your agency is in full compliance now to avoid possible future penalties later, by auditing current policies and practices.  Audits may include determinations of employee eligibility for offers of coverage; affordability determinations; determinations of compliance with group health plan mandates; reviews of ACA policies, including personnel rules and memoranda of understanding; and reviews of reporting practices.  You may also want to explore how the ACA impacts the terms of your collectively bargained agreements.  Audits may be performed internally or with the assistance of counsel.

For more information on any phase of an ACA audit, please feel free to contact Heather DeBlanc at (310) 981-2028 or hdeblanc@lcwlegal.com.

Tips from the Table: Sidebars in Labor 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.

The Ninth Circuit Holds that Cash Payments Made to Employees in Lieu of Health Benefits Must be Included in the Regular Rate for Overtime Purposes under the FLSA

Posted in FLSA

NewsOn Thursday, June 2, 2016, the Ninth Circuit issued a long-awaited decision in a case called Flores v. City of San Gabriel, which involved a group of police officers who sued their City employer for three years of unpaid overtime and liquidated damages under the Fair Labor Standards Act.  The primary issue on appeal was whether the FLSA required the City to include cash payments made in lieu of health benefits into its regular rate calculation for overtime pay purposes.  Four years after the lawsuit was filed, the Ninth Circuit has now held that such payments must be included in the regular rate for overtime purposes under the FLSA.

Although highly-technical and an issue of first impression for the Ninth Circuit, the Flores decision may have far-ranging and significant impacts on the way your agency compensates employees and provides benefits.

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 s/he 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 that 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 referred to as “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 Issue Raised by the Officers

Since enacting the Flexible Benefits Plan many years ago, the City treated the cash in lieu payments as benefits, not compensation, and thus excluded the payments from employees’ regular rate of pay for overtime purposes.  This meant the cash in lieu payments were not incorporated into the City’s calculation of employees’ FLSA overtime rate.  In 2012, a small group of the City’s police officers brought suit, alleging the cash in lieu payments were compensation for hours worked that must be included in the City’s regular rate calculation for overtime payments.  The officers also alleged the City failed to legally establish a partial overtime exemption for law enforcement (known as the 207(k) work period), and that the City’s failure to include the cash in lieu payments was willful, entitling them to three years of back pay.  The officers also sought liquidated damages (i.e., double damages, the statutorily imposed remedy for an FLSA violation).

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’s regular rate.  In its June 2, 2016 opinion, the Ninth Circuit 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 held 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.

Finally, the 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 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 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 Supreme Court.  However, the judges felt compelled to find willfulness based solely on the Alvarez decision.

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.  This 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 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 .

For specific advice on how Flores and the decision to offer cash-in-lieu of health benefits may impact your agency, please contact one of the attorneys at any of our offices statewide.

Note:

Brian P. Walter and Alex Y. Wong of Liebert Cassidy Whitmore’s Los Angeles Office represented the City of San Gabriel in the appeal before the Ninth Circuit.  If your agency is interested in providing amicus support for the City’s future appeals of this decision, please contact them.

Revisiting Transgender Employment Issues

Posted in Employment

Quite a bit has changed since we last visited this topic generally in 2014.  Approximately eighteen states and over 200 municipalities ban gender identity discrimination.  Indeed, for several years, California’s Fair Employment and Housing Act has prohibited discrimination on the basis of “sex, gender, gender identity, [and] gender expression.”  As to federal law, this year, the Obama Administration issued guidelines explaining that federal law also bans gender identity discrimination.  In response to the recent federal guidelines, several states and school districts filed a lawsuit in May against the United States and its departments of education, justice, and labor, the equal employment opportunity commission, and individual defendants.  According to the plaintiffs, the “[d]efendants have conspired to turn workplaces and educational settings across the country into laboratories for a massive social experiment” and “radical changes” have been “foisted” on the nation.

Presently, some federal courts interpret the federal anti-discrimination laws as protective of transgender employees, and some do not.  The inconsistent treatment of transgender employees in federal courts can lead to confusion regarding the scope of transgender employee rights.  While California state law specifically protects transgender employees, federal law, by contrast, is a morass of various interpretations and decisions.  This stems from the fact that Title VII itself does not specifically state gender identity or expression or transgender individuals are protected from discrimination.

An example of an inconsistent interpretation of “sex” under Title VII is illustrated in two cases from the same federal appellate jurisdiction in the Northeast.  On March 18, 2016, the United States District Court for the District of Connecticut decided Fabian v. Hospital of Central Connecticut.  In that case, the plaintiff, a prospective employee of a hospital, claimed she was not hired after she disclosed her identity as a transgender woman.  The hospital argued that Title VII does not protect transgender individuals from discrimination.  The court disagreed with the hospital and stated that “employment discrimination on the basis of transgender identity is employment discrimination ‘because of sex’ and constitutes a violation of Title VII of the Civil Rights Act.”

Just days before the Fabian decision, however, the United States District Court for the Southern District of New York in Christiansen v. Omnicom Group, Inc., reached the opposite result, finding that although the conduct alleged in the case was “reprehensible,” discrimination based on sexual orientation does not violate Title VII.  The Court evaluated whether the plaintiff’s claim was for sexual stereotyping or sexual orientation, the latter of which it considered not specifically protected under Title VII.  The Court stated it was constrained by applicable precedent in applying this distinction, and went on to criticize why the distinction should make any difference.  The Court observed “the futility of treating sexual orientation discrimination as separate from sex-based considerations.”  Indeed, the distinction can lead to anomalous results: a female employee fired for not deferring to men could state a claim for sex discrimination under Title VII, whereas, a female employee who is fired for dating women could not.  Although the court was critical of the distinction, it nonetheless abided by it and found that the plaintiff in the case before it did not state a Title VII claim.

Since North Carolina enacted legislation requiring persons to use the restroom that corresponds to their sex at birth, the matter of transgender rights has become increasingly politicized and a frequent topic in the media.  With the conflicting interpretations of the law and with employers experiencing uncertainty in how to handle transgender issues, such as use of restrooms, some direction from the federal government is clearly needed.  Luckily, there has been some.  The U.S. Department of Labor’s Occupational Safety and Health Administration offers guidance to employers in its “A Guide to Restroom Access for Transgender Workers,” which is available here.  As always, when in doubt, or when creating new policies, it is prudent to consult with legal counsel.

Independent Contractor = No CalPERS Membership, Right? Not so Fast!

Posted in Retirement

Retirement-Sign.jpg

This blog post was authored by Oliver Yee.

The use of independent contractors in the public sector is becoming more and more common. With rising pension costs coupled with budget cuts, utilizing an independent contractor in lieu of an employee to provide services may be considered a cost-effective approach.  These independent contractors can take the form of a “temp worker” or a specialized professional.  But, just because the agency and the independent contractor (or the contractor’s employment/temp agency) agree pursuant to a contract that the individual serves in an “independent contractor” capacity does not mean that CalPERS will consider the individual a contractor for the purpose of qualification for CalPERS membership.  Rather, CalPERS applies the common law definition of “employee” to determine whether the individual is a contractor or employee, irrespective of the parties’ contractual agreement regarding the nature of the relationship.  The common law test for whether an individual provides services as an employee considers several factors.  But, the single most important factor is whether the employer controls the manner and means of accomplishing the result desired.

Controlling the Manner and Means of the Work – The Neidengard Decision

The precedential decision issued by CalPERS, In the Matter of the Application for CalPERS Membership Credit by Neidengard and Tri-Counties Assoc. for the Developmentally Disabled (Precedential Decision No. 05-01), illustrates a common scenario and cautionary tale for public agencies on the use of independent contractors.  Importantly, the decision provides agencies with guidance on how CalPERS applies the “most important” factor in the common law test for defining an employee – whether the employer controls the manner and means of accomplishing the result desired.  In this case, due to budget cuts, various professional employees of the agency, primarily physicians, were terminated from employment.  However, the physicians were allowed to continue to provide their services on a contractual basis.  Accordingly, they entered into annual professional services agreements that designated their status as “independent contractors.”  These agreements were continuously renewed on an annual basis.  One of the physicians provided services in this capacity for about eight years, and later filed a request for service credit with CalPERS for that eight-year period.  CalPERS applied the factors of the common law test for defining an employee, and determined that the physician served as an “employee” of the agency, not an independent contractor, during that eight-year period.  CalPERS reasoned that the agency exercised “considerable if not complete control” over the individual’s work.  He used the agency’s examination rooms, supplies and equipment to perform his services.  The records for his patients were stored on agency premises.  Agency staff scheduled his clients for services, provided records for his review, and the agency required his participation at important agency meetings regarding the services and needs of the agency.  The agency selected the community forums and training sessions that he participated in.  And, his work was ongoing and continuous, not based on a specific time or project limitation.  In addition, CalPERS specifically noted that the individual’s right to pension benefits through CalPERS could not be waived by private agreement, e.g. the prior agreements between the agency and individual that designated him as an independent contractor.

Tips for Avoiding the Inadvertent “Employee” Designation

In many instances, independent contractors provide valuable and efficient services to a public agency.  Public agencies that utilize independent contractors should regularly review the manner in which the independent contractors provide services to the agency so as to avoid having a contractor later be designated as an “employee” of the agency for the purpose of CalPERS membership. Specifically, public agencies should consider the following guidelines in the review process.

  • Carefully track the length of time that any independent contractor provides services.  The longer the individual provides services, the greater the chance he/she can successfully claim the status of common law employee.
  • Agencies that contract with outside firms for labor should include a provision in the contract which establishes a specific length of service to be provided, and ties that length of service to a specific project/services to be completed.  Agencies should abide by those limits and guidelines.  In order to better avoid CalPERS coverage, the length of the service term should be less than six months.
  • Do not issue the independent contractor agency property, equipment or resources in a permanent manner.  For example, do not issue the individual a specific agency email address, business card, or permanent office space.
  • The independent contractor should not supervise agency employees.  Nor should agency supervisors supervise the independent contractor.  The independent contractor should not issue or be issued performance evaluations, or discipline.
  • The contractor should be paid on a project basis, rather than an hourly basis, except in limited circumstances (e.g., attorney services).

Careful consideration of the practical realities of the independent contractor relationship at the time of entering into an agreement will help to prevent unintended results and inadvertent CalPERS membership.

The Anticipation And Wait Is Over – The New FLSA Salary Basis Test Regulations Are Here!

Posted in FLSA

DOLThis post was authored by Jolina A. Abrena and Gage Dungy

On May 18, 2016, the U.S. Department of Labor (“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.  It is critical for employers to become familiar with these new regulations, among other reasons because misclassification of employees as being exempt from FLSA overtime requirements is a costly mistake.

Overview Of The FLSA Salary Basis Test And Highly Compensated Employee Rules

Certain employees can be exempt from the FLSA’s overtime requirements.  The most common overtime exemptions under the FLSA are the so-called “white collar” overtime exemptions (executive, administrative, professional).   To qualify for an executive, administrative or professional exemption, an employee must receive a minimum salary and be paid on a salary basis (“salary basis test”) and perform the appropriate duties (“duties test”).  The last adjustment to the salary basis test placing it at its current weekly salary of $455/week ($23,660/ annually) was in 2004.  At that time, the FLSA regulations were also amended to add in a new “highly compensated” employees overtime exemption for employees that make at least $100,000 annually,  have a primary duty performing office or non-manual work, and customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

What Are The New Key Provisions?

The newly published FLSA regulations that become effective December 1, 2016, make the following changes:

  1. The weekly salary threshold level is more than doubled from $455 per week ($23,660 annually) to $913 per week ($47,476 annually);
  2. The total compensation needed to exempt highly compensated employees is increased from $100,000 annually to $134,004 annually;
  3. There is now a mechanism that automatically updates these salary and compensation levels every three years, beginning January 1, 2020; and
  4. Employers are now able to use nondiscretionary bonuses and incentive payments made on a quarterly or more frequent basis to satisfy up to 10 percent of the new standard salary level of $913. (U.S. Department of Labor, Wage and Hour Division, Fact Sheet)

However, the new FLSA regulations do not make any changes to the FLSA duties tests, which in general also must be satisfied for an employee to qualify for the FLSA overtime exemptions.

Below is a comparison of the current and new FLSA Salary Basis Test:

2004 FLSA regulation
(can be found 
here)
NEW 2016 FLSA regulation
(effective December 1, 2016)
Minimum Weekly Salary At least $455 per week (or $23,660 annually) At least $913 per week (or $47,476  annually)
Minimum Annual Compensation for Highly Compensated Employees

 

At least $100,000 annually At least $134,004 annually
Automatic updating  mechanism None Salary and compensation levels will be automatically updated every three years, beginning on January 1, 2020.
Inclusion of Nondiscretionary bonuses and incentive payments Permits nondiscretionary bonuses and incentive payments (including commissions) to count toward the total annual compensation requirement for highly compensated employees. Payments of nondiscretionary bonuses and incentive payments that are made on a quarterly or more frequent basis; can go towards 10 percent of the required salary level amount of $913/week; and the employer may make a “catch-up” payment each quarter.

 

Next Steps For Public Employers To Prepare For The New Regulations

Given that the new salary basis test threshold of $913 per week and highly compensated employee threshold of $134,004 annually will go into effect on December 1, 2016, public employers should audit all exempt job positions to determine which job positions are affected by these new salary basis test regulations.  For those exempt job positions that are below or close to being below these new salary levels, employers should evaluate one of the two following options:

  1. Increase the salary for the exempt job position to meet or exceed the new salary levels to maintain the overtime exemption; or
  2. Convert the affected exempt job position to nonexempt status that would qualify for overtime.

If an impacted job position is to remain exempt, the employer should look to increase the salary levels to a level at or higher than the new salary levels that will go into effect on December 1, 2016.  Keep in mind that the effective date for these new salary levels – December 1, 2016 – is a Thursday.  Therefore, to the extent that the relevant 7-day FLSA workweek for an affected exempt employee begins prior to that (e.g., Sunday), the employer should look to implement the increased salary level at the beginning of that workweek.

If an impacted job position will be converted to nonexempt status, the employer should carefully examine the impacts of this decision and look to take the following steps:

  • Provide advance notice to the affected employee about the reclassification;
  • Provide training on timekeeping and overtime policies and procedures to the affected employee and their supervisors to ensure compliance with any new overtime obligations; and
  • Implement any necessary changes to the payroll system regarding the new nonexempt classification and determine what additional compensation received by the employee needs to be incorporated into the FLSA regular rate of pay for overtime calculations.

A new nonexempt employee must accurately report work hours and comply with the agency’s overtime policies and procedures.  This is critical because the FLSA imposes an affirmative obligation on employers to keep accurate time records, and requires prompt payment of wages, including overtime.  Late payment of overtime and improper calculations of overtime pay are also common and costly mistakes for employers.  Without accurate time and payroll records, the employer may face liability for liquidated damages (twice the amount of compensation due) in the event that an FLSA lawsuit is filed alleging overtime claims or liability for back wages.

To the extent that affected exempt job positions involve represented employees, any such actions taken to change wages, hours, and working conditions may also trigger an agency’s obligation to meet and confer with the pertinent employee organization over the decision or effects and impacts of such decision. Employers are urged to consult with their legal counsel or labor relations professionals regarding the impact of any meet and confer obligations.

Even where a public employer does not have any exempt employees affected by these new salary basis test regulations, it may also be prudent to assess whether current exempt positions perform the appropriate duties to satisfy the executive, administrative, or professional exemptions.  For example, an agency can assess whether an “Analyst” position performs work directly related to the operations of the department and actually exercises discretion and independent judgment with respect to matters of significance in order to meet the duties test for the administrative exemption. (29 C.F.R. sec. 541.200(a)(2-3).)  An audit of exempt positions is also beneficial because an employer may be liable for unpaid compensation and liquidated damages going back up to three years for a willful violation of the FLSA in misclassifying an employee as overtime exempt.  (29 U.S.C. sec. 255.)

LCW’s wage and hour attorneys routinely conduct FLSA audits and provide wage and hour advice and counsel to our public agency clients and are available to advise agencies on the impact of these new FLSA salary basis test regulations.  If you have any questions about this issue, please contact our Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.

PERB Reaffirms That a Bargaining Impasse is Not Broken Unless a Party Makes a Significant Concession

Posted in PERB

AnotherGavel.jpgThis post was authored by Adrianna E. Guzman and Joshua A. Goodman

Picture this scenario: an employer and a union engage in negotiations for a successor Memorandum of Understanding (MOU), and after several months, reach tentative agreement on some, but not all of the proposals.  At that point, one of the parties issues a written declaration of impasse, and the duty to bargain is suspended.  The union does not request factfinding, and the employer does not impose its last, best, and final offer, but maintains the status quo.  At one point, the employees represented by the union engage in a lawful strike, but then go back to work, and the parties remain at impasse.

A month later, the union representative contacts the employer and expresses an interest in participating in negotiations.  The employer and the union exchange emails regarding the meeting, and settle on a date for the meeting.  A few days before the agreed-upon meeting, however, the union informs the employer that it needs to reschedule the meeting because the bargaining unit is still at impasse.  Approximately two weeks later, the bargaining unit commences a five-day strike.  The employer files an unfair practice charge claiming that the strike is unlawful because the parties had resumed negotiations.

Did the parties break impasse?  Was the strike unlawful?

A recent Public Employment Relations Board (“PERB” or “Board”) decision answered those very questions.  In County of Trinity (2016) PERB Dec. No. 2480-M, the Board examined what constitutes a change in circumstance that would break impasse.  Relying on its own precedent, the Board reiterated that impasse is broken once either party offers a significant concession from a prior bargaining position.  It clarified, however, that merely contemplating making a concession is not the same thing as actually making a concession and will not break the impasse.

In County of Trinity, the County and the United Public Employees of California, Local 792 (“UPEC”) negotiated for a successor MOU for employees in the County’s General Unit (“GU”), but reached an impasse after several months.  In December 2014, the GU employees engaged in a lawful strike which the County did not challenge.

On January 14, 2015, UPEC’s negotiator informed the County’s negotiator of UPEC’s interest in participating in a meeting regarding negotiations.  Over the next month, the parties exchanged emails to set up a meeting, which was eventually scheduled for February 26, 2015.  Five days before the scheduled meeting, however, UPEC informed the County that the meeting would need to be rescheduled and indicated that “for now the GU is still at impasse for the 2014 negotiations.”  Approximately one week later, UPEC informed the County that it planned to strike, and from March 2, 2015 through March 7, 2015, engaged in a strike.  The County filed an unfair practice charge alleging that UPEC violated the Meyers-Milias-Brown Act by engaging in an unlawful strike.  When PERB’s General Counsel refused to issue a complaint, the County appealed the dismissal of its charge.

The question for the Board was whether UPEC’s conduct in contacting the County to set up a meeting regarding the negotiations and then exchanging emails with the County about setting up such a meeting constituted a break in the impasse.  The Board said it did not.

In reaching its decision, PERB noted that when a union and a public agency are engaged in the negotiation process, both parties have an obligation to bargain in good faith.  Such good faith includes a limitation on unions from striking during the negotiation process.  But if the parties reach impasse, certain employees are permitted to strike because the duty to bargain in good faith is suspended during that time.  Impasse can, however, be broken if either party offers to make a significant concession that suggests agreement may be possible—not guaranteed, just possible.  But mere speculation about a concession is insufficient to revive the bargaining process.  As the Board explained, “[a] handful of non-substantive emails exploring the parties’ interest in and availability for a meeting does not rise to the level of changed circumstances sufficient to revive the bargaining obligation.”  The Board found that the County provided no evidence that either party’s bargaining position had changed from what it was at the time impasse was declared.  The Board also distinguished a willingness to consider a concession from an actual offer to make a concession, and determined that a willingness to consider is not, in and of itself, a concession.  The Board further noted that the ‘totality of circumstances’ test, used to determine whether a party is negotiating in good faith, does not apply when parties are at impasse.

So how do you know if impasse has been broken?  Here are three tips to help you make that determination.

  1. Did either the agency or the union withdraw its impasse declaration? If so, impasse has been broken.
  2. Did either the agency or the union offer a concession from its prior bargaining position? If not, impasse has not been broken.
  3. If either the agency or the union offered a concession from its prior bargaining position, was that concession significant enough to indicate that agreement may be possible? If so, impasse has been broken and the parties must return to the table.

While County of Trinity did not change the determination as to what is required to break impasse, its holding is still instructive because it identifies what does not break impasse and what options an agency has when faced with an ongoing impasse.

U.S. Departments of Justice and Education Issue Significant Guidance Regarding Transgender Students in Schools

Posted in Constitutional Rights

Breaking News

This blog post was authored by Kim A. Overdyck.

On May 13, 2016, the U.S. Department of Justice  (DOJ) and Department of Education (DOE) issued a “Dear Colleague Letter” and accompanying Examples of Policies and Emerging Practices for Supporting Transgender Students in response to the high volume of questions received regarding civil rights protections for transgender students. The letter does not add any requirements to current law, but it provides significant guidance on these issues. The guidance is summarized below:

“Dear Colleague Letter”

Title IX of the Education Amendments of 1972 (Title IX), and its implementing regulations, prohibits sex discrimination in educational programs and activities operated by recipients of federal financial assistance. The letter summarizes a school’s Title IX obligations regarding transgender students and explains how the DOE and DOJ will evaluate a school’s compliance with these obligations.  The term “school” refers to recipients of federal financial assistance at all educational levels, including school districts, colleges, and universities.  It excludes those schools controlled by a religious organization, to the extent that compliance would not be consistent with the organization’s religious tenets.

The Title IX prohibition against sex discrimination includes discrimination based on a student’s gender identity, including transgender status.  To clarify what gender identity and transgender status mean, the letter provided the following terminology:

  • Gender identity” refers to an individual’s internal sense of gender. A person’s gender identity may be different from or the same as the person’s sex assigned at birth;
  • Sex assigned at birth refers to the sex designation recorded on an infant’s birth certificate should such a record be provided at birth;
  • Transgender describes those individuals whose gender identity is different from the sex they were assigned at birth. A transgender male is someone who identifies as male but was assigned the sex of female at birth; a transgender female is someone who identifies as female but was assigned the sex of male at birth; and
  • Gender transition refers to the process in which transgender individuals begin asserting the sex that corresponds to their gender identity instead of the sex they were assigned at birth.  During gender transition, individuals begin to live and identify as the sex consistent with their gender identity and may dress differently, adopt a new name, and use pronouns consistent with their gender identity.  Transgender individuals may undergo gender transition at any stage of their lives, and gender transition can happen swiftly or over a long duration of time.”

The DOE treats a student’s gender identity as the student’s sex for the purpose of Title IX.  This means a school cannot treat a transgender student differently from other students of the same gender identity.  According to the letter, this interpretation is consistent with courts’ and other agencies’ interpretation of federal laws prohibiting sex discrimination.

Title IX requires that when a student, or the student’s parent or guardian, notifies the school administration that the student is asserting a gender identity different from what is on the school records, the school will begin treating the student consistent with the student’s gender identity.  Because transgender students are often unable to obtain identity documents reflecting their gender identity, requiring students to produce these documents, in order to treat them consistently with their gender identity, may violate Title IX when it has the effect of limiting or denying students equal access to educational programs or activities.  The obligation to ensure nondiscrimination applies even in circumstances where other students, parents, or community members raise objections or concerns.  The letter is clear that the desire to accommodate others’ discomfort does not justify a policy that singles out and disadvantages a particular class of students.

In discussing Title IX compliance, the letter focuses on four areas summarized below

1. Safe and Nondiscriminatory Environment

Schools have a responsibility to provide a safe and nondiscriminatory environment for all students, including transgender students.  Harassment based on gender identity, transgender status, or gender transition is harassment based on sex.  If this sex-based harassment creates a hostile environment, the school must take “prompt and effective steps to end the harassment, prevent its recurrence, and as appropriate, remedy its effects.”

2. Identification Documents, Names, and Pronouns

Title IX requires a school to treat students consistent with their gender identity, even if there is a discrepancy between their educational records and identity documents regarding their sex.  School staff and contractors are to use pronouns and names consistent with a transgender student’s gender identity.

3. Sex-segregated Activities and Facilities

Restrooms and lockers; athletics; single-sex classes; single-sex schools; social fraternities and sororities; housing and overnight accommodations; and other sex-specific activities and rules are discussed.  Under certain circumstances, Title IX’s implementing regulations allow schools to provide sex-segregated restrooms, locker rooms, shower facilities, housing, and athletic teams, as well as single-sex classrooms.  However, the school must allow transgender students to participate in activities and have access to facilities consistent with the gender, with limited exceptions.

4. Privacy and Education Records

Nonconsensual disclosure of personally identifiable information, such as the student’s birth name or sex assigned at birth, may harm and invade the privacy of transgender students and violate the Family Educational Rights and Privacy Act (FERPA).  However, the “legitimate educational interest” exception still applies.  As far as directory information is concerned, a school may not designate a student’s sex, including transgender status, as directory information.  Doing so could be harmful or an invasion of privacy.  A school may receive a request to update a student’s education records to make them consistent with their gender identity.  Under FERPA, a school must consider the request of an eligible student or parent to amend an education record that is inaccurate, misleading, or in violation of the student’s privacy rights.  Under Title IX, a school must respond to a request to amend information relating to a student’s transgender status consistent with its general practices for amending other students’ records.

Examples of Policies and Emerging Practices for Supporting Transgender Students

The accompanying Examples of Policies and Emerging Practices for Supporting Transgender Students provides practical examples to meet Title IX requirements and includes policies and procedures schools across the country are implementing to support transgender students.  The common questions addressed in the document are student transitions; privacy, confidentiality and student records; activities and facilities; and terminology.  California examples include Los Angeles Unified School District issuing policies on confirming a student’s gender identity and ensuring transgender students have an opportunity to participate in athletics consistent with their gender.  Another is El Rancho Unified School District issuing policies that provide students with the right to openly discuss and express their gender identity and guidelines for addressing issues related to gender and gender-non-conforming students.

California Law

It is important to note that California has had similar protections for a number of years.  The Education Code prohibits public schools in California from discriminating on the basis of specific characteristics, including gender, gender identity, and gender expression.  A student can participate in sex-segregated school programs and activities, including athletic teams and competition, and use facilities consistent with their gender identity, irrespective of the gender listed on the educational records.

How we can help

If your educational institution needs assistance, please contact one of our five offices state-wide. We can:

  • Provide training
  • Create and update your policies and procedures
  • Investigate Title IX violations
  • Assist in responding to Title IX complaints
  • Provide advice and counsel on how to best ensure compliance.

Note:
If you have questions about this issue, please contact our Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.

To receive these Special Bulletins on the day they are released, please send your email address to info@lcwlegal.com.

This article was also published on the firm’s California Public Agency Labor and Employment Blog.  To view other blog posts, please visit www.calpublicagencylaboremploymentblog.com.

Does SB 178 Restrict a Public Employer’s Ability to Search an Employee’s Electronic Devices and Emails?

Posted in Privacy

Capitol

This post was authored by Gage C. Dungy and James Van

Overview

On January 1, 2016, Senate Bill 178 (“SB 178”) – the California Electronic Communications Privacy Act – became law and is codified under Penal Code section 1546, et. seq.  This new law generally limits a government entity from being able to search or access information on an electronic device (e.g., smartphone, computer) or electronic information on a network (e.g., email) without a search warrant or court order.

SB 178 provides that a government entity shall not do any of the following:

(1)  Compel the production of or access to electronic communication information from a service provider.

(2)  Compel the production of or access to electronic device information from any person or entity other than the authorized possessor of the device.

(3)  Access electronic device information by means of physical interaction or electronic communication with the electronic device.

(Pen. Code, §§ 1546.1(a)(1)-(3).)

The legislative intent of SB 178 appears to be aimed at law enforcement agencies conducting criminal investigations. The use of the terms “law enforcement” and “police” generally throughout the bill’s analysis supports this conclusion.  For instance, the stated purpose of the bill is “intended to both codify and expand on existing case law to generally require law enforcement entities to obtain a search warrant before accessing data on an electronic device or from an online service provider.”].”  (Assembly Privacy and Consumer Protection)

Impact on Public Agency Employers

While this new law was generally intended to address privacy concerns around law enforcement searches of electronic devices and communications, if it is determined by courts to broadly apply to government entities it may negatively affect the ability to conduct such searches of an employee’s electronic devices or communications.

SB 178 generally protects an “authorized possessor” of electronic devices, defined as “the possessor of an electronic device when that person is the owner of the device or has been authorized to possess the device by the owner of the device.” (Pen. Code, § 1546(b).)  (emphasis added).  A government entity may only access electronic information “with the specific consent of the authorized possessor of the device.”  (Pen. Code, §§ 1546.1(c)(3).) (emphasis added).

  1. Searches of Government Employer Owned Devices and Electronic Information

We do not believe that this section of SB 178 would be interpreted to allow a public employee who has been provided an electronic device owned by the government entity to exert the rights of an “authorized possessor” under this law and decline a search by the government entity that actually owns the electronic device.  Nonetheless, this ambiguity in the law does highlight the importance for public agencies to clarify in their electronic use policies that an employee’s use of an electronic device owned by the government agency is subject to search and the obligation to surrender the electronic device at any time by the public agency.

In addition, SB 178 does not say that a government entity is prohibited from searching for electronic information on its own network or email system. Rather, the statute provides that a search to “compel the production of or access to electronic communication information from a service provider” can only occur with a warrant or court order. Therefore, SB 178 does not appear to apply to searches of an internal network or email system maintained by the government entity itself.  Interpreting the statute’s restrictions otherwise would mean that a government entity that maintains its own network and email system needs a warrant or court order to search its own network and email system.  We do not believe that is reasonable, nor what the Legislature intended through the passage of SB 178.

  1. Searches of Employee’s Personally Owned Devices or other Electronic Information Not Maintained by the Government Employer

Importantly, the statutory language in SB 178 does appear to limit a government entity from searching an employee’s personal electronic device and personal electronic information maintained by a service provider (e.g., personal email account such as Gmail or Yahoo).  This is because when it comes to such electronic devices, the government entity is not the owner or the “authorized possessor” of the device.  In the case of an employee’s personally owned cell phone, the employee is the owner and/or “authorized possessor” of the cell phone and would either have to give permission to a government entity to search the device or the government entity would have to get a search warrant/court order to conduct such a search of the device.

The same result would also most likely apply for searches of other electronic information provided by an outside service provider.  To the extent that a government entity does not directly control an employee’s electronic information that is being sought, the government entity would need to get permission from the employee to search it or otherwise get a warrant or court order to compel a third party service provider to disclose such information.

Conclusion

While the impact of SB 178 on government entities in the employment context is not yet entirely clear, here are a few best practices public employers can take:

  • Review and revise electronic communications policies to limit an employee’s expectations of privacy in the use of government-owned electronic devices and the use of work email maintained by the governmental entity;
  • Reinforce that a public employee’s authorization to use a government-owned electronic device is at the sole discretion of the government entity and can be modified or revoked at any time, that such electronic devices are subject to search, and an employee is obligated to surrender the electronic device back to the government entity at any time; and
  • Seek legal counsel before compelling a public employee to allow a search of their personally owned electronic devices or of personal electronic information that is maintained by an outside service provider and not directly controlled by the government entity.