California Public Agency Labor & Employment Blog

California Public Agency Labor & Employment Blog

Useful information for navigating legal challenges

Court Affirms that PEPRA Does Not Limit County’s Right to Repeal COLA Pickup

Posted in Retirement

Beach background with towel and flip flops and the word Retirement written in sand (studio shot - directional light and warm color are intentional).

On December 20, 2016, the California Court of Appeal for the Third Appellate District reaffirmed the purpose and spirit of the Public Employees’ Pension Reform Act (“PEPRA”) as a law designed to “limit,” rather than “shield,” public employees’ retirement compensation.  In the recent case, San Joaquin County Correctional Officers Association v. County of San Joaquin, the San Joaquin County Correctional Officers Association (CCOA) argued that PEPRA shielded its members, by prohibiting the County from eliminating a pension “pickup” prior to 2018. The Court disagreed.  It found that the County could eliminate the pickup at any point, as long as it did so in accordance with collective bargaining laws.

  1. Employer Pickup under the County Employees Retirement Law of 1937

Under the County of San Joaquin’s retirement system, CCOA members receive a pension benefit and post-retirement cost of living adjustments (COLA). By default, the County Employees Retirement Law (“CERL”) requires increases in COLA contributions to be shared equally between counties and their contributing members.  Prior to PEPRA, the law allowed, but did not require, a county to pay for, or “pick up,” the employee’s share of this contribution.* At the same time, section 31581.2 of the CERL specified that a pickup agreement did not create a vested right for members and that a county could repeal such agreement at any time, subject to meet and confer requirements under the Meyers-Milias-Brown-Act (“MMBA”).  In accordance with the CERL, and prior to PEPRA’s passage, the County of San Joaquin agreed to pick up employees’ shares of COLA contributions.

In September 2012, the County and CCOA negotiated a new memorandum of understanding.  As part of the 2012 negotiation, the County sought to end its COLA pickup, requiring CCOA members to pay their default half of COLA contribution increases.  The County imposed this change following bargaining impasse.

Rejecting the County’s decision to impose this change, CCOA argued that PEPRA prevented the County from imposing the benefit reduction until January 2018.  In support of its arguments, CCOA largely relied on Government Code section 31631.5, which was added to the CERL when PEPRA was implemented.  Under the PEPRA, all “new members,” as defined, are required to pay 50% of the normal cost of the retirement benefits.  However, for those who are not “new members,” section 31631.5 states that counties can require these classic or legacy members to pay 50% of the “normal cost of benefits” up to specified, percent-based limitations for each membership category.  According to the statute, effective January 1, 2018, employers can impose this requirement after meeting and conferring in good faith, through all impasse procedures.  However, the statute also provides that it does not apply to bargaining unit members that are already paying at least 50% of the normal cost and does not modify a county’s authority, as it existed on December 31, 2012, to change the amount of member contributions.  CCOA argued that this statute prohibited the County from changing its COLA pickup, viewing the pickup as part of the “normal cost of benefits.”

The Court denied the CCOA’s argument that this new PEPRA statute sheltered bargaining unit members from the pickup elimination.  The Court did not determine whether the COLA was part of the “normal cost of benefits,” finding the argument irrelevant to the legal issue presented.  Instead, the Court determined, because the County had the authority to repeal its pickup agreement under section 31581.2 of the CERL, at any time, as of December 31, 2012 (and prior), it could repeal the agreement through bargaining despite any time-delayed easing implemented by PEPRA.

Though the legislature delayed giving effect to some provisions of PEPRA, the Court explained that this was done to “ease the transition” and allow changes to be negotiated gradually.  However, the gradual effect of PEPRA was not intended to provide a “shield” to retirement system members, insulating them from properly, and lawfully, imposed pension increases until 2018.  Under the CERL, the County had the “right to reduce any contributions it chose to make toward what would otherwise have been the employee’s half-share of COLA payments.”

  1. Employer Paid Member Contributions under the Public Employees’ Retirement Law

Notably, like the CERL, the Public Employees’ Retirement Law (“PERL”) allows CalPERS contracting agencies to pay all or a portion of a classic member’s “normal contributions.” This is commonly referred to as an employer paid member contribution or “EPMC.”*  Also, like the CERL, the PERL provision that allows employers to cover a classic member’s default contribution, specifies that the contracting agency retains the authority to increase, reduce, or eliminate its payment of the member’s contribution.  Section 20516.5 of the PERL is similar in language to section 31631.5 of the CERL, and both sections were enacted as part of the PEPRA.  Accordingly, applying the reasoning from the Court in San Joaquin County Correctional Officers Association v. County of San Joaquin, PEPRA does not prohibit CalPERS employers from reducing or eliminating employer paid member contributions at any time, in accordance with the PERL, through proper bargaining and impasse procedures.


*After PEPRA, both the CERL and PERL limit employer pickups and employer paid member contributions to classic employees.  PEPRA does not allow employers to pay the member contribution of PEPRA-defined “new members.”

Employers’ Continuing Affordable Care Act Obligations Under the Trump Administration

Posted in Healthcare

iStock_000066252725_LargeOne of the first acts of the new Administration was to issue an Executive Order (the “Order”) “Minimizing the Economic Burden of the Patient Protection and Pending Repeal.”  The Executive Order, which is in line with the President’s campaign platform to repeal and replace the Patient Protection and Affordable Care Act (ACA), provides:

“It is the policy of my Administration to seek prompt repeal of the [ACA] (the “Act”).  In the meantime, pending such repeal, it is imperative for the executive branch to ensure that the law is being efficiently implemented, take all actions consistent with law to minimize the unwarranted economic and regulatory burdens of the Act, and prepare to afford the States more flexibility and control to create  a more free and open healthcare market.”

The Order directs the Secretary of Health and Human Services (the “Secretary”) and all other executive agencies heads with authority and responsibilities under the ACA, to exercise their legally conferred authority to grant waivers, deferrals, and exemptions to the ACA, and to delay implementation of ACA provisions that would have the effect of imposing “fiscal” burdens on States, individuals, families, healthcare providers, insurers, patients, recipients of health care services, and manufacturers of medical products.  The Order defines “fiscal burden” to include costs, fees, taxes, penalties or regulatory burdens.  Furthermore, the Order directs the Secretary and other agency heads, to the extent permitted by law, to grant flexibility to States in implementing their healthcare programs.

While the Order does not repeal or replace the ACA, as doing so must be done by Congress, the Order essentially directs those executive agency heads, who have the responsibility of implementing the ACA, to use their authority to waive or delay implementation of certain provisions.

The Administration’s Order does not currently limit an employer’s responsibility to file ACA Reporting forms for the 2016 tax year.  As we previously published in our November Client Update article, Applicable large employers (ALEs) (those with 50 or more full –time employees, including full-time equivalent employees, in the previous year) must file 2016 Forms 1094-C and 1095-C, which report to the IRS information related to the ACA’s shared responsibility provisions.  Additionally, small employers with self-insured plans must file2016 1095-B forms with the IRS.     Employers have until February 28, 2017, if not filing electronically, or March 31, 2017, if filing electronically, to submit Forms 1095-B, 1094-C or 1095-C to the IRS.

Employers must also furnish to individuals copies of the 2016 Form 1095-B or 1095-C.  These forms must be furnished to individuals by March 2, 2017.

It is unclear whether the Administration will, moving forward, continue to enforce certain provisions of the ACA, including the IRS reporting requirements under the employer shared responsibility provisions.  We will continue to update you if and when the Administration issues further guidance.   For the time being, employers are strongly encouraged to comply with the reporting requirements, or risk being assessed penalties.

CalPERS Explains Impact to Employer Contributions Due to Reduction in the Assumed Rate of Return

Posted in Retirement

Retirement Road Sign with blue sky and clouds.On January 19, 2017, CalPERS provided greater clarity on how contracting agency employers, and even some members, will see contribution rate increases due to a decision to reduce the assumed rate of return.  On December 20, 2016, we reported that the Board of Administration was poised to, and in fact did, reduce the assumed rate of return following a recommendation by the Finance and Administration Committee that the current assumed rate of 7.5% was unrealistic in today’s economy.

The assumed rate of return, also called a discount rate, is the percentage of expected returns on investments made by CalPERS.  Generally, the higher expected return, the lower employer contributions will likely be. The problem arises, though, that if CalPERS’ investments do not meet the expected return rate, this creates risk and greater unfunded liabilities because the employer contribution rates were based on that expected return.

On December 21, 2016, the CalPERS Board voted to adopt a reduction in the assumed rate of return over a three-year period.  According to CalPERS’ recent Circular Letter, for contracting agencies, the discount rate will fall from 7.5% to 7.375% for fiscal year 2018/2019, then to 7.25% for fiscal year 2019/2020, and finally to 7% for 2020/2021.

The result is two-fold:  an increase in the normal cost of pension benefits and an increase in the unfunded accrued liability (UAL).  This not only means an increase in employer contributions, but for those employees who are “new members” under the Public Employees’ Pension Reform Act of 2013 (PEPRA), they too will see an increase in member contribution rates as these members are required by law to pay 50% of the normal cost of their retirement benefits.

Public agency employers can expect the following relative increases in their normal cost contribution:

2018/2019       0.25% – 0.75% increase for miscellaneous plans; 0.5% – 1.25% for safety plans

2019/2020       .5% – 1.5% increase for miscellaneous plans; 1.0% – 2.5% for safety plans

2020/2021       1.0% – 3.0% increase for miscellaneous plans; 2.0% – 5.0% for safety plans

In addition, employers will see gradual increases in their UAL payment, with a five-year ramp up for each reduction in the assumed rate of return.  As such, employers can generally see an approximate increase in their UAL payment for both miscellaneous and safety plans as follows:

2018/2019       2% – 3% increase in the UAL payment

2019/2020       4% – 6%

2020/2021       10% – 15%

2021/2022       15% – 20%

2022/2023       20% – 25%

2023/2024       25% – 30%

2024/2025       30% – 40%

For example, assume an employer’s current UAL payment is $800,000 for fiscal year 2017/2018.  In 2018/2019, the employer could generally expect a payment of $816,000 up to $824,000.

These numbers are current global estimates projected by CalPERS, but employers should refer to their annual valuation reports this summer which will provide specific projections for your plans.

These increases no doubt bring significant strain on employers, some of whom are still grappling with losses occasioned by the Great Recession.  Employers should be cognizant that further increases are always possible in future years if actuarial assumptions are again updated, as they were in the last few years.

Some possible strategies for employers to address these hikes include:

  • Maintain and publish comprehensive multi-year projections on pension costs prepared by independent actuaries who can provide direct recommendations and strategies to the governing board. These reports should be transparent and thoroughly presented and discussed in open board/council meetings or workshops to educate stakeholders, employees and the public.
  • As part of long-term budgeting, maintaining and increasing restricted reserve funds for paying down unfunded liabilities.
  • Subject to meet and confer with employee labor organizations, stabilize larger on-schedule salary increases and increases in other pensionable compensation, and in the alternative, offer increases in non-pensionable benefits, such as health care contributions or contributions to a defined contribution retirement plan, subject to IRS and PEPRA limits.
  • Subject to agreement with employee labor organizations, consider cost-sharing employer contribution rates by CalPERS contract amendment and/or MOU. This again can be negotiated in exchange for other benefits.

Employers are also encouraged to collaborate with labor negotiators and actuaries for creative strategies in addressing pension rate increases.

“I Don’t Feel So Good” – Protecting Employees from Illness in the Workplace During Cold and Flu Season

Posted in Employment

Sick Human 4The holiday season is behind us, but we are still in the thick of cold and flu season.  It seems like everyone you pass on the street or stand next to on the bus is sneezing, coughing, or blowing their nose.  With so many people sick, it’s not surprising that many people have also encountered the same sneezing and coughing from a colleague who is sick but came to work anyway.

When sick employees come to work, it can have a significant and detrimental impact on the employer because the sick employee is likely to be less productive than normal and, more critically, he or she risks spreading the illness to other employees, thereby reducing their productivity and/or requiring them to miss work to recover.

Below are answers to common questions that employers must navigate, particularly during the winter months.

Can I send a visibly sick employee home from work?

Yes, an employer can require an employee to go home if the employee is showing signs of a contagious illness (such as sneezing, runny nose, coughing, and/or vomiting).  This applies even if the employee does not want to leave work.  Employers should consider including in an employee handbook or relevant personnel policies or procedures language confirming the right to remove sick employees from the work environment.

Of course, particularly during cold and flu season when many employees may be exhibiting signs of lingering illness, employers will likely only choose to send employees home in extreme cases.  Therefore, employers must ensure they are acting in a non-discriminatory and non-retaliatory manner in sending an employee home, and be consistent in what level of severity is required before the employer takes action.

Finally, where an employee has a more serious illness than a common cold or stomach bug, employers should confer with an attorney or their human resources department before sending the employee home, because such employees may have rights under, for example, the Family Medical Leave Act (“FMLA”), the California Family Rights Act (“CFRA”), the Americans with Disabilities Act (“ADA”), and/or the California Fair Employment and Housing Act (“FEHA”).

Am I required to send a sick employee home?

Possibly, under certain circumstances.  Under the California Occupational Safety and Health Act, employers are required to maintain safe and healthful working conditions for employees.  It is highly unlikely that exposure to a colleague with a cold or flu would violate this law, but it is possible that allowing an employee to be exposed to a more serious communicable disease by a allowing a sick employee to remain at work could be a violation.

Similarly, it is unlikely that a cold or flu contracted at work would be serious enough to be covered by workers’ compensation laws, but employees who contract more serious communicable diseases may be entitled to workers’ compensation benefits as a result.

I have a number of employees out with the flu.  Are they entitled to FMLA/CFRA leave?

Possibly.  If the flu constitutes a “serious health condition” under the FMLA/CFRA for a particular employee, he or she would be entitled to take FMLA/CFRA-protected leave (assuming all of the other prerequisite conditions were met).  The flu may be a “serious health condition” if:

  • The employee is unable to work or perform other regular daily activities for three consecutive calendar days; and
  • The employee requires treatment from a healthcare provider twice within 30 days and/or requires continuing treatment under the supervision of a health care provider.

Though the flu alone is unlikely to constitute a “serious health condition” for most employees, certain populations (i.e., people over the age of 65, pregnant women, people with compromised immune systems) are at a higher risk of experiencing complications that could become serious.

What else can I do to keep my employees healthy during cold and flu season?

It is critical that employees know that they are expected to utilize their sick leave when necessary, to go home if they fall ill at work, and to stay home when they are sick.  Managers can encourage compliance with these expectations by setting a good example.  Some employees may fear that taking sick leave will be construed as laziness or a lack of commitment to their duties.  Seeing that managers take leave to recuperate when they are sick should help alleviate those fears.   Conversely, if employees see that their managers come to work when they are sick, employees will believe that they are expected to do the same, regardless of the guidance they have been given.

And when all else fails, turn to the wisdom that is repeated every year in effort to prevent illness from spreading:  get your flu shot, wash your hands often, and cover your mouth!

Tips from the Table: Developing Your Influencing Skills

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 Collective Bargaining 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.

Six Statutes for the New Year

Posted in Employment

2017As 2017 kicks off, employers should be aware that a number of new state-wide laws and local ordinances begin taking effect.  In this blog, we highlight just a few that California’s public employers should now be implementing.

Seeing Green in Twenty-Seventeen: Minimum Wage Increases for California Employees

Regardless of potential changes to Federal wage and hour requirements in the wake of a new presidential administration, California employers are now required to follow the state’s new minimum wage.  As of January 1, 2017, the minimum wage for California employees increased to $10.50 per hour.  This new wage will apply to all California employers, including the state, political subdivisions of the state, and municipalities, with the following exceptions:

  • Employers with 25 or fewer employees. These employers will have until January 1, 2018, to raise wages to $10.50 per hour;
  • When increase is temporarily delayed by the Governor for certain specified economic or state budgetary reasons, as certified by the Director of Finance; and potentially
  • Counties and charter cities. Legal authority provides strong arguments to counties and charter cities that they are not covered by state minimum wage. This is based on those agencies’ constitutional authority to set employee compensation.  (In some limited instances, a matter of statewide concern can potentially supersede a county’s or charter city’s ability to set compensation for its employees.)

As reported in our 2016 Legislative Roundup, the state minimum wage will continue to increase every year, until it reaches $15.00 per hour.  After that, the state minimum wage will be adjusted annually based on a consumer pricing index.

Stick to the Basics! State Employers Cannot Exceed Federal Law Requirements to Verify Employment Eligibility.

Federal law requires employers to verify the employment eligibility of their employees through the use of a Federal I-9 form.  As part of that process, employees are required to present documentation affirming their identity and employment authorization.  However, employees must only present either a document listed as acceptable under “List A” of the form, or by presenting one document from “List B” and one document from “List C.”  Employees have the discretion to choose which combination of documents to provide.

New state legislation, codified at Labor Code section 1019.1, prohibits California employers from requesting more or different immigration status documents than those required by federal law.  Employers are also prohibited from refusing to honor documents that on their face reasonably appear to be genuine.  Moreover, they cannot refuse to honor documents or work authorization based upon the specific status or term of status that accompanies the authorization to work.  For example, a person could be authorized to work, even temporarily, based on a pending application for asylum, student status, a familial relationship, or for many other reasons. Under the law, employers cannot give preference to hiring a person because that person is authorized to work based on a familial relationship rather than a pending asylum application.  In short, if an employee is authorized to work, employers must consider the authorization sufficient.

Employers are also prohibited from attempting to reinvestigate or re-verify an incumbent employee’s authorization to work.  An employer who violates these new prohibitions may be assessed a $10,000 penalty – per violation – and may be liable for equitable relief (e.g. back pay).

Violating Labor Code section 1019.1 may additionally constitute, and/or support, claims of unlawful discrimination.

Voting “No” on Sexual Harassment: Elected Officials to Receive Training to Prevent Sexual Harassment

AB 1825, meet AB 1661.  When perpetrated by an appointed official, elected Mayor, or Local Agency Commissioner, sexual harassment is not only offensive and unwelcome, but often also results in humiliation and bad press for everyone involved, including the target/victims of the conduct.  Moreover, when the member of a legislative body engages in sexually harassing conduct, such conduct appears “tolerated,” if not encouraged by the agency at large.

Effective January 1, 2017, all members of local agency legislative bodies and elected local agency officials (collectively referred to as “local agency officials”) must receive sexual harassment prevention and education training if the agency provides “any type of compensation, salary, or stipend” to any of its officials.  Like agency supervisors subject to AB 1825, local agency officials are required to receive the training within the first six months of taking office and, at least, every two years thereafter.  Even before local officials assume their new positions, agencies are required to provide them with written recommendations as to courses that will meet the training requirements.

Agencies must also retain records of the dates local officials satisfy training requirements and of the entity that provided the training.  They must keep such records for at least five years following the training.  These records will be subject to disclosure under the Public Records Act.

If your agency already requires appointed and elected officials to complete AB 1825 training (within six months of taking office and every two years thereafter), the agency should already be well on the way to compliance with AB 1661.

Public Records Act Request? Visit Us Online! – Public Agencies Can Now Direct Individuals to Website Information Responsive to a Public Records Act Request

Effective January 1, 2017, public agencies are allowed to direct individuals who request public documents to such records posted on the agency’s website.  If the documents are not posted to the agency’s website, it may add them in response to the request, and direct the responder to the site.  An agency will only then be required to provide the requestor with a copy of the records if the requestor is unable to access or reproduce the records from the website directly.  In such cases, public agencies will be allowed to request payment of fees covering direct costs of duplication, or a statutory fee, if applicable.

As a number of public agencies have been in the practice of maintaining public documents online, this updated provision should provide some relief in time and resources spent responding to PRA requests.

Gender-Neutral Relief! Law Requires Equal Access to Single Occupancy Restrooms.

Gone (I hope) are the days of long lines outside of the single-occupancy, female-designated restroom, while a male-designated restroom remains empty.  The “should we, or shouldn’t we?” question of those who have considered defying gender-based bathroom signage in years past is now answered by law – yes, you should!  While gender-based bathroom wars wage on in other states, California further ensures that restrooms be made available for all people, regardless of gender.  Starting March 1, 2017, any “single-user” toilet facilities maintained by a business establishment, place of public accommodation, state or local government agency, must be identified as “all-gender” toilet facilities, with compliant signage.  Such facilities must be designated for use by no more than one occupant at a time or for family or assisted use.

In addition to complying with state law, be sure to consult local ordinances for appropriate restroom designations.  Some cities, such as San Francisco, also have gender-neutral restroom requirements, which may include additional direction or recommendations for appropriate signage.

Mind the Wage-Gap: Prior Salary Cannot be Used to Justify a Disparity in Compensation

As of 2016, California Labor Code section 1197.5 was amended to prohibit employers from paying an employee wage rates less than rates paid to employees of the opposite sex for “substantially similar work.”  (Previously, the statute referred to “equal work.”)  This amendment meant a mere title differential was not sufficient reason to pay a female employee less than a male colleague or predecessor, if, in fact, the work she performs is substantially similar in nature.

Continuing its efforts to reduce discriminatory wage gaps, the California legislature has again amended section 1197.5.  Effective January 1, 2017, Labor Code section 1197.5 codifies existing law and specifies that a person’s prior salary cannot, by itself, justify a disparity in compensation based upon sex, ethnicity, or race.   The legislature enacted this change, finding that pay based on prior salary to set pay rates contributes to gender, race, and ethnicity-based wage gaps by perpetuating wage inequalities. Accordingly, California employers should immediately scrutinize practices in which they ask employees what they were paid in prior positions.

For more about new laws effective this New Year, check out LCW’s 2016 Legislative Roundup.

California’s Fair Pay Protections for Employees Expand in the New Year

Posted in Wage and Hour

CashCalifornia has statutorily prohibited unequal pay on the basis of sex since 1949.  As a previous blog post explained, that law was amended in 2016 to formally change the standard for equal pay claims based on sex.  Instead of requiring equal pay for “equal” work, the statute now requires equal pay for “substantially similar work when viewed as a composite of skill, effort, and responsibility, performed under similar working conditions.”

Effective January 1, 2017, the protection of the California Fair Pay Act also applies to race and ethnicity, following Governor Jerry Brown’s signing of S.B. 1063, titled the “Wage and Equality Act of 2016.”  This statute provides another avenue for employees to bring pay fairness claims, but is not a massive change to the employer’s obligations, as discrimination in pay is already prohibited under the FEHA.

While disparities in pay based on sex, race, or ethnicity are prohibited, the Fair Pay Act specifically allows employees to be paid differently based on:

  • A seniority system
  • A merit system
  • A system that measures earnings by quantity or quality of production
  • A bona fide factor other than sex, race, or ethnicity; such as education, training, or experience. This factor shall apply only if the employer demonstrates that the factor is not based on or derived from a sex, race, or ethnicity-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity.  For purposes of this provision, “business necessity” means an overriding business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.  This defense does not apply if the employee demonstrates that an alternative business practice exists that would serve the same business purposes without producing the wage differential.

Another amendment to the Fair Pay Act, A.B. 1676, also effective January 1, 2017, prohibits employers from relying solely on an employee’s prior salary to justify a disparity between the salaries of similarly situated employees.  Employers routinely consider a new hire’s previous salary as part of crafting a competitive package to attract the employee; however, as the Legislature noted, “When employers make salary decisions during the hiring process based on prospective employees’ prior salaries or require women to disclose their prior salaries during salary negotiations, women often end up at a sharp disadvantage and historical patterns of gender bias and discrimination repeat themselves, causing women to continue earning less than their male counterparts.”

Employers may continue to consider a new hire’s previous salary; however, it may not be the only justification for compensating that employee differently than an employee of a different sex, race, or ethnicity performing the same or substantially similar work.  This factor may be taken into consideration along with frequently related factors such as differences in experience, skill, or qualifications.  (See Green v. Par Pools, Inc. (2003) 111 Cal.App.4th 620, 629-30.)

Finally, the California Fair Pay Act may not be applicable to public agency employers.  The Fair Pay Act is part of the Labor Code, and courts have held that provisions of the Labor Code that are not made expressly applicable to public agencies do not apply.  (Johnson v. Arvin-Edison Water Storage Dist. (2009) 174 Cal.App.4th 729, 736; Division of Labor Law Enforcement v. El Camino Hospital Dist. (1970) 8. Cal.App.3d Supp.30, 34.)  As noted above, other statutes that are clearly applicable to public agency employers prohibit discrimination in pay.

Employers can protect themselves against claims under the Fair Pay Act by auditing their pay practices, reviewing and revising job descriptions, and ensuring that articulable justifications exist for any disparities between employees performing similar work.

California Supreme Court Decides Landmark Case on Mandated Rest Breaks

Posted in Employment

This blog post was authored by Jeffrey C. Freedman.

California law requires employers in most private businesses to allow employees to take breaks, or rest periods, of at least ten minutes for roughly each four hours of work.  Can an employer require employees during their breaks to keep their pagers and radio phones on, and remain vigilant and responsive to calls when need arises?  According to a five-member majority of the California Supreme Court in Augustus v. ABM Security Services decided on December 22, 2016, the answer is no.  (This decision will have limited impact on public agency employers. See the comments at the end of this article.)

ABM Security Services provides security guards at residential, retail, office, and industrial sites across California.  The number of guards it employs statewide is in the thousands.  The primary duty of the guards is to provide “an immediate and correct response to emergency/life safety situations” and “physical security for the building, its tenants and their employees. . . by observing and reporting all unusual activities.”  This includes patrolling the premises where assigned, responding to emergencies, identifying and reporting safety issues, etc.

Several class actions were filed on behalf of the security guards alleging that ABM had failed to provide true rest periods because the company required the guards to remain on call during their breaks, and in essence on duty, because they were obligated to keep their radios and pagers on in case an incident arose and they were required to interrupt their break and respond to a need for service.  The trial court granted summary judgment for the guards and awarded a judgment totaling about $90 million. The Court of Appeal reversed, but the Supreme Court sided with the guards and reinstated the trial court’s decision.

The California Labor Code (§ 226.7) reads in part: “An employer shall not require an employee to work during a meal or rest or recovery period mandated pursuant to an applicable statute, or applicable regulation, standard, or order of the Industrial Welfare Commission.” Wage Order 4, applicable to the security guards, in section 12, includes: “Every employer shall authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period.  The authorized rest period time shall be based on the total hours worked daily at the rate of ten (10) minutes net rest time per four (4) hours or major fraction thereof. However, a rest period need not be authorized for employees whose total daily work time is less than three and one-half (3 1/2) hours.  Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.”  Both the Labor Code and Wage Order provide for daily penalties against employers who fail to provide the required rest periods.

The security guards alleged, and the Supreme Court majority ruled, that ABM’s requirement that the employees remain vigilant during their breaks, by having to leave their pagers and radios in service, and end the break early and respond to needs for service, meant they were not relieved of all duty during the breaks and were in essence still working.  The Court noted the requirement in the Labor Code section that the employer “shall not require an employee to work” during a rest period.  The Court held that, because a guard was required to remain on call during breaks, and be vigilant to what might come over their pager or radio phone, they were still working and did not have full use of their break time for personal use.  The Court distinguished break time (i.e., rest period time), which must be “on the clock”, from meal periods, which can be unpaid if the employee is relieved of all duty.  If an employee is called back to work during a lunch break, the time thereby becomes compensable.  Rest breaks, however, are by definition always paid time anyhow.  Therefore, if an employee has to work during a break, the employer gets that work for free.

In reaching its decision the Court several times referenced the shibboleths that Labor Code and Wage Order provisions are liberally construed to favor the protection of employees and that interpretations articulated by the state agency that enforces Wage Orders are granted “considerable judicial deference.”  The two dissenters argued that the “bare requirement” of carrying a radio, phone or pager in case of emergency did not constitute “work” and did not render ABM in violation of its obligation to provide the guards with a rest period relieved of all work.

The Court majority responded to the understandable employer concern that the ruling prohibited the company from ever recalling employees to work from a rest period when the need arises. The Court replied that the company could reschedule the break for a later time in the same shift to replace the one that was interrupted.  Alternatively, the employer could apply to the state agency for an exemption from the requirement. Apparently ABM had twice received one year exemptions.  Finally, the company could simply pay the employees the one hour penalty pay called for in both the Labor Code and Wage Order for each day the required break was not provided.

Most of the Wage Orders by their own terms are specifically made inapplicable to public agencies, and it is generally the rule that Labor Code provisions are also not applicable to public employers unless they contain language providing that public employers must comply.   Public agencies should check with legal counsel, however, to see if any Wage Order provision on meal and rest periods does apply to them.  For example, the Wage Order 9 provisions on meal and rest breaks do apply to public agency bus drivers.

There is no provision of federal law requiring meal or rest periods for local public agency employees.  However, if an agency provides unpaid meal or rest periods for its employees, and were to impose restrictions on employee free use of those breaks, a court considering a lawsuit brought by employees under the Fair Labor Standards Act could look to the decision in Augustus v. ABM Security Services for guidance and apply it by analogy.  Accordingly, any such agency should check its current procedures to ensure it is not at risk of incurring liability.

CalPERS Poised to Lower Discount Rate Again, Increase Employer Contributions

Posted in Retirement

Retirement_Graphic.jpgCalPERS agencies still reeling from the increase in employer contribution rates beginning 2013/2014 may very well experience yet another increase in the next couple of years due to a further reduction in the “discount rate” or rate of return.  Simply put, the discount rate or rate of return is the percentage of expected returns on investments made by CalPERS.  Generally, the higher expected return, the lower employer contributions will likely be. The problem arises, though, that if CalPERS’ investments do not meet the expected return rate, this creates risk and greater unfunded liabilities because the employer contribution rates were based on that expected return. This further results in volatile employer contribution rates.

In 2012, CalPERS reduced the discount rate from 7.75% to 7.5% which resulted in a considerable increase in employer contribution rates.  Now, CalPERS seems poised to potentially decrease that discount rate even further.  CalPERS’ Finance and Administration Committee undertook a study of decreasing the discount rate.  As a part of this, the Committee surveyed and received information from over 600 contracting agencies, as well as public school districts, in addition to receiving feedback from employee, employer and retiree organizations. Of those surveyed, 76% of contracting agencies, and 52% of school districts, are following CalPERS’ return on investments.  29%  are prefunding pension liabilities while 61% are planning for a reduction in the discount rate through budget forecasting out three and five years.  Employers were also asked what would be the level of impact to the agency if there was another drop in the discount rate.  72% indicated that the impact will be high to extremely high.

On December 20, 2016, the CalPERS Board of Administration will hear the Committee’s findings and recommendations.  The Committee’s Agenda Report indicates that “achieving the current 7.5% expected rate of return over the next 10 years will be a significant challenge.”  The Committee estimates that with a reduction in the rate of return to 7.25%, most employers could expect up to a 2% increase in the normal cost for miscellaneous plans, and up to 3% for safety plans.  Should the rate of return be reduced to 7%, employers could expect an increase in the normal cost of up to 3% for miscellaneous, and up to 5% for safety plans.  Bottom line: employer contributions toward their unfunded accrued liability payment and as a percentage of payroll will increase.

The Committee recommends that any reduction in the rate of return (and increase in employer contributions) begin with the 2017-2018 fiscal year for public school districts, and 2018-2019 for contracting agencies. The Committee indicated that the reduction in the rate of return is critical for the long-term health of the pension system. The Board of Administration will decide if, when and how any reduction in the rate of return will be implemented.

Employers should prepare now for a likely further reduction in the rate of return and higher employer contributions by including this prospect in budget forecasting.  Employers may also want to consider pre-funding trusts.

California’s New Minimum Wage Takes Effect on January 1, 2017 – Are You Ready?

Posted in Wage and Hour

PaydayThis post was authored by Danny Y. Yoo

This year has kept many agencies on their toes when it comes to complying with the Fair Labor Standards Act.  This summer, the Ninth Circuit issued its Flores v. City of San Gabriel decision and changed the way many agencies calculate their regular rate of pay.  You can read about Flores here and here. Also in the summer, the federal Department of Labor (“DOL”) issued new regulations that would change the salary basis test for FLSA overtime exemptions.  These regulations were supposed to go into effect on December 1, 2016, but they have been put on hold by a temporary injunction.  You can read about the regulations and the injunction.

As we look toward 2017, there is yet another wage and hour compliance issue that many California public agencies should take note of: minimum wage.  Earlier this year, we discussed Senate Bill 3, which will increase California’s minimum wage each year so that it will reach $15 per hour in 2022.  Effective January 1, 2017, the minimum wage in California will be $10.50 per hour.  (The federal minimum wage is still $7.25 per hour.)

Does this new California minimum wage apply to your public agency?

Effective January 1, 2017, Labor Code section 1182.12 expressly states that for the purposes of California’s minimum wage, “employer” includes the “state, political subdivisions of the state, and municipalities.”  Thus, we recommend that general law cities comply with the state minimum wage requirements.

However, for counties and charter cities, there is a strong argument that the state minimum wage does not apply to those agencies because those agencies have exclusive rights under the state constitution to set compensation for their own employees.  In some limited instances, a matter of statewide concern can potentially supersede a county’s or charter city’s ability to set compensation for its employees.  Counties and charter cities must, of course, comply with any minimum wage that they have set for themselves.  For example, the City of Santa Clara’s minimum wage will be $11.10 per hour, effective January 1, 2017.  For counties and charter cities, legal counsel should be consulted in determining whether the minimum wage law applies to them.

What should our agency do about it?

If the state minimum wage applies to your agency, ensure compliance by reviewing the pay schedule for your employees, including part-time and seasonal workers.  The following chart is a guide for the minimum pay that complies with the new California minimum wage of $10.50 per hour:

Hours Per Week Weekly Minimum Monthly Minimum Yearly Minimum
20 $210 $910 $10,920
30 $315 $1,365 $16,380
40 $420 $1,820 $21,840

If your agency pays employees around or below these thresholds, we recommend that you carefully review the hourly rate at which your agency is paying them.  Please note that if your agency does need to raise the hourly rate for a particular employee or class of employees, you may have to negotiate with the appropriate employee bargaining unit because this directly affects their members’ wages.

Will the DOL regulations regarding the threshold salary for exempt employees affect compliance with the California minimum wage?

No.  The DOL regulations only address the threshold salary for employees who are exempt from FLSA overtime.  Employers are still required to pay minimum wage to these employees, regardless if they are exempt from overtime.  As a practical matter, however, the minimum salary thresholds for FLSA overtime exemptions ($455 per week) are higher than the state minimum wage requirements for a 40-hour employee ($420 per week).  Therefore, if an employee is properly classified as exempt from FLSA overtime, then he or she is being paid at least the state minimum wage.

Does this apply to independent contractors or interns? 

No.  This only applies to employees.  Agencies should be cautious, however, on relying on the classification of independent contractor or intern and should conduct an independent review of whether contractors and interns may actually be classified as employees.  On that point, we do not recommend employers changing an employee’s title to a “contractor” or an “intern” in an attempt to avoid paying minimum wage.