California Public Agency Labor & Employment Blog

California Public Agency Labor & Employment Blog

Useful information for navigating legal challenges

Third Party Independent Contractor Agreements Do Not Guarantee Protection from CalPERS Membership

Posted in Employment

This post was authored by Kevin J. Chicas.

It is not uncommon for public agencies to contract with another organization or company to provide temporary services to cover for vacant positions. A recent decision issued by the CalPERS Board of Administration (the “Fuller” Decision) illustrates why public employers should be careful about classifying someone as an independent contractor just because they are retained through a third-party agency.

Relevant Background

The public district employer lost their Finance Manager with only a 30-day notice that created an immediate need for an experienced interim Finance Manager while the district recruited to permanently fill the position.  In order to find a competent interim Finance Manager, the district contracted with the Regional Government Services (“RGS”), a joint powers authority that does not contract with CalPERS.  RGS has worked with over 200 local agencies since approximately 2002 to provide government agencies with temporary professionals who can perform duties and provide services critical to the agency.

The district entered into a contract with RGS which stated, among other things, that the relationship of RGS to the district was “that of an independent contractor and all persons working for or under the direction of RGS are its agents or employees and not agents or employees of [the] Agency. The Agency and RGS shall, at all times, treat all persons working for or under the direction of RGS as agents and employees of RGS, and not as agents or employees of the Agency.”  The contract also specified that the district did not have the ability to direct how services were to be performed, specify the location where services are performed, or establish hours or days for performance of services.  The district only had the right to direct the results of RGS’ services.

The contract with RGS then reflected the service to be provided by a “RGS Staff Position.”  The contract named Tracy Fuller as the “RGS Staff Position” to “perform the functions of  Interim Finance Manager as assigned” at an hourly rate of $90.00.  The contract indicated that RGS employees may perform services at the district’s offices or at other locations.

The district did not contract with Fuller.  RGS, however, had an employment contract with Fuller.  The contract between RGS and Fuller clearly referred to Fuller as an “employee” of RGS and that the employment is subject to termination at any time at the sole discretion of the RGS executive director.  Fuller’s performance and compensation were to be reviewed at least annually by the RGS executive director.

The district paid RGS directly for Fuller’s services and RGS paid Fuller, although it is not clear if Fuller herself received the full hourly rate that RGS charged the district.  The district also paid a housing allowance for Fuller.

Fuller previously worked with other CalPERS member agencies and retired within the CalPERS system prior to her employment with RGS. Fuller performed the functions of interim Finance Manager for the district for approximately eight months. The district, believing Fuller was an independent contractor (by and through her employment with RGS), did not report Fuller’s hours and compensation to CalPERS.  Throughout Fuller’s retention, the district actively sought to (and eventually did) hire a permanent Finance Manager replacement.

CalPERS staff conducted a membership and payroll audit of the district in late 2014. As part of this audit, CalPERS reviewed the working relationship between Fuller and the district.  CalPERS staff issued a report finding Fuller was not an independent contractor, but rather an employee of the district. Therefore, the district was required to enroll Fuller in CalPERS as an eligible employee. Also note, because Fuller was previously an active member of CalPERS, she was entitled to immediate membership if employed by any CalPERS employer, regardless of position, length of employment, or hours worked.

The Decision of the CalPERS Board of Administration

The district appealed the determination by CalPERS staff.  The appeal was heard by an administrative law judge (“ALJ”) from the state Office of Administrative Hearings who issues a proposed decision to the CalPERS Board of Administration.  The ALJ issued a proposed decision finding Fuller was a District “employee” under the Public Employees’ Retirement Law (PERL), which defines an employee as “[a]ny person in the employ of any contracting agency.”  (Gov. Code § 20028(b); See also, Gov. Code §§ 20069; 20502.)

In particular, the ALJ relied on several factors supporting Fuller’s status as a district “employee” including 1) the district ultimately had the right to control the manner and means in which Fuller accomplished her assignments; 2) Fuller ultimately reported to the district’s General Manager; 3) the district determined, issued and evaluated her particular work, not RGS;  3) the district described Fuller as a staff member in its board minutes; 4) RGS and the district’s independent contractor agreement provided for an option to extend the agreement on a month-to-month basis, past the specified four-month term; and 5) although the district paid Fuller indirectly through RGS, Fuller was still paid by the hour, not the job.

On September 28, 2018, the CalPERS Board of Administration (“Board”) adopted the proposed decision as the final decision of the Board.  In February 2019, CalPERS staff recommended that the Board designate the Decision as a “precedential decision.”  The Board may designate a decision as precedential if it contains a significant legal or policy determination of general application that is likely to recur. If the Board designated the Fuller decision as precedential it would have the same effect as Board-adopted regulations and relied upon by future litigants in administrative and court proceedings as legal authority.

In March and April of this year, stakeholders were invited to provide feedback to the Board.  The recommendation of designating the Decision as precedential was added to the agenda for the June 19, 2019 Board meeting.  However, at the time of this blog, the agenda item was pulled from the Board’s agenda for reasons that are not entirely clear. We do not have further information as to whether the Board will possibly consider the Fuller Decision at a future meeting.

Impact and Effect of Decision

Regardless of whether the Fuller Decision is designated precedential, it did not establish any fundamentally different interpretation of the law or new administrative policy.  The Board previously issued a precedential decision regarding the test employed to determine if the so-called independent contractor is truly an employee subject to active CalPERS membership.  (See In the Matter of the Application for CalPERS Membership Credit by Lee Neidengard (2005) CalPERS Precedential Decision No. 05-01.) That was the first precedential decision of the Board on this subject following the California Supreme Court’s decision in Metropolitan Water District v. Superior Court (Cargill).  The Cargill decision held that an “employee” eligible for CalPERS membership is determined by the common law employment test, particularly in the case of presumed independent contractors.

As the Board of Administration relied upon and followed Cargill in this recent Decision, it did not establish a new analysis regarding independent contractor determinations.  If anything, Fuller stands as a cautionary tale about how intently CalPERS reviews independent contractor relationships and how narrowly they construe the test for common law employment.

While the ALJ relied upon several factors in finding Fuller was a common law employee, certain factors may weigh differently in other cases, but these are factors that could potentially serve as red flags for future CalPERS audits.

As it was before Fuller, employers are strongly cautioned about believing a person providing service to the agency is an independent contractor simply because they are retained through an outside agency or company.  The test remains the same whether the public agency contracts directly with the individual or contracts with another agency for the services provided by the individual. The fundamental test being that a common law employment relationship exists if the principal controls the manner and means by which the individual performs his/her services.

 

U.S. Supreme Court Weakens Procedural Defense To Title VII Claims

Posted in Discrimination

This post was authored by Megan Lewis.

A plaintiff who wants to file a lawsuit for a violation of Title VII of the Civil Rights Act of 1964 (a claim of discrimination based on race, religion, sex, etc.) must first “exhaust administrative remedies” by filing a charge of discrimination with the Equal Employment Opportunity Commission (EEOC) or a similar state agency.

The U.S. Supreme Court recently held in Fort Bend County, Texas v. Davis, — S. Ct. —- (U.S. June 3, 2019) that an employee’s failure to exhaust administrative remedies is not a “jurisdictional” requirement that can be raised at any time during litigation, but rather a procedural requirement that can be waived if not raised in a timely manner.

Background Facts

Plaintiff Lois Davis worked in the information technology (IT) department for Fort Bend County, Texas.  In 2010, Davis submitted an internal complaint alleging that Fort Bend’s IT Director had sexually harassed her.  She later submitted an EEOC intake questionnaire, and ultimately filed a charge of discrimination with the EEOC regarding these allegations.

While this charge was pending, Davis was told to report to work on a Sunday.  Davis alleges that, when she refused for religious reasons, her employment was terminated.

Davis then amended her EEOC intake questionnaire by writing “religion” in the “Employment Harms or Actions” section and checking the boxes for “discharge” and “reasonable accommodation” on the form.  However, Davis never amended her actual EEOC charge to include religious discrimination.

Davis obtained a right-to-sue notice from the EEOC and subsequently filed a lawsuit against the County for discrimination on the basis of religion and retaliation for reporting sexual harassment.

The County Waits Years to Raise the Failure to Exhaust Defense

After the case had been pending (and actively litigated) for nearly five years, the County asserted for the first time that the district court lacked jurisdiction to hear Davis’ religious discrimination claim because she had not included religious discrimination in her EEOC charge (and therefore failed to exhaust administrative remedies).  The district court agreed, but the Fifth Circuit Court of Appeals reversed, concluding that the charge-filing requirement was not jurisdictional and therefore could be waived if the employer waits too long to assert it, as the County did in this case.

The Supreme Court Rules the Defense Can Be Waived

The Supreme Court agreed with the Fifth Circuit.  In a rare unanimous decision, the Supreme Court explained that a “rule requiring parties to take certain procedural steps in, or prior to, litigation, may be mandatory in the sense that a court must enforce the rule if timely raised,” but such requirements are “ordinarily forfeited if not timely asserted.”  A jurisdictional requirement, on the other hand, is foundational to a court’s ability to adjudicate a claim and may be raised at any time during litigation.  The Court held that the charge-filing requirement is the former.

The Takeaway for Employers

As a practical matter, an employee must still file a charge of discrimination before filing a lawsuit.  If the employee fails to do so, the employer may be able to get the lawsuit dismissed on those grounds.  However, employers are now on notice that, if they fail to raise this defense in a timely manner, a court may determine that the employer has waived the defense and allow the case to proceed even though the employee did not fulfill this “mandatory” requirement.

A 3.8 Million Dollar Jury Verdict Is A Good Reminder That The FLSA Guarantees Break Time For Nursing Mothers

Posted in FLSA

This post was authored by Lisa S. Charbonneau.

A recent jury decision from the federal trial court in Arizona shows how expensive it can be to ignore a federal law that requires employers to provide mothers with nursing children accommodations to express breast milk.

In 2010, Congress added section 7(r) to the Fair Labor Standards Act (FLSA) to require that employers provide break time for nursing mothers to express breast milk.  This amendment  requires employers to provide “reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth each time such employee has the need to express the milk.”  In addition, employers must provide “a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.”  The breaks need not be paid.  However, if an employer provides paid rest breaks and an employee uses that time to express breast milk, the employee must be compensated for that break time.  The Department of Labor fact sheet on this law can be found here.

Although this FLSA provision may not be well known, a recent $3.8 million dollar jury verdict against the City of Tucson underscores the importance of ensuring compliance with the FLSA’s nursing break requirements.  In that case, Clark v. City of Tucson, paramedic Carrie Clark alleged that, after her first child was born, she was assigned to fire stations that lacked adequate space for her to express milk in violation of the FLSA, which was discrimination in violation of Title VII of the 1964 Civil Rights Act.  In addition, Clark alleged that, after she raised the issue, she was retaliated against in violation of  FLSA.  On April 12, 2019, the jury found in favor of Clark on all counts, including that she was discriminated against on the basis of pregnancy or pregnancy-related condition (breastfeeding) when she was assigned to fire stations that did not have FLSA-compliant space to express breast milk.  The jury even awarded her $50,000 in compensatory damages for the City’s failure to provide her with FLSA-compliant space to express breast milk.  (Since a plaintiff’s damages under section 7(r) are limited to lost wages, this award may well be reduced if not eliminated altogether on appeal or other post-trial review.)  As for the FLSA retaliation claim, the jury found that Clark was retaliated against after she opposed the City’s failure to provide a space for her to express breast milk and awarded her $1,850,000 due to the retaliation, which included requiring her to take leave to avoid having to express breast milk in locations without appropriate nursing rooms and counseling her for “not being in harmony with others.”  More about the facts of the case and the parties’ allegations can be found here.

The lesson here is clear: employers must ensure compliance with all applicable laws when it comes to the rights of mothers to express breast milk, even laws buried in the FLSA.  Failure to do is illegal and may be extremely costly.

The Census is Coming: Preparing Your Agency for 2020

Posted in Constitutional Rights

This blog was authored by Alysha Stein-Manes.

April 1, 2020, is national Census Day and will kick off a year-long process of counting every resident in the United States.  In California, the California Citizens Redistricting Commission (the “Commission”), a non-partisan commission comprised of democratic, republican and independent (decline-to-state or no party preference) voters, is responsible for re-drawing California State Assembly and Senate, U.S. Congressional, and State Board of Equalization districts to reflect new population and shifting population data.

In addition to working with state and federal agencies to assist in the Census count, local government agencies will have their own responsibilities to address representation issues within the geographic boundaries of their local agency.  As agencies begin to think about their role in the Census process, this post reviews some important issues that may arise concerning local representation.

At-large Voting Systems

Voters generally elect members of an agency’s local governing body using one of two voting systems:

  • By-area Voting System. Under a by-area, or electoral district, voting system, an agency’s boundaries are divided into a subset of voting districts.  For example, if a city has seven council seats, the city’s boundaries are divided into seven areas, or “districts,” and a particular council seat is assigned to that district.  Only voters residing in the particular district may vote for individuals running for that council seat.  Under California law, an individual running for a particular seat on a governing body must reside within that district in order to be eligible to run for that seat.
  • At-large Voting System. Under an at-large system, also referred to as “block voting,” voters within an agency’s entire geographic boundaries elect the members of an agency’s governing body to represent all residents within the agency’s boundaries, as opposed to a subset of residents residing in a particular district.

At-large voting systems are vulnerable to challenge under the California Voting Rights Act of 2001 (“CVRA”) and Section 2 of the Federal Voting Rights Act of 1965 (“FVRA”).  The CVRA provides that an at-large election of the members of the governing body must not impair the ability of a protected class to elect candidates or dilute the rights of voters of a protected class (also known as “racially polarized voting”).  Additionally, Section 2 of the FVRA prohibits any election method or procedure that has a discriminatory result.  Potential liability under these laws broadly depends on the agency’s demographics; the presence of polarized voting within the agency’s boundaries; and past voting records for or against “protected class” candidates in the agency’s elections, or in other elections in which voters within the agency’s boundaries may participate. Demographic studies suggest that at-large voting systems are much more likely to dilute the rights of voters.  By-area voting systems, on the other hand, are generally not subject to challenge under the CVRA or FVRA, unless in creating the voting districts, the agency manipulated demographic data or applied such data in a discriminatory manner, e.g. gerrymandering.

The California Elections Code provides a mechanism for a citizen to challenge an agency’s at-large election method if it impairs the ability of a protected class to elect candidates or dilutes the rights of voters of a protected class. If a voter challenges an at-large election system in court and a court finds it in violation of CVRA, the court must implement remedies, including the imposition of by-area elections that are tailored to remedy the violation.

In recent years, several agencies in California have been the subject of CVRA and/or FVRA litigation.  This sort of litigation is very expensive and difficult for an agency to win.  In fact, we are unaware of any agency that has successfully defended an at-large voting system. Other agencies have voluntarily moved from at-large to by-area elections both to avoid potential litigation and out of concern for ensuring equitable voter representation.

If your agency currently maintains at at-large system, we recommend that you consult with legal counsel to determine whether it would be in your agency’s best interest to voluntarily move to a by-area voting system.  As a proactive means of addressing potential violations of the CVRA or FVRA under an at-large system, agencies may also want to consider conducting a demographic analysis to determine if polarized voting is present within the agency’s geographic boundaries.

Re-drawing Local Agency Lines in 2021

If your agency currently elects the members of its governing body using the by-area system or plans to move to a by-area system, beginning in 2021, your agency will need to redraw its district/area lines using 2020 census data.

The redrawing of by-area voting lines must seek to ensure compliance with the CVRA, FVRA and the U.S. Constitution.  In redrawing an agency’s district lines, an agency must consider factors including, but not limited to:

  • Whether the boundaries of each voting district are nearly equal in population in order to ensure compliance with the Equal Protection Clause of the Constitution;
  • Whether the boundaries of each voting area may likely result in a denial or abridgment of the right of any citizen to vote because of race or color as provided in section 2 of the FVRA;
  • Whether the boundaries of each voting area respect communities of interest, rural or urban populations, social interests, agricultural, industrial or service industry interests, and the like, insofar as practicable;
  • Whether the boundaries of each voting area are compact, insofar as practicable; and
  • Whether the boundaries of each voting area contain contiguous territory, insofar as practicable.

Public input is required under California law before an agency may adopt new district maps.

As agencies begin to ramp up for the 2020 Census, they should consider consulting legal counsel and demographic consultants in preparation for the redistricting process.

Leaving the Leaves to Someone Else: What Employers Should Know About Third Party Leave of Absence Administration

Posted in Employment

This post was authored by Stefanie K. Vaudreuil.

With all the possible leaves of absence that may be available to employees, ensuring consistent and accurate application of the applicable laws relating to leaves can be one of the more daunting tasks for employers. In a recent survey conducted by the Disability Management Employer Coalition (DMEC), 1203 employers responded to 75 questions related to employee leaves. The top challenges in leave management were identified as “relying on managers for leave enforcement . . . training supervisors and managers on the FMLA, and managing intermittent leave.” Other areas of particular difficulty for employers include the crossover between FMLA, the Americans with Disabilities Act (ADA) and workers’ compensation leaves and situations where employee abuse leaves of absence.

As a result of these challenges, many employers have turned to third-party administrators (TPA) to manage their employee leaves. While this may alleviate the guesswork and burden from the employer, the TPA does not always get it right. Employers who have chosen to use a TPA should be aware of both the benefits and risks.

When a TPA takes over the employer’s leave management responsibilities, the employer is not involved in the day-to-day decision-making process. The benefit for the employer is that it alleviates the burden of tracking the leaves and takes the personal aspect out of the process. This is a relief not only for the employer but also for the employee who may be wary of revealing his or her health condition directly to the employer.

Using a TPA, however, does not absolve employers of potential liability arising out of incorrect administration of employee leaves. In a case handled and settled by the California Department of Fair Employment and Housing (DFEH) in January 2019, an employer was required to pay a former employee $112,500 in lost wages and damages after she was denied an extension of disability leave and then terminated. In that case, the employer’s TPA denied the employee’s request for an extension of disability leave. The employer, relying on the TPA’s decision, terminated the employee because she was unable to return to work. DFEH Director Kevin Kish noted, “Employers cannot shield themselves from liability for disability discrimination by outsourcing decisions concerning employees’ requests for reasonable accommodation” and “[t]hird party leave administrators are agents of employers; thus, employers are ultimately responsible for decisions on employee requests for reasonable accommodation.”

Employers should be aware of what leaves the TPA is administering. In the recent DFEH case, the TPA did not consider the reasonable accommodation leave requirements under the ADA, and neither did the employer, which resulted in the employee’s termination and disability discrimination claim. Employers can minimize the risk of liability by ensuring the TPA considers all types of potential leaves available to employees when making decisions to grant or deny time off from work. When a TPA denies an employee leave, the employer should have a procedure in place to ensure that no other leave or accommodation is available under the law or employer policy. Good communication between the employer and the TPA is key.

For employers already using a TPA, an assessment of the TPA’s procedures for reviewing, granting and denying leave allows the employer to attain a clear understanding of what types of leaves the TPA manages and determine whether the employer has adequate control over the leave management process. Employers contemplating retention of a TPA should consider the resources, needs, and culture of agency when weighing the benefits and risks of relinquishing control of leave management.

A Step Back For Equal Pay? Supreme Court Vacates 9th Circuit’s Decision in Rizo v. Yovino

Posted in Wage and Hour

This post was authored by Megan Lewis.

The United States Supreme Court has vacated the decision of Ninth Circuit U.S. Court of Appeals (which covers all of California) in Rizo v. Yovino, which established that employers cannot rely on an applicant’s prior salary history to justify paying one employee differently than another employee of the opposite sex for similar work.

The Ninth Circuit’s Decision

The key issue in Rizo was the meaning of an exception to the federal Equal Pay Act.  This Act requires that, where an employer is paying an employee less than an employee of the opposite sex for work requiring the same skill, effort, and responsibility, which is performed under similar working conditions, the employer must be able to demonstrate that the disparity is based on one of the following: (1) a seniority system; (2) a merit system; (3) a system which measures earnings by quantity or quality of production; or (4) a differential based on any other factor other than sex.  The first three exceptions are fairly straightforward, but the fourth (known as the “catchall” exception) has often been the subject of litigation, as it was in the Rizo case.

The Ninth Circuit held that the only “factor[s] other than sex” employers can use to justify a wage disparity are “legitimate, job-related factors such as a prospective employee’s experience, educational background, ability, or prior job performance.  The Ninth Circuit stated that allowing salaries that were the result of “endemic sex-based wage disparities” to play a role in future salaries would, “perpetuate rather than eliminate the pervasive discrimination at which the Act was aimed.”

The U.S. Supreme Court’s Decision to Vacate

When we last reported on this decision, a petition for writ of certiorari was pending asking the high court to review the matter.  Jim Yovino, the Fresno County Superintendent of Schools, had asked the Court to review the Ninth Circuit’s decision because the U.S. Courts of Appeal in other parts of the Country had issued diverse opinions on whether prior salary is a “factor other than sex.”

The Court granted certiorari, but did not reach the merits of the Ninth’s Circuit’s ruling.  Instead, the Court vacated the decision and returned the case to the Ninth Circuit because Judge Stephen Reinhardt, who had authored the majority decision, died before the decision was issued.  Though the Ninth Circuit’s opinion noted that the judges voted and completed their opinions before Judge Reinhardt died, the Supreme Court set aside the ruling.  According to the Court, “federal judges are appointed for life, not for eternity.”

What Happens Next?

The Ninth Circuit was unanimous in ruling in favor of Rizo, and that outcome is unlikely to change when a new ruling is issued.  However, the panel was split on the reasoning behind the ruling, so we could see a different rationale behind the decision when the Ninth Circuit issues its new ruling with another judge taking Reinhardt’s place

As a practical matter, this ruling does not impact California employers because there is California law (Labor Code § 432.3) that already restricts the ability of employers to gather applicant salary history information or consider such information when determining whether to offer employment to an applicant and/or what salary to offer.

We will provide an update when the Ninth Circuit issues its new ruling.

Smell the Bouquet of Legal Issues

Posted in Disability

This post was authored by Sarah R. Lustig.

A recent case is a good reminder to employers that scent and chemical sensitivities can indeed be considered a disability subject to the protections of the Americans with Disabilities Act (ADA) and/or the Fair Employment and Housing Act (FEHA).  John Barrie (Barrie) suffers from allergic sensitivities and reactions to multiple chemicals.  He informed his supervisor of his disability when he was hired by the California Department of Transportation in 2005 (DOT).  The DOT informally accommodated his disability during the first five years of his employment.  After Barrie started reporting to a new supervisor in 2010, he began finding chemicals in his office.

Barrie made numerous written and verbal complaints.  These complaints led to hostility and retaliation at work.  Barrie filed suit after supervisors repeatedly ignored management directives to keep perfumes and cleaning chemicals, like Windex and Comet, away from him.  Barrie claimed his supervisor called him an “idiot” and a “jerk” and that, after his desk was moved, he would sometimes find his things soaked in perfume.  After a 12-day trial, a jury found in favor of Barrie agreeing he had a physical disability of chemical sensitivity, his supervisors harassed, discriminated, and retaliated against him because of that disability and his complaints, and the DOT failed to reasonably accommodate his disability.  In May of 2017, the jury awarded Barrie over $44,000 in economic damages for lost earnings and $3 million in noneconomic damages for emotional distress.

The DOT contested the jury’s figure and the trial court judge found the award excessive and lowered the award to $350,000 as fair and reasonable.

Barrie appealed.  On March 28, 2019, California’s Third District Court of Appeal unanimously reinstated the jury’s original verdict. (Barrie v. California Dept. of Trans. (2019) Cal. 3rd Crt. App. Case No. C085175.)

This large verdict is not an anomaly.  In May 2005, a jury awarded a deejay $10.6 million for her employer’s failure to accommodate her allergy to a co-worker’s perfume, ignoring her complaints. (Weber v. Infinity Broad. Corp. (E.D. Mich. Dec. 14, 2005).)  The award was eventually reduced to $1.25 million, along with attorneys’ fees of approximately $424,000. In 2010, the City of Detroit agreed to pay a senior city planner with Multiple Chemical Sensitivity, $100,000, revise its ADA handbook and training, and to post notices about the fragrance-free policy to settle a perfume allergy lawsuit.  The employee complained when a new coworker wore heavy perfume and used a room deodorizer.  The coworker agreed to unplug the room deodorizer at the employee’s request, but refused to stop wearing perfume.  The employee appealed to her supervisor and to human resources, but the city misinformed the employee that her coworker had a constitutional right to wear perfume to work.

Under the FEHA, a disability is having a physical or mental impairment that limits one or more major life activities.  Major life activities include, among other things, breathing, concentrating, thinking, and working.  All of these activities can be impacted by a severe allergic reaction.  Employers should understand their obligations to engage in the good-faith, interactive process, and provide reasonable accommodations.  The accommodations analysis should address three issues:

  • Reasonableness: Is the requested accommodation reasonable?
  • Effectiveness: Is the request effective? Will this requested accommodation effectively allow the employee to perform the essential functions of his or her job?
  • Undue Hardship: Does the request pose an undue hardship?

Moreover, to minimize risk and liability, employers should be vigilant in monitoring the effectiveness of any accommodation.

Court of Appeal Issues First Published Decision on Senate Bill 1421 and Retroactivity

Posted in Special Bulletin

This Special Bulletin was authored by J. Scott Tiedemann & Lars T. Reed

Over the past three months, since California Senate Bill 1421 went into effect on January 1, 2019, numerous public agencies across California have been involved in litigation over whether the new law applies to records created before 2019. After conflicting decisions from various superior courts, some of which we discussed in a previous blog post, the California Court of Appeal has now issued the first published decision addressing this issue.

The ruling comes in Walnut Creek Police Officers’ Association v. City of Walnut Creek et al., which was a consolidated appeal of six different lawsuits brought by peace officer unions against various public agencies in Contra Costa County.  The unions had each petitioned for injunctive relief limiting SB 1421 disclosures to records created after January 1, 2019. The superior court denied the petitions, and the unions challenged the ruling in the Court of Appeal.

In a decision published on March 29, 2019, the Court of Appeal, First Appellate District, upheld the superior court’s decision. The Court ruled that applying SB 1421 to older records does not make the law impermissibly retroactive: “Although the records may have been created prior to 2019, the event necessary to ‘trigger application’  of the new law—a request for records maintained by an agency—necessarily occurs after the law’s effective date.” The Court also explained that the new law “does not change the legal consequences for peace officer conduct described in pre-2019 records. … Rather, the new law changes only the public’s right to access peace officer records.”

As a published appellate court decision, the Court’s ruling in this case is binding precedent in all superior court proceedings across California unless or until there is a contrary opinion published by a different Court of Appeal, or by the Supreme Court.

DOL Proposes Changes to the Rules Governing Payments to Exclude from the Regular Rate

Posted in Special Bulletin

This Special Bulletin was authored by Lisa S. Charbonneau

On March 29, 2019, the Department of Labor (DOL) published proposed new rules on the Regular Rate requirements (i.e., the rate at which overtime must be paid) under the Fair Labor Standards Act (FLSA).  The proposed rules may be found here.  The comment period for the proposed rules closes on May 28, 2019.

The most significant part of the proposed new rules is an update to Part 778 of the Code of Federal Regulations (CFR), which governs Overtime Compensation under the FLSA.  In particular, the bulk of the proposed rules update a subpart titled “Payments that May be Excluded from the ‘Regular Rate,’” which provides guidance on various types of compensation excluded from the regular rate.  Relevant here, the subpart addresses the following payments in some detail: Extra Compensation for Overtime (see 29 CFR sections 778.201-207), Bonuses (see 29 CFR sections 778.208-215), and Payments Not for Hours Worked (see 29 CFR sections 778.216-224).  This bulletin will focus on the changes proposed to the subsection entitled “Payments Not for Hours Worked,” which provides guidance on items of compensation excluded from the regular rate under 29 USC 207(e)(2).

The proposed changes are not final.  By seeking comments on their proposed regulatory changes, the DOL is seeking public input into what it has proposed.  If final rules are issued (which is likely) they may be the same, similar or completely different from the proposed rules.  As such, employers should not change current pay practices to align with the proposed rules.  Rather, before modifying how you calculate overtime, you should wait to see what is included in the final rules, if, and when, they are issued. 

Background on the Regular Rate

Under the FLSA, an employee is entitled to time and one-half his or her “regular rate” for all hours worked in excess of the applicable FLSA overtime threshold, which is generally forty hours in a seven-day workweek.  The Act defines the regular rate as including “all remuneration for employment” except compensation specifically excluded under one of eight exclusions set forth in the Act at 29 USC 207(e).

One such exclusion is a significant focus of the proposed new rules: 29 USC 207(e)(2), which excludes the following from the regular rate:

  • “payments made for occasional periods when no work is performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar cause;”
  • “reasonable payments for traveling expenses, or other expenses, incurred by an employee in the furtherance of his employer’s interests and properly reimbursable by the employer; and”
  • “other similar payments to an employee which are not made as compensation for his hours of employment.”

Much of the DOL’s proposed rules apply this provision to the 21st-century workplace.   Indeed, most of Part 778 of the regulations was issued in 1950 and the most recent substantive update to the Part was in 1968.  Due to the significant changes in the workplace and employee compensation since that time, the proposed rules are a helpful guide for applying the FLSA to the 21st-century workplace.

Specific Guidance from the Proposed New Rules on Payments Not for Hours Worked that are Excludable from the Regular Rate

Instead of providing a comprehensive summary of the entirety of the DOL’s proposed changes to Part 778, we have identified certain proposed updates that are particularly relevant to employers.

Holiday, Vacation & Sick Leave Cash Outs

Many employers provide various forms of paid leave that may be used or if unused, converted into cash payments paid directly to employees.  Under the proposed new rules, the DOL would consider cash-outs of accumulated vacation, holiday, and/or sick leave (also referred to as leave sell-backs or buybacks) excludable from the regular rate – regardless of whether the leave is used contemporaneously or cashed-out in a lump sum at a later date.  However, the proposed rules make a distinction between sick leave cash outs not tied to the use of sick leave, which the DOL would consider excludable from the regular rate, and payment of an attendance bonus for nonuse of sick leave, which the DOL would consider included in the regular rate.  As the final rules are issued, we will monitor carefully this distinction drawn by the DOL.  Depending on how this issue is resolved in the final rules, employers may need to closely examine how they characterize their employees’ right to cash out sick leave. Per the proposed rules, the characterization (is it based on sick leave usage or not?) could make the difference between whether the cash out may or may not be excluded from the regular rate.

Wellness Programs, Gym Memberships, On-Site Treatment by Medical Specialists, and Similar Payments

Employers are increasingly providing significant “wellness” benefits to employees.  Such benefits take many unique forms.  Pursuant to the proposed new rules, the employer cost of furnishing any of the following may be excluded from the regular rate: treatment provided on-site from specialists such as chiropractors, massage therapists, physical therapists, personal trainers, counselors, or Employee Assistance Programs; gym access, gym memberships, fitness classes and recreational facilities; wellness programs, such as health risk assessments, biometric screenings, vaccination clinics, nutrition classes, weight loss programs, smoking cessation programs, stress reduction programs, exercise programs, and coaching to help employees meet health coals; and discounts on employer-provided retail goods and tuition benefits not tied to quantity or quality of work performed.  While this proposed new rule does not necessarily announce new law, if it becomes part of the final rules it would be a welcome clarification that employers may offer these sought-after benefits without concerns for their regular rate impacts.

Employer Contributions to Accident, Unemployment, or Legal Services Benefits Plans

Although not pertaining to the exclusion found at 29 USC 207(e)(2), the proposed new rules also clarify that employer contributions to accident, unemployment, or legal services benefit plans are excludable from the regular rate.  If this proposed new rule becomes part of the final rules, employers will have more freedom to provide such benefits to their employees without fear that such contributions must be included in the regular rate.

Per Diems

Per diems are allowances for lodging, meals and incidental expenses provided to employees traveling on employer business.  Pursuant to the proposed new rules, per diems may be excluded from the regular rate when they are less than or equal to the per diems permitted under the Federal Travel Regulation System, 41 CFR Subtitle F.  Current federal per diem rates for various California localities may be found here.  Note that higher per diems may also be excludable from the regular rate if they are reasonable, but under the proposed rules, following the federal rates will best ensure the per diem amounts are excludable from the regular rate.  If this proposed change becomes part of the final rules, employers will no longer have to guess what is “reasonable” for purposes of excluding a per diem payment from the regular rate.

Call Back, Call Out Pay and Similar Extra Payments

Many employers provide minimum call back or call out pay for employees required to return to work due to an emergency or other unforeseen circumstance.  Under the proposed new rules, when callbacks or call outs are “so regular that they are essentially prearranged,” the entire minimum payment for callbacks or call-outs must be included in the regular rate – even if actual hours worked are less than the minimum callback or call-out amounts.  The example of a regular, essentially prearranged call back provided by the proposed new rules is an employee called back during the busiest part of the day for six weeks out of two months in a row.  The practical effect of this proposed guidance requires evaluation on a case-by-case basis depending on an employer’s specific callback / call out policies and practices.  Most employers (and their payroll systems) do not require employees to record actual hours worked when they are called back and receive minimum callback pay.  Rather, they record all hours as hours worked.  Existing law provides that minimum call back payments (e.g., an employee is paid a minimum of four hours for being called back even though the employee may only be called back for two hours) are excludable from the regular rate.  If the proposed change becomes part of the final rules, employers may wish to consider ensuring that their payroll systems distinguish between actual hours worked and the minimum payments made for callbacks and only include minimum callback payments in the regular rate if they meet the proposed test of being “so regular that they are essentially prearranged.”

Paid Meal Breaks

Although not required under the FLSA, some employers provide paid meal breaks to their employees.  The proposed new rules clarify that payments for bona fide meal periods (where no work is performed) may be excluded from the regular rate.  This clarification was designed to reflect existing law, including a 2004 Ninth Circuit case, Ballaris v. Wacker Siltronic Corp., which held that payments for lunch periods are excluded from the regular rate.

What Is Next?

Until May 28, 2019, members of the public are invited to comment on the DOL’s proposed rules prior to their adoption into what will be the final rules.  Comments must be written and submitted on or before May 28, 2019.  Electronic comments may be submitted here.  After the comment period closes, the DOL will review the comments along with the published proposed rules, and at some point in the future, will likely issue the rules in final form.  At that time, the new rules will become the official guidance of the DOL.  Liebert Cassidy Whitmore is following this matter and will provide updates as needed.

If you have questions about the applicability of these proposed rules, please consult with wage and hour counsel for answers.  But note, until the rules are in final form, they have no legal effect and are only indicative of the intent of the DOL.

Heroic Acts by California Peace Officers During the 2017 Las Vegas Shooting Inspire New California Law Allowing Employers to Extend Workers’ Compensation Protections to Peace Officers for Out-of-State Off-Duty Conduct

Posted in Public Safety Issues, Wage and Hour

This blog was authored by Alysha Stein-Manes.

On October 1, 2017, several peace officers from the Orange County Sheriff’s Department were in attendance at the 91 Harvest Music Festival when a gunman opened fire on the crowd.  Fifty-eight people were killed and over 800 injured.  Several of these peace officers brought other festivalgoers to safety and continued to provide assistance to the local police immediately following the shooting.  Reports further indicate that peace officers from other California agencies were also present at the Festival and provided assistance.

Following the Las Vegas shooting, several Orange County peace officers filed workers’ compensation claims for injuries arising from their off-duty conduct, but their claims were denied because the California Labor Code did not extend workers’ compensation protections for such out-of-state conduct.

In response to the deputies’ experiences, an assembly member introduced Assembly Bill (AB) 1749 to amend the California Labor Code governing workers’ compensation benefits.  Following unanimous support from both Legislative houses, then-Governor Jerry Brown signed AB 1749 into law in the Fall of 2018.  The law specifically amends the Labor Code to permit public agencies to accept liability for workers’ compensation of a peace officer, if the peace officer “is injured, dies, or is disabled from performing his or her duties as a peace officer by reason of engaging in the apprehension or attempted apprehension of law violators or suspected law violators, or protection or preservation of life or property, or the preservation of the peace,” whether peace officers engage in such conduct in-state or out-of-state.  A public agency may accept such liability if the agency determines that providing workers’ compensation serves the agency’s public purpose.  Importantly, the law extends the timeline for peace officers who were injured in the Las Vegas shooting to file workers’ compensation claims by statutorily setting their “date of injury” as January 1, 2019.  By setting their date of injury as January 1, 2019, these peace officers may take advantage of the statute’s one-year statute of limitations.

The new law also clarifies that an agency’s acceptance of workers’ compensation liability does not affect any determination of whether a peace officer acted within the course and scope of their employment for any other purpose.  This additional language may be intended to protect agencies from liability for alleged legal violations arising from a peace officer’s off-duty conduct.

AB 1749 does not create a mandate that a public employer accept workers’ compensation liability under the circumstances described above.  Rather, the law expressly states that an employer may accept liability “at its discretion or in accordance with written policies adopted by resolution of the employer’s governing body.”

Agencies should consider if and how they wish to implement this new law.  On the one hand, adoption of a written policy can protect an agency against accusations that decisions to accept or deny liability are made for arbitrary, discriminatory, retaliatory or other improper reasons.  Written policies are generally a best practice.  On the other hand, the ability of an agency to make ad hoc non-discriminatory and non-retaliatory decisions regarding accepting such liability provides agencies with flexibility where it may be difficult to define what triggers coverage under this new law.  We recommend that agencies consult with their legal counsel to consider their options and discuss the drafting of a policy that will best serve a particular agency’s needs.

While this new law applies only to peace officers, the Legislature is currently considering a bill, AB 932, which would extend similar protections to California’s firefighters when the firefighter engages in fire-suppression or rescue operation or the protection or preservation of life or property outside of California.  We will continue to monitor AB 932 as it makes its way through the legislative process and provide updates.