As the legal landscape continues to evolve in terms of labor and employment, the Los Angeles Business Journal once again turned to some of the leading employment attorneys and experts in the region to get their assessments regarding the current state of labor legislation, the new rules of hiring and firing, and the various trends that they have been observing, and in some cases, driving. Below is a series of questions the Business Journal posed to these experts and the unique responses they provided – offering a glimpse into the state of business employment in 2018 – from the perspectives of those in the trenches of our region today. Thanks to our superb panel for their expert insights.
What are the most significant new employment laws taking effect –or the most consequential court decisions decided by the California Supreme Court – in 2018?
COLE: The newest and potentially most significant new employment law is the recent clarification on the standard for determining whether workers should be classified as employees or independent contractors. But other laws have serious implications for employers as well, such as the ban on salary history inquiries, the prohibition on asking applicants about their criminal conviction history before a conditional offer of employment is made, and the prohibition on immigration enforcement agents entering workplaces without a warrant. The new Parental Leave Act is another significant change in 2018, which requires employers with 20 or more employees within a 75-mile radius of the worksite to provide up to 12 weeks of unpaid leave in a 12-month period for the care of a new child. This change is expected to broaden existing family leave legislation to an additional 6 percent of California employers and 2.7 million employees.
ALLDERDICE: In a surprising decision issued on April 30, 2018 by the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court, the Court established a new legal test for determining employee versus independent contractor status under California Industrial Welfare Commission (IWC) Wage Orders that apply to most businesses operating in this state. The Court first adopted the test announced in its 2010 decision, Martinez v. Combs, that is, whether the hiring entity had “suffered or permitted” the individual to work, and then the Court decided that independent contractors must ultimately meet what is commonly referred to as the “ABC” test. The “ABC” test requires satisfaction of each of the following elements for a worker to be considered a contractor rather than an employee: “(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.” The Court held that this standard was not limited to a “joint employer” relationship, such as the relationship at issue in Martinez, but rather that it could “cover a variety of entities that have a relationship with a workers’ primary employer, for example, a larger business that contracts out some of its operations to a subcontractor but retains substantial control over the work.” In establishing this new test, the Court rejected the longstanding multifactor test that was announced in its 1989 decision, S.G. Borello & Sons, Inc. v. Department of Industrial Relations, which comprises of a primary “right-to-control” test and various secondary factors. The Court noted, however, that for claims arising under other provisions of the Labor Code that do not involve Wage Orders, such as Labor Code section 2802 requiring reimbursement of business expenses, Borello might still be applied as the governing standard. The Court has extended the period of time in which it may decide to rehear the case, at least retroactivity grounds, until July 27, 2018. California businesses that use the independent contractor business model, and not just for easily recognizable independent trades such as plumbers or electricians, are impacted by this decision. Key questions to be addressed include whether the contractor model is still viable for the business and how if at all contractual relationships can properly reflect the parties’ allocation of responsibility for wage and hour violations. This type of allocation was recently upheld by an appellate court in deciding that one joint employer would not be liable for unpaid wages where the contract allocated responsibility between the two parties.
Which of California’s new employment laws are most likely to land employers in court?
COLE: Following the California Supreme Court’s April 30, 2018 decision in Dynamex Operations West, Inc., the issue of who should be classified as employees or independent contractors is the new employment law most likely to land employers in court. To prove that a worker is an independent contractor, employers must establish: that the worker is not under the control of the employer or hiring entity; that the worker performs work that is outside the usual course of the hiring entity’s business; and that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed. The new Dynamex standard is high and has enormous implications for employers in a variety of industries, especially the “gig economy,” trucking, entertainment, technology and health care, all of which regularly use independent contractors.
ALLDERDICE: California Labor Code section 218.7 (AB 1701) provides that for contracts “for the erection, construction, alteration, or repair of a building, structure, or other private work” entered into on or after January 1, 2018, direct contractors will be liable for unpaid wages and benefits owed by subcontractors at any tier. Given the California Labor Commissioner’s aggressive actions to protect workers from “wage theft,” the Labor Commissioner will likely vigorously enforce these new wage protection provisions. However, the new law gives contractors and subcontractors the ability to allocate responsibility for payment of wages and indemnification provisions in their contracts, and such provisions should be included in any new contract for this type of work. The new “California Fair Chance Act,” Cal. Gov’t Code section 12952 (AB 1008), extends California’s “ban the box” rules (i.e., prohibition on requesting criminal history on employment applications) to private employers with five or more employees and imposes substantial restrictions on requesting and considering criminal history in making employment decisions. In enacting this law, the Legislature noted that, “Roughly seven million Californians, or nearly one in three adults, have an arrest or conviction record that can significantly undermine their efforts to obtain gainful employment.” Accordingly, until a conditional offer has been extended to an applicant, applicants cannot be asked for conviction history. Employers should review their employment applications to delete questions related to conviction history. The new rules do not apply to employers who are required by any state, federal, or local law to conduct criminal background checks for employment purposes or to restrict employment based on criminal history. New California Labor Code section 432.3 (AB 168) bars employers from relying on an applicant’s salary history in determining whether to offer employment, but shields employers from liability if the applicant volunteers this information. This means that an employee cannot ask an applicant for his current salary. These provisions should be read together with other California “pay equity” rules that bar employers from relying on prior salary alone to justify pay disparities, and from paying different wages rates for “similar work” based on sex, race or ethnicity. Pay practices will continue to be under the spotlight in the media and challenged in our courts.
How important is sensitivity training in the workplace in 2018?
GORDON: Sensitivity training is very important. It is important for a wide range of individuals, from those who provide training and education to employees to vendors who are outsourced. Equally, all need to be informed of the policies set in place regarding expectations for diversity, harassment, workplace safety, discrimination, ADA requirements, and general equal opportunity requirements. Regular training is a good practice to implement, as it may not only limit liability exposure, but documentation of the training helps when liability issues arise.
COLE: In the wake of the #metoo movement, sensitivity training in the workplace is more important in 2018 than ever before. Harassment and discrimination are not always as blatant as some of the media stories we have seen over the last several months. They are often more nuanced and involve innuendo among co-workers and supervisors, which, if unaddressed by an employer, can lead to substantial liability.This is the time for employers to be vigilant and mindful of the potential risk that results from sexual harassment and workplace discrimination. While no amount of training or awareness can eliminate misconduct at work completely, this kind of training can be essential in preventing and remedying discrimination and harassment, which employers have a statutory duty to do under California law. The business case for sensitivity training is that workplace discrimination and harassment affects employee productivity and can have a significant financial impact on a business.
ALLDERDICE: “Sensitivity training” is more important than ever before in today’s workplace. Not only is there heightened scrutiny in the media about how companies are handling fallout from the #metoo movement, which has placed sex harassment and gender discrimination at the forefront, businesses must also pay attention to their employees’ interactions with the public. The question then is who should attend the training and how should the training be conducted. In California, businesses with 50 or more employees must conduct sensitivity training on sex harassment, gender, and abusive conduct for supervisors within six months of their becoming supervisor and every two years. As a practical matter, this training usually includes training on other protected characteristics as well, such as race, ethnicity and religious affiliation. For small employers, however, this is not a “free pass” from responsibility for workplace conduct requirements. The California Fair Employment and Housing Act, or FEHA, applies to employers of five or more employees, and any business that employs at least one employee is covered by FEHA’s sex harassment law and the obligations to establish an equal employment opportunity (EEO) policy, a complaint process, and a means by which harassment in the workplace can be identified, addressed and remedied. And, for purposes of sex harassment law under the FEHA, contractors are included as well. As a matter of compliance and sound risk management, companies should conduct sensitivity training that focuses on harassment, discrimination and retaliation under our state and federal laws, and should adopt policies that reflect sound business practices that encourage diversity and respectful communications in the workplace.
Would you say that a company’s employee handbook is still vital in this day and age or have they become a thing of the past?
COLE: Employee handbooks are still very important. Employees should know what is expected of them and that they are being treated the same way as other employees. The perception of unfair treatment can lead to disgruntled employees, low morale and, ultimately, to lawsuits. Implementing uniform rules for all employees and enforcing them consistently makes running a business easier because it reduces the need to think about what actions to take in a given situation. Of course, it is impossible to have a written policy for every conceivable workplace situation, but having general guidelines helps.
GORDON: An employee handbook is critical to establishing policies in an organization. It also defines the employer’s good faith effort to meet best management practices, EEOC requirements and safety requirements. An employee handbook is an appropriate place to include the company’s goals/mission and commitment to excellence. Much like sensitivity training, the employee handbook is good documentation to provide in grievance and/or arbitration cases.
What should employers know about mediation in the context of employment disputes?
ALLDERDICE: Mediation is a mechanism whereby parties to a dispute participate in an out-of-court facilitated discussion with a third party, often a retired judge or attorney who is experienced in employment law or litigation, with the goal of settling their dispute. The conversation that takes place between the mediator and the parties, or between the parties during a mediation, is conducted in a confidential manner. In fact, these conversations are covered by what is known as the settlement, or mediation, privilege, which means that statements made in the mediation cannot be disclosed in court. Parties to litigation are often ordered to mediation by the court, though this occurs more in federal court litigation than in our state courts. However, whether a settlement is reached, or not, is up to the parties. Mediation can be conducted at any time during litigation, and in recent years we have seen the use of pre-litigation mediation to resolve matters even before a complaint is filed, and before the parties have expended time and resources on expensive discovery. Bottom line, mediation can be an opportunity to resolve a dispute and cut off the legal risks, but to gain the most from the process at any stage of the proceedings, employers need to be prepared so they can be a vigorous advocate of their position to the mediator.
Cole: Although there are many advantages to mediating employment disputes, employers should be mindful not to mediate too soon. If it is too early, the employer may be negotiating without the ability to accurately assess the strength of its defenses and end up settling for an amount far beyond what the claim is worth. Another often overlooked pitfall is the consequences of mediating with a pro se plaintiff. Mediation can be problematic in this situation because the employee’s ability to make a truly informed decision on settlement without the advice of legal counsel is limited. Mediation with a pro se party can also raise serious ethical concerns for the employer’s counsel and the mediator, which are often overlooked.
What should employers know about implementing and enforcing non-competes and other restrictive covenant agreements in California?
ALLDERDICE: As a general rule, non-compete agreements cannot be used by a business in California to control an employee’s post-employment conduct. Non-compete agreements are enforceable in California only in narrow circumstances involving either the purchase and sale of a company with its good will, or in connection with a partner departing from the partnership. These principles were confirmed decisively in the 2008 decision of the California Supreme Court in Edwards v. Arthur Andersen, when the Court declared that under Section 16600 of the Business and Professions Code, it was the public policy of California not to enforce non-compete agreements. The Andersen Court noted that enforcing the ban on non-competes reflects “settled legislative policy in favor of open competition and employee mobility.” The Court, however, left open the question whether a business can enforce contractual provisions protecting “trade secrets” in such a way that may have the effect of restraining competition. This is especially significant in light of the fact that California has rejected the “inevitable disclosure” doctrine by which an employee could be barred from taking a job with a competitor because it would ultimately require reliance on the former employer’s trade secrets. As a proactive measure, every business should have comprehensive policies protecting trade secrets and confidential proprietary information that would otherwise be protected under the laws of unfair competition. Companies may also wish to implement “noninterference” agreements whereby, in narrowly tailored terms and either during employment or for a reasonably limited period of time following the employee’s departure, employees agree they cannot affirmatively solicit employees with whom they worked (e.g. an anti-raiding provision). Although “noninterference” agreements have been enforced by the courts, they need to be carefully drafted in order to avoid being challenged as “back door” non-compete agreements. Implementing both the trade secrets protection and the anti-raiding provision can offer some protection to employers in an otherwise hostile environment for non-compete agreements.
What are your views on using arbitration agreements as an alternative to employment litigation?
GORDON: Arbitration agreements have been a better method used by our fund. However, the agreement is only as good as the arbitrator assigned to the case/claim. It is important that the arbitrator understand the fund that it is representing thoroughly, be experienced and possess the proper training to represent the fund. Accompanying an experienced arbitrator with proper documentation of audits performed, minutes taken, progressive disciplinary action taken and good planning make for a good outcome. These components determine success or failure.
COLE: The question of whether an employment dispute should be arbitrated depends on the circumstances of the particular case. But one of the biggest potential advantages of arbitration agreements for employers is including a class action waiver provision requiring employees to arbitrate solely on an individual basis. This can protect employers from the increased expense and potential liabilities involved in defending claims involving multiple employees. The problem is that there is a split among the Circuit courts as to whether these provisions are even enforceable. The Second, Fifth, Eighth and Eleventh Circuit Courts have held that they are enforceable, while the Seventh, Sixth and Ninth Circuits have held that they are not enforceable. The issue is now before the Supreme Court and a decision is expected by the end of June.
ALLDERDICE: On May 21, 2018, the United States Supreme Court issued its decision in the closely-watched trio of cases – Epic Systems Corp. v. Jacob Lewis, Ernst & Young LLP, et al. v. Stephen Morris, et al.; and NLRB v. Murphy Oil USA, Inc., et al. – in which the Court approved the use of class action waivers in individualized employment arbitration agreements under the Federal Arbitration Act. Now that such waivers have been sanctioned by the highest court, we expect to see an uptick in the use of individual arbitration agreements with class action waivers. However, we can also expect to see continued challenges to arbitration agreements in California given the requirements for such agreements established by the California Supreme Court in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83 (2000) to enforce such agreements. The special rules that apply, at least for now, to arbitration proceedings should be considered in weighing the pros and cons of such proceedings. First, California employers must pay the cost of the arbitrator, with the exception of any filing fees that the employee would have paid to file a lawsuit in court. Second, arbitration agreements must meet minimum standards: a neutral arbitrator (meaning that both the employer and employee participate in the selection process), adequate discovery, no waiver of damages an employee could recover in court, and a written opinion. Third, bringing certain claims in court cannot be waived by an arbitration agreement, including claims under the California Labor Code Private Attorneys General Action, or PAGA. PAGA has the effect of deputizing employees in recovering penalties for violations of the California Labor Code, which the Labor Commissioner would otherwise have recovered. Some federal courts, however, have disagreed with California courts, finding that employees can bring representative PAGA claims in arbitration. This means that an employer could face a PAGA claim in state court, and an arbitration proceeding for the other claims. (The arbitration agreement should include a provision for staying the PAGA claim until the other claims have been resolved.) Fourth, there is limited review of an arbitrator’s decision, which is usually final and binding on the parties. Even with these drawbacks, an arbitration agreement can protect employers from class action claims, runaway juries and protracted court proceedings, while promoting a private resolution of a dispute.
What are the most frequent mistakes made by employers when disciplining employees?
COLE: Some of the most frequent mistakes employers make involve the failure to document discipline and the failure to discipline immediately. A written record of disciplinary meetings and incidents creates key evidence of an employee’s performance and behavior, and helps eliminate the potential for miscommunication between the employer and employee. But, if too much time passes before the issue is addressed, the incident gets stale. Subsequent discipline for stale issues creates a greater risk of retaliation or harassment claims and any documents created too far “after the fact” are viewed suspiciously and are less credible. Effective discipline for misconduct should happen as quickly after the event as possible and be reflected in documents maintained in the employee’s personnel file and other secured locations, as necessary.
ALLDERDICE: Any “top ten” list of mistakes employers frequently make when disciplining employees should include the following: 1. Failing to communicate clearly the job duties, roles and responsibilities the employee is to perform. 2. Failing to provide timely constructive feedback on how the employee is performing the assigned work. 3. Failing to document performance deficiencies and counseling. 4. Communicating only by email, and avoiding face-to-face communications. 5. Failing to follow up with an employee who has been disciplined. 6. Not completing written performance reviews in a timely or constructive way, and underreporting performance deficiencies. 7. Having a new supervisor “clean house” within a short period of time after assuming the supervisory role, without first laying the ground work for the adverse actions. 8. Failing to have an effective complaint process whereby an employee can raise concerns about how they are being treated in the workplace, instead of having these concerns surface only after the employee has left the company. 9. Maintaining out-of-date employee manuals that do not provide policies, procedures or practices that reflect the actual needs of the workforce. 10. Meting out “last straw” discipline that is a surprise to the employee. In other words, the best practices in disciplining an employee include constructive communications, engaging in “performance management” by stating in clear and certain terms what is expected of the employee and how an employee can achieve that goal, and having the policies and procedures in place which are consistently and fairly applied across the workforce.
Which pay practices are most likely to result in a company being sued in a wage-hour class action?
ALLDERDICE: At the top of the list of pay practices that expose California companies to the risk of a wage and hour class action is misclassification of workers as exempt employees or as independent contractors. Exempt employees must be paid at least two times the current minimum wage, and also satisfy the duties tests applicable for executive, administrative or professional employees. Independent contractors must satisfy the new “ABC” test under Dynamex or, in certain circumstances, the multi-factor test under Borello. Next on the list are non-compliant meal and rest period practices. Although under the California Supreme Court’s decision in Brinker Restaurant, employers are not required to guarantee that employees take their meal and rest breaks, employers continue to face claims they have failed to provide meal and rest breaks, or that they impeded the employee’s ability to take a lunch break, or that employees work “off the clock.” A case that was recently argued before the California Supreme Court, Troester v. Starbucks, will decide whether the pay practice of not paying for di minimis tasks after clocking out violates California’s minimum wage and overtime requirements. Non-compliant wages statements have also been the subject of class action lawsuits, but a recent California court of appeals decision may stem the fervor for such claims. In Maldonado v. Epsilon Plastics, Inc., the court ruled that an employee had no claim for noncompliant wage statements if the statement accurately reported what was actually paid to the employee. Finally, it is imperative that companies across-the board in all sectors of work focus on gender and race pay equality issues.
What are some of the practical challenges employers face when implementing California’s paid sick leave law?
GORDON: When administering a union employer payroll, determining which employees are covered by a CBA and which are not. Being certain to get the word out to new employees that they are entitled to Sick Leave after the 90 day probation. Keeping track of each individual’s Sick Pay hours each year. Also, getting the balance of sick paid time off available on salaried employees paychecks is a challenge.
Does it make sense for businesses to combine their vacation and sick time into a single PTO policy?
GORDON: As an administrator of payroll dealing with employees directly does not make sense. People get confused about the character of time. Because Sick Time Off Paid is a California State Law we characterize the PTO separately. We do not want employees to be confused when they are being paid Sick Time Off. Even if they are not sick when they use it. We are paying the employee sick time so they cannot say later they never got their Sick PTO.
How can retail employers in Los Angeles strike a balance between adapting their scheduling needs to meet customer demands and the need for workers to be able to predict their earnings?
COLE: Predictive scheduling laws require retail employers to give employees a minimum amount of advance notice of their work schedule. Los Angeles does not yet have a predictive scheduling ordinance in place, but the trend continues to grow and retail employers might consider being prepared if and when it comes to Los Angeles as labor experts predict. Los Angeles retailers might consider attempting to provide new employees with an initial estimate of their work schedules upon hire. If possible, retail employers should usually provide employees with notice of their work schedules as far in advance as possible, but at least two weeks ahead if practicable, and consider avoiding “on call” shifts. During periods where retail employers expect to be busier than normal, they might consider offering additional hours to existing qualified part-time employees before adding new temporary or seasonal employees.
Can an employer use social media in recruiting?
ALLDERDICE: A client recently raised an interesting question about what type of search can an employer, on its own without using an investigative consumer reporting agency, conduct in social media involving applicants or employees. The short answer is that an employer can use social media as part of its own background investigation without reporting its findings to an applicant. However, there are significant limitations. First, as provided in Civil Code section 1786.53, an employer cannot use, without disclosures to the applicant, information, which is a matter of public record that is related to “an arrest, indictment, conviction, civil judicial action, tax lien, or outstanding judgment.” But disclosure to an applicant is not the only concern for an employer, as there are significant restrictions on using credit and arrest information in hiring. Social media information revealing protected category characteristics, such as race, ethnicity, age, religion, disability, sex, gender, cannot be used. This means that a social media search cannot circumvent existing legal prohibitions on the type of information that can be used in hiring and in promotions or similar occurrences in the workplace. Recently, a poll of hiring personnel in the private sector conducted by Harris Poll for CareerBuilder found that 70 percent of employers reported they used social media to screen candidates, a measurably higher number than in 2016. While publicly available information on social media can be a tool in recruiting and hiring, a California business cannot ask an applicant for their social media passwords, can only access publicly available information, and use of the information must meet legal tests under discrimination and labor laws. BB) Given the prevalence of obesity related medical conditions in the general population, can obesity itself be considered a “disability” for purposes of state anti-discrimination laws?
COLE: The Centers for Disease Control reported in 2017 that more than one-third of U.S. adults are obese. But that doesn’t necessarily mean that one-third of U.S. adults are disabled. Under California law, obesity can qualify as a disability under the state anti-discrimination statute, but only if it results from a physiological condition or genetic condition that affects a basic bodily system, and limits a major life activity, such as working. The burden of actually proving that is on the employee. California employers should take complaints of obesity discrimination and requests for accommodation based on obesity seriously. As with other bases of discrimination and harassment, employers should consult with experienced employment counsel to ensure that effective policies are in place to prevent disability discrimination and harassment and to investigate obesity-based complaints when they arise.
Any tips for today’s employees looking to land long-term positions in California?
GORDON: Strive to be above average across the board. Try to hold yourself to a higher standard. This subconsciously promotes more productivity and efficiency. Be motivated, goal oriented, driven and able to work as a team.
What are some legal issues that companies often overlook during a layoff or termination process?
COLE: Employers are often so focused on the business reason underlying the decision to conduct a mass layoff or reduction in force (RIF), that little attention is given to how the layoff is perceived by the affected employees. Close attention should be paid to the timing of layoffs in relation to recent protected leaves, workers’ compensation claims, harassment allegations, or claims of discrimination. Employees may view their inclusion in a RIF as retaliation for engaging in rights protected under either federal or state law. With the assistance of legal counsel, employers should conduct an overall statistical analysis of employees selected for a RIF, because a mass layoff that disproportionately affects a particular protected classification (e.g., age, race, sex, national origin, etc.), regardless of the legitimacy of the business reason for the selection, may make employers vulnerable to disparate impact allegations based upon employee comparators in similar jobs and classifications.
How can employers remain current on the ever-evolving employment law trends?
GORDON: Research resources that speak to your heart. 26 years ago, my father received the Kiplinger Construction Review report. It is these types of resources that keep you informed and in the forefront. There is a sense of passion and care in these types of resources that provide a level of intel as well.
COLE: Employers should invest resources to hire experienced, competent human resources professionals for their organization and retain experienced employment law counsel to work with their HR teams. It is important that counsel and HR are well versed and familiar with the nuances of California employment law, as opposed to simply a knowledge of general or federal employment regulations. California employment law differs greatly from the employment laws of other jurisdictions, so a specific awareness of the ways in which California law is different is critical. Employers should also take advantage of the educational resources offered by California employment counsel, such as onsite trainings on wage and hour and leave law compliance and annual updates on the changes in California employment law.
How does a law firm specializing in labor and employment differentiate itself from the competition in 2018?
GORDON: Personally, I have asked our Trustees to request legal counsel provide annual/year-end reports that detail the year and forecast what’s to come. Keeping the client informed is always a good practice.
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