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Legislative and Case Law Update: 2003-2004

Legislation

Senate Bill 2: Health Insurance Act of 2003 (Government Code § 6254; Health and Safety Code § 1357.20; Insurance Code § 12693.55; Labor Code § 2120; Unemployment Insurance Code § 131; Welfare and Institutions Code §§ 14124.91 et. seq.)

• SB 2 requires large and midsize employers (twenty (20) or more employees) to either provide private insurance or to pay a fee into the newly created State Health Purchasing Program (“the Program”) - - a health insurance pool. The Program would then purchase health insurance for eligible employees. Acceptable private insurance includes the following:

· Any health care coverage that satisfies the minimum requirements of a California Health Care Service Plan (a California managed care plan).

· A group health insurance policy as defined under Insurance Code section 106 that covers hospital, surgical and medical care expenses, provided the maximum out-of-pocket costs for insureds do not exceed the maximum out-of-pocket costs for enrollees in California Health Care Service Plans providing benefits under a preferred provider organization policy. A group health insurance policy in this instance does not include Medicare supplement, vision-only, dental-only and Champus-supplement insurance or hospital indemnity, accident-only, and specific disease insurance that pays benefits on a fixed benefit, cash-payment only basis.

· Any collectively bargained health plan.

· Any employer sponsored ERISA plan, as long as it meets the benefits required in either of the first two bullet points listed above.

· Any coverage provided under the Public Employees’ Medical and Hospital Care Act that satisfies the benefits required in either of the first two bullet points listed above or is otherwise collectively bargained.

· Health coverage provided by the University of California to students who are also university employees.

• Large employers with two hundred (200) or more employees must provide coverage or pay the fee for both employees and dependents by January 1, 2006. “Dependent” is defined to include the employee’s spouse, domestic partner or minor child. The term also includes an employee’s child over the age of eighteen (18) if the child is dependent on the employee. SB 2 does not include a dependent who is provided coverage by another employer.
• Medium employers, those with twenty (20) to one hundred ninety-nine (199) employees, would be required to provide coverage or pay the fee only for employees themselves, not dependents, by January 1, 2007.
• The legislation does not apply to employers with less than twenty (20) employees.
• Note: Medium employers with twenty (20) to forty-nine (49) employees will not be required to comply with the new law unless a twenty percent (20%) tax credit is first enacted to help them offset the cost.
• Employers are required to pay at least eighty percent (80%) of the monthly fees - - employees cannot be required to contribute more than twenty percent (20%).
• Low-income workers (workers whose wages are less than two hundred percent (200%) of the federal poverty guidelines) can only be asked to contribute five percent (5%).
• The Managed Risk Medical Insurance Board will manage the program. The Board will be authorized to set the fee amount based on the cost of providing coverage to eligible employees (and dependents) and related administrative costs. The Board will also set deductible, coinsurance and co-payment levels for specific benefits and set limits on total out-of-pocket costs.
• Fees will be collected by the Employment Development Department and will be deposited in the State Health Purchasing Fund.
• The legislation will apply to persons who have worked at least one hundred (100) hours per month for any individual employer and have worked for that employer for three (3) months.
• A coalition of business groups, including the California Chamber of Commerce, intends to challenge this legislation and put the issue on the March, 2004 ballot. There also may be several legal challenges. To date the coalition against SB 2 has collected over six hundred thousand (600,000) signatures which have been sent to the Secretary of State for verification.

AB 276 - Increases Penalties for Failure To Pay Wages (Labor Code §§ 210, 225.5, 226, 605, 752, 1021.5, 1197.1)

• This law increases the penalties for failure to timely pay wages or for unlawfully withholding wages.
• Penalties are increased from fifty dollars ($50) for a first violation to one hundred dollars ($100). Penalties for subsequent willful or intentional violations are increased to two hundred dollars ($200). Employers who pay less than the minimum wage will now be subject to a civil penalty of one hundred dollars ($100) for each pay period, double the current penalty of fifty dollars ($50).
• Twelve and one-half percent (12 1/2%) of the penalty would be placed in a fund within the Labor and Workforce Development Agency to educate employers about state labor laws, and the remainder is placed in the general fund.
• Effective date is January 1, 2004.

AB 196: Gender Identity Discrimination (Government Code § 12940)

• Outlaws discrimination on the basis of gender identity. Outlaws discrimination against transgender employees.
• Changes the definition of sex discrimination to include a person’s “gender.”
• Defines gender under this statute as a person’s “identity, appearance, or behavior whether or not that identity, appearance or behavior is different from that traditionally associated with the person’s sex at birth.” This statute also outlaws discrimination based on the “perception” of a person’s gender identity, appearance or behavior. (Calif. Penal Code § 422.76.)
• Allows employers to require employees to adhere to reasonable workplace appearance, grooming and dress standards consistent with state or federal law, provided that employees are allowed to appear or dress consistently with their gender identity which appears to include “cross-dressing”
• Effective date is January 1, 2004.

AB 76: Sexual Harassment By Non-Employees (Government Code § 12940)

• Holds employers responsible for sexual harassment of employees by non-employees.
• Overrules a California Court of Appeal Case, Salazar v. Diversified Paratransit, Inc. (2002) 103 Cal.App.4th 131, which held that an employer was not liable under FEHA for harassment by a customer.
• New law also applies to sexual harassment by non-employees of applicants or persons providing services pursuant to a contract.
• Applies where the employer, or its agents or supervisors, knows or should have known of the conduct and fails to take immediate and appropriate corrective action.
• The extent of the employer’s control over the non-employee and any other legal responsibility with respect to the conduct of the non-employee will be considered.
• Sexual harassment policies should be reviewed to ensure they include customer harassment. Employees should be informed that they should complain about harassment by customers or other non-employees.
• Effective date January 1, 2004.

AB 17: Domestic Partner Benefits for State Contractors (Public Contract Code § 10295.3)

• Requires employers with state contracts valued at one hundred thousand dollars ($100,000) (per fiscal year) or more to provide the domestic partners of employees the same benefits as spouses.
• Applies to contractors within the state, contractors with employees who work on property owned by the State of California located outside the state and contractors with employees who work at facilities where work on the contract is being performed.
• Goes into effect January 1, 2007 for new contracts and January 1, 2008 for existing contracts. By the effective dates, every contract must contain a statement certifying compliance with the new law.
• Expect legal challenges or a repeal of this new law. San Francisco has a like ordinance and the courts have not been receptive to its challenges.

AB 205: Status of Domestic Partners (Family Code §§ 297, 298.5, 298)

• This bill would extend the rights and duties of marriage created by law to persons registered as domestic partners on and after January 1, 2005.
• Provides that filing an intentionally and materially false Declaration of Domestic Partnership would be punishable as a misdemeanor.
• Further defines processes for creation and dissolution of domestic partnerships.

AB 1536: Service of Fair Employment and Housing Complaint (Government Code §§ 12962, 12980, 12981, 12983)

• Existing law requires the Department of Fair Employment and Housing to serve a filed complaint upon the person, employer, labor organization or employment agency alleged to have committed the unlawful practice within forty-five (45) days.
• New law provides that if the complaining person is represented by private counsel, such counsel, not the DFEH, must serve the complaint. Service must be completed within sixty (60) days.
• Effective date January 1, 2004.

SB 25, AB 763: Use of Social Security Numbers (Civil Code § 1798.85)

• Existing law specifically prohibits a person or entity, but not a state or local agency, from doing the following acts:

· Publicly posting or publicly displaying in any manner an individual's social security number. ‘Publicly posting’ or ‘Publicly Displaying’ means to intentionally communicate or to otherwise make available to the general public;

· Printing an individuals social security number on any card required for the individual to access products or services provided by that person or entity;

· Requiring an individual to transmit his or her social security number over the internet, unless the connection is secure or the social security number in encrypted;

· Requiring an individual to use his or her social security number to access an internet website, unless an additional authentication device, such as a password or personal identification number is also required for access; and

· Printing an individual’s social security number on any materials that are mailed to the individual, unless state or federal law requires the social security number to be on the document to be mailed. However, applications and forms sent by mail may include social security numbers.

• SB 25 would extend these requirements to state and local agencies, subject to specified exceptions.
• SB 25 would also provide that a person or entity may not encode or embed a social security number in or on a card or document, including using a barcode, chip, magnetic strip, or other technology, in place of removing the social security number.
• AB 763 would additionally prohibit a social security number that is otherwise permitted to be mailed from being printed, in whole or in part, on a postcard or other mailer or visible on the envelope or without the envelope having been opened.
• Effective date January 1, 2004.

SB 478: Leave of Absence for Crime Victims (Labor Code § 230.2)

• Requires employers to allow an employee who is a victim of a crime (or certain persons who are related to a crime victim) to be absent from work in order to attend judicial proceeding related to the crime.
• Prohibits employers from discharging or in any manner discriminating against an employee because the employee takes a leave of absence protected under this law.
• Applies to victims of violent felonies, serious felonies (as defined by the Penal Code), and felonies relating to theft or embezzlement.
• Persons associated with the victim who are also entitled to time off include: immediate family (spouse, child, stepchild, brother, stepbrother, sister, stepsister, mother, stepmother, father or stepfather), a registered domestic partner, or the child of a registered domestic partner.
• Leave is unpaid, but employee can choose to use vacation time, personal leave time, or sick leave time.
• Employees must provide employer written notification of each scheduled proceeding, unless advance notice is not feasible. When advance notice is not feasible, the employer may not take an adverse employment action against the employee, if the employee provides the employer with required documentation.
• Authorizes complaints to be filed with the Division of Labor Standards Enforcement.
• Effective date January 1, 2004.

SB 727: Redefining Paid Family Leave (See SB 1661) (Unemployment Insurance Code §§ 984, 2116, 2601, 2613, 2708, 3254; Labor Code §§ 4903; 4904)

• Changes name of Family Temporary Disability Insurance program to Paid Family Leave.
• SB 727 and 1661 equal Paid Family Leave (“PFL”). Here are the highlights:

· NOTE: The regulations are not final;

· Allows employees to draw from a fund created through their contributions for up to six (6) weeks to care for a parent, spouse, child, domestic partner or child of a domestic partner or to bond with a child;

· Six (6) weeks of benefits in a twelve (12) month period;

· Provides benefits of approximately fifty-five percent (55%) of lost wages;

· Payroll deductions begin January 1, 2004;

· Benefits begin July 1, 2004;

· PFL does not create a new leave of absence right;

· Covers all employees who contribute to SDI or a voluntary plan in lieu of SDI;

· Is administered by EDD;

· Employer may require the use of up to two (2) weeks accrued but unused vacation. BUT NOT SICK LEAVE; Okay to coordinate sick leave benefits with PFL;

· A seven (7) calendar day waiting period exists before employee may draw from the PFL bank but there are no eligibility requirements like the CFRA/FMLA. The seven (7) days need not be consecutive, but must be taken within a twelve (12) month period of time. If the employer requires the use of two (2) weeks of accrued vacation first the first (1st) week or seven (7) days is the waiting period;

· NO right to reinstatement; however, other laws such as FMLA/CFRA, PDL, or kin care may provide a right to reinstatement.

· Currently there is no minimum number of hours an employer may force an employee to take. But there is a maximum of six (6) weeks;

· Maximum taxable wage in 2004 is sixty-eight thousand eight hundred twenty-nine dollars ($68,829) and in 2005 it will be seventy-nine thousand four hundred eighteen dollars ($79,418);

· Employees collecting workers’ compensation, unemployment or SDI are not eligible to collect PFL.

• Requires the Employment Development Department to develop a medical certificate to be filed by any employee who takes leave under the program.
• Regulations are still in the process of being drafted by the Employment Development Department.
• The benefits program was created last year by SB 1661. Employee withholding begins January 1st, and benefits begin July 1, 2004. Employers are required to make certain postings at the worksite and provide an informational pamphlet to new employees beginning January 1, 2004 or leaving work for a covered reason after July 31, 2004.

SB 578: Sweatshop Labor (Public Contract Code § 6108)

• Requires that state agencies provide in every contract that the contractor certify that materials or supplies were not produced by or with the benefit of “sweat shop” labor, forced labor, convict labor, indentured labor under penal sanction, abusive forms of child labor or exploitation of children in sweatshops.
• Adds new requirements regarding minimum employment and working conditions, including the adherence to a defined “Sweatfree Code of Conduct.”
• Clarifies definition of “sweatshop labor.” Excludes from the definition labor performed by an inmate or a person employed by the Prison Industry Authority.
• Effective date January 1, 2004.

AB 1719: Workplace Health and Safety Complaints (Labor Code §§ 515.6; 3099.2; 3099.3; 3099.4; 6309, 6315)

• Existing law provides that the Division of Occupational Safety and Health investigates complaints and notifies a complainant of action taken. This legislation requires the division to notify the complainant within fourteen calendar days of taking action.
• Requires the Division of Occupational Safety and Health to annually compile and release on its Web site information as to complaints received and actions taken.
• Existing law provides that the Bureau of Investigation within the Division is responsible for directing accident violations where there is a serious injury to five or more employees, death or a request for prosecution by the division. It also refers appropriate cases for prosecution. The new legislation would require the Division to provide helpful information to the Bureau. It would also require the Bureau to notify prosecuting authorities within fourteen (14) calendar days of a determination that there is legally insufficient evidence of a violation of law if the prosecuting authorities request notice.
• Effective date January 1, 2004.

AB 223: Judgments on Wage Claims (Labor Code § 98.2)

• Existing case law has held that an employee who appeals a wage decision of the Labor Commissioner to a civil court can only recover attorney’s fees if the employee achieved a better result in court than the Labor Commissioner’s award.
• The new law instead would provide that an employee is successful so long as the employee recovers a judgment in his or her favor, thereby overturning existing case law. (Smith v. Rae-Venter Law Group (2002) 29 Cal.4th 345.)
• Effective January 1, 2004.

SB 179: Labor Contractors (Labor Code § 2810)

• Requires any labor contract for construction, farm labor, garment, janitorial or security guard services to provide funds sufficient to allow the labor contractor to comply with all applicable laws.
• Purpose is to ensure that employers who use contractors can afford to pay sufficient fees to allow the contractor to make contributions to mandatory social insurance benefits, such as social security, workers’ compensation, and unemployment insurance, on behalf of its workers.
• Encourages written contracts between the parties by creating a rebuttable presumption that a person or entity entering into a covered contact does not violate the law’s provisions if the contract is in writing and satisfies several substantive requirements.
• Effective date is January 1, 2004.
• Will be enforced by a private right of action.
• Remedy is the greater of an employee’s actual damages or two hundred fifty dollars ($250) per violation for an initial violation and a one thousand dollars ($1,000) per employee for each subsequent violation. Injunctive relief and attorneys’ fees are also available.

AB 330: Bakers’ Wages (Labor Code § 512)

• Creates special workweek and meal period rules for the commercial baking industry. Exempts certain employees from the meal period requirement if such employees are covered by a valid collective bargaining agreement that contains certain specific terms.
• Effective January 1, 2004.

AB 98: Overtime for Government Employees Operating Commercial Vehicles (Labor Code § 512.5)

• Empowers the Industrial Welfare Commission to exempt a government employee operating commercial vehicles from certain meal and rest period requirements if covered by a valid collective bargaining agreement.
• Effective date January 1, 2004.

AB 1132: Industrial Homework Rules (Labor Code ¶ 2664)

• Under existing law, articles or material unlawfully manufactured at home may be removed by the Division of Labor Standards Enforcement. The Division retains the articles or materials for thirty days or until the final determination of any court action, and may then dispose of the articles or material.
• This bill would provide that the confiscated articles or material may not be sold. It would further provide that notice shall be given of the confiscation and provide appeal rights.
• Effective date January 1, 2004.

SB 796: Private Attorney General Act (Labor Code § 2698 et seq.)

• Creates a new private right of action for employees and their attorneys to enforce any provision of the Labor Code. Aggrieved employees may recover a civil penalty on behalf of themselves or others.
• Called the new “bounty hunter” law because it provides financial incentives to file suit and creates new penalties. Allows employees to sue for civil penalties and collect attorneys fees for any violation of the Labor Code, no matter how technical or small, excepting a few workers’ compensation provisions.
• California’s Labor Code contains the majority of laws governing employment in California, including wage and hour laws, drug and alcohol rehabilitation requirements, layoff requirements, occupational health and safety requirements, and many more. Under prior law, most Labor Code violations were enforced by the Division of Labor Standards Enforcement, not the courts.
• The new right is in addition to any other preexisting remedies and does not preclude separate or concurrent actions in pursuit of other remedies.
• If no existing penalties are in place, the bill has provides a formula for assessing penalties. The penalty is one hundred dollars ($100) for each aggrieved employee per pay period, and two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation.
• Fifty percent (50%) of penalties collected would be paid to California’s General Fund; twenty-five percent (25%) to a California Training Fund and twenty-five percent (25%) to the employee. Interestingly, the attorneys get to keep one hundred percent (100%) of their fees and are not required to share their recovery.
• Due to the enactment of SB 796, employers are strongly urged to immediately undergo an audit of their labor and employment policies to ensure that they are in compliance.

SB 777: Additional Whistleblower Protection (Labor Code § 1102.5 et seq.)

• Existing law prohibits employers from making, adopting, or enforcing a policy that prevents an employee from disclosing violations of a state or federal statute, or a violation or noncompliance with a state or federal regulation to a government or law enforcement agency, or from retaliating against an employee who makes a disclosure. It makes a violation punishable as a misdemeanor.
• This bill extends protection to those who report a violation of a state or federal rule, those who refuse to participate in an activity that would result in a violation of state or federal statute, rule or regulation, and those who exercised these rights in former employment.
• Prohibits retaliation against an employee for exercising any of these rights.
• Establishes a whistleblower hotline to the state Attorney General to report violations.
• Requires employers to display a list of an employee’s rights under the whistleblower laws, including the telephone number of the hotline created by the bill.
• Adds an additional civil penalty for violations.

Executive Order No. 2

Although all of the above laws go into effect as scheduled, Gov. Arnold Schwarzenegger has stopped all pending state government regulations for a review period of one hundred eighty (180) days. This Executive Order also postpones the effective date of all regulations that have been approved but not yet in effect and requires review of every regulation adopted, amended or repealed by the Davis administration. (Regulations are rules drafted by state agencies to interpret laws.)

(Portions of this section were reprinted with permission from the California Chamber of Commerce, Labor Law Update Newsletter, December, 2003.)

Case Law

Recent Cases of Interest

1. State Dept. of Health Services v. Superior Court of Sacramento (Cal. Sup. Ct. Nov. 24, 2003) (McGinnis)

Facts:

McGinnis is a government worker. She alleged that her supervisor sexually harassed her between 1996 and 1997. Complaints included inappropriate comments and unwelcome touching. She did not formally report any harassment to management until November 1997. The employer investigated and the supervisor retired. McGinnis sued anyway and the employer moved for summary judgment.

Holding:

The employer’s summary judgment failed. The trial and appellate courts held that California employers are strictly liable under the California Fair Employment and Housing Act.

Status:

The California Supreme Court ruled that California employers, although strictly liable for the harassing conduct of a supervisor, may reduce their damage exposure, if they:

(1) Took reasonable steps to prevent and correct workplace harassment

1. the employer implemented a sexual harassment policy and procedure,
2. the employer has the required sexual harassment postings,
3. the employer conducted at the time of hire and, at least annually, sexual harassment training,
4. the employer investigated all claims of sexual harassment,
5. the employer took swift corrective action if a policy violation was found;

(2) The employee unreasonably failed to use the preventive and corrective measures; and

(3) Reasonable use of the one or more of the above would have prevented the harassment.

2. Raytheon Co. v. Hernandez (U.S. Sup. Ct. Dec. 3, 2003)

Facts:

Hernandez worked for the employer for 25 years. He tested positive for cocaine. He chose to quit in lieu of termination. He later reapplied after being sober for a period of time and “turning his life around.” The employer had a blanket no-rehire policy for employees who resigned in lieu of termination. Hernandez was not rehired. He sued claiming that as an “addict” he was protected by the Americans with Disabilities Act and that the blanket no-rehire policy was a form of disability discrimination in that the employer “regarded him” as disabled when they refused to rehire him.

Holding:

The 9th Circuit found that the company could not rely on a blanket no-rehire policy because, although neutral on its face, the policy disproportionately discriminated against addicts.

Status:

On December 2, 2003, the United States Supreme Court ruled that the 9th Circuit improperly applied the disparate impact analysis to Hernandez’s claim. The High Court found that the 9th Circuit ignored the fact that the employer’s no-rehire policy is a “quintessential, legitimate, non-discriminatory reason for refusing to rehire an employee who was terminated for violating workplace conduct rules.” The Supreme Court did not address the issue of addicts as a protected class under the ADA.

3. Barbee v. Household Automotive Finance Corp., No. D040421 (Cal.4th App. Dist. Nov. 20, 2003)

Facts:

A male supervisor who engaged in a consensual sexual relationship with a subordinate was terminated. The male supervisor claimed that the termination invaded his right to privacy. The employer had a conflict of interest policy that stated that relationships between employees create a potential conflict of interest and that supervisor/subordinate relationships must be brought to the attention of management. The CEO told the supervisor that the relationship was a bad idea. The CEO and the HR Manager told the supervisor that the relationship posed a conflict of interest and they had to end the relationship or one of them had to resign. The supervisor stated that both he and the subordinate wanted to keep their jobs. Management assumed that meant that the relationship would end. Not long after they were seen together at a basketball game. The supervisor was fired and then he sued claiming a violation of his right to privacy under Article I, section 1 of the California Constitution.

Holding:

The Court of Appeal held that the supervisor did not have a reasonable expectation in privacy in his relationship with a subordinate.

4. McClung v. Employment Development Dept. (Cal. Ct. Appeal Nov. 14, 2003)

Facts:

Plaintiff and the alleged accused were co-workers in the EDD division that audits departmental programs. They had the same classification as associate manager auditor. The alleged accused began asking the victim to lunch and eventually while traveling together the alleged accused engaged in inappropriate touching and crude comments, including references to oral sex.

The employer investigated and the alleged accused eventually resigned. The victim sued anyway. The employer filed for summary adjudication.

Holding:

The Court of Appeal upheld the summary adjudication motion for the employer. The Court held: (1) that the employer could not be strictly liable for the acts of the alleged accused as he was a co-worker and not a supervisor; and (2) that the employer took immediate and effective remedial action to remedy the hostile work environment claim. The Court of Appeal reversed the trial court with respect to the summary adjudication for the alleged accused, holding on appeal that as a co-worker, he was personally liable for his behavior based on an amendment to the FEHA (Gov. Code § 12940(j)(3)) that applied retroactively.

Cases on Review with the California Supreme Court

(1) Salazar v. Diversified Paratransit, Inc. (10