EMPLOYMENT LAW UPDATE PCAHCR February 6, 2008

1. EMPLOYMENT LAW UPDATEPCAHCRFebruary 6, 2008 Presented by Jason A. Weiss, Esq. Allen Matkins Leck Gamble Mallory & Natsis LLP

2. TOPICS COVERED • PREVENTATIVE MEASURES TO LIMIT LIABILITY • SIGNIFICANT NEW CASES • LEGISLATIVE UPDATE • IMMIGRATION: THE “NO-MATCH” CONUNDRUM

3. PREVENTATIVE MEASURES TO LIMIT EMPLOYER LIABILITY

4. A. EMPLOYEE POACHING Employees have the right to compete with their former employer and, in fact, any agreement prohibiting one's pursuit of his/her livelihood is void (California Business and Professions Code § 16601). But cannot compete by using his/her employer's confidential materials, trade secrets, or by any other unfair business practices. Such conduct may constitute unfair competition and misappropriation of trade secrets in violation of the California Uniform Trade Secrets Act (Cal. Civ. Code §§ 3426, et seq.), and expose the new employer to potential liability under these laws and other business torts, including interference with contract and/or prospective economic advantage. Employers may face exposure to liability if they engage in acts of unfair competition by wrongfully soliciting employees to sever their ties with their existing employers. Recommendation: Employers are well-served in the hiring process ensuring that it is openly communicated to applicants, both orally and in writing, that they are expected to protect inviolate their former employers' trade secrets and proprietary information.

5. APPLICATION Applications for employment serve useful purposes in the hiring process: • Employer’s use of an application may avoid a future claim that it was negligent in the hiring process. • But, applications may expose employers to potential liability for soliciting information which an employer is not entitled to obtain pre-employment. Common Pitfalls in this area are: (1) requests for information which as a natural consequence calls for disclosure of information that would reveal a legally protected characteristic of the employee; and (2) overbroad questions relating to criminal convictions in violation of California Labor Code Section 432.7.

6. A smart application will include a certification section in which, the applicant attests and affirms that, among other things: ·     His/Her potential employer may check references and contact prior employers (though this does not excuse need for separate authorization to conduct background checks); · The application is truthful; ·     If hired, employment is at-will; and, ·     Arbitration of employment-related disputes.

7. C. INTERVIEWSThe foundation of information on an applicant should be developed further during the critical interview process. Questions should be thoughtful. California law restricts what questions may be asked of applicants during a job interview. California Government Code § 12940(d) enumerates the categories regarding which an employer may not inquire. Employers are well-served reviewing the Pre-Employment Screening Guidelines, published by the California Department of Fair Employment and Housing. Recommendation: Conduct thoughtful and comprehensive interviews.

8. Both federal and California law require that an employer secure an applicant's prior written authorization before it procures a background report on the applicant. Employers are encouraged to partner with reputable consumer reporting agencies that specialize in performing background checks. Competent legal counsel also should be consulted to help employers navigate the requirements under the federal Fair Credit Reporting Act (15 U.S.C. §§ 1681a et seq.) ("FCRA") and the California Investigative Consumer Reporting Agencies Act (Cal. Civ. Code §§ 1786 et seq.) ("ICRA") which include: (i) obtaining the applicant's written authorization in a stand alone conspicuous authorization form (the application for employment cannot be used for this purpose), (ii) providing the applicant with a summary of his/her rights under the FCRA and ICRA, (iii) providing notice to the applicant if adverse action is intended to be taken based, in whole or in part, on information in the background report, and (iv) disclosing the contents of the report, if requested by the applicant. Recommendation:Conduct background checks on applicants. D. BACKGROUND CHECKS

9. The screening process is incomplete unless an applicant's references (including prior employers) are checked. Employers are encouraged to obtain the applicant's written authorization (usually on the application) to speak with his/her former employer(s) before a reference check is performed. Contrary to common theory, employers are not legally prohibited from providing an honest disclosure regarding a former employee to his/her prospective new employer. California Civil Code Section 47(c) attaches a privilege to an honest job reference made without malice. The prospective employer is encouraged to seek an honest and comprehensive report on an applicant from his/her prior employer. Bear in mind that, despite the privilege, former employers are reluctant to give thorough references as a means to reduce risk of liability and avoid defamation claims. E. REFERENCE CHECKS

10. F. PRE-EMPLOYMENT TESTING If warranted for a particular job, pre-employment medical and physical examinations should be performed. However, these tests only may be conducted after the applicant has been offered a job and only if the test is given to all employees entering into a specific job classification. (Cal. Gov't Code § 12940(e).) Pre-employment (post-offer) drug testing also is permissible; provided, however, that the employer takes necessary steps to ensure that the applicant's privacy will not be invaded and assuming that the applicant has authorized the test in writing.

11. There has been a spike in recent years of reported cases involving pre-employment fraud. (See, e.g., Toscano v. Greene Music, 124 Cal.App.4th 685 (2004).) The gravamen of this type of claim is that an employer made a false promise during the screening process on which the applicant justifiably relied. Recommendation: Employers should: Avoid making promises during the screening process which, if unfulfilled, may later expose the company to litigation; and Utilize an integration clause in the employment offer letter, pursuant to which the applicant agrees that the offer letter sets forth all of the terms of employment and that no oral or written promises were made to him/her that are not set forth in the offer letter and that the offer letter (agreement) only may be changed by a writing signed by both the applicant/employee and the president of the company. AVOIDING FALSE PROMISES

12. Perhaps the most fundamental lesson for employers seeking to avoid potential liability is to ensure that they memorialize that employment is at-will. Employers continue to lazily enforce this doctrine which, if enforced correctly, avoids claims that an oral or implied-in-fact contract existed requiring good cause for termination. Contrary to popular belief, at-will employment is alive and well in California. (SeeDore v. Arnold Worldwide, Inc., 39 Cal.4th 384 (2006).) Recommendation: Ensure that all employees intended to be at-will sign a written agreement acknowledging their at-will employment status together with an integration clause. H. AT-WILL EMPLOYMENT

13. PROTECTING PROPRIETARY INFORMATION AND TRADE SECRETS While California courts will invalidate efforts undertaken to restrict an employee's ability to earn his or her livelihood, California law retains a strong body of statutory and case law that protects one of an employer's most valuable commodities -- its proprietary information and trade secrets. California employers, therefore, are encouraged to formulate strong policies to guard against misappropriation and other acts of unfair competition. Confidentiality, Nondisclosure and Non-Solicitation (of employees) Agreements should be presented to all employees. Employers also should implement internal security measures to protect sensitive proprietary information and trade secrets.

14. A well-written offer letter is perhaps even more important that the application or utilization of the other pre-employment screening mechanisms. It sets forth the essential terms of the employment relationship and, in doing so, may effectively shield an employer from claims of breach of contract and fraud. J. OFFER LETTERS

15. K. ARBITRATION There are two essential questions that an employer should consider in connection with arbitration: (1) Do we want to establish an alternative dispute resolution and bypass the court system?; and; (2) If we do elect arbitration, what are the essential terms that must be included in the arbitration agreement to which all applicants agree in writing?Below are brief answers.

16. On the advisability of arbitration, there are some caveats to keep in mind. • While recent court decisions have held arbitration agreements to be enforceable, such agreements may be challenged by the employee. • The requirements of California law now make arbitration, even for minor issues, the expense of the employer. • Given that an arbitrator may charge $300-$500 per hour, this can become quite costly. While employers should be aware of these issues, because arbitration generally is quicker and less expensive than a civil lawsuit and keeps potentially volatile and/or emotional issues away from a jury, arbitration is still recommended.

17. In regards to what should be included in an enforceable arbitration agreement, it should: • be bilateral (apply equally to the employer and employee); • provide that the employer will bear the costs unique to the arbitration (but not the employee's attorneys' fees or costs); • allow for adequate discovery; • not limit any statutory remedies; • provide for a neutral arbitrator; and • ensure a written, reasoned decision is prepared by the arbitrator.

18. L. EMPLOYEE HANDBOOK Maintain Employee Handbook • Set forth critical policies/procedures • Periodic review

19. M. PERFORMANCE APPRAISALS Conduct Regular Performance Appraisals • Honest/Accurate/Tough • Eliminate “Satisfactory” or “Acceptable” Ratings • Document

20. N. EMPLOYEE DISCIPLINE Discipline Regarding Performance Issues1.Focus on Objective Issues2.Establish Areas of Improvement3.Confirm Past Oral Conversations4.Make Sure Documentation Appears Evenhanded5.Give Employee Reasonable Periods of Time to Improve6.Explain Consequences of Not Improving7.Employee Signature of "Receipt"

21. O. INVESTIGATING EMPLOYEE COMPLAINTS Conduct Prompt And Thorough Investigation of Misconduct/Harassment • Select Appropriate Investigator • Identify Potential Witnesses • Identify Documents to be Reviewed • Prepare an Outline of Questions • Objectively Interview Witnesses Starting with the Complainant (a)Do not promise confidentiality (b)Assure against retaliation/retribution (c)Ask what remedy/relief complainant seeks

22. Analyze the results of the investigation with Human ResourcesDepartment. and perhaps, legal counsel, and make an affirmativedecision • Communicate the decision appropriately (Cotran v. Rollins Hudig Hall Int'l, Inc. – employer not liable for good faith termination of perpetrator) • Conduct appropriate follow up • Document, Document, Document • Consider communication to all management and/or non-management personnel regarding company policy against harassment • Casenas v. Fujisawa USA, Inc., 58 Cal.App.4th 101 (1997) ("textbook” example of how to respond appropriately to an employee's sexual harassment complaint • Avoid Retaliation: Burlington v. White

23. P. AUDIT POLICIES/PROCEDURES Ensure Necessary Policies, Procedures and Postings in Place. Conduct employment law audit.

24. Q. HANDLING TERMINATIONS Handling Terminations In Manner to Stave Off Litigation1.Communicate the termination truthfully and professionally2.Have two company representatives present3.Avoid discussions/admissions4.Final paycheck5.COBRA6. Return of Company Property

25. CONCLUSION The only way for an employer to truly win employment litigation is to avoid it altogether. Taking the necessary steps at the threshold of the employment relationship is vital for employers to achieve this goal. By considering the employment practices highlighted above and faithfully complying with the legal obligations regarding employee hiring, employers may minimize exposure to liability and stave off potential exorbitant damages n the event of employment litigation.

26. SIGNIFICANT NEW CASES

27. WAGE AND HOUR • Murphy v. Kenneth Cole, 40 Cal. 4th 1094 (2007) • Meal/Rest Period • One hour pay - penalty v. wage • Importance - back pay period, interest, additional penalties • Conclusion - wage • 3 year back pay (maybe 4) + interest + penalties

28. WAGE AND HOUR • Incentive Compensation Plans • Prachasaisoradej v. Ralph's Grocery, 42 Cal. 4th 217 (2007) • (the "Ralph's Grocery“ Cases) • Lower court held that bonus plan based on profits constituted unlawful deduction from employee wages (workers' comp payments, cash shortages, etc.) • California Supreme Court – profit-based bonus plans permissible • Watch out for potential legislative action in response

29. WAGE AND HOUR • Lump Sum Business Expenses • Gattuso v. Harte-Hanks Shoppers, 42 Cal. 4th 554 (2007) • Sales employees who used personal cars for work • Expenses paid through increased wages/commissions rather than reimbursement of actual expenses • California Supreme Court – upheld lower court and concluded that reimbursement through increased compensation was permissible • Must be able to apportion amounts paid as compensation versus expense reimbursement

30. ARBITRATION • Class Action Waivers • Gentry v. Superior Court, 42 Cal.4th443 (2007) • California Supreme Court established new law governing the validity of class action waiver clauses in employment arbitration agreements. • "The prohibition of class wide relief would undermine the vindication of the employees' unwaivable statutory rights and would pose a serious obstacle to the enforcement of the state's overtime laws.” • Good news for employers: some class action waiver clauses may pass scrutiny under Gentry.

31. ARBITRATION • Validity of Arbitration Agreements • Davis v. O'Melveny & Myers, 485 F.3d 1066 (9th Cir. 2007) • Dispute resolution program was procedurally unconscionable because it was a "take it or leave it" condition of employment. • Beware of provisions in an arbitration agreement shortening the time to bring employment-related statutory claims. • Do not have confidentiality clauses in arbitration agreements that are overbroad. • Mutuality is a must. • Cannot waive Department of Labor and FLSA complaints in arbitration agreement.

32. ARBITRATION • Validity of Arbitration Agreements • Mitri v. Arnel Mgmt Co., --- Cal. App. 4th --- (Dec. 2007) • Arbitration policy in employee handbook • Policy stated employees required to sign arbitration agreement • Handbook acknowledgment did not reference arbitration • No separate arbitration agreement • Court held no enforceable agreement to arbitrate

33. EMPLOYEES/INDEPENDENT CONTRACTORS • Delivery Driver Cases • Air Couriers Int'l v. EDD, 150 Cal. App. 4th 923 (2007) • Estrada v. FedEx Ground Package, 154 Cal. App. 4th 1 (2007) • Both courts held that drivers were employees rather than independent contractors • Agreement between company/worker not determinative • "Right to control" remains key test • Employers must carefully scrutinize all independent contractor relationships

34. LEAVES OF ABSENCE • Faust v. California Portland Cement Co., 150 Cal. App. 4th 864 (2007) • Notice of CFRA/FMLA leave • Obligation is on employer to provide notice to employee of right to request leave • Medical certification from a chiropractor may be sufficient to support leave

35. DISCRIMINATION/HARASSMENT • Disability Discrimination/Harassment • Green v. State of California, 42 Cal. 4th 254 (2007) • Issue was who had burden of proving employee was capable/incapable of performing duties • Lower court held that employer had to prove employee was not capable of performing the job's essential functions • California Supreme Court reversed and held that employee must show can perform the job's essential functions

36. DISABILITY DISCRIMINATION/HARASSMENT, CONT. Roby v. McKesson, 146 Cal. App. 4th 63 (2006) (review granted) • Hostile work environment case • Evidence that plaintiff's supervisor disliked plaintiff, shunned her, and showed no compassion for her condition • Appellate court held that "neither cold indifference nor lack of sensitivity" supports hostile environment claim • Under review by California Supreme Court

37. RETALIATION • Jones v. Lodge at Torrey Pines, 147 Cal. App. 4th 475 (2007) • Conduct that constitutes an "adverse employment action affecting terms and conditions of employment for purposes of retaliation claim. • Appellate court held that written warnings, exclusion from meetings, and offensive language were sufficient to support retaliation claim based on totality of circumstances. • Also held supervisor can be held personally liable for retaliation; this issue currently under review by California Supreme Court.

38. LEGISLATIVE UPDATE

39. NEW LEGISLATION New Leave Law for Military Spouses (A.B. 392)– effective October 2007 • Leave Requirement: 10 days of unpaid time off to eligible employees (Military & Veterans Code section 395.10) • Application: Employers with 25 or more employees (including part-time, inactive, and non-California employees) • Eligibility: Employees who work an average of 20 hours or more per week and are the spouse or domestic partner of a "qualified" member of the military. • Qualified Member of the Military: (1) A member of the Armed Forces of the United States who has been deployed during a period of military conflict to an area designated as combat zone; or (2) a member of the Reserves who has been deployed during a period of military conflict. • Leave Request: Employee must provide notice of intention to take leave within 2 business days and submit written documentation certifying the military member’s deployment. • Warning: Employers cannot (1) prevent an employee from taking any other leave that the employee is entitled to take; (2) force employee to use accrued vacation or paid time off while on military spousal leave; or (3) discriminate or retaliate against an employee for requesting or taking military spousal leave.

40. NEW LEGISLATION Computer Professional Hourly Rate (S.B. 929) • Labor Code § 515.5 exemption for Computer Professionals • Applicable pay rate under PRIOR law – not less than $41.00/hr. (or salary equivalent) • Amount set annually by Dept. of Industrial Relations • 2007 DIR rate = $49.77/hr. • Eff. 1/1/08 – LC 515.5 amended to reduce pay rate to not less than $36.00/hr. • 2008 DIR Rate = $36.00/hr.

41. NEW LEGISLATION Alternative Workweek for Pharmacists (S.B. 812) • Amends the Labor Code to permit an alternative workweek schedule for pharmacists that does not require 2 consecutive days off within a workweek • Limited to pharmacists

42. NEW LEGISLATION Workers' Compensation (S.B. 869) • Existing law – Labor Commissioner must maintain program for targeting employers who fail to provide workers’ comp coverage and must annually report information to Legislature • Senate Bill 869 – requires the annual report identifying those employers who fail to provide workers’ comp coverage to be posted on the Labor Commissioner's website • Warning – recent lawsuits by Labor Commissioner against employers for failing to provide work comp coverage

43. NEW LEGISLATION Proposed Changes to the Family and Medical Leave Act • Congress amended the Family and Medical Leave Act of 1993 ("FMLA") on 12/14/07; currently waiting approval by President Bush • Provides for 12 weeks of unpaid leave during any 12-month period because of any "qualifying exigency" arising from the employee's spouse, child, or parent being on active duty or ordered to active duty in the armed forces (“qualifying exigency" not yet defined) • Also provides up to 26 weeks of unpaid leave to care for a wounded service member who is the employee's spouse, child, or parent, or if the employee is the service member's next of kin - One-time leave only (does not renew after twelve months) - Leave may be taken intermittently or on a reduced-schedule basis - All 26 weeks must be used during a 12-month period

44. PRIOR CHANGES EFFECTIVE 2008 Minimum Wage Increases California (A.B. 1835) • Effective January 1, 2008, California's minimum wage increases to $8.00 an hour. Approved by Governor Arnold Schwarzenegger on September 12, 2006 when he signed into law Assembly Bill 1835, which increased the minimum wage in two phases. • On Jan. 1, 2007 the minimum wage jumped from $6.75 to $7.50 per hour. • On Jan. 1, 2008 the minimum wage increases to $8.00 per hour. Federal (H.R. 2) • California minimum wage rate higher; but affects non-California employees • Minimum wage raised from $5.15 to: • $5.85 per hour effective 7/24/07 • $6.55 per hour effective 7/24/08 • $7.25 per hour effective 7/24/09

45. PRIOR CHANGES EFFECTIVE 2008 Cell Phones While Driving (S.B. 1613) • Drivers Must Use Hands-Free Device While Driving Effective July 1, 2008, drivers may use a wireless telephone while driving only if they use a hands-free listening and talking device. (California Vehicle Code section 23123; S. B. 1613.) • Certain Exclusions: This law provides for limited exclusions, such as, for emergency calls, an emergency services professional using a wireless telephone while operating an authorized emergency vehicle, a school bus driver and certain other vehicles used for farming, towing and trucking.

46. PRIOR CHANGES EFFECTIVE 2008 Social Security Numbers (Labor Code 226(a)(7)) • Paycheck requirements - must contain specified information set forth in LC 226(a) • Current law – must include employee's name and SSN • Effective 1/1/08 – must include ONLY the last 4 digits of SSN or other Employee Identification Number

47. PRIOR CHANGES EFFECTIVE 2008 I-9 Forms • New I-9 Forms (available at www.uscis.gov/i-9) • Removal of five "List A" documents • One addition to "List A" documents • Photograph documents consolidated under "List A“ • SSN (not required unless employer participates in E-Verify) • Authorization for electronic signature and retention of I-9 forms

48. VETOED LEGISLATION Bereavement Leave (S.B. 549) • Employee's Right to Bereavement Leave: Senate Bill 549 would have prohibited employers from discharging, disciplining, or in any manner discriminating against an employee for inquiring about, requesting, or taking up to four days of bereavement leave off upon the death of a spouse, child, parent, sibling, grandparent, grandchild, or domestic partner.

49. VETOED LEGISLATION Expansion of Family and Medical Leave (A.B. 537) • Assembly Bill 537 would have increased the circumstances under which an employee is entitled to protected leave pursuant to the Family Rights Act by (1) eliminating the age and dependency elements from the definition of "child," thereby permitting an employee to take protected leave to care for his/her independent adult child suffering from a serious health condition; (2) expanding the definition of "parent" to include an employee's parent-in-law; and (3) permitting an employee to also take leave to care for a seriously ill grandparent, sibling, grandchild, or domestic partner.

50. IMMIGRATION: THE “NO-MATCH” CONUNDRUM