California Peculiarities Employment Law Blog

UPDATE: Santa Monica Amends Minimum Wage Ordinance, Delays Sick Pay Implementation.

Posted in 2016 Cal-Peculiarities, Sick Leave Series, Work Time Series

Seyfarth Synopsis:  Santa Monica has amended its Minimum Wage Ordinance to postpone implementation of its paid sick leave entitlements, now starting January 1, 2017 instead of July 1, 2016, and create a two phase implementation process for both small and large employers.

Like many a trip to the beach, the journey of the paid sick leave portion of Santa Monica’s Minimum Wage Ordinance[1] has hit some last-minute snags. On Tuesday, April 26, the City Council accepted a package of amendment proposals. Within those proposals, instead of rushing to a July 1, 2016 implementation date of the previously adopted San Francisco-like 72-hour sick leave cap, the Council has decided that everyone should just chill out. The amended Ordinance will allow implementation to roll in like the tide, with the first wave of changes delayed to January 1, 2017, and a second wave coming in on January 1, 2018.

Under the first wave, small businesses (employers with 25 or fewer employees) must allow a rolling cap of 32 hours of paid sick time for employees, with larger businesses capped at 40 hours. The second wave will increase these caps to 40 hours for small businesses and 72 hours for larger businesses. Until January 1, 2017, Santa Monica employers can relax and continue to follow California law.

The accrual rate remains the same as required under California law (one hour for every 30 hours worked), but these accrual caps act as “point in time” caps, similar to the San Francisco ordinance. That is, Santa Monica employers would no longer be able to limit employee annual use to 24 hours after Jan 1, 2017. Instead, they will have to allow the use of whatever an employee has in his or her bank at any given time. The Ordinance also does not eliminate an employer’s obligations to follow the California statute where the California statute is more generous. So, at least until January 1, 2018 (when the accrual cap will increase to 72 hours for large employers), Santa Monica employers who provide sick time by the accrual method should still follow the 48-hour minimum accrual caps under state law. The updated proposal does imply that some kind of frontloading would be acceptable, but it’s not apparent yet how that would work. We hope that once the Ordinance itself is published, this issue will be made clear.

The Council has also reduced the period of time in which retaliation against an employee for exercising rights under the Ordinance will be presumed. The time, once 180 days, will now be 90 days (that that’s still three times longer than under the California law). So employers should be very cautious in taking actions against employees who take sick days, no matter how totally bodacious the surf report was for that day.

Please see here and here for more information.  We expect the amended Ordinance to be available at any moment.  In the meantime, please see your most tubular Seyfarth attorney for more information.

[1] The Ordinance is entitled “An Ordinance of the City Council of the City of Santa Monica Adding Chapter 4.62 to the Santa Monica Municipal Code Requiring a Minimum Wage for Employees, and Adding Chapter 4.63 to the Santa Monica Municipal Code Requiring a Living Wage to Hotel Workers.”

Vote YES! for Compliance: An Election Law Refresher for California Employers

Posted in 2016 Cal-Peculiarities, Work Time Series

Seyfarth SynopsisUnder California law, employers have a part to play in protecting employee voting rights and other political activity.  What follows is a short reminder of employer duties and obligations.

With the June 7, 2016, primary right around the corner, California employers need to be prepared for election season.  For your reference, here is a quick summary of some of the major issues California employers may face between now and Election Day.

Voting

Regardless of whether their employees are feeling the Bern or stumping for Trump, California employers must ensure that employees have an opportunity to visit the polls, which are open from 7:00 a.m. until 8:00 p.m.  California Elections Code Section 14000 requires employers to provide employees who do not have sufficient time to vote outside of their regular working hours with up to two hours of paid time off to vote at the beginning or end of their regular shift, depending upon whichever will permit the most time for voting and the least amount of time off the job.  Employers and employees also are permitted to work out a mutually agreeable schedule for Election Day that better suits their needs.

Employees cannot simply skip work to punch those ballots, however.  Instead, employees who believe by the time of the third working day before Election Day that they will need to time off to exercise their civic duty must provide their employer with notice no later than two working days before Election Day.  To ensure that employees are apprised of this right, California Elections Code Section 14001 very patriotically obligates employers to post a notice setting forth the provisions of Section 14000 in a conspicuous place ten days before Election Day.  The notice can be found here.

Political Activity

Beyond pulling the lever in the voting booth, California employers must also allow employees to exercise their fundamental right to engage in political activity without interference.  That means employers cannot restrict their employee’s political activities or affiliations, nor can they force employees to participate in any particular political activity. Cal. Lab. Code §§ 1101 and 1102.  Employers need to keep in mind that political activity means more than just casting a vote.  The meaning of “protected activity” is expansive and encompasses participation in organizations or movements advocating for political or social causes such as civil and equal rights. Gay Law Students Assn. v. Pac. Tel. & Tel. Co., 24 Cal. 3d 458, 488 (1979).  Employers who interfere with an employee’s political activities should be aware that an employee may pursue a cause of action to recover damages sustained as a result of the employer’s interference.  Lockheed Aircraft Corp. v. Superior Court, 28 Cal.2d 481 (1946).

Solicitation of Funds

Private employers also cannot force their employees to donate funds to campaigns.  They may, however, solicit campaign donations from managers, officers, or executives with policymaking authority if they have political action committees. 2 U.S.C § 441(b)(3).  However, even if they want to “make America great again,” employers cannot coerce employees to donate their personal funds for political purposes.  What this means is, under both Federal and California law, employers cannot use threats of discharge, demotion, or any other financial reprisal to pressure employees to donate. 11 CFR § 114.2 (f)(2)(iv); see also Cal. Lab. Code § 1102; Fort v. Civil Service Comm’n of the County of Alameda, 61 Cal. 2d 331, 338 (1964).  Accordingly, private employers soliciting funds must have a political action committee, seek funds only from policymakers, and ensure that contributions are entirely voluntary lest they Cruz (sic) into a potential lawsuit.

Questions

If you have any questions regarding any of your obligations or your employees’ rights to flex their political muscles, please feel free to contact your favorite Seyfarth attorney.

Edited by Chelsea Mesa.

California Court Gives Two Thumbs Down and Voids Non-Compete in Actor’s Agreement

Posted in 2016 Cal-Peculiarities, Case Update

Seyfarth Synopsis: Limitation on an actor’s ability to work in certain films struck down as an unlawful restraint of trade. 

California, mecca of the film and media production industries in the U.S., is notorious for outlawing non-compete agreements. It is one of the few states that generally prohibits the unlawful restraint of one’s profession or business, with limited exceptions. (See Cal. Bus. & Prof. Code § 16600 et seq.). Last year’s decision in ITN Flix, LLC v. Hinojosa, 2015 WL 10376624 (C.D. Cal. May 13, 2015), illustrates that courts may strike down such unlawful non-competes, even outside the traditional employer-employee context.

What is this Case About? 

In 2004, film producer Gil Medina met actor Danny Trejo, who had worked on several successful films with director Robert Rodriguez (think Sin City and the Spy Kids franchise).  Medina approached Trejo with an opportunity to star in a multiple picture action feature film franchise built around a “vigilante character” to be portrayed by Trejo. The following fall, Medina and an independent production company, ITN Flix, LLC produced the film, entitled Vengeance.

Thereafter, Trejo and Medina/ITN Flix (who went on to become the Plaintiffs in the legal case) entered into a “Master License Agreement” (“MLA”) and an “Acting Agreement” (“AA”). The contracts purported to limit Trejo in playing vigilante characters in other films or appearing in films “similar” to Vengeance, and imposed a term of “at least” eight years on these (and other) contractual obligations. The contracts also (ambiguously) paved the way for Medina/ITN Flix to recover as commission part of the proceeds of the commercial exploitation of certain rights.

Vengeance was subsequently released, but only to a few small markets. By 2009, the film still had no significant release date. Even a 2012 collaboration with Steve Wozniak (the co-founder of Apple) and his wife, Janet, whereby the Wozniaks would appear in several new scenes that would be added to the film and also be included in a mobile application game entitled Vengeance: Woz with a Coz, failed to bring commercial success to the ill-fated Vengeance.

The legal trouble began in 2010, when director Rodriguez released a film called Machete, in which Trejo starred as—wait for it—a “vigilante character.” Unlike Vengeance, Machete garnered much acclaim and commercial success. Then, in 2013, director Rodriguez released a sequel to Machete entitled Machete Kills, which was not as successful, but still raked in millions of dollars.

In November 2014, viewing the success of the Machete films as their failure, the Plaintiffs (Medina and ITN Flix) sued Rodriguez, Gloria Hinojosa (talent agent who helped broker Trejo’s appearance in the Machete films) and their affiliated entities for, among other things, intentional interference with contract, violation of the Lanham Act, and unjust enrichment. Plaintiffs argued that Trejo’s appearance in the films without Rodriguez’s and his affiliates’ disclosure of Plaintiffs’ business relationship with Trejo constituted breach of contract, and further argued that Rodriguez and had a “legal and/or contractual duty” to disclose the business relationship between Plaintiffs and Trejo to third-party investors of Machete.

Hinojosa and entities related to her requested dismissal of the entire action in early 2015, followed by Rodriguez’s Motion to Strike Pursuant to California’s Anti-SLAPP statute and Motion to Dismiss the Lanham Act claim.

How California Law Made This Case More Peculiar Than It Already Was

The court first assessed the viability of the motion to dismiss, which alleged that the MLA and AA were so vague so as to be unenforceable, and constituted unlawful restraints of trade in violation of Section 16600 of the California Business and Professions Code. In response, the Plaintiffs argued that the contracts were not vague, and insisted that Utah law governed the contracts, so the “restraint” clause was enforceable. Even if California law applied, Plaintiffs argued that it was “widely recognized” that certain reasonable exclusivity agreements could be enforceable, especially as regards contracts in the entertainment industry. The court did not buy Plaintiffs’ argument in any way, shape, or form.

            First, Section 16600 maintains that “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extend void.” The court harkened back to the California case Edwards v. Arthur Anderson LLP, which noted that California courts have “consistently affirmed that section 16600 evinces a settled legislative policy in favor of open competition and employee mobility,” because the statute is designed to protect “the important legal right of persons to engage in businesses and occupations of their choosing.”

            Second, the court highlighted California’s peculiar approach to restraint provisions in contrast to overarching Ninth Circuit law on the topic. California does not adopt the “narrow-restraint exception” to Section 16600, as other courts in the Circuit have adopted. California courts have emphasized the public policy behind disallowing such an exception, and have maintained that the “policy of the state… should not be diluted by judicial fiat.” Instead, the court pointed out, California courts have entirely relegated to the State Legislature the task of altering the reach of Section 16600.

            Third, the court analyzed whether the restraint provision would pass muster even in a Utah court. Usually, Utah courts may uphold a covenant not to compete so long as it is reasonable. For such a covenant to be valid and enforceable, it must be supported by consideration, completely free of bad faith dealing during negotiations, and must be necessary to protect the goodwill of the business. Notwithstanding such provisions, the court found that under both California and Utah law, the contracts were unenforceable, primarily because the restraints were not reasonable or narrow, and to the extent they were, any and all restraints are illegal under Section 16600. Further, the court found it “clearly unreasonable” for Plaintiffs to place an almost decade-long restraint on Trejo’s career.

The court also considered whether the provision regarding Plaintiffs’ ability to collect commissions on commercial exploitations of its “licensed rights” (i.e., a license to Trejo’s name and likeness in “vigilante character” films) constituted a restraint on Trejo’s career, and answered affirmatively. Trejo is a particular character actor, not cast in a wide variety of types of films and is “most recognizable for portraying, characters that operate outside the justice system and dispense justice or injustice.” Such an actor, the court concluded, is particularly vulnerable to the type of restraint present in the MLA and AA contracts. Further, the court rejected the assumption that charging a fee or commission is not a “restraint” and saw no reason Plaintiffs should be able to charge Trejo a fee for engaging in conduct (i.e., acting in a particular type of movie as a particular type of character) that they could not otherwise prohibit. As such, the court found the commission provision to be an unlawful restraint on trade under both California and Utah law.

What This Means in Terms of Employee Mobility in California

ITN Flix teaches the importance of taking care to draft contract provisions that limit or purport to limit an individual’s exercise of his business or trade, regardless of the individual’s industry. Such care is needed when drafting agreements with independent contractors as well as with employees at the beginning or end of employment.

ITN Flix also illustrates that California’s general public policy against non-competes is not limited to the traditional employer-employee scenario.  Indeed, a divided Ninth Circuit Court of Appeals panel in Golden v. California Emergency Physicians Medical Group recently held that a “no re-hire” provision in a settlement agreement could, under certain circumstances, constitute an unlawful restraint of trade under California law.

Without the backstop of non-compete agreements, California employers can nonetheless employ some best practices to ensure their employees do not share any valuable information with competitors.  Such best practices include:

  • Robust confidentiality and invention assignment agreements.
  • Effective entrance and exit interview protocols.
  • Employee education programs that create a culture of confidentiality whereby employees understand the value of protecting company data.
  • Effective trade secret protection measures that take into account new technologies and threats, including cyber threats and social media/cloud computer issues.

Please see our recorded webinar on Trade Secret Protection Best Practices: Hiring Competitors’ Employees and Protecting the Company When Competitors Hire Yours for more details.

To Seat, or Not to Seat: That is the Question

Posted in 2016 Cal-Peculiarities

Seyfarth Synopsis: Seats must be provided for each location where the work reasonably permits.

It started like a bad joke. A cashier and a bank teller walk into a bar—actually, a federal court served by the Bar—and sue CVS Pharmacy and JPMorgan Chase Bank, claiming they were entitled to sit while working, under the California wage orders. They lose and appeal to the Ninth Circuit.

The Ninth Circuit looked here and there but could find no California case interpreting the seating provisions in the wage orders. No precedent defined what the wage orders mean by requiring employers to provide “suitable seating” “when the nature of the work reasonably permits.” The Ninth Circuit asked the California Supreme Court to opine. On April 4, 2016, the California high court finally did.

“Though This Be Madness, Yet There Is Method In’t.”

The Supreme Court held that the “nature of the work” requires looking at subsets of all the tasks and duties of employees by location. Courts must look at all the actual tasks performed, not simply job descriptions or expectations. The Supreme Court rejected the employers’ approach of looking at the work as a whole. The Supreme Court also rejected the employees’ approach of looking at each “single task.”

In examining the term “reasonably permits,” the Supreme Court determined that a totality of circumstances standard applies. Courts must examine

  • the tasks performed,
  • whether the tasks can be performed while seated,
  • whether seats would interfere with other tasks,
  • whether getting up and down could interfere with the work, and
  • whether seated work affects the quality and effectiveness of overall job performance.

The employer’s business judgment—including expectations regarding customer service—is relevant but not determinative. The business judgment must involve something beyond an employer’s “mere preference.” Also relevant is the physical layout of the workplace.

“This Above All: To Thine Own Self Be True.”

The Supreme Court warned employers that “suitable seating” does not mean employers can play fast and loose with the truth and circumvent the suitable seating requirement by creating a workplace environment with the purpose to deny employees a seat.

And, employers who deny seating now must prove the nature of the work did not reasonably permit the use of seating. So employers should be cautious to consider real barriers to seating in the workplace as potential options are deliberated.

“That It Should Come To This!”

Employers can no longer get away with saying, “Anon, anon.” The time is now for employers to review their seating practices based on tasks actually performed by employees, and to look at tasks performed at different “particular locations.” “Business judgment,” though a consideration, is but one factor among several, and the employer bears the burden of proving it did not have to provide suitable seating.

Employers must ask themselves, “Are our employees provided seats?” If not, it may be time to reevaluate seating needs of employees before their company becomes the beginning of the next blog, because no company can take class action lawsuits sitting down.

The cases are: Kilby v. CVS Pharmacy, Inc. and Henderson v. JPMorgan Chase Bank NA.

Edited by Coby Turner.

California Governor Brown Signs Legislation to Expand Paid Family Leave

Posted in 2015 Legislative Updates, 2016 Cal-Peculiarities, California Leaves

Seyfarth Synopsis:  Starting Jan 1, 2018, the amount of benefits paid to employees on paid family leave and state disability will increase substantially, depending on an employee’s income level.

The Legislature and Governor have been keeping very busy. On April 11, 2016, Governor Jerry Brown signed into law AB 908, which will, though effective January 1, 2017, increase, for periods of disability commencing on or after January 1, 2018, the benefits provided to individuals in the Paid Family Leave (PFL) and State Disability Insurance (SDI) programs. The new law will increase the level of benefits from the current level of 55 percent to either 60 or 70 percent, depending on the applicant’s income. The new law will also remove, effective January 1, 2018, the seven-day waiting period before which individuals would be eligible for family temporary disability benefits.

The PFL program provides up to six weeks of wage replacement benefits to workers who take time off work to care for a seriously ill or injured family member or to bond with a minor child with one year of birth or placement of the child in connection with foster care or adoption. The SDI program provides benefits to individuals who are unable to work because of their own illness or injury.

In his press release, Governor Brown was quoted as saying: “Families should be able to afford time off to take care of a new child or a member of their family who becomes ill.” The press release further touted the legislation as improving “an individual’s ability to take up to six weeks off to bond with a new child or care for an ill family member.”

The Paid Family Leave program affected by this legislation was enacted in 2002. It is funded through worker contributions and is administered by the Employment Development Department in tandem with the State Disability Insurance program.

This legislation comes on the heels of Governor Brown last week signing legislation raising California’s minimum wage, in a series of annual steps, to at least $15 per hour statewide.

New DLSE FAQs: Unequal Guidance On Equal Pay Law

Posted in 2016 Cal-Peculiarities, Wage Order Series

Seyfarth Synopsis: New FAQs from DLSE offer some guidance on California’s “new and improved” Equal Pay Act. Most helpful is discussion of factors (skill, effort, responsibility) affecting whether work by different employees is “substantially similar” enough to require equal wages. 

As Seyfarth has reported previously here, as of January 1, 2016, California has one of the most aggressive pay equity laws in the country. On April 6, 2016, California’s Division of Labor Standards Enforcement issued a “Frequently Asked Questions” on the California Equal Pay Act, as strengthened by enactment of the California Fair Pay Act of 2015.

While the FAQ provides a handy roadmap for employees wishing to sue, it provides little guidance for an employer hoping to avoid claims of unequal pay or, if a claim is made, to defend itself. The phrasing of the FAQs is employee-focused. For example, the document addresses these questions for employees:

“What do I have to prove to prevail on my Equal Pay Act claim?”

“When do I have to file my claim?”

“What do I get if I prevail?”

But the advice for employers is limited.

As a quick reminder, the CA Equal Pay Act (Labor Code section 1197.5) requires employers to pay employees of both sexes the same “wage rates” for “substantially similar work,” unless the employer proves that the wage differential is based on (a) seniority, (b) merit, (c) a system that measures earnings by quantity or quality of production, or (d) some other bona fide factor other than sex, such as education, training or experience.

In the FAQs, the DLSE recaps the key differences in the current law from its predecessor: employees can be compared even if they do not work at the same establishment or hold the “same” or “substantially equal” jobs, and employers have the burden to justify pay differentials based on a limited number of factors. Also new: employers must keep records of wages, wage rates, job classifications, and other terms and conditions for three years (rather than two), and (consistent with existing law) employers may not prohibit employees from discussing their wages.

What Employers Need To Consider In Light Of The FAQs

The DLSE leaves many questions unanswered from the employer’s perspective. Perhaps this is not surprising, given the nuanced and fact-specific nature of the questions with which employers must grapple to comply with the law. Nonetheless, there are a few nuggets of information that employers should take to heart when performing pay equity analyses.

The meaning of “substantially similar work.” As noted, the law requires employers to pay employees of both sexes the same wage rates for “substantially similar work.” The FAQs define substantially similar work to mean “work that is mostly similar in skill, effort, responsibility, and performed under similar working conditions.” (The imprecise term “mostly similar” is arguably an improvement on the “when viewed as a composite of” language used in the statute.) The FAQs go on to define (more helpfully) the terms “skill,” “effort,” “responsibility,” and “performed under similar working conditions”:

Skill = experience, ability, education, and training required to perform the job;

Effort = the amount of physical or mental exertion needed to perform the job;

Responsibility = the degree of accountability required in performing the job; and

Performed under similar working conditions = the hazards and physical surroundings of the job such as temperature, fumes, and ventilation.

How do you define “wage rates”? The FAQs do not define “wage rates”; it merely repeats what we already knew—the law refers to wages or salary paid, and other forms of compensation and benefits. Notwithstanding the lack of guidance, we think employers should consider all forms of compensation, not just base or hourly pay, and give special attention to setting starting salaries for new hires.

Employee questions about wages. As the DLSE points out, an employer cannot retaliate against employees who talk or inquire about their own wages or the wages of others. At the same time, the employer continues to have no duty to disclose wages of other employees.

Seyfarth’s Pay Equity Group Is Positioned To Assist Employers

Seyfarth has been at the forefront of assisting employers to interpret pay equity laws and conduct pay analyses. The Seyfarth Pay Equity Group, which includes experienced attorneys and analysts, regularly advise clients regarding the California Fair Pay Act. Contact your Seyfarth attorney to discuss how Seyfarth’s Pay Equity Group may benefit you.

San Francisco Passes Fully Paid Parental Leave (for Most)

Posted in 2016 Cal-Peculiarities, California Leaves, San Francisco Ordinances

 

On April 5, 2016, San Francisco became the first American jurisdiction to mandate fully paid parental leave for parents to bond with their child.  California already provided six weeks of partially paid leave through the state disability insurance program (55% of pay, up to $1,129 per week).  But the Paid Parental Leave Ordinance passed by the San Francisco Board of Supervisors compels employers to make up the difference, providing full pay for all six weeks of leave for most employees. The ordinance is effective January 1, 2017.

Why Does The Ordinance Only Apply To Most Employees? 

Employees must have been employed by their employer for at least 180 days before starting the leave period to be eligible.  Covered employees can be part-time or temporary employees, but they must spend at least 40% of their total weekly hours (and 8 hours per work week) for the employer within the geographic boundaries of San Francisco. Also, employees who qualify for the maximum state benefit are entitled only to a maximum benefit derived by dividing the state’s maximum benefit by the percentage of wage replacement under the California Paid Family Leave Law.  To be eligible for the supplemental compensation under the ordinance, employees must agree to allow their employer to apply up to two weeks of unused accrued vacation leave to help meet the employer’s obligation to provide supplemental compensation.

Which Employers Does The Ordinance Cover?

As of January 1, 2017, the ordinance will apply to all employers who regularly employ 50 or more employees, regardless of location.  Over the following year, the ordinance will be phased in until employers with just 20 employees or more must comply after January 1, 2018.

Where an employee works for more than one covered employer, the employers must contribute pro-rata based on the gross weekly wages received from each employer.  If an employer terminates an employee during the California Paid Family Leave period, then, under the ordinance, the employer must continue to pay supplemental compensation for the remainder of the leave period.

Note that rights under the ordinance can be waived through collective bargaining.

So What Happens Next?

Employers need to be aware that the ordinance includes notice and posting requirements, employer recordkeeping requirements, and anti-retaliation provisions.  The ordinance provides for regulatory implementation and enforcement by the San Francisco Office of Labor Standards Enforcement, as well as a private right of action.  Remedies include restitution, liquidated damages, and injunctive relief, plus attorneys’ fees.

Many larger employers already have leave policies that comply with the ordinance, but many other employers do not.  Employers need to make sure that they have compliant policies in place by the time the law goes into effect next year.  And employers not based in San Francisco, but who have employees who work there, must be especially careful not to run afoul of the new requirements.

If you have any questions about the new San Francisco Paid Parental Leave Ordinance, please reach out to Scott Atkinson or another member of our California Workplace Solutions group for additional guidance.

Edited by David Kadue and Coby Turner.

Governor Signs Bill Building Staircase to Minimum Wage Heaven

Posted in 2015 Legislative Updates, 2016 Cal-Peculiarities, Wage Order Series

On April 4, 2016, Governor Jerry Brown signed SB 3, increasing the statewide minimum wage to $15.00 per hour. The increase will be phased in over the next six years.

First introduced in the state Senate by Senator Leno on December 1, 2014, SB 3, was subject to contentious debate on both the Assembly and Senate Floors on March 31st. Those interested in watching legislators argue for and against the wage hike can watch the Assembly debate here and the Senate debate here.

SB 3, which amends Section 1182.12 of the Labor Code, increases the minimum wage according to different schedules, depending on the number of employees. Here is the schedule of new minimum wages applying to employers who employ 26 or more employees:

  • January 1, 2017 – $10.50
  • January 1, 2018 – $11.00
  • January 1, 2019 – $12.00
  • January 1, 2020 – $13.00
  • January 1, 2021 – $14.00
  • January 1, 2022 – $15.00

For an employer who employs 25 or fewer employees, each yearly scheduled increase comes one year later, beginning with January 1, 2018 and capping out on January 1, 2023.

After $15.00 has been reached, the Department of Finance will continue to calculate a yearly minimum wage increase at either a rate of 3.5% or the rate of change in the averages of the preceding year’s U.S. Consumer Price Index for Urban Wage Earners and Clerical Workers (U.S. CPI-W), whichever is the lesser amount. The adjusted minimum wage will continue to take effect on the following January 1st. The minimum wage will stay the same if that year’s U.S. CPI-W is negative.

A feature of the new law of particular interest is that the Governor can pause the wage hikes based on economic conditions. The law requires “the Director of Finance to annually determine whether economic conditions can support a scheduled minimum wage increase and certify that determination to the Governor and the Legislature.” The Governor may suspend the scheduled increases a maximum of two times. The Assembly Bill Analysis can be found here and the Senate Bill Analysis here.

We previously reported here  (when the $10 state-wide minimum wage went into effect on January 1, 2016) on the impacts that an increasing minimum wage has on various other compensation determinations, such as the salary threshold for the white collar exemptions under California law. If you have any questions about how forthcoming minimum wage increases will affect your business, please reach out to our California Workplace Solutions team or any member of Seyfarth’s Labor and Employment Group.

Edited by David Kadue and Colleen Regan.

Who me? Yes, YOU: Personal Liability For Wage Hour Violations

Posted in 2015 Legislative Updates, 2016 Cal-Peculiarities, Wage Order Series

With March Madness in full swing, we interrupt your crumbling tournament brackets to ensure you’re aware of a truly maddening development. California law now makes individuals potentially liable for employer violations of many often-convoluted wage and hour rules.

That’s right—individuals, not just companies, may be liable for wage and hour violations.

We mentioned this legislation here last Fall, when it was part of “A Fair Day’s Pay Act” (SB 588).  We described it there as what it is: an enhancement to the Labor Commissioner’s enforcement authority. The bill’s introductory summary explained that the “bill would authorize the Labor Commissioner to provide for a hearing to recover civil penalties against any employer or other person acting on behalf of an employer … for a [wage and hour] violation.” The Senate Bill Analysis opined that the bill targeted “willful” wage theft and would give the “Labor Commissioner” additional avenues to enforce its judgments. The Senate Bill Analysis can be found here, and the full text of the bill can be found here.

Even though the limited purpose of the new law is clear, enterprising members of the plaintiffs’ bar have recently sought to read the new law as authorizing a private right of action against individual managers. These lawyers have seized upon a legislative oversight. Although 12 of the 13 bill’s enactments refer to the Labor Commissioner, the 13th provision—Section 558.1 of the Labor Code—does not expressly mention “Labor Commissioner.” These lawyers have seized upon this obvious oversight to argue that Section 558.1 goes further than its 12 companion provisions and somehow creates a private right of action against individuals.

The personal liability language of Section 558.1 is not complex: any employer or “other person acting on behalf of an employer” “may be held liable as the employer for” violations of the directives in the Wage Orders and in various provisions of the Labor Code. Thus, the Labor Commissioner may now hold individuals liable for certain wage and hour violations, including California’s big six: unpaid overtime, unpaid minimum wage, denied meal/rest breaks, untimely termination pay, inadequate wage statements, and failure to reimburse for employee business expenses.

The Legislature defines “other person acting on behalf of an employer” as “a natural person who is an owner, director, officer, or managing agent of the employer.” The “managing agent” definition mirrors that found in California’s punitive damages statute. Under that statute and case law, “managing agents” are all employees who exercise substantial independent authority and judgment in their corporate decision-making such that their decisions ultimately determine corporate policy.

But while this statutory language thus creates the potential for individual liability at the hands of the Labor Commissioner, none of the foregoing statutory language nor anything in the legislative history of the bill’s enactment creates a private right of action. As the California Supreme Court has explained, it takes more than statutory silence in a Labor Code provision to create a private right of action: the statute must contain “clear, understandable, unmistakable terms, which strongly and directly indicate that the Legislature intended to create a private cause of action”; and if the statute lacks that language, the statute’s legislative history must be examined. Applied here, that analysis would show that the plaintiffs’ lawyers are out of line, and should seek their easy pickings elsewhere.

We expect courts to remedy the plaintiffs’ interpretive overreaching. Meanwhile, however, the new statute remains significant for high-level managers regardless of who is empowered to enforce it. What’s clear is that now, more than ever, employers and their corporate policy-makers may have a personal stake in ensuring that the company’s wage and hour house is in order and ensuring that employees are paid properly. Employers would be well-advised to take proactive measures to ensure compliance with California’s unique wage and hour landscape, such as auditing current pay practices and policies.

If you would like assistance in ensuring your company’s wage and hour compliance, or if have questions regarding the issues raised in this post, then please do not hesitate to contact the authors or any other member of Seyfarth’s Labor and Employment Group.

Till Death Do You Part—Wages Of The Dearly Departed

Posted in 2016 Cal-Peculiarities, Wage Order Series

When an employee dies, employers ask, “Who gets the employee’s wages, and how do I pay them without getting into trouble?” While employers might be tempted to consult the California Labor Code (see discussion of payment of wages to a terminated employee here), under certain circumstances, paying wages earned by a deceased employee is governed by the California Probate Code.

Sections 13600-13606 address when and to whom an employer should pay wages owed to a deceased employee. We focus here on cases where the deceased employee has left a surviving spouse. Section 13600 provides a method much more expedient that the usual probate process by which a surviving spouse may receive the wages owed to the deceased spouse. (Other states differ. In New York, for example, employers can make reasonable efforts to contact the administrator of the estate of the deceased employee to pay wages within the time wages generally must be paid).)

Upon the death of an employee, a California employer must pay the deceased’s spouse the earned “salary or other compensation … including compensation for unused vacation, not in excess of fifteen thousand dollars.”  Cal. Prob. Code § 13600. The surviving spouse (or the conservator of the estate of the surviving spouse) must state under penalty of perjury this information:

(1) The name of the decedent.

(2) The date and place of the decedent’s death.

(3) The declarant is either (A) “the surviving spouse of the decedent” or (B) “the guardian or conservator of the estate of the surviving spouse of the decedent.”

(4) “The surviving spouse … is entitled to the earnings of the decedent under the decedent’s will or by intestate succession and no one else has a superior right to the earnings.”

(5) “No proceeding is now being or has been conducted in California for administration of the decedent’s estate.”

(6) “Sections 13600 to 13605, inclusive, of the California Probate Code require that the earnings of the decedent, including compensation for unused vacation, not in excess of fifteen thousand dollars ($15,000) net, be paid promptly to the … declarant.”

(7) “Neither the surviving spouse, nor anyone acting on behalf of the surviving spouse, has a pending request to collect compensation owed by another employer for personal services of the decedent under Sections 13600 to 13605, inclusive, of the California Probate Code.”

(8) “Neither the surviving spouse, nor anyone acting on behalf of the surviving spouse, has collected any compensation owed by an employer for personal services of the decedent under Sections 13600 to 13605, inclusive, of the California Probate Code except the sum of _____ dollars ($_____) which was collected from _____.”

(9) “The … declarant requests … the salary or other compensation owed by you for personal services of the decedent, including compensation for unused vacation, not to exceed fifteen thousand dollars ($15,000) net, less the amount of _____ dollars ($_____) which was previously collected.”

(10) “The … declarant affirms or declares under penalty of perjury under the laws of the State of California that the foregoing is true and correct.”

Cal. Prob. Code § 13601.

The employer, upon receiving such a statement and “reasonable proof of identity of the surviving spouse,” must “promptly pay” the surviving spouse “the earnings of the decedent, including compensation for unused vacation, not in excess of fifteen thousand dollars.” Cal. Prob. Code §§ 13601(b), 13602.

If the surviving spouse’s statement satisfies the requirements of Probate Code section 13601, and adequate identification is provided, the employer is discharged “from any further liability with respect to the compensation paid. The employer may rely in good faith on the statement and has no duty to inquire into its truth. Cal. Prob. Code § 13603.

If an employer refuses to pay wages under Section 13600, the surviving spouse can sue  to recover the wages, and, if the employer “acted unreasonably in refusing to pay,” can collect reasonable attorney fees. Cal. Prob. Code § 13604. Actions to recover wages would likely be brought in the Probate Division of the California Superior Court, as the action arises under the Probate Code.

By following California Probate Code sections 13600-13606, employers can thus discharge their liability regarding the deceased’s wages through a relatively straightforward process that also affords the surviving spouse ready access to earned wages and earned but unpaid vacation pay.

Edited by Coby M. Turner.