Seyfarth Synopsis: From Mark Zuckerberg to the mayor of Stockton, the concept of Universal Basic Income is catching fire. What is this newfangled concept, and what can employers expect in the new emerging economy?

UBI – What Is It?

Universal Basic Income—“UBI”—is a form of social security, or a citizen’s stipend, to ensure everyone with a basic income from the state. The idea is to provide a basic degree of economic security: the recipient need not work or look for work, and the payment would come regardless of the individual’s other income. Countries like Finland and Canada have started to test UBI programs in certain jurisdictions, with some success.

Although the idea of UBI dates all the way back to the 18th century, the idea has received a lot of attention and support recently. Numerous Silicon Valley big game players have embraced the concept. Mark Zuckerberg of Facebook fame advocated for the concept during his Harvard commencement speech in 2017. Elon Musk of Tesla fame is another big supporter, opining recently that “we’ll end up doing universal basic income. It’s going to be necessary.”

Why has the concept been so revitalized? It all comes down to the future emerging job market. Elon Musk was very clear on this point: “there will be fewer and fewer jobs that a robot cannot do better. I want to be clear. These are not things I wish will happen; these are things I think probably will happen.” Indeed, back in March 2017, former President Barack Obama warned Congress that several reports found that as much as 50% of jobs could be replaced by robots by 2030. If that truly is the case, the diminished capacity for human workforce will leave many people without a job, and therefore without any other form of income.

Stockton Economic Empowerment Demonstration

It all seems very futuristic and distant—until we realize that UBI is already being tested right here in California! And, where better than in Stockton, California? Stockton has already faced great economic difficulty: as a city plagued by a loss in job opportunities and low wages, it even had to declare bankruptcy in 2012.

Beginning in the second half of 2018, the Stockton Economic Empowerment Demonstration (SEED) will pay $500 a month to a few hundred lower-income individuals. The money will come with absolutely no strings attached and will originate from the Economic Security Project (an organization aiming to raise awareness on UBI in the United States).

Stockton Mayor Michael Tubbs, Stockton’s youngest mayor in history, has been a prominent supporter of the program, seeing it as a way to alleviate some of the poverty pains the city has been experiencing with the growth of Silicon Valley and an increasingly heavy reliance on automation. The hope is to track the benefits of the distributions and use this as a pilot program for potentially expanding its use in other areas of California. Indeed, this hot topic of UBI is regularly discussed already by California state legislators and by gubernatorial candidates in California’s 2018 election.

What Does It All Mean?

Should we all just kick our shoes off and wait for the money to roll in? Probably best not to. UBI is meant to provide some security, but is in no way meant to replace working entirely. The program is just in its initial testing stages, and it is impossible to predict with any assurance the benefits and costs of running a UBI program on a larger scale.

Some studies indicate that people receiving a UBI would likely keep some form of employment, or take on part-time work. Indeed, researchers found that rather than decreasing employment, in areas using UBI, people in part-time work increased by a significant 17%. Like the surge of independent contractors in the new and emerging “gig economy,” employers could see a shift in the type of workers, particularly in low-wage positions that UBI tends to affect, and their expectations for benefits, flexibility, and pay.

Workplace Solutions:

So what should we do? In the emerging futuristic world we live in, keep an eye on the future of work. Team Seyfarth will keep an eye out and keep you abreast of this bizarre new world. Check out our wonderful future employer initiative. Meanwhile, if you have any queries, your friendly Seyfarth attorney is always happy to be your guide.

Edited By: Coby Turner

Seyfarth Synopsis: Employers have been scammed into sending sensitive W-2 information to malicious third parties. This article outlines the key steps California employers must immediately take if subject to this unfortunate event.

In 2003, California became the first state to enact a data breach notification law: the California Data Protection Act. Since then, over 30 states have enacted similar statutes and, in recent years, California has enacted a number of amendments to its original law.

Data breaches often result from “phishing” scams. These scams usually arise when a fraudulent email message that appears to be legitimate is sent to a human resources manager or payroll employee requesting the previous year’s W-2 statements. In reality, the email is a phishing scam sent by a third party. The IRS has recognized the detrimental and costly impact these scams have    on employers, employees, and the tax system. In 2016, the IRS issued an alert to payroll and human resource professionals, advising, “If your CEO appears to be emailing you for a list of company employees, check it out before you respond.” The IRS gave examples of the details contained in these emails:

  • “Kindly send me the individual 2015 W-2 (PDF) and earnings summary of all W-2 of our company staff for a quick review.”
  • “Can you send me the updated list of employees with full details (Name, Social Security Number, Date of Birth, Home Address, Salary)?”
  • “I want you to send me the list of W-2 copy of employees wage and tax statement for 2015, I need them in PDF file type, you can send it as an attachment. Kindly prepare the lists and email them to me asap.”

www.irs.gov/newsroom/irs-alerts-payroll-and-hr-professionals-to-phishing-scheme-involving-w2s

It usually is not until after the recipient attaches the requested information to the email and hits “send” that the employer realizes that it has been the victim of a scam. Once this occurs, employers must promptly act.

Who is Covered?

California’s data protection notification law covers any entity that does business in California and either (1) owns or licenses computerized data that includes personal information or (2) maintains computerized data that includes personal information that the person or business does not own. The law also protects everyone in California, including its residents and any employees working in the state.

How is “Personal Information” Defined?

The law defines “personal information” to include an individual’s first name or first initial and last name in combination with one or more of the following (when either the name or the data elements are not encrypted):

  • social security number,
  • medical information, which means information regarding an individual’s medical history, mental or physical condition, or medical treatment or diagnosis by a health care professional,
  • information collected through an automated license plate recognition system,
  • driver’s license number or California identification card number,
  • health insurance information, which means an individual’s health insurance policy number or subscriber number, any unique identifier used by a health insurer to identify the individual, or any information in an individual’s health insurance application or claims history, including any appeals records, and
  • any account number or credit or debit card number in combination with any security code, access code or password allowing for access to the individual’s financial account.

“Personal information” also includes a user name or email address, in combination with a password or security question and answer that would permit access to an online account.

An employer scammed into disclosing W-2 statements will have disclosed “personal information” because those statements contain employee names and social security numbers.

Notices are not required if the information is encrypted, which means the information has been “rendered unusable, unreadable, or indecipherable to an unauthorized person through a security technology or methodology generally accepted in the field of information security.” That said, notices are required if there is reason to believe that any encryption key or security credential has been acquired by an unauthorized person and there is reason to believe the key or credential could render the personal information readable, decipherable, or usable.

What Must a Covered Employer Do If A Breach Occurs?

  1. Contents of Notice

An employer affected by a breach must provide a specific notice to affected individuals. The notice must be labeled “Notice of Data Breach” and have text that is no smaller than 10-point type font. The notice must contain the specific headings, which must be clearly and conspicuously displayed on the notice, and information:

  • What Happened”—a description of the incident, including the date on which it occurred (or an estimated date or a date range when it likely occurred);
  • What Information Was Involved”—the types of personal information likely to have been breached;
  • What We Are Doing”—a description of the employer’s response to the breach; and
  • What You Can Do” and “For More Information.” It is unclear what information must appear under these headers, but if the breach exposed a social security number or a driver’s license or California identification number, the law requires that the notice include the addresses and toll-free numbers of the three major credit bureaus (Equifax, Experian, and Transunion).

The notice also must contain:

  • the employer’s name and contact information,
  • whether the notice was delayed due to any law enforcement investigation, and
  • the date of the notice.

The notice may, but need to include:

  • information about what the employer has done to protect individuals whose information has been breached, and
  • advice on steps the individual may take for self-protection.

Different notices are required for a system security breach involving personal information for an online account or for login credentials of an email account.

  1. Timing of the Notice

Notice must be given in the most expedient time possible, without unreasonable delay. The notice may be delayed only if

  • law enforcement indicates that notification will impede a criminal investigation,
  • the employer needs time to determine the nature and scope of the breach, or
  • the employer needs time to restore the reasonable integrity of the data system.
  1. Manner of Notice

The notice can be in writing or by email (if done in compliance with the federal ESIGN Act). The law allows for substitute notice (email, website posting, and notification to major statewide media) if written notice will cost more than $250,000, if the affected number of individuals to be notified exceeds 500,000, or if the employer lacks sufficient contact information.

  1. Notice to the Attorney General

If more than 500 California residents will receive notice, the employer also must notify the California Attorney General and provide an electronic sample copy of the notice at https://oag.ca.gov/privacy/databreach/reporting. The sample notice should not include any personally identifiable information.

  1. Offer to Provide Identity Theft Protection Services

If the breach includes an individual’s name in combination with a social security number, driver’s license numbers, or California identification card number, then the employer must offer affected individuals identity theft protection and mitigation services. These services must be provided at no cost to the affected individual for no less than 12 months. The notice must contain information necessary for the individual to take advantage of the offer.

The California Attorney General’s Recommendations

The California Attorney General has issued annual reports analyzing data breach notices and providing recommendations to companies for implementing data breach plans, including recommending that companies take these steps:

  • Implement the Center for Internet Security’s Critical Security Controls as the “minimum level of information security” if they handle personal data. The Attorney General has stated that“[t]he failure to implement all the Controls that apply to an organization’s environment constitutes a lack of reasonable security.”
  • Implement “strong encryption” for personal information on laptops and other portable devices, and consider full encryption on desktop computers when not in use.
  • Encrypt digital personal information when moving or sending personal information out of their secure network.
  • Encourage individuals affected by a breach of social security numbers or driver’s license numbers to place a fraud alert on their credit files and make this option very prominent in their breach notices.
  • Make multi-factor authentication available on consumer-facing online accounts that contain sensitive personal information.
  • Provide training to employees and contractors on data security controls.
  • Improve the readability of breach notification letters.

What Employers Should Consider Doing

In the event of a data breach, employers must be ready to promptly respond. As a result, employers should consider taking proactive measures by reviewing and, if necessary, updating their current procedures for responding to a breach to ensure compliance with California law.  Employers also should consider these steps:

  • Appoint a team responsible for complying with California’s data breach notification requirements.
  • Review and, if necessary, strengthen safeguards for personal information to reduce the risk of a data breach.
  • Create template data breach notification letters.
  • Investigate and select an entity to provide identification protection services in the event of a breach requiring the provision of such services.
  • Train payroll and human resources professionals to inquire further any time they receive a request for employee information.

Nationwide employers also should stay abreast of the continual amendments to data breach notification laws in other states, because the employer must comply with the law of each state where an affected individual resides.

Seyfarth Synopsis: The California Supreme Court heard oral arguments yesterday morning in Dynamex Operations v. Superior Court, a case addressing the legal standard for determining whether a worker should be classified as an independent contractor or an employee. We expect the Supreme Court’s opinion will be significant for any entity using independent contractors in California.

The Story Thus Far

As outlined in a previous blog article, the decision in Dynamex Operations v. Superior Court will be extremely important for all companies that use independent contractors, especially those in the emerging “gig economy.” Misclassifying workers can have painful consequences, involving not only liability for unpaid wages and employee benefits but also statutory penalties for each violation considered “willful.”

The Issue

In agreeing to review the case, the California Supreme Court defined the issue on appeal as to whether, in a misclassification case, a class may be certified based on the expansive definition of employee as outlined in the Wage Order language construed in Martinez v. Combs (2010), or on the basis of the common law test for employment set forth in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989). In short, the Supreme Court focused on whether to continue using the Borello test and on what test, if any, to apply instead.

The definition of employment identified in the Wage Orders is broader than the prior common law test. The Wage Orders define “employ” broadly to mean “to engage, suffer or permit to work.” In contrast, Borello focuses instead on a multi-factor balancing test that depends on the unique facts of each situation and that is more likely to recognize the existence of an independent contracting relationship.

Oral Argument

Dynamex Operations Goes First

In its opening argument, Dynamex praised the Borello test as a tried and true California rule and warned against the danger that uncertainty in the classification of workers would pose to California’s booming “gig economy.” Dynamex raised concerns with any judicial adjustment to the definition of employment that would usurp the legislature role.

Justice Kruger, however, wondered whether judicial adoption of a bright-line rule would not be more instructive for employers, and suggested, as a possibility, adopting the ABC test followed in such jurisdictions as New Jersey and Massachusetts. The ABC test says that three conditions must all concur for a worker to be an independent contractor: (1) freedom from actual control over the work, (2) work beyond the usual course of business and off company premises, and (3) engaging in an independent trade. Unless A, B, and C all concur, then the worker is an employee.

Chief Justice Cantil-Sakauye raised an additional response to Dyanamex’s plea to leave this issue to the Legislature: if the ABC test is a stricter version of the Borello test, then why should the Supreme Court be precluded from adopting a new version of the test to ensure clarity in enforcement when, after all, it was the Supreme Court that had adopted the Borello test in the first place? Finally, Justice Kruger and Dynamex had a robust discussion about adopting a modified rule, where the ABC test would govern for some Labor Code provisions, but a different test may apply to others. Dynamex opined that this result would be confusing for employers and might result in individuals being employees for some purposes but independent contractors for others.

Aggrieved Independent Contractors Respond

In their responsive argument, the workers portrayed what they saw as the sorry plight of California independent contractors. The workers called independent contracts the new “serf-class”: people who work hard while receiving none of the Labor Code’s basic employee benefits. They argued that the Supreme Court should adopt a new, broader definition of employee to protect workers from harm. The workers seemed open to several outcomes, including (a) a broader definition for some Labor Code provisions, (b) the definition outlined in the Wage Orders, or (c) any other new employment test  that the Supreme Court might come to favor.

Justice Liu seemed skeptical about a broader test. He referred to an “Amazon Analogy.” Although most people know Amazon sells goods online, many people also view Amazon Prime (with its delivery services) as within Amazon’s usual course of business. Justice Liu then asked: if the Supreme Court were to adopt a strict interpretation of the ABC test, at what point would Amazon be considered a shipping business, meaning that all drivers who ship Amazon Prime goods would be employees of Amazon under the second ABC prong? This analogy caught the attention of Justices Cuellar and Justice Chin, who both seemed to appreciate how complicated, and blurry, a new test could be.

Dynamex Makes A (Brief) Comeback

In its rebuttal, Dynamex took up Justice Liu’s “Amazon Analogy” to argue why a flexible test is needed to ensure just results. Two Justices followed up. The first was Justice Liu, who asked whether other jurisdictions have applied the ABC prongs strictly. The second was Justice Chin, who closed oral argument with a pointed question that represents the concerns of many observers: which employment test best fits the modern economy? Dynamex responded that the body of developing case law as well as the uniformity of Borello’s application has suited California well and that it provides all of the factors needed to fully determine employment relationships.

Our Crystal Ball

Although one cannot read the minds of seven justices, we sense the Supreme Court will likely reject the call to leave this matter for the Legislature and will lean instead toward a judicially fashioned test that, in the view of most justices, will best fit the needs of the modern economy. The Supreme Court’s decision is expected within the next 90 days.

As always, we will remain vigilant and on the scene. Look for more updates about this case as they come out and in the meantime do not hesitate to reach out to your friendly neighborhood Seyfarth attorney for guidance or with any questions you might have.

We’re pleased to share a thoughtful look at whether lawsuits alleging illegal pay disparities under California law are suitable as class actions. This post, recently featured on Seyfarth’s Pay Equity Issues & Insights Blog, provides some compelling reasons to argue that they’re not.     

Seyfarth Synopsis: Over the past few years we have seen groundbreaking changes to equal pay laws across the country and this trend does not seem to be slowing down.  Pay equity litigation is also on the rise and we are now seeing more pay equity cases come into the spotlight, including putative class actions brought on behalf of groups of employees.  Some recent examples include Ellis v. Google, Inc., No. CGC-17-561299 (Cal. Sup. Ct. Sept. 14, 2017), which we reported on here, and Knepper v. Ogletree, Deakins, Nash, Smoak & Stewart, P.C., No. 3:2018-cv-00304 (N.D. Cal. Jan. 12, 2018), which we discuss in this post.  An overarching question we have to ask, however, is whether these types of pay equity cases are really appropriate for class treatment given the individualized inquiries that are necessary when analyzing pay differences.  We believe they are not.

 

The Knepper Case

Knepper v. Ogletree, Deakins, Nash, Smoak & Stewart, P.C., No. 3:2018-cv-00304 (N.D. Cal. Jan. 12, 2018) is the latest in a wave of putative class actions alleging pay equity claims.  In Knepper, a non-equity shareholder of the law firm Ogletree, Deakins, Nash, Smoak & Stewart, P.C. (“Ogletree”) alleges that “Ogletree’s female shareholders face discrimination in pay, promotions, and other unequal opportunities in the terms and conditions of their employment.”  Complaint ¶ 3.  Plaintiff asserts nine causes of action against Ogletree, including discrimination and retaliation claims under Title VII, the federal Equal Pay Act, the California Fair Employment and Housing Act, and the California Equal Pay Act (as amended by the Fair Pay Act), as well as a California Business and Professions Code claim and a claim under the California Private Attorneys General Act.  Plaintiff purports to bring these claims on behalf of all similarly situated Ogletree female non-equity shareholders.  While the complaint and this type of lawsuit will undoubtedly involve a number of strategic determinations and possible defenses, this post is limited to a general discussion of the appropriateness of class treatment for pay equity claims of this type.

To view the full post, click here.

Seyfarth Synopsis: The Fair Employment and Housing Council issues regulations to implement California’s employment and housing anti-discrimination laws, including the FEHA, the CFRA, and the Unruh and Ralph Civil Rights Acts. The FEHC also conducts inquiries and holds hearings on various civil rights issues. The latest FEHC meeting was held on December 11, 2017. Our own correspondent was there, and files this report of coming regulatory attractions in the areas of age discrimination, religious creed discrimination, and national origin discrimination.

Age Discrimination. The Council discussed the current working draft of 2 C.C.R. § 11076, on age discrimination. The proposed changes would add language defining how to establish a presumption of discrimination by showing disparate treatment of applicants or employees over the age of 40, unless the treatment was tied to a legitimate overriding business necessity, necessary to the safe and efficient operation of the business. An employer would have to show a legitimate overriding business necessity, as opposed to the current “legitimate business reason” for any disparate treatment. The proposed regulations further note: “the mere preference of retaining lower paid workers alone is insufficient to negate a presumption of discrimination.”

This language has not yet been adopted and members of the Council seemed amenable to re-working the language for clarity. The Council members also decided that more research about other jurisdictions’ approaches to regulating workplace age discrimination would be good. This draft is likely to benefit from further revision.

Religious Creed Discrimination. As to a new potential draft of regulations related to religious creed discrimination, the Council heard concerns about pre-employment religious inquiries, such as religious scheduling needs. One commenter suggested that the religious accommodation process be drafted to mirror the interactive process used in disability discussions, suggesting that employers ask prospective employees whether they could perform the essential job functions, with or without a religious accommodation.

The Council did not seem particularly interested in this type of language. Some voiced concerns with the timing of such requests, and whether they might have the deleterious effect of actually weeding out potential employees by flagging them as “religious.” Stay tuned for more comment and revision to these proposed regs.

National Origin Discrimination. As to the final version of new national origin discrimination regulations, notable public comments concerned a section addressing language usage in the workplace. Some commenters feared that a per se ban on language restrictions in the workplace, unless justified by business necessity, could raise safety concerns. For example, during an emergency, employees speaking only in a foreign language on their meal break could present a safety problem if all employees could not understand what was going on. The Council did not seem entirely persuaded by the commenter’s arguments, but the discussion did prompt recognition that overly restrictive language regulation may present problems.

Instead of adopting or approving the regulations as proposed, a contested vote among Council members ensued. Two members voted to adopt the regulation as is, while the rest voted for a renewed notice period and another round of public comments. Overall, there was some lingering hesitation on how this new regulation may affect employers.

Regs Re: Criminal History, the California Family Rights Act, and the New Parent Leave Act. Modifications considered by the FEHC included changing the gender pronouns to be gender neutral, and changing language to reflect the exact language of the CFRA and the NPLA. The council voted to move and adopt these proposed amendments for a public comment period, catapulting them towards final adoption.

Other Happenings

Gender Neutral Signage. The Council also discussed emergency regulations already in place regarding gender-neutral facility signage. A subcommittee had already met with Cal/OSHA to discuss regulatory language to harmonize the regulations under the occupational safety laws, the FEHA, and the new legislation regarding gender neutral bathrooms for single occupancy restrooms. The Council is working with Cal/OSHA to ensure consistency and enforcement.

These new proposed regulations follow hard on the heels of regulations promulgated effective July 1, 2017, concerning Transgender Identity and Expression, and Consideration of Criminal History in Employment Decisions.

We will keep you apprised of further FEHC activity on the new proposals. The next FEHC meeting is scheduled for April 4, 2018. For advice on how these regulations may affect your business, or if you would like to discuss how you can participate with us in making public comments, please reach out to your favorite Seyfarth attorney.

Seyfarth Synopsis: As Californians grow tragically familiar with wildfire, California employers face another threat of fire in the form of defamation lawsuits. The rapidly burning #MeToo anti-harassment movement, and constant talk in the news about peoples’ reputations being destroyed, has rained down fire and fury for California employers forced to consider possible defamation lawsuits by current or former employees.

Stoking the Fire: How Defamation Lawsuits Begin

Workplace defamation lawsuits can flare up in various ways: the administration of performance reviews, background and reference checks, and conducting workplace investigations. But the fires often burn fiercest in the context of harassment lawsuits. In defending a workplace harassment lawsuit, employers must use caution in making any statement about the litigation that could harm a plaintiff’s reputation, particularly where it comes to providing employment references. Employers who fail to do so put themselves at risk of permitting a rumor mill that sets themselves up for a defamation lawsuit.

Red, Orange, and Yellow Flames: Standards for Defamation, Libel, and Slander

Under California law, defamation is a false statement made about another person that harms the person’s reputation. California, unlike some states, has separate standards for written defamation (libel) and oral defamation (slander).

Usually a defamation plaintiff must prove damage to profession or occupation, but sometimes the statements are so controversial that the words alone are deemed to cause harm. A false statement that an employee “sexually assaulted” another employee might fall into that category, as might a false statement that an employee “colluded with a competitor,” as these statements might imply an individual is professionally unfit.

In the workplace (and especially in the harassment context), statements are more likely to damage a person’s profession or occupation because they will likely relate to the person’s reputation.

What Can I Do If a Fire Catches?

Here are three situations that could spark a defamation claim and what employers can do to douse any flame:

  1. An employee volunteers that you disciplined a former employee for sexual harassment, when talking to a prospective employer for the former employee.
    • Solution: Have a written policy that restricts what your company will tell prospective employers of your former employees. Do not provide substantive information regarding an employee’s reasons for leaving your company, and provide that all inquiries go to Human Resources and limit HR’s responses to the former employee’s job title and dates of employment.
  2. A supervisor emails another supervisor that an employee seeking to transfer to another department is “stupid and crazy.”
    • Solution: Train supervisors on appropriate language to use in the workplace and while providing coaching or performance improvement plans to employees who are struggling in their job performance.
  3. A company representative posts on Facebook that a former employee’s actions were “felonious” after the employee sues the company for retaliating against him for whistleblowing.
    • Solution: Instruct company representatives to refrain from posting on social media or making statements to the media regarding any pending lawsuit against the company.

Extinguishing the Fire: An Employer’s Potential Defenses

As long as the statement was not made to purposely harm a person’s reputation and it was not known to be false, employers have an arsenal of affirmative defenses with which to combat defamation fires. These defenses include:

  • Truth,
  • Consent,
  • Qualified Privilege—applying to communications to others expressing concerns on matters of common interest (e.g., job references to other employers), and
  • Absolute Privilege—applying to communications made in certain legal proceedings or in certain reports of crimes to the police.

Workplace Solutions: Fire Prevention 101

In preventing defamation suits stemming from harassment lawsuits, employers should never overlook the importance of maintaining a fire-proof anti-harassment policy. Should a harassment lawsuit arise, employers should ensure that representatives and supervisors exercise caution in making statements about current or former employees. If you have any questions or concerns, your friendly California Seyfarth firefighters are here to serve and protect.

Edited by Coby Turner

Seyfarth Synopsis: New Year’s resolutions typically address health and well-being. Many among us have resolved this year to get off the couch, to sweat a bit more often to the “oldies,” to meditate and be mindful, and to eat less cake and fewer tacos. And so one might think that courts would endorse the EEOC’s approval of employer-sponsored wellness programs, as a great way to encourage employees to follow through on their health goals. But beware! A recent federal court decision in D.C. has cited two statutes—the ADA and GINA—to roll back the EEOC regulation approving employer wellness programs. This decision, though prospective only, may significantly affect the structure of such programs, including those in California.

The Legal Landscape

GINA—the Genetic Information Nondiscrimination Act of 2008—is a federal law that protects individuals from genetic discrimination in health insurance and employment. GINA prohibits employers from using genetic information in hiring, firing, promotion, and pay decisions, or in determining privileges or terms of employment, including health insurance, although employers may collect genetic information as part of a wellness program, so long as the employee’s provision of the information is “voluntary.”

ADA—the Americans with Disabilities Act—prohibits many medical inquiries and generally permits employers to collect medical data only in connection with a “voluntary” employee health program.

California’s GINA equivalent—CalGINA—passed in 2011. CalGINA added “genetic information” to the list of protected classes found in California laws, including public accommodations statutes, the California Fair Employment and Housing Act (“FEHA”), and the Health and Safety Code. CalGINA also empowers plaintiffs to recover unlimited monetary damages, without facing the damages caps existing under federal law.

The EEOC, administering both GINA and the ADA, has issued regulations allowing employers to provide employees with financial incentives—up to 30%—to participate in wellness programs and to disclose genetic information in order to participate. These incentives effectively penalize employees who fail to participate, as they would pay more for health coverage. Many California employers—equally subject to the ADA, GINA, and the broader CalGINA—rely on the EEOC regulations to structure incentives in their workplace wellness programs. In light of CalGINA’s unlimited damages provision, any changes to the permissible structuring of wellness programs creates peculiar exposure for California employers.

The Challenge to the ADA and GINA Regulations

In October 2016, AARP (once called the American Association of Retired Persons) challenged the EEOC regulations, arguing that wellness programs are not really “voluntary” if, as the EEOC would allow, employers can charge employees up to 30% more if they refuse to disclose the medical and genetic information required by a wellness program. The EEOC defended its regulations as a reasonable effort to harmonize ADA, GINA, and HIPAA regulations to promote overall health through participation in employer wellness programs.

The Decision

In its ruling in AARP v. EEOC, a federal district court in the District of Columbia found that the EEOC rules were unlawful, on the ground that the EEOC had failed to provide a reasoned explanation for its decision to adopt the 30% incentive levels. The EEOC, in particular, had failed to show how a 30% differential in employee cost would be consistent with the employee’s participation being “voluntary” as opposed to coerced. On December 20, 2017, the court vacated the EEOC regulations and remanded them to the EEOC for reconsideration.

To avoid unnecessary disruption to employers and employees, the court left the regulations in place till January 1, 2019. While this distant date may seem to leave plenty of time to review and revise wellness programs, employers would do well not to procrastinate.

This resolution is particularly significant for California employers who risk unlimited exposure if they do not restructure their wellness programs in advance of January 2019.

Legislative Changes Looming

Employers should keep an ear to the ground for legislation that may further adjust wellness programs. In March 2017, House Representative Virginia Fox of North Carolina introduced H.R. 1313, the Preserving Employee Wellness Programs Act. The new bill has yet to come before the Senate. The bill, if passed into law, would allow employers to impose penalties of up to 30% of the total cost of the employee’s health insurance on employees who do not provide genetic information to participate in an employer-sponsored wellness program. The bill would thereby weaken the role of the EEOC’s oversight over genetic discrimination in wellness programs.

Workplace Solutions

California employers should know that the decision rolling back the EEOC regulations can threaten the viability of their wellness programs. Employers should now assess the extent to which their wellness programs provide incentives for divulging medical information, and decide whether those incentives, in light of the evolving case law, are defensible as being truly “voluntary.” Given the litigious nature of the Golden State, animated by the incentive of unlimited damages, California employers should be especially wary of programs that use financial incentives or penalties to encourage wellness program participation. Cautious employers should start the new year with a fresh look at the incentives built into their wellness programs and take steps to revise them as necessary.

Happy New Year!

Seyfarth Synopsis: Yes, it’s true: California employees can be entitled to pay for time they haven’t worked. Here, we highlight two common instances: split shifts and reporting time.

Your head—already spinning if you’ve wrapped it around California’s quirky wage and hour laws—may explode when you consider the notion of having to pay for time not worked. The duties to pay split-shift and reporting-time premiums are not new, but don’t worry: you’re not alone if you haven’t heard of them. Reading this piece will deepen your appreciation of just how peculiar California can be!

Split Shift Pay

What is it? Split-shift pay is governed by the Wage Orders (generally Section 4(C)). A split shift occurs when (1) a work schedule includes a block of unpaid time that is longer than 60 minutes (that is not a meal period) in a workday, (2) the block of time interrupts two work periods, and (3) the total daily wage does not exceed the minimum wage for all hours worked, plus one additional hour. The idea behind requiring split-shift pay is that the employee is not really free of duty between shifts because of the looming shift later in the day.

When a split shift occurs, employers must pay a premium of one hour of pay (unless the break qualifies as a “bona fide” rest or meal period).

What’s an example? For an eight-hour workday, the employer schedules a first shift from 9:00 a.m. to 1:00 p.m., and a second shift from 3:00 p.m. to 7:00 p.m.

How is the premium calculated? The split-shift premium generally would be an hour of pay at the minimum wage.

But it can get tricky. If the hourly wage exceeds the minimum wage, a split-shift premium may not be due. To see if one is due, you multiply the difference in rate (between the hourly wage and the minimum wage) by the hours worked that day. If the product of those numbers exceeds the split-shift premium (one hour at minimum wage), then the split shift premium is offset and not owed.

Suppose that two employees of a large employer both work the split shift described in our example. One employee makes the 2018 California minimum wage: $11.00. The other employee’s wage is $13.00. Here are the calculations:

Employee 1—earns $11.00/hr Employee 2—earns $13.00/hr

(1) $11.00 * 8 = $88.00 (daily wage)

(2) Add $11.00 premium

(3) $88.00 + $11.00 = $99.00

Split shift premium owed: $11.00

Total due for that workday =  $99.00 [($11 * 8 hours) + $11.00 premium]

 

(1) $13.00 * 8 = $104.00 (daily wage)

(2) $13.00 – $11.00 = $2.00 (difference between hourly and minimum wage)

(3) $2.00 * 8 = $16.00

Split shift premium owed: None (because $16.00 > split-shift premium of $11.00, the premium is offset and thus not owed)

Total due for that workday = $104.00

Nuance: While split-shift payments are considered wages, they need not be included in the regular rate when calculating overtime pay.

A strange split-shift issue can arise if an employee’s work crosses the defined workday. Consider a night-shift employee subject to a typical workday—starting at midnight—who works at minimum wage from 12:01 a.m. to 4:00 a.m. and then again from 10:00 p.m. to 4:00 a.m. That employee would be entitled to a split-shift premium, because of the long block of time separating work shifts within the same workday. The result would differ, however, had the workday been defined to start at 9:00 p.m. In that case, the employee would not experience a block of time separating work shifts during the same workday. An employer can redefine the workday for a group of employees so long as the workday definition is not a temporary means to avoid overtime.

Reporting Time Pay

What is it? Reporting-time pay is governed by the Wage Orders (Section 5). When an employee reports to work at the regularly scheduled time, but then gets sent home (usually for lack of work), the employer must pay for at least one-half the scheduled hours, at the regular rate. In no case, however, is the employee entitled to less than two hours of pay or to more than four. Here, the idea is that the employee who honored the employer’s schedule, expecting to work, should be compensated for the lack of work.

What are some examples?

  • Employee 1 is scheduled for an eight-hour shift, but then gets sent home after working just one hour. The employer must pay four hours at the regular rate—one for the hour worked and three more for reporting time—because four hours is one-half of the scheduled eight hours of work. Note that only the one hour actually worked, however, would count as hours worked for purposes of determining eligibility for weekly overtime pay.
  • Employee 2 is scheduled to report to work a second time in a workday, but then gets furnished less than two hours of work. The employer still must pay for two hours at the regular rate.

The DLSE has identified certain exceptions to reporting-pay rules, applying when

  • operations cannot begin or continue because of threats to employees or property, or when civil authorities recommend that work not begin or continue;
  • public utilities fail to supply electricity, water, or gas, or there is a failure in the public utilities, or sewer system; or
  • the interruption of work results from a cause beyond the employer’s control (such as an earthquake).

Nuance: The reporting-time pay provisions do not apply to employees on paid standby status, or to employees who have a regularly scheduled shift of less than two hours, such as a relief cashier who works a one-hour shift in the middle of the day.

Workplace Solutions

Employers should carefully review their practices to ensure that they adequately pay employees on split shifts. Employers should also be sure to incorporate reporting-time pay requirements into their policies. Doing this can avoid an obligation to pay back wages and penalties. If you have any questions about work schedules or compensation for your employees, please do not hesitate to reach out to one of our wage and hour experts at Seyfarth Shaw.

Dear Readers:

We are thrilled to report that this week marks the 5th Anniversary of the Cal Peculiarities blog! Thank you for your continued support and interest; we couldn’t do it without you. And a hat tip to our enthusiastic team of writers, editors, assistants and the occasional guest author, all of whom have helped keep the blog overflowing with new ideas and on track for weekly posts.

Looking back, we have covered a lot of CA employment law territory, recently touching on topics as various as sexual harassment, pay equity, scheduling ordinances, and the news breaking Legislative Update. Our blog continues to be a resource for in-house attorneys, HR professionals, business owners, and managers who face real issues on a daily basis.

We recently asked you to share what you would like to read about in the coming year.  Just below, we offer one especially clever answer from a very funny reader!

Here’s my wish list for CalPecs Santa. Please keep in mind that I’ve been really, really good this year. Really.

  1. A big bucket for all of the definitions, FAQs, and other explanations that will surely be coming from the state regarding how to implement the pay-history ban
  2. A referee’s whistle to help officiate the battle between the state and the feds regarding California’s “sanctuary state” status. (A mop might help, too. And another bucket.)
  3. A crystal ball to watch for rulings that would require employers to tolerate medical marijuana use.
  4. A new bulletin board for the extra notices and training schedules needed in 2018. Fortunately, it doesn’t have to be extra-large since median pay levels won’t have to be posted. Yet.
  5. A pony (of course I have to ask) because then I think I could still text and, uh, ride.

Keep an eye peeled in 2018 for posts on these subjects (even the pony!). And any others that you would like us to cover.

Please send along your requests to cregan@seyfarth.com, cmesa@seyfarth.com, cturner@seyfarth.com, mwahlander@seyfarth.com or your favorite Seyfarth attorney.

We look forward to the coming year’s challenges, and hope 2018 is a peaceful, productive and rewarding year for each of you.