Being thankful for all things Cal-peculiar, our blog team is taking a break this week. We’ll be back next week with more on what’s happening in the world of California employment law, and what makes it different.
Being thankful for all things Cal-peculiar, our blog team is taking a break this week. We’ll be back next week with more on what’s happening in the world of California employment law, and what makes it different.
A thankful heart is not only the greatest virtue, but the parent of all the other virtues. ~Cicero
We have much to be grateful for this year:
But our greatest gift—for which we are ever-thankful—is YOU, the loyal reader. Thank you for following our blogs, and for your thoughtful questions and contributions.
We’ve all noted the results of the November elections—both in California and nationally. Those results, together, seem likely to result in California employment law becoming even more “peculiar” than ever. While some will be more grateful than others for this trend, all should see it, we suggest, as validating our call to point out how California law differs from what folks face in America generally. Heck, there is even a Cal-exit secession initiative underway that, if it qualifies, will be on our ballot in 2018.
So the coming year should bring us no shortage of Cal-specific news to report, analyze, and deliver to you, on a more-or-less weekly basis.
Please continue to let us know how you think we’re doing. What would you like to read more of—or less of—in the coming year? How can we be more helpful to you? Our ears are open and we welcome your thoughts. You can contact an editor here.
Meanwhile, a very Happy Thanksgiving to you and yours.
Seyfarth Synopsis: ‘Tis the season of food temptation: the average American gains at least five pounds between Thanksgiving and New Year’s Day. California employers need to beware of weight discrimination in the fluctuating legal landscape, and how to handle bias in hiring and the workplace.
A 2008 study from Yale University found that weight discrimination, often referred to as “size discrimination,” occurs in employment settings and daily interpersonal relationships as often as race discrimination: it is one of the top charges filed with EEOC, and is reported by women about twice as often as men. Even more surprising, according to a study by the Obesity Action Coalition, weight discrimination increased by 66 percent between 1995 and 2005, and it now appears to affect 7-12 percent of the general population. In the continuously changing legal landscape, discrimination against the differently sized is weighing in—what does that mean for California employers?
“Working Out” the Kinks: ADA vs. FEHA
Weight discrimination is a serious problem affecting millions of U.S. employees. Overweight people experience job-related discrimination in hiring, wages, and the terms and conditions of employment. While federal and state laws contrast considerably on the issue, most cases of weight discrimination are argued as a matter of disability discrimination or perceived disability discrimination.
Courts generally have been unsympathetic to claims that overweight plaintiffs have brought under the ADA. To qualify as “disabled” and thus protected under the ADA, a plaintiff must have a present “physical or mental impairment” that “substantially limits” one or more “major life activities,” or must have a record of such impairment, or must be regarded or “perceived” as such. Differently sized individuals have qualified as disabled where they have been medically identified as “morbidly obese.”
As described in the section immediately below, the FEHA provides an extra helping of protection: it breaks with the ADA by liberalizing the test for establishing perceived disability. The FEHA defines disability as:
The Weight is Over: Interpretations Under The FEHA
In 2000, the California Legislature, in AB 2222, affirmed that it intended the FEHA to surpass the ADA in providing wide and strong protections to California employees with disabilities. The Legislature amended the FEHA’s definition of disability in a critical way: To proceed on a disability claim, a plaintiff need only show that the impairment limits, rather than substantially limits, a major life activity. Therefore, a FEHA plaintiff need only show that the employer regarded him or her as having a condition that made working one particular job or task more difficult in order to qualify, and if being over (or under) weight is based on a medical condition, that may count. Enterprising plaintiffs’ lawyers may use this part of the FEHA to argue weight discrimination has affected their clients. See Cassista v. Cmty. Foods, Inc. and Hallstrom v. Barker.
Note also that California law, in contrast to the ADA, covers “medical conditions.” This provision may benefit a weight-discrimination plaintiff because it defines a “medical condition” to include genetic characteristics (any scientifically or medically identified gene or chromosome, or combination or alteration thereof, or inherited characteristics that are known to cause or increase the risk of developing a disease or disorder in a person or his or her offspring and that is presently not associated with any symptoms of any disease or disorder). Cal. Govt. Code § 12926(i). An overweight or underweight plaintiff thus might cite medical evidence to claim a protected “medical condition.”
Tipping the Scale: Best Practices For The Employer
Given the robust protections provided by the FEHA, California employers must proceed cautiously. Here are some tips to consider:
Workplace Solution: Understanding the duties and responsibilities of employers to prevent “weight watching,” and to provide an accessible workplace, is critical. In an unsettled cultural and judicial landscape, more Americans are paying closer attention to weight discrimination and deeming it unacceptable. As policymakers consider adding “weight” to the emergent list of discrimination-protected classifications, employers must stride carefully.
Edited by Coby M. Turner.
We’ve long known that California law does not treat Labor Code Section 203 penalties as “wages.” Earlier this year, the IRS published its view on how to treat those penalties (often referred to as “waiting time penalties” or WTPs) for purposes of federal income and employment taxes. A Chief Counsel Advice (“CCA”) memo concludes that WTPs are not wages for purposes of federal income or employment tax.
Labor Code Section 203 makes a California employer liable if it has willfully failed to timely pay final earned wages to an employee whose employment has terminated. The offending employer must pay an amount equal to the employee’s daily wages from the due date until the date of payment, up to a maximum of 30 days. WTPs can result so long as the employer knew what it was doing, the late payment occurred, and the timing of the payment was within the employer’s control. The employer’s intent to pay the wages on time would not be a defense. The only viable defense would be a showing that the employer, in good faith, disputed that any further final wages were owed on the due date.
When WTPs are paid, are they treated as wages? The California Department of Industrial Relations (DIR) website reports that WTPs are not wages, and thus an employer need not take deductions from a penalty payment.
But what is the view of the federal taxing authority—the IRS? The characterization of WTPs implicates several sections of the Internal Revenue Code. As to any payment of “wages,” Sections 3101 and 3111 impose social security tax and Medicare tax (aka FICA tax), Section 3301 imposes federal unemployment tax, and Section 3402(a) requires income tax withholding. All these IRC sections define “wages” as remuneration paid for employment or services performed by an employee for his employer, with certain exceptions.
The General Counsel’s CCA begins by recognizing that “wages” is applied broadly for income and employment tax purposes. In United States v. Quality Stores, Inc., 134 S. Ct. 1395 (2014), the Court held that severance payments made to involuntarily terminated employees are wages for FICA tax purposes, and in Social Security Board v. Nierotko, 327 U.S. 358 (1946), the Court defined “employment” to mean not only the work an employee performs, but the entire employer-employee relationship in which the employer pays compensation to the employee.
The CCA also considers contrasting California authority: the California Supreme Court, in Pineda v. Bank of America, rejected the notion that WTPs are “wages” recoverable as restitution under California’s unfair competition law. The CCA also cites Revenue Ruling 72-268, which addressed the income and employment tax status of payments made under the FLSA for liquidated damages and for previously unpaid minimum and overtime wages. The FLSA makes employers liable for liquidated damages equal to the amount of unpaid minimum and overtime wages, unless the employer can show that the non-payment was based on reasonable grounds to believe that the failure to pay those wages was not in violation of the FLSA. The Revenue Ruling held that payments of unpaid minimum and overtime wages were wages for federal income and employment tax purposes, but that the liquidated damages were not.
The CCA concludes that WTPs differ from severance pay (as considered in Quality Stores) because WTPs, unlike severance pay, do not result from the employee’s service but rather result from the employer’s failure to timely pay final wages. WTPs thus resemble liquidated damages owed under the FLSA: WTPs are statutorily imposed penalties owed for employer misconduct—penalties that are in addition to wages and that reflect the extent of the employer’s misconduct rather than the level of the employee’s services. The IRS thus concluded that, notwithstanding the traditionally broad application of the term “wages,” WTPs are not wages for purposes of federal income and employment tax.
The CCA applies only to WTPs and does not apply to meal and rest payments made under California Labor Code Section 226.7. Under California law, these payments are sometimes called penalties and sometimes called wages. The CCA volunteers the IRS’s own, tentative view: “Because the meal and rest period payments are essentially additional compensation for the employee performing additional service during the period when the meal and rest periods should have been provided, it appears those payments would be wages for federal employment tax purposes.”
A CCA is prepared by the IRS Office of Chief Counsel for field or service center employees and may not be cited as precedent by any taxpayer. Nevertheless, CCA 201522004 is helpful because it sets forth current IRS thinking on the federal income and employment tax treatment of WTPs and, perhaps to a lesser degree, the tax treatment of meal and rest payments. Although not citable precedent, the CCA provides welcome guidance after years of uncertainty concerning the federal income and employment tax treatment of WTPs.
Representing what media observers call the nation’s most aggressive attempt yet to close the salary gap between men and women, SB 358 would substantially broaden California gender pay differential law. Since the bill landed on his desk September 1, all eyes have been on Governor Jerry Brown. Though aide Nancy McFadden tweeted on Women’s Equality Day (August 26) that “@JerryBrownGov will sign CA “Fair Pay Act” when it reaches his desk,” he has not yet done so.
The Equal Pay Act (29 U.S.C. § 206(d)) has been on the books since 1963. And California has its own gender pay equality law—Labor Code section 1197.5. But California lawmakers think these laws are not enough. According to the legislative intent section of SB 358, the current law contains “loopholes” that make it difficult to prove a claim. And many employees, unaware of existing California law that prohibits employers from banning wage disclosures and retaliating against employees for doing so, are still afraid to speak up about wage inequity.
What difference would SB 358 make?
Current law, Labor Code section 1197.5, prohibits an employer from paying an employee less than employees of the opposite sex who perform the same job, requiring the same skill, effort, and responsibility, in the same establishment, under similar working conditions. Exempt from this prohibition are payments made pursuant to systems based on seniority, merit, or that measure earnings by quantity or quality of production; or differentials based on any bona fide factor other than sex.
SB 358, which its supporters call the “Fair Pay Act,” would become effective January 1, 2016. The “Fair Pay Act” would expand pay equity claims by removing the requirement that the pay differential be within the same “establishment,” and would modify the “equal” and “same” job, skill, effort, and responsibility standard. The new standard would require only a showing of “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” These changes would dramatically lower the bar for an equal pay suit, permitting the plaintiff to compare herself with men working at any location for the same employer, and in any similar—and not the necessarily the same—job.
The “Fair Pay Act” would also require employers to affirmatively demonstrate that the wage differential is based entirely and reasonably upon one or more factors. The “Fair Pay Act” would add to the three existing system-based factors (seniority, merit, or production-based) a “bona fide factor”: a factor that is not based on or derived from a sex-based differential in compensation, that is related to the position in question, and that is consistent with a “business necessity” (defined as “an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve”). The “bona fide factor” defense expressly does not apply if the plaintiff demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential.
The “Fair Pay Act” would also extend—from two years to three—the employers’ obligation to maintain records of wages and wage rates, job classifications, and other terms of employment.
Talk Is Cheap?
The “Fair Pay Act” also would remind employers that they are not to forbid employees to disclose their own wages, discuss others’ wages, ask about others’ wages, or aid or encourage other employees to exercise their rights under Labor Code section 1197.5. Labor Code section 232 already contains a similar prohibition, but does not specifically prohibit inquiring about the wages of other employees if the purpose of that inquiry is to exercise the right to equal pay for equal work. In a small nod to employers, the “Fair Pay Act” would not require them to disclose wages.
The “Fair Pay Act” would expressly prohibit employers from discharging, discriminating against, or retaliating against employees who invoke or assist in the enforcement of Labor Code section 1197.5.
New Methods of Enforcement, Too…
Current law vests enforcement authority in the Department of Labor Standards Enforcement, which it can exercise through the administrative process or through a civil action brought on an individual or class basis. Current law does not require employees to exhaust this administrative process before suing, unless the employee consents to the DLSE’s bringing an action. Current law authorizes an employee who chooses to sue directly in court—provided the employee does so within two years, or three if the violation is “willful”—to recover the balance of wages, interest, liquidated damages, costs, and reasonable attorney’s fees.
The “Fair Pay Act” would create another private right of action—this one with a one-year statute of limitations—by employees who have been discharged, discriminated against, or retaliated against for engaging in any conduct protected by the statute. These employees could seek reinstatement and reimbursement for lost wages and benefits, interest, and “appropriate equitable relief.” The “Fair Pay Act” bill would also give these employees an alternative: they could file complaints with the DLSE alleging employer violations of the new prohibitions on discrimination, retaliation, and restricting employee wage-information discussions.
What’s the Word on The Street?
The list of the bill’s supporters is long. Conspicuously dissenting is the California National Organization for Women, which opposes this bill because it lacks protections for wage discrimination with respect to such categories as race, ethnicity, LGBTQ status, and disability status. The bill’s author, Hannah-Beth Jackson, has said she expects to see across-the-board changes for all employees after the bill is signed into law.
And even the California Chamber of Commerce has supported the bill, stating it “provides a great balance between making sure there is no gender inequity in pay, but also leaving flexibility for an employer to reward employees for education, skill, training experience with regard to compensation as well.” Cal Chamber cites the inclusion of a defined “bona fide factor” test as a clarification that would help employers “navigate their pay structure” and “avoid unnecessary litigation” about what business purposes would qualify as a legitimate factor.
Workplace Solution (what to do now?)
How can employers fortify pay structures against scrutiny under the new standards? Employers that want to understand and mitigate their risks can consider conducting an attorney-client privileged analysis of employee pay. Using a multiple regression analysis, for example, an employer may determine how well permissible considerations of skills, effort, responsibility, seniority, merit, quality or quantity of production, education, training, experience, and other factors explain existing pay differentials. While we find that employers don’t intentionally pay women any less, pay differentials may appear to be superficially correlated with sex as a result of inconsistent processes for setting pay, especially starting salaries. Seyfarth has an experienced group of attorneys and analysts who specialize in conducting pay analysis. If you consult anyone to conduct an analysis, consider establishing an attorney-client privilege protocol to maintain confidentiality and create protections from disclosure in litigation.
In Related News…
Two other bills addressing the same issue are still alive: AB 1017 and AB 1354. AB 1017 would add section 432.3 to the Labor Code, to prohibit an employer from seeking salary history information about an applicant for employment. AB 1354 would amend Government Code section 12990 to require, of each employer with over 100 employees that is or wishes to be a state contractor or subcontractor, a nondiscrimination program that includes policies and procedures designed to ensure equal employment opportunities for all applicants and employees, an analysis of employment selection procedures, and a workforce analysis that contains the total number of workers, the total wages, and the total hours worked annually, with a specific job category identified by worker race, ethnicity, and sex. AB 1354 would require that this information be submitted to the DFEH. AB 1354 cites the OFCCP’s August 2014 Notice of Proposed Rulemaking, which required federal contractors with greater than 100 employees to submit an annual equal pay report on employee compensation.
Stay tuned to calpeculiarities.com: we are following each of these bills and others making California all that much more peculiar.
As we trudge through the dog days of summer, temperatures rise, employees daydream about vacation, and, unfortunately, workplace accidents and injuries happen. This is a time to note that some Cal/OSHA District Offices take a very expansive view of injury and illness reporting requirements. And not all District Offices take the same approach! Thankfully, we have a team of Cal/OSHA lifeguards to help keep you above water.
Please see here for a fascinating article on the District Offices’ view, written by two Cal/OSHA experts: Mark A. Lies, II and Ilana R. Morady. With this guidance, the forecast is more likely to show clear waters ahead!
By: Emily Schroeder
In a recent blog post, we discussed how recent California judicial court decisions may erode the once-solid foundation of traditional incentive pay systems. Specifically, Armenta v. Osmose and Bluford v. Safeway held that while a piece rate compensated employees for their “productive time”—time spent actually working on piece-rate tasks—the piece rate did not compensate them for their “non-productive time”—time worked doing anything else.
The California Supreme Court has added to this line of cases in Peabody v. Time Warner Cable, Inc., where the timing of commission payments came under attack. In Peabody, the Supreme Court held that commission wages paid in one pay period cannot be attributed to earlier pay periods to satisfy minimum and overtime wage requirements.
The Pay Practice
The Plaintiff, Susan Peabody, worked for Time Warner as a commissioned sales person. She was paid biweekly, but only the final paycheck of the month contained her commissions. Her first paycheck, meanwhile, generally paid an hourly rate of less than 1.5 times the minimum wage for the hours worked during the pay period corresponding to that paycheck.
Peabody filed a class action lawsuit against Time Warner, claiming that (1) she regularly worked overtime but did not receive overtime wages, and (2) she earned less than the minimum wage during those weeks in which she worked more than 48 hours.
Time Warner argued that (1) Peabody was exempt from overtime pay under the California Wage Order exemption for commissioned employees whose earnings exceed 1.5 times the California minimum wage and who earn more than one-half of their compensation in the form of commissions, and (2) Time Warner should be able to assign the commissions paid in one pay period to the earlier pay period to satisfy minimum and overtime wage requirements.
The California Supreme Court Decision
When a federal district court court granted summary judgment for Time Warner, Peabody appealed to the Ninth Circuit. The Ninth Circuit, finding no controlling California precedent, asked the California Supreme Court to determine whether the timing of Peabody’s commission payments resulted in underpayment of minimum and overtime wages.
As an initial matter, the Supreme Court rejected Time Warner’s argument that it was permissible to use a monthly pay period for paying commissions; the Court reasoned that, except for employees subject to certain special exemptions, wages must be paid at least as often as semi-montly. Second, the Suprme Court held that commissions paid in one pay period could not be attributed to earlier pay periods to satisfy minimum and overtime wage requirements. The Supreme Court cited statutory construction principles that require it to construe statutes in a manner favorable to the employee.
Additionally, the Supreme Court cautioned employers against relying on federal law in establishing pay practices, as California law is often significantly more favorable to employees.
In the wake of Peabody, employers with commissioned employees may want to review their current payroll practices to ensure that these employees are paid more than 1.5 times the California minimum wage during each pay period, to take advantage of the Wage Order overtime exemption for commissioned salespeople. Peabody is also a further reminder that California employment law is peculiar: California employers should always be wary of the differences between federal and state law when establishing pay policies.
Edited by Julie Yap