Seyfarth Synopsis: With apologies to Dr. Seuss, we’ve penned an ode to the judicial chaos of the year just past, highlighted by three California Supreme Court decisions—Alvarado v. Dart Container Corp., Dynamex Operations v. Superior Court, and Troester v. Starbucks Corp.—all of which deviated from federal or common law norms to create more new cal-peculiar law that is friendly to plaintiffs and hostile to California business. Happy New Year!

The California Supremes, as we so often hear it,
rarely leave an employer in holiday spirit.

2018, alas, gave much more of the same,
placing employers behind in the game.

There were many new laws and decisions to weigh,
but here are just three to ruin management’s day:

At the beginning of March, to make business irate,
the Court changed how to figure the regular rate.

Flat-sum bonus calculation? Just tear it to shreds!
California proclaims, “We are not like the feds.”

Instead of dividing the bonus by all hours each week,
Just use the straight time, a division so bleak.

Important for employers seeking lawful abidance
is carefully following our regular-rate guidance.

The California Supremes continued their way,
wreaking more havoc just before May:

On April 30, Two Thousand Eighteen,
they continued their pro-plaintiff’s lawyer routine.

The Court issued a much anticipated decision,
inventing new law to some widespread derision.

Is one independent, or instead employee?
The Court says it’s simple as A, B, and C.

To be independent under wage order sections,
the worker must be free from control and directions.

Also a hirer must always enforce
that the work be beyond business’s usual course.

And also the work must be usually made
in some independent business or trade.

The decision is one we’re happy to share;
it should be considered with the utmost care.

Then in mid-summer, near end of July,
the California Supremes made still more of us cry.

In dissing a doctrine—de minimis time—
the Court found the federal law out of line:

Leeway for small stray time cannot be afforded
where high-tech can see that all time is recorded.

Advice that to us now seems rather quite sage
is to make sure all the work time is paid as a wage.

You have our best wishes this holiday season;
call us for advice for some employment-law reason.

For all who agree California law’s strange,
we will help in adopting all needed change.

Seyfarth Synopsis: For certain employment-related contracts, California legislation effective January 1, 2019, will limit efforts to prevent disclosure of information relating to claims of unlawful acts and sexual harassment in the workplace. Read on for the devilish details.

California employers will soon have to heed a new crop of laws, born of the #MeToo movement, which will limit the terms permitted in employment-related contracts. What types of contracts, and what kinds of terms, you may ask? The answer, involving discussion of three separate bills adding three new California Code provisions, is a mouthful. But here goes.

  • Affected contracts include employment contracts, settlement agreements, and any other kind of contract that would try to prevent someone from testifying about alleged criminal conduct or sexual harassment.
  • The limitations include prohibiting waivers of the right to testify about alleged criminal conduct, including sexual harassment, as well as outlawing provisions that would prevent disclosure of information about sexual harassment and other illegal conduct in the workplace. The exact types of prohibitions depend on the kind of contract we are talking about.

The devil, of course, is in the details—and here the details are complex. Because prohibitions and permissions for certain kinds of contracts overlap somewhat, each case calls for careful analysis. The three bills in question, applying to agreements made on or after January 1, 2019, provide as follows:

  • AB 3109 (adding Civil Code § 1670.11) addresses contracts generally, and voids contractual provisions that would prevent a party from testifying about alleged criminal conduct or sexual harassment when the party has been compelled or requested to do so by lawful process.
  • SB 820 (adding Code of Civil Procedure § 1001) addresses agreements settling lawsuits or administrative complaints (as opposed to claims asserted in an internal complaint or demand letter), and voids contractual provisions that would prevent a party from disclosing “factual information” about sexual harassment or related retaliatory conduct.
  • SB 1300 (adding Gov’t Code § 12964.5) amends the FEHA to address agreements required as a condition of employment, and makes it an unlawful employment practice to require employees to release FEHA claims or to keep mum about “unlawful acts in the workplace,” unless the agreement is a negotiated resolution of a lawsuit, an agency complaint, or an internal complaint brought by an employee, in which case the employer can still get a release and require confidentiality concerning allegedly unlawful acts (to the extent the confidentiality provisions are not otherwise unlawful by means of the two new provisions discussed above).

Meanwhile, an amendment to the federal tax code, 26 U.S.C. §162(q), affects payments made or incurred with respect to sexual harassment settlements made after December 22, 2017. This federal development is beyond the scope of this post, but we mention it as a “heads up” item and refer you to our previous blog post here.

Contracts Generally

New Civil Code § 1670.11 is straightforward: the law frowns upon contracts by which employees agree not to testify about alleged criminal conduct or sexual harassment if they are officially requested to do so. This new statute seems a solution in search of a problem in that few employers have ever been so bold as to have employees agree to defy official requests to testify on these subject matters. But there it is.

Settlement Agreements

New Code of Civil Procedure § 1001, by contrast, can require significant changes in existing settlement practices. The law states that no provision in an agreement to settle a lawsuit or administrative complaint can prohibit the disclosure of “factual information” related to a claim filed in that proceeding if the information is “regarding” (1) sexual assault, (2) sexual harassment, (3) workplace harassment or discrimination based on sex, (4) failure to prevent sex discrimination or harassment in the workplace, or (5) retaliation for reporting sexual harassment or discrimination in the workplace.

But are some non-disclosure provisions still permitted in settlement agreements? Yes.

  • The “amount paid” to resolve any claim lawsuit or administrative complaint may still be kept confidential. The new California law is silent on whether non-monetary settlement terms may also be kept confidential.
  • If the claimant in the settled lawsuit or administrative complaint requests confidentiality, the parties may agree to prevent the disclosure of “all facts” regarding alleged sexual harassment or discrimination (including court filings) that would lead to the discovery of the claimant’s identity.

NOTE: This carve-out does not apply where a government agency or public official is a party. In those instances, agreements cannot contain provisions keeping the claimant’s identity confidential.

  • If an employee has merely filed an internal complaint or sent a demand letter regarding sexual harassment, discrimination, or retaliation—and has not filed a lawsuit or administrative charge—a settlement agreement may still contain standard confidentiality provisions.

Agreements for Raises, Bonuses, or New or Continued Employment

New Government Code § 12964.5—which expressly does not apply to negotiated settlement agreements—provides:

  • It is an unlawful employment practice to require employees—either as a condition of employment or in exchange for a raise or bonus—to sign any of the following provisions:
    • A statement that the employee does not have any FEHA claim against the employer or other covered entity.
    • A release of the right to pursue a FEHA claim or to notify a governmental entity of the claim.
    • Any agreement that prohibits disclosure of “information about unlawful acts in the workplace, including, but not limited to, sexual harassment.”
    • This new FEHA provision carries more bite than the other new provisions, because a contract unlawful under the new FEHA provision is not only unenforceable but also can enable an aggrieved employee to sue for damages and other relief.

Workplace solution: Taken together, these new California laws should prompt a thorough review of employee agreements, release agreements, severance agreements, settlement agreements, contracts for continued employment, and even some Employee Handbook provisions. Some language may need to be added to certain agreements. Meanwhile, where the employer is settling a case that does not allege sexual harassment or assault or discrimination or retaliation, broader confidentiality and non-disparagement clauses remain as permissible as ever.

Seyfarth Synopsis: Effective January 1, 2019, California’s minimum hourly wage goes up to $12.00 for large employers, and many local minimum wages will go higher still. Don’t forget that the statewide change will affect salary thresholds for white collar exemptions, as well.

Effective January 1, as New Year’s bells toll, California’s minimum hourly wage will increase to $12.00 for employers of 26 or more, and $11.00 for employers of 25 or fewer.

This latest statewide adjustment is part of a series of adjustments mandated by a 2016 statute that, by 2020, will raise the statewide minimum wage to $15.00. The latest adjustment obviously increases what employers must pay for regular and overtime wages for employees currently earning the minimum. And the new, higher minimum wage also will automatically increase the threshold salary employers must pay to maintain salary-exempt status for administrative, executive, and professional employees: the threshold salary is twice the state minimum wage for a 40-hour week. The new annual salary minimum for large employers as of 2019 will thus rise to $49,920 (2 times $12/hour times 40 hours/week times 52 weeks/year).

In addition, to maintain overtime-exempt status for commissioned salespeople (in retail and service establishments, with the earnings threshold calculated as exceeding 1.5 times the current minimum wage), employers must now pay a higher earnings threshold—$18.01 per hour—and over one-half of the earnings must consist of commissions, so commissions might have to be increased accordingly.

And, of course, employers, under the Wage Theft Prevention Act, must notify non-exempt employees in writing of any changes to their new rate of pay within seven calendar days from the time of the change.

On top of the statewide change, the following California cities will be sending their own New Year’s greetings for minimum-wage earners:

Belmont: Employers who are subject to the Belmont Business License Tax or who maintain a facility in Belmont must pay—to each employee who performs at least two hours of work per week in Belmont—a minimum wage of $13.50. This requirement applies to both adult and minor employees.

Cupertino: Employers who are subject to the Cupertino Business License Tax or who maintain a facility in Cupertino must pay—to each employee who performs at least two hours of work per week in Cupertino—a minimum wage of $15.00. Covered employees are entitled to these rights regardless of immigration status.

El Cerrito: An employee who performs at least two hours of work in a particular workweek within the geographic limits of the City of El Cerrito must be paid a minimum wage of $15.00. This minimum wage applies regardless of the size of the employer, and applies to both part-time and full-time employees.

Los Altos: Employers who are subject to the Los Altos Business License Tax or who maintain a facility in Los Altos must pay—to each employee who performs at least two hours of work per week in Los Altos—a minimum wage of $15.00. This requirement applies to both adult and minor employees.

Mountain View: Employers who are subject to the Mountain View Business License Tax or who maintain a facility in Mountain View must pay—to each employee who performs at least two hours of work per week in Mountain View—a minimum wage of $15.65. This requirement applies to both adult and minor employees.

Oakland: Employers in the City of Oakland must pay a minimum wage of $13.80 to employees who perform at least two hours of work in a workweek within the geographic limits of the city. This requirement applies to both part-time and full-time employees.

Palo Alto: Employers in Palo Alto must pay a  minimum wage of $15.00 to any employee who works two hours per week within Palo Alto.

Redwood City: Redwood City’s local minimum wage of $13.50 will apply to all business operating within the geographic boundaries of Redwood City and any employee working at least two hours per week.

Richmond: All employers in the City of Richmond must pay a minimum wage of $15.00 to employees who work at least two hours per week within the geographic boundaries of the city. This requirement applies to both minor and adult employees.

San Diego: Employers must pay all employees who perform at least two hours of work in one workweek within the geographic boundaries of the City of San Diego a minimum wage of $12.00. This requirement applies to both minor and adult employees.

San Jose: Employers who are subject to the San Jose Business License Tax or who maintain a facility in San Jose must pay—to each employee who performs at least two hours of work per week in San Jose—wages of not less than $15.00 per hour. This requirement applies to both minor and adult employees.

San Mateo: Employers who are subject to the City of San Mateo Business License Tax or who maintain a facility in the city must pay a minimum wage of $15.00. Tax-exempt nonprofit organizations must pay a minimum wage of $13.50. This requirement applies to adult and minor employees.

Santa Clara: Employers who are subject to the Santa Clara Business License Tax or who maintain a facility in Santa Clara must pay—to each employee who performs at least two hours of work per week in Santa Clara—a minimum wage of $15.00 per hour. This requirement applies to both minor and adult employees.

Sunnyvale: Employers who are subject to the Sunnyvale Business License Tax or who maintain a facility in Sunnyvale must pay—to each employee who performs at least two hours of work per week in Sunnyvale—a minimum wage of $15.65. This requirement applies to both adult and minor employees.

Below is a handy “at a glance” chart detailing these municipal increases.

City Minimum Hourly Wage Effective January 1, 2019
Belmont $13.50
Cupertino $15.00
El Cerrito $15.00
Los Altos $15.00
Mountain View $15.65
Oakland $13.80
Palo Alto $15.00
Redwood City $13.50
Richmond $15.00
San Diego $12.00
San Jose $15.00
San Mateo $15.00
Santa Clara $15.00
Sunnyvale $15.65

Finally, still more cities (including Los Angeles and San Francisco) will impose higher minimum-wage requirements next July 1. Be sure to check this space in mid-2019 for those updates.

Seyfarth Synopsis: Members of the plaintiffs’ bar submit about 500 PAGA notices each month to California’s Labor and Workforce Development Agency. Each notice presages yet another PAGA lawsuit against yet another hapless California employer. But today we consider a new sort of PAGA-focused lawsuit. This recent complaint filed last week is not on behalf of a California law enforcement agency against some employer, but rather is on behalf of employers, and against a law enforcement official—California Attorney General Xavier Becerra. This lawsuit seeks injunctive and declaratory relief from PAGA because of the ways in which it violates the state and federal constitutions.

Filed by the California Business & Industrial Alliance (CABIA), this lawsuit is a counterpunch by aggrieved employers. CABIA, a trade organization of business executives and entrepreneurs, was formed as one business owner’s response to his personal experience with a PAGA lawsuit. That ordeal imposed a million dollar cost on his business, which has fewer than 200 employees. The ordeal also made the employer feel it had no choice but to comply literally with Labor Code provisions and thereby implement workplace changes (such as arbitrary times for meal periods) that were adverse to the interests of the employer’s workers.

Although the business owner settled that lawsuit, he remained disturbed by the hostile business and legal conditions that the California Legislature created in enacting PAGA. With likeminded business owners, he formed CABIA. Last week the organization sued.

The lawsuit, noting that PAGA lacks sufficient oversight from both the executive and the judicial branches of government, asserts that PAGA violates the constitutional separation of powers doctrine. CABIA contends that PAGA does not achieve its stated purpose to assist employees in righting workplace wrongs where the state lacks resources to do so itself. The lawsuit amply illustrates the point—well known to experienced employers—that PAGA primarily serves the interests of the plaintiffs’ bar, not the employees they nominally represent in court.

The 54-page complaint explains several ways in which PAGA runs afoul of both the California and United States Constitutions. The complaint explains that PAGA as enacted and as applied violates constitutional guarantees of procedural and substantive due process, as well as constitutional prohibitions against excessive fines and unusual punishments.

The lawsuit also cites the recent passage of AB1654, which exempts construction employers with certain collective bargaining agreements from PAGA lawsuits. Since it is unconstitutional to deny any person equal protection of the laws, the lawsuit contends that there is no basis to exempt one industry from the burdens that PAGA generally imposes on all employers.

However quixotic this lawsuit may seem (the California Supreme Court has already rejected constitutional challenges to PAGA), the lawsuit ably catalogs the many ways in which PAGA is unjust. Any employer that has had to defend itself in a PAGA lawsuit is familiar with the statute’s shocking procedural and substantive aspects. Regardless of whether CABIA’s lawsuit prevails, California employers should appreciate its efforts to be heard.

We’re pleased to cross-post a piece by our sister blog, Trading Secrets, regarding California’s peculiar take on employee non-solicitation provisions.

On November 1, 2018, the California Court of Appeal, Fourth Appellate District affirmed a trial court’s ruling in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. et al., No. D071924, 2018 WL 5669154 (Cal. App. 2018), which (1) invalidated the plaintiff’s non-solicitation of employees provision in its Confidentiality and Non-Disclosure Agreements (CNDAs), (2) enjoined AMN from enforcing or attempting to enforce the employee non-solicitation provision in its CNDA with any of its former employees, and (3) awarded $169,000 in reasonable attorneys’ fees to defendants for plaintiff’s use of the provision.

The case is a significant decision which may impact some employers’ continued use of employee non-solicitation provisions with their California employees, at least in certain industries. There is now a split in California authorities and the issue is likely ripe for California Supreme Court guidance.

AMN and Aya are competitors in the business of staffing temporary healthcare professionals, namely providing “travel nurses” to medical care facilities across the country.  When former employees, named as individual defendants in the action and who worked as travel nurse recruiters in California, left AMN for Aya, AMN brought suit against Aya and the former employees, asserting 11 causes of action, including for breach of contract and trade secret misappropriation.

The Trial Court Ruling

The trial court granted defendants’ motion for summary judgment on all plaintiff’s claims, as well as summary judgment for defendants on their causes of action for declaratory relief and unfair competition asserted in their cross-complaint. The trial court held that under California law, the non-solicitation of employees provision was an unlawful restraint of trade in violation of Business and Professions Code section 16600 because it prevented the individual defendants from engaging in their lawful trade or profession—soliciting and recruiting travel nurses on temporary assignment with AMN—for at least one year post-termination. The trial court found no evidence of misappropriation of trade secrets, reasoning that the customer list of names and identities and other information at issue did not qualify as trade secrets, and any disclosure or use did not cause harm to plaintiff. The trial court awarded defendants their fees under Code of Civil Procedure section 1021.5 and Civil Code section 3426. AMN appealed.

The Court of Appeal Decision

AMN required the defendant former employees to sign the CNDAs as a condition of their employment with AMN. Section 3.2 of the CNDAs, the non-solicitation of employees provision, states in pertinent part:

Employee covenants and agrees that during Employee’s employment with the Company and for a period of [one year] or eighteen months after [termination], Employee shall not directly or indirectly solicit or induce, or cause others to solicit or induce, any employee of the Company . . . to leave the service of the Company . . .

Analyzing Section 3.2 of the CNDAs, the Court of Appeal independently arrived at the same conclusion of the trial court, that the employee non-solicitation provision was void as an unlawful restraint of trade in violation of section 16600, which provides “[e]xcept as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Looking to the history of section 16600 and its broad language, as well as California case law evidencing a strong public policy in favor of employee mobility, the Court concluded that the non-solicitation provision “clearly restrained [the] individual defendants from practicing with Aya their chosen profession – recruiting travel nurses on 13-week assignments.” Writing for the three-judge panel, Judge Benke stated that the trial court was within its discretion to invalidate the provision because “unless a contractual restraint falls into one of section 16600’s three statutory exceptions . . . it ostensibly is void.”

Analysis of the Non-Solicitation Provision

In reaching its conclusion, the Court cited California case law rejecting employee non-competes and “overbroad” customer non-solicitation provisions.  “Indeed,” the Court observed, “the undisputed evidence in the record shows that, if a former AMN recruiter… was barred for at least one year from ‘soliciting or recruiting any travel nurse listed in AMN’s database,’ that would restrict the number of nurses with whom a recruiter could work… while employed by his or her new staffing agency” and “[n]ot being permitted to contact travel nurses who currently work for AMN could limit the amount of compensation a recruiter would receive with his or her new agency after leaving AMN.”

A crucial detail to note is the nature of the profession at issue in the case. The Court’s extensive discussion of the non-solicitation provision emphasized the fact that the job at issue is recruiting and soliciting. Defendant former employees were AMN “travel nurse recruiters” who all, for various reasons, left to join Aya as travel nurse recruiters. The ability of these particular defendants to engage in their profession, then, was directly affected by the covenant not to solicit employee traveling nurses. Based on that fact, the court rejected AMN’s attempt to analogize to Loral Corp. v. Moyes, which ultimately determined that the employee non-solicitation provision at issue was not an invalid agreement not to compete, but a non-solicitation agreement prohibiting the defendant from “raiding” the plaintiff’s employees. 174 Cal. App. 3d 268, 279 (1985). The Moyes court reasoned that the “restriction only slightly affects employees. They are not hampered from seeking employment with [the defendant’s new employer] nor from contacting [the defendant]. All they lose is the option of being contacted by him first.” The Court also distinguished AMN’s former employees’ recruiting role from the role of the former executive officer in Moyes, who was not similarly burdened by the restrictions set forth in the non-solicitation provision.

In its discussion of Moyes, the Court challenged the Moyes court’s “reasonableness” or “slight affect” approach to employee non-solicitation provisions and contrasted it with the plain language of section 16600 and the California Supreme Court’s decision in Edwards v. Arthur Anderson LLP, 44 Cal. 4th 937 (2008). The Court concluded that it “doubt[s] the continuing viability” of Moyes, and took the opportunity to further illustrate California’s uniquely strict policy against restraints of trade, even restraints subject to the “narrow-restraint exception” adopted by the Ninth Circuit in Campbell v. Trustees of Leland Stanford Jr. Univ.  817 F.2d 499 (9th Cir. 1987), which was explicitly rejected by the California Supreme Court in Edwards. The Court reasoned that while it doubted the continuing viability of Moyes post-Edwards, “the instant case does not rest on that analysis alone.” The Court determined that notwithstanding the survival of the reasonableness standard after EdwardsMoyes was factually distinguishable because the non-solicitation provision here, if enforced, would restrain individual defendants from engaging in their chosen profession, even if the provision was “narrow” or “limited.”

Analysis of the Trade Secret Claims

The Court also rejected AMN’s trade secret misappropriation claims. The nature of individual defendants’ profession also played a role in the court’s conclusion that there was no evidence of trade secret misappropriation. The Court was unpersuaded by AMN’s argument that the information at stake (the names, addresses, and identities of its “Travelers” or traveling nurses) was “secret” for purposes of AMN’s trade secret claims. In light of the evidence, the Court explained that in the industry of temporary healthcare professional staffing, “some travel nurses work with many different healthcare recruitment firms in order to increase the likelihood that they will be placed in assignments which fit their needs.” AMN even conceded that some of the information was accessible to Aya through independent means, for example, a social media group page for traveling nurses.

Furthermore, the Court noted that some of the traveling nurses at issue had applied for employment with Aya before they were recruited for AMN by individual defendants, or least before individual defendants joined Aya. The Court found that a list of names and email addresses of nurses that one individual defendant took was never actually used to take, or attempt to take, AMN’s business. Thus, while it may have been “wrong” for that individual defendant to send the information to her personal email, the court found “no evidence she or Aya ever used or relied on such information to recruit, or attempt to recruit, any of the travel nurses on that [list of Travelers and their information].” The Court concluded that plaintiff was neither harmed by any such disclosure nor was such a disclosure a “substantial factor” in causing plaintiff any harm. Additionally, the Court found that plaintiff had not demonstrated the competitive information that one of the individual defendants had taken qualified as trade secret information because it was very general and there was no evidence that Aya obtained any economic value from its disclosure.

Analysis of the Trade Secret “Exception” to Section 16600

Moreover, in rejecting plaintiff’s tort claims for breach of duty of loyalty and intentional and negligent interference with prospective economic advantage, the Court rejected the argument that the employee non-solicitation provision could be justified under a trade secret exception to section 16600. The Court reasoned that because the allegedly confidential information was not “secret,” AMN’s agreements fell outside the common law “trade secrets exception” to section 16600. The Court cited The Retirement Group v. Galante to reiterate that contractually preventing the misappropriation of trade secrets is not so much an “exception” to section 16600, but instead enjoining tortious conduct that is “enjoinable because it is wrongful independent of any contractual undertaking.” 176 Cal. App. 4th 1226, 1238 (2009). The Court reasoned under the Retirement Group decision that while a plaintiff may seek an injunction to prevent actual or threatened misappropriation of trade secrets, it cannot obtain an injunction to enforce a non-compete or non-solicitation provision on the grounds that the provision is designed to protect trade secrets. The Court held that the tort claims failed because section 16600 precludes an employer from restraining an employee from engaging in his or her “profession, trade, or business,” even if that employee uses information that is confidential but not a secret.

Upholding the Injunction and Award of Fees

The Court concluded by affirming the trial court’s grant of summary judgment on defendants’ declaratory relief and unfair competition claims, and upholding the injunction entered against AMN. In its review of the injunction prohibiting enforcement of the non-solicitation provision against any former employees, the Court examined evidence that AMN had brought a similar suit against an employee who left for a competitor and that AMN was continuing in its efforts to enforce section 3.2 by sending cease and desist letters to former employees upon their acceptances of employment with competitors. The Court rejected plaintiff’s contention that the injunction was overbroad or imprudently granted.

With respect to the award of fees under section 1021.5 of the California Code of Civil Procedure, the Court upheld the award, noting that this was an important issue affecting the public interest, and conferred a significant benefit on many people, i.e., all current and former AMN California employees who had signed a CNDA containing a similar non-solicitation provision.

It is unclear whether the plaintiff will seek California Supreme Court review or whether employer groups will mobilize to challenge the decision through legislation or amicus briefing.

Steps Forward

In sum, while many California courts have followed the reasoning in Moyes over the years, there is now likely a split in authority in California concerning the continued viability of employee non-solicitation provisions, at least in certain industries and positions, like recruiting and staffing. Going forward, plaintiff employers may argue that this case is limited to its facts and the unique industry involved and point to Moyes and its progeny to defend such provisions. California Supreme Court review is likely needed to resolve these important issues. In any event, this decision serves as further confirmation of California’s aggressive pro-employee mobility policy and judicial hostility toward restrictive covenants and protection of company information. Employers should conduct a careful review of their employee non-solicitation provisions with California employees to address the uncertainty created by this decision. Employers should use extra care in specialized industries and positions where a non-solicitation covenant may prevent former employees from engaging in their chosen profession.

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.

Happy Thanksgiving!

Seyfarth Synopsis: While Mr. Sinatra could get away with doing things his way, California law requires that employers provide employees facing the final curtain with specific paperwork and a check on their final day. Although these various items may seem simple, failure to correctly provide them can lead to more than a few regrets for employers.

On an employee’s last day there are several things that you, the California employer, want to make sure you receive—things such as company cell phones, company laptops, office keys, and confidential files. But there are also things you must give the departing employee, including certain paperwork and a final paycheck for all wages earned through the end of employment.

Each Careful Step Along The Byway of Final Paperwork

Employers should plan their charted course and make sure they comply with both federal and state requirements for what they need to give a departing employee. Here are key examples:

  1. A COBRA notice and election form must be provided before the termination of the employee’s benefits (if you employ 20 or more employees in California and the departing employee is participating in the employer’s group health plan). Note that this paperwork typically can be obtained from your insurance provider or a third party service for providing COBRA notices.
  2. A notice of Cal-COBRA continuation rights must be provided to any covered, terminated employees. Cal-COBRA must be offered to both terminated employees of small employers (2-19 employees), and terminated employees covered under federal COBRA when their 18 months of federal COBRA coverage expires.
  3. A “For Your Benefit” (DE 2320) pamphlet from the EDD, about the unemployment benefits available to all discharged employees, must be provided no later than the effective date of termination.
  4. An Unemployment Insurance Code section 1089 written notice informing the discharged employee of a change in the relationship (i.e., it has been terminated).
  5. A Health Insurance Premium Payment (HIPP) notice (DHCS 9061) required by the DHCS to certain employees covered under the program (if you employ 20 or more employees).
  6. California Labor Code Section 2808(b) requires notification of all continuation, disability extension, and conversion coverage options under any employer-sponsored coverage for which the employee may remain eligible after employment terminates.

There may be additional documents that you need to provide depending on your industry, so you should contact counsel if you have any questions.

Face It and Stand Tall: Giving The Final Paycheck

An employee who quits and gives at least 72 hours of notice is entitled to a final paycheck at the time of separation (such an employee otherwise is entitled to the final paycheck within 72 hours of the notice).

But what should the final pay check include?

Labor Code sections 201 and 202 mandate that all unpaid earned wages are due and payable on the last day of work. “Earned wages” includes all accrued and unused vacation pay and paid time off, reporting time pay, and overtime wages. Other items such as commissions and bonuses could also be considered wages earned and would need to be included in the final paycheck or paid as soon as the amounts are capable of being determined.

How or where should I send the final paycheck?

California requires final payment at the place of termination. Normally, this is not a problem, as employees typically end their employment at their employer’s place of business. For remote workers, the final paycheck should be sent by mail, to ensure that the employee receives it by the last day of work. Consider sending the paycheck in a way that is trackable, to avert any dispute about when the final pay was sent. (Employers using authorized direct deposit can accomplish these matters electronically.)

What happens if I forget to send the final paycheck, or forget to include some of the pay?

Failure to provide final pay on the last day of work can result in penalties in an amount equal to a day’s wage for each day of delay—up to a maximum of 30 days. If an employee sues to recover unpaid wages (and penalties), the Labor Code provides for the recovery of attorneys’ fees.

So small mistakes on final pay can end up being very costly. For example, if an employer accidentally overlooks paying out one hour of PTO accrued during the last week of work, the employer may end up owing the now-departed employee as much as one month’s wages for a small oversight! (Though a claim for such an amount could, under the circumstances, be challenged as unconstitutionally excessive.) So more, much more than this, please make sure to carefully double check pay calculations before cutting a final check.

Workplace Solutions: When the end is near, employers need to be sure they provide employees with all the leaving presents that California law requires. If you have any further questions as to what that might include, please, don’t do it your way and end up with a few regrets; instead, contact the author or your favorite Seyfarth attorney.

Edited By: Coby Turner

Seyfarth Synopsis: AB 1654 provides a PAGA exemption for certain employees covered by a collective bargaining agreement. While AB 1654 is limited to the construction industry, its underlying rationale applies much more broadly, and may augur further thoughtful restrictions on PAGA’s broad scope.

California’s Private Attorneys General Act, imposing draconian penalties for even relatively trivial Labor Code violations, remains the bane of California employers. Efforts to restrict PAGA’s scope thus arise from time to time in the California Legislature, which occasionally enacts some reform. Lost in the attention received by recent high-profile employment legislation was a bill of enormous import for the construction industry specifically but also (potentially) for the future of PAGA enforcement more broadly.

AB 1654, effective on January 1, 2019, exempts “employees in the construction industry” from PAGA if employees’ collective bargaining agreements meet certain requirements. To qualify for a PAGA exemption, a CBA must

  • apply to working conditions, wages, and hours of work of employees in the construction industry,
  • ensure employees receive a regular hourly wage not less than 30% more than the minimum wage,
  • prohibit Labor Code violations redressable by PAGA,
  • contain a grievance and binding arbitration procedure to redress Labor Code violations remedied by PAGA,
  • expressly waive the requirements of PAGA in clear and unambiguous terms, and
  • authorize an arbitrator to award all remedies available under PAGA, except for penalties payable to the LWDA.

While limited to the construction industry, AB 1654 suggests the question: why are not all industries afforded this exemption option? This thought was not lost on AB 1654’s opponents, who wondered if the bill was a “camel’s nose under the PAGA tent”:

The immediate impact of this bill is limited to the construction industry. Its longer term policy implications may not be. The justification provided for the PAGA exemption proposed by this bill is that some construction industry employers have been recently targeted by frivolous PAGA lawsuits. It is not hard to imagine employers in many other sectors making the same argument.

. . .

With that in mind, a key policy question presented by this bill is whether there is sound basis for distinguishing the construction industry from other sectors of the economy in relation to the application of PAGA. If not, it may be difficult, from a policy point of view, to rationalize denying future requests for PAGA exemptions under similar circumstances.

This is indeed the key policy question, and to which there is an easy answer: there is no sound basis to single out the construction industry for special protection from PAGA lawsuits. AB 1654 undermines the PAGA defenders’ argument, adopted by the California Supreme Court in Iskanian, that a PAGA plaintiff stands in for the state and cannot waive the state’s power by private arbitration agreement. In the bill, the Legislature says otherwise. PAGA claims can be waived—in this case through a valid CBA—provided employees have redress for Labor Code violations through a grievance and arbitration procedure in the CBA. While AB 1654 applies only to the construction industry, its reasoning supports an argument employers should use to argue against the logic of Iskanian in other contexts.

By Joshua M. HendersonIlana R. MoradyJames L. Curtis, and Craig B. Simonsen

Seyfarth Synopsis: CalOSHA published a news release TODAY, on a new emergency regulation for the electronic submission of CY 2017 Form 300A on Occupational Injuries and Illnesses.  CalOSHA submitted the rule yesterday, and will allow public comments until Tuesday, October 30th, with the intention of adopting it as final by November 5th!

According to CalOSHA, businesses operating in California that would be required to submit the CalOSHA Form 300A online include all establishments with 250 or more employees, unless specifically exempted by section 14300.2 of Title 8 of the California Code of Regulations, and establishments with 20 to 249 employees in the specific industries listed on page 8 of the emergency regulation’s proposed text (including common industries such as manufacturing, grocery stores, department stores, and warehousing and storage). The reporting deadline would be December 31, 2018. Beginning in 2019, the reporting deadline would be March 2 of the year after the calendar year covered by the form(s). So, for example, CY 2018 300A Forms would be submitted by March 2, 2019.

Cal/OSHA submitted the emergency regulation amending recordkeeping sections 14300.35 and 14300.41 of Title 8 of the California Code of Regulations to the Office of Administrative Law (OAL) on October 25.  Interested persons have until “October 30 to submit comments on the proposed emergency regulation.” OAL will have until November 5 to review and adopt or deny the proposed regulation.

For more information on this or any related topic please contact the authors, your Seyfarth attorney, or any member of the Workplace Safety and Health (OSHA/MSHA) Team.

Seyfarth Synopsis: Halloween is lurking just around the corner, and workplace festivities may present unusual challenges. Unsafe or offensive costumes, religious discrimination, and harassment are among the issues potentially facing employers around this time of year. Here are some tips to avoid the tricks and enjoy the treats.

Exorcise Your Right to Have Fun

It’s not uncommon to allow employees to dress up when Halloween falls on a weekday, but without proper guidelines, it can quickly lead to complications. Employers should urge employees to be mindful when choosing costumes that they are still expected to comply with any workplace anti-discrimination and anti-harassment policies. If the workplace typically requires a dress code, employers permitting Halloween costumes should announce that, while employees may dress up, they should utilize sensible judgment.

Employees should be reminded to avoid costumes that poke fun at a particular culture, that are overly sexy, or that relate to a particular religion, as employees with differing backgrounds or beliefs may take offense. Political costumes can be contentious as well, especially when, as is the case this year, Halloween occurs just before Election Day.

There are also special considerations with costumes when it comes to certain environments. For instance, costumes for healthcare professionals working with patients that conjure thoughts of death or injury, and excessively scary costumes in places catering to children, should be reconsidered. These concepts ought to be applied to any guidance pertaining to decorations as well.

If You’ve Got It, Haunt It

Halloween often prompts individuals to dress provocatively, which, in many cases, is probably against the company’s dress code. However, previous sexual harassment cases demonstrate that sometimes a costume doesn’t need to be overtly suggestive to elicit inappropriate comments.

This issue is particularly crucial given the recent spike in #MeToo lawsuits and several incoming California laws aiming to strengthen enforcement of sexual harassment laws and make it easier for victims to pursue civil claims. Therefore, employees should be reminded that, regardless of a coworker’s Halloween attire, there’s no excuse to make statements that would otherwise be unacceptable.

Oh My Gourd

While Halloween is largely celebrated as a secular holiday, religious discrimination can still be a concern, and employees should not be penalized for opting out of the festivities. This has been a common issue for the EEOC with respect to Jehovah’s Witnesses, who do not observe certain holidays. For example, this was previously addressed when an employee was fired for refusing to participate in a workplace Halloween party, after notifying her employer that it was against her religious beliefs to do so. Additionally, due to its pagan roots, some employees may believe Halloween to be a celebration of death or the occult, and take offense to any pressure to join in.

The Fair Employment and Housing Act and the California Workplace Religious Freedom Act both prohibit discrimination on the basis of religion, and require employers to accommodate employees’ religious practices and observances. Some employees (such as those who practice Wicca, for example) might consider Halloween to be a religious holiday, and request time off from work. Notably, FEHA protections apply to more than just the traditional, more commonly recognized religions, so long as the employee’s beliefs are “sincerely held.” To avoid running afoul of these regulations, employers should have a plan for responding to such requests.

Let’s Get This Party Startled

An important, but easy to overlook, concern is the potential for costumes to create a safety hazard. Loose-fitting costumes or those with pieces that hang away from the body can be dangerous to employees working with heavy machinery or driving a vehicle. And, even employees’ innocent attempts to frighten coworkers can end in injury. Employers who wish to avoid workers’ compensation claims and complaints filed with CAL/OSHA should remind employees to dress with safety in mind.

Finally, there is also a risk that certain costume pieces will result in employees feeling threatened. A realistic replica of a weapon can cause panic and accessories that can be used as a weapon may cause fear and actual harm. In order to protect the physical and mental safety of all employees, employers should discourage costumes involving weapons.

Workplace Solutions: Employers should feel free to allow some Halloween fun at work, as long as employees are made aware of expectations to comply with company policies, respect their colleagues, and maintain safe working conditions.

Edited By: Coby Turner