Seyfarth Synopsis: The California state assembly is set to vote on Senate Bill 171, a state analogue to the federal EEO-1 report, which would require employers with 100 or more employees to submit annual pay data reports to the Department of Fair Employment and Housing, broken down by gender, race, ethnicity, and job category.

Pay Data Reporting at the State and Federal Level

The California Legislature may be poised to pass a law that would require California employers to submit pay and hours data to the Department of Fair Employment and Housing (“DFEH”).

This information is duplicative of “Component 2” of the federal EEO-1 report. The revised EEO-1 form was an Obama-era change to require employers with 100 or more employees to report W-2 wage information and total hours worked for all employees by race, ethnicity, and sex within 12 proposed pay bands.

When California Senate Bill 171 was first introduced in January 2019, the federal collection of pay and hours worked data was indefinitely stalled after the federal Office of Management and Budget (“OMB”) stayed the implementation of the federal pay data collection portions of the revised EEO-1 Report. That decision prompted the National Women’s Law Center and the Labor Counsel for Latin American Advancement to sue the OMB and the EEOC, and on March 4, 2019, a federal district court in Washington, D.C., issued an order reinstating the EEOC’s collection of pay data as part of the EEO-1 Report.

SB 171 was initially touted as a groundbreaking effort to “ensure that [pay data by gender, race and ethnicity] will continue to be compiled and aggregated in California” despite the OMB’s actions at the federal level. Now that Component 2 of the EEO-1 is moving full-steam ahead, with employers required to file pay and hours-worked data for 2017 and 2018 in September 2019, SB 171 appears to be redundant because it requires that the same data reported to the EEOC also be reported to the DFEH. SB 171 will be independently significant for California employers, however, if federal efforts to forestall Component 2 ever succeed.

What Pay Data Would be Required to be Reported to California?

SB 171 provides that by March 31, 2021 (and by each following March 31st), any private employer with 100 or more employees must file an EEO-1 report and  the pay and hours-worked data to the DFEH. In response to the judicial reinstatement of the expanded federal EEO-1 report, SB 171 was modified to allow employers to submit a copy of their EEO-1, containing the same or substantially similar pay data information required by SB 171.

What’s the Risk?

While the information submitted to the DFEH will duplicate data submitted on the federal EEO-1, there are still some significant things to watch for if SB 171 becomes law. First, while SB 171 would make the information submitted by any particular employer confidential and not subject to disclosure under the California Public Records Act, the DFEH can publish aggregate reports, so long as they are “reasonably calculated to prevent the association of any data with any individual business or person.”

Second, SB 171 would require that the DFEH “make the reports available to the Division of Labor Standards Enforcement upon request.” Given the DLSE’s mandate to enforce California wage-hour laws and regulations (including California’s Equal Pay Act), employers who fail to properly implement pay equity measures and report pay and hours data risk further scrutiny by the DLSE through field audits and investigations.

Third, the DFEH must maintain pay data reports for not less than 10 years—a period even longer than a California employers’ retention obligation.

What Does This Mean for Employers?

Whether it be to fulfill federal or potential state requirements, many California employers will need to collect, aggregate, and report on employee diversity, pay, and hours. The future is clear: pay equity and pay equity reporting are here to stay. To remain ahead of the curve, employers should continue to work to ensure that pay is aligned across employees. If ever there was a time to develop and implement a pay equity strategy, now is it.

Seyfarth Synopsis: In a simpler time, courts reviewing medical cannabis laws issued employer-friendly decisions, generally finding no duty to accommodate medical cannabis even when state laws allowed its use for medical purposes. Now, however, the tide is rapidly turning. Where does California employment law currently stand on cannabis? Below we address burning issues regarding accommodations and drug testing.

What is the Current State of Cannabis in California?

At the federal level, cannabis continues to be a Schedule I controlled substance, meaning that its possession and use are crimes. But California has enacted medical and recreational cannabis laws that eliminate any crimes at the state level. The Compassionate Use Act (“CUA”), enacted in 1996, protects people using medical cannabis from criminal prosecution by the state. In November 2016, California residents voted in favor of recreational use under Proposition 64, which allows adults 21 years and older to possess up to 28.5 grams of cannabis and 8 grams of concentrated cannabis, and to grow up to 6 cannabis plants at home in a locked area not visible from a public place.

Do California Employers Have a Duty to Accommodate Medical Cannabis Use?

Not yet, but continue to tune in. The California Supreme Court’s 2008 opinion in Ross v. RagingWire Telecommunications held that employers need not accommodate an employee’s medicinal cannabis use, irrespective of the CUA. Ross reasoned  that the CUA does not grant cannabis the same status as a legal prescription drug. Because cannabis remains illegal under federal law, it cannot be “completely legalize[d] for medical purposes.”

Though it stalled in committee, a 2018 bill in the California Legislature would have required employers to accommodate employees’ use of medical cannabis use. But since the California Fair Employment and Housing Act does not currently require employers to accommodate illegal drug use, an employer can still lawfully fire an employee for smoking up.

Also, employers must remember the obligation to engage in an interactive process and reasonably accommodate applicants and employees with qualifying disabilities. Thus, for example, if an employee discloses use of medical cannabis to treat depression and a sleep disorder, an employer must discuss potential accommodations for the underlying conditions with the employee. Also pertinent is the California law requiring employers with 25 or more employees to reasonably accommodate alcohol and drug rehabilitation. Thus, even if an employee claims to be a medical cannabis user or even a former recreational cannabis user, employers must tread carefully to avoid getting lost in the weeds.

If Cannabis is Legal for Recreational Use, Can Employers Still Test for It?

Yes. Proposition 64 explicitly does not require employers “to permit or accommodate the use, consumption, possession, transfer, display, transportation, sale, or growth of marijuana in the workplace,” and it does not limit an employer’s ability to “have policies prohibiting the use of marijuana by employees and prospective employees.” For the time being, employers remain within their rights to maintain drug-free-workplaces and can test for use of cannabis.

What Other Drug Tests are Permissible in California?

Pre-employment and reasonable suspicion drug tests are generally permitted in California. As we’ve previously noted, unless the employee works in a safety- or security-sensitive position, suspicionless drug tests (e.g., random, pre-placement or pre-assignment tests) are very risky.

To further complicate matters for California employers, San Francisco has a drug-testing ordinance that generally prohibits random or company-wide testing of current employees’ blood or urine. And if a San Francisco employer intends to require urine or blood testing on the basis of a reasonable suspicion of drug use, the employer must have reasonable grounds to believe that an employee’s faculties are impaired on the job and that the employee is in a position where the impairment presents a clear and present danger to the physical safety of the employee or others.

Are Employees Entitled to Notice Before a Drug Test?

An employer that plans to drug test should distribute a clear drug policy ahead of time. The policy should explicitly prohibit all illegal drug use rather than drug use that occurs while working or on the employer’s premises. This is especially important because drug testing programs often cannot tell the employer when the employee actually ingested the drug. The policy also should notify employees of the circumstances in which a drug test would occur, the consequences for a positive test result or a refusal to cooperate, and resources available for employees who would like to seek treatment for substance abuse issues. In addition, applicants and employees must sign a specific form that authorizes the laboratory to release the drug test results to the employer and its Medical Review Officer.

Can Employers Test for Other Drugs, But Exclude Cannabis?

Unless an employer is subject to a federal or state law or regulation that requires it to test for cannabis (e.g., Department of Transportation regulations), employers can choose to eliminate cannabis from their drug testing program. To minimize negligent hiring, retention, or supervision claims, however, employers should first consider the risks of not testing and the nature of the position at issue to ensure the protection of employees and the public.

Takeaways for Employers

While California employers currently need not permit employee cannabis use (because it is illegal under federal law), employers should review their handbooks and written policies to ensure that their drug policies are broad enough to prohibit it. Employers should also communicate their anti-drug and drug testing policies clearly to employees to weed out any confusion caused by the legalization of cannabis in California.

Seyfarth’s Workplace Solutions Group is ready and willing to help to make sure your company is in compliance.

Edited By: Elizabeth Levy

Seyfarth Synopsis: Sometimes even the best employees can have their woebegone days. How is an employer to distinguish between (1) a mental disability that may require accommodation and (2) a case of someone “having the Mondays”? In honor of Mental Health Awareness Month, we offer some therapeutic antidotes for your queries on tackling mental illnesses at work.

In the television show Unbreakable Kimmy Schmidt, Kimmy’s therapist, Andrea (played by Tina Fey) has two personalities: Day Andrea, who solves problems calmly and hands out helpful advice; and Night Andrea, who is sloppy, irresponsible, and has unexpected (often drunken) outbursts.

While you may not have encountered “Night Andrea” at work, you may have seen other manifestations of mental illnesses in the workplace. Unlike physical disabilities, mental disabilities are often invisible, and surrounded by a maze of complicated privacy laws, making them harder to detect and address. To help ameliorate your concerns, we prescribe the following considerations for your next mental health quagmire at work.

California Psych 101: What Is A Mental Disability?

The first step in getting help is knowing with what kind of beast you’re dealing. As Dr. Phil wisely says, “don’t wait until you’re in a crisis to come up with a crisis plan.” California requires employers of five or more employees to provide a reasonable accommodation for individuals with physical and mental disabilities unless doing so would cause an undue hardship. California defines mental disabilities—far more broadly than under federal law—as including mental and psychological disorders or conditions, emotional illnesses, and even intellectual learning disabilities. So if your employee has dyslexia, ADHD, depression, or schizophrenia, you may have a duty to reasonably accommodate them.

Can I Ask My Employee If He Has The Blues?

While it may be tempting to “play therapist” and ask whether your employee suffers from a type of mental or emotional condition, you need to proceed with caution. An Equal Employment and Opportunity Commission (“EEOC”) guide provides that employees are entitled to keep their mental conditions private. In fact, employers can ask questions about mental health in only four situations:

          i. When an employee asks for a reasonable accommodation;

          ii. When you have made a job offer and are asking all applicants for the same medical information;

         iii. When you are engaging in affirmative action for people with disabilities (like tracking the disability status of an applicant pool in order to assess recruitment and hiring efforts); or,

         iv. When there is objective evidence that an employee may be unable to do the employee’s job or that the employee may pose a safety risk because of a health condition.

Employers also need to know that California law protects employees from discrimination based on perceived disability. So even if your employee doesn’t tell you about a disability, but you think the employee had a depressive episode, and you then take an adverse action against the employee (like discipline or termination), the employee may claim discrimination on the basis of a perceived disability. Moreover, California law requires you to initiate the interactive process when you are aware of the possible need for an accommodation.

What If My Employee Threatens To Put Me On Her Hit List?

Several courts have found that an employer may discharge, or refuse to hire, someone who poses an actual threat of harm to others due to a mental disability. The reasoning is that the employee cannot perform the employee’s essential duties without endangering the health or safety of others even with a reasonable accommodation. So if your employee yells, swears, or threatens to put her coworkers on her “Kill Bill” list (as this employee with bipolar disorder actually did), you may have an excellent basis to let the employee go.

What To Do If Your Employee Seems Unfit For The Gig

If an employee’s mental condition is one that appears to reasonably impair the employee’s ability to perform the job, you may consider requiring a fitness-for-duty examination for the employee, provided the exam is job-related and consistent with business necessity. A fitness for duty evaluation may prove a useful tool in the following cases:

  • When, after conferring with your employee, the employee does not admit to, or otherwise realize, the employee has a problem; or
  • When you believe that an employee’s psychological condition makes the employee a danger to himself or herself, other coworkers, or other members of the public with whom the employee interacts as part of the job.

Workplace Solutions

It is never too early to come up with a targeted plan to address employee mental health concerns at the workplace. Here are some suggestions.

  • If an employee discloses a mental health illness to you, or you learn about the mental condition, keep that knowledge, and any medical information you receive, confidential. [Note: if you are not a member of your human resource group, you should share the information with a member of that department.]
  • Consider setting up an Employee Assistance Program or a crisis intervention system. If you have one, refer an employee in distress to the program so that the employee can seek help.
  • Develop a written policy in your handbook that includes accommodations for mental disabilities.
  • Be mindful of possible accommodations for employees with mental illnesses, such as offering more flexible working arrangements and schedules, and leave for therapy and other treatment.

If you have any questions about how to handle a particularly challenging situation with employee mental health, don’t hesitate to reach out to a member of our California Counseling Group.

Edited By: Coby Turner

Seyfarth Synopsis: Although the concept of working remotely may seem simple, employers must consider several issues before allowing employees to work from home.


There’s No Place Like Home

Today’s technology allows many employees to work nearly as well in their pajamas at home or in their jeans at a local coffee shop as they can dressed up at the office. While this arrangement may not be viable for every employer, allowing employees to work from home or other locations of their choosing has enabled employers to reduce overhead expenses while boosting employee morale. But before employers allow their employees to be homebodies, there are several issues to consider.

Does A Trip To The Fridge And Back Count As A Break?

Tracking non-exempt employees’ time on the clock becomes increasingly more difficult if they work remotely, since their supervisors obviously cannot consistently see when work is being performed. Nonetheless, California law requires employers to maintain records of non-exempt employees’ work hours, and pay them overtime premium wages for any hours worked over eight in one day, over forty in one week, or any hours on a seventh consecutive day during a workweek. Under Labor Code section 226.7, employers must also pay an extra hour of pay each day in which they fail to provide a meal or rest period. This law applies regardless of where the employee works.

Thankfully, there are some software programs and apps available that ease the burden of keeping track of remote non-exempt employees and their time worked. Nonetheless, an employer must still encourage employees to take their meal and rest breaks in accordance with the company’s legally compliant meal and rest break policy that applies to all non-exempt workers.

Are My Bunny Slippers A Reimbursable Business Expense?

Labor Code section 2802 requires employers to reimburse employees for expenses “necessarily incurred” in their employment. An employer generally complies with section 2802 by either reimbursing a given expense or providing the employee with the equipment necessary to ensure that the employee does not incur the expense in the first place. For instance, employees who use a personal cell phone to make work-related calls should be reimbursed for at least a percentage of their cell phone bill, though it can be tricky to determine what percentage of calls were necessary for work and what percentage were personal calls unrelated to work.

When it comes to remote workers, the most important inquiry is whether the expense was necessary for the work. The best way to avoid any ambiguity is to either (1) provide employees with all equipment the employer deems necessary or (2) have a policy that outlines which expenses are reimbursable and to what extent, and makes clear that if the employee incurs necessary business expenses beyond those anticipated, those expenses should be submitted in accordance with the company’s business expense reimbursement policy. (You may choose to reimburse for bunny slippers if you wish.)

What Happens If I Step On a Lego?

Accidents happen while working, and they can just as easily occur at a home office or remote working location. According to the Occupational Safety and Health Administration (OSHA), small business owners are responsible for providing employees with safe work environments. And while OSHA generally doesn’t inspect home offices as it does with traditional workplaces, employers must still track work-related injuries that occur with remote workers. Additionally, any California business with one or more employees must carry worker’s compensation insurance. There is no exception to this requirement for employees who work remotely.

Labor Code section 3600 states that an employer is liable “for any injury sustained by his or her employees arising out of and in the course of the employment.” Liability for an injury sustained by an employee while working at home is no different than if the employee had sustained the injury while working in the corporate office. And in one case, a court found that an employee was entitled to workers’ compensation benefits when he sustained injuries trimming his hedges while on call.

Employers should be cognizant of this potential risk and have policies in place that ensure, to the extent possible, that an employee’s workspace is free from potential hazards, including loose Legos and hedge trimmers.

What Is An Employer To Do?

When allowing employees to work from home, employers should have a comprehensive telecommuting policy. To head off frequently asked questions, the telecommuting policy should cover the following areas:

  • The policy should provide that employees are entitled and expected to take their uninterrupted, off-duty meal and rest breaks, and require employees to certify that (1) their time records are correct and (2) their breaks were provided in accordance with company policy. The policy should also require employees to seek and obtain management’s approval before working overtime, and make clear that failing to do so could result in disciplinary action.
  • Business Expenses. The policy should clearly delineate which expenses are reimbursable, but also provide an avenue for employees to submit reimbursement requests for additional necessary business expenses, even if those expenses are not delineated in the policy. If an employee is using a personal device for business activities, employers should consider how much the employee will be using that device for work purposes, and reimburse the employee accordingly.
  • Office Safety. To help prevent injuries, employers should require employees to keep their remote work areas free from obstructions and hazards. Employers may also consider asking their employees to submit pictures of their remote work spaces, offering ergonomic consultations (at the employer’s expense) for employees’ home offices, or sending out a company representative to ensure the employee is working in a safe environment.

Workplace Solutions. Because the laws affecting telecommuting are constantly evolving, employers should be deliberate when enacting a telecommuting policy and continually revisit it to ensure it is legally compliant. We will continue to monitor developments in this area and update our readers. In the meantime, if you have any questions, please contact your favorite Seyfarth attorney.

Edited by Coby Turner

Seyfarth Synopsis: Employers increasingly find themselves in the difficult position of deciding whether to continue garnishing an employee’s wages pursuant to a garnishment order when the employee files for bankruptcy. On one hand, the employer risks penalties for failing to withhold wages; on the other hand, the employer risks sanctions for violating the automatic stay generated by a bankruptcy filing. Below we discuss this dilemma and employers’ options.

In 1996, the iconic MC Hammer filed for bankruptcy, claiming over $15 million in debt even though he was reportedly worth more than twice that only a few years earlier. As American household debt continues to climb, many less talented individuals may be following the Hammer’s funky footsteps and seeking bankruptcy relief. If these people are also employees subject to garnishment orders, employers may face the dilemma of (a) withholding wages in violation of the automatic stay in bankruptcy or (b) risking penalties for failing to withhold wages.

Making ‘Em Sweat

In California, once an employer is served with an earnings withholding order (an “EWO”), an employer must withhold the amounts required by the EWO from all earnings of the employee during any pay period within the withholding period. California law also sets forth a priority scheme for withholding in the event an employer has been served with multiple EWOs. Wages withheld should be paid to the levying officer, for ultimate payment to the creditor, on a monthly basis not later than the 15th day of each month. The employer’s obligation to withhold continues until the employer is served with a notice of termination of the EWO.

Employers should know that service of an EWO creates a lien upon the earnings of the employee and also upon the employer’s assets up to the amount required to be withheld. If an employer fails to withhold or pay amounts subject to an EWO, the creditor is entitled to bring a civil action against the employer to recover those amounts: failing to withhold wages properly may make the employer liable for the entire amount the employee owes to the creditor. Additionally, the employer potentially can be hit with contempt sanctions and—for an EWO concerning child support—civil penalties.

Stop! Hammer Time

Notwithstanding California law, an employee’s bankruptcy filing triggers an automatic stay that stops creditors’ collection efforts and enforcement actions (subject to some exceptions). That means an employer faces the daunting task of determining whether to continue to comply with California law on garnishments or whether to halt withholding in compliance with the automatic bankruptcy stay.

In the Ninth Circuit (which includes California), a garnishing creditor has an affirmative duty to stop garnishment proceedings when notified of the automatic stay. But not all garnishment actions are subject to the automatic stay. Some garnishments—such as collecting on certain domestic support obligations of the employee or on certain taxes owed by the employee—are 2 Legit 2 Quit and are not stayed by the employee’s bankruptcy. In those circumstances, if the employer stops withholding, the employee’s creditor may seek to hold the employer liable for failing to comply with the garnishment order. Meanwhile, the employee’s bankruptcy counsel may threaten the employer with possible sanctions for allegedly violating the automatic stay.

I Told You Homeboy

Whether to stop withholding wages is typically not a clear‑cut decision and requires careful analysis of federal bankruptcy and state garnishment laws. The employer cannot simply cease withholding funds upon learning of the employee’s bankruptcy filing. The proper course of action may also be informed by the amount of potential penalties and liabilities that may result from noncompliance with either the automatic stay or the relevant EWO.

Rather than just throw up its hands in despair and Pray, at an absolute minimum, the employer should:

  • Provide written notice to the garnishing creditor of the employee’s bankruptcy filing and notify the creditor of its affirmative duty to stop the garnishment.
  • Send a copy of the written notice to the employee and employee’s bankruptcy counsel to encourage their intervention.
  • Notify both the creditor and the employee of any funds that have been garnished but not yet turned over to the creditor. The creditor and employee likely will assert competing ownership interests in those withheld funds, and the employer should avoid favoring one or the other.

Remember, an employer’s clear communication with all parties, and also perhaps a request to the bankruptcy court for guidance, is paramount to safeguarding the employer from liability.

Workplace Solutions: Given the overlap of federal and California law and the risks facing employers, the next time an employee files for bankruptcy and then points to his paycheck and starts to sing You Can’t Touch This (oh-oh oh oh oh-oh-oh), follow MC Hammer’s sage advice: “Stop! [Lawyer] time!” Immediately contact your favorite Seyfarth attorney or the authors of this post for advice on how best to proceed.

Edited by Coby Turner

Seyfarth Synopsis: Everything was smooth sailing with your latest greatest arbitration agreement, but then an employee refused to get on board. What do you do now? Keep reading for a primer on navigating some murky waters.

Even in a post-Epic Systems world, where more and more employers are rolling out mandatory arbitration agreements with class-action waivers, California has discouraged such agreements. This tension raises the question: how close to the wind can an employer sail to impose arbitration on employees who refuse to sign arbitration agreements?

What Are My Options And What Are The Potential Risks?

Option #1—Man Overboard: Terminate the employee.

Dismissing an employee for refusing to sign an arbitration agreement has been challenged as a wrongful termination in violation of public policy, but years ago in Lagatree v. Luce, Forward, Hamilton & Scripps, the Court of Appeal decided that because public policy favors arbitration, an employer can lawfully dismiss an employee for refusing to sign an arbitration agreement presented as a condition of employment. The issue may acquire practical significance, however, if many employees refuse to sign the agreement. Some employers will not want to follow through on dismissing each such employee, and may generate discrimination claims if the employer selectively determines which non-signing employees to dismiss. (A potential way to finesse such a potential dilemma is to issue a written arbitration program that will become effective without any signature.) Additional issues may arise if the arbitration agreement implicates pending litigation, which arguably might enable a protesting employee to argue that the new employment practice is retaliatory.

Option #2—Sink or Swim: Explain to the employee that the choice is hers and educate the employee on the benefits of arbitration, and then live with the employee’s choice. The object is to obtain a truly voluntary arbitration agreement, but the task is difficult in that California courts are prone to view employer comments as inherently coercive. The voluntary nature of the agreement could be further demonstrated, however, by offering some extra payment or benefit to those employees who do sign the arbitration agreement.

With this option, the employee could still refuse to sign, leaving the employer with Option #1 (terminate the employee) and Option #3 (do nothing).

Option #3—Keep Eyes on the Horizon: Do nothing.

If the arbitration agreement requires an employee signature, then the employer cannot enforce the agreement against an employee who declines to sign, even though the employer can enforce the arbitration agreement against those who do sign.

As noted, some employers finesse this issue by presenting arbitration programs as a condition of employment, which contemplates no employee signature to obtain proof of consent. Rather, the employer proves consent by proving distribution of the arbitration program, with a notice that employees will accept the arbitration agreement through continued employment. These agreements are generally enforceable as to at-will employees, as long as they are not unreasonably one-sided. A further measure sometimes used to fortify proof of consent is an opt-out provision—permitting employees who don’t like arbitration to affirmatively remove themselves from the obligation to arbitrate by giving the employer written notice within a specified number of days following the day they receive notice of the arbitration program.

Workplace Solutions: Since California runs a tight ship when it comes to evaluating arbitration agreements, arbitration agreements must be in shipshape. While it is not a purely legal consideration, employers should consider how an arbitration program could make waves in the workplace by undermining employee morale.

Because of the lack of legal clarity, the best approach is to not terminate an employee who refuses to sign an arbitration agreement, and to instead consider taking the risk that if a class-action litigation ensues, there may be a few employees whose claims are not subject to arbitration (a risk that might be further reduced if the employer offers some extra payment or benefit). Seyfarth is here to help in the event you are considering rolling out an arbitration agreement, or if you already have and anticipate a storm on the horizon.

Seyfarth Synopsis: Thinking of converting your independent contractors to employees? Not so fast. There are many implications to consider. Below we touch on one of them.

In the wake of the judicial invention of a California version of the “ABC test” to determine proper worker classifications, many companies in the gig economy are grappling with whether to reclassify their workers as employees rather than independent contractors.

While some may advocate for an automatic, across-the-board employee classification of all gig workers who might not qualify for independent contractor status under the applicable ABC test, these decisions can result in unanticipated consequences.

In determining employee classifications, one area often overlooked is the duty of loyalty—a hallmark of the traditional employment relationship. In most states, an employee owes a duty of loyalty to the employer. While the actual definition of the duty of loyalty varies by jurisdiction, the duty generally prohibits an employee from working for the employer’s competitors during the term of employment. In many jurisdictions, the duty of loyalty may also be extended beyond the term of employment, in the form of noncompete agreements.

For many gig workers, this aspect of the duty of loyalty is untenable. As compared to traditional employment, the lure of gig work is the ability to have multiple sources of income from various companies and the freedom to determine one’s own work schedule. But if a gig worker is classified as an employee, the ensuing duty of loyalty will often preclude the ability to work simultaneously for other companies that are in the same business as the employer (the employer’s competitors). For example, if the duty of loyalty applied, then employee rideshare drivers for Lyft could not take gigs with Uber, and vice-versa; and Grubhub drivers could not take gigs with DoorDash, and vice-versa.

As a result of the tension between the objectives of gig workers and the limitations arising from an employee’s duty of loyalty, classifying gig workers as employees can make recruiting more difficult in the gig economy. Employers in the gig space should give careful consideration to all of the issues implicated by worker classification decisions and the agreements that govern their worker relationships, including a decision to unilaterally release workers from their duty of loyalty, to ensure that the employer has removed a roadblock to recruitment. Employers may wish to consider releasing gig workers from certain aspects of the duty of loyalty—such as the duty to refrain from working for competitors—while preserving other aspects of the duty.

We are well-versed in the issues implicated by employee classification decisions in the gig economy and are available to work through these issues with employers who have questions in this area.

Seyfarth Synopsis: Companies marketing through social media are likely familiar with social media influencers like the Kardashian/Jenners in cosmetics, DanTDM in gaming, and Kayla Itsines in fitness. California companies using the services of such influencers must be mindful, as always, of California peculiarities when it comes to classifying these individuals as contractors or employees.

As anyone who has seen the recent Fyre Festival documentaries knows, using social media influencers is an increasingly popular way to market products. The benefits of this method are clear—social media posts by influencers can be a low-cost way of reaching an enormous audience of potential consumers. However, advertising via influencers also carries potential legal risks.

As a primary issue, companies who use influencers need to be keenly aware of Federal Trade Commission (“FTC”) guidelines on advertising and endorsements, as well as the penalties for non-compliance. In California, the risk of using influencers is further enhanced by the standard governing classification of workers as independent contractors. And if the influencers are not being paid, but instead are being treated as volunteers, potential risks multiply. Failure to properly classify and pay influencers might violate numerous California employment laws and could even result in class action litigation. Misclassifying influencers could also invite an audit from the California Employment Development Department (“EDD”) into whether employment taxes may be owed.

A company considering using influencers should carefully evaluate each of three legal risks:

  1. FTC Guidelines: FTC guidelines specify that an “endorsement” includes any advertising message that consumers are likely to believe reflects the opinions of a party other than the sponsoring advertisers. 16 C.F.R. § 255.0(b). A connection between an endorser and the seller of the product must be disclosed when that connection “might materially affect the weight or credibility of the endorsement.” 16 C.F.R. § 255.5. In the case of social media influencers, simply posting a picture of a certain product to a social media site could constitute an endorsement in the eyes of the FTC. Thus, if the influencer is paid for the post, or is asked to write a review of a free product, such a connection would have to be disclosed. Failure to do so could invite scrutiny and potential legal action from the FTC.
  2. California Classification Laws: In addition to staying on the right side of the FTC, companies should also be careful to stay on the right side of the recent California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court. That decision lays out the “ABC” test, under which a worker qualifies as an independent contractor only if the hiring entity establishes:

(A) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact;

(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and

(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

As the first prong of the test makes clear, the degree of control the hiring entity exercises over the worker remains an important factor in determining whether or not an employment relationship exists. Depending on the degree to which the company is involved in creating social media posts, determining their content, or dictating an influencer’s review of a product, the company may run the risk of not meeting one or more of the prongs of the ABC test, which could result in creating an employment relationship where none was intended. If that occurs, the influencer may be deemed an “employee” of the company and thus misclassified. Litigation could then ensue, and an adverse determination could result in liability and penalties for unpaid minimum wages or overtime, statutory penalties, and attorneys’ fees.

  1. California Tax Laws: A determination that an influencer is an employee rather than an independent contractor (or volunteer) would implicate a host of California employment laws. The issue also implicates whether payroll taxes may be owed to the EDD for any such misclassification. In determining whether to audit potential misclassification, the EDD tends to consider whether a company is issuing 1099s to an individual, or to an LLC. If the company is issuing multiple 1099s directly to the influencer (or to a number of influencers), it could be courting an EDD audit.

Workplace Solution: The concept of influencers is still new and the governing law is developing. As a result, the guidelines for hiring and compensating influencers is limited and the risks are real. Before utilizing influencers, California companies should take time to consider the legal implications. If you would like to learn more about these issues, please contact a Seyfarth Shaw attorney for assistance.

Edited By: Coby Turner

Seyfarth Synopsis: Employer subsidized healthcare is one of the largest cost centers for small and large businesses.  This post provides a primer on what to do if you suspect that your healthcare costs are rising because your healthcare plan is under siege by fraudsters.  

With the rising costs of healthcare, some employers choose to self-insure to reduce claims and premium expenses factored into third-party claims administration, including policy overheads, assumption of risk, and underwriting profit. Using self-insurance is supposed to bring reduced costs—or so you thought. But what if the reduction in health care costs seemingly disappear overnight as the number of claims spike year after year without reason? The likely culprits are fraudsters, operating in something reminiscent of an Ocean’s 11 scheme, siphoning off the savings into a web of shell companies and making out like bandits.

Not Your Parents’ Healthcare Fraud

Gone are the days when claimants submitting fraudulent disability claims were the main perpetrators of fraud in a health care plan. Today, healthcare fraud schemes are as complex as the financial crimes that make the front page. In one recent, well-publicized case, a team of fraudsters advertised on Facebook and set up tables at a California University, offering students potential jobs if they took part in a clinical trial. The catch: the students needed to disclose their personal information to participate in the clinical trial. The fraudsters then used the personal information to submit fraudulent insurance claims. According to the court file, one podiatrist wrote 600 prescriptions, in a single day, billing $1.7 million in claims. In total, the University paid almost $12 million in fraudulent claims arising from this single scheme. And the kicker: the fraudsters did it all with information from just 500 students.

With the potential for a Las Vegas casino-sized jackpot, it is not surprising that the California Department of Insurance reported that California suffered nearly $1.4 billion in potential losses from disability and healthcare fraud in 2017 alone. That’s more than four times the estimated losses in 2010.

What Are My Options?

Step 1: Protect Your Plan. There are many administrative changes that self-insured plans can make to prevent fraud before it starts and to enable recovery under the terms of the Plan. Experienced counsel can assess potential exposure points in the administrative process and propose reasonable solutions to prevent a breach.

Step 2: Claims Analysis. Third-party administrators often employ a Special Investigations Unit to analyze claims and find signs of fraud, but law firms steeped in prosecuting these types of claims in civil court can also assist in finding fraudulent patterns through the use of data analytics.

Step 3: Engage Counsel and Contact Law Enforcement. When you suspect fraud, contact law enforcement. Contacting counsel before, or at the same time, as law enforcement is a good practice because some healthcare payors must make certain disclosures.

Step 4: Consider Joining a Government Action or Sue Independently. A number of statutes enable the government and victims of fraud to recover monetary losses from healthcare fraud. Two powerful statutes are the federal False Claims Act (FCA) and California’s Insurance Fraud Prevention Act (IFPA). Both laws permit victims of fraud to join lawsuits brought by the government or to sue independently if the government declines to take the case, subject to certain provisions, including disclosure requirements (see Step 3). In either scenario, the victim of fraud would be entitled to a monetary judgment if the prosecution is successful.

Why Litigate?

A good defense is a good offense. A robust anti-fraud program that includes a willingness to litigate will deter fraudsters who target for the most vulnerable plans. There is also the potential for a significant monetary recovery because the FCA, IFPA, and similar statutes have provisions that allow victims to recover multiples of what was lost in actual damages.

Workplace Solutions: The Seyfarth Health Care Fraud and Provider Billing Litigation Team has substantial experience in conducting comprehensive analyses of healthcare plans to determine if adequate fraud, waste, and abuse controls are in place and if the plan is being attacked by sophisticated fraudsters, as well as in litigating these issues for companies and in conjunction with governmental authorities. Please don’t hesitate to reach out to our team if you are in need!

Edited By: Coby Turner

Seyfarth Synopsis: It is important for companies to investigate internal sexual harassment complaints and take prompt, appropriate corrective action. This post provides a six-step roadmap of best practices for handling sexual harassment complaints.

1.   Plan Ahead

  • Maintain compliant harassment policies, provide regular harassment training covering all required topics (Seyfarth can help), and communicate the procedure for reporting complaints.
  • Determine in advance who will oversee the process for handling complaints.
  • Have a crisis management team in place in advance (generally legal, human resources, IT, and communications or public relations).
  • Identify and train internal investigators so they know how to conduct an investigation.

2.    Initial Steps After Receiving A Complaint

  • Determine whether there is a need to conduct a formal investigation and, if so, the appropriate scope of the investigation.
  • Consider whether to place the accused on paid administrative leave pending the investigation. Some factors to consider include whether the accused poses a potential safety risk and whether having the accused in the workplace may intimidate witnesses or otherwise impede the investigation.
  • Take appropriate interim steps to prevent harassment and retaliation. For example, it may be appropriate to separate the accused and the complainant, instruct the accused not to communicate with the complainant, or to place an upcoming performance review on hold pending the conclusion of the investigation.
  • Determine who will conduct the investigation. Choose the investigator carefully, as that person may need to testify in any legal proceeding.
    • Investigators must be free from actual or apparent bias or conflict of interest. For example, an investigator should not investigate the conduct of the investigator’s superiors or friends.
    • Determine whether to retain an outside investigator. Consider whether the investigator needs a particular expertise.
    • Evaluate whether to retain a lawyer to conduct the investigation and whether the investigation will be covered by attorney-client or attorney work product privileges. The company can decide later whether to waive a privilege and rely on the investigation as part of a litigation defense.
  • Preserve evidence that may be relevant to the investigation. The evidence may include emails, texts, and internal messages. Involve IT as necessary.
  • Develop a public relations strategy if there may be potential media coverage or publicity.

3.    The Investigation Process

  • Conduct investigations promptly. If there was misconduct, it should be corrected as soon as possible.
  • Determine an investigation plan, but remain flexible. The number of witnesses interviewed and documents reviewed should be appropriate to the situation. Facilitate the investigator’s access to the relevant witnesses and the documents.
  • An investigation is a fact-finding mission. The investigator should approach the investigation with an open mind.
  • Consider the order in which witnesses are interviewed and what information to share with witnesses. Generally a best practice is to interview the complainant first and the accused last. Witnesses should be told that the company will maintain confidentiality consistent with the need to investigate.
  • Prepare notes contemporaneously or soon after the interviews. Document key quotes and any admissions made. Be thoughtful about your notes, as they may be discoverable if the matter results in litigation. Decide whether to have the witnesses submit or sign statements.

4.    Reporting the Findings

  • Determine whether a written report is necessary for all or parts of the investigation and, if so, what level of detail is appropriate for the report.

5.   Determine Who Will Decide and Take Appropriate Corrective Action

  • Generally the decision-makers should not be lawyers.
  • Corrective action may include, for example, discipline, coaching, further training, and other steps to prevent future harassment and retaliation.

6.    Close Outs And Other Follow Up After The Investigation

  • Inform employees involved with the investigation that the investigation has concluded and that the company has taken appropriate action. The company may not be able to share more information due to privacy concerns.
  • Instruct employees to report any further concerns through the appropriate complaint channels.
  • Remind them that company prohibits retaliation. Instruct employees to report any retaliation promptly.

Workplace Solutions: While is there is no “right way” to conduct an investigation, all investigations should (1) start with an investigation plan that may include interviewing the material witnesses and reviewing key documents, (2) be conducted as promptly as reasonably possible, (3) be conducted by a trained, impartial investigator, (4) be documented appropriately, (5) be followed by appropriate corrective action and steps to prevent harassment and retaliation, and (6) appropriately inform employees when the investigation has closed.

Edited By: Coby Turner