Labor Employment Law Blog

Court Of Appeals Finds That Some Work Performed At Home Or While Commuting To Work May Have To Be Paid

The Ninth Circuit Court of Appeals held on March 2, 2010 in Rutti v. Lojack Corporation, Inc. that some work performed by employees at home, as well as time spent commuting, may have to be paid in certain circumstances.

]]> The plaintiff in Rutti was a technician for Lojack, Inc. ("Lojack") who installed car alarms. In the morning, Rutti, as well as Lojack's other technicians, would receive their assignments for the day, map the route to their assignments, and prioritize the jobs. While traveling to the first job in the morning, as well as when traveling home at the end of the day, technicians were required to keep their cell phones on and drive directly between home and the job site without making any additional stops. After returning home, technicians were required to upload data received at the job sites from a portable data terminal ("PDT") to the company by hooking the PDT up to a modem.

The Ninth Circuit determined that the technicians' commute time was compensable under state law, but not federal law. The federal Portal-to-Portal Act, as amended by the Employment Commuter Flexibility Act, explicitly provides that employers need not compensate employees for time spent traveling to and from where they perform their job duties. The result under federal law was not changed by the fact that Lojack's technicians drove company cars, or that they were subject to certain employer-mandated restrictions while driving.

California, however, maintains stricter wage and hour laws. Under California law, the relevant question is whether the employee's time is "subject to the control" of the employer. The Ninth Circuit found that because technicians had to keep their cell phones on, and could not make additional stops while going to and from the job site (such as dropping children off at school), the time was subject to the employer's control and had to be paid under California law.

The Ninth Circuit went on to find that under federal law, the technicians' job tasks before the "start" of the work day were not compensable, but that time spent uploading data from the PDT "after work" might have to be paid. Under federal law, the question of whether these types of "preliminary and postliminary" activities must be paid depends on whether they are part of the "principal activities" that the employee is employed to perform. Even if these tasks are part of the employee's "principal activities," they need not be paid if they are de minimus. In deciding whether certain job tasks are de minimus under federal law, courts examine the practical administrative difficulty of recording the additional time, the aggregate amount of time at issue, and the regularity of the additional work.

Applying those factors, the Court held that even if the tasks performed by technicians prior to leaving home were part of their "primary activities," they were de minimus. These tasks took only a matter of minutes to complete, and it would be very difficult to record the time that technicians spent working on them. However, time spent uploading data from the PDT might be compensable. There was evidence that this task took anywhere from 5 to 15 minutes each night. While the Court acknowledged that there would likely be some administrative difficulty recording this time, it found that the time added up to over an hour per week, and was a regular part of the employees' job duties, and therefore might not be de minimus. Accordingly, the time might have to be paid, depending on the specific facts.

Still, even if this activity was found to be compensable under federal law, that did not mean that the technicians' travel time home had to be compensated, even under the "continuous workday doctrine." Under this doctrine, which the U.S. Department of Labor has adopted, an employee's workday generally lasts until he has completed all of his principal activities during the day. The Ninth Circuit found that the "continuous workday" rule did not apply in these circumstances because technicians were relieved of all duties upon returning home, and could input the data from the PDT at a time of their choosing. Federal regulations preclude application of the "continuous workday doctrine" where employees are relieved from all duty for a long enough period to be able to use that time for their own purposes. Still, this commute time generally has to be paid under California law. Here, the Ninth Circuit did not reach the issue of whether the "preliminary and postliminary" activities performed by the technicians had to be paid under California state law.

This case reminds employers that there can be significant differences between federal and state law in the wage and hour areas, and that they need to ensure that their practices comply with both sets of laws.

Federal Government Extends COBRA Subsidy

On March 2, 2010, President Obama signed into law legislation that extends the Federal government's COBRA premium subsidy program. The new legislation extends the subsidy program until March 31, 2010, retroactive to March 1, 2010. Currently, the Federal government is subsidizing the cost of COBRA continuation coverage for certain individuals that experience a loss of coverage under employer-sponsored health plans due to an involuntary termination. Previously, only employees who were terminated prior to February 28, 2010 were eligible for the subsidy. Pursuant to this recent extension, employees who are involuntarily terminated between March 1, 2010 and March 31, 2010 will also be eligible for the subsidy.

]]> Under the COBRA subsidy program, the terminated employee pays, in effect, only 35% of the COBRA premium, and the remaining 65% is covered by an advance from the employer. The employer is then entitled to recoup the 65% it has advanced for the cost of that coverage by taking a credit against its own employment tax liability. The period of the subsidy can last for up to 15 months.

It is important to note that the subsidy is still based on the amount that the terminated employee is actually obligated to pay. In other words, the COBRA subsidy is proportionately reduced to the extent the employer has assumed liability for the terminated employee's COBRA premiums. This is significant because it is not uncommon for employers to agree to pay all or a portion of a former employee's COBRA premiums as part of a severance package. In order to maximize the use of the COBRA subsidy, therefore, the terminated employee would have to be obligated to pay the full amount of his or her COBRA premiums since, after the subsidy is taken into account, the terminated employee's actual out-of-pocket cost would be limited to 35% of the total premiums. It is also important to note that the subsidy begins to phase out if the terminated employee's 2010 income exceeds $125,000 (or $250,000 for joint filers), and is completely unavailable if the terminated employee's 2010 income exceeds $145,000 (or $290,000 for joint filers). Any individual who receives the subsidy whose income exceeds these limits will be required to repay all or a portion of the subsidy, as the case may be.

Ninth Circuit Clarifies When Non-Tipped Employees May Participate In Tip Pools

In case of first impression for it, the Ninth Circuit clarified the validity of tip pools under the Fair Labor Standards Act ("FLSA") where the tip pool includes employees who are not customarily and regularly tipped. In Cumbie v. Woody Woo, Inc., the Court of Appeals held that where workers make more than the minimum wage and the employer takes no tip credit, tip pools including non-tipped employees do not violate the FLSA.

]]> Plaintiff Misty Cumbie was a server at the Vita Café in Portland, Oregon, which is owned and operated by Defendants Woody Woo, Inc., Woody Woo II, Inc., and Aaron Woo (collectively "Woo"). Woo's servers were paid a wage at or exceeding the Oregon minimum wage, which at the time was higher than the federal minimum wage, and also received a portion of their daily tips. The servers were required to contribute their tips to a "tip pool" that was redistributed to all restaurant employees, except managers. Between 55% and 70% of the tip pool went to the kitchen staff (e.g. dishwashers and cooks), who are not customarily tipped in the restaurant industry. The remainder of the tip pool (between 30% and 45%) was returned to the servers in proportion to their hours worked.

Cumbie alleged that Woo's tip pooling policy violated the FLSA's minimum wage provisions. She argued that the FLSA requires employers to allow employees to keep all of their tips, except where the employee participates in a tip pool with other customarily tipped employees. Because Woo's tip pooling policy included employees who are not customarily and regularly tipped, Cumbie argued it was invalid under the FLSA and Woo was required to pay her the minimum wage plus all of her tips.

The Court of Appeal held that Woo's tip pooling policy did not violate the FLSA because the FLSA only restricts tip pools to employees who are customarily tipped when the employer takes a tip credit. The Court began with the principle that tip pools are valid where there is an explicit arrangement to turn over or redistribute tips and there is no "statutory interference" that would invalidate the arrangement. In its analysis the Court found that the language of the statute limiting tip pools to customarily tipped employees imposes a condition on taking a tip credit and does not state a freestanding requirement. A "tip credit" is where an employer is allowed to take credit for a certain amount of tips earned by their employees toward the employer's payment of the minimum wage. Tip credits are not allowed under Oregon law, and so Woo was not allowed to, and did not, take one. Because Woo did not take a tip credit, its tip pooling requirement was not subject to this limitation. Therefore, the Court found that there was no "statutory interference" and Woo's tip pooling requirement was valid.

The Court also rejected Cumbie's arguments that Woo's tip pooling policy violated the FLSA's requirement that the minimum wage be paid "free and clear" and that allowing Woo's tip pooling policy would violate the purpose of the FLSA. The Court found that the "free and clear" regulation hinges on whether the tips belong to the servers to whom they are given. Because Woo had a valid tip pooling policy, only the tips redistributed to Cumbie out of the pool belonged to her. Because Woo's tip pooling policy did not take tips belonging to Cumbie away from her, the Court found that Woo did not violate the "free and clear" regulation. Finally, the Court found that its conclusion that the FLSA does not prohibit Woo's tip pooling policy did not thwart the purpose of the FLSA. The purpose of the FLSA is to protect workers from substandard wages and oppressive working hours. Under Woo's tip pooling policy, Cumbie did not experience such conditions because she received a wage that was greater than the federal minimum wage, plus a substantial portion of her tips.

Cumbie provides employers with greater clarity under federal law regarding which employees can be included in a tip pool when their employees make at least the minimum wage and the employer does not take a tip credit. However, employers are cautioned to ensure that any tip pooling policy complies with both the law in their respective state as well as federal law. Simply because a tip pooling policy may be valid under federal law does not necessarily mean that it is legal under state law.

The California Supreme Court Clarifies California's "Kin Care" Law

In the recent case of McCarther v. Pacific Telesis Group, the California Supreme Court clarified the scope of California Labor Code § 233, California’s “kin care” law. California Labor Code § 233 generally requires any employer that allows its employees to “accrue” sick leave to allow those employees to use a portion of that sick leave to attend to the illness of a child, parent, spouse, or domestic partner. In McCarther, the California Supreme Court clarified that California Labor Code § 233 does not universally apply to all paid sick leave policies, only those policies under which employees “accrue” or “bank” sick days. The Court specifically held that the statue does not apply to policies that provide for an uncapped number of compensated sick days. Employers with those policies do not have to provide any compensated time off for “kin care.”

]]> Plaintiffs Kimberly McCarther and Juan Huerta were employees of Defendants SBC Services, Inc. and Pacific Bell Telephone Company, respectively. Under their Collective Bargaining Agreement, Defendants had a sick leave policy that compensated employees for up to five consecutive days of work missed due to illness or injury. After an employee returned to work for any period of time after an absence, the sick leave policy could be triggered again and the employee could be compensated for another five days missed due to illness or injury. The employees did not “bank” or “accrue” any sick days, rather they could simply take paid days off when needed. While there was no limit or cap to the number of compensated sick days an employee could receive under the sick leave policy, employees were subject to an attendance policy that limited the total number of days an employee could miss per year, including absences for sick days. Defendants had no policy of paying employees for absences taken to care for ill family members.

Plaintiffs Kimberly McCarther and Juan Huerta both missed work to care for ill family members and, pursuant to Defendants’ policy, were not paid for those absences. They filed suit claiming that Defendants violated Labor Code § 233 by not paying them for the missed “kin care” days. The California Supreme Court rejected their claims.

The Supreme Court held that Labor Code § 233 does not apply to all compensated sick leave policies. It only applies to those sick leave policies where employees accrue a measurable, banked amount of sick leave. The Court focused on Labor Code § 233’s limited definition of “sick leave” as “accrued increments of compensated leave provided.” The Court found that the plain meaning of “accrued” was “to accumulate over time” and that under Defendants’ sick leave policy, employees did not accumulate sick leave. They were merely allowed to take sick days off whenever needed. Consequently, the Court found that Defendants’ policy did not fall within Labor Code§ 233’s limited definition of “sick leave” and was not covered by the statute. The Court also found that it was untenable to interpret the statute, which required employers to provide “an amount not less than the sick leave that would be accrued during six months at the employee’s then current rate of entitlement” for “kin care,” as applying to Defendants’ policy, which provided an unlimited amount of sick leave. The Court explained that it would be impossible to determine how much of that unlimited amount of sick leave an employee would accrue in a six month period and, therefore, it would be impossible to determine how much “kin care” Defendants would have to provide. Based on those findings, the Court found that Labor Code § 233 did not apply to Defendants’ policies and Defendants were under no obligation to pay Plaintiffs for time missed for “kin care.”

McCarther should serve as a reminder that, in certain circumstances, California law requires employers to provide employees with compensated time off for “kin care.” Employers are encouraged to review their policies in light of McCarther to ensure that they are in compliance with current California law.

A Company's Shifting Reasons For An Employment Decision Can Hurt The Company's Defense

A San Diego federal district court recently provided guidance on what constitutes an "adverse employment action" and how an employer's shifting reasons for its actions may affect a discrimination case. In Coyne v. County of San Diego, the plaintiff, an employee, sued her employer for discrimination and retaliation in violation of Title VII and the California Fair Employment and Housing Act. The plaintiff claimed that she was transferred to a lateral position in a different division because of her gender and because she actively supported the gender discrimination claims of other employees. The County filed a motion for summary judgment. The parties conceded that the plaintiff had engaged in protected activity. The issues were whether the transfer constituted a materially adverse employment action and whether the transfer was justified by legitimate non-discriminatory reasons.

]]> The district court explained that an adverse employment action is an action that materially affects the terms, conditions, or privileges of employment. The question is viewed from an objective perspective. Relatively minor actions that are reasonably likely to simply anger or upset an employee do not constitute an adverse action. An adverse employment action is adverse treatment that is reasonably likely to impair a reasonable employee’s job performance or prospects for advancement or promotion. An adverse action is material if it is reasonably likely to deter an employee from engaging in protected activity. Depending on the circumstances, lateral transfers, unfavorable job references, and changes in work schedules may constitute adverse employment actions.

In analyzing the facts, the district court concluded that that a jury should decide whether the transfer constituted an adverse employment action. First, assignment to the new division was perceived by the County's employees as less prestigious, unfavorable and, at times, punitive. Second, the transfer interfered with the plaintiff’s ability to care for her disabled son because it lengthened her commute. The County knew that the plaintiff needed to care for her disabled son and that her current assignment was more conducive to that need.

Because the plaintiff met her burden of proving a prima facie case of retaliation, the burden shifted to the County to offer a legitimate nondiscriminatory reason. The County offered more than one legitimate non-discriminatory reason for the transfer. The plaintiff, however, offered evidence that the County's reason for the transfer shifted over time from one reason to another. The court concluded that the shift from one reason to another was sufficient to create an issue of fact for a jury whether the non-discriminatory reasons offered by the County were pretexts for unlawful discrimination and retaliation. Accordingly, the court denied the County's motion for summary judgment.

This case is a reminder to employers to give the honest reason for an employment action at the beginning, and not allow supervisors to give differing and conflicting reasons as time goes on.

Breakfast With Your Labor Lawyer - Spring 2010

What's Happening and When in 2010

Last year brought many changes in labor and employment law. Expect more of the same in 2010. Join our experienced attorneys for an informative breakfast discussing all of the hot topics that will affect you and your employees:

]]> My head hurts... the new laws in effect in 2010:

Alternative workweek schedule amendments
New Cal-COBRA notice requirements
New wage withholding tables
Workers' compensation coverage for third-party torts
Increased workers' compensation penalties
Limits on employer's ability to rescind medical treatment authorization
No increase in computer professional salary for exemption purposes

Them again? What the Division of Labor Standards Enforcement is up to:

Vacation/sick leave developments
Salary Basis test

You mean there's more? Additional topics include:

NLRB Update
Social Media/Networking/Privacy Advice and Issues: Your company and Facebook, Twitter, and "Astroturfing"
Caregivers' Leave under the FMLA
Independent Contractors and the Rehabilitation Act
New rules concerning non-compete agreements
What is looming on the horizon?

And many more cutting-edge developments in labor and employment law, including wage and hour class actions.

Registration & Materials $50

Registration and Breakfast 7:30 a.m. – 8:00 a.m.
Program 8:00 a.m. – 10:30 a.m.

LOCATIONS, DATES & SPEAKERS

ORANGE COUNTY
March 2, 2010
Westin South Coast Plaza
686 Anton Boulevard, Costa Mesa, CA 92626
Speakers: Greg Labate and Matthew Sonne
RSVP

LOS ANGELES/DOWNTOWN
March 9, 2010
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street, 48th Floor, Los Angeles, CA 90071
Speakers: Geoffrey DeBoskey and Jennifer Zargarof
RSVP

SILICON VALLEY
March 11, 2010
Sheppard, Mullin, Richter & Hampton LLP
990 Marsh Road, Menlo Park, CA 94025
Speakers: Jennifer Redmond and Adam Tullman
RSVP

LOS ANGELES/CENTURY CITY
March 11, 2010
Sheppard, Mullin, Richter & Hampton LLP
1901 Avenue of the Stars, Suite 1600, Los Angeles, CA 90067
Speakers: Geoffrey DeBoskey and Ronda Jamgotchian
RSVP

LA JOLLA
March 17, 2010
Hyatt Regency La Jolla
3777 La Jolla Village Drive, San Diego, CA 92122
Speakers: David Chidlaw, Carole Ross, and Matthew McConnell
RSVP

SANTA BARBARA
March 23, 2010
The Santa Barbara Club
1105 Chapala Street, Santa Barbara, CA 93101
Speakers: Jeffrey Dinkin and Aaron Heisler
RSVP

SAN DIEGO
March 25, 2010
San Diego Marriott Mission Valley
8757 Rio San Diego Drive, San Diego, CA 92108
Speakers: Bill Whelan, Samantha Hardy, and Hali Henderson
RSVP

SAN FRANCISCO
March 31, 2010
Sheppard, Mullin, Richter & Hampton LLP
Four Embarcadero Center, 17th Floor, San Francisco, CA 94111
Speakers: Deborah Martin and Julie Wong
RSVP

Questions? Please contact us for more information: Melissa Omphroy, (415) 774-2997 - momphroy@sheppardmullin.com

HRCI Credit: This program is pending approval for 2.5 hours toward PHR and SPHR recertification through the Human Resource Certification Institute (HRCI).

MCLE Credit: This activity complies with standards for Minimum Continuing Legal Education prescribed by the California State Bar and is approved for 2.5 hours of MCLE credit. Sheppard, Mullin, Richter & Hampton LLP is a State Bar of California approved MCLE provider.

Employment Agreement Shortening Statute of Limitation Is Invalid

In Maria Pellegrino, et al. v. Robert Half International, Inc., the plaintiffs were former employees who sued for unpaid overtime, violation of meal and rest period rules, failure to pay commissions, and failure to provide accurate pay stubs. Each of the employees had signed an employment agreement providing that no claims against the company shall be valid if asserted more than six months after the employee’s termination. The employment agreement also provided that each employee expressly waived any statute of limitation to the contrary. The company asserted that the employees’ claims were time barred because they filed their lawsuit more than six months after termination. The employees argued that the contractual provision truncating the time frame in which to sue was invalid.

]]> In certain situations, California law allows parties to agree to shorten the time period in which to sue. Whether a shortened time period is permitted depends upon the types of claims and rights involved as well as the reasonableness of the time period. The rights at issue in this lawsuit were all supported by strong public policy. The statutes regarding overtime, meal and rest periods, timely payment of commissions and pay stubs were designed to protect employees and the general public. Laws that are designed to benefit the public, as opposed to laws that merely benefit an individual, cannot be set aside in a private agreement between employer and employee. In addition, the six month time period in the employment agreement was substantially shorter than the time frame in which the employees would ordinarily be able to sue under the applicable statutes of limitation.

Enforcing the shortened limitation period provision would result in barring legitimate, unwaivable statutory claims by employees who failed to discover the employer’s error within six months of termination. The court, therefore, concluded that the contractual provision shortening the time to sue unlawfully restricted the employees’ ability to vindicate their statutory rights. The court refused to enforce the contractual provision shortening the limitations period to six months after termination because it was contrary to public policy.

Breakfast With Your Labor Lawyer - Spring 2010

]]> My head hurts... the new laws in effect in 2010:

Alternative workweek schedule amendments
New Cal-COBRA notice requirements
New wage withholding tables
Workers' compensation coverage for third-party torts
Increased workers' compensation penalties
Limits on employer's ability to rescind medical treatment authorization
No increase in computer professional salary for exemption purposes

Them again? What the Division of Labor Standards Enforcement is up to:

Vacation/sick leave developments
Salary Basis test

You mean there's more? Additional topics include:

NLRB Update
Social Media/Networking/Privacy Advice and Issues: Your company and Facebook, Twitter, and "Astroturfing"
Caregivers' Leave under the FMLA
Independent Contractors and the Rehabilitation Act
New rules concerning non-compete agreements
What is looming on the horizon?

The New York State Department Of Labor Issues Guidelines, Instructions and Model Notices For New York's Notice of Pay Law

On October 26, 2009, Section 195.1 of the New York Labor Law took effect. Section 195.1 requires New York employers to notify employees in writing at the time that that they are hired of their rate of pay and of their regular pay day. Further, if the employee is covered by a provision of the applicable federal or state overtime laws, then the notice must also inform each employee of his/her overtime rate.

]]> Shortly thereafter, the New York State Department of Labor (“NYSDOL”) issued guidelines and a form that it initially required New York employers to use in order to comply with Section 195.1. However, the form raised more questions than it answered. As a result, the NYSDOL received numerous questions from New York employers regarding the applicability of the form to various types of employees.

In response to such questions, the NYSDOL has issued new guidelines, instructions and a multitude of model notices for employers to use. Pursuant to the new guidelines, employers are still required to provide new employees with written notice of their rate of pay, regular pay day and overtime rate (if applicable) at the time such employees are hired. Employers must have the employee sign a statement acknowledging receipt of the written notice and the employer must keep the signed notice for six years. The guidelines also contain additional information regarding the information an employer must provide to commissioned salespersons and farm employees.

The guidelines can be found at: http://www.labor.state.ny.us/formsdocs/wp/LS52.pdf

The NYSDOL has also issued a number of model notices for employers to consider when attempting to comply with Section 195.1. Specifically, the NYSDOL has created model notices for, among others:

(a) Employees being paid at a single hourly rate, which can be found at http://www.labor.state.ny.us/formsdocs/wp/LS54.pdf

(b) Employees being paid at multiple hourly rates, which can be found at http://www.labor.state.ny.us/formsdocs/wp/LS55.pdf

(c) Employees paid a weekly rate or a salary for a fixed number of hours, which can be found at http://www.labor.state.ny.us/formsdocs/wp/LS56.pdf

(d) Employees paid a salary for varying hours, day rate, piece rate, flat rate or other non-hourly pay, which can be found at http://www.labor.state.ny.us/formsdocs/wp/LS57.pdf and

(e) Employees who are exempt from applicable overtime provisions, which can be found at http://www.labor.state.ny.us/formsdocs/wp/LS59.pdf

The NYSDOL’s instructions for its model notices can be found at: http://www.labor.state.ny.us/formsdocs/wp/LS53.pdf

Significantly, the NYSDOL no longer requires employers to use its model notices. Employers can use their own notices as long as the notices provide the employee with the required information, the employee is given a copy and the employee signs an acknowledgement of receipt, which the employer keeps for six years.

Employers should note that the NYSDOL’s instructions for its model notices requires employers to identify the overtime exemption that is being applied to employees who are classified as exempt from overtime. Employers must be careful when providing such information as it may create additional concerns for such employers down the road.

Employers May Only Have to Pay Proportional Fees If They Lose

In Chavez v. City of Los Angeles, the California Supreme Court held that a court has the discretion to award a plaintiff seeking attorneys’ fees for the underlying litigation only a fair portion of the amount sought.

]]> In November 1989, Defendant City of Los Angeles (“City”) hired Plaintiff Robert Chavez as a police officer in the Los Angeles Police Department (“Department”). In 1996, he was accused of stealing payroll checks. The Department concluded that Chavez was not responsible for the stolen checks after investigating the issue. A few years later, in 1999, the Department began an investigation of Chavez’s conduct in an incident during which Chavez had responded to a silent alarm at a laundromat. Chavez left work on stress leave a little over a month later and was absent for almost a year before he returned to work. When he returned on March 10, 2000, he was served with a written notice that the Department intended to suspend him for five days for neglect of duty during the laundromat incident. A couple of weeks later, Chavez requested a transfer. One of his supervisors approved his request, but the approval was later rescinded. Nevertheless, in October 2000, Chavez was transferred from the Department’s 77th Street Division to its Southwest Division, where he resumed patrol duties.

In various litigation proceedings beginning in 1998, Chavez sued the City and others, asserting claims of employment discrimination, harassment, and retaliation in violation of California’s Fair Employment and Housing Act (“FEHA”); violation of civil rights; nuisance; trespass; inverse condemnation; invasion of privacy; and loss of consortium (as to his wife). He also claimed employment discrimination on the bases of race and perceived mental disability. After a tortured litigation history—including two cases in Los Angeles County Superior Court, one case in federal District Court, and time spent on an appeal to the Ninth Circuit—that spanned five years, Chavez succeeded on only one claim: He was awarded $11,500.00 when a jury found that the temporary rescission of Chavez’s transfer order was in retaliation for his assertion of “his other, ultimately unsuccessful FEHA claims. All of the other claims were dismissed or found to be lacking in merit.” In litigating all of the claims, Chavez’s lawyers calculated that they had provided services for Chavez worth $870,935.50.

Under California law, a party who wins a statutory discrimination or retaliation case (the “prevailing” party) can make the other party pay for some of its litigation costs, which can include attorneys’ fees. However, for cases that plaintiffs could have reasonably classified as “limited civil actions”—that is, actions where the plaintiff may be awarded under $25,000.00—but did not, courts have the discretion to deny an award of costs to the prevailing plaintiff. Limited civil actions, in accordance with the small dollar amounts at stake, apply more limited procedures than other actions and are thus more cost-effective for the parties. By allowing courts to deny attorneys’ fees to a wrongly classified action even where the plaintiff prevails, the law encourages plaintiffs to correctly classify their lawsuits at the beginning of a case.

Chavez’s case is a perfect example of this situation. Although Chavez was awarded only $11,500.00 in damages—well within the “limited civil action” rubric—Chavez’s lawyers had not classified his lawsuits as “limited.” With the full panoply of litigation procedures available to them, they went all out in pursuing Chavez’s claims and in so doing incurred fees allegedly worth over 75 times ($870,935.50) what the lawsuit was ultimately worth ($11,500.00). They sought to recover all of these fees from the City, claiming that Chavez was entitled to them as the prevailing party.

The Supreme Court rejected these claims. It held that the rule regarding the court’s discretion in awarding fees applied to FEHA cases and, “in light of plaintiff’s minimal success and grossly inflated attorney fee request [in this particular case], the trial court did not abuse its discretion in denying attorney fees.” It further elaborated, “If a plaintiff has prevailed on some claims but not others, fees are not awarded for time spent litigating claims unrelated to the successful claims, and the trial court should award only that amount of fees that is reasonable in relation to the results obtained.” In other words, courts have the power to rule that a current or former employee cannot pursue exaggerated and overreaching FEHA lawsuits and then make the employer pay for all of the costs the employee racked up just because there was merit to a relatively small number of the claims. This ruling does not relieve employers of liability for their mistakes, but it encourages courts to make employers pay no more than an amount that is commensurate with those mistakes and discourages plaintiff's attorneys from prolonging cases simply to inflate their request for fees.

New Standard Mileage Rate for 2010

Every year, the Internal Revenue Service releases an optional standard mileage rate. Employers often use this standard to calculate the amount they will reimburse employees for using a personal vehicle in the scope of their employment.

]]> Even if employers supply their own vehicles, they can apply this rate to calculate the allowable deduction for the business use of a vehicle for Federal income tax purposes. As of January 1, 2010, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) was set to 50 cents per mile for business miles driven. Reflecting generally lower transportation costs, the rate is a 5-cent reduction from last year's rate.

United States Supreme Court Grants Review of Employee Privacy/Text-Messaging Case

On December 14, 2009, the United States Supreme Court granted review in the case of Quon v. Arch Wireless Operating and The Ontario Police Department, 529 F.3d. 892 (9th Cir. 2008). In this case, the Ninth Circuit Court of Appeal held that the City of Ontario violated the Fourth Amendment and California constitutional privacy rights of the SWAT team member and the officers he texted when, as part of an overage audit, Management read transcripts of the messages the officer sent on his City-issued pager.

]]> As a reminder, in Quon, the Ninth Circuit ruled against the City despite the City's written “Computer Usage, Internet, and E-mail Policy,” which stated that use of those devices was limited to city business only and that employees were to have no expectation of privacy when using those devices. Here, the problem was that a lieutenant told employees that text messages would not be audited as long as employees paid any overage charges incurred, and the employees argued that they had relied on this statement. The Ninth Circuit held that the lieutenant's oral agreement not to audit the messages trumped the written policy, thereby creating a reasonable expectation of privacy by the employees and any other individuals who sent messages to the employees. The Ninth Circuit further held that the City’s review of the text messages was not reasonable in its scope as there were less intrusive means to audit overages.

The questions presented to the United State Supreme Court for review are:

(1) Whether a SWAT team member has a reasonable expectation of privacy in text messages transmitted on his SWAT pager, where the police department has an official no-privacy policy but a non-policymaking lieutenant announced an informal policy of allowing some personal use of the pagers.

(2) Whether the Ninth Circuit violated the Supreme Court’s prior Fourth Amendment cases and created a conflict among the appellate courts by analyzing whether the police department could have used “less intrusive methods” of reviewing text messages transmitted by a SWAT team member on his SWAT pager.

(3) Whether individuals who send text messages to a SWAT team member’s SWAT pager have a reasonable expectation that their messages will be free from review by the recipient’s government employer.

Regardless of its outcome, this case serves as a reminder to employers to ensure that not only are employee handbooks updated, but that they are also being strictly followed by managers.

Public Policy Protects An Employee From Termination For Making A Good Faith But Mistaken Claim To Overtime

This week, a California Court of Appeal found that the plaintiff employee was entitled to a full trial on his wrongful termination claim, concluding that California public policy in favor of the employer's duty to pay overtime wages protects an employee from termination for a mistaken but good faith claim to overtime wages.

]]> As the facts are set out in the Court's opinion, and with the advantage of hindsight, one can speculate that both the employee and the Company believed they were doing the right thing. The plaintiff, Manuel Barbosa, started working at IMPCO as a carburetor assembler. At the time of his termination, he worked as a "cell leader" supervising up to eight other carburetor assemblers.

Barbosa testified that two of the employees in his cell told him they were missing two hours of overtime. After he talked with them, Barbosa thought he also was missing two hours of overtime. Barbosa talked to the Payroll Administrator and she directed him to get approval for the overtime from his supervisor.

Barbosa spoke to his supervisor and told him that he and the other employees in his cell were each missing two hours of overtime. The supervisor said he would approve the missing hours because he "just trusted [Barbosa's] call at that time."

The Payroll Administrator got the supervisor's verbal approval and paid all the employees in Barbosa's cell for two extra hours of overtime. The Payroll Administrator nevertheless thought that something was amiss. The Company had had occasional problems with the prior time clock system, but a new system had been installed the month before and it had been working correctly with no complaints. So the Payroll Administrator spoke to the Human Resources Manager, who ran the report from the scans at the security entrance gate and compared that report with the timecard report. The gate report showed that Barbosa and the others could not have worked the overtime that Barbosa claimed.

Barbosa was called to a meeting with his supervisor, the Payroll Administrator, the Human Resources Manager, and the Operations Manager. After being shown the gate report, Barbosa said that he must have been confused and that he was relying on what the other employees had told him.

When Barbosa got the paycheck that included the extra overtime, he went to the Payroll Department and offered to pay the money back. The Payroll Administrator told him she could not change anything and sent him to Human Resources, where he again offered to pay the money back. Subsequently, Barbosa was terminated, being told that he was being terminated for cheating the Company. The Payroll Administrator testified that Barbosa was terminated for falsifying time records.

Barbosa conceded he was mistaken about his claim to unpaid overtime but contended that his claim was based on a reasonable good faith belief that he was entitled to it. He argued that he presented sufficient evidence to support his claim and the jury should be able to decide whether his claim was made in good faith and whether IMPCO terminated him for making that claim or for falsifying timecards. The Court agreed.

The lesson from this case for employers is that an employee's good faith but mistaken belief is protected from employer retaliation in the whistle blowing context. An employee need not prove actual violation of law. The employee may have a viable claim if the employer fired him or her for reporting "reasonably based suspicions" of illegal activity. As long as the employee makes the complaint in good faith, it does not matter for purposes of a wrongful termination action whether the employee identifies an actual violation of law. When an employee exercises his or her statutory right to overtime wages out of a reasonable belief that he or she is entitled to it, notwithstanding the later discovery that he or she is wrong, the employee cannot be fired in retaliation for making the claim.

How a jury ultimately decides this particular case remains to be seen. The lesson for employers is to carefully evaluate any termination in light of the Court's guidance to avoid having to go to trial in the first place.

The California Supreme Court Upholds The Attorney-Client Privilege

On November 30, 2009, the California Supreme Court issued its ruling in the matter of Costco Wholesale Corporation v. Superior Court (Randall), S163335, upholding the protection afforded confidential attorney-client communications and affirming the sanctity of the attorney-client relationship. The decision vacated a trial court ruling which ordered that a redacted attorney opinion letter to the client be produced to opposing counsel.

]]> In June 2000, Costco Wholesale Corporation ("Costco") retained counsel to provide legal advice on whether warehouse managers were exempt from California's wage and overtime laws. Costco's counsel produced a 22-page opinion letter based in part on facts from interviews with two warehouse managers. Costco, counsel and the managers all understood and agreed that the communications and opinion letter would remain confidential.

Several years later, a class action lawsuit was filed against Costco alleging that some warehouse managers were misclassified as "exempt" employees from 1999 to 2001 resulting in Costco's failure to pay overtime wages. During the discovery process, the plaintiffs sought to compel the opinion letter. Costco objected arguing attorney-client privilege and attorney work product doctrine. Plaintiffs argued that the letter contained non-privileged information (e.g., the facts gathered from the interviews) and that Costco had placed the contents of the letter in issue, thereby waiving the privilege.

The trial court, over Costco's objection, ordered a discovery referee to conduct an in camera review of the opinion letter to determine the merits of Costco's attorney-client privilege and attorney work product doctrine claims. Following an in camera review, the referee produced a version of the letter which redacted "attorney client communications and/or the type of attorney observations, impressions and opinions plainly protected as work product." However, the referee declined to redact "factual information about various employees' job responsibilities" asserting that such statements obtained in attorney interviews of corporate employee witnesses generally are not protected by the corporation's attorney-client privilege and do not become cloaked with the privilege by reason of having been incorporated into a later communication between the attorney and the client. The referee further found that Costco's counsel, while interviewing the two warehouse managers, had acted as a fact finder not an attorney. The trial court, without ruling on plaintiffs' assertion that Costco had waived the privilege by placing the contents of the letter at issue, adopted the findings and conclusions of the referee and ordered Costco to produce a version of the letter in the same form as recommended and redacted by the referee.

Costco petitioned the Court of Appeal for a writ of mandate which was denied. Without ruling on the merits of the trial court's discovery order or its decision to refer the opinion letter to the referee for an in camera review, the appellate court concluded that Costco had not demonstrated that disclosure of the unredacted portions of the letter would cause irreparable harm in the action, explaining that the unredacted text simply referred to factual matters easily discoverable by other means.

The Supreme Court reversed the Court of Appeal's ruling and vacated the trial court's order, finding that the attorney-client privilege attached to the opinion letter in its entirety, irrespective of the letter's content. Relying upon Mitchell v. Superior Court, 37 Cal.3d 591, 600 (1984), the Court ruled that even if the factual material cited in an opinion letter is not protected by the attorney-client privilege and may be discoverable by other means, a party may not compel disclosure of the opinion letter. The privilege attaches to any legal advice given in the course of an attorney-client relationship and bars discovery of the communication irrespective of whether it includes non-privileged material.

In addition, the Supreme Court stated that Evidence Code section 915 prohibits a requirement that disclosure of the information claimed to be privileged be made to the court. The Court further stated that no provision of Evidence Code section 915 permits in camera disclosure of such information, and that the courts have no power to limit a legislative creation by recognizing implied exceptions. Concern that a party may be able to prevent discovery of relevant information serves as no justification for inferring an exception to Evidence Code section 915. Because the privilege protects a transmission irrespective of its content, there should be no need to examine the content in order to rule on a claim of privilege. See Cornish v. Superior Court, 209 Cal.App.3d 467, 480 (1989).

Lastly, and contrary to the Court of Appeal's holding, the Supreme Court declared that a party seeking extraordinary relief from a discovery order that wrongfully invades the attorney-client relationship need not also establish that its case will be harmed by the disclosure of the evidence. The Court declared that the fundamental purpose of the attorney-client privilege is the preservation of the confidential relationship between attorney and client, and the primary harm in the discovery of privileged material is the disruption of that relationship, not the risk that parties seeking discovery may obtain information to which they are not entitled. Costco was entitled to relief because the trial court's order threatened the confidential attorney-client relationship.

The Costco decision affirms the legislative protection afforded confidential communications between clients and their counsel so as to promote full and open discussion of the facts and strategies surrounding individual legal matters. However, clients and counsel seeking to invoke the attorney-client privilege must ensure that the communication was made for the purpose of legal representation, and not any other purpose. While this decision protects communications containing legal advice to clients, a determination regarding the dominant purpose of the communication arguably remains on case-by-case basis.

DLSE Issues Opinion Permitting Employer Deductions of Vacation and/or Sick Leave for Absences of Less Than Four Hours

On November 23, 2009, the Chief Counsel of the California Department of Industrial Relations' Division of Labor Standards Enforcement (DLSE) issued an opinion letter stating that employers may deduct vacation and sick leave for exempt employees’ partial-day absences of less than four hours as long as consistent with the employer's express policies. In addition, the DLSE opined an employer may deduct a combination of vacation leave and sick leave for a partial-day absence.

]]> An employer may deduct from an exempt employee's salary only if the employee is absent due to illness or personal reasons for an entire work day. An employer may not deduct the pay of an exempt employee for a partial-day absence. Nevertheless, an employer may require exempt employees to use vacation leave or sick leave for partial-day absences. (See Conley v. Pac. Gas & Elec. (2005) 131 Cal.App.4th 260 ["Conley"]; see also "Court Finds California Employers Can Require Exempt Employees To Use Vacation Time For Partial Day Absences" posted on the Sheppard Mullin Labor & Employment Law Blog on July 21, 2005.) The DLSE interpreted both Conley and federal law to conclude an employer may require employees to use personal leave for partial-day absences in any increment consistent with the employer's express policies.

In one of the scenarios presented to the DLSE, an employee worked two hours in a workday, was absent for the remaining six hours, and had six hours of accrued vacation leave. The employer's policy permitted deductions from vacation leave in one-hour increments. The DLSE concluded that the employer may pay the employee for the entire work day for the two hours of work and deduct six hours from the employee's vacation leave.

The DLSE added that an employer may deduct a combination of vacation leave and sick leave when one or the other is insufficient to compensate for the entirety of the absence, and that combining leaves is permissible under the employer’s policies. The DLSE found no "prohibition against combining the two types of leave" for a partial-day absence. The policy presented to the DLSE allowed employees to use vacation leave for illness if the employees exhausted their sick leave.

In another scenario presented to the DLSE, an employee was absent for eight hours due to illness. The employee had five hours of available sick leave and two hours of accrued vacation leave. The DLSE concluded that the company was permitted to reduce the employee’s leave banks (for a total of seven hours) without jeopardizing the employee's exempt status as long as the company paid the employee's full salary for the additional hour.

Employers should keep in mind that DLSE opinion letters do not have the force and effect of binding precedent. In other words, courts are not required to follow the opinion letters. Courts may, however, find DLSE opinion letters persuasive when interpreting California law. For the full opinion, visit the DLSE's webpage and click on Letter No. 2009.11.23.