Another critical feature will be the need to establish an appropriate information sharing and administrative services agreement between the employer and the annuity providers.  Finally, although not part of the IRS regulations, some employers may be subject to enhanced reporting (Form 5500) and audit requirements as well.

The time to start planning is now because the required documentation must be in place by December 31, 2008.  Preparing appropriate plan documents and other plan agreements must be a coordinated effort among the employer, its advisors, and the annuity providers. 

For further information, please contact David Paik at (213) 617-4196.

ANY TAX ADVICE HEREIN WAS NOT INTENDED OR WRITTEN BY THE AUTHOR TO BE USED, AND IT CANNOT BE USED BY ANY RECIPIENT, FOR THE PURPOSE OF AVOIDING ANY TAX PENALTIES THAT MAY BE IMPOSED ON ANY PERSON.  THERE IS NO LIMITATION IMPOSED ON A RECIPIENT HEREOF BY THE AUTHOR HEREOF ON DISCLOSURE OF THE TAX TREATMENT OR TAX STRUCTURE OF ANY TRANSACTION.  EXCEPT WITH PRIOR WRITTEN CONSENT OF THE AUTHOR, NOTHING HEREIN MAY BE USED OR REFERRED TO IN PROMOTING, MARKETING OR RECOMMENDING A PARTNERSHIP OR OTHER ENTITY, INVESTMENT PLAN OR ARRANGEMENT TO ANY PERSON.

Thereafter, the Labor Commissioner filed this lawsuit, seeking to hold Defendants personally liable for unpaid wages and vacation pay owed to the Win Corporations' employees.  The Commissioner claimed that Defendants employed or exercised control over the wages, hours, and working conditions of the Wins Corporations' employees and therefore, were personally responsible for Labor Code violations arising out of the Corporations' failure to pay wages.  The Commissioner further alleged that Defendants should be held personally liable because 1) they so abused the corporate entity that they should be deemed the alter egos of the Wins Corporations and 2) they were guarantors for the wages not paid by Wins Corporations.  Two former employees and the Chinese Progressive Association filed a complaint in intervention, alleging claims similar to the ones the Commissioner had alleged, as well as a cause of action pursuant to Business and Professions Code section 17200, also known as the Unfair Competition Law, seeking restitution.

The Appellate Court agreed with the trial court which had ruled in the Defendants' favor.  In the Appellate Court's opinion, under the common law definition, the employers were the Wins Corporations, not the Defendants and therefore, the Defendants were not personally liable for the unpaid wages and penalties.

Finally, the Court held that restitution was not an available remedy in a private action under the Unfair Competition Law because the Defendants had not personally acquired any money or property from the employees.  The labor was not performed for the Defendants personally, but was performed for the employers, the Wins Corporations, and the Defendants did not appropriate for themselves corporate funds that would otherwise have been used to pay unpaid wages.  Therefore, the Appellate Court concluded that an order requiring Defendants to pay the unpaid wages would not be "restitutionary because it would not replace any money or property that defendants took directly from the intervener."

This case confirms that in most cases, it is the Company, and not individuals who are part of the Company, that is responsible for paying wages to employees.

The servicemember family leave amendment applies to an "eligible employee who is the spouse, son, daughter, parent, or next of kin of a covered servicemember who is recovering from a serious illness or injury sustained in the line of duty on active duty."  This military caregiver leave allows an employee to take up to 26 weeks of leave in a single 12-month period in order to care for the servicemember.

A "covered servicemember" is defined as a member of the Armed Forces, National Guard, or Reserves who is "undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness."  A "serious injury or illness" is defined as "an injury or illness incurred by the member in the line of duty while on active duty in the Armed Forces that may render the member medically unfit to perform the duties of the member's office, grade, rank, or rating."  It is also worth noting that this amendment includes next of kin as a new category of covered employee.  "Next of kin" is defined as the "nearest blood relative" of the covered servicemember.  While there is still uncertainty concerning "qualifying exigency" leave, military caregiver leave has been defined and in place since the NDAA's enactment.

The Department of Labor now requires covered employers to display a new poster insert addressing "qualifying exigency" and military caregiver leave, which can be found the Department of Labor's FMLA poster website.  Also, interested employers can learn more about the recent NDAA amendments, as well as review text of the amended version of the FMLA, on the Department of Labor's FMLA amendments website.

Ralphs' arbitration policy called for mandatory and binding arbitration of all disputes should informal procedures fail.  This policy was also incorporated by reference into the dispute form.  The form, titled "Notice of Dispute & Request for Resolution," was in part an arbitration agreement, including conditions above the signature block where the employee was to sign.  These conditions stated that by submitting the dispute form, the employee agreed to comply with Ralphs' arbitration policy.  The conditions also included separate, express language consenting to binding arbitration, as well as that the employee was not required to complete, sign, or return the form in order for Ralphs to investigate a complaint.

In finding the form unenforceable, the Court determined that Metters had not been aware that he was agreeing to mandatory arbitration, and thus could not be bound by the dispute form. Some of the factors the Court considered were that the dispute form did not resemble a contract, noting that the form's title did not alert Metters to the nature of the document.  The form did not clearly warn Metters to pay special attention to its arbitration provisions.  Metters was also not informed by Human Resources that if he used the form, he was agreeing to arbitration.  The Court found it telling that Metters had provided information regarding his complaint outside of the dispute form, without any apparent action by the Company.

The Court suggested that because the arbitration policy required an employee to submit the dispute form for the Company to respond, "an employee ha[d] no real choice to avoid arbitration if he want[ed] some action taken on his complaint."  Thus, the Court did not find it persuasive that Metters had signed the arbitration agreement, despite its language clearly stating that he was not required to do so in order for his complaint to be investigated.  The Appellate Court made it clear that the totality of the circumstances determined whether an arbitration agreement was binding.  Employers will want to review this case to evaluate whether their own arbitration agreements are enforceable.

While establishing no new law, by relying on Brewer and Section 11050, subdivision (2)(K) of the DLSE Manual (which itself now cites back to Brewer in support of its interpretation), the California Appellate Court in Isner has solidified the position of California law on what constitutes compensated hours worked by resident employees: they can only expect to be paid for time spent actually performing job duties, and not merely for time spent on-call at home.

The Supreme Court reviewed the legislative history of the Fair Employment and Housing Act and its amendments and found no convincing evidence supporting the Plaintiff's contention that individual employees could be held personally liable.  Moreover, the Court cited several public policy considerations supporting its decision.  Specifically, the Court stated that individuals should not face potential liability for performing their job duties of hiring, firing, and disciplining.  The Court believed that individual liability would have a chilling effect on effective management because supervisors would be deterred from making tough decisions due to the possibility of being sued.  The Court also noted that corporate decisions are often collective and individuals should not be subjected to personal liability for a decision in which they only played a small role.  Finally, the court opinioned that it would be bad policy to subject supervisors to the threat of a lawsuit every time they make a personnel decision.

This decision is significant to all supervisors and employees who make employment decisions as they no longer face the threat of a potential liability for their personnel decisions.

Ferrer resisted arbitrating the dispute. He claimed that the contract was invalid and unenforceable under the California Talent Agencies Act (TAA), because Preston had acted as a talent agent without the license required by the TAA. Since the TAA provides the California Labor Commissioner with exclusive jurisdiction to hear disputes arising under the TAA, Ferrer argued that the Labor Commissioner should be the one to decide whether the contract was valid, not an arbitrator. The Labor Commissioner and the California courts agreed. The arbitration was halted, and the Labor Commissioner was left to decide whether Preston violated the TAA, and therefore whether the contract was enforceable.

Preston appealed this result to the U.S. Supreme Court, which reversed the holding of the state court. The Court first noted that it was undisputed that Preston's contract was governed by the FAA, which covers all arbitration agreements concerning a transaction involving interstate commerce. The Court went on to note that in prior decisions It held that attacks on the validity of an entire FAA-governed agreement must first be considered by an arbitrator, even if state law would normally require a court to decide the question. The Supreme Court applied this same reasoning in holding that the FAA required Ferrer's attack on the valid of the contract under the TAA to be submitted first to an arbitrator, as provided by the contract itself. The Court invalidated the TAA to the extent that it gave the Labor Commissioner exclusive jurisdiction to decide that question

In effect, the Court stated the obvious: a contractual agreement to arbitrate all disputes under the contract requires just that, when the contract is governed by the FAA. The FAA supersedes state laws, such as TAA, which lodge primary jurisdiction in another forum, whether judicial or administrative, and mandates that the contract-based dispute be submitted to arbitration for resolution.

The Preston decision is an important affirmation of the federal preference for arbitrating disputes that arise under contracts containing arbitration agreements, notwithstanding some states' preferences to the contrary when statutory claims are involved. Employers may want to consider again whether to place arbitration provisions into their employment agreements if they do not do so already, and to take a firmer position in opposing any attempts to allow contract-based disputed to be determined in other forums, whether before a court or an administrative agency.

Click here for full text of the Preston decision, along with the dissenting opinion from Justice Thomas, is available at:

LaRue sued DeWolff under ERISA, arguing that DeWolff breached its fiduciary duty by failing to make the investment changes. He sought to recover the money that would have been allocated to his individual account if the 2001 and 2002 changes had been carried out. The lower federal courts held that LaRue's claims failed as a matter of law, ruling that LaRue could not sue for a breach of fiduciary duty because ERISA limits such claims to situations where the "plan as a whole" was injured.

The Supreme Court disagreed, holding that LaRue's lawsuit could proceed. The Court clarified that its decision in Russell, which the lower courts relied upon, was based on the fact that the retirement plan in that case was a defined benefit plan, i.e. one where participants are provided with fixed benefits and do not have individual accounts to manage. For such defined benefit plans, misconduct by the administrator does not threaten the fixed benefits provided to any individual participant unless the misconduct creates or enhances the risk of default by the entire plan as to all participants.

The 401(k) plan at issue in the LaRue case, by contrast, is a defined contribution plan, i.e. one where retirement benefits are based on the amount of money allocated to individual accounts by the individual participants. For these kinds of plans, fiduciary misconduct by the plan administrator can reduce an individual's benefits by reducing the amount allocated to his or her individual account, even without threatening the solvency of the entire plan. Because of this difference, the Supreme Court concluded that individual participants in defined contribution plans may sue a plan administrator to recover for fiduciary breaches that impair the value of the individual participant's account.

Because defined contribution plans now "dominate the retirement plan scene," as the Court expressly acknowledged, this decision has opened the door to possible lawsuits by individual participants in defined contribution plans who claim that the value of their individual account is reduced by the conduct of the plan administrators. Because the potential for liability is significant, employers are encouraged to make time to review their ERISA-regulated plans with their benefit advisors to ensure that they are complying with their fiduciary and other obligations.

Click here for the full text of the LaRue opinion, along with concurring opinions from Chief Justice Roberts and Justice Thomas.

In Combs, an employee of an internet service provider sued for unpaid overtime and related claims, alleging that he had been misclassified as exempt under the administrative exemption.  The employee did not perform the job functions typically associated with the administration of the company, such as tax, payroll, or human resources, but was responsible for "maintaining the well-being of the network."  While for some companies this type of informaton technology (IT) work may qualify as an administrative function, here, the company was in the business of selling connectivity through the network.  The employee argued that he was misclassified as exempt because he was working directly on the product that the company was selling, network connectivity, and that he was therefore a "production worker."

The trial court found that the employee was properly classified as exempt, analyzing the employee's job function in light of the structure of the company as a whole.  On appeal, the employee argued that the trial court erred by not applying the "administrative/production worker dichotomy."  The appellate court disagreed, holding that a court can consider the totality of the circumstances when evaluating whether to apply the administrative exemption.

The Court explained that the dichotomy is a gross distinction between administrative employees and production employees "may not be dispositive in many cases," and warned that the dichotomy test should be applied with "great caution."  The Court recognized that some employees perform specialized functions within the business organization that cannot be readily categorized in terms of the dichotomy.  Some employees perform jobs involving a wide variety of functions that require a finer distinction than the dichotomy provides.

The Combs decision provides California employers with much-needed guidance on the correct scope of the administrative exemption under California law.  However, given that the California Supreme Court may be issuing further guidance in the near future, we recommend that employers seek the advice of counsel prior to making any adjustments to job classifications.

The provisions for leave to care for an injured or ill military service member became effective on January 28, 2008.  Employees who are allowed to take this leave are limited to a "spouse, son, daughter, parent, or next of kin [the nearest blood relative]" of the injured or ill service member.  Covered service members are those in the Armed Forces, including members of the National Guard and Reserves.  To qualify for this leave, the Armed Forces member requiring care must be "undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness."  A "serious injury or illness" is "an injury or illness incurred by the member in line of duty on active duty in the Armed Forces that may render the member medically unfit to perform the duties of the member’s office, grade, rank, or rating."  While the Department of Labor prepares guidelines for these new measures, employers will be required to act in good faith in providing leave pursuant to the new regulation.  Because this leave is FMLA leave, the same procedures should be used where appropriate.

The provisions for leave pursuant to "any qualifying exigency" arising out of a family member's actual or impending active duty are not effective until the Secretary of Labor issues final regulations that define "any qualifying exigency."  The amendment does not define this phrase.  Although not yet mandatory, the Department of Labor encourages employers to provide such leave to qualifying employees in advance of the final regulations.  For an employee to qualify, his or her "spouse, or a son, daughter, or parent" must be called to active duty.

Ross v. RagingWire reaffirms that California law permits employers to require preemployment drug testing and take illegal drug use into consideration in making employment decisions.  Certain types of drug testing still carry with them legal risks, so it is prudent for employers to check the specifics of their program with competent legal counsel.

Pursuant to the leases, Friendly's drivers were required obey company policy and standard operating procedures when driving Friendly cabs.  Such policies and standards included simple driving do's and don'ts and grooming standards.  They also compelled the attendance of drivers to annual classes on company policies and discrimination laws, and mandated that drivers post and replace advertisements on their cabs at Friendly's discretion.  In addition, Friendly drivers were prohibited from subleasing their cabs, were expected to service all reasonable customer calls from Friendly dispatchers, and were required to accept vouchers at a discount from patrons with which Friendly maintained relationships.  Friendly further prohibited its drivers from distributing private or individual business cards or phone numbers to customers during the term of the lease.  Friendly employed a "road manager" to monitor adherence to these and other policies, and could terminate the leases of noncompliant drivers.

The drivers challenged their classification as "independent contractors" as opposed to "employees" in conjunction with a union dispute under the National Labor Relations Act.  The court concluded that Friendly exercised significant enough control over the means and manner of its drivers' performance to render them "employees" under the law.  While acknowledging that indicia of "independent contract" status existed in that Friendly did not set the working hours of its drivers, the lease agreements explicitly characterized the relationship as one of independent contract, and Friendly did not withhold payroll taxes on behalf of its drivers, the court concluded that such factors did not outweigh the significant control Friendly had over its drivers.  Integral to the court's finding of control was the fact that Friendly drivers were not permitted to operate an independent business, but were made to use their "taxicabs only to respond to dispatches from Friendly and not for outside business."  Further, drivers were prohibited from distributing private business cards or phone numbers to customers.  The court also found Friendly's regulation of the manner in which it drivers drove, its dress code, its training requirement in excess of the regulatory minimum, its imposed advertisements and vouchers, and its strict disciplinary regime indicative of "employee" status.

This case serves as yet another reminder that employers do not have carte blanch to classify individuals with whom they work as "independent contractors." While an individual's inability to pursue entrepreneurial opportunities is the most compelling sign of "employee" status, courts examine all aspects in which an employer may exercise control over the manner and means in which the work is performed.  Employers should carefully examine each classification decision on a case-by-case basis in light of all of the circumstances.