Wednesday, December 29, 2010

AALRR Attorney Thomas Lenz Quoted In The Riverside Press-Enterprise Regarding Labor Negotiations

AALRR attorney Thomas Lenz was quoted by the Riverside Press-Enterprise on December 23, 2010, in an article on labor negotiations, which you can read here.

Tuesday, December 28, 2010

Withdrawal Liability May Extend To Alter Ego Employer

By Thomas A. Lenz 

In the construction industry, and elsewhere, many businesses are commonly owned but have distinct labor relations issues.  In fact many such "double breasted" companies operate with distinct union and non-union businesses.  The details of how companies are structured and run matter.  This is made clear in a recent ruling by the Ninth Circuit Court of Appeals

In Resilient Floor v. M & M Installation (9th Cir. 09-17064 12/22/10), the Court addressed a claim by labor trust funds against a non-union employer.  The claim involves "withdrawal liability" by which a previously unionized company may be obligated to pay a share of a union pension fund's underfunding for future retirement benefits after the unionized company terminates a bargaining relationship with the union.  In this instance the key issue became whether a commonly owned company, which had always been non-union, could be held liable for the unionized company's withdrawal liability.

The Ninth Circuit looked to the "alter ego" test under existing labor law to determine whether a non-union employer could be held responsible for the obligations of a unionized employer.  In this regard the Court observed, “The dispute actually raised in this case centers on what is the correct test for determining whether Simas Floor is M&M’s alter ego and how the Pension Fund, which bears the burden of proof, may satisfy the test.  [… The] alter ego test requires proof (1) that the two firms have “common ownership, management, operations, and labor relations,” and (2) that the non-union firm is used “in a sham effort to avoid collective bargaining obligations.” Id.

The Ninth Circuit took the view that coordinated operations demonstrated common control and interdependence of the companies and could support an alter ego finding.  The Court expressly acknowledged arguments put forth by the trust funds that, Simas Floor exercised such control over M&M and M&M’s employees to be considered their employer. It did, in the Fund’s view, because there was no written agreement between Simas Floor and M & M; M & M was not an arm’s length subcontractor.

The Court observed that Simas Floor controlled M & M’s work assignments; Simas Floor hired, fired, and disciplined M & M’s installers; Simas Floor supervised M & M installers on site; income received by Simas Floor was used to pay M & M’s pension contributions and later its withdrawal liability; and Simas Floor controlled the cash that flowed through M & M so that M & M would never have sufficient funds to meet its withdrawal liability obligations unless those funds were supplied by Simas Floor.  The Court also stated there is an indication that M & M and Simas Floor used Simas Floor to avoid M & M’s withdrawal liability.

Additionally, M & M received all of its contracts and income from Simas Floor, and passed profits through to Simas Floor rather than itself making a profit. One of the reasons for the failure of M & M to make withdrawal liability payments may be that it lacked either the income or capital to do so. The Court saw fit to infer a fraudulent intent, although Simas Floor argued M & M ran out of business in a down economy.

The Court's analysis of these details and use of the alter ego test with a double breasted construction operation makes clear the threat commonly owned companies may face with sharing potential withdrawal liability.  These issues have heightened importance in the current economy where construction work is most generally available on a unionized basis, many contractors have an interest in running double breasted operations to take advantage of union markets now and non-union markets when the economy improves, and the general lack of health of union pension funds in the current economic and financial climate.  Performing work on a unionized basis may be what is needed to keep a company afloat in the current climate.  Doing so with a union having an unhealthy pension fund, where there exist risks of withdrawal liability, must be considered a part of the mix.  Where commonly owned union and non-union employers operate, the structural need for separation and distinction in operations cannot be overestimated.

The Ninth Circuit's ruling will generate further proceedings on the liability claim against the non-union employer due to the closeness and circumstances of its operations with the commonly owned unionized company.  Other employers are wise to note the example this case provides in structuring and running their own business to minimize legal risks, particularly if double breasting is a consideration.

Monday, December 20, 2010

Court of Appeal Reiterates That Non-Employers Are Not Liable For Wages

In Futrell v. Payday California, Inc., et al., a class action case involving overtime claims against a payroll company that prepared and issued plaintiff’s paychecks, W-2’s and related documents, the California Court of Appeal affirmed the trial court's grant of summary judgment dismissing the plaintiff’s action against the payroll company on grounds that the payroll company was not the plaintiff’s “employer.”
John Futrell provided security and crowd control services for Reactor Films, Inc., a company that produces television commercials. In 2006, Futrell brought a class action lawsuit against Reactor Films and Payday California (“Payday”), the payroll company that provided payroll processing for Reactor Films, alleging he worked overtime on several different projects for Reactor and was not compensated at the proper rate. Specifically, he alleged he was paid one and one-half times his regular rate of pay for hours worked in excess of eight hours in a workday but should have been paid double his regular rate of pay for all of those hours in excess of twelve hours in a workday and was therefore owed $126.00.  Futrell claimed he was an employee of Payday because it acted as a joint employer with Reactor Films during the course of several television commercial productions, and his pay stubs, W2 certificates, and paychecks identified Payday as his “employer.”
The trial court issued its ruling that Futrell was not “employed” by Payday before the California Supreme Court decided Martinez v. Combs (2010) 49 Cal. 4th 35, previously discussed here, which sets forth three alternative definitions of employment to determine whether an employer-employee relationship exists. The Court of Appeal affirmed the trial court’s ruling in light of the Martinez case, finding that Payday was not Futrell’s employer for purposes of sections 203, 226, 510, and 1194 of the Labor Code, or for purposes of the Fair Labor Standards Act ("FLSA").
The Court of Appeal found that the three part test required by Martinez to determine whether an employer-employee relationship exists was not satisfied: 1) Payday did not exercise control over Futrell’s hours or working conditions by issuing paychecks and calculating pay and tax withholding; 2) Payday did not suffer or permit Futrell to work because there was no evidence showing Payday had the power to either cause Futrell to work or prevent him from working; and 3) under the common law test of employment, which considers whether the alleged employer “controlled the details” of the employee’s activities, Payday did not control the details of Futrell’s activities, as Payday did not direct or supervise Futrell at the production sites, Payday did not provide any tools, or the place of work, to Futrell, Payday did not set Futrell’s pay, and the crowd and traffic control services performed by Futrell were not for Payday’s benefit, nor are such jobs an integral part of payday’s regular business operations.
The Court of Appeal also found that under the FLSA’s “economic reality test” which determines whether persons are employer and employee for purposes of the FLSA, Payday prepared paychecks for Futrell for the work he performed on behalf of his actual employer, Reactor Films.
Finally, the Court of Appeal affirmed that it follows the California Supreme Court’s ruling in Reynolds v. Bement that agents or corporate officers of an employer are not personally liable in an action for unpaid overtime under Labor Code section 1194. 
This decision is important because it reiterates that persons and entities other than a person's "employer," such as corporate officers and directors, supervisors, parent corporations, franchisors, and affiliated entities, ordinarily are not liable for alleged failures to comply with various wage and hour provisions of the Labor Code or with Industrial Welfare Commission Wage Orders.

Thursday, December 16, 2010

Court of Appeal Holds Employer's Lawsuit Against Former Employees For Defamation And For Related Claims Can Proceed

By Sun Hi Ahn and Christopher S. Andre 

In Overhill Farms, Inc. v. Nativo Lopez, et al., the California Court of Appeal affirmed the decision of an Orange County trial court to deny the defendant former employees Anti-Slapp ("Strategic Lawsuit Against Public Participation") motion to strike Overhill Farms' lawsuit against the former employees as to Overhill Farms' claims for alleged defamation, intentional interference with prospective economic advantage, intentional interference with contractual relations, and extortion arising out of statements in a press release issued by the former employees stating Overhill used an Internal Revenue Service social security number discrepancy letter as a "pretext" to terminate a large number of employees and referring to Overhill Farms' actions as "racist and discriminatory abuse against Latina women immigrants" thus allowing Overhill Farms' lawsuit against the former employees to proceed.  The Court of Appeal's opinion contains much that is potentially useful to California employers.

Overhill Farms received from the IRS a letter notifying Overhill Farms that 231 of its employees supplied invalid social security numbers and that Overhill Farms' use of invalid tax identification information exposed Overhill Farms to penalties and criminal liability.  An IRS agent told an attorney for Overhill Farms that Overhill Farms could not continue to employ anyone could not provide a valid social security number.

In response to the IRS letter, Overhill Farms sent to each of the 231 employees a letter informing them they had provided an invalid social security number, requesting that they correct any errors within 30 days, and informing them they would continue to be paid.  Just one of the employees provided information showing the invalid social security number was in error.  Nearly all of the employees failed to respond.  Overhill Farms sent to the employees a second letter providing them with an additional 30 days to address the discrepancies.  Overhill Farms also continued to pay for the benefits of those employees.  Overhill Farms also met with the representatives of the employees' union, who acknowledged that nearly all of the employees were "not 'authorized to work in the United States."  After the second 30-day period expired, Overhill Farms terminated the employees who failed to respond to its requests or otherwise failed to provide a valid social security number.

After the terminations, the employees approached Nativo Lopez of Hermandad Mexicana Latinoamericana , also named as a defendant, to help them organize a response to the terminations.  That response took the form of a press release stating the employees "were protesting 'racist firings by Overhill,'" picketing at two of Overhill Farms' facilities, and picketing and leafleting at the business of one of Overhill Farms' customers accusing Overhill Farms of being an "UNFAIR and RACIST EMPLOYER."  One leaflet stated Overhill Farms' president "is confident that we are passive and will accept this racist and discriminatory abuse against Latina women immigrants and our families without a fight."  Fliers urged recipients to boycott Overhill Farms and stated Overhill Farms "is '[a]n abusive and racist employer in the manner that it treats its workers" and similar accusations.

The defendant former employees responded to Overhill Farms' lawsuit by filing an Anti-SLAPP motion to strike Overhill Farms' complaint.  California' Anti-SLAPP statute provides a mechanism to challenge a lawsuit or a cross-complaint arising out of protected speech.  If the party bringing such a motion establishes that the claim(s) sought to be stricken arise out of protected activity, such as protected speech, the burden then shifts to the party asserting the claim(s) to show a probability of prevailing on its claims.  If the party asserting the claim(s) shows such a probability, the court must deny the Anti-SLAPP motion.

Both the trial court and the Court of Appeal determined that Overhill Farms met its burden of showing a probability it would prevail on its claims against the former employees by showing that a number of the statements by the former employees' either "declares or implies a provably false assertion of fact," namely that Overhill Farms used the IRS discrepancy letter as a "pretext" for terminating the employees for racist or other discriminatory reasons.  The Court of Appeal explained that while mere expressions of opinion are often not actionable acts of defamation, the former employees' allegations of racism viewed in context "is not merely a hyperbolic characterization of Overhill's black corporate heart -- it represents an accusation of concrete, wrongful conduct," and "a claim of racially motivated employment termination is a provably false fact."  The Court of Appeal explained that "an employee's failure to explain or correct an invalid social security number, after being notified of the problem and asked to do so, clearly is grounds for firing."  The Court of Appeal noted that Overhill Farms "provided substantial evidence defendants either knew, or recklessly disregarded, facts demonstrating that [Overhill Farms] had not fired hundreds of Latino employees based solely on having been notified of a potentially innocent discrepancy in social security numbers" as the defendants asserted.  The Court of Appeal explained further that "[w]hat actually happened is that Overhill notified the effected employees their social security numbers had been identified as 'invalid,' gave them substantial opportunity to resolve the problem and provide a valid number, and only terminated the employment of those who either admitted falsifying their documents, or failed or refused to respond to the issue at all."

The Court of Appeal held also that Overhill Farms' claims against the defendants were not preempted by the National Labor Relations Act, explaining that "an action for malicious and injurious libel in the course of a labor dispute, although an unfair [labor] practice and prohibited by the Act, was not preempted since it was unprotected conduct and since remedying injury to reputation was of only slight concern to the national labor policy. . . ."

The Court of Appeal's decision in this case is potentially useful to California employers because it establishes that employees and labor organizations cannot make without consequence defamatory statements about an employer.  In other words, an employer is not required to simply tolerate in every instance whatever unfounded or false slings and arrows employees and/or labor organization might hurl the employer's way. 

Monday, December 13, 2010

California Court Dismisses Overtime and Missed Meal and Rest Break Claims by Exempt Employee

By Ronald W. Novotny

On December 9, 2010, the California Second District Court of Appeal upheld the dismissal of a lawsuit brought by a United Parcel Service supervisor for unpaid overtime and missed meal and rest breaks, on the ground that he was employed in an exempt position under California law. The court in Taylor v. UPS held that both the executive and administrative exemptions applied, since the supervisor was primarily engaged in management-related duties which qualified for application of each of the exemptions.

The supervisor, David Taylor, was employed as a Hub Supervisor, On-Road Supervisor, and Center Manager in various UPS facilities in the Southern California Inland Empire. He earned over twice the minimum wage as well as stock awards and bonuses which were not available to hourly employees. His primary duties included reviewing daily operational reports to manage productivity and performance; meeting with union officials to improve employee relations; ensuring proper staffing levels and determining training needs; providing constant feedback, motivation and support to personnel to improve employee performance; scheduling vacation time and assessing employee performance; preparing accident reports; and building customer relations. Finding that these were precisely the kind of “management duties” that the state Division of Labor Standards Enforcement (DLSE) identified as qualifying for the exemption, the court had little difficulty finding that they satisfied the “duties test” for application of the executive exemption.

The court next turned to the issue of whether Taylor actually had the authority to hire and fire employees and exercised independent judgment and discretion in performing his duties. The court determined that these factors were satisfied as well, notwithstanding the existence of a union agreement and a full-fledged personnel manual that Taylor was required to implement, given the fact that his recommendations and suggestions were given weight in carrying out personnel decisions. Finally, the court determined that the same duties which qualified Taylor for the executive exemption also justified application of the administrative exemption, in view of the fact that his administration of UPS’s customer relations and workplace safety policies related to the running of the company’s general business operations.

This case is an important one in that it specifies the kinds of job duties which will qualify for application of these exemptions to a company’s supervisor under California law.

Friday, December 10, 2010

EEOC Issues Final Regulations Implementing the Genetic Information Nondiscriminaton Act of 2008

On May 21, 2008, President George W. Bush signed the Genetic Information Nondiscrimination Act of 2008 (“GINA”) into law, which prohibits the use of genetic information in the employment context, restricts employers and other entities covered by Title II from requesting, requiring, or purchasing genetic information, and strictly limits such entities from disclosing such information.  GINA took effect on November 21, 2009.

On November 9, 2010, the Equal Employment Opportunity Commission (“EEOC”) issued Final Regulations interpreting GINA and providing guidance on GINA’s provisions.  The EEOC’s Final Regulations become effective on January 10, 2011.  

Click here to download and read the full alert.

9th Circuit Modifies On Rehearing Previous Holding Regarding Minister Exception To Certain Employment Laws

As we previously reported here, in Alcazar, et al. v. The Corporation Of The Catholic Archbishop of Seattle, et al., the Ninth Circuit Court of Appeals held that a Catholic seminarian's claims against his church for allegedly unpaid wages brought under a Washington state minimum wage statute is barred as a matter of law by the Free Exercise Clause and the Establishment Clause of the First Amendment of the United States Constitution. 

Cesar Rojas and Jesus Alcazar were Catholic seminarians in Mexico. They were required to participate in ministry training in Washington state. Mr. Rojas and Mr. Alcazar both brought sexual harassment claims against Father Horatio Alvarez and the Corporation Of The Catholic Archbishop of Seattle, and Mr. Rojas brought also claims for alleged unpaid overtime under Washington state's Minimum Wage Act.

On appeal, the Ninth Circuit affirmed the District Court's dismissal of the claims. In particular, the Ninth Circuit held that Rojas' wage and hour claims are barred by the Free Exercise Clause and by the Establishment Clause of the United States Constitution. 

The court established a broad test for determining who qualifies as a "minister," stating "if a person (1) is employed by a religious institution, (2) was chosen for the position based 'largely on religious criteria,' and (3) performs some religious duties and responsibilities, the person is a 'minister' for purposes of the ministerial exception." The court noted that lay persons can be "ministers" under this test and that "secular duties are important to a ministry." For example, the court noted that a church's director of music ministry and part-time teacher fell under the "ministerial exception."

Today, on rehearing, the court acting en banc adopted the three-judge panel's previous decision in the case but vacated that part of the previous decision adopting the above broad test for determining who qualifies as a "minister."  (Click here to download and read the en banc decision.)  The court states:  "We leave for another day the formulation of a general test because, under any reasonable construction of the ministerial exception, Rosas meets the definition of minister."  The court went on to "hold that the First amendment considerations relevant to an ordained minister apply equally to a person who, though not yet ordained, has entered into a church-recognized seminary program to become a minister and who brings suit concerning employment decisions arising from work as a seminarian."  

While the court declined to adopt a general test for who does and who does not qualify as a "minister" for purposes of applying the "ministerial exception," the court nevertheless did provide some guidance helpful to employers who are religious institutions.  The court explained that "[a] church may well assign secular duties to an aspiring member of the clergy, either to promote spiritual value (such as diligence, obedience, or compassion) or to promote its religious mission in some material way.  The ministerial exception applies notwithstanding the assignment of some secular responsibilities."

Wednesday, December 8, 2010

California Supreme Court Decision Is A Mixed Bag For Employers

Labor Code section 203(a) provides that "[i]f an employer willfully fails to pay, without abatement or reduction . . . any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefore is commenced; but the wages shall not continue for more than 30 days."  Labor Code section 203(b) provides that "[s]uit may be filed for these penalties at any time before the expiration of the statute of limitations on an action for the wages from which the penalties arise."

In Pineda v. Bank of America, N.A., the California Supreme Court resolved two issues associated with Labor Code section 203 "waiting time" penalties:  (1) Does a one-year or a three-year statute of limitations apply when an employee is suing to recover only "waiting time" penalties (i.e., when an employee was paid all of his or her wages but the employer did not timely pay the wages)?  (2)  Can "waiting time" penalties be recovered as "restitution" under Business and Professions Code section 17200, et seq., which is subject to a four year statute of limitations?  The California Supreme Court states the answer to both questions is "no."

As to the question of whether a suit to recover only "waiting time" penalties is subject to a one-year or to a three-year statute of limitations, the court determine that a three-year statute of limitations applies to claims for "waiting time" penalties regardless of whether the employee(s) seeking those penalties are seeking only those penalties or those penalties and the underlying allegedly unpaid wages.  In so holding, the court disapproved the Court of Appeal's decision in McCoy v. Superior Court (2007) 157 Cal.App.4th 225 holding that a claim for "waiting time" penalties only is subject to a one-year statute of limitations." 

As to the question of whether "waiting time" penalties can be recovered as "restitution" under Business and Professions Code section 17200, et seq., which is subject to a four year statute of limitations, the court held that "waiting time" penalties cannot be recovered as "restitution" because, unlike unpaid wages, persons seeking "waiting time" penalties do not have a vested, ownership interest in such penalties until such penalties are awarded "by a relevant body" (i.e., by a court or other tribunal). 

By way of its decision in Pineda, the California Supreme Court continues its trend of construing Labor Code provisions broadly in favor of employees and delivered a mixed bag for employers.  On the one hand, it has always been reasonably clear that "waiting time" penalties are not recoverable as "restitution" and are not subject to a four-year statute of limitations.  On the other hand, as did the California Court of Appeal in McCoy v. Superior Court, we do not think the California Supreme Court's decision that claims for "waiting time" penalties are always subject to a three-year statute of limitations and never to a one-year statute of limitations is necessarily compelled by the language of Labor Code section 203(b).

Regardless of what one thinks about what statute of limitations should apply to claims for "waiting time" penalties, such penalties can be substantial, especially when the claims of many former employees are aggregated in a class action lawsuit.  For example, if an employer "willfully failed" to pay to an employee earning $20.00 per hour all wages due and owing to that employee at the time that employee's employment ends, the employee's wages would continue as a penalty until paid or until an action seeking those wages is filed up to 30 days wage or up to $4,800.00.  If a certified class consisted of 500 such employees, the "waiting time" penalties would total $2,400,000.00. 

On its surface, the "waiting time" penalties seem most applicable to a situation where an employer willfully fails to provide to an employee who quits or is terminated the employee's final paycheck.  However, some courts have ruled that such "waiting time penalties" apply when an employer has provided an employee his or her final paycheck but "willfully" failed to pay some wages to the employee before the employee's employment ended and did not include those wages in the employee's final paycheck.  

Employers concerned about the prospect of becoming subject to such penalties, particularly employers who experience relatively high turnover of employees, should consider consulting with competent employment law counsel about steps that can be taken to reduce the possibility of becoming subject to such penalties.