Court Rules that Party Waived Right To Arbitrate by Seeking Discovery in Court Proceeding

By Ronald W. Novotny

When employers seek to compel employees to arbitrate their claims under an Arbitration Agreement, they are often met with arguments that they have “waived” their right to arbitrate by waiting too long to seek it or by engaging in acts inconsistent with the arbitral process.  In the recent case of Zamora v. Lehman, filed June 29, 2010, the California Court of Appeal held that just such a waiver occurred, by virtue of a party having sought extensive discovery in court proceedings before it tried to enforce an arbitration agreement.

This case was brought by a trustee in bankruptcy for breach of fiduciary duty against three principals of an infomercial production firm.  After litigating the case for over a year and requesting the production of voluminous documents they would not otherwise have been able to obtain in arbitration, two of the principals moved to compel arbitration after “discovering” their arbitration agreements with the company.  Finding that these parties had acted inconsistently with their arbitration agreements and wasted the court’s time by not moving to arbitrate sooner, the court denied the motion.

Significantly, the arbitration agreement in that case was governed by the labor arbitration rules of the AAA, under which no discovery at all was permitted.  Most agreements adopt the AAA employment arbitration rules which allow discovery, and if that had been the case it might have changed the result.  In addition, the court still compelled arbitration of the claim against the third principal, who waited almost as long as the others to seek arbitration but did not engage in the extensive discovery that the others did.

Supreme Court Bars Injury Claim by Independent Contractor on Construction Site

By Ronald W. Novotny

Can an independent contractor sue a general contractor for injuries he sustains on a construction site as a result of a “peculiar risk” inherent in the nature of the work?  No, said the California Supreme Court in the case of Tverberg v. Fillner Construction, Inc., issued June 28, 2010, because the independent contractor assumes responsibility for workplace safety by entering into a contract requiring the performance of inherently dangerous work.

The case was brought by a licensed subcontractor, Jeffrey Tverberg, for injuries he sustained when he fell into a bollard hole while constructing a metal canopy over some fuel-pumping units.  The holes had been dug by another subcontractor who had been hired to erect concrete posts for the expansion of a commercial fuel facility operated by an oil company.  Tverberg sued Fillner Construction Company, the general contractor on the project, for physical and mental injuries under theories of negligence and premises liability. 

The Court held that because Tverberg’s contract granted him the authority to determine the manner in which the work was to be performed, he assumed legal responsibility for taking whatever precautions were necessary to perform the work in a safe manner.  Previously, in Privette v. Superior Court, the Court had held that the hirer of an independent contractor is not vicariously liable to the contractor’s employee who sustains on-the-job injuries resulting from a special or peculiar risk inherent in the work, because those injuries are covered by workers’ compensation insurance.   By essentially expanding its decision in Privette to independent contractors, the Court further insulated general contractors from potential injury claims by sole proprietors such as Tverberg even though he was not subject to mandatory coverage for workplace injuries under the workers’ compensation system.

New Court of Appeal Decision Potentially Helpful To Employers Opposing Class Certification Of Wage And Hour Claims

By Christopher S. Andre and Scott K. Dauscher

Today, in Faulkinbury v. Boyd & Associates, Inc., the California Court of Appeal issued a decision that might prove helpful to employers opposing motions for class certification of wage and hour claims.  The court reiterated that it is the plaintiff(s)' burden to show his or her claims are susceptible to common proof (i.e. proof of alleged liability common to all of the purported class members) and that a defendant employer "'may defeat class certification by showing that an affirmative defense would raise issues specific to each potential class member and that the issues presented by that defense predominate over common issues.'" 

In general, non-exempt employees must be provided at least one unpaid, duty-free meal period of at least 30 minutes each workday.  An additional unpaid, duty-free meal period may be required if an employee works more than 10 hours in a workday.  The Industrial Welfare Commission wage orders permit an employer to instead provide a paid on-duty meal period "when the nature of the work prevents an employee from being relieved of all duty and when by written agreement between the parties an on-the-job meal period is agreed to."

The plaintiffs in the case were employed as security guards who worked at numerous different locations.  They alleged, among other things, that the employer improperly required them to agree to paid on-duty meal periods, contending that the nature of their work did not prevent them from being relieved of all duty (i.e., that they should have been provided unpaid, duty-free meal periods instead of paid, on-duty meal periods).  The plaintiffs alleged also that they were not authorized and permitted to take all required rest periods and that the employer improperly calculated their overtime rates of pay. 

The trial court denied class certification, finding that common issues of law and fact did not predominate over individualized issues. 

The Court of Appeal affirmed the trial court's decision as to plaintiffs' meal period claims and as to plaintiffs' rest period claims, holding that the trial court correctly applied the law as to those claims and holding that the trial court's rulings as to those claims were supported by substantial evidence. 

The Court of Appeal was persuaded that the evidence in the record sufficiently showed that common issues of law and fact would not predominate over individual issues because there was no common proof showing whether or not the requirements for a valid on-duty meal period were or were not satisfied as to any particular security guard employee.  As to the plaintiffs' rest period claim, the Court of Appeal was persuaded that the declarations the employer submitted by employees stating they were authorized and permitted to take all required rest periods was substantial evidence supporting the trial court's conclusion that common issues of law and fact did not predominate over individualized issues because those declarations showed a lack of common proof as to whether the security guard employees were or were not authorized and and permitted to take all required meal periods. 

However, the Court of Appeal reversed the trial court's denial of class certification of plaintiff's claim that the employer incorrectly calculated the applicable overtime rates of pay because its calculations did not include annual bonus payments and other forms of alleged compensation provided to the security guard employees.  The Court of Appeal held that claim was susceptible to common proof because the claim could be determined based on the employer's payroll records.  In other words, the employer either correctly calculated the rate of overtime pay or it did not.  This part of the decision is still potentially helpful to employers because the Court of Appeal emphasized that the claim should have been certified because it was susceptible to common proof, and we believe many common wage and hour claims are in fact not susceptible to common proof.  

Department of Labor Clarifies Who May Take Leave to Care for Child Under FMLA

By Jonathan Judge

On June 22, 2010, the Department of Labor (DOL) issued an Administrative Interpretation clarifying the definition of “son or daughter” as it applies to an employee standing in loco parentis to allow individuals who provide day-to-day care of a child to take leave under the Family Medical Leave Act (FMLA). 

The FMLA entitles an employee to 12 workweeks of leave for the birth or placement of a son or daughter, to bond with a newborn or newly placed son or daughter, or to care for a son or daughter with a serious health condition.

The definition of “son or daughter” under the FMLA includes not only a biological or adopted child, but also a “foster child, a stepchild, a legal ward, or a child of a person standing in loco parentis.”

In its Administrative Interpretation, the DOL focuses on the term in loco parentis citing court decisions finding that the key determination in such relationships is the intention of the person allegedly in loco parentis.  Current FMLA regulations define in loco parentis as including those with day-to-day responsibilities to care for and financially support a child.

Tying these two themes together, the DOL concludes that “the regulations do not require an employee who intends to assume the responsibilities of a parent establish that he or she provides both day-to-day care and financial support in order to be found to stand in loco parentis to a child.”

Following this statement, the DOL provides numerous examples of how an individual may qualify as a parent entitled to leave under the interpretation:

Where an employee provides day-to-day care for his or her unmarried partner’s child (with whom there is no legal or biological relationship) but does not financially support the child;

An employee who will share equally in the raising of a child with the child’s biological parent; and

An employee who will share equally in the raising of an adopted child with a same sex partner, but who does not have legally recognized obligations to care for the child.

The DOL notes also that neither the FMLA nor the FMLA regulations restrict the number of parents a child may have under the FMLA.  Thus, for example, where a child’s biological parents divorce, and each parent remarries, the child will be the “son or daughter” of both the biological parents and the stepparents and all four adults would have equal rights to take FMLA leave to care for the child.

The DOL provides the additional guidance that where an employer has questions about whether an employee’s relationship to a child is covered under FMLA, the employer may require the employee to provide reasonable documentation or statement of the family relationship. However, a simple statement asserting that the requisite family relationship exists is all that is needed in situations such as in loco parentis where there is no biological relationship or other legal relationship.

It is important to note that while the Administrative Interpretation may not be controlling in court, it will most likely be followed by the DOL, which is responsible for enforcing the FMLA.  We note, also, that that this Interpretation Letter does not address an employee’s entitlement to take military FMLA leave for a son or daughter, which is determined by separate definitions.

Supreme Court Permits Arbitrator To Decide Whether Arbitration Agreement Is Enforceable

By:  Ronald W. Novotny

One issue that often arises in litigation over arbitration agreements is “Who gets to decide if the agreement to arbitrate is valid?”  This is usually a “gateway issue” for the courts to decide under both the federal and California arbitration statutes.  However, sometimes the parties specifically agree that the arbitrator can decide issues of contract validity and enforceability, in order to ensure that their entire dispute is resolved in arbitration.

 

In Rent-A-Center West, Inc. v. Jackson issued June 21, 2010, the U.S. Supreme Court decided that a party wishing to challenge such a provision delegating “gateway issues” to the arbitrator must do so by attacking the legality of the “delegation provision” itself and not the parties’ entire agreement.  The delegation clause in that case stated that “The Arbitrator, and not any federal, state, or local agency, shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability or formation of this Agreement including, but not limited to any claim that all or any part of this Agreement is void or voidable.”  An employee, Antonio Jackson, challenged the agreement “as a whole” because it required him to split the costs of arbitration and provided for only limited discovery.  But since he did not challenge the legality or enforceability of the “delegation clause,” the issue of the contract’s enforcement was referred to the arbitrator instead.

This is another decision in a recent line of cases favoring the enforcement of arbitration agreements under the Federal Arbitration Act (FAA).  Parties who wish to maximize the chances that their arbitration agreements will be enforced are wise to consider reference to the FAA’s governing law and procedures, and a “delegation clause” such as the one in Jackson, in their agreements.  Although such clauses can still be challenged on the grounds that they were fraudulently obtained or are otherwise somehow “unconscionable” in and of themselves, the Jackson case provides support for employers who are comfortable resolving such enforcement issues in the arbitral forum.

Pending Legislation That Will Affect Employers If Enacted

By Jonathan Judge

The California legislative season is in full swing.  Among the proposed bills this year are several involving changes to meal and rest period regulations, some new leave entitlements, and legislation that may affect the hiring and firing process.  We will be monitoring these and other bills throughout the summer as the August 31, 2010 deadline for bill passage approaches. 

AB 482 (Mendoza) Consumer Credit Reports - This bill would prohibit an employer, with the exception of certain financial institutions, from obtaining a consumer credit report for employment purposes unless the information is (1) substantially job-related, meaning that the position of the person for whom the report is sought has access to money, other assets, or confidential information, and (2) the position of the person for whom the report is sought is a position in the state Department of Justice, a managerial position, that of a sworn peace officer or other law enforcement position, or a position for which the information contained in the report is required to be disclosed by law or to be obtained by the employer.

AB 569 (Emmerson) Meal & Rest Periods - This bill would exempt from meal and rest period provisions, employees in construction, commercial drivers, and security officers if such employees are covered by a valid Collective Bargaining Agreement (CBA) containing specified terms, including meal period provisions.

AB 1853 (Huffman) Bid Preferences - This bill would require state agencies awarding public works contracts to provide a 2% bid preference to a bidder or subcontractor meeting specified criteria related to providing employee health care coverage. This bill would become operative on January 1, 2012, and would not apply to contracts advertised for bid on or after January 1, 2017.

AB 2340 (Monning) Bereavement Leave - This bill would allow for three days unpaid leave for bereavement purposes upon the death of a spouse, child, parent, sibling, grandparent, grandchild, domestic partner, or domestic partner’s child, within 13 months of the death of the bereaved individual.  The provisions of the bill would not apply to an employee who is covered by a valid CBA that provides for bereavement leave and other specified working conditions.

AB 2424 (Niello) Final Wages Payment - This bill would allow employers to pay wages to discharged employee within a reasonable time, not exceeding 24 hours after discharge, excluding weekends and holidays, and would also allow payment of final wages to be made by mail to the most current address of the employee in the employer's payroll records, to a specified address provided by the employee at the time of discharge, or by making payment available to the discharged employee at a location specified by the employer.

AB 2468 (DeLeon) Lactation Breaks - This bill would authorize an employer to use the designation "Mother-Friendly Worksite" it promotional materials, if it submits its workplace breast-feeding policy to the Labor Commissioner and the Labor Commissioner determines that the employer's policy provides for specified criteria.

AB 2727 (Bradford) Criminal Records - This bill would prohibit employers from denying an application for employment based on conviction of a criminal offense unless the employer determines that there is a direct relationship between the prior conviction and the employment sought, or granting employment would involve an unreasonable risk to property or persons.

SB 908 (Wyland) Meal and Rest Periods -  This bill would allow exception from Wage Order Meal and Rest Period Provisions for employees working in armored cars.

SB 1304 (DeSaulnier) Marrow Donation Leave -   This bill would require employers to permit employees to take paid leaves of absence for organ and bone marrow donation, and to restore an employee returning from such leave to the same or equivalent position.  The bill would also prohibit an employer from interfering with, or retaliating against, an employee taking such leave, or opposing an unlawful employment practice related to such leave.  The bill would also create a private right of action for aggrieved employees to seek enforcement of these provisions.

Please check back regularly for updates on these and other bills.

U.S. Supreme Court Uholds Employer Search Of Pager Text Message Records Where Search Was Work-Related And Limited In Scope

By Irma Rodriguez Moisa, Nate Kowalski, Amber Solano, Jay Trinnaman, and Matthew D'Abusco

On June 17, 2010, the United States Supreme Court ruled that a city audit of an employee’s text messages on a city-owned device did not violate the Fourth Amendment.  In City of Ontario v. Quon, the Supreme Court determined that the City of Ontario’s search was reasonable under the narrow factual circumstances of this case. Significantly, however, the Supreme Court declined to address the broader issue of to what extent does an employee have a reasonable expectation of privacy in his electronic communications on employer provided devices.

Click here to download and read the full alert.

Click here to download and read the Supreme Court's opinion. 

Department of Labor Directive Expands Impact of New Labor Rights Posting Requirements For Federal Contractors

By Robert Fried

As we previously reported here, by Executive Order 13496, the Obama administration revoked Executive Order 13201 issued by the Bush administration requiring that providers of goods or services to the executive branch to post a Beck notice informing employees of their rights to not join a union and their right to not pay agency fees associated with the political and other non-representation activities of a union (the so-called "Beck" rule based on a US Supreme Court decision of the same name).  


As required by Executive Order 13496, on May 20, 2010, the Department of Labor (DOL) issued a final rule effective June 21, 2010, requiring federal contractors with prime contracts over $100,000 and federal subcontractors with subcontracts over $10,000 to instead post notices informing employees of certain rights under the National Labor Relations Act (NLRA). Specifically, affected employers are now required to post a notice informing employees of their rights under the NLRA to form a union, to join a union, to support a union; provides examples of conduct by employers and conduct by unions that interferes with those rights; and states how employees can contact the National Labor Relations Board (NLRB) to ask questions or to file complaints.

While new posting notice requirements might not in themselves reflect a fundamental change in the balance of rights and risks in the workplace, additional new rules issued as a directive without formal rule making by the Office of Federal Contract Compliance (OFCCP) do suggest a shift in enforcement practice at the federal level that requires close attention to the extent it marks the beginning of a far more active inter-agency coordinated enforcement driven approach on labor issues.

The new June 15, 2010 OFCCP directive provides that federal compliance officers on federal contracts, Davis-Bacon, and other American Recovery and Reinvestment Act of 2009 stimulus projects will inspect work sites for compliance with the new posting requirements as well as inspecting contractual language for compliance language.  Because compliance enforcement is intended to be shared, at first with the Office of Labor Management Standards (OLMS), the directive marks a  new and untested era of inter-agency enforcement and information sharing. While no specific enforcement sharing with the NLRB has yet been formally announced, such a functional extension of coordination is possible and with it the use of the unfair labor practice provisions of the Act.  This means notice posting will play a role in future organizing campaigns

Supreme Court Wakes The Dead By Rejecting Hundreds of Recent NLRB Rulings

By Thomas A. Lenz and Jonathan Judge

On June 17, 2010, in  New Process Steel, L.P. v. National Labor Relations Board, the United States Supreme Court dealt a severe blow to the National Labor Relations Board (NLRB) and hundreds of NLRB decisions.  From the period of late 2008 to early 2010, the NLRB operated with a two member quorum.  Three empty seats at the Board remained during this period as appointment packages did not receive Senate confirmation at the end of the Bush Presidency and beginning of the Obama Presidency.   The two NLRB members remaining decided to render decisions on cases where they could agree.  Relying upon legal advice that they could render decisions on behalf of the Board with a two member quorum, the two members issued decisions on hundreds of cases involving unfair labor practice and union election issues. 

In the Supreme Court's 5-4 ruling, signaling a deeply divided decision, the majority expressed that the Board lacked authority to decide cases with only two members, and instead, confirmed that three sitting Board members are required for a quorum.  In sending the hundreds of decided cases back to the NLRB for reconsideration by a quorum of at least three members, the Court characterized the Board's effort to operate via two member quorum as “a tail that would not only wag the dog, but would continue to wag after the dog died.”  Not surprisingly, the majority ruling is accompanied by a bitter dissenting opinion. 

The impact of the ruling remains to be seen.  The NLRB immediately issued a press release in which it confirmed the current four-member Board will do its best to rectify the situation in accordance with the Supreme Court's ruling.   The current four-member Board should be expected to revisit the rulings sent back by the Supreme Court decision.  The level of review and process to achieve it remains to be seen.  This will certainly swamp the Board with work involving old rulings on old cases at a time when newer cases and arguments for change in NLRB rules are also at play.  When coupled with the fact that the Board stands to lose three of the four members in coming months unless there is Senate confirmation, the situation now facing the NLRB is indeed dire. 

The situation is not one that advocates of labor law reform expected with the current Administration.  The ruling may well discourage unions, employees, and employers from going to the NLRB for assistance with labor issues as well as complicate those issues and cases already pending with the Board. 

Employers with recent NLRB issues should stay tuned to see how this situation develops.

U.S. Customs and Immigration Services Will Launch Redesigned E-Verify Website on June 13, 2010

By Jonathan Judge and Christopher S. Andre

As we previously reported here,  the Los Angeles Times has reported  here that the Immigration and Customs Enforcement ("ICE") agency, the largest investigative agency in the Department of Homeland Security ("DHS") is conducting a crackdown on employers that knowingly hire or retain undocumented workers. Alleged violators are being prosecuted in Federal court by the United States Attorney.

Employers seeking to reduce the likelihood of unknowingly hiring undocumented workers can also enroll in the DHS' E-Verify program, "an Internet-based system that allows an employer, using information reported on an employee's Form I-9, Employment Eligibility Verification, to determine the eligibility of that employee to work in the United States." The DHS notes that the E-Verify is for most employers "voluntary and limited to determining the employment eligibility of new hires only. There is no charge to employers to use E-Verify."

The U.S. Citizenship and Immigration Services ("USCIS") will launch a redesigned E-Verify website, June 13, 2010, which the USCIS states will enhance E-Verify's "usability, security, accuracy and efficiency."  E-Verify is an internet-based system that compares information contained on an applicant's or employee's Form I-9, Employment Eligibility Verification form to data kept by the DHS and Social Security Administration records to confirm eligibility for employment.

The newly redesigned E-Verify website will feature "a clean and modern design, easy and intuitive navigation, and clear and simple language."  The USCIS states also that the redesigned site will include a new home page, a new case alerts feature, improved case management, a streamlined tutorial, and other improvements.  

According to the USCIS, current users of E-Verify can use their existing user IDs and passwords, and existing user data will remain available.  However, existing users will be required to complete an approximately 20-minute  tutorial to learn about the changes to the site.  

To prepare for the new site, the USCIS recommends E-Verify participants:

• Watch two "How to" videos, which demonstrate how to create a case, and how to respond to a tentative nonconfirmation.
• Download the new user manuals and quick reference guides to become familiar with how to use E-Verify.  USCIS states updated publications will be available in early June, but, at the time of this post, updated publications were not yet available.
• Attend the USCIS's preview webinars.

 For more information, click here.

NLRB Ruling May Encourage Employee Dishonesty

By Thomas A. Lenz  

Awards of backpay in unfair labor practice cases are intended to make whole an employee who suffers a loss of earnings because of an unfair labor practice.  Because awards of backpay are typically limited to an employee's actual loss, an award of backpay is usually offset by any post termination earnings.

In Atlantic Veal & Lamb, Inc., 355 NLRB No. 38 (May 28, 2010), the National Labor Relations Board ruled in favor of a terminated employee claiming he was terminated as a result of engaging in protected activity.  At issue was the question of whether the administrative law judge who initially considered the matter properly determined that the employee's claim for backpay was barred because the employee falsified his post termination employment history on a mortgage application. 

The administrative law judge hearing the matter initially agreed with the employer that the employee's falsification of his post termination employment history should bar the employee from being awarded backpay for the time period at issue.  The administrative law judge expressed concern that the employee's fasification of his post-termination employment history would hinder an accurate determination of the employee's actual post-termination earnings for purposes of applying those post-termination earnings as an offset against an award of backpay.

On review, a three-member panel of the recently reconstituted NLRB reversed the administrative law judge's decision and remanded the matter back to the administrative law judge for further proceedings.  The NLRB panel ruled that the administrative law judge gave too much significance to the discrepancies between the information the employee provided on his mortgage application and the information the employee submitted as part of his claim for an award of backpay and ruled that the employee should not be barred from receiving an award of backpay for the time period in question.  The NLRB panel also criticized the administrative law's judge's credibility determinations and the impact of those credibility determinations on what may be a broader scope of backpay liability than the NLRB panel would consider appropriate.  

The NLRB panel's instructions to the administrative law judge will very likely increase the employee's recovery in the case as the discrepancies and credibility issues will weigh less heavily on backpay calculations.

More broadly, the ruling stands to reward employee dishonesty and reward incomplete or inconsistent employee accounts of their post termination employment and earnings.  This may encourage employees and unions to increase their resort to the NLRB to challenge employment related decisions and to enhance leverage and employer exposure during organizing campaigns. 

NLRB Helps Resolve Union Turf Wars On Construction Projects

By Thomas A. Lenz

AALRR clients have recently had two published rulings by the National Labor Relations Board in which competing unions have disputed work assignments by construction contractors.  Where either or both unions to a dispute picket or threaten to picket because of such a dispute, the NLRB can get involved.  If the unions involved have not agreed to a different mechanism to resolve such disputes, the NLRB has the legal authority to make a final and binding award of the disputed work.

In a matter involving the Teamsters, the Laborers, and Ames Construction, the contractor assigned truck driving work on a construction in Imperial County, California to the Laborers despite the Teamsters' insistence that the work should be assigned to its members.  After an investigation and a hearing in Los Angeles, the NLRB in Washington, DC agreed with the contractor's work assignment and awarded the disputed work to the Laborers.  See Laborers (Ames Construction), 354 NLRB No. 113 (November 30, 2009).

In a matter involving the International Brotherhood of Electrical Workers, the Laborers, and High Light Electric, the contractor assigned certain traffic light installation work to the Laborers.  The IBEW demanded the work assignment.  After an investigation and a hearing in Los Angeles, the NLRB in Washington,DC agreed with the contractor's work assignment and awarded the disputed work to the Laborers.  See Laborers (High Light Electric), 355 NLRB No. 29 (April 29, 2010). 

The NLRB's dispute resolution process is very important in today's highly competitive climate.  Work is scarce, and unions are more competitive than ever as they seek to preserve their market share.  An NLRB award of disputed work is final and binding on the unions involved.  It is critical for any contractor performing work in the current economy to understand the playing field in case such issues arise.  This is especially true for contractors signed to multiple labor agreements, working under project labor agreements, or otherwise performing work that multiple unions claim.

Plaintiffs File Petition For Rehearing Of California Supreme Court Decision Clarifying Who Can Be Liable As An "Employer"

By Scott K. Dauscher and Christopher S. Andre

As we previously reported here, on May 20, 2010, by a unanimous decision in Martinez v. Corky N. Combs, the California Supreme Court clarified the standard courts must use to determine who is liable as an "employer" for violations of wage and hour laws embodied in Industrial Welfare Commission ("IWC") Wage Orders, including claims for unpaid or underpaid wages.  In that case, the plaintiffs sought to hold customers of the employer liable for their claims for allegedly unpaid wages.  The trial court, the Court of Appeal, and the California Supreme Court all rejected the plaintiffs' arguments.  

Today, the plaintiffs filed in the California Supreme Court a petition for a rehearing of the case.  Because the Supreme Court's decision was a unanimous decision and because petitions for rehearing are seldom granted, we think the Court will very likely deny the petition and allow its May 20, 2010 decision to stand.  In any event, we will report here any further significant developments.

Eagerly Awaited California Supreme Court Decision Regarding Meal Periods Is Not Likely Until February 2011, At The Earliest

By Scott K. Dauscher and Christopher S. Andre

The issue of whether an employer's obligation to "provide" to non-exempt employees unpaid, duty free meal periods of at least 30 minutes means the employer must ensure that non-exempt employees actually take such meal periods or means the employer must merely make the meal periods available has been pending before the California Supreme Court since August 2008 when the court granted review of the Court of Appeal's decision in Brinker Restaurant Corp. v. Superior Court holding that an employer satisfies its duty to "provide" required meal periods by making required meal periods available to non-exempt employees.  On December 4, 2008, the Court also granted review of the Court of Appeal's decision in Brinkley v. Public Storage, which decided the issue the same way as the Brinker court.  

The California Supreme Court will not conduct any additional oral arguments this summer.  Therefore, September is the earliest that Brinker could be placed on the Court's oral argument calendar.   Assuming oral argument would then take place in November 2010, at the earliest, a decision by the Court is not likely to be issued until February 2011, at the earliest.

Court Refuses to Compel Arbitration by Third Parties Not Signed to Arbitration Agreement

By Ronald W. Novotny

On June 1, 2010, the California Court of Appeal refused to enforce an arbitration agreement to require the arbitration of claims asserted against third parties who did not agree to arbitration.  In Valencia v. Smyth, purchasers of real property sued their agent, the property owners and the owners’ broker and listing agent, and three additional parties (two title companies and the trustee of the deed of trust) for fraud, breach of fiduciary duty, negligence, and other claims arising out of the alleged misappropriation of the purchasers’ escrow funds.  The owners attempted to enforce an arbitration agreement entered into with the buyers in which they agreed to arbitrate “any dispute or claim in Law or Equity arising between them out of this Agreement or any resulting transaction,” which neither the title companies nor the trustee were parties to.  The trial court had refused to enforce the agreement, and required that all parties be joined in a consolidated judicial proceeding, because the claims against the third parties arose out of the same transaction or series of related transactions and there was a “possibility of conflicting rulings on a common issue of law or fact.”

The Court of Appeal affirmed this ruling based on the provisions of the California Arbitration Act, Code of Civil Proc. Section 1281.2, which permit a court to deny arbitration in a case involving third parties who have not agreed to arbitrate.  Although arbitration of the entire dispute could have been ordered if the parties had adopted the procedural provisions of the Federal Arbitration Act, the court found that they had not done so -- even though the Arbitration Agreement stated that “Interpretation  of this agreement to arbitrate shall be governed by” the FAA. 

The case demonstrates the importance of the wording of arbitration agreements to determining how they will be enforced.  It is particularly important for employers who seek to enforce their agreements to arbitrate claims brought by former employees to properly reference the Federal Arbitration Act int heir agreements, if they want to compel arbitration of their disputes against third parties who have not signed the arbitration agreement.  

Court of Appeal Decision Reiterates That Class Certification Is Appropriate Only When The Claims Asserted Are Susceptible To Common Proof

By Christopher S. Andre and Scott K. Dauscher

Claims asserting violations of California's wage and hour laws are frequently if not predominantly brought as class actions.  One of the most hotly litigated issues in such cases is the issue of whether the case should or should not be certified as a class, which nearly always turns on whether common issues of law and fact predominate over individual issues.  Two recent Court of Appeal decisions emphasizing that plaintiffs seeking class certification carry the burden of showing that liability can be established based on common proof (i.e., proof applicable to all of the class members) may be helpful to employers opposing class certification.  

As we previously reported here, in Arenas v. El Torito Restaurants, et al., the Court of Appeal affirmedThe court stated: "Based on the record presented, the plaintiffs have not demonstrated that resolution of the common issues of act and law will be accomplished by common proof that can be extrapolated to all class members. Instead, the plaintiffs have demonstrated that the case is replete with individual factual issues." the trial court's denial of class certification based on the trial court's finding that plaintiffs failed to meet their burden of showing that common issues of law and fact predominate over individual issues. 

On May 26, 2010, in Bomersheim v. Los Angeles Gay and Lesbian Center, the Court of Appeal reversed the trial court's denial of class certification based on the Court of Appeal's holding the claims were susceptible of susceptible to common proof.  The Court of Appeal held that based on the unique facts of that case the issue of whether the defendant's alleged negligent medical treatment of patients who presented with a confirmed syphilis infection or reported sexual contact with persons known or suspected to be infected with syphilis proximately caused injury or other damages was susceptible to common proof.  The Court reasoned that whether the Centers patients underwent retesting and retreatment as a result of having been allegedly mistreated or for other reasons was susceptible to common proof because the Center's own records would tend to show the reason why a particular patient underwent retesting and retreatment. 

We think various wage and hour claims frequently are not susceptible to common proof.  For example, we think an individual employee's reasons for not taking a rest period or a meal period will seldom be reflected by an employer's records or by other evidence applicable to all of the class members and for that reason would not be susceptible to common proof.  

Regulations Clarify Extension of Dependent Coverage Rule Under Affordable Care Act

By Paul Fleck, Amber Solano, and Jonathan Judge

On May 11, 2010, the Internal Revenue Service, Department of Labor, and Department of Health and Human Services issued interim final rules regarding the extension of health coverage for adult dependent children until the age of 26. The rules provide guidance on how the Affordable Care Act provision regarding extended coverage to adult dependents affects health insurance plans and employers.

Click here to download and to read the full alert.

Court of Appeal Decision Underscores Importance Of Promptly Invoking Arbitration Rights Lest They Be Waived

By Christopher S. Andre

On May 26, 2010, in Adolph v. Coastal Auto Sales, Inc., the California Court of Appeal affirmed the trial court's decision to deny the petition of a car dealer to compel arbitration in accordance with the terms of an arbitration agreement contained in a purchase agreement. The Court Appeal held that the trial court correctly denied the petition on the ground the car dealer waived its right to arbitrate by failing to promptly invoke its right to arbitration and by raising the arbitration agreement only after suffering a litigation setback in the pending litigation.

Although this decision does not involve an arbitration agreement between an employer and a current or former employee, we think the bases for the court's decision are equally applicable to employers and to employment arbitration agreements.

Therefore, when a dispute giving rise to a lawsuit against an employer is subject to an arbitration agreement, the employer should consider at the outset of the lawsuit whether to invoke an applicable arbitration agreement and, if so, consider promptly invoking the arbitration agreement. Unreasonable delay or engaging in conduct in the litigation inconsistent with enforcing one's right to arbitrate may well result in a waiver of that right.

Click here to download and to read a copy of the decision.

Federal Crackdown Targets Employers That Employ Undocumented Workers

By Christopher S. Andre

The Los Angeles Times reports here that the Immigration and Customs Enforcement ("ICE") agency, the largest investigative agency in the Department of Homeland Security ("DHS") is conducting a crackdown on employers that knowingly hire or retain undocumented workers. Alleged violators are being prosecuted in Federal court by the United States Attorney.

A press release issued by the Office of the United States Attorney for the Southern District of California announced an indictment against a San Diego French gourmet restaurant and bakery, its owner, and manager. The indictment alleges a variety of misdemeanor and felony charges against the restaurant, its owner, and a manager. In addition to the criminal charges, which carry maximum term of five years in prison per count and a fine of $250,000 per count, the government is also seeking to seize the restaurant and the property on which it is located.

Based on the press release, one of the bases for the charges is the restaurant, its owner, and a manager allegedly continued to employ some allegedly undocumented workers after receiving "no-match" letters from the Social Security Administration ("SSA") and paid those employees in cash after receiving those "no-match" letters.

The Los Angeles Times notes that the Obama administration's new "strategy contrast sharply with that of the Bush administration," which focused on arresting and deporting illegal workers and prosecuted few employers. The Times reports that "Obama called those raids ineffective and criticized them for dividing families and not holding employers accountable for creating a magnet for illegal crossers."

In light of the above, employers should take seriously "no-match" letters they might receive from SSA. An employer that receives a "no-match" letter and continues to employ the subject employee without taking further appropriate action appears to be at risk of being charged by the government with knowingly employing an undocumented employee.

Employers seeking to reduce the likelihood of unknowingly hiring undocumented workers can also enroll in the DHS' E-Verify program, "an Internet-based system that allows an employer, using information reported on an employee's Form I-9, Employment Eligibility Verification, to determine the eligibility of that employee to work in the United States." The DHS notes that the E-Verify is for most employers "voluntary and limited to determining the employment eligibility of new hires only. There is no charge to employers to use E-Verify."

Click here to read the Los Angeles Times article.

Court Holds Recently Promoted Probation Officer Who Did Not Pass Probabation Was Not Entitled To An Administrative Appeal

By Irma Rodriquez Moisa and Jay Trinnaman

On May 17, 2010, in Guinn v. County of San Bernardino, the California Court of Appeal held that a a county probation officer who did not pass his probationary period after being promoted to a supervisory position was not entitled under the the Public Safety Officers Procedural Bill of Rights Act to an administrative appeal of the County's decision to return him to his prior position.

Click here to read the entire alert.

Effective June 21, 2010, Federal Contractors Are Required To Post Notices Informing Employees Of National Labor Relations Act Rights

By Jonathan Judge

On May 20, 2010, the Department of Labor ("DOL") issued a final rule requiring federal contractors with prime contracts over $100,000 and federal subcontractors with subcontracts over $10,000 to post notices informing employees of certain rights under the National Labor Relations Act ("NLRA"). This new requirement takes effect June 21, 2010.

The required notice identifies employees' rights under the NLRA to form a union, to join a union, to support a union; provides examples of conduct by employers and conduct by unions that interferes with those rights; and states how employees can contact the National Labor Relations Board to ask questions or to file complaints.

Contractors and subcontractors subject to the new rule must post the required notice in the workplace so that it is prominent and can be readily seen by employees. Specifically, the required notice must be posted where other similar required notices are posted.

Although electronic posting cannot be used in place of physical posting, contractors and subcontractors that customarily also post electronically required employee notices must also post electronically the NLRA rights notice via a link to the Office of Labor-Management Standards ("OLMS") website. The link to the OLMS website must state: "Important Notice about Employee Rights to Organize and Bargain Collectively with Their Employers." Employers that post the notice electronically, must place the required link to the notice where the employer customarily places similar required notices, and the link to the OLMS website must be no less prominent than other notices.

Posters can be downloaded in two formats: (1) a 11x17-in one-page poster or (2) a 11x8.5-inch two-page poster.

If a significant portion of an employer's workforce is not proficient in the English language, the employer must post the required notice in the language or languages the employees speak. The OLMS states it will provide translations of the required notice.

Employers who violate the posting regulations will be subject to sanctions for non-compliance. The potential sanctions include: suspension or cancellation of an existing contract, debarment from future Federal contracts or subcontracts, and placement on a list of contractors and subcontractors declared ineligible for future contracts. The Director of the OLMS will distribute that list to all Federal executive agencies.

This new rule implements Executive Order 13496 President Obama signed on January 28, 2009, and represents a 180 degree departure from Executive Order 13201 President Bush signed on February 21, 2001. Executive Order 13201 issued by President Bush required providers of goods or services to the executive branch to post a Beck notice informing employees of their rights to not join a union and their right to not pay agency fees associated with the political and other non-representation activities of a union. Executive Order 13496 issued by President Obama revoked Executive Order 13201 issued by President Bush, and employers are no longer required to post a Beck notice.

California Supreme Court Clarifies Who Can Be Liable For Alleged Wage And Hour Violations

By Christopher S. Andre and Scott K. Dauscher

Today, by a unanimous decision in Martinez v. Corky N. Combs, the California Supreme Court clarified the standard courts must use to determine who is liable as an "employer" for violations of wage and hour laws embodied in Industrial Welfare Commission ("IWC") Wage Orders, including claims for unpaid or underpaid wages.

We think the decision is generally favorable for employers because the Supreme Court expressly rejected on the facts before it a number of theories of liability plaintiffs sometimes assert when attempting to hold liable for wage and hour claims persons or entities other than the obvious "employer."

Miguel Martinez and others were employed by Isidro Munoz, Sr., who did business as Munoz & Sons ("Munoz"), as seasonal agricultural workers who picked and sometimes packed strawberries. After Munoz failed to pay the employees' wages for a period of weeks, the employees submitted claims to the Division of Labor Standards Enforcement and later filed suit against Munoz and against two businesses that regularly purchased strawberries from Munoz and against certain employees of those businesses. The employees alleged the defendants were all liable for unpaid minimum wages (Labor Code section 1194), for liquidated damages for unpaid minimum wages (section 1194.2), for unpaid contract wages (section 216) for waiting time penalties (section 203), for breach of contract, and derrivative claims under California's Unfair Competition Law (Business and Professions Code section 17200, et seq.).

The trial court and the Court of Appeal determined that neither the other businesses that did business with Munoz nor the employees of those businesses were liable to the employees for their claims. The employees then petitioned the California Supreme Court to review the Court of Appeal's decision affirming the trial court's decision.

In a lengthy 56-page opinion, the Supreme Court revisited its decision in Reynolds v. Bement (2005) 36 Cal.4th 1075 holding that a corporation's officers and directors are not personally liable for unpaid overtime compensation and concluded that it "spoke too broadly in concluding that the common law defines the employment relationship in actions under [Labor Code] section 1194. The Supreme Court now states "an examination of section 1194 in its full historical and statutory context shows unmistakably that the Legislature intended to defer to the IWC's definition of the employment relationship in actions under [section 1194]." The Supreme Court explained, nevertheless, that its holding that a corporation's officers and directors are not personally liable for wage and hour violations when acting within the scope of their employment remains in tact because that opinion "properly holds that the IWC's definition of 'employer' does not impose liability on individual corporate agents acting within the scope of their agency."

The Supreme Court went on to hold that the IWC's definition of "employer" does not incorporate federal law. Similarly, and potentially significantly, the Supreme Court noted also that the IWC's broader definition of the term "hours worked" was in response to enactment of the Federal Portal-to-Portal Act, "which relieved employers of the obligation to compensate employees for time spent traveling to the work site, even in an employer's vehicle, and for time spent in activities 'preliminary and postliminary' to work," and intended by the IWC to provide California employees with greater protection than Federal law provides.

Turning to the IWC' s definition of the employment relationship in the wage orders, the Supreme Court now states that under the IWC's definition, to "employ" means "(a) to exercise control over the wages, hours or working conditions, or (b) to suffer or permit to work, or (c) to engage [a person to work], thereby creating a common law employment relationship. "

Applying the above test to the facts of the case in the record before it, the Supreme Court further held:

1. Neither of the businesses that did business with Munoz had a business relationship with Munoz that allowed those businesses to "exercise control over Munoz's employees' wages and hours."

2. Neither of the businesses that did business with Munoz "suffered or permitted plaintiffs to work because neither had the power to prevent the plaintiffs employees from working." Rather, Munoz and his foreman had exclusive power to do that.

3. Neither of the businesses that did business with Munoz had a business relationship with Munoz that allowed either of them to directly or indirectly "exercise control over Munoz's employees' wages and hours." Rather, "Munoz alone, with the assistance of his foremen, hired and fired plaintiffs, trained and supervised them, determined their rate and manner of pay . . ., and set their hours, telling them when and where to report to work and when to take breaks."

4. Neither of the businesses that did business with Munoz nor the employees of one of those businesses who encouraged Munoz' employees to continue working to help Munoz and who told Munoz' employees that they would be paid once Munoz received additional payments from one of the business did not "engage to work" the employees of Munoz because the facts and circumstances made it clear that no offer of employment was being made.

5. Although employees of the businesses that did business with Munoz frequently spoke in the filed with Munoz' employees about how the strawberries were to be packed, they nevertheless did not exercise sufficient control over how services are performed and hence the working conditions of Munoz' employees because no evidence in the record showed that any of Munoz' employees thought they must obey anyone other than Munoz or Munoz' foremen.

6. The Supreme Court rejected also the plaintiffs' contention that they were entitled to recover their unpaid wages as third party beneficiaries of a contract between Munoz and one of the businesses that did business with Munoz. Because the contract at issue required Munoz to comply with all applicable laws, including "labor," the plaintiff employees argued that the business was liable to them for their claims. The Supreme Court rejected that argument, stating, "[t]he plain import of these contractual provisions is that Munoz agreed to pay his employees the wages required by law, assuming sole responsibility in the matter. . . ."

Click here to download and to read a copy of the decision.

Congress Votes To Extend To Year End Unemployment Benefits And COBRA Subsidies

By Christopher S. Andre

The Associated Press reports that this morning, House and Senate leaders announced that the Congress has approved legislation that would extend until year end unemployment benefits and COBRA subsidies. The cost to taxpayers is estimated to be $ 47 Billion. We anticipate President Obama will the sign the bill. Click here to read more.

California Department of Industrial Relations Announces Public Works Enforcement Task Force

By Scott K. Dauscher and Christopher S. Andre

On May 18, 2010, the California Department of Industrial Relations issued a press release announcing it filed this week proposed regulations to establish a "Compliance Monitoring Unit" or "CMU," the stated purpose of which is "ensuring compliance with the State's prevailing wage laws on public works projects in California." According to the the press release, "[t]he CMU will review certified payroll records, verify that workers on the projects are paid the correct rate of pay for the work performed, and will enforce compliance with pay, overtime, record keeping and hours limitation requirements." The press release states the CMU is expected to be operational this August after the proposed regulations are approved.

In light of this development, employers working on construction projects funded in whole or in part by public funds should consider taking steps to ensure they are complying with applicable public works law and regulations. Penalties for non-compliance can be substantial and can include a contractor being barred from working on public works projects in the future.

For more information, click here.

California Supreme Court Schedules Oral Arguments In Cases Of Potential Interest To Employers

By Christopher S. Andre

The California Supreme Court has scheduled for oral argument two cases of potential interest to employers:

On May 25, 2010, the Court will hear oral arguments in Lu v. Hawaiian Gardens Casino. The issue to be decided in that case is whether "Labor Code section 351, which prohibits employers from taking 'any gratuity or part thereof that is paid, given to, or left for an employee by a patron,' create a private right of action for employees?" In other words, the Court will decide whether a current or former employee can personally sue his or her current or former employer for alleged violation of Labor Code section 351.

On June 2, 2010, the Court will hear oral arguments in Clark v. Superior Court. Although the issue to be decided is whether statutory penalties for violations of California's elder abuse laws are recoverable as restitution under California's Unfair Competition Law ("UCL") codified at California Business and Professions Code section 17200, et seq., the case is potentially of interest to California employers because the California Labor Code provides for a variety of penalties, and it is currently understood that such penalties are not recoverable as "restitution" under the UCL. If the Court holds that statutory penalties for violations of California's elder abuse laws are recoverable as restitution under the UCL, that might pave the way for plaintiff current or former employees to argue that Labor Code penalties are likewise recoverable under the UCL.

We will report on any further significant developments in these cases as information becomes available.

California Supreme Court Decision Might Result In More Advertising By Attorneys Seeking Plaintiffs To Participate In Class Action Lawsuits

By Christopher S. Andre

On May 17, 2010, in Simpson Strong Tie Co., Inc. v. Pierce Gore, the California Supreme Court held that a manufacturer could not maintain a lawsuit against an attorney based on allegedly defamatory advertisements by the attorney seeking plaintiffs to participate in a potential class action lawsuit against the manufacturer on the ground that those advertisements were protected by California's anti-SLAPP statute.

After learning that some metal fasteners used in wood frame construction can be susceptible to corrosion and a shortened life when used with pressure treated lumber, containing certain chemicals, an attorney published in two newspapers an advertisement stating as follows:

ATTENTION:

WOOD DECK OWNERS

If your deck was built after January 1, 2004 with galvanized screws manufactured by Phillips Fastener Products, Simpson Strong-Tie or Grip-Rite, you may have certain legal rights and be entitled to monetary compensation, and repair or replacement of your deck.

Please call if you would like an attorney to investigate whether you have a potential claim:

After conducting a survey showing that shoppers who read the advertisement were significantly more likely to believe Simpson's galvanized screws were defective or of low quality and were significantly less likely to purchase galvanized screws manufactured by Simpson, Simpson filed suit alleging, among other things, that the advertisement falsely implied that Simpson's products were defective and that the attorney used "'the false and misleading Advertisement to recruit potential plaintiffs to participate in an unjustified class action lawsuit against Simpson.'"

The attorney defended the lawsuit by invoking California's anti-SLAPP (Strategic Lawsuit Against Public Participation) statute. That statute requires courts to dismiss a lawsuit if: (1) the defendant (i.e., the speaker or advertiser) shows that the "'cause of action . . . aris[es] from' an act by the defendant 'in furtherance of the [defendant's] right of petition or free speech . . . in connection with a public issue'" and (2) the plaintiff (i.e., the complaining party) does not "establish 'a probability that the plaintiff will prevail on the claim.'"

The trial court and the court of appeal both concluded that the attorney met his burden of showing the advertisement was an act in furtherance of his right of free speech about a public issue, and Simpson did not meet its burden of establishing a probability of prevailing on its claims based on the advertisement.

The issue decided by the California Supreme Court was whether the narrow exception to the anti-SLAPP statute for "commercial speech" applied. The Court held that Simpson failed to meet its burden of showing the exemption applied to defeat the attorney's anti-SLAPP defense. Construing the "commercial speech" exemption narrowly, the Court held that even if the advertisement did imply that Simpson's galvanized screws are defective, the "commercial speech" exception to the anti-SLAPP statute did not apply because the advertisement was not about the attorney's business or about a competitor's 'business operations, goods, or services.'"

We believe this decision may result in more frequent and perhaps bolder advertising by plaintiff's attorneys hoping to recruit plaintiffs for potential class action lawsuits against manufacturers, retailers, home builders, and other businesses, including class action wage and hour lawsuits.

Click here to download and to read a copy of the decision.

California Supreme Court Denies Review Of Court Of Appeal Decision That Might Make Class Certification Easier In Wage And Hour Cases

By Christopher S. Andre and Scott K. Dauscher

As we previously reported here, in Jaimez v. DAIOHS USA, Inc., a decision we think is wrongly decided in many ways, the California Court of Appeal might have made it significantly easier for plaintiffs to obtain class certification in wage and hour cases.

Alex Jaimez was employed by DAIOHS USA, Inc., as a Sales Route Representative, and filed suit alleging he was misclassified as an exempt employee during part of his employment, that he was not paid for all hours worked, that the did not receive all required meal and rest periods, and that his wage statements were not accurate.

The trial court denied Jaimez' motion for class certification, finding, among other things, that common issues of law and fact did not predominate and that Jaimez was not an adequate class representative.

In a wide-ranging opinion, the Court of Appeal reversed the trial court's decision to deny class certification. According to this Court of Appeal, the trial court erred when it found based on the evidence submitted in support of and in opposition to the motion for class certification that individual issues would predominate over common questions of law and fact. According to this Court of Appeal, in determining whether common issues of law and fact predominate, the inquiry is whether the plaintiff's "theory of recovery" is likely to prove amenable to class treatment.

The court's opinion might be read by some to mean that a trial court cannot consider the merits of evidence offered to rebut a plaintiff's "theory of recovery" (i.e., the plaintiff's allegations of wrongdoing) when ruling on a motion for class certification.

The court's opinion contains also statements that might be read by some to mean that meal periods cannot be waived, that employers must ensure that employees take their meal periods, and that an employee who alleges he or she received inaccurate wage statements meets the requirement of showing actual injury if the statements are inaccurate and if he or she was confused about whether he or she was compensated for all hours worked.

In one bright spot for employers, the court affirmed the trial court's finding that plaintiff Jaimez was not an adequate class representative because, among other things, Jaimez lied on his employment application about his felony conviction and admitted in deposition his view that it is acceptable to lie in order to obtain or maintain employment

The Court of Appeal initially did not certify the opinion for publication. However, in response to requests by a number of plaintiffs' attorneys and associations of plaintiffs' attorneys, the Court of Appeal certified the opinion for publication on February 8, 2010.

As we previously reported here, on March 8, 2010, we filed with the California Supreme Court a request that the Court of Appeal's decision be depublished, and on March 15, 2010, DAIOHS USA, filed with the California Supreme Court a petition for review of the Court of Appeal's decision.

Today, the California Supreme Court denied both DAIOHS USA's petition for review of the Court of Appeal's decision and our separate request that the Court of Appeal's decision be depublished. Had either the petition for review or the depublication request been granted, the Court of Appeal's decision would no longer have been citeable as precedent.

With this latest action by the California Supreme Court, the unfortunate trend of California appellate court decisions generally favoring employees over employers continues.

Click here to download and to read a copy of the Court of Appeal's decision.

Department of Labor Administrative Interpretation States Duties Of Mortgage Loan Officers Do Not Qualify As Exempt Duties

By Ronald W. Novotny

As we previously reported here, On March 24, 2010, the United States Department of Labor ("DOL") Wage and Hour Division made a significant change in its compliance assistance by moving from its longstanding practice of issuing fact specific opinion letters to issuing more general, across-the-board Administrator's Interpretations. The change is significant because it likely signals the DOL's intention to more aggressively establish its own interpretation of federal wage and hour laws.

In the first such Administrator's Interpretation, the DOL revisited the seemingly settled issue of whether mortgage loan officers qualify as exempt employees under the Fair Labor Standards Act ("FLSA"). Reversing two prior determinations that mortgage loan officers ordinarily qualify as exempt employees and therefore not entitled to be paid premium pay when they work overtime, the DOL now takes the position that the routine duties of such employees do not qualify as exempt duties.

The DOL defined the position as persons employed by financial institutions as mortgage loan officers, representatives, consultants, or originators. The typical duties include receiving internal leads, contacting potential customers, collecting required information from customers and entering that information into a computer, assessing and recommending loan products, and compiling customer documents for handling by underwriters or loan processors.

The DOL revisited the issue of whether such duties should be characterized as "non-manual work directly related to the management or general business operations of the employer or its customers" and therefore within the scope of the "administrative employee" exemption from the premium pay requirements of the FLSA.

The DOL now concludes that loan officers do not qualify as exempt employees because the work they perform is predominantly "production work" and not "administrative work." Likening mortgage loan officers to inside salespersons, the DOL now characterizes loan officers' duties as the "production work of an employer engaged in selling or brokering mortgage loan products" and not related to internal management of the business. The DOL now takes the position also that loan officers' duties do not relate to the "general business operations" of the employer's customers (who are typically individual consumers).

As part of its interpretation, the DOL withdrew a 2001 opinion letter and a 2006 opinion letter stating mortgage loan officers can qualify as exempt employees.

We think this new administrative interpretation signals a willingness on the part of the Obama Administration to reverse prior administrative interpretations interpreting FLSA exemptions more broadly.

Although this more recent administrative interpretation is not binding on the courts, current or former employees asserting they are or were misclassified as exempt employees can cite to this new administrative interpretation as persuasive authority from the administrative agency charged with enforcement of the FLSA.

In light of this new interpretation, financial institutions should consider consulting with experienced counsel to determine whether employees previously thought to be exempt would still be considered exempt employees.

Click here to download and to read a copy of the administrative interpretation.

DIR Director Reverses Original Decision: Now Prevailing Wages Are NOT Required for Certain Off-Site Fabrication

By Robert Fried

California contractors were stunned in November 2008 when the Director of the California Department of Industrial Relations ("DIR") issued a determination that a specific contractor, Russ Will Mechanical, should have paid prevailing wages to its workers who fabricated HVAC parts in the company’s permanent off-site fabrication shop for a specific public works project. Russ Will Mechanical filed an administrative appeal of the determination.

Now, the DIR has granted the appeal and reversed the 2008 determination. Russ Will Mechanical did not have to pay prevailing wage to its workers in this specific case. This is excellent news for California contractors concerned about the cost and ambiguities of the original determination. Click here to download and read the DIR Decision on Administrative Appeal - Russ Will Mechanical.

In his May 3, 2010 decision, the DIR Director responded favorably to the argument that the DIR should interpret California prevailing wage law consistently with the federal prevailing wage law, known as the Davis-Bacon Act. According to the decision, California courts have relied on federal cases interpreting the Davis-Bacon Act when they have interpreted California prevailing wage law. As a result, interpretations of the state prevailing wage law are “in harmony” with federal prevailing wage law. When this approach is taken to the Russ Will Mechanical case, the conclusion is that the specific case of off-site fabrication at issue was not done in the execution of public works construction as defined under California law.

Editor's note: Robert served as interested party counsel in this case.

HIRE Act Provides Employers Incentives To Hire And Retain The Recently Unemployed

By Jonathan Judge

Perhaps somewhat lost in the commotion over health care reform legislation is the Hiring Incentives to Restore Employment Act ("HIRE Act"), which provides certain tax incentives to employers that hire and retain recently unemployed or underemployed persons.

Under the HIRE Act, two tax incentives are available:

1. Employers who hire between February 3, 2010, and December 31, 2010, qualifying workers may qualify for a 6.2% payroll tax incentive.

2. An employer may claim on its 2011 federal income tax return an additional tax credit of up to $1,000 for each employee hired under the Act who the employer retains for at least one year. The retention credit is the lesser of either 6.2 percent of the wages paid by the employer to the retained qualified employee during the 52 consecutive week period or $1,000.

Some of the requirements and limitations of the Act include the following:

1. The Act requires employers that wish to claim the tax incentives to obtain from each eligible new hire a statement certifying that he or she was unemployed during the 60 days before beginning work or that he or she worked fewer than 40 hours for another employer during the same 60-day period. The Internal Revenue Service created Form W-11 for this purpose. Click here to download a copy of the form.

2. New hires to fill existing vacant positions qualify so long as the employees being replaced were terminated for cause or voluntarily quit.

3. The 6.2 percent payroll tax incentive may apply also to employees who are rehired so long as such employees were unemployed or underemployed for 60 days immediately preceding the date of rehire.

4. Family members and other relatives of the employer are not eligible.

5. The payroll tax incentive may be claimed on the employer's quarterly federal tax return (form 941) beginning the second quarter of 2010.

6. The retention credit is available for each employee who is a qualified employee for purposes of the payroll tax incentive and who remains employed for 52 consecutive weeks so long as the employee's wages do not decrease significantly in the second half of the year. Specifically, the employee's wages in the second 26 weeks of the year must be at least 80% of the employee's wages during the first 26 weeks of the year.

7. Businesses, agricultural employer, tax-exempt organizations, Native American tribal governments, and public colleges and universities are eligible to claim the tax incentives provided by the Act. Household employers do not qualify.

Click here to view additional information about the Act provided by the IRS.