Who is the Employer? The Devil is in the Documents

Authored by Katharine Essick. Ms. Essick is a partner in Sedgwick’s San Francisco office. Click here to contact Ms. Essick.

Originally published by Ms. Essick in the California Employment Law Letter (Vol. 26, No. 21.)

The recent disability discrimination decision in Morgan v. AT&T Communications of California, Inc. (No. H039904, 2016 WL 3944668 (Cal. Ct. App. July 19, 2016)) underscores the need to clearly identify the legal employer of your workers, which may not be limited to the company identified on their W-2s. All documents issued to employees, including handbooks, benefits documents, and disciplinary communications, should clearly and consistently identify the proper employer, as a pair of alleged employers learned when they attempted to dismiss a lawsuit under the Fair Employment and Housing Act (FEHA).

Apparently straightforward case for dismissal
Adolphus Morgan sued two companies in the AT&T corporate family under the FEHA. Morgan, an engineer, took a leave of absence because of work-related stress. When he returned to work, he requested a transfer to a different department in a different location, but his request was denied. He claimed that he was placed on a performance improvement plan (PIP) under a new supervisor, who continued the same pattern of conduct that had caused his work-related stress in the first place.

Morgan took a second leave of absence and filed a workers’ compensation claim. He continued to request a transfer as a reasonable accommodation and submitted a physician’s note supporting his ability to perform the essential functions of his job if he was given a transfer. Instead, he was terminated for failing to return to work after he was cleared by a doctor.

In an action filed in state court, Morgan claimed that AT&T discriminated against him based on his disability (work-related stress). He argued that when he requested reasonable accommodations (a transfer after he returned from disability leave and a continuation of his second disability leave), AT&T failed to engage with him in the required “interactive process” to identify an accommodation, and instead fired him in retaliation for his complaints and accommodation requests.

The AT&T companies asked the trial court to dismiss Morgan’s lawsuit. Among other evidence, they presented documents to show that his job performance was unsatisfactory and he was fired because he failed to return to work from a nine-month discretionary leave even though his physician certified that he had no work restrictions. But the AT&T companies also asserted that neither of them was Morgan’s employer, and neither was therefore a proper defendant to his lawsuit.

The companies claimed that Morgan’s true employer was Pacific Bell. In support of their request for dismissal, each AT&T company submitted a declaration from a current employee who stated that his or her employer was a separate corporate entity from Pacific Bell, was never a parent company of Pacific Bell, never employed Morgan, and “played no role in any employment decisions regarding” him. The AT&T companies presented other evidence in an attempt to establish that Pacific Bell was Morgan’s true employer and the only proper defendant. For instance, Morgan testified at his deposition that he understood when he was hired in 1996 that he would be working for Pacific Bell when he saw his employment application, which had a Pacific Bell logo above the words “A Pacific Telesis Company.” When he accessed his employer’s intranet and printed a description of an available manager position in support of his request for a transfer, the notice stated the opening was with “Company: Pacific Bell Telephone.” Finally, the companies pointed to Morgan’s W-2 forms, which identified “Pacific Bell Telephone Company” as his employer.

The trial court dismissed Morgan’s lawsuit against AT&T, finding he was unable to establish that he had been an employee of either AT&T company he sued. In making its ruling, the trial court relied on the W-2s that identified Pacific Bell as the employer as well as letters indicating that Pacific Bell was merely doing business as “AT&T California,” which Morgan hadn’t named as a defendant. The trial court found that the use of a fictitious name (“AT&T California”) didn’t create a separate legal entity, and even if Morgan had evidence that the defendants were corporate parents of Pacific Bell, he hadn’t submitted any evidence that they had enough control over Pacific Bell to allow them to be sued in its stead. Morgan appealed.

Confusion in the documents
Because the trial court determined that Morgan was unable to present a single fact that might persuade a jury that AT&T was his employer, the court of appeal engaged in the usual process of reviewing the entire record to see if there was any evidence that could, if believed, prove that either AT&T company was Morgan’s employer and therefore a proper defendant.

Since many documents were submitted to establish Morgan’s poor performance and detail the communications with him about his leave of absence, the record was rife with corporate documents that suggested an “AT&T” company was his employer. Six letters written by a member of the employee relations department that dealt with his disability leave and eventual termination identified his employer as “AT&T California (Pacific Bell Telephone Company).” AT&T also submitted his performance reviews, which identified different “AT&T” companies throughout the documents. Moreover, the PIPs that AT&T applied to Morgan when he returned from his first disability leave were titled “AT&T Performance Plans.” A final performance review that incorporated the PIPs was titled “AT&T Achievement and Development (2008)” and contained an AT&T logo.

For his part, Morgan didn’t dispute that he was initially hired by Pacific Bell, but he claimed that he worked for AT&T as well as “SBC.” He submitted to the trial court 41 documents that he received from the AT&T companies or their attorneys during the course of his employment. Among them were performance reviews with “AT&T” captions, documents that referred to “AT&T” goals, and forms acknowledging review of “AT&T” courses and training materials. After he filed a workers’ comp claim based on his work-related stress, an area manager who completed the “Employer” section of the claim form identified Morgan’s employer as “AT&T.” Correspondence about the claim came from the “AT&T Integrated Disability Service Center.” A letter explained that he might be entitled to benefits under either the Pacific Telesis disability benefits plan or the AT&T disability income plan. At his deposition, Morgan testified: “At the time I left AT&T, they wasn’t sure who was really in charge of the company. It was a longstanding joke between people who work there. We started out SBC, went to AT&T. . . . [It] all depends [on] who you talk to on what day.”

Closing the door to an early exit
The FEHA doesn’t define “employer.” The courts will examine whether the company that is alleged to be the employer has day-to-day authority over matters such
as hiring, firing, directing, supervising, and disciplining the employee. The courts have identified many other relevant considerations, although the most important factor in identifying the employer is the extent to which it has the right to control the means and manner of the worker’s performance.

Because the identification of the employer is so fact intensive, it’s difficult to secure an early dismissal of a lawsuit rather than being forced to prove a defense at
trial. Under FEHA, any person or entity that is identified as the employer on an employee’s W-2 forms is presumed to be the employer. Pacific Bell, not AT&T, was identified as the employer on the W-2 forms issued to Morgan. Nevertheless, it was possible for him to overcome the presumption that Pacific Bell was his employer by presenting other evidence. The trial court found that multiple documents submitted by both Morgan and AT&T at least raised a question about whether AT&T, not Pacific Bell, was his employer.

The court of appeal also noted that the AT&T companies’ declarations didn’t address the employment status issues in any meaningful way. For example, although
there was evidence that “AT&T California” was another name for Pacific Bell, the companies failed to explain the relationship between them and “AT&T California,” and they didn’t deny that one of them was also known as “AT&T California.” And although the companies denied that they were the same entity as Pacific Bell, they didn’t deny that they were the same as the various “AT&T” entities identified in the documents reviewing Morgan’s work performance. They didn’t explain which manifestation of AT&T reviewed Morgan’s performance, the relationship between them and the AT&T entities identified in the performance review forms, or why his performance for Pacific Bell was reviewed on AT&T forms that made no reference to Pacific Bell.

The companies’ declarations also didn’t discuss any of the factors that identify a true employer—including the right of control. Instead, they merely denied involvement in any employment decisions involving Morgan. The companies didn’t deny that they established the disability leave program under which he was fired or that his work performance was reviewed under their standards. All they offered were legal conclusions from employees who weren’t legal experts that the companies weren’t Morgan’s “employers” under FEHA. That wasn’t enough to entitle them to a dismissal of the case under FEHA, especially since “AT&T” was identified throughout their employment documents. In other words, the court of appeal explained, the corporate documents revealed “unresolved questions about who employed [Morgan] when he was terminated.” The court therefore reversed the judgment in favor of the AT&T companies and sent the case back to the trial court.

Bottom line
A company that isn’t the true employer of an employee under FEHA is entitled to a judgment in its favor in a lawsuit. Many companies operate through a series
of interrelated parents and subsidiaries, often with common management, a single HR department, and identical policies. If the companies don’t clearly identify the specific employer and maintain separate management of the day-to-day activities of employees, then it’s more likely that multiple entities will be named in a lawsuit by a former employee. Employers that operate through multiple entities must be sure to accurately and clearly identify the proper employer in all employee documents, including every form, letter, and handbook.

California Adds Several New Employment Laws to the Books

By Jim Brown. Mr. Brown is a Partner in Sedgwick’s San Francisco office. Click here to contact Mr. Brown.

Originally published by Mr. Brown in the California Employment Law Letter.

In the last two months, California Governor Edmund G. Brown has signed several bills, resulting in laws that will have an impact on various issues facing employers in California. Here is an overview of several of those laws.

Stricter Statewide Prohibitions On Smoking In The Workplace

California Labor Code Section 6404.5 previously restricted smoking in the workplace based on “enclosed space” areas at places of employment. In addition to signage requirements, the existing law provided a list of exceptions or exemptions from the definition of “place of employment.”

Assembly Bill (AB) 7 amends Labor Code Section 6404.5 to, among other things, eliminate the specified exemptions from “place of employment” for hotel lobby and bar areas, taverns, banquet rooms, warehouse facilities, and employee break rooms. Although local jurisdictions could previously enact rules prohibiting smoking in those areas, there was no statewide law requiring such a ban.

In addition, the new law expands the ban on smoking to include certain owner-operated businesses that weren’t previously covered. The bill, which was signed into law on May 4, 2016, and becomes effective January 1, 2017, will provide statewide uniformity for the prohibition on smoking in these areas.

PFL Benefits Increased

Existing California law provides certain paid family leave (PFL) benefits to employees who take time off work to care for family members who have a serious medical condition or to bond with minor children within one year of their birth or placement via foster care or adoption. These wage replacement benefits are available for up to six weeks, and the amount of the benefits is currently based on calculations used for unemployment compensation.

AB 908 will change the formula for determining the amount of PFL benefits after January 1, 2018, provide for a weekly minimum benefit of $50, and increase the percentages for determining the wage replacement rate for the weekly benefit amount. The ceiling for the weekly benefit amount will be tied to the maximum for workers’ compensation temporary disability benefits.

In addition, AB 908 will remove the current seven-day waiting period applicable to employees who are unable to perform their regular or customary work and will allow for payment of disability benefits starting on the first day of their inability to work.

California Minimum Wage Increase

Under existing law, California’s minimum wage increased to $10 per hour on January 1, 2016. Senate Bill (SB) 3, introduced by Senator Mark Leno (D-San Francisco) and signed by Governor Brown on April 4, increases California’s minimum hourly wage to $15 by January 1, 2022, for large employers (with 26 or more employees) and by January 1, 2023, for small employers (with 25 or fewer employees).

The new law contains a stepped increase for large employers raising the hourly rate in 2017 by 50 cents to $10.50, and a $1 per hour increase each year after that until the $15-per-hour rate is reached. The same stepped increase for employers with 25 or fewer employees starts January 1, 2018, and ends at $15 per hour on January 1, 2023.

SB 3 also adds new provisions to California Labor Code Section 1182.12 allowing the governor of California to temporarily suspend a minimum wage increase scheduled for the following year. The governor must consider certain financial indicators before acting to suspend a minimum wage increase. In addition, the governor can use his power to suspend the minimum wage increase only on two occasions. If the power is exercised, the schedule for minimum wage increases is extended for another year after the suspension of the increase.

Paid Sick Leave For In-Home Supportive Services Workers

In addition to increasing the state minimum wage, SB 3 extends the paid sick days provided for under the Healthy Workplaces, Healthy Families Act of 2014 to in-home supportive services workers. Under existing law, this category of workers was excluded from the definition of “employee” for purposes of paid sick leave. SB 3 removes that exception and allows in-home supportive services workers to receive the same paid sick days that were extended to other workers in California in 2015.

California Disability Access Lawsuit Protections For Small Businesses

Existing California law prohibits discrimination on the basis of various personal characteristics, including disability. In addition to establishing standards for making new construction and existing facilities accessible to people with disabilities, the law provides remedies for violations of disability access laws when someone experiences “difficulty, discomfort, or embarrassment” because of the violation. A defendant is liable for actual damages plus minimum statutory damages of up to $4,000 for each violation of the construction-related accessibility standards

SB 269 gives small businesses some protection from the minimum statutory damages by allowing them the opportunity to fix certain types of violations even after they are sued or to preemptively engage an access specialist to inspect their business to identify potential violations. Under the new law, a business that regularly employs 50 or fewer workers that is sued or receives a written notice to fix certain types of violations can avoid the statutory penalties if it corrects the violations within 15 days. The types of violations that are covered by the 15-day “cure” period include violations involving interior and exterior signage, parking space striping, and detectable warning surfaces.

A small business can also hire a certified access specialist (CASp) to inspect its premises and then have up to 120 days to correct any violations discovered during the inspection. Assuming the inspection predates the filing of a lawsuit or the receipt of a demand letter based on the violations, the small business will not be liable for the statutory damages.

Neither of the new small business exceptions precludes someone from proceeding with a claim for actual damages if the claim can be proven. However, the majority of Americans with Disabilities Act (ADA) access suits faced by California businesses are premised on the presumed statutory minimum damages of $4,000 per violation.

Current law requires California’s Division of the State Architect (DSA) to establish and publicize a program for voluntary certification of people who meet the CASp criteria and annually publish a list of CASps. SB 269 now requires the DSA to publish and update lists of businesses that have filed notices of inspection and businesses that have been inspected by a certified CASp on or after January 1, 2017.

In addition, the new law requires the California Commission on Disability Access (CCDA) to provide a link on its website to the CASp certification program and local public agencies to notify all applicants for development permits of the requirements of the ADA or provide similar materials developed by the CCDA. The new law was signed by Governor Brown on May 10 and is effective immediately.

Bottom Line

Compliance with California employment laws requires an awareness of the ever-changing legal landscape. Be sure you keep up with these fast-moving developments.




New Department of Labor Wage and Hour Regulations Regarding Salary Basis Test

The U.S. Department of Labor issued a final rule implementing a new minimum salary for the White Collar Exemptions of $913 per week, equivalent to $47,476 per year (which will be adjusted every three years on a regular basis). The new rule will become effective December 1, 2016.

Based on the current California minimum wage of $10.00 per hour, this means that the federal salary requirement for these exemptions is higher than the California salary requirement which is currently $41,600 per year, which is the equivalent of $800 per week.  This also means that, unless California changes the rules, employers can anticipate a significant increase in California-related FLSA misclassification litigation.  This could significantly impact litigation procedures due to differences between the FLSA and state law, including the need for all settlements to be approved by a Court or the Department of Labor and the fact that collective actions proceed on an opt-in rather than an opt-out basis.

Hold on to Your Seats! – The California Supreme Court (Finally) Weighs in on Suitable Seating Issues

By Marc A. Koonin, an associate in Sedgwick’s San Francisco office. Click here to contact Mr. Koonin.

The California Supreme Court finally issued its long awaited suitable seating decision in the Kilby v. CVS Pharmacy, Inc. case, which presents new challenges to California employers. As set forth in previous alerts, Kilby involved claims made (in two related cases) against employers under the California’s Private Attorneys General Act of 2004 (“PAGA”) for allegedly failing to provide their employees with suitable seating. In considering appeals relating to the California suitable seating law from cases which had been filed in federal district courts, the U.S. Ninth Circuit Court of Appeals certified three questions to the California Supreme Court. The California Supreme Court has now answered those questions.

Specifically, the certified questions, as restated by the California Supreme Court, and the answers, are set forth below:

(1)  “Does the phrase “nature of the work” refer to individual tasks performed throughout the workday, or to the entire range of an employee’s duties performed during a given day or shift?” 

The suitable seating laws provide that “[a]ll working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.” The Supreme Court was therefore called upon to determine what is meant by the phrase “nature of the work.” The employers argued that the nature of the work should be determined on a holistic basis looking at an employee’s work duties throughout his or her workday. The employees argued that the nature of the work should be determined on a per task basis.

The Supreme Court ruled that the nature of the work must be determined based on the tasks performed at the specific location rather than by using a holistic approach. For example, if an employee performs some tasks at a cash register and also stocks merchandise, the employee will likely be entitled to a seat while working the cash register but not while actively engaged in stocking merchandise.

(2) “When determining whether the nature of the work “reasonably permits” use of a seat, what factors should courts consider?  Specifically, are an employer’s business judgment, the physical layout of the workplace, and the characteristics of a specific employee relevant factors?” 

The employers argued that courts should consider factors such as the employer’s business judgment, the physical layout of the workplace, and even physical differences among employees. The employees argued that the only issue should be whether the job in question can be performed while seating.

The Supreme Court ruled that courts should apply an objective “totality of the circumstances” test to determine whether the work reasonably permits the use of seats. In applying that test, an employer’s business judgment and the physical layout of the workplace are both relevant, but not dispositive, factors. The Supreme Court explained, however, that while factors such as customer preference may support business judgment, employers cannot simply assert an unsupported preference that employees stand or intentionally design workspaces to prevent sitting. Finally, the Supreme Court rejected the argument that courts should consider employee characteristics for this purpose, although such an analysis may be relevant to other employer obligations, such as the reasonable accommodation of a disability.

(3) “If an employer has not provided any seat, must a plaintiff prove a suitable seat is available in order to show the employer has violated the seating provision?” 

The employers argued that an employee seeking to enforce the suitable seating law should have to propose a specific suitable seat appropriate for the worksite. The employees argued that since the burden is on the employer to provide seats where reasonably feasible, the burden should be on the employer.

The Supreme Court determined that so long as the nature of the work will reasonably permit the use of seats, employers have the burden of proof to establish that no suitable seat is available.

In answering the three certified questions, the Supreme Court also provided some related guidance. First, the Court clarified that an employer is obligated to provide employees suitable seats during lulls in work time which would otherwise require them to stand. The Court stated that if an employee’s tasks at a particular location make seated work feasible, the employee is entitled to a seat while working there. However, even if the employee performs other job duties at a different location which must be performed while standing, the employee is still entitled to a seat during lulls in operation. Second, the Court repeatedly emphasized that in interpreting the scope of the suitable seating law, the touchstone is reasonableness based on the particular circumstances of a specific worksite. Accordingly, employers (and courts) must adopt a case-by-case analysis to work tasks rather than taking a “one size fits all” approach.

The Kilby decision offers important guidance in a developing area of law. Consistent with employment safety obligations, employers should perform a site specific analysis of each work station to determine their obligations under the suitable seating law. Employers with questions about conducting an internal analysis or other aspect of California’s suitable seating law are encouraged to consult with a Sedgwick LLP employment lawyer to help them in this process.

California Supreme Court Holds Plaintiffs Entitled to Costs as of Right After Settlement

By Kirk Jenkins. Mr. Jenkins is a Partner in Sedgwick’s Chicago office, specializing in Appellate, Antitrust, and Unfair Competition Law. Click here to contact Mr. Jenkins.

On March 10, 2016 a divided California Supreme Court handed down its decision in DeSaulles v. Community Hospital of the Monterey Peninsula, holding that as long as a settlement agreement involves a payment of money from defendants to plaintiff – no matter how small in relation to the plaintiff’s demand – the plaintiff is a “prevailing party” under Section 1032(a)(4) of the Code of Civil Procedure and entitled to an award of costs as a matter of law.

The Court emphasized that its conclusion was a default rule only, and the parties were free to provide in their settlement agreement for a different allocation of costs.  But in the wake of DeSaulles, parties who neglect to make such an express allocation may be in for an unfortunate surprise – a cost bill, which in some kinds of litigation can be substantial.

Plaintiff in DeSaulles worked for defendant for a little over a year as a patient business services registrar.  In 2007, the plaintiff filed suit, purporting to allege claims for (1) failure to accommodate her physical disability; (2) retaliation under FEHA; (3) breach of implicit conditions of employment contract; (4) breach of the covenant of good faith and fair dealing; (5) & (6) negligent and intentional infliction of emotional distress; and (7) wrongful termination.  Following the defendant’s motions for summary judgment or adjudication and motion in limine, the trial court held that the plaintiff would be barred from offering any evidence on any claim other than the third and fourth causes of action.  Subsequently, the parties placed a settlement on the record, pursuant to which the defendant paid the plaintiff $23,500 in connection with the third and fourth claims, and the remaining claims were dismissed with prejudice.  The court subsequently entered a judgment providing that the “plaintiff recover nothing from defendant.”  The judgment was affirmed on appeal.

Following remand, both parties filed cost bills, claiming to be the prevailing party (the parties’ settlement agreement said nothing about costs).  The trial court granted the defendant’s request for costs and denied the plaintiff’s.  The Court of Appeal reversed, holding that the plaintiff was the prevailing party as a matter of law, since the litigation had ended with a payment – albeit a small one – from defendant to plaintiff.

In an opinion by Justice Goodwin Liu, the Supreme Court affirmed the Court of Appeal.  The majority began by assessing whether a defendant could be considered the prevailing party following a settlement due to Section 1032’s reference to a “prevailing party” including “a defendant in whose favor a dismissal is entered.”  The majority held it could not.  The rationale for allowing a defendant costs, according to the Court, is to compensate the defendant for preparing for a trial on unmeritious claims when the plaintiff dismisses on the courthouse steps.  That rationale did not apply when the plaintiff receives a cash payment (even a nuisance one).  In contrast, the Court concluded that a settling plaintiff was a “prevailing party” on the grounds that a settlement payment constituted a “net monetary recovery” under the statute.  This was so, the Court held, in part in order to prevent defendants from avoiding a cost award by settling on the eve of trial.

The majority conceded that “defendants may settle cases with little merit in order to be spared the expense of trial.  However, the rule is that a partial recovery, as long as it is a net monetary recovery, entitles a plaintiff to costs.”  The Court not only encouraged parties to specifically make an express provision for costs, but noted that courts are free to exercise their discretion to adjust a cost award under Section 664.6 of the Code where “parties . . . overlook the issue of costs in their settlement agreements.”  But of course, the corollary of the trial courts having such discretion is always the risk that the court will refuse to make such adjustments.

Justice Kruger dissented, joined by Justice Werdegar.  The dissenters agreed that a settling plaintiff was a “prevailing party” under Section 1032, but concluded that settling defendants were too, given the statutory reference to a “defendant in whose favor a dismissal is entered.”  Since both sides in a settlement couldn’t be entitled to an award of costs as of right, it necessarily followed that trial judges were free to allocate costs as they see fit when the parties failed to expressly allocate them in the settlement agreement.

Bottom Line: 

In the wake of DeSaulles, it is important that all settlement agreements governed by California state law include express language providing for the allocation of costs.  Otherwise, defendants will be vulnerable to a post-settlement costs award.

2016 Employment Law Update

By Delia Isvoranu. Ms. Isvoranu is a Partner in Sedgwick’s San Francisco office. Click here to contact Ms. Isvoranu.

2015 was a busy legislative year with the passage of several labor and employment laws and amendments expanding employers’ obligations. Below are the most significant developments:

  • Minimum Wage (Labor Code §1182.12): Increases the minimum wage to $10 per hour. Local Ordinances further increase the minimum wage. Employers should check minimum wage requirements in the cities in which they operate.
  • Equal Pay (Labor Code §1197.5): Prohibits pay secrecy, i.e. employees may not be prohibited from disclosing or discussing their or others’ wages. The Act also reduces an employee’s burden in proving an equal pay violation. The comparable employee need not be engaged in “equal work,” but may merely be performing “substantially similar” work.
  • Discrimination (Civil Code §51): Prohibits discrimination based on citizenship, primary language, and immigration status.
  • Retaliation (Labor Code §§98.6, 1102.5, & 6310): An employer may not retaliate against an employee because the employee is a family member of an individual who is, or is perceived to be, engaging in protected activity.
  • Disability & Religious Accommodation (Gov’t Code §12940): Prohibits retaliation against an employee for merely requesting an accommodation for a disability or religious belief, regardless of whether the accommodation is actually granted. A request for reasonable accommodation on the basis of religion or disability is a “protected activity.”
  • E-Verify (Labor Code §2814): Prohibits use of federal employment E-Verify system at a time or in a manner not required by a specified federal law or not authorized by a federal agency. Also requires certain notices.
  • Protections for Military Members (Military & Veterans Code §395.06): National Guard members of all other states, who work for a private employer in California, are entitled to the following protections while/upon returning from duty: (1) they are considered to be on a leave of absence, (2) they must be restored to their former position of a position of similar seniority, pay, & status, without loss of retirement or other benefits, unless the employer’s circumstances have so changed as to make it impossible or unreasonable to do so; and (3) they may not be discharged without cause within one year after being restored to the position.
  • Sick Leave (Labor Code §245.5, 246,247.5): Clarifies accrual, notice requirements, and limitations. Records must also be kept for at least three years.
  • Family Care Leave (Labor Code §§230.8 and 233): Expands permissible reasons for leave related to school activities. The changes make “kin care” rights consistent with the new paid sick leave law and expands the reasons for which, and for whom, kin care can be used.

Employers should review their practices and policies to ensure compliance. Management employees should also be promptly trained to respond to and handle personnel matters consistent with these legal developments.

New Laws Affecting California Employers

By Delia Isvoranu. Ms. Isvoranu is a Partner in Sedgwick’s San Francisco office. Click here to contact Ms. Isvoranu. Originally published by Ms. Isvoranu in the California Employment Law Letter.

August was a busy legislative month, with the enactment of several employment-related bills that create new laws and impose additional requirements upon employers.

Gender Violence Includes Acts Based on “Gender Expression” and “Gender Identity”

Employees filing sexual harassment and discrimination actions are increasingly alleging related claims of gender violence pursuant to Civil Code Section 52.4, where the alleged conduct was of a physical or threatening nature (i.e., inappropriate touching, threatening behavior).

Civil Code Section 52.4 provides that any person who has been subjected to gender violence may bring a civil action for damages against any responsible party. The plaintiff may seek actual damages, compensatory damages, punitive damages, injunctive relief, and any other appropriate relief. A prevailing plaintiff may also be awarded attorneys’ fees and costs.

The term “gender violence” is defined as a form of sex discrimination and means either of the following:

  • One or more acts that would constitute a criminal offense under state law involving the use, attempted use, or threatened use of physical force against the person or property of another, committed at least in part based on the gender of the victim, whether or not those acts result in criminal complaints, charges, prosecution, or conviction.
  • A physical intrusion or physical invasion of a sexual nature under coercive conditions, whether or not those acts result in criminal complaints, charges, prosecution, or conviction.

To date, courts have held that “gender,” as used in Civil Code section 52.4, refers only to biological gender. This was inconsistent with other laws prohibiting discrimination and harassment on the basis of gender—such as the Fair Employment and Housing Act (“FEHA”) and the Unruh Civil Rights Act—which define “gender” to include gender identity and gender expression, not merely one’s actual, biological gender. “Gender expression” refers to the ways in which individuals express their masculinity or femininity. It is usually an extension of “gender identity.” For many individuals, especially in the LGBT community, gender expression or gender identity may not match their biological gender/sex.

Therefore, legal protections under Civil Code section 52.4 needed to extend beyond merely biological gender and to be consistent with other discrimination laws that broadly define gender/sex. Assembly Bill 830 amends Civil Code section 52.4 so that “gender” now has the same meaning as in FEHA and the Unruh Act and includes “gender expression” and “gender identity.”

The amendment also extends protections to acts of violence, or threatened violence, based on the sexual orientation of the victim.

Job Protection for Grocery Workers

The merger and acquisition of grocery stores often results in the closure of grocery locations and the elimination of grocery workers’ jobs. Assembly Bill 359 created Labor Code Section 2500-2522 which protects grocery employees (working in stores of at least 15,000 square feet) from being terminated during a 90-day transition period if the grocery store is undergoing a change of ownership. The stated purpose of the new law is to ensure that the most experienced, best prepared workers remain employed, which in turn protects the welfare of communities. The Bill argued that “experienced grocery retail workers have knowledge of proper sanitation procedures, health regulations and laws, and an experience-based understanding of the clientele and communities in which the retailer is located….”

Labor Code sections 2500-2522 require an incumbent grocery employer (i.e. the current owner or operator of the store)—upon a change of ownership, control, or operation of a grocery establishment—to prepare a list of eligible grocery workers for a successor grocery employer. An “eligible” employee is one who has worked for the incumbent employer for at least six months and excludes managerial and supervisory employees.

Subject to limited exceptions, the new owner must hire and retain employees from this list during a 90-day retention period, and may not discharge those workers without cause during that period. The new employer must then provide each retained employee a written performance evaluation at the end of the 90 days. If the eligible grocery worker’s performance during the 90-day transition period is satisfactory, the new employer must consider offering the eligible grocery worker continued employment under the new employer’s terms and conditions. The new employer must also retain a record of the written performance evaluation and any job offer for at least three years.

A collective bargaining agreement may supersede these requirements and these Labor Code sections do not preempt any local ordinance that may provide equal or greater protection to eligible grocery workers.

The cities of San Francisco, Santa Monica, Alameda, Gardena and Los Angeles previously adopted similar local ordinances protecting grocery store employees. California, however, is the first state in the nation to create a statewide worker-retention law for grocery store employees.

Employment Protections for Military Members

The vast majority of California National Guard members are the traditional part-time citizen-soldiers. When necessary, the federal government mobilizes them onto operational active duty tours (including combat).When any state’s National Guard units are not under such federal control, the Governor serves as the commander-in-chief of the state’s Guard units and can deploy National Guard forces in response to natural disasters, man-made emergencies (such as riots and civil unrest), or terrorist attacks.

Assembly Bill 583 amends Section 395.06 of the Military and Veterans Code, relating to the employment rights of service members. Existing law provides employment protections for members of the California National Guard and reservists ordered into active service by the Governor of California or the President of the United States for emergency purposes. Upon a California National Guard member’s return from service, a California employer must:

  • Consider the employee as having been on a leave of absence during the period of the employee’s active service;
  • For full time positions, restore the employee to the former position or to a position of similar seniority, status, and pay without loss of retirement or other benefits, unless the employer’s circumstances have so changed as to make it impossible or unreasonable to do so; and
  • Not discharge the employee from his or her position without cause within one year after being restored to the position.

Section 395.06 is now amended to extend these protections to members of the National Guard of all other states, who work for a private employer in California, when they are called to military service by their respective Governors or by the President of the United States. Additionally, the district attorney of the county in which an employer maintains a place of business is authorized to act as an attorney on behalf of a service member in any action against a California employer who fails or refuses to comply with these provisions, if the district attorney is reasonably satisfied that the employee is entitled to these benefits.

Bottom Line:

The above laws were enacted in response to societal and economic changes that require more inclusive legal protections for employees. Employers should review their employment policies and practices to ensure compliance with these broadened legal requirements. It is also critical to train and counsel supervisors, hiring managers, and potential decision makers to be aware of the additional protected classes to which these protections apply.

Fake Evidence Leads to Real Sanction – Dismissal with Prejudice of a Retaliation Claim

By Diana Karnes. Ms. Karnes is an Associate in Sedgwick’s Chicago office. Click here to contact Ms. Karnes.

In Secrease v. The Western & Southern Life Insurance, Co., et al., Case No. 15-1328 (7th Cir., Sept. 1, 2015), plaintiff sued his former employer and supervisors, alleging unlawful discrimination and retaliation in violation of Title VII of the Civil Rights Act of 1964. The employer moved to dismiss the complaint, arguing that it was untimely. In plaintiff’s response to the motion to dismiss, plaintiff sought to enforce an arbitration clause, attaching to it a copy of his purported employment contract which contained a mandatory arbitration provision.

In reply, the employer argued plaintiff was trying to defraud the court because there was no mandatory arbitration clause in the employment contract that plaintiff signed. It contended that the first and last pages of the document attached to the response brief appeared to be from the correct contract, but that the interior pages were from a later version. The later version had a mandatory arbitration provision, but it was not the contract that plaintiff signed.

After reviewing the briefs, the district court dismissed all of plaintiff’s claims except for the retaliation claim. As to that claim, the district judge held a hearing on whether the plaintiff deliberately submitted a falsified document in an attempt to compel arbitration. During the hearing, the employer’s personnel manager testified that the plaintiff’s personnel file contained one employment contract and that it did not contain an arbitration clause. Plaintiff then “dug a deeper hole of deception”, contending that he accidentally combined the two contracts, that his employer destroyed another contract he signed, and that he called the clerk to correct the filing (his phone record did not corroborate this).

Based on the evidence, the district court found plaintiff willfully tried to deceive the court and that his explanation was implausible. The Court therefore dismissed the suit with prejudice as a sanction for seeking relief based on falsified evidence.

In affirming the dismissal, the U.S. Court of Appeals for the Seventh Circuit (“Seventh Circuit”) noted the district court’s inherent authority to sanction a party that willfully abused the judicial process, and found the district court’s findings were fully supported by the evidence. The Seventh Circuit explained that “falsifying evidence to secure a court victory undermines the most basic foundations of our judicial system.” Id. at 7. It also recognized the court’s general interest in punishing a party’s dishonesty and deterring others from engaging in similar misconduct. As such, the Seventh Circuit affirmed the district court’s ruling and found that it acted within its discretion by exercising its inherent power to dismiss the suit with prejudice.

The Secrease case is a strong reminder of the court’s ability to issue harsh sanctions, whether it be a dismissal on a plaintiff or a default on a defendant, when a party tries to deliberately defraud a court.




System-Wide Failures May Lead to Class Claims

By Joel Kane, an Associate, and Delia Isvoranu, a Partner, in Sedgwick’s San Francisco office. Click here to contact Mr. Kane and here to contact Ms. Isvoranu.

Is every one of your employees provided with the opportunity to take a full 30-minute uninterrupted meal break, if eligible? If not, are you paying the requisite meal break premium for each workday that a meal break is missed? California employees continue to file claims over missed meal and rest breaks in droves, and many turn to class actions to recover unpaid premium pay for missed breaks.

Trial Court Grants Class Certification for Missed Meal Breaks

In Safeway, Inc., et al. v. The Superior Court of Los Angeles County (California Court of Appeal, 2d Appellate District, 7/22/2015), a class action was filed against Safeway Inc. (“Safeway”) and The Vons Companies (“Vons”) in 2007 for violations of the California Labor Code and California Unfair Competition Law (“UCL”). In February 2009, several employees added claims for failure to provide meal and rest breaks, failure to provide itemized wage statements, unfair business practices under the UCL, and penalties under the Labor Code Private Attorneys General Act. These additional claims were based on allegations that Safeway and Vons failed to provide meal and rest breaks, and failed to pay compensation (or “meal break premiums”) for the missed meal breaks in violation of the California Labor Code.

In January 2013 the employees applied for class certification of two separate classes pursuant to their claims for failure to provide meal and rest breaks, the UCL, and penalties under the Private Attorneys General Act. The first class (the “meal break class”) consisted of more than 200,000 employees who worked for Safeway or Vons between December 28, 2001 and June 17, 2007. They alleged that Safeway and Vons had a policy prior to June 17, 2007 of never paying meal-break premiums “under any circumstances,” justifying a meal-break class. The second class (the “receiver rest break subclass”) consisted of rest-break class members who worked as receivers after December 28, 2001.

The trial court certified a meal-break class, but denied certification as to the receiver rest-break subclass. Safeway and Vons appealed, challenging the certification specifically as to the UCL claims, which, again, were based on an alleged failure to pay meal-break premiums for missed meal breaks.

Missed Meal Breaks and Premium Payments Can Support an Unfair Business Practice Claim

Under the California Labor Code, employers must make a first 30-minute unpaid, and off-duty, meal break available to employees during the first five hours of daily work, and a second meal break if the employee works more than ten hours in a day. To meet this requirement, an employer must relieve an employee of all duties for a 30-minute uninterrupted period. But employers are not required to ensure that the employee is taking his or her break – they only need to be made available and not impede the break.

If an employer does not relieve an employee of his or her duties for the required uninterrupted 30-minute period, or does not timely permit the meal break, it must pay a meal-break premium of one hour of pay at the employee’s regular rate for each workday that the meal period is not provided. Although many employers disagree, this is considered a premium “wage” not a “penalty.” However, in 2012 the California Supreme Court clarified that this does not mean that an employee may bring a claim for unpaid wages for failure to pay a meal-break premium. (Kirby v. Immoos Fire Protection, Inc. (2012) 53 Cal.4th 1244, 1256-1257.)

The employees claimed that Safeway and Vons engaged in a system-wide failure to pay meal-break premiums. They sought restitution under the UCL based on a market-value approach. And based on the public policy in favor of full and prompt payment of wages, the Appellate Court held that a UCL claim may properly be based on a practice of not paying premium wages for missed, shortened or delayed meal breaks due to an employer’s instructions or pressure, in the absence of a proper employee waiver agreement.

The Employees’ UCL Claims Were Appropriate for Class Treatment

Class certification is appropriate when a common issue predominates and individual issues can be managed fairly and efficiently. A court must generally find that common proof may establish the facts necessary to establish liability. If the claims are too individualized, or require separate facts, class treatment is not appropriate.

The employees asserted that due to Safeway’s and Vons’ failure to pay meal break premiums, “the class members lost a substantial portion of the value they were otherwise guaranteed as part of their employment. Had they taken comparable jobs at comparable pay with other… retailers, the class members would have received the benefits of these statutory protections and would not have suffered this loss.” By styling the UCL claims in this manner, the employees attempted to sidestep the individual inquiries necessary to compensate each class member for missed meal-break premiums, arguing instead that the class members all lost the same value due to being deprived of their statutory rights and that the loss could be established based on a “market value” approach.

Safeway and Vons countered that class treatment of the UCL claim is inappropriate, because there is no proof that they are liable for missed meal breaks, as a threshold matter, or for unpaid meal-break premiums. But the Court found that the evidence showed that, before 2007, the employees were instructed or pressured not to take meal breaks, and that Safeway and Vons had no mechanism by which to ensure meal break premiums were paid. There was also evidence that, during that time, the Companies never paid any meal-break premiums, despite the appearance that meal breaks were not always provided. Also, the issue was not whether there were individual violations, but whether there was a deep, system-wide error committed by the employers’ policy or practice of not paying the premium wage. Under this framework, the Court held that “the existence of the practice and the fact of damages were matters suitable for class treatment.” That is, “establishing that a significant number of employees accrued unpaid meal break premium wages is capable of common proof…”

In a further attempt to avoid class certification, Safeway and Vons also argued that the defined class includes employees owed no meal break premium, and others whose status is difficult to assess. The Court, however, again noted that the employees’ theory of restitution places the claimed loss on all class members, and was not premised on individual violations. Accordingly, this argument failed.

Bottom Line – Prevent System-Wide Failures

While it goes without saying, employers must be certain not to engage in any system-wide failures to provide wages and other benefits guaranteed by the Labor Code. The payment of premium wages for missed meal periods or rest breaks should be decided on a case-by-case basis; there should be no practice of automatically denying the premium pay on the grounds that the employer “always” permits and make breaks available. Not only will it expose an employer to individual wage and hour claims, but it creates a significant risk of class claims based on company-wide Labor Code and Unfair Competition violations. This case illustrates that, through clever pleadings, a class of employees may avoid the individual inquiries necessary to evaluate many wage and hour claims, and instead pursue and maintain a class-action.

Originally published by Mr. Kane and Ms. Isvoranu in the California Employment Law Letter.

Unpaid Interns Are Not Free Labor

By Ashley Coleman, an Associate in Sedgwick’s Orange County office. Click here to contact Ms. Coleman.

Doesn’t it seem like a good idea to allow newcomers exposure to what it might be like to work in the fashion or entertainment industry? A recent surge in lawsuits against well-known New York-based fashion retailers and media giants, accusing Oscar de la Renta, LLC, Marc Jacobs, Donna Karan International, Inc., Calvin Klein Inc., Coach, Inc., Columbia Recordings Corp., and Sirius XM Radio, among others, of improperly failing to pay their interns has many employers rethinking their internship programs. California and federal law both analyze the issue under a framework that makes it risky to allow interns to work without pay.

Fashion Retailers Under Siege

The recent lawsuits filed by former interns have the potential to become expensive class (or collective) action nightmares. In one case, Calvin Klein Inc. is accused of improperly having unpaid interns perform data entry, inventory work, and even set up for fashion shows. In the case against Marc Jacobs, an intern who worked for the company in 2009 now alleges that she should have been paid for the 70-plus hours she worked each week performing entry-level employee tasks, such as sewing, delivering coffee, and transporting materials. Similarly, in the case against Oscar de la Renta, a former intern claims that she made products the retailer sold in stores, ordered food for her supervisors, and even dressed models for fashion shows. Although Calvin Klein, Oscar de la Renta, Marc Jacobs, and Donna Karan are among the most recent targets, lawsuits alleging the unlawful failure to pay interns are not a novel idea. In June 2013, a federal judge in New York held that Fox Searchlight Films should have paid its interns for their work on the movie Black Swan.

In reaching that conclusion, the court considered the fact that the interns picked up lunch, answered phones, took out the trash, assembled furniture, and tracked travel expenses and purchases. The judge reasoned that performing those tasks didn’t amount to learning the craft of movie production. In another case filed in July 2013, media giant NBCUniversal Media recently offered to pay millions to settle allegations that it violated wage and hour laws related to unpaid interns.

The lawsuits have targeted media and fashion retailers in New York under federal law, but California employers are not immune from attack. In fact, California courts apply the same strict multipart test that the New York courts used in the above-referenced cases. Generally speaking, it is very difficult for employers to successfully engage unpaid interns under either federal or California law.

Current Law Applicable To Unpaid Interns

The U.S. Department of Labor (DOL) and the California Division of Labor Standards Enforcement (DLSE) use a six-part test to decide if an individual is an employee who should be paid hourly wages or a salary, or an intern who doesn’t have to be paid. When making that determination, the DOL and the DLSE consider whether:

(1) The intern receives training in his internship that is similar to training that would be received in a vocational school.

(2) The training is predominantly for the benefit of the intern rather than the employer.

(3) The intern displaces regular employees or works under their close observation.

(4) The employer derives an immediate advantage from the activities of the intern (or whether the employer’s operations are sometimes impeded by the intern’s activities).

(5) The intern is guaranteed a job at the conclusion of the training period.

(6) The employer and the intern understand that the intern is not entitled to wages for the time spent in training.

The six-part test was outlined by the DLSE in an April 7, 2010, opinion letter issued in response to an inquiry from nonprofit organization Year Up about whether it was required to pay its interns. In its opinion letter, the DLSE applied the six-part test and decided that the Year Up interns were exempt from the minimum wage laws. Some of the important factors the DLSE considered include:

  • The interns received college credit and stipends in exchange for an 11-month intensive training program.
  • Businesses paid Year Up a fixed fee to accept a trainee while dedicating a supervisor to guide the intern.
  • The interns were not guaranteed a job after completing the program.

The finding that Year Up was in compliance with the law is misleading, however. Most employers cannot reasonably go to the same lengths as a not-for-profit to ensure compliance with the six-factor text.

Breakdown Of Six-Part Test, Tips For Compliance

Companies often hire interns believing they can obtain inexpensive or free labor in exchange for providing on-the-job training, exposure to the industry, and experience to add to a résumé. Unfortunately, not only is that incorrect, but it is also dangerous. A company’s failure to pay wages based on the misclassification of an intern under the six-part test will result in serious problems, including liability for unpaid wages, overtime and meal and rest period violations, up to 30 days of waiting time penalties, interest, and attorneys’ fees, among other things. It’s important for employers to make sure they are compliant with each factor of the six-part test.

The type of training the intern receives matters. In the case against Marc Jacobs, for example, the intern alleges that she did not receive any academic or vocational training, but instead performed only entry-level tasks. Since the DLSE will look at the type of training an intern receives (e.g., formal classroom training vs. informal on-the job training), companies that have internship programs should avoid a structure that is strictly learning-by-doing training. It’s important to also have a component of formal training.

The intern must benefit from the training. In the case involving Year Up, the DLSE relied heavily on the fact that the program was an 11-month intensive training program and the interns received college credit and stipends. Although an employer can bolster its claim for the legitimacy of an unpaid internship by offering course credit, that “benefit” alone likely won’t be sufficient. Merely permitting interns to observe how the work is performed probably isn’t a sufficient benefit, either.

The intern must be closely supervised. This is something of a gray area, but if the intern is only loosely supervised, she will likely be deemed an employee who must be paid wages. Accordingly, the employer should create a structure in which the intern is closely supervised by a specific person or persons.

The employer must not benefit from the intern’s activities. The Fox Searchlight interns’ activities of picking up lunch and answering phones were deemed beneficial to the employer, even though they were low-level tasks. Examples of other activities that could be deemed beneficial to the employer include making sales calls, scanning or filing documents, sewing or making products, developing business strategies, or participating in any other task that would typically be performed by a paid employee at the company. As a general rule, an intern should not replace a paid employee.

The intern cannot be guaranteed a job at the conclusion of the internship. Interns cannot be led to believe that they will ultimately receive a job in exchange for their “free” labor. The employer should create separate written policies or handbooks devoted to interns that outline this fact fully. The intern should sign an acknowledgment of his understanding that there is no guarantee of a job at the end of the internship and he has no expectation of wages or any compensation that could be construed as wages.

The intern is not entitled to wages. The employer must make it clear from the outset of the internship, ideally in a written contract, that the intern will not be paid for her work. If there is a need to reimburse any expenses, the employer should specify in writing which expenses are being reimbursed and maintain records of the reimbursements (and the receipts).


Although we haven’t provided a comprehensive list, following the compliance tips outlined above can help you protect your company if you choose to implement an unpaid internship program. Given the recent increase in wage and hour lawsuits filed by interns (particularly in the fashion and media industries), you should proceed with extreme caution when using interns. It should raise a red flag if unpaid interns are doing menial tasks—especially if an employee may be paid to perform the same type of tasks. The perceived benefit of free labor could end up costing much more than the expense of paying an intern up front.

Originally published by Ms. Coleman in the California Employment Law Letter.