HR That Works Blog

California just passed legislation today which makes anyone other than a lawyer who “advises” employers to hire someone as an Independent Contractor jointly and severably liable for any mis-classification. And there’s more. Here’s the bill itself: http://www.leginfo.ca.gov/pub/11-12/bill/sen/sb_0451-0500/sb_459_bill_20110912_enrolled.pdf

1. Essentially, SB 495 makes it unlawful to willfully misclassify an individual as an independent contractor. If found guilty a company would have civil penalties of no less than $5,000 and no more than $10,000 per occurrence. If found guilty of repeated violations the result could be as much as $25,000 for each violation – willful is defined as with voluntary intent *( a very broad standard).
2. The company must maintain records by completing a document developed by the EDD for each independent contractor retained.
1. A notice indicating the individual will be engaged as an independent contractor
2. What EDD factors were included to determine the individual is an employee or an independent contractor
3. A statement explaining the impact the independent contractor status has on tax obligations and eligibility for labor and employment protections
4. Notice to the individual that they can seek advice from EDD or the Labor Commissioner regarding whether they were properly classified
3. Provides that any person who knowingly advises an employer to treat an individual as an independent contractor, to avoid employee status, shall be jointly and severably liable if the individual is found not to be an Independent Contractor. Of course, except for the lawyers.

No surprise, many entrepreneurs are livid about bills like this. As one entrepreneur stated:

“As a small business owner, if this passes I don’t see myself hiring any more contract programmers in state. It would be too risky. $25,000 fine and a required ‘Scarlet Letter’ on my web site? No thank you. It’s bills like this that force jobs to go overseas”

In contrast to the employer viewpoint another commentator on the bill said:

“I know an ‘employee’ working as an Independent Contractor, who stepped in a hole at San Quentin State Prison, where she worked as a registry nurse. By the time it was over, she lost half her leg, and ended up with no Worker’s Compensation Insurance, no Disability Insurance, no Unemployment Insurance, no nothing. Employers are totally bastardizing the definition of an Independent Contractor, and paying people who work only for them, 40 hours a week, under their supervision, as Independent Contractors. Great way for an employer to lure an “employee” to work for them, right up until either they’re injured on the job, are laid off, or of course when they get their 1099 at the end of the year, and find out they owe $38,000 of that $90,000 they earned in State and Federal Income Taxes. Great bill. About time. Pass it and enforce it!”

Bottom line is it is now the law. Here is the current info on it which will be updated in light of the new law. http://www.edd.ca.gov/payroll_taxes/independent_contractor_reporting.htm

The California Department of Fair Employment and Housing (DFEH) today announced its largest-ever administrative award of $846,300 against electrical supplier Acme Electric Corporation for firing an employee because he had cancer.  Headquartered in Lumberton, North Carolina, Acme Electric is a division of Actuant Corporation, a Wisconsin diversified industrial corporation that operates in more than 30 countries.

Charles Richard Wideman worked for Acme Electric as western regional sales manager overseeing sales operations in the company’s largest territory from February 2004 to March 2008.   He developed kidney cancer in 2006 and prostate cancer in 2007.  Mr.  Wideman’s cancers required two surgeries and numerous cancer-related outpatient appointments.  The company immediately granted his two requests for time off for surgery and recuperative leave.  However, Mr. Wideman requested further accommodation for the travel limitation his cancers caused from June 2006 through April 2007.  Acme Electric refused to grant or even acknowledge these accommodation requests.  Instead, in December 2007, Mr. Wideman’s supervisor gave him an unfavorable performance evaluation, criticizing him for insufficient travel.  On February 28, 2008, ignoring Mr.  Wideman’s need for accommodation the preceding year and failing to take into account his dramatically improved job performance, Acme Electric fired Mr. Wideman, relying on the insufficient travel pretext. 

After a three-day hearing, the State’s Fair Employment and Housing Commission found Acme Electric violated the FEHA by failing to accommodate Mr. Wideman’s known travel limitation due to his cancers, failing to engage in a good faith interactive process, discriminating against Mr. Wideman because of his disability, and failing to take all reasonable steps necessary to prevent discrimination from occurring.  To compensate Mr. Wideman for his losses, the Commission awarded him $748,571 for lost wages, $22,729 for out-of-pocket expenses and $50,000 for the emotional distress he suffered.  In addition, the Commission ordered Acme to pay $25,000 to the State’s General Fund as an administrative fine.  Acme must further comply with posting, policy changes, and training requirements ordered by the Commission.

Employer lesson: You can’t ignore ADA restrictions simply because it’s a pain to comply with. Any employee with a disability has to perform, with or without accommodations. In this case, had ACME attempted to accommodate Mr. Wideman…and he still could not perform to standard, then there is no liability. To learn about accommodating employees with cancer go to http://askjan.org/media/canc.htm

As stated in the preamble “The State of California has a compelling public interest in realizing the medical promise of genomics. It also has a compelling public interest in relieving the fear of discrimination and in prohibiting its actual practice….Although Congress enacted the federal Genetic Information and Nondiscrimination Act of 2008 (P.L. 110-233), its range of protections is incomplete for Californians”

While the law deals with insurance, housing and employment, we will focus on the employment law aspects.

Some notes:

• A violation of the right of any individual under the federal Americans with Disabilities Act of 1990 (P.L. 101-336) shall also constitute a violation of this section.
• The new law defines genetic information as being about an individual’s genetic tests, tests of family members, or the manifestation of a disease or disorder among an individual’s family members, and it covers information from genetics services and participation in clinical research.
• Federal GINA’s range of genetic information and nondiscrimination protections is limited to employment and health insurance coverage. SB 559 ensures that the range of protections for Californians applies to all California civil rights laws and would include genetic information as a prohibited basis for discrimination.

You can read the Act by going to http://leginfo.ca.gov/pub/11-12/bill/sen/sb_0551-0600/sb_559_bill_20110906_chaptered.pdf

Information on the bill posted by its author can be found by clicking here.

ELK GROVE, CA — The California Department of Fair Employment and Housing (DFEH) today announced the $70,000 settlement of a workplace sexual orientation harassment case against Limited Brands Store Operations, Inc., and Bath & Body Works, LLC.  A manager of a Bath & Body Works was accused of harassing her co-manager because of his sexual orientation.

The DFEH filed an accusation with the Fair Employment and Housing Commission after investigating a complaint from the co-manager, who began working at Bath & Body Works in August 2007.  The complainant claimed that from his first day on the job, his female supervisor referred to him multiple times a day using slurs based on his sexual orientation, drew pictures of male genitals, which she hung in the store’s back room, told his co-workers that he liked kissing boys, and falsely claimed that his attitude was affecting the work environment.  The Department’s accusation further alleged that, although another store manager witnessed the harassment and the employee complained to the district manager, Bath & Body Works failed to stop the harassment, ultimately forcing the complainant to quit.

“The Department of Fair Employment and Housing takes great pride in leading the enforcement of California’s civil rights laws,” said DFEH Director Phyllis Cheng.  “This compelling case should remind employers that they must have policies in place to prohibit discrimination and harassment against employees—and employ managers who can enforce those policies.”

As part of the $70,000 settlement, Bath & Body Works, LLC agreed to provide discrimination and harassment prevention training to its supervisors and managers, provide training to all new hires within 60 business days of hire, display posters informing employees of their right to report discrimination to the DFEH, and retain copies of all complaints of discrimination and harassment made by employees alleging a violation of the Fair Employment and Housing Act.  Bath & Body Works did not admit to any liability in the agreement to settle.

During my litigation years I often handled age and sex discrimination cases emanating from layoffs produced after an acquisition. Of course the goal is to “leverage” the opportunity which means redundancy must go. Unfortunately, there are in fact cases where management sees it as an opportunity to shape the workforce toward its liking, including any biases that come with it. In the case of Life Technologies Corp. v. Super. Ct. (CA1/1 A131120 7/14/11) http://www.courtinfo.ca.gov/opinions/documents/A131120.PDF the plaintiff claimed he and others over 40 got the squeeze. They used the typical set up–excluded him from opportunities, attacked his performance, demoted him, and eventually fired him for performance. Of course he was denied any severance due his for cause termination. 

In order to prove up the disparate impact portion of his case his attorneys wanted to gather answers to the following interrogatories:

(a) The names of all employees terminated during a two-year period, November 1, 2008 to June 28, 2010.

(b) The department each worked for when terminated.

(c) The date of termination.

(d) The age of each at termination.

(e) The reason for termination.

(f) Whether severance benefits were offered.

(g) Whether offered severance benefits were accepted.

(h) A description of any offered severance benefits.

(i) A detailed explanation of reasons for any failure to offer severance benefits.

(j) The identity (including name, address and telephone number) of all former Applied Biosystems employees still employed by LTC after the RIF.

(k) Whether the terminated employees were former employees of Appelera or Applied Biosystems.

In discussing the need for this statistical evidence the court stated as follows:

“Statistical proof is indispensable in a disparate impact case: …”The plaintiff must begin by identifying the specific employment practice that is challenged.”… “Once the employment practice at issue has been identified, causation must be proved; that is, the plaintiff must offer statistical evidence of a kind and degree sufficient to show that the practice in question has caused the exclusion of applicants for jobs or promotions because of their membership in a protected group.” […statistical analysis "must show a disparity that is 'sufficiently substantial' as to 'raise such an inference of causation'"] …”a plaintiff will typically have to demonstrate that the disparity in impact is sufficiently large that it is highly unlikely to have occurred at random, and to do so by using one of several tests of statistical significance”….

“Thus, the critical comparison in a disparate impact case is ‘the group that enters’ the [employment] process with the group that emerges from it.” … “The best evidence of discriminatory impact is proof that an employment practice selects members of a protected class . . . in a proportion smaller than in the actual pool of eligible employees.”…

Statistical evidence may also be utilized in a disparate treatment case. However, because discriminatory intent must be shown in such a case, statistical evidence must meet a more exacting standard. “[T]o create an inference of intentional discrimination, statistics must demonstrate a significant disparity and must eliminate nondiscriminatory reasons for the apparent disparity.” ….”statistical evidence is conditioned by the existence of proper supportive facts and the absence of variables which would undermine the reasonableness of the inference of discrimination which is drawn.”

“Thus, …although use of statistics is permissible [in a disparate treatment case], statistical evidence ‘rarely suffices to rebut an employer’s legitimate, nondiscriminatory rationale for its decision to dismiss an individual employee.’ …[T]his is so because …in disparate treatment cases, the central focus is less on whether a pattern of discrimination existed [at the company] and more how a particular individual was treated and why. As such, statistical evidence of a company’s general hiring patterns, although relevant, carries less probative weight than it does in a disparate impact case.”

“To some extent, then, the special interrogatories seek information arguably likely to lead to admissible evidence, although some of the information sought (e.g., descriptions of severance benefits) does not appear to be pertinent to any relevant statistical analysis. In any case, our inquiry does not end here because the information sought by the interrogatories implicates significant privacy rights of the third party employees/former employees.”

So what does all of this mean for you? If you are ever involved in one of these suits these are the type of inquiries that will be made. So ask these questions of yourself BEFORE conducting the layoff or termination! Also see the layoff and termination checklists on HR That Works.

We advise all our Members to use stand-alone arbitration agreements, if they use them at all. Here’s one reason why: http://www.courtinfo.ca.gov/opinions/documents/H036242.PDF. This is also a good case to learn about these agreements in general.

In another case, the California Court struck down a portion of the arbitration agreement related to class action and representative action under the Private Attorney General Act. http://www.courtinfo.ca.gov/opinions/documents/B222689.PDF

Lesson for employers: Get a lawyer who stays up on these laws to draft your arbitration agreement so that it complies with the constant scrutiny of the courts. Unfortunately, it’s gotten to a point where even the lawyers can’t guarantee it still won’t get thrown out! All they can guarantee is the first fight will be over the enforceability of the agreement. If that’s the case are they really still worth it?

This case addressed the applicability of California wage and hour law to nonresident employees who work in California. The court ruled California law governs their pay, even if the state they reside in also governs their pay. “California’s overtime laws apply by their terms to all employment in the state, without reference to the employee’s place of residence. http://www.courtinfo.ca.gov/opinions/documents/S170577.PDF

The court reminded employers: “The Legislature has… exempted certain out-of-state employers who temporarily send employees into California from the obligation to comply with the workers‟ compensation law (Lab. Code, § 3200 et seq.), on the conditions of compliance with the home state’s compensation laws and interstate reciprocity (see id., § 3600.5, subd. (b)). In contrast, the Legislature has not chosen to authorize an exemption from the overtime law on the basis of an employee’s residence, even though it has authorized exemptions on a variety of other bases.”

Further: “California law…might follow California resident employees of California employers who leave the state “temporarily . . . during the course of the normal workday” (id., at p. 578), and California law might not apply to nonresident employees of out-of-state businesses who “enter California temporarily during the course of the workday” (ibid., italics added). In contrast, plaintiffs here claim overtime only for entire days and weeks worked in California, in accordance with the statutory definition of overtime. (See Lab. Code, § 510.) Nothing … suggests a nonresident employee, especially a nonresident employee of a California employer such as Oracle, can enter the state for entire days or weeks without the protection of California law.”

Note: the court did not have to decide the case on the fact of an out of state employer as Oracle is CA based.

One of the HR That Works Member companies expressed the following frustration with their work comp claims:

….is a current member of HR That Works; we would like to know if they are allowed to have current employees sign a document that states in the event of an injury they will utilize the employer’s MPN of Providers through the Workers’ Compensation carrier.

How do we prevent an injured worker from treating outside of the MPN when they are represented by an attorney? Client has a new claim reported last month, employee was released to return to work on modified duties on 04/29/11; Employee did not agree w/the MPN Provider’s diagnosis. He obtained his own Chiropractor & presented a disability form to the employer today. We suspect he has hired an attorney. How do we prevent these claims from treating outside of the MPN? We are seeing a lot of these claims. The insurance carriers are not being very proactive at encouraging these claimants to go back into the MPN; the attorneys are increasing the number of liens which are being tied up in the Liens Unit.

So, we went to our network and Bill Litjen, one of the most knowledgeable experts on Work Comp procedures in California, provided us with a truly complete answer as follows:

This is one of the most misunderstood advantages an employer has in controlling medical treatment of injured workers.  Most brokers don’t understand it nor know how to explain the consequences to the employer if they don’t properly enroll employees in the prescribed timeframes.

Almost all CA WC carriers offer an MPN (Medical Provider Network) as the way to maintain medical control and cost.  This is a standard product and all policyholders are expected to participate.  The State Division of Workers’ Compensation (DWC) regulates how an MPN is implemented.

Anytime the employer changes WC carriers, they need to re-enroll employees in that carriers MPN (very similar to open enrollment for Employee Group Health benefits).   The carrier should provide enrollment forms:

1) Employee Implementation Notice of MPN

2) Acknowledgement of receipt of MPN Information

3) Initial Written Employee Notification RE: Medical Provider Network – (English version)

4) Initial Written Employee Notification RE: Medical Provider Network – (Spanish version)

To enroll employees:

1) Provide all employees with a copy of the Employee Implementation Notice.  This notice will need to add their Name and MPN Effective date prior distribution to employees.  It may be also be provided via email if the employee has regular electronic access to email at work to receive this notice prior to the implementation of the MPN. If the employee cannot receive this notice electronically at work within the required time frame, then the employer has to ensure this information is provided to the employee in writing prior to the implementation of the MPN.

2) Include copies of the Employee Implementation Notice of MPN in new hire information

3) Have every employee verify receipt of the Employee Implementation Notice of MPN.  Keep these signed acknowledgements on file (more on this).

4) Complete and return the MPN Implementation Verification Form to the insurance carrier (This is for their  tracking purposes only and does NOT replace the employers record of the distribution of the notices)

5) Post the Initial Written Employee Notification RE: Medical Provider Network, both in English and Spanish, in a conspicuous location frequented by employees during the work day hours and in close proximity to the workers compensation posting notice (DWC7 Notice to Employees-Injuries caused by Work). The Initial Written Employee Notification RE: medical Provider Network should also be provided to employees at time of injury.

During the enrollment process, the employee will also be given the opportunity to “pre-designate” their own personal physician to treat a work-related injury. This could be a red-flag!  They can pre-designate their personal doctor of medicine (M.D.) or doctor of osteopathy (D.O.) only if: the employer offers group health coverage; the doctor has treated the employee in the past and medical records; prior to the injury the doctor agreed to treat them for work injuries or illnesses and; prior to the injury they provided the employer the following in writing: (1) Notice that they want their personal doctor to treat them you for a work-related injury or illness and (2) provided the personal doctor’s name and business address.

If the MPN enrollment process is not handled this way, Applicant Attorneys will try to gain control of medical treatment outside of the MPN which can significantly increase the cost of the claim.  If the enrollment process is handled correctly, any treatment outside of the MPN is considered “unauthorized” and the employer/carrier is not responsible for payment.

Now that’s what I call an answer! Thanks again, Bill!

David Shields of Partee Insurance had this to add to the above:

“We thought it wise to advise on a couple of things in this article:

• Resigning all employees into a new MPN IF you change carriers is not always the ‘right thing to do’… especially if you have an on-going claim and treatment with the expiring carrier with a different MPN.
• Resigning a “designated physician” when one changes carriers is not necessary… once is enough and that’s normally at ‘new hire’ time OR when you decide to get all employees to complete the paperwork for their personnel file when the employer understands the ‘designated physician’ notification requirement.”

P.S. More info on the MPN and employer rights can be found at http://www.dir.ca.gov/dwc/Employer.htm.

A group of attorneys figured they had found a financial bonanza and filed a class action lawsuit against Starbucks hoping to get a $200 statutory penalty for each of 135,000 job applicants because Starbucks’s preprinted job application allegedly violated provisions of this marijuana reform legislation.  During the first administration of Governor Edmund G. Brown, Jr., in the mid-1970s, the California Legislature reformed the state’s marijuana laws to require the “destruction” by “permanent obliteration” of all records of minor marijuana convictions that were more than two years old. Employers were prohibited from even asking about such convictions on their job applications, with statutory penalties of the greater of actual damages, or $200 per aggrieved applicant.

Plaintiffs alleged Starbucks failed to adequately advise job applicants not to disclose minor marijuana convictions more than two years old. (See Lab. Code, §§ 432.7, subd. (c), 432.8.) Not surprisingly, none of the plaintiffs had been convicted of a marijuana-related crime. But they contended that California law allowed any job applicant to receive a minimum statutory penalty of $200 per applicant if they filled out an improper job application. This would of course result in a $26 million or so verdict and one heck of a payday for the lawyers! Kinda like those dozens of class action notices you get every year in the mail that you toss because you may get a new pair of jeans or discount on your next purchase…and oh, by the way, the lawyers get $10 million or so. Even though they generally say you don’t have to do anything if you don’t want to opt out, you never see another correspondence or a dime! What a gimmick. That’s not justice as I see it. Thankfully the court agreed.

In the first round of appeals the court held the plaintiffs did not have standing to represent the proposed class because none had any marijuana convictions to reveal. They declined to turn the legislation into a “veritable financial bonanza for litigants like plaintiffs who had no fear of stigmatizing marijuana convictions.” They thought that was the end of it…but it wasn’t.

The same trial court that allowed the case to proceed in the first place didn’t get the appellate court’s message and it allowed an amended complaint that would only include those guilty of the crime to file the lawsuit. But of course they asked to review all 136,000 applicants to find who those alleged victims where (known as a fishing expedition). The trial court allowed that discovery too. In a witty and stinging opinion the court posed the issue thus: “Can a purported remedy cause the very disease it is supposed to prevent? In this so-called “headless” class action, the answer regrettably is yes.”

In shutting down round 2, it held that “providing for the disclosure of job applicants with minor marijuana convictions, the discovery order ironically violates the very marijuana reform legislation the class action purports to enforce. We fail to understand how destroying applicants’ statutory privacy rights can serve to protect them. We reverse the discovery order.”

Unfortunately, Starbucks is not completely off the hook. According to the court: “Starbucks’s job applicants who had marijuana convictions know about their own previous convictions and about the fact that they had applied for a job at Starbucks. They are free to effectuate the legislative purposes underlying Labor Code section 432.8 by bringing individual actions, filing, if necessary, through Doe pleadings, and recovering not only actual damages or a statutory penalty, whichever is greater, but also attorney fees. (See Lab. Code, § 432.7, subd. (c)….

“The newly defined class does not include Starbucks’s applicants who have sustained actual damages, such as lost wages, or damage to reputation, which exceed $200. Thus, ‘truly’ aggrieved applicants are not prejudiced in any way by the dismissal of a class action which does not even purport to cover them.” In other words, if you can prove you were not hired and didn’t get another job for a while, you may have a better than $200 case.

And of course, there may be a round 3 that is brought to the California Supreme Court.  We wait with bated breath.

You can read the decision at http://www.courtinfo.ca.gov/opinions/documents/G043650.PDF

Those of you who are California employers can take comfort in the fact the HR That Works sample Job Application has this disclaimer in about two year old marijuana convictions. If you are not using ours then better check yours!

Preliminary statistics from 2010 shows that during a year of three-day furloughs, hiring freezes and budget cuts, the DFEH increased its 2010 settlements from its typical $7-9 million to over $11 million. The success is due to the implementation of the Department’s Case Grading System, the settlement of the four group/class actions (not including Verizon), the establishment of a new Mediation Division, and ongoing prosecution and settlement by the Legal Division.