Feature
by Margaret J. Grover
The California legislature and supreme court had another busy year enacting and interpreting employment laws. In light of the changes outlined below, the beginning of the year is a good time to review your employee handbooks, applications, written agreements, policies and employment practices. Adapting to these laws now can prevent future headaches or even legal expenses.
The supreme court gave employers the ability to establish a clear right to terminate employees at will and to require employees to arbitrate most employment disputes. The legislature enacted new laws defining "disability" and detailing an employer's responsibility to provide accommodation for at-will employees. Other legislative changes give employees new tools to enforce wage and hour laws and the right to be paid for missing lunches or breaks.
Increased Minimum Wage
California's minimum wage has increased as of January 1, 2001. The new minimum wage is $6.25 per hour. Accompanying this is increase in the maximum amount of free rent that can be credited toward minimum wage obligations. Free rent can be used toward minimum wage obligations in an amount equal to two-thirds of the fair rental value of the apartment or $352.95 per month, whichever is less. If both members of a couple are employees, the cap rises to $522.10 per month. Remember, if an employee is required to live in an apartment as a term or condition of employment, he or she can be charged only two-thirds of the fair rental value. Moreover, if the employer charges any rent for the apartment, no rent credit can be used to satisfy the minimum wage obligations.
Remember that whenever you provide housing as an element of compensation, you must have a voluntary written agreement with your employee. It is a good idea to review all of your residential manager agreements to make sure that you are complying with the minimum wage obligations and obtaining the maximum value for the property that is permitted under the applicable laws.
The California legislature adopted sweeping revisions to the statutes protecting individuals with disabilities. The legislation, which became effective on January 1, 2001, substantially expands the definitions of a disability. In all likelihood, California employers will notice a significant increase in the number of employees and job applicants who are entitled to accommodation. The new statute also provides more explicit instructions for the employer who receives an accommodation request.
As before, individuals with physical or mental disabilities are entitled to statutory protection. It is an unlawful employment practice for an employer or employment agency to refuse to hire or employ a person, or otherwise discriminate against them, because of specified personal characteristics, including a mental or physical disability or medical condition. However, the law will no longer apply just to cases where the disability "substantially" limits a major life function, as is the standard under the federal Americans with Disabilities Act (ADA). Instead, under the new California law, a mental or physical disability is protected if it simply limits a major life activity; that is, if it makes achieving that major life activity difficult.
Another significant difference between the new California statute and the ADA is the consideration of mitigating measures such as medications, assistive devices, prosthetics, or reasonable accommodations. Federal law expressly requires consideration of the mitigating measures. This means that if an employee's disability is completely controlled by medication, the employee will not be entitled to ADA protection. In California, however, the condition will be evaluated without regard to mitigating measures. Thus, for example, the insulin-dependent diabetic is protected in California, where she would not necessarily receive ADA protection. Similarly, an employee who is legally blind but who sees in the normal range with glasses is covered by the California statute but not the ADA.
Another significant change is that employers and employment agencies are now expressly prohibited from asking any medical, psychological, or disability-related questions of any job applicant or employee, unless the question is job-related and consistent with business necessity.
Finally, the statute now expressly states that an employer commits an unlawful employment practice when an employee with a known disability asks for an accommodation and the employer fails to engage in a timely, good faith, interactive process to determine whether they can implement effective reasonable accommodations.
New Guidance on Maintaining the At-Will Employment Relationship
The California Supreme Court examined the nature of employment relationships and the formation of implied agreements requiring good cause for termination. The Court recognized that facts and circumstances may create an implied agreement that the employer will not fire an employee without a good reason. However, if a written employment agreement contains an at-will provision, that provision will control.
When the parties do not have a written employment agreement, other factors may be considered. While appropriate disclaimer language in a handbook will not assure the employer's ability to terminate at will, any direct expression of employer intent, communicated to employees and intended to apply to them, will be considered in determining the terms on which a worker was employed. To protect against creating implied agreements, employers should include well drafted employment at-will language in all written communications with employees or potential employees, including applications, offer letters, employee handbooks, policy statements, stock option agreements, and other benefits packages.
Employers should also review their employee handbooks and other policies to assure that the employer is not bound to engage in certain behaviors before terminating employees. Handbook provisions and discipline policies frequently suggest that the employer will engage in progressive discipline. Employees will often argue that the disciplinary policies require the employee to have notice of, and an opportunity to correct, performance deficiencies. To avoid this issue, handbooks and policies should be drafted to provide the employer with discretion and flexibility.
Guidelines for Arbitration Provisions in Employment Agreements
Many employers have a practice of including arbitration provisions in employment agreements or requiring employees to sign arbitration agreements as a condition of employment. The state and federal courts in California have differing views on whether an arbitration provision is enforceable. The California Supreme Court recently held that, as a matter of California law, employers may require employees to arbitrate employment claims so long as the arbitration agreement provides certain guarantees of due process.
A mandatory arbitration agreement is lawful in the employment context if it meets all of the following criteria: (1) provides for neutral arbitrators, (2) provides for more than minimal discovery, (3) requires a written award, (4) provides for all of the types of relief that would otherwise be available in court, and (5) does not require employees to pay either unreasonable costs or any arbitrators' fees or expenses as a condition of access to the arbitration forum.
Recent studies have shown that the average arbitration award in employment cases is lower than the average jury verdict. While juries will occasionally return very large verdicts, an arbitration award is far less likely to be inflated. Excluding the "runaway jury" verdicts, studies show that awards by jurors and arbitrators tend to fall within similar ranges.
Cost and finality of the decision are also important factors when employers consider whether to adopt mandatory arbitration provisions. Under the recent California Supreme Court decision, none of the costs can be shifted to the employee. Even considering the arbitrator's fees, however, arbitration is likely to be a cost-effective means of dispute resolution. Typically, arbitration is faster than court proceedings, with a consequent savings in attorney's fees.
Arbitration decisions are also final. There is no right of appeal and an extremely limited ability to set aside the arbitrator's ruling, even if the arbitrator has ignored the evidence or misapplied the law. The finality typically provides the parties with additional savings in attorney's fees. However, before requiring arbitration, the employer should be aware that they are giving up almost all rights to challenge unfavorable decisions.
Individual Liability for Harassment
All employees can now be individually liable for harassing an employee, applicant, or independent contractor. Prohibited harassment includes harassment on the basis of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, martial status, sex, age, or sexual orientation. Individuals can be held liable in a civil action for actual and punitive damages. Employers may wish to revise their anti-harassment policies to reflect this new potential liability.
Employees, managers, or supervisors who are sued for unlawful harassment may request a defense and indemnification from the employer. In many instances, the threat of individual liability will create a conflict of interest between the employer and the alleged harasser. Because of these conflicts, employers may wish to add a provision to employee handbooks or employment policies advising employees that harassment is outside the scope of employment and that the company will not necessarily defend or indemnify an employee who is sued for harassment.
Employers should recognize, however, that the employer will be obligated to pay attorney's fees and costs if the individual is successful in defending the harassment claims.
No More Free Lunches
California employees are entitled to take meal and rest breaks as a matter of law. These breaks are specified in wage orders adopted by the Industrial Welfare Commission, which are industry specific.
As of January 1, 2001, an employee is entitled to one additional hour of regular pay for each day in which he or she is required to work during any meal or rest period. This hour of pay is in addition to the wages the employee earns for working the additional time. Moreover, if working through a meal period results in the employee working more than eight hours in a day, he or she will be entitled to overtime.
The following examples are provided to help you understand the impact of this new law. Sam regularly works 7.5 hours, from 8:30 a.m. until 5:00 p.m., with a one-hour, unpaid lunch and two 10-minute paid breaks. If you ask Sam to work through lunch and leave an hour early, Sam is entitled to one additional hour of pay at her regular rate. If you ask Sam to forego either of her breaks, Sam is entitled to one additional hour of pay at her regular rate. If you ask Sam to work through lunch and leave at her normal time, she will work 8.5 hours. She will earn 8 hours pay at her regular rate, plus 0.5 hours at time-and-a-half as compensation for the hours worked, plus one additional hour of pay at her regular rate. In this situation, Sam will receive 9.75 hours of pay for working 8.5 hours.
As the examples demonstrate, the additional hours of pay can add up very quickly. To minimize exposure to these additional costs, employers should adopt regular break and meal schedules, organize coverage for key positions during break and meal periods, and educate supervisors about the new laws and their duty to assure that employees receive the meal and rest breaks as scheduled. For employees who complete time cards, employers may also want to add a line to the card for the employee to verify that he or she took the scheduled meal and rest breaks. In wage disputes, the employer who does not have appropriate documentation is fighting an uphill battle.
Ms. Grover is a partner in the San Francisco office of Haight, Brown & Bonesteel, LLP, where she focuses on advising employers in preventing and defending claims by employees. She can be reached at 415.986.7700. © Copyright 2001.