Rounding

Kronos InTouch

Employers routinely round off the number of minutes worked to fit the needs of their payroll systems. Recently, class action lawyers who believe that the practice shortchanges employees have filed class actions challenging the practice. For example, a lawsuit under review in the California Court of Appeal for the Fourth District challenges the use by See's Candy of a Kronos timekeeping device that rounded to the nearest tenth of an hour. See's Candy Shops Inc. v. Superior Court, Case No. D060710 (4th Dist.). On January 18, 2012, the California Supreme Court granted review and directed the Court of Appeal to hear a challenge to a trial court ruling that rounding could violate the wage and hour laws.

Such actions would appear to face long odds, because both federal and state regulators have said that the practice is legal. Department of Labor regulation 29 C.F.R. § 785.48(b) states: "It has been found that in some industries, particularly where time clocks are used, there has been the practice for many years of recording the employees' starting time and stopping time to the nearest 5 minutes, or to the nearest one-tenth or quarter of an hour. Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work. For enforcement purposes this practice of computing working time will be accepted, provided that it is used in such a manner that it will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked."

The California Labor Commissioner’s enforcement policy follows the federal practice. See DLSE Enforcement Policies and Interpretations Manual, sections 47.1 and 47.2.

Until the question is clarified in a judicial decision, California employers should be careful to record employees work time as accurately as possible.

Whistleblower Lawsuits

Last week, an employee whistle blower complaint was filed against individuals and organizations associated with the Lap-Band weight-loss device. Deuel v. 1 800 Get Thin, LLC, Case No. BC477064 (Jan. 17, 2012). A copy of the complaint is available here. This prompts a reminder that whistle blower, or retaliation, lawsuits pose difficult problems for employers.

There are two types of whistle blower lawsuits. In a qui tam action, the plaintiff seeks relief against the substantive wrongdoing on behalf of the government. The federal False Claims Act is an example. It allows a civil action by a private person on behalf of the government against a contractor who fraudulently bills the government. The successful plaintiff gets a portion of the recovery and attorney's fees. California has its own False Claims Act, which provides for similar relief. For an example of a successful such action, see "Quest Diagnostics settles Medi-Cal whistle-blower suit" in the L.A. Times.

The more common type of whistle blower lawsuit is where an employee calls attention to illegal activity, and then is subjected to adverse action by the employer. The anti-discrimination laws all contain provisions that prohibit retaliation against employees who complain about discrimination and harassment. See EEOC v. Go Daddy Software, Inc., 581 F.3d 951 (9th Cir. 2009) ($135,000 in lost earnings, $5,000 for emotional distress, and $250,000 in punitive damages for retaliation against employee who complained about discrimination); Wysinger v. Automobile Club of Southern California, 157 Cal.App.4th 413, 69 Cal.Rptr.3d 1 (2007) (jury awarded $204,000 in economic damages, $80,000 in noneconomic and $1 million in punitive damages for retaliation against employee who complained about age discrimination).

In some circumstances, employees may also pursue claims for retaliation based on other types of unlawful conduct by the employer. For example, the California Whistleblower Protection Act authorizes claims by state employees who are subjected to adverse action for complaining about waste, fraud, abuse of authority, violation of law, or threat to public health. The employee must first file an administrative charge with the designated state agency.

Labor Code section 1102.5 is the basis for an action by employees of private and public employers who can prove that their employer retaliated against them for providing information to a government or law enforcement agency, where the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation or noncompliance with a state or federal rule or regulation. This and other whistle blower statutes establish a public policy to protect whistle blowers, which may be invoked to support a claim for wrongful termination in violation of pubic policy. See Green v. Ralee Engineering Co., 19 Cal.4th 66, 960 P.2d 1046, 78 Cal.Rptr.2d 16 (1998).

When an employee has complained about activity that is protected by one of the statutes, the employer must be prepared to prove a legitimate reason for any adverse action that it takes against that employee. That is because a complaining employee can prove a prima facie case of retaliation by establishing the protected activity, adverse action, and that the adverse action followed closely on the protected activity. The establishment of a prima facie case puts the burden on the employer to prove that it had a legitimate reason for its actions.

Accommodating Mental Disabilities

A recent case from New York provides fodder for a discussion of the scope of an employer's obligation to accommodate an employee's mental disability. A law firm fired one of its attorneys after learning that he attempted to have charges for adult movies and calls to escort services to the firm's clients. The attorney sued for discrimination and failure to accommodate his bipolar disorder. The New York Division of Human Rights awarded him $600,000, but the Appellate Division of the New York Supreme Court tossed out the award. Hazen v. Hill Betts & Nash, LLP, Case No. 104781/10 (N.Y. App. Div. Jan. 5, 2012). "[A] petitioner's disability does not shield him from the consequences of workplace misconduct."

Although the court's conclusion accurately described the circumstances of that case, employers must engage in a more nuanced analysis to avoid liability. For example, employees with mental disabilities that cause them to violate workplace attendance policies may nonetheless be entitled to an accommodation. See Humphrey 
v. Memorial Hospitals Association, 239 F.3d 1128 (9th Cir. 2001) (medical transcriptionist with obsessive-compulsive order that prevented her from getting to work on time might be entitled to work from home or to unpaid time off to bring her disability under control). The EEOC has opined that a schizophrenic warehouse worker who violates a company's conduct toward others and dress policies may be entitled to a pass. See
EEOC Enforcement Guidance on the Americans with Disabilities Act and Psychiatric Disabilities, No. 30, Example C.

An employer should use the following analysis to determine its responsibilities when dealing with an employee who has violated an employer's workplace conduct standards:

1.  Does the employer have information from which it could reasonably conclude that the employee has a disability? If an employer does not know that an employee has a disability, it cannot be accused of discrimination, and has no obligation to provide a reasonable accommodation. Further, an employer may not even inquire about a possible disability unless it has a reasonable belief, based on objective evidence, that: (1) an employee's ability to perform essential job functions will be impaired by a medical condition; or (2) an employee will pose a direct threat due to a medical condition.
2. Is the workplace conduct standard job-related for the position in question and consistent with business necessity? The EEOC's opinion that the warehouse worker referred to in its guidelines might be entitled to a pass on the conduct and dress policies was based on its conclusion that those policies were not job-related for a warehouse worker with no customer contact.
3. Is there a reasonable accommodation that would allow the employee to perform the essential functions of his or her job despite the disability? The EEOC Enforcement Guidance gives the following example: A reference librarian frequently loses her temper at work, disrupting the library atmosphere by shouting at patrons and coworkers. After receiving a suspension as the second step in uniform, progressive discipline, she discloses her disability, states that it causes her behavior, and requests a leave of absence for treatment. The employer may discipline her because she violated a conduct standard -- a rule prohibiting disruptive behavior towards patrons and coworkers -- that is job-related for the position in question and consistent with business necessity. The employer, however, must grant her request for a leave of absence as a reasonable accommodation, barring undue hardship, to enable her to meet this conduct standard in the future. See No. 31, Example A.

Earlier posts on the disability laws appeared on 7/10/2011, 6/12/2011, 1/14/2009, 9/14/2008, and 7/20/2008.

Insurance Agent Is An Independent Contractor, Not An Employee

The enactment by the California legislature of new penalties for willful misclassification of independent contractors should have employers paying close attention to the applicable standards. (See Labor Code section 226.8.) A recent decision from the First District Court of Appeal in San Francisco is instructive. Arnold v. Mutual of Omaha Ins. Co., Case No. A131440 (Dec. 30, 2011).

Kimbly Arnold was licensed by the Department of Insurance as an independent agent or broker. When she was appointed by Mutual of Omaha as a nonexclusive agent, she was under appointment with another insurance company to offer its products. Her contract with Mutual of Omaha stated that she was an independent contractor, and made her responsible for maintaining any required license. The evidence submitted in support of Mutual's summary judgment motion showed that she had no supervision, did not receive a performance evaluation. Training was available, but attendance was not required. Mutual's insurance agents were responsible for their own expenses, including business cards, vehicles and office equipment. If they elected to use Mutual's office, they had to pay monthly fees to cover the expenses.

Arnold brought a class action on behalf of all Mutual's licensed agent's, claiming that they were employees and should have been reimbursed for expenses under Labor Code section 2802, and were not paid the wages they were owed timely upon termination of employment, as required by Labor Code section 201 and 202. The Court of Appeal affirmed the grant of summary judgment for Mutual, because Arnold was not an employee entitled to the protections of those sections.

The Court of Appeal rejected Arnold's argument that she met the "definition" of employee in Labor Code section 2750, which provides "The contract of employment is a contract by which one, who is called the employer, engages another, who is called the employee, to do something for the benefit of the employer or a third person." Section 2750 is not a definition of "employee," but a definition of "contract of employment."

Because it found no statutory definition, the court turned to the common law principles articulated by the California Supreme Court in S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal.3d 341 (1989). That decision identified the "principal" factor of the test to be whether the person receiving the services has the right to control the manner and means of accomplishing the result. It identified the following additional factors: whether the principal has the right to discharge at will, without cause; whether the one
performing services is engaged in a distinct occupation or business; the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; the skill required in the particular occupation; whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; the length of time for which
the services are to be performed; the method of payment, whether by the time or by the job; whether or not the work is a part of the regular business of the principal; and, whether or not the parties believe they are creating the relationship of employer-employee.

In this case, all the factors pointed to an independent contractor arrangement.

For a post about another case in which the employer did not fare so well, see $14.4 Million To FedEx Drivers Misclassified As Independent Contractors.

California Supreme Court Punts On Clarifying Exemption Rules

California Supreme Court

The California Supreme Court has passed on an opportunity to provide California employers with clear guidelines for applying the exemptions from the state's wage and hour rules. In Harris v. Superior Court, Case No. S156555 (Dec. 29, 2011), the Court chastised the Court of Appeal for applying an "administrative/production worker dichotomy" as a dispositive test for the administrative exemption, but declined to provide any usable tests of its own.

The case was a class action on behalf of claims adjusters for Liberty Mutual and Golden Eagle. Guided by two decisions in another claims adjuster class action against Farmers Insurance (Bell II and Bell III), the Court of Appeal ordered the employers' exemption defense stricken. For the Court of Appeal, the dispositive question was whether the claims adjusters were administrative workers or production workers. Although there was evidence that the adjusters' work in Harris was not routine and unimportant, they fell on the production side because their work -- investigating claims, determining coverage and setting reserves -- was not carried on at the level of policy or general operations.

The Supreme Court ruled that the lower court should have paid closer attention to changes in wage and hour law after the Bell litigation had gotten under way. In 1999, the California Legislature amended the Labor Code to reinstitute daily overtime, and directed the Industrial Welfare Commission to review the duties that met the test of the administrative, executive and professional exemptions. In 2001, the IWC adopted new wage orders that provided a more detailed explanation of what constituted administrative work than the previous wage orders. The wage orders are available at the IWC's website. The new wage orders stated that the activities constituting exempt work "shall be construed in the same manner as such terms are construed in the following regulations under the Fair Labor Standards Act effect as of the date of this order: 29 C.F.R. Sections 541.201-205, 541.207-208, 541.210 and 541.215."

The text of the new wage orders combined with the language of the cited federal regulations led the Supreme Court to conclude that there are two components to the part of the definition requiring that administrative work be directly related to management policies or general business operations. The work must be qualitatively administrative, and quantitatively of substantial importance to the management or operations of the business. Administrative work includes work done by white collar employees engaged in servicing a business, which may include advising management, planning, negotiating and representing the company. In light of those principles, it was inappropriate to adopt the administrative/production dichotomy as a dispositive test.

In the end, the Court declined to adopt any bright line rules. "The essence of our holding is that, in resolving whether work qualifies as administrative, courts must consider the particular facts before them and apply the language of the statutes and wage orders at issue." It also declined to rule whether the claims adjusters in the case before it were exempt. "We express no opinion on the strength of the parties' relative positions. We merely hold that the Court of Appeal majority erred in its analysis."