Employment Law Developments & Potential Employment Issues for 2017

February 7, 2017

By: James L. Pagano, ESQ.

I. Overview of the Changes to Employment Law in 2016:

Not a whole lot has changed since 2015 in state employment law. Things that were employee-friendly just keep getting more employee- favorable, especially since both houses of the California Legislative are a super-majority of democrats, i.e., greater than 2/3, with all state wide officers also democrats. And there does not appear to be much chance that a new employer-friendly legislature or governor will be elected soon. Thus, expect the pro-employee lobbies in California, principally labor unions, to have sway over the politics in this State for quite some time.

By contrast, on the federal level, there is much uncertainty concerning how the change of presidential administrations and the appointment of a much more pro-management Secretary of Labor by this administration from the last will impact California employers. The effect of the changes in federal labor policy may, in fact, make differences between the rights and privileges of employers governed by federal employment law, e.g., the Federal Labor Standards Act ("FLSA"), and California law, e.g., the California Labor Code, and localities, i.e., municipal minimum wage and benefit ordinances, just more dramatic.

For example, the increase in the minimum compensation payable before someone who, based on her/his job responsibilities and duties, would be otherwise exempt from overtime can, in fact, be exempt from overtime, i.e., from$23,660.00 annually to $47,476.00 annually that President Obama's Department of Labor enacted, will probably be rolled back by the Trump Administration. Employers subject to the California Labor Code will, nonetheless, still be required to meet California's more restrictive tests for determining who is exempt from overtime, with the so-called salary basis test for the exemption, likely, to continue to require minimum annual pay that equals or exceeds $37,440.00. if not be increased. And this salary must be a guaranteed minimum not subject to fluctuations or deductions, e.g., a four day workweek based upon a minimum annual salary of$37,440.00 for a five day workweek will not suffice to render the employee exempt from overtime compensation.

In California, though, some of these dramatic differences between federal and state employment rules and prerogatives may be mitigated somewhat by the fact we live in what is reputed to be the most employee-friendly federal court system in the Country. Indeed, amongst the matters we think all small employers need to be aware of are two recent federal court decisions. which are discussed below, though one of those decisions does appear to be destined for a short life.

II. Changes in California and Local Laws:

A) Minimum Wage Ordinances:

Many California municipalities, i.e., cities and counties, have used the authority granted to them by our state's constitution as charter cities/counties to enact local minimum wage ordinances, which replace the state minimum wage law. The state minimum wage currently is $10.50/hour for employers with 26 or more employees and $10.00/hour for an employer that employs from 1 to 25 persons. These figures will increase to $11.00/hour and $10.50/hour, respectively, on January 1, 2018.

The minimum wage required to be paid by some cities exceeds these state minimums somewhat substantially. Many do not have an minimum employee threshold. Thus, in San Francisco, the minimum wage payable to all employees, not subject to a collective bargaining agreement, is $13.00/hour, due to increase on July 1, 2017 to $14.00/hour. San Jose's rate is $10.50/hour presently, though, on July 1, 2017, that rate will jump to $12.00/hour, with no minimum number of persons employed.(employers who are subject to collective bargaining agreements generally cannegotiate an opt-out from the minimum wage ordinances. The opt-out provision in San Jose's ordinance is being challenged in a pending lawsuit, McCray v. Marriott Hotel Services, United States District Court for the Northern District of California, San Jose Division, case no. 16-cv-02092-NC.)

These minimum wage rates apply to all employers that employ persons who work within the geographic boundaries of the enacting city/county, who/which are not subject to a collective bargaining opt-out. The latest listing of California cities that have minimum wage ordinances which are presently in effect include:

Berkeley, Cupertino, El Cerrito, Emeryville, Los Altos, Los Angeles City and County, Malibu, Mountain View, Oakland, Palo Alto, Pasadena, Richmond, San Diego, San Francisco, San Jose, San Leandro, San Mateo, Santa Clara, Santa Monica, and Sunnyvale.(This listing is current through January 17, 2017, as published by Institute for Research on Labor and Employment, 2521 Channing Way, # 5555, Berkeley, CA 94720.)

Caution: Some of these ordinances are not entirely clear regarding to which employers it applies. Some, such as the San Jose ordinance, are reasonably clear and apply only to those persons who employ persons to work within the geographic boundaries of the municipality, while others are more ambiguous and appear to apply to those persons operating a business from within the geographic boundaries of the municipalities, irrespective of where the employees perform their work e.g., the Cupertino ordinance that renders any person that is subject to a business licensing by the City or ". . . who . . . maintains a business facility in the City[,]" not necessarily the facility that employs the affected persons(s), subject to the ordinance. Should your Company be potentially subject to such an ordinance and you wish for us to assist you to determine if, in fact, your Company is a covered entity, please advise and we will do so.

Note #1-A: All employers affected by a municipal ordinance generally have to post the municipal ordinance, rather than the California minimum wage notice, to be in compliance with the law. Please advise should you desire our assistance in preparing such a notice(s).

Note #1-B: If there is a relatively substantial, i.e, 10% or more, group of your work force in a particular location that are not English speakers, the notices should be in all languages that all of those diverse employees can speak and read.

B)Limitations on Questioning a Prospective Employee Regarding Her/His Past
Juvenile and Other Criminal Adjudications:

California law prohibits employers from asking applicants for employment and employeesabout many past criminal arrests and detentions, including those that do not end up in a criminal conviction, those where there has been a judicial dismissal, a sealing of the person’s criminal record, referral to, and/or participation in, a pre-or post-judgment diversion referral program, and certain minor marijuana possession convictions. These sorts of records also cannot be used in any postemployment decision, such as a demotion, promotion, or determining the nature and type of discipline to be assessed. Now, except for certain employers, principally health care and child care providers, no juvenile adjudication – a conviction in the juvenile court system — may be inquired about or, if discovered, may be considered in determining hiring, discipline, or any other
employment-related decision.

Note: Not only must your Company follow the prevailing state law regarding the restrictions on the use of criminal convictions in both adult and juvenile court systems, it is essential that your Company comply with the requirements of any municipal or local law that prohibits the use of any pre-employment application that asks an applicant to disclose a criminal conviction for any offense prior to a tentative decision to hire has been made, i.e., the so-called "ban the box" ordinances.

Our Advice:

Because the failure to hire an individual, who is asked to disclose a prior conviction(s) (a) in many places, before a tentative decision to hire has been made or (b) throughout the state, whenthe "conviction" is a juvenile adjudication or a judicially dismissed/seale /expunged conviction, can result in the hiring employer being found liable for a wrongful failure to hire, we caution against the use of any questions about past arrests or detentions in an initial application and do not recommend any private investigator or like tool be used for locating convictions until after a tentative decision to hire has been made and a conditional offer letter is sent to a prospective employee. And if there is an initial determination that an offer letter should be withdrawn/rescinded because of a criminal record, a lawyer should be consulted to review what is found and how it may be used before the withdrawal/rescission letter is issued. We have the experience required to properly address any such situation should it arise and will, of course, be happy to assist you with such a matter.

C) Notification of Domestic Violence Leave Law:

Effective July 1, 2017, formal notification of an employee’s right to take time from her/his employment, without the potential for an adverse consequence, to deal with issues involving domestic violence, sexual assault or stalking must be provided either (a) when the employee is hired or (b), thereafter, but then only when an employee asks for the notice. This rule only applies to employers with 25 or more employees.

The California Labor Commissioner is charged with developing a form to be used for this
purpose and until she has done that, no written notice need be given.

Caution: The new law is limited to a required notice only: the law remains that an employee is entitled to take time — if he/she desires to do so and has PTO or other paid leave time available, then compensated time or unpaid time, if paid leave is legitimately unavailable — to deal with domestic violence and related matters. She/he cannot be terminated because she/he has taken such leave. And, perhaps, most importantly for day-to-day circumstances, no minimum notice period can be required before such leave must be given to the affected employee.


A)Authorization to Work Documents:

It is now unlawful to ask an applicant for employment to provide a work authorization document to prove work eligibility that is not amongst those that are expressly identified as required under federal law. Even more problematic, perhaps, it is unlawful for an employer to reject a tendered document ". . . that on [its] face reasonably appear[s] to be genuine" (italicized typeface is my emphasis) or ". . . [r]efuse to honor documents or work authorization based upon the specific status or term of status that accompanies the authorization to work." Additionally, an employer violates the law when the employer re-investigates or seeks to re-verify an existing employee's right to work. Any of these violations can subject the offending employer to a fine of up to $10,000.00 per offense.

Our Advice:

Should you be presented with a document that you have a reasonable suspicion could be invalid, note those suspicions in a confidential memo, addressed to "Legal Counsel[,]" and set forth all of the fact bases for such a belief. Then provide that to Legal Counsel, with a copy of the document(s) and proceed pursuant to competent legal advice only. We are experienced, and always available to assist, with these types of matters.

B)Equal Pay Law's Expansion:

Though it has been the law in California since 1949, "equal pay for equal work" in California was substantially amended, effective on January 1, 2016, to provide "standards" for evaluating whether an employer is, in fact, providing similarly situated employees with the same rates of pay. As of January 1, 2017, the statute now applies not only to employees of different genders but also to employees of different races and ethnicities.

Under the changes to the law that took effect on January 1, 2016, in determining what constitutes comparable work, an employer must consider ". . . a composite of skill, effort and responsibility performed under similar working conditions." The only exceptions to compliance with the law are when the wage differentials are a product of (a) a bona fide seniority system; (b) a merit system; (c) a system that measures earnings by quantity or quality of production; or (d) another legitimate differentiating factor other than gender, race, or ethnicity, including differences based upon education, training, or experience.

Our Advice:

Unfortunately, the law is riddled with vague phrases and words, i.e., other bona fide factor other than gender, race, or ethnicity, including differences in education, training, or experience, that are not particularly helpful. Can a three year employee be paid less than an entry-level employee with a bachelor's degree? Can a person awarded a doctorate be paid less than one with five years of relevant experience? Are these always going to be subjective judgments, which will virtually always require a full-blown jury trial or an arbitration? These are amongst the questions that the statute raises rather than eliminates.

If you have a situation where it could reasonably appear that the difference in wage rates is, arguably, not clearly a product of different relevant experience, education, and like considerations and the lower paid employee is a member of a protected group, we strongly recommend you document the compensation decision and show any draft thereof to a competent lawyer for review and follow-up, as necessary. Remember, the employee's evidentiary burden in a lawsuit based upon a claim of unequal pay is simply to show that she/he is a member of the protected group, i.e., a woman, a racial or ethnic minority, and that she/he is paid a wage that is less than a member of a non-protected group; it is with the employer to demonstrate that the wage difference is for a reason other than a protected characteristic. So early documentation of such disparities is critical and competent legal advice and direction is essential in mitigating the possibility for legal liability.

C)Choice-of-Law Provisions in California Employment Contracts:

A provision in an employment contract that provides that the laws governing wages, hours, working conditions, termination, and like employment-related matters for a person who is employed in California are now unenforceable, per se. Thus, the sophistication of the employee or any legitimate business reason for having another state's laws apply to the employment relationship are no longer of any consequence.

Our Thoughts:

In enacting a prohibition on so-called choice-of-law provisions in employment contracts governing persons employed to work in California, the legislature simply codified what this state's courts have long held - employment contracts that require an employee to perform her/his work in California will always be construed and interpreted under California law, notwithstanding that the contract itself prescribes another state's laws be used. In effect, then, such "choice-of-law" provisions are now unenforceable by statute, rather than through judicial determination, which makes the law of employment contracts much more predictable and, thus, stable.

D) Wage Stub Compliance:

Effective January 1, 2017, an employer need not list the hours worked on an employee's wage stub, which each employee is required to be given with her/his pay, when the employee is exempt from overtime under the applicable law or a wage order, including as an outside salesperson, a computer software professional, a parent, spouse, or child of an employer, amongst other exempt persons.

Our Thoughts:

This amendment to the statute, in our judgment, simply makes clear what had been generally followed for persons who were properly exempt from the overtime and minimum wage requirements under other provisions of California law. Those persons, it has appeared for quite sometime, would not have a valid claim for being provided with legally inadequate wage stubs, so long as the stub identified the total sum paid to the employee over the pay period and year-to-date and showed the deductions from the total sums paid. Listing the hours credited for such persons was considered - and now the law makes clear - a legally impertinent matter.

III. Important Court Decisions:

A)The Ernst & Young, et al. v. Stephen Morris Decision - The Future of Binding Arbitration and Class Action Waivers:

Stephen Morris and Kelly McDaniel were co-employees at one of the Big Four accounting firms, Ernst & Young ("E&Y"). In order to become employed, they were required to sign an agreement that provided they (a) had to pursue any claim involving their employment with E&Y through binding and final arbitration and (b) could not sue jointly with other employees in any forum, including in arbitration. Rather, any legal claim they wished to assert against E&Y had to be asserted and pursued in proceedings that were "separate" from that of any other employee(s).

Despite agreeing to these terms, Mr. Morris filed suit against E&Y claiming it had misclassified him as an employee exempt from overtime and seeking to join with him all persons who had been, and were then, employed by E&Y who, Mr. Morris claimed, had suffered the same misclassification. E&Y asked the United States District Court here in San Jose to dismiss the Case, arguing that it must proceed in a binding arbitration forum, rather than in a court, and it could not proceed as a collective, i.e., multiple claimant, suit. The District Court agreed with E&Y and dismissed the Case.

On appeal, a panel of the Ninth United States Circuit Court of Appeals reversed the district court's dismissal decision, reasoning that the bar on "collective actions" as is set forth in the employment agreement Mr. Morris signed violated a provision of the National Labor Relations Act ("NLRA") that explicitly prohibits placing limits on employees joining together to challenge conditions of their employment. That statutory provision reads, "Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection." (Italicized typeface represents my emphasis.) Concluding that the requirement that employees at E&Y must institute "separate proceedings" violated this provision, the Ninth Circuit panel threw out the agreement. (It also concluded that the arbitration provision was so integral a part of the "separate proceedings"paragraph of the agreement that it could not be carved out and enforced on its own.)

The dissent pointed out that- in her judgment - one cannot fairly read that NLRA's prohibition against an employer preventing collective action by employees broadly enough to encompass two individuals suing because they believed they had been wrongly classified as exempt from overtime. Instead, she would limit application of the NLRA provision to circumstances where the collective action bar was used by an employer to prevent a group of employees from working together toward a goal of obtaining a collective bargaining representative/agreement. In a bit of hyperbole, the dissent characterized the decision as ". . . breathtaking in its scope and in its error..."

Our Thoughts:

On January 13, 2017, the Supreme Court granted a hearing in the Case. It may be argued to the Supreme Court as early as before this coming June, though, frankly, it is more likely the Case will be held over into the 2017-2018 Supreme Court term that begins in October, when it is possible the Court will have a full complement of nine (9) justices for the first time in more than a year.

That said, however, unlike other areas of the law, we believe it is, likely, that the decision in the Case will be reversed whenever the Supreme Court considers it for, at most, there would appear to be only three (3) justices, i.e., Ruth Bader Ginsberg, Sonia Sotomayor, and Elena Kagen, who might support it and at least four (4) are needed for affirmance for the present Supreme Court. Because we expect the decision will be reversed, we do not recommend that employers re-write or delete the binding arbitration and no class action provisions of their employment agreements at this time.

A) An After-the Fact Judicial Evaluation of Harassment Measures:

In another decision by a panel of the Ninth United States Circuit Court of Appeals, another employer that had won a judgment before a federal district court, which determined it had no liability for terminating the employment of two employees - a father and a son - on the ground of voluntary abandonment of their respective jobs, found out it had made a decision that could subject it to liability.

In this Case, the employees were Mexican-American millwrights, who had been assigned to a work crew where the senior or lead millwright was an alleged harasser. The employee-father claimed that he was subjected to repeated harassment due to his race and national origin as a Mexican-born United States citizen. While the alleged harasser had generally targeted the employee-father with his race-baiting, both the employee-father and his son complained to company management about it.

The employee-father filed a written complaint with the employer alleging harassment and discrimination by the alleged harasser. The employer then hired a company that, evidently, specializes in harassment investigations, to look into the allegations. The investigation company interviewed the employee-father, who identified a litany of racial harassing statements made to him by the alleged harasser. The employee-father asked that he not be required to work any longer with the alleged harasser. As an interim step, the employer rearranged the alleged harasser's schedule so that he would not be on the same shift as the employee-father.

An attempted follow-up interview with the employee-father was, allegedly, called off by the employer and the investigative firm when the employee-father complained that he did not want to speak with the investigator without having an attorney present. As the employer's policy did not permit an employee's attorney to be present during an informal investigation interview, the employer said "no." There was never a follow-up interview, though the employee-father claimed that he dropped his demand for an attorney to attend the follow-up interview and the investigation company never followed up with him.

While the investigation was proceeding, the alleged harasser left in the break room a printed e-mail containing an article that claimed President Obama was an illegal alien and that "our borders are like sieves." When the employee-father read the article, he claimed it was yet another example of targeted racial animus and harassment, which made him "scared." A few days later, the employee-father and his son arrived for their shifts and noted that, notwithstanding the earlier, albeit temporary, separation arrangement that had been made, they were back on a shift with the alleged harasser also on site. When they saw this, both employees immediately left the premises. The employee-son notified the employer of the presence of the harasser, concluding "'[w]e will not work in a hostile work environment. We will report to our shift on Wednesday, Jan[.], 13, 2010 . . . [u]nless we hear otherwise.'"

The employee-father and his son showed up on January 13, and the harasser was again at the workplace. They, thus, followed through on their prior threats and again left the plant.

On January 18, they were asked to meet with the employer's HR Director. The HR Director stated that the employer would make a good faith effort to keep the alleged harasser off the job site when the employee-father and his son were present but made clear they had to understand that circumstances would sometimes prevent that. On those occasions, the alleged harasser was instructed to stay away from the employee-father and his son and to have no contact with them unless a work emergency arose; unsatisfied, the employee-father and son said they "'. . . would not work with [the harasser], . . ..'" Thus, they were suspended pending the completion of the investigation.

A week later, the investigation ended without a determination regarding the harassment, the employer claiming that the employee-father's failure to cooperate in the investigation had caused it to end, perhaps, earlier than it should have, but asserting that, to that point, the investigation had revealed "'no evidence of a severe or pervasive hostile work environment,'" though it did disclose some "'personnel issues and [the employer] intend[ed] to address those issues ... but [the employee was] unwilling to meet ... despite ... repeated phone calls and attempts to communicate.'"

The district court judge found that what the employer had done to address the harassment was reasonable under the circumstances and upheld the terminations of the employment of the employee- father and his son. A panel of the Ninth United States Court of Appeals overturned this result.

In ruling as it did, two of the three members of the panel concluded that there was enough evidence in the record that a jury could find the employer conducted only a minimally compliant pro forma type of investigation, rather than a full-throated one, and was more interested in avoiding the headache of consistently scheduling the employee-father and his son around the alleged harasser than dealing with the harassment. It reasoned that, "'. . . , an employer is liable for a hostile work environment created by a plaintiff's co-worker if the employer 'knew, or should have known, about the harassment and failed to take prompt and effective remedial action.' Citation. Remedial action must include some form of disciplinary measures, . . . , which must be 'proportionate[ ] to the seriousness of the offense.' Citation. ('Title VII requires more than a mere request to refrain from discriminatory conduct.'). . . . ('When the employer undertakes no remedy, or where the remedy does not end the current harassment and deter future harassment, liability attaches for both the past harassment and any future harassment.')" (Italicized text represents my emphasis.)

The Court, thus, concluded that a jury could reasonably conclude that the employer took clearly ineffective steps to end the harassment and ignored any imperative to make certain it did not reoccur in the future. The fact that the district court judge thought the steps were reasonable, though unsuccessful, was not determinative.

The dissenting judge took the view that the employer's steps were, in fact, reasonable and that should have been enough, as the district court judge had found, for the employer to escape liability. The dissenting judge explained:

According to [the employer], it fired [the employee] on January 18, 2010 because [the employee] walked off the job on January 9 and refused to work his scheduled shift on January 13. It is undisputed that [the employee] walked off the job on January 9 and refused to work the January 13 shift. These are legitimate, non- discriminatory reasons to terminate [the employee]. The panel majority asserts that [the employer] requiring [the employee] to work on January 13 at the same time as [the alleged harasser] and [the employer]'s decision not to discipline [the alleged harasser] immediately offered potential evidence of disparate treatment. However, as mentioned above, [the employee] did not have a right to insist that [the employer] fire [the alleged harasser] or never schedule [the alleged harasser] at the same time that [the employee] was working. [The alleged harasser]'s hostile, racist statements ceased after Vigilant began investigating [the alleged harasser] in December 2009. That [the employer] did not discipline [the alleged harasser] before Vigilant completed its investigation and [the employee] walked off the job similarly cannot be construed as evidence of disparate treatment. For these reasons, [the employee] did not provide direct or circumstantial evidence to suggest a discriminatory motivation for termination.

[Words in brackets have been added]

Our Advice:

The Lesson from this Case, in our judgment, is that taking a prompt step to investigate an employee's claim of harassment/discrimination is essential and the investigation should be conducted and completed as quickly as is feasible, with any delay(s) in the process being explained, in some detail, with notes and other evidence.

Moreover, during the intervening period, suspension of the alleged harasser is, likely, the safest policy, even if it is with pay. And should there be any evidence that would objectively support a finding of harassment/discrimination, steps to rectify that circumstance must be undertaken promptly and evaluated regularly. If the steps prove ineffective (which may, frankly, ultimately, be a function of whether the victim re-complains), they need to be changed, up to and including the termination of the employment of the harasser. Trying to keep even an otherwise effective employee on staff when she/he is determined to have engaged in wrongful conduct towards a co-employee is a substantial risk even for a conscientious employer and, frankly, it will be easier to defeat a claim made by the harasser, as an at-will employee, than a victim of harassment with some objective evidentiary basis. Thus, the best decision - from a purely economic standpoint - is to terminate the harassing employee under such circumstances, not the "victim" employee, even, candidly, in circumstances where the former is a better employee and even though the latter employee is probably not long for retaining her/his position in any event.

Thus, this decision teaches that a true "zero tolerance" for harassment policy is the best policy for an employer.


The foregoing constitute what we believe are the potentially most important matters about which small employers in California need to be aware going forward. If there is a question(s) and/or concern(s), which you wish to discuss with us, please advise and we will make ourselves available.

We appreciate the opportunity we have been provided to be able to advise and otherwise work with your Company and you.

IV. Accompanying Document: P&K Exemplar Notice of Domestic Violence Leave Law:

California law requires that an employee, who is the victim of domestic violence and/or sexual assault and needs to be away from her/his employment to (1) seek a temporary restraining order or other injunctive relief to help ensure the health, safety, and/or welfare of the employee and/or his/her child; (2) seek medical attention for injuries related to such domestic violence and/or sexual assault; (3) obtain services from a domestic violence shelter or rape crisis center; (4) obtain psychological counseling; and/or (5) participate in safety planning or relocation due to such domestic violence or sexual assault, shall be provided such time off. If you find yourself in such a situation, please alert your immediate supervisor or HR representative to the need for such leave; if such an individual is not an appropriate individual to whom you should provide such information, then please provide that information to the owner, office or plant supervisor, or other person in the management of the Company with whom you feel comfortable to advise of the need for leave for any and/or all of the above reasons.


ANY OF THESE REASONS. However, we request that you provide us with as much notice of the day(s) and time(s) on which you may need time off from your job for one of these reasons so that we may plan a schedule.

Should you have qualifying paid leave time available under our program, you may request that time away from your job for one or more of the above reasons be compensated. In that event, the time you take for such purposes will be deducted from your existing bank of leave time. If you do not have sufficient leave time available, then such leave will be without pay.