Striking a blow to developers and their insurance carriers, a state appellate court has ruled that California’s Right to Repair Act is not the exclusive remedy for homeowners for actual damages resulting from construction defects. Although the issues were raised in the context of a subrogation action in which an insurance carrier sought to recoup from a developer relocation expenses it paid a homeowner, the decision has wide-ranging implications.

In its ruling on August 28, 2013, the California Court of Appeal, Fourth Appellate District put to rest the construction industry’s claim that the Right to Repair Act (Civil Code section 895 et seq.) eliminated many common law-based construction defect theories favorable to homeowners, including strict liability, and that it substituted new and much shorter statutes of limitations. An increase in residential construction defect litigation is expected in response to the ruling.

Enacted in 2002, the Act, which is sometimes referred to as SB 800, only recently became the subject of appellate review, due in part to the fact that its application was limited to homes sold after January 1, 2003.

Viewed with relief by attorneys representing homeowners in construction defect actions, the court concluded that the Act was never intended to, and does not, establish exclusive remedies for claims for actual damages for construction defects. In effect, the court held that homeowners who suffer actual damages as a result of a construction defects have a choice of remedies. Further, the ruling makes clear that common law claims are still governed by the longer statutes of limitations, up to 10 years for latent construction defects.

The case is Liberty Mutual Insurance Company v. Brookfield Crystal Cove LLC, No. G046731, 2013 Cal. App. LEXIS 687.

If you have any questions about what to do in response to this decision in terms of policies and procedures, or due to a claim, contact David Frenznick.

California’s Fair Employment and Housing Act (“FEHA”) prohibits members of a partnership from sexually harassing and retaliating against its employees for reporting or opposing sexual harassment, but does not protect individual partners from sexual harassment. Partners are not protected because FEHA only prohibits employment discrimination, and partners are not in an employer-employee relationship with the partnership. However, an open question under FEHA was whether a partner could bring a retaliation claim against the partnership when the partner opposed the sexual harassment of the partnership’s employees.

A recent opinion of the Court of Appeals answers that question in the affirmative. In Fitzsimons v. California Emergency Physicians Medical Group, the Court ruled that partners have standing to sue their partnership for retaliation under FEHA where the partner is terminated for opposing the sexual harassment of employees.

Case Summary
Plaintiff Mary Fitzsimons was a partner with California Emergency Physicians Medical Group (“CEP”). Plaintiff was removed from her position as regional director and filed suit alleging that CEP removed her in retaliation for reports she made that officers and agents of CEP had sexually harassed female employees of CEP’s management and billing subsidiaries. The trial court entered judgment in favor of CEP, holding that FEHA does not apply to retaliation by a partnership against a partner because partners are not in an employer-employee relationship.

The Court of Appeal reversed. In doing so, the Court found that the plain language of FEHA bars partnerships from retaliating against any person, including a partner, who opposes or reports the sexual harassment of an employee. However, the Court made it clear that upholding plaintiff’s claim “does not imply that a partner would have standing to assert a valid claim for harassment or discrimination against himself or herself by the partnership.”

What This Means for Employers
California partnerships face liability for retaliating against a partner who reports or opposes the sexual harassment of a partnership employee. Accordingly, a partnership would be wise to review its current anti-retaliation policies, make any changes necessary to ensure that those policies are clear, and train all partners and managers regarding the coverage of those policies.

Many employers are struggling to understand some of the more technical aspects of the Affordable Care Act (“ACA”) and its effect on employer budgets. Specifically, employers are looking for guidance on the complicated issue of how to determine whether workers qualify as full-time employees (“FTEs”) for purposes of the ACA’s employer shared responsibility provision and how to comply with the limitation on waiting periods before insurance coverage begins. The IRS’s recently issued guidance sheds light on the application of the employer shared responsibility rules and the 90-day waiting period limitation.

The Basics of the Employer Shared Responsibility Provision

The ACA’s employer shared responsibility provision applies to employers with 50 or more FTEs (employees working 30 or more hours per week). It requires such employers to provide FTEs “minimum essential coverage” or pay a penalty based on the number of FTEs that are not offered coverage. “Minimum essential coverage” means group health coverage under an eligible employer-sponsored group health plan, defined as a plan offered to employees of an employer that is a governmental plan or a plan or coverage available in the individual or group market.

Beginning in 2014, each covered employer will be assessed a penalty if any FTE is certified as eligible to receive a premium tax credit when buying insurance in a state-based “health insurance exchange.” The annual penalty is $2,000 per FTE in excess of 30 workers.

New Safe Harbor Guidelines 

The IRS guidance addresses “safe harbor” methods that employers may use to determine which employees are treated as FTEs for purposes of the employer shared responsibility provision. For ongoing employees, employers are generally permitted to apply a “look back” method that uses “standard measurement periods” and the “stability periods” that follow them. The “standard measurement period” is the period of time an employer chooses to apply to determine whether ongoing employees are FTEs. An “ongoing employee” is one that has been employed for at least one standard measurement period. The period must be at least 3 but not more than 12 consecutive months. The “stability period,” the period for which the employee’s status as an FTE or non-FTE is locked in regardless of hours worked, ¬must run at least 6 calendar months and at least as long as the standard measurement period. An employee who does not average at least 30 hours per week during the standard measurement period can be treated as a non-FTE during the stability period that follows the standard measurement period.

Employers are also permitted to use an administrative period between the standard measurement period and the stability period to determine which ongoing employees are eligible for coverage and enroll these employees. This administrative period may last up to 90 days, but may neither increase nor decrease the measurement or stability period.

If a new employee is reasonably expected to work full time at the start date, no penalties will be assessed as long as the employer offers coverage to the employee before the end of the 90 day waiting period discussed below. There is also a special safe harbor for determining whether variable-hour and seasonal employees are FTEs. Employers can determine whether these workers are FTEs using an initial measurement period of 3 to 12 months. The employer measures the hours of service completed during that period to determine whether an employee completed an average of 30 hours of service per week.

The 90-Day Waiting Period Limitation

The ACA bars a group health plan from imposing a waiting period for enrollment in group health coverage of more than 90 days. “Waiting period” is defined as the period that must pass before coverage becomes effective for an employee or dependent who is otherwise eligible to enroll under a group health plan’s terms. The plan may impose other substantive eligibility conditions as long as the condition is not designed to avoid the 90-day waiting period limitation.

What This Means For You 

To prepare for the employer mandates and avoid costly penalties, employers should take a close look at the composition of their workforce to determine which employees qualify as FTEs. Further, employers that have not already done so should immediately evaluate their group health coverage options.

On Friday, February 1, the United States Court of Appeal for the Ninth Circuit upheld a $5,000,000 judgment in a 2010 case brought by Wilke Fleury on behalf of plaintiffs Brian Dawe, Gary Harkins, and Flat Iron Mountain Associates against the California Correctional Peace Officers’ Association, Corrections USA, and one individual defendant. That judgment, in turn, followed a three-month trial in which a federal jury found that the defendants defamed Messrs. Dawe and Harkins and perpetrated related acts that caused significant damages to Dawe, Harkins, and Flat Iron Mountain Associates.

On appeal, the defendants argued that the judgment against CCPOA et al. was too large, and also maintained that certain claims should have been denied altogether under California’s application of the “litigation privilege,” among other principles. The appellate panel uniformly and unanimously rejected each of the defendants’ arguments, and affirmed the district court judgment in full.

In both the jury trial and on appeal, Dawe, Harkins, and Flat Iron were represented by Wilke Fleury partner Dan Baxter. Dan and his clients not only achieved the victories mentioned above, but also prevailed on each of the counterclaims advanced by the defendants at the trial.

Wilke Fleury congratulates Dan and his clients for achieving a fair and just result.

The work of Wilke Fleury partner and lobbyist John Valencia was hailed by the American Society for Dermatologic Surgery in the September/October 2012 edition of Currents, the Society’s semimonthly magazine. In an article entitled “ASDSA Victory: California Patient Safety Bill Passes,” the Society detailed the passage of Assembly Bill 1548 (imposing stiffer penalties for violations of the ban on “rent-a-doc” business schemes that have become prevalent in the context of cosmetic medical procedures), and specifically highlighted the importance of Mr. Valencia’s work. Among the “lessons” noted by the Society in advocating for AB 1548’s passage was the following:

"Engage an excellent contract lobbyist:  John Valencia of Wilke Fleury acted as the contract lobbyist in California for every step of this effort.  He is passionate and knowledgeable about this issue and became a trusted resource within the state legislature, MBC, Governor’s Office and other venues.  His hard work and creativity was absolutely critical to this success."

Wilke Fleury is proud of Mr. Valencia’s diligent work, and values the trust and confidence the Society has placed in Mr. Valencia and the firm.

California Employment Law Developments

The following is a synopsis of notable changes in California employment laws that take effect on January 1, 2013, unless otherwise noted.

AB 1744 & SB 1255 – Employee Compensation: Itemized Statements.

Under existing law, employers must provide itemized wage statements to employees on a semi-monthly basis, or when employees are otherwise paid. Employees who are injured by a knowing and intentional failure to provide the requisite information on the itemized statements may recover damages no greater than a $4,000 penalty and costs and attorney fees.

AB 1744 requires that temporary services employers provide additional information on the itemized wage statement, including the rate of pay and total hours worked for each temporary services assignment, and additional information in the notice given to the employee at the time of hire.

SB 1255 provides that employees have suffered “injury” as a matter of law where employers fail to provide a wage statement. Furthermore, employees are deemed to have suffered “injury” where the information on the itemized statement is not accurate and complete, and employees cannot promptly and accurately determine specified information from the wage statement alone.

AB 1775 – Wage Garnishment: Exempt Earnings.

The California Wage Garnishment Law limits the amount of earnings that may be subject to withholding for employees who are judgment debtors. AB 1775 increases the amount of wages exempt from garnishment to the lesser of 25 percent of the individual’s weekly disposable earnings or the amount by which the individual’s disposable earnings for the week exceed 40 times the state minimum hourly wage (currently $8 per hour) in effect at the time the earnings are payable, unless an exception applies. Disposable earnings are defined as the portion of an individual’s earnings that remains after all amounts required to be withheld by law have been deducted. AB 1775 becomes effective July 1, 2013.

AB 1844 – Employer use of Social Media.

AB 1844 prohibits employers from either requiring or requesting social media usernames or passwords from employees and applicants if the purpose is to access personal social media, access personal social media in the employer’s presence, or to divulge personal social media. However, the law does not affect employers’ rights to request that employees divulge personal social media to investigate employee misconduct, or to access employer-issued electronic devices.

AB 1844 also prohibits retaliation, or threats of retaliation, against employees who refuse to comply with an illegal request or demand to divulge social media usernames or passwords.

AB 1964 – Discrimination in Employment: Reasonable Accommodations.

The California Fair Employment and Housing Act (FEHA) requires employers to make reasonable accommodations for religious beliefs or observances as long as such accommodations do not impose undue hardships on employers. AB 1964 adds religious dress and grooming practices as covered beliefs or observances under FEHA. It further provides that segregating the religious employee from the public or other employees on account of their religious dress or grooming practices is not a reasonable accommodation.

AB 2103 – Employment: Wages and Hours: Overtime.

Existing California law sets the full-time workday at eight hours and the full-time workweek at 40 hours for non-exempt employees. Overtime is required for hours worked by nonexempt employees in excess of the daily and hourly limits. AB 2103 provides that, notwithstanding any private agreement to the contrary, the payment of a fixed salary to a nonexempt employee is considered compensation only for the employee’s regular, non-overtime hours.

AB 2386 – Employment and Housing Discrimination: Sex: Breastfeeding.

FEHA prohibits employers from discriminating against employees on the basis of sex. AB 2386 defines “sex” to include breastfeeding and related medical conditions.

AB 2674 – Employment Records: Right to Inspect.

Under existing law, an employee has the right to inspect the employer’s personnel records pertaining to his/her performance or to any grievance regarding the employee. AB 2674 requires employers to maintain these personnel records for at least three years after the termination of the employee. Additionally, employers must, within 30 calendar days of receiving a request, provide both current and former employees, or their representatives, with the opportunity to inspect and receive a copy of their records, except while a lawsuit relating to a personnel matter is pending. However, these requirements do not apply to employees covered by a valid collective bargaining agreement that already provides an inspection and copy procedure for personnel records.

AB 2675 – Employment Contract Requirements.

Existing California law requires employers to enter into written employment contracts with employees who are compensated on a commission basis. The contracts must specify how the commissions will be calculated and paid to the employees. AB 2675 exempts certain types of commissioned employees from this requirement. Specifically, a separate written contract is not required for: 1) short term productivity bonuses; 2) temporary variable incentive payments that increase, but do not decrease, under a written contract; or 3) bonus and profit sharing plans when the employer has not offered to pay a fixed percentage of sales or profits as compensation for work to be performed.

SB 863 – Workers’ Compensation.

SB 863 increases permanent disability benefits for employees by 30 percent, phased in over a two year period. It adjusts the formula for calculating the benefits amount, thereby making compensation amounts more accurately reflect the loss of future earnings. When determining the extent of permanent disability, only the nature of the physical injury or disfigurement, the injured employee’s occupation, and his or her age when injured can be considered. SB 863 also prohibits, with some limitations, increases in permanent disability ratings for sleep dysfunction, sexual dysfunction, and psychiatric disorders. Additionally, it creates a mandatory Independent Medical Review Process for medical treatment disputes. Finally, SB 863 makes a number of changes affecting Medical Provider Networks including streamlining the approval process, limiting the grounds that employees can use to avoid obtaining treatment with a Medical Provider Network and eliminating a number of other requirements that applied to such networks.

Minimum Wage.

Certain computer software employees and licensed physicians and surgeons are exempt from overtime requirements if they receive certain minimum rates, which have now increased.

Computer professionals: Hourly rate increase from $38.89 to $39.90; monthly rate increase from $6,752.19 to $6,927.75; annual rate increase from $81,026.25 to $83,132.93.

Licensed Physicians or Surgeons: Hourly rate increase from $70.86 to $72.70 per hour.

Federal Employment Law Developments

There were no significant employment laws enacted by the U.S. Congress during 2012. However, there were a number of other federal developments that may affect some California employers.

DOL and California Join Forces to Target Employee Misclassification as Independent Contractors

The United States Department of Labor (DOL) and the California Secretary of Labor and Workforce Development announced that they have entered into a memorandum of understanding regarding the improper classification of employees as independent contractors. This memorandum is a part of the DOL’s Misclassification Initiative, which aims to prevent, detect and remedy employee misclassification as independent contractors. The memorandum states that the DOL and the California Labor and Workforce Development Agency will share information, coordinate enforcement efforts and develop a procedure for exchanging investigative leads, complaints and referrals of possible violations. The memorandum also states that the agencies can conduct joint investigations.

EEOC Provides Additional Guidance on Employers’ Use of Criminal Records

The EEOC updated its enforcement guidelines relating to the consideration of arrest and conviction records in employment decisions. The EEOC identified two scenarios in which it believes that employers can successfully claim that their criminal conduct screen is acceptable: 1) when the employer utilizes the EEOC’s Uniform Guidelines on Employee Selection Procedures to validate their criminal conduct screen for the position; and 2) when the employer utilizes a targeted screen which considers certain specified factors, and then provides an opportunity for an individualized assessment for people who are excluded by the screen to determine whether the policy, as applied to them, is job related and consistent with business necessity. The EEOC emphasized that employers can avoid liability for disparate impact discrimination by utilizing individualized assessments and considering more complete information on individual applicants or employees. In its guidance, the EEOC stressed that a screening policy that contains an automatic exclusion of all applicants with criminal conduct is flawed because it does not focus on the dangers of particular crimes and the risks in particular positions. The EEOC also stated that, unlike a conviction, a mere arrest does not establish criminal conduct. Therefore, an arrest alone cannot be used to deny an employment opportunity. However, an employer can make an employment decision based on the underlying conduct of the arrest.

NLRB Continues to Scrutinize Employer Social Media Policies

The National Labor Relations Board (NLRB) released a report focusing on employer use of social media policies. The report laid out the framework that the NLRB uses to determine if a work rule violates a workers’ rights under Section 7 of the National Labor Relations Act (NLRA). Section 7 states that “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….” Therefore, a work rule that bars any of the above activities is unlawful. Additionally, a work rule violates the NLRA if employees would reasonably interpret the rule as prohibiting protected activity, the rule was formulated in response to union activity or the rule has been applied to restrict the exercise of Section 7 rights. The report states that utilizing ambiguous social media rules which lack limiting language informing the employees that the rule does not restrict Section 7 right violates the NLRA. The NLRB stated that rules are less likely to be unlawful if they clarify and restrict their scope by including examples of unprotected conduct. Additionally, the NLRB stated that a “savings clause” stating that the social media policy will be in compliance with the NLRA does not save an otherwise unlawful work rule.

NLRB Issues Opinion Relating to Mandatory Arbitration Clauses

In D.R. Horton and Machael Cuda, the NLRB held that Section 7 activities include the pursuit of a workplace grievance either through litigation or arbitration. Therefore, an arbitration clause that requires employees to waive their right to pursue class litigation of claims in any forum violates Section 7. However, the NLRB held that a mandatory arbitration clause does not violate Section 7 if it requires arbitration of individual claims but allows employees to pursue class action claims through litigation. It is worth noting that since this opinion was issued the California Court of Appeals has declined on multiple occasions to apple this reasoning to cases.