The final regulations for the Genetic Information Nondiscrimination Act of 2008 (‘GINA”) became effective January 10, 2011. Employers must be careful to comply with these regulations, as the consequences of non-compliance may be severe.

Background
The Genetic Information Nondiscrimination Act of 2008 (“GINA”) was signed into law on May 21, 2008. GINA prohibits employers from discriminating on the basis of genetic information in hiring, termination, personnel actions and compensation decisions. Title II of GINA, which applies to private employers who employ 15 or more employees for each working day in each of 20 or more calendar weeks in the current or preceding year, became effective on November 21, 2009. The regulations implementing Title II became effective on January 10, 2011. In addition to prohibiting discrimination on the basis of genetic information, employers are barred from requesting, requiring, purchasing or disclosing genetic information, subject to a few limited exceptions. If an employer does acquire any genetic information about its employees, the information must be maintained in a confidential medical record file separate from the employee’s personnel file.

Genetic Information Defined
Genetic information under GINA includes any genetic tests of applicants, employees or family members, an employees’ family medical history, requests for or receipt of genetic services and the genetic information of a fetus being carried by an individual or family member. Genetic information does not include sex or age, nor does it include information on race or ethnicity that does not come from a genetic test.

Compliance
There are six exceptions to the general prohibition on requesting, requiring or purchasing genetic information. These include (1) inadvertent acquisition, (2) employer offered health or genetic services, (3) request for family medical history under family leave laws, (4) commercially and publicly available genetic information, (5) genetic monitoring of the effects of workplace toxins, and (6) law enforcement purposes. In applying these exceptions, employers must comply with specific guidelines pertaining to the management and acquisition of genetic information. The key concepts to keep in mind if an employer obtains any genetic information about an employee is that the information is confidential and must be maintained and treated as such. Genetic information in the possession of the employer must not be disclosed to third parties.

An employer does not violate GINA if it inadvertently requests or acquires genetic information. In order to avoid inadvertently acquiring genetic information when making a lawful request for medical information, an employer should provide an affirmative warning in their request indicating that the provider should not include any genetic information in response to the request. The employer should also avoid making inquiries of the employee in a way that is likely to solicit genetic information. One example of this type of inquiry would be if, in response to an employee’s request to take FMLA leave due to cancer, the employer were to ask “Is there a history of cancer in your family?”

The second exception applies to employer offered health or genetic services. If an employer offers services through which they may acquire genetic information, the employer must obtain a knowing, voluntary and written authorization from the employee which provides a description of the type of genetic information requested and its purpose. Additionally, the authorization must describe the restrictions on further disclosure of the genetic information. Moreover, individually identifiable information may only be provided to the health care professionals involved in providing the services, and not to the employer or others in the workplace.

The third exception to GINA’s prohibition on requesting genetic information pertains to requests for family medical history in order to comply with the certification requirements under the FMLA or other state family leave laws. Such laws permit the use of leave to care for a sick family member and require employees to provide information about the health condition of the family member to support the need for leave.

It is also not a violation of GINA for an employer to obtain genetic information from documents that are commercially and publicly available, via hard copy or on the internet. However, an employer cannot actively search for such information, especially from sources with limited access such as social networking sites or medical databases.

Should an employer need to monitor the effects of workplace toxins, genetic information acquired to monitor those effects will not violate GINA so long as the employer complies with certain requirements. The employee must receive written notice of the monitoring and be informed of his/her individual monitoring results. If the monitoring is required by state or federal law, the employer must have obtained a prior knowing, voluntary and written authorization from the employee and the monitoring must comply with the law.

Finally, if an employer conducts DNA analysis for law enforcement purposes as a forensics laboratory or to identify human remains, the employer is permitted to require genetic information only to the extent needed to detect sample contamination.

Every employer needs to be aware of and comply with the requirements of GINA. The remedies available to an employee whose genetic information has been misused can be substantial and include compensatory and punitive damages, attorney’s fees, injunctive relief, back pay and other equitable remedies.

The following is a synopsis of the notable changes in California and federal employment laws that were enacted or modified in 2010.

California LawSB 1340 – Mandatory Organ Donation Leave
Requires private employers to allow employees to take paid leaves of absence for organ and bone marrow donation. Employees who have exhausted all other sick leave are entitled to take up to 30 days of paid leave for organ donation and up to 5 days of paid leave for bone marrow donation. Additionally, employers must restore an employee returning from organ or bone marrow donation leave to the same or an equivalent position as he or she had prior to taking the leave. An employer may not interfere with an employee who desires to take such leave and cannot later retaliate against an employee for doing so.

AB 569 – Meal Period Exemptions for Certain Unionized Industries
Labor Code section 512 requires employers to provide thirty-minute meal periods to employees working more than five hours per work day, unless waived by mutual consent. AB 569 amends section 512 to exempt employees in construction occupations, commercial drivers, security officers, and employees of electrical and gas corporations or local publicly owned electrical utilities from the meal period requirement. This exemption only applies if: 1) the employee is covered by a valid collective bargaining agreement; and 2) the agreement contains specified terms including meal period provisions.

AB 2364 – Unemployment Benefits for Domestic Violence Victims
California law provides unemployment insurance benefits to eligible employees who are unemployed through no fault of their own. Previously, employees were eligible if they left employment to protect their children from domestic violence abuse. AB 2364 amends those provisions to allow employee unemployment eligibility if they leave to protect their family from domestic violence abuse.

AB 1814 – FEHA Does Not Prohibit Adjustments to Retiree Health Benefits
Generally, California’s Fair Employment and Housing Act (FEHA) prohibits discrimination in the terms, conditions and privileges of employment based on age. AB 1814 creates a narrow exception to this rule, specifying that FEHA does not prohibit employers from providing health care reimbursement plans to retired persons that are altered, reduced or eliminated when the retiree becomes eligible for Medicare benefits. This exception only applies to health benefits offered to “retired persons.” AB 1814 essentially conforms California state law to the federal Age Discrimination in Employment Act and is intended to encourage employers to continue to offer modest “bridge” retiree health benefits to retirees before they become eligible for Medicare. AB 1814 applies to all retiree health benefit plans in effect on or after January 1, 2011.

AB 2774 – OSHA “Serious” Violations
Provides that if the California Occupational Safety and Health Administration (Cal/OSHA) can demonstrate that there is a “realistic possibility” that death or serious physical harm could result from an OSHA violation, then a rebuttable presumption that the violation is “serious” will be established. An employer can rebut this presumption by demonstrating that it took reasonable steps prior to the violation and effective action to eliminate employee exposure once the violation occurred. AB 2774 defines “Serious physical harm” as any injury or illness, specific or cumulative, occurring in the place of, or in connection with, employment that results in inpatient hospitalization, the loss of any part of the body, serious permanent disfigurement, or impairment of any part of the body sufficient to cause it to become permanently and significantly reduced in efficiency.

No Increase in Computer Professional Salary for Exemption Purposes
Labor Code section 515.5 provides that if computer software employees perform certain enumerated duties and their hourly pay is not less than the statutorily specified rate, then those employees are exempt from overtime requirements. The Division of Labor Statistics and Research, the agency responsible for determining if adjustments need to be made to this rate, has determined for the second year in a row that the rates will remain unchanged. The minimum hourly rate will remain at $37.94, the minimum monthly salary will remain at $6,587.50, and the minimum annual salary will remain at $79,050.

Federal Law
The Obama Administration primarily focused on contentious issues such as health care, financial reform, and immigration reform; therefore, there were no significant federal labor and employment legislative developments in 2010.

Although the Americans with Disabilities Act (ADA) recently celebrated its 20th anniversary, many employers still have difficulty understanding the scope of the ADA’s requirement to provide reasonable accommodations for employees with disabilities. A recent decision by the Ninth Circuit Court of Appeals highlights the importance of communication between the employer and employee when determining the appropriate reasonable accommodation for a disabled employee, as well as the continuing nature of the employer’s obligation.

An Example of Ineffective Accommodation: EEOC v. UPS Supply Chains Solutions 

Facts
In 2001, UPS hired Maricio Centeno as a junior clerk in the accounts payable division. Centeno was born deaf, his native language was American Sign Language (ASL) and he could only read and write English at the fourth or fifth grade level. Centeno was able to complete his job responsibilities without the assistance of an ASL interpreter, but required reasonable accommodations to fully enjoy certain benefits and privileges of his position.

UPS held mandatory weekly and monthly accounts payable meetings, but due to his disability, Centeno was unable to understand what was being said during these meetings. In 2002, Centeno requested an ASL interpreter at the meetings. UPS chose to accommodate Centeno by requiring him to attend the meetings and then providing him with written summaries of the meetings after they were concluded. Centeno was unhappy with this accommodation because he received the information at a later time than the rest of the employees, he was unable to voice his opinions or ideas during the meetings, and he frequently did not understand the summaries. Centeno expressed these concerns to UPS and in 2004, UPS responded by having another employee sit with Centeno and take notes for him during the meetings. This accommodation was also ineffective because Centeno could not understand the notes. In 2005, UPS began providing an ASL interpreter for the monthly meetings but not for the weekly meetings.

UPS had similar difficulties providing Centeno with reasonable accommodation regarding other aspects of his job, including assistance with an Excel training program, understanding a written warning regarding a violation of UPS’s anti-harassment policy and understanding and completing a questionnaire on harassment awareness.

The Court’s Decision
Initially, the lower court held in favor of UPS, finding that the accommodations that UPS provided for Centeno were reasonable. The EEOC then appealed to the Ninth Circuit. The issue before the Ninth Circuit was whether UPS provided Centeno with reasonable accommodations under the ADA that would allow him to enjoy the benefits and privileges of his position, including required meetings, job training, understanding the contents of written warnings and comprehending UPS’s harassment awareness questionnaire. UPS argued that it reasonably accommodated Centeno because its modifications were effective.

The Ninth Circuit explained that a reasonable accommodation must allow an employee with a disability to enjoy the same benefits and privileges of employment as are enjoyed by other similarly situated employees without disabilities. The employer is required to engage in an “interactive process” with the employee to determine what accommodation is most appropriate. This interactive process requires “(1) direct communication between the employer and employee to explore in good faith the possible accommodations; (2) consideration of the employee’s request; and (3) offering an accommodation that is reasonable and effective”. Furthermore, an accommodation is ineffective when it does not fully accommodate a disabled individual’s limitations. The Ninth Circuit determined that a jury should decide whether the accommodations UPS implemented were effective, because the issue was not so clear cut that it could be decided by a court. The court noted that an employer is not required to provide an employee with the exact accommodation that he requests, but continuing to utilize an ineffective accommodation is not reasonable.

Lessons for Employers
1. Employers must not only provide reasonable accommodations to disabled employees to ensure they can perform their essential job responsibilities, but also that they are able to fully enjoy the benefits and privileges of their employment.

2. Employers implementing a reasonable accommodation for a disabled employee must engage in an interactive process with the employee to determine if the accommodation is effective.

3. If the employee complains that the accommodations offered are ineffective after trying them, further discussions regarding other alternatives must take place to determine whether an effective accommodation exists.

California’s Workers’ Compensation Act, the Fair Employment and Housing Act (FEHA), and the federal Americans with Disabilities Act (ADA), all offer distinct procedures and remedies for claims made by disabled employees in the workplace. While many aspects of workers’ compensation claims are handled by the employer’s insurer, FEHA and ADA claims trigger an obligation for the employer to engage in an interactive process with the employee to determine if a reasonable accommodation can be provided that would allow the employee to perform the essential functions of the job. Since many workers’ compensation claims ultimately lead to FEHA or ADA disputes, it is important to understand the subtle distinctions between the various legislative schemes and how they interact. Below are some common questions from employers about how to navigate the potential overlap between workers’ compensation laws, the FEHA and the ADA.

Q: Why are there so many laws covering disability discrimination in the workplace? What are the important differences? 

A: Understanding the history of the various laws helps to answer this question. California’s workers’ compensation laws have existed, in one form or another, for almost 100 years. They were designed to strike a bargain between employees who were vulnerable to injury and their employers, who were potentially subject to devastating liability. Under the compromise, employers assumed liability for workplace injury regardless of their fault, and in return, employees gave up their right to sue in court. The ultimate goal of workers’ compensation laws (and one that is particularly important in times of high unemployment) is to return the employee to work. The FEHA and ADA, by contrast, are civil rights laws that were enacted specifically to combat discrimination. (The FEHA predates the ADA and is slightly broader in scope, as discussed below.) As such, each law provides its own remedies, corresponding to the policy behind the legislation.

Historically, workers’ compensation claims were an employee’s exclusive remedy for disability discrimination. Section 132a of the California Labor Code specifically prohibits discrimination against an employee for filing a workers’ compensation claim. In 1998, however, the California Supreme Court ruled that disabled workers may pursue any and all remedies available to them under the law, including those provided for in the FEHA and ADA. This is important because these statutes can offer very broad remedies not available under the workers’ compensation laws, including front pay, unlimited compensatory damages, attorney fees, and, potentially, punitive damages. Of course, employees can’t get “double recovery” under both workers’ compensation and the FEHA or ADA. However, settlement of a workers’ compensation claim does not prevent the employee from bringing a later FEHA claim – so an employer can’t assume it has exhausted its liability just because it settled a workers’ compensation claim.

Q: What employers are covered under the various laws? 

A: California’s workers’ compensation laws apply broadly to all employers within the state. The FEHA applies only to entities with at least five employees, and the ADA applies only to entities with at least 15 employees. If you are a small employer, be sure you are clear on who counts as an “employee” – anyone owning a share of the organization or exercising significant control over it may not qualify as an employee for purposes of ADA or FEHA coverage.

Q: What is the definition of a “disability”? 

A: This is a surprisingly complicated question. “Disability” has distinct meanings under workers’ compensation laws, the FEHA, and the ADA. Under workers’ compensation, a “disabled” employee is any employee who has suffered a workplace injury that restricts the worker’s ability to perform the job. The FEHA, by contrast, specifically defines disability as an “impairment that limits an individual’s ability to participate in a major life activity,” which California courts construe broadly to include anything that makes achievement of job functions difficult. The ADA defines the term more rigidly as an impairment that “substantially limits” a major life activity. As a result, a condition that constitutes a disability under workers’ compensation may not necessarily qualify as one under the FEHA or the ADA. For example, an employee might be able to file a workers’ compensation claim for even a relatively minor workplace injury (and for any discrimination resulting from it), but unless the injury limited a major life activity, relief under the FEHA or ADA would be unavailable.

Q: What is a “major life activity”? 

A: The ADA states that major life activities “include, but are not limited to, caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating, and working.” However, this list is not meant to be exhaustive and there has been extensive litigation over what qualifies as a major life activity.

Q: What are some examples of reasonable accommodations? 

A: California employers have an obligation to provide reasonable accommodation to an employee with a disability, unless the employer can demonstrate that an undue hardship precludes it from doing so. The accommodation must allow the employee to perform the job effectively. Common examples of accommodations include remodeling the workplace to make it accessible to the employee, limiting the employee’s working hours and/or providing more breaks, restructuring the job, providing an extended leave of absence or, if necessary, transferring the employee to another (vacant) position within the organization where the disability will not interfere with the job functions.

Of course, what is “reasonable” and what constitutes an “undue hardship” will vary depending on the employer and the nature and extent of the disability at issue. “Undue hardship” is defined ambiguously as requiring “significant difficulty or expense.” Courts look to an employer’s size, resources, field and structure to determine whether the employer has met its obligations under the FEHA or ADA. Smaller employers may be expected to respond to an employee’s request more quickly, but larger employers will be presumed to have more financial flexibility.

Q: What is required of employers and employees in the interactive process? 

A: Once an employer has notice of a disability that may be impacting the employee’s ability to perform the job, the employer has a legal obligation to engage in an informal interactive process with the employee to determine if an accommodation exists that will allow the employee to perform the essential functions of the job. This process generally begins with a simple dialogue between employer and employee, which must be meaningful and in good faith. The employee has an obligation to communicate all relevant medical information, and may not hold out for a preferred accommodation if the employer offers a reasonable alternative. Ultimately, the choice of accommodation is at the employer’s, not the employee’s, discretion.

The biggest pitfall for employers is allowing communication to break down. First-line supervisors may be dismissive of the employee’s initial complaints and fail to escalate the dialogue to Human Resources. Training on this issue is important, as a supervisor’s failure in this regard will be imputed to the employer. However, even Human Resources professionals are not immune to dropping the ball when it comes to the interactive process. An employer’s obligations are onerous and the employer should ensure that it continues its efforts to communicate with the employee until a reasonable accommodation is reached or it is determined that no reasonable accommodation is possible.

It should also be remembered that the interactive process need not be conducted in person. The process can, and often should, start when the employee is out on leave and can be accomplished through phone calls or e-mail. If the employee has retained an attorney, employers may comply with the interactive process by communicating with the attorney rather than with the employee directly. Employers would also be wise to document the entire interactive process –all documentation relating to the employee’s request for accommodation, relevant medical information, work restrictions, discussions regarding accommodation, and all communication with the employee should be retained. Where possible, have the employee acknowledge this documentation in writing.

Q: What are some proactive steps an employer can take to avoid liability relating to future workers’ compensation, FEHA, or ADA claims? 

A: Before a disability issue arises, the employer should ensure that each employee is provided with a job description containing the essential job functions. This allows for transparency and minimizes confusion over the critical functions of the job once a disability is at issue.

Training supervisors on how to deal with disabilities in the workplace is also key. Once the employee brings the issue to the supervisor’s attention, the supervisor should determine whether an injury occurred at work and ask what accommodation the employee requires. If the supervisor notices a performance problem that could reasonably be attributed to an employee’s disability but the employee has not yet notified the employer, the supervisor should (delicately) raise the issue with the employee. The employer has an affirmative duty to investigate whether a disabled employee may be reasonably accommodated. Once these preliminary steps have been taken, the supervisor should immediately report the situation to Human Resources so that the appropriate paperwork can be completed and the interactive process can be continued and effectively documented. Supervisors should not be charged with completing the interactive process on their own. Where appropriate, guidance from a legal professional should be obtained.

Finally, do not make the mistake of thinking that complying with your obligations under the workers’ compensation laws is synonymous with complying with your obligations under the FEHA or the ADA. As an employer, it is important to understand that your obligations under each of these of these statutory schemes are different and that satisfying your obligations under one may still leave you subject to significant liability under another.

California’s Workers’ Compensation Act, the Fair Employment and Housing Act (FEHA), and the federal Americans with Disabilities Act (ADA), all offer distinct procedures and remedies for claims made by disabled employees in the workplace. While many aspects of workers’ compensation claims are handled by the employer’s insurer, FEHA and ADA claims trigger an obligation for the employer to engage in an interactive process with the employee to determine if a reasonable accommodation can be provided that would allow the employee to perform the essential functions of the job. Since many workers’ compensation claims ultimately lead to FEHA or ADA disputes, it is important to understand the subtle distinctions between the various legislative schemes and how they interact. Below are some common questions from employers about how to navigate the potential overlap between workers’ compensation laws, the FEHA and the ADA.

Q: Why are there so many laws covering disability discrimination in the workplace? What are the important differences? 

A: Understanding the history of the various laws helps to answer this question. California’s workers’ compensation laws have existed, in one form or another, for almost 100 years. They were designed to strike a bargain between employees who were vulnerable to injury and their employers, who were potentially subject to devastating liability. Under the compromise, employers assumed liability for workplace injury regardless of their fault, and in return, employees gave up their right to sue in court. The ultimate goal of workers’ compensation laws (and one that is particularly important in times of high unemployment) is to return the employee to work. The FEHA and ADA, by contrast, are civil rights laws that were enacted specifically to combat discrimination. (The FEHA predates the ADA and is slightly broader in scope, as discussed below.) As such, each law provides its own remedies, corresponding to the policy behind the legislation.

Historically, workers’ compensation claims were an employee’s exclusive remedy for disability discrimination. Section 132a of the California Labor Code specifically prohibits discrimination against an employee for filing a workers’ compensation claim. In 1998, however, the California Supreme Court ruled that disabled workers may pursue any and all remedies available to them under the law, including those provided for in the FEHA and ADA. This is important because these statutes can offer very broad remedies not available under the workers’ compensation laws, including front pay, unlimited compensatory damages, attorney fees, and, potentially, punitive damages. Of course, employees can’t get “double recovery” under both workers’ compensation and the FEHA or ADA. However, settlement of a workers’ compensation claim does not prevent the employee from bringing a later FEHA claim – so an employer can’t assume it has exhausted its liability just because it settled a workers’ compensation claim.

Q: What employers are covered under the various laws? 

A: California’s workers’ compensation laws apply broadly to all employers within the state. The FEHA applies only to entities with at least five employees, and the ADA applies only to entities with at least 15 employees. If you are a small employer, be sure you are clear on who counts as an “employee” – anyone owning a share of the organization or exercising significant control over it may not qualify as an employee for purposes of ADA or FEHA coverage.

Q: What is the definition of a “disability”? 

A: This is a surprisingly complicated question. “Disability” has distinct meanings under workers’ compensation laws, the FEHA, and the ADA. Under workers’ compensation, a “disabled” employee is any employee who has suffered a workplace injury that restricts the worker’s ability to perform the job. The FEHA, by contrast, specifically defines disability as an “impairment that limits an individual’s ability to participate in a major life activity,” which California courts construe broadly to include anything that makes achievement of job functions difficult. The ADA defines the term more rigidly as an impairment that “substantially limits” a major life activity. As a result, a condition that constitutes a disability under workers’ compensation may not necessarily qualify as one under the FEHA or the ADA. For example, an employee might be able to file a workers’ compensation claim for even a relatively minor workplace injury (and for any discrimination resulting from it), but unless the injury limited a major life activity, relief under the FEHA or ADA would be unavailable.

Q: What is a “major life activity”? 

A: The ADA states that major life activities “include, but are not limited to, caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating, and working.” However, this list is not meant to be exhaustive and there has been extensive litigation over what qualifies as a major life activity.

Q: What are some examples of reasonable accommodations? 

A: California employers have an obligation to provide reasonable accommodation to an employee with a disability, unless the employer can demonstrate that an undue hardship precludes it from doing so. The accommodation must allow the employee to perform the job effectively. Common examples of accommodations include remodeling the workplace to make it accessible to the employee, limiting the employee’s working hours and/or providing more breaks, restructuring the job, providing an extended leave of absence or, if necessary, transferring the employee to another (vacant) position within the organization where the disability will not interfere with the job functions.

Of course, what is “reasonable” and what constitutes an “undue hardship” will vary depending on the employer and the nature and extent of the disability at issue. “Undue hardship” is defined ambiguously as requiring “significant difficulty or expense.” Courts look to an employer’s size, resources, field and structure to determine whether the employer has met its obligations under the FEHA or ADA. Smaller employers may be expected to respond to an employee’s request more quickly, but larger employers will be presumed to have more financial flexibility.

Q: What is required of employers and employees in the interactive process? 

A: Once an employer has notice of a disability that may be impacting the employee’s ability to perform the job, the employer has a legal obligation to engage in an informal interactive process with the employee to determine if an accommodation exists that will allow the employee to perform the essential functions of the job. This process generally begins with a simple dialogue between employer and employee, which must be meaningful and in good faith. The employee has an obligation to communicate all relevant medical information, and may not hold out for a preferred accommodation if the employer offers a reasonable alternative. Ultimately, the choice of accommodation is at the employer’s, not the employee’s, discretion.

The biggest pitfall for employers is allowing communication to break down. First-line supervisors may be dismissive of the employee’s initial complaints and fail to escalate the dialogue to Human Resources. Training on this issue is important, as a supervisor’s failure in this regard will be imputed to the employer. However, even Human Resources professionals are not immune to dropping the ball when it comes to the interactive process. An employer’s obligations are onerous and the employer should ensure that it continues its efforts to communicate with the employee until a reasonable accommodation is reached or it is determined that no reasonable accommodation is possible.

It should also be remembered that the interactive process need not be conducted in person. The process can, and often should, start when the employee is out on leave and can be accomplished through phone calls or e-mail. If the employee has retained an attorney, employers may comply with the interactive process by communicating with the attorney rather than with the employee directly. Employers would also be wise to document the entire interactive process –all documentation relating to the employee’s request for accommodation, relevant medical information, work restrictions, discussions regarding accommodation, and all communication with the employee should be retained. Where possible, have the employee acknowledge this documentation in writing.

Q: What are some proactive steps an employer can take to avoid liability relating to future workers’ compensation, FEHA, or ADA claims? 

A: Before a disability issue arises, the employer should ensure that each employee is provided with a job description containing the essential job functions. This allows for transparency and minimizes confusion over the critical functions of the job once a disability is at issue.

Training supervisors on how to deal with disabilities in the workplace is also key. Once the employee brings the issue to the supervisor’s attention, the supervisor should determine whether an injury occurred at work and ask what accommodation the employee requires. If the supervisor notices a performance problem that could reasonably be attributed to an employee’s disability but the employee has not yet notified the employer, the supervisor should (delicately) raise the issue with the employee. The employer has an affirmative duty to investigate whether a disabled employee may be reasonably accommodated. Once these preliminary steps have been taken, the supervisor should immediately report the situation to Human Resources so that the appropriate paperwork can be completed and the interactive process can be continued and effectively documented. Supervisors should not be charged with completing the interactive process on their own. Where appropriate, guidance from a legal professional should be obtained.

Finally, do not make the mistake of thinking that complying with your obligations under the workers’ compensation laws is synonymous with complying with your obligations under the FEHA or the ADA. As an employer, it is important to understand that your obligations under each of these of these statutory schemes are different and that satisfying your obligations under one may still leave you subject to significant liability under another.

Investigators are frequently called upon to conduct investigations of complaints that involve a particular statute, such as California’s Fair Employment and Housing Act, the Family and Medical Leave Act, California’s Whistleblower Protection Act, or Labor Code section 1102.5. A recent Court of Appeal decision highlights the care that must be taken by the investigator who is conducting such an investigation to thoroughly understand the legal requirements of the statutory scheme, including the definition of terms used within the statute at issue, and to appropriately apply those requirements. A failure to do so may invalidate the investigator’s findings and leave the client who relies upon the investigation open to liability.

The Facts and Findings of Ohton
Ohton v. Board of Trustees of the California State University (2010) 180 Cal.App.4th 1402 involved a trainer who worked for the San Diego State University Athletic Department. In February, 2003, Ohton responded to an Athletic Department audit by submitting a confidential report asserting that members of the Athletic Department had violated National Collegiate Athletic Association rules and engaged in other inappropriate conduct. Among his allegations were that he had heard rumors that the head football coach had gotten seriously drunk before one away game and had been seen walking out of a strip club at 1:00 a.m. the morning of another game.

In August, 2003, Ohton filed an internal complaint with the school, claiming that the football coach and other members of the Athletic Department had retaliated against him because of his report in violation of California’s Whistleblower Protection Act. He claimed the football coach obtained a copy of his confidential report and circulated it to other members of the Department. Ohton claimed he had been retaliated against when the Interim Athletic Director informed him that the football coach wanted a different strengthening and conditioning coach. He was thereafter relieved of all responsibilities for the football team, and his schedule was changed.

CSU retained an attorney to investigate Ohton’s complaints. The investigator concluded that Ohton was removed from the football program because he reported “personal and program-related” improprieties, not because he reported NCAA violations. As to the schedule change, the investigator concluded that the change was punitive and was made because of Ohton’s perceived antagonism towards the current football program, as illustrated by some of the allegations and accusations in Ohton’s report. However, with respect to Ohton’s allegation regarding the football coach’s public drunkenness, the investigator concluded that, while the allegation was arguably one of gross misconduct or incompetence, the evidence relied upon by Ohton was hearsay and was fully refuted. Moreover, the investigator noted that the accusation appeared in only two sentences on the 98th page of a 103 page document. Based on this, the investigator concluded that the accusation was not intended to “blow the whistle” on specific conduct and was not a “protected disclosure” as is required to support a claim for whistleblower retaliation.

CSU forwarded the investigator’s report to Ohton and he responded to it. The investigator was then given an opportunity to comment on Ohton’s response, which he did, as follows:

Regardless of [Ohton’s] subjective intent, the statute requires a finding of “good faith” disclosure. The comments that contributed to Ohton’s reassignment and hour restrictions were not good faith disclosures; rather, they were personal attacks based on faulty or incomplete information, improper assumptions or innuendo, and/or were accusations that did not involve improper governmental activities. [¶] It is my opinion that Ohton’s accusation that Head Coach Tom Craft was intoxicated in public was a factor in the timing of and the decision to remove Ohton as the Strength and Conditioning Coach, and that such accusation was not made in good faith.

Finally, the investigator noted that a separate investigation had been conducted by another investigator regarding the allegation of public drunkenness by the coach. During that investigation, Ohton claimed that he heard the allegation from one Booster, who had in turn heard it from two others. The “two others” were interviewed and denied the incident had occurred, as did the coach. Ohton’s source did not confirm it either. The investigator concluded that Ohton had related the very serious accusation due to disrespect for the coach and that Ohton’s false assertions of purported fact were not made in good faith.

CSU sent Ohton a final letter of determination resolving his complaint, in which it stated that it disagreed with the finding of the investigator that Ohton’s written report was not a protected disclosure. However, CSU concluded that the particular disclosure relating to the coach’s public drunkenness was not a protected disclosure because it was not made in good faith. CSU agreed with the investigator that the accusation was false and was motivated by Ohton’s personal and vindictive agenda against the coach. CSU concluded that Ohton was removed from the football program for independent legitimate, non-retaliatory reasons but that the restriction of Ohton’s hours was retaliatory. As a result, CSU rescinded the instructions regarding the limitation of Ohton’s work hours.

Ohton filed a petition for writ of mandate, requesting a determination of whether CSU had satisfactorily addressed his internal complaint within the meaning of Government Code section 8547.12. The Court of Appeal concluded that CSU had applied an incorrect definition of good faith and that the result it reached was contrary to law.

The Court first analyzed the determination that Ohton did not act in good faith in reporting the football coach’s alleged public drunkenness, because that determination led to the finding that his disclosure was not protected. The Court determined that CSU had applied an incorrect definition of good faith and had, therefore, reached a result that was contrary to law. Specifically, the Court noted that Government Code section 8547.2 defines “protected disclosure” to mean “any good faith communication . . . that discloses or demonstrates an intention to disclose information that may evidence (1) an improper governmental activity or (2) any condition that may significantly threaten the health or safety of employees or the public if the disclosure or intention to disclose was made for the purpose of remedying that condition.” While “good faith communication” is not defined, the Court noted that an employee may file a written internal complaint only with a sworn statement that the contents of the complaint are true, or are believed by the affiant to be true under penalty of perjury. Accordingly, a finding of good faith, or its absence, involves a factual inquiry into the complainant’s subjective state of mind. Did he/she believe the action was valid? What was his/her intent or purpose in pursuing it? The Court noted that a subjective state of mind will rarely be susceptible of direct proof; usually it will be inferred it from circumstantial evidence. However, “the phrase ‘good faith’ in common usage has a well-defined and generally understood meaning, being ordinarily used to describe that state of mind denoting honesty of purpose, freedom from intention to defraud, and, generally speaking, means being faithful to one’s duty or obligation.” The Court noted that, although the investigator questioned Ohton’s motive for disclosing the allegation that the coach was seen drunk in public, the investigator did not conclude that Ohton had been knowingly dishonest. Furthermore, CSU did not dispute the investigator’s finding in that regard.

The Court went on to criticize the good faith analysis on other fronts as well. Specifically, the investigator had concluded that Ohton did not act in good faith because his disclosure was based on hearsay and was fully refuted. The Court disagreed that a whistleblower’s reliance on hearsay precluded a finding that the complaint was a good faith protected disclosure, noting that improper governmental activity is frequently difficult to uncover and whistleblowers will often need to rely on hearsay evidence. The Court also concluded that it could not be the case that a lack of good faith could be imputed simply because an investigation ultimately concluded the allegation was false. Whether the disclosure is made in good faith, the Court noted, is properly determined based on whether the complainant believed it was true or had reason to believe it was true at the time it was made. It is then the investigator’s role to ascertain the truth or falsity of the complaint. A post-investigation conclusion that the complaint was unfounded does not necessarily mean the complaint was made in bad faith.

Finally, the Court noted that, even if Ohton’s report had been motivated because of a personal and vindictive agenda against the coach, it did not follow that the complaint was made in bad faith. Government Code section 8547 does not require the impossibly high standard that the complainant’s motives be pure and untainted. Rather, the statute merely requires an honest belief in the truth of the allegations. The Court further criticized the fact that, even though one Booster identified by Ohton acknowledged seeing the football coach drunk in New Mexico, that fact was omitted from CSU’s final determination letter because the Booster stated he did not wish to be involved. The Court found that the omission of that fact undermined the conclusion that Ohton did not make a good faith report.

Lessons from Ohton
Ohton provides several valuable lessons to workplace investigators. First, if you are conducting an investigation that involves a particular statutory scheme, it is imperative that you understand the legal terms used in the statute. Achieving such understanding may involve conducting legal research or otherwise assuring yourself that you are applying the appropriate legal standard. This is particularly important where terms used within a statute may be subject to a lay understanding which is different from that imposed by law. It was unclear in Ohton how the investigator came to his definition of “good faith.” There is no suggestion in the Court’s opinion, however, that the investigator defined how he was using the term, or that he cited to any authority for the definition of good faith he used. In the event a legal term is central to your finding, as was the case in Ohton, it may be appropriate to not only research the proper definition of the term, but also to cite your sources when referencing that term. In Ohton, the employer’s entire determination ultimately unraveled because of an incorrect standard applied by the investigator.

The Court in Ohton also pointed out another error: selective omission of contradictory information. Specifically, one Booster identified by Ohton as a source of information confirmed that he had seen the coach drunk in New Mexico. However, that Booster said he did not want to be involved in the investigation. CSU excluded that information from its determination letter, undermining its conclusion that Ohton’s report was not made in good faith. Although it is unclear from the decision whether that omission was made by CSU or the investigator, the lesson to be drawn is clear. Where an investigator comes across information which refutes one of the investigator’s findings, it is important to address that information head on and explain why the conclusion stands in spite of the information. Disregarding the information implies either a sloppy report or an inability to reconcile the findings with the contradictory information. In either event, should your investigative report be relied upon by your client and litigation results, you can be sure you will be vigorously cross-examined on any omission of or failure to account for information that contradicts your findings.

Finally, be clear in your findings. In Ohton, the investigator questioned Ohton’s motive for disclosing the allegation that the coach was seen drunk in public, but did not specifically conclude that Ohton had been knowingly dishonest. Given that a finding of dishonesty was a prerequisite to a finding of bad faith, this omission proved critical. While not every investigation requires specific findings of honesty or dishonesty, most investigations do involve conclusions regarding witness credibility. Your determination regarding whether a witness is honest or dishonest will impact the amount of weight you give the information you receive from the witness. If you are going to disregard a witness’ testimony because you believe he is not credible, make sure you include such a statement in your findings. Likewise, if you are giving one witness’ testimony more weight than another’s, explain why that is so. Do not leave your reader guessing as to your conclusions regarding witness credibility where you have, in fact, made such conclusions. Of course, where you have not made such conclusions, you may wish to include a statement to that effect as well. Most importantly, however, where you are conducting an investigation in which the complainant’s good faith (or lack thereof) is central to your findings, make sure you specifically address whether you find the complaint to have been made in good faith or not and explain why you made that finding. You should cite to the specific evidence upon which you have relied so that the basis for your finding will be obvious to anyone reading your report. In the event your client is required to establish that it acted reasonably in relying on your report, your transparency will make that task easier. Your client may not be the only one to benefit, however; in the event litigation ensues and you are called to testify many months or even years later, you will be able to easily refresh your recollection as to the facts you relied on when you made your findings.

California employers that receive federal funding may now be subject to disability discrimination claims from independent contractors under the Rehabilitation Act of 1973. In a surprising decision, the Ninth Circuit recently held that section 504 of the Rehabilitation Act should be broadly construed to protect all individuals denied participation from federally-funded programs, including independent contractors.

The Rehabilitation Act of 1973
The Rehabilitation Act was the first major federal statute designed to protect disabled individuals in this country. Section 504 of the Act creates a private right of action for individuals subjected to discrimination by any federally-funded program or activity. Specifically, the Act provides that an individual who is otherwise qualified cannot be excluded from participation in, denied the benefits of, or subjected to discrimination under any federally-funded program or activity solely because of his or her disability. A federally-funded program for purposes of the Act include businesses that receive any amount of federal funding. Further, section 504(d) provides that the standards used to determine a violation of the Act in an employment discrimination case are the same standards applied under Title I of the Americans with Disabilities Act (“ADA”).

Recently, various courts have been attempting to resolve the issue of whether section 504 covers only employees where the claim arises in the workplace or whether it also covers non-employees, such as independent contractors. In a recent Ninth Circuit case, Fleming v. Yuma Regional Medical Center, the court held that section 504 should be interpreted to cover independent contractors, which would allow them to bring discrimination claims under the Act.

Fleming v. Yuma Regional Medical Center
In Fleming v. Yuma Regional Medical Center, Dr. Lester Fleming applied for a position with the Yuma Regional Medical Center as an anesthesiologist. Upon learning that Dr. Fleming suffered from sickle cell anemia, Yuma informed him that it would not be able to accommodate his operating room and call schedules. Dr. Fleming declined to accept this condition, which effectively cancelled the contract. He then brought suit against Yuma for employment discrimination in violation of section 504 of the Act.

Yuma asked the Court to dismiss Dr. Fleming’s case, arguing that he was not an employee, but was instead an independent contractor who could not bring a claim a for discrimination under the Rehabilitation Act. The lower court agreed and granted Yuma’s motion, finding that Dr. Fleming was an independent contractor and that independent contractors are not protected by the Rehabilitation Act. Dr. Fleming appealed.

The Ninth Circuit agreed with Dr. Fleming, finding that the Rehabilitation Act (unlike the ADA) is not limited to employees but also applies to independent contractors and the entities that hire them. The Court reasoned that the Act covers any “otherwise qualified individual” denied participation in, benefits of, or subjected to discrimination from any program that receives federal funds. The Act defines “program or activity” broadly to include all operations of covered entities, not only those pertaining to employment. Based on the language of the Act, the Court concluded that it is broad enough to cover employees and independent contractors alike.

What this means for you:
It has long been understood that only employees may bring claims for disability discrimination. This case radically changes that notion. If you hire independent contractors and you receive any federal funding, you must now be aware of your obligation to reasonably accommodate a contractor who is disabled.

Beginning on June 21, 2010, federal contractors and subcontractors that enter into new federal contracts, subcontracts or make modifications to existing contracts must post a notice informing employees of their rights under the National Labor Relations Act (“NLRA”). Executive Order 13496 applies to all federal government contracts and subcontracts for the purchase, sale, or use of personal property or non-personal services. The government contracts must exceed $100,000 and subcontracts must exceed $10,000. Contracts and subcontracts for work performed exclusively outside of the United States, as well contracts and subcontracts exempted by the Secretary of Labor, do not fall under the provisions of the Executive Order.

Contents of the Required Notice
The notice required by the Executive Order sets forth the employees’ rights under the NLRA to organize and bargain collectively with employers, and their right to engage in protected concerted activity. The notice also sets forth the types of employer and union actions the NLRA considers illegal, as well as the contact information for the National Labor Relations Board. The required notice may be obtained from www.dol.gov or any field office of the DOL’s Office of Labor-Management Standards and must be in 11×17 size.

How to Comply:
You must display the required notice in conspicuous places in and about the plants and offices where it can be readily seen by employees engaged in activities related to the performance of the contract. The notice must be posted everywhere notices to employees about employment conditions are posted and not just where legal notices are placed.

If you customarily use electronic means to post notices, you must prominently post this notice on websites you customarily use. The electronic notice must include a link to the Department of Labor’s (“DOL”) website that contains the full text of the poster. The link must read, “Important Notice about Employee Rights to Organize and Bargain Collectively with Their Employers.” If electronic means are used, you must also physically post the notice in the workplace. The notice must be provided in the language spoken by a significant portion of your workforce.

Additionally, the Executive Order requires that federal contracts and subcontracts include certain prescribed language (the “employee notice clause”). The employee notice clause requires employers to comply with the notice requirement. The prescribed language does not need to be copied into a contract, but may instead be made a part of the contract by reference to 29 CFR Part 471, Appendix A to Subpart A.

Consequences for Non-Compliance:
The Office of Federal Contract Compliance Programs (“OFCCP”) is responsible for investigating employee and other complaints alleging non-compliance with the Executive Order. If you fail to comply with the Executive Order, your contract may be cancelled, terminated, or suspended. In addition, an order of debarment preventing you from entering into further government contracts may be issued.

Like it or not, if you have employees with access to the internet, they are likely using online social networking websites such as Facebook, Twitter, MySpace and LinkedIn. The explosion in the popularity and use of such sites creates a whole new (cyber)world of concern for employers trying to regulate and monitor the online activities of their employees. The ease with which users can now post information on the internet leads to the possibility that employees may damage their company’s reputation, reveal confidential information, or expose employers to claims of defamation or harassment. To deal with such risks, employers must consider creating a comprehensive set of policies to regulate and monitor the online activities of employees in the workplace, while at the same time remaining cognizant of privacy concerns and other limits on managing online activity and communications.

Liability for Harrassment
As most informed employers already know, federal and California anti-discrimination laws require that employers act to prevent or eliminate harassment in the workplace. With the advent of the online world, employers must now be aware of online activity such as posting unwelcome messages or statements which can form the basis of a hostile work environment claim. An employer may be held liable for such activity if the conduct has a sufficient nexus to the workplace and the employer has actual or constructive knowledge of the unwelcome conduct but takes no steps to stop it.

The risk of liability from employee conduct was illustrated in Blakey v. Continental Airlines, Inc., where the New Jersey Supreme Court found that an employer could be held liable for a hostile work environment claim arising out of derogatory statements posted on an Internet bulletin board designed for continental employees. While the bulletin board was provided by an outside vendor and not Continental itself, the board was available to all pilots and crew members. Continental argued that because the harassment did not occur at a workplace under its direct control, it should not be liable. The Court disagreed, finding that although the electronic board may not be located at a physical site, it may have been so closely related to the workplace and beneficial to the employer that harassment in the forum could be regarded as a part of the workplace. The Court recognized that privacy concerns were implicated by its ruling and emphasized that employers are not required to monitor all private communications of their employees, but that employers still have a duty to stop co-worker harassment in settings related to the workplace if they know or have reason to know that harassment is taking place. This case demonstrates that employers can no longer turn a blind eye to harassment in the virtual world.

Liability for Monitoring
Given the myriad risks associated with employee online activity, employers clearly have an interest in monitoring social networking activities that relate to an employee’s work. While it’s true that employers cannot turn a blind eye to the virtual world, they must cautiously approach any type of online monitoring they undertake. Of primary concern is the employee’s right to privacy. In California, the courts balance the employee’s reasonable expectation of privacy against the employer’s business justification for the monitoring to determine whether an employee’s privacy has been violated. While it used to be well-settled that an employer in the private sector could monitor email and internet activity on equipment provided by the employer (so long as there was an explicit policy which called for such monitoring), the law is becoming increasingly unclear, particularly where an employee has restricted access to his or her online social network.

The Stored Communications Act (“SCA”) is a federal statute that prohibits third parties (i.e. employers) from accessing electronically stored communications – for example, email or Facebook entries – without proper authorization. While the SCA creates an exception where the conduct is “authorized”, most courts have construed that exception narrowly. Two recent cases are illustrative.

In Pietrylo v. Hillstone Restaurant Group, two employees were fired after posting derogatory comments about their employer on a MySpace user group that the employees had created to complain about their jobs. The user group was by invitation only and required a password to view, but the employees’ supervisor requested and received the password from another employee and viewed the postings. The employee who provided the password later testified that she feared her refusal to give the password to her supervisor would have affected her job negatively. The jury found that the employee was coerced into providing the login information and returned a verdict against the employer for violating the SCA. Similarly, in Konop v. Hawaiian Airlines, Inc., a pilot created and maintained a website wherein he posted entries critical of his employer. Access to the site was restricted by the pilot and he only allowed access to “authorized users.” Two of the users provided their login information to a Hawaiian official, who then accessed the site. The creator of the site sued Hawaiian under the SCA and the court held that Hawaiian was liable because there was no evidence that either of the authorized users who provided the login information had ever accessed the site themselves; and therefore, they were not “users” who could authorize the Hawaiian official’s access. These cases illustrate the confusing and unsettled waters employers must navigate when monitoring online activity.

Steps to Take
A final consideration for employers is what they may do once monitoring has uncovered unsavory information. California law prohibits employers from discriminating against employees for lawful conduct that occurs away from the workplace during non-work hours. There is also concern that certain employee online activity may be protected by the National Labor Relations Act. Further, even if an employer were to determine that it could (and should) take action, such action should be taken consistently so as to avoid claims that the employer has discriminated against a protected group by not imposing the same disciplinary action on other similarly situated employees.

So what is an employer to do?
Start by developing a comprehensive set of policies to regulate and monitor employee online behavior in the work context. An employer must consider the goals of these policies, which should include protection of the company’s reputation, confidential information, trade secrets, and the privacy of its employees. Such policies will be most effective if they (1) urge employees to go to human resources before venting online, (2) establish a disciplinary framework for misuse of social networking sites related to employment, (3) establish a reporting system for suspected violations of the policy and, (4) reiterate that the company may monitor email and internet use on company equipment. Above all, the policies must be enforced uniformly.

Wishing the internet away or eliminating its use by employees is, respectively, impossible and increasingly infeasible. Gaining control of the issue proactively through education and a well written policy allows employers to harness the good that can come from the internet while minimizing the bad.

In March of this year, the IRS began the Employment Tax National Research Program, the first comprehensive employment tax compliance study in 25 years. The IRS will randomly select 2,000 taxpayers each year for the next three years to conduct comprehensive audit examinations. Taxpayers selected for audit will receive notices describing the National Research Program process.

In these random audits, the IRS will focus on worker classification and fringe benefit policies. A fringe benefit is a form of compensation for the performance of services. However, a person who performs services for an employer for purposes of fringe benefit compensation does not have to be an employee. A person may perform services as an independent contractor, partner, or director. Furthermore, for fringe benefit purposes, a person who agrees not to perform services (such as under a covenant not to compete) is also considered to be performing services. An employer is considered the provider of a fringe benefit even if the benefit is actually provided by a client or customer of the employer. The key is that the benefit is provided to the employer’s employee, contractor, director, or partner for services performed for the employer. Similarly, the employee, contractor, director, or partner is still considered the recipient of the benefit even if it is actually provided to someone who did not perform the services for the employer, such as a family member. Again the key is that the benefit is provided for and because of services performed for the employer. Absent a specific exclusion, fringe benefits are taxable and must be included in the recipient’s pay, and therefore, creates an obligation on the employer to withhold, deposit and report employment taxes relative to fringe benefits.

Fringe benefits, though, are distinguishable from expense reimbursement plans. Generally an advance, reimbursement or other expense allowance received under an “accountable plan” is not income to an employee and does not create employment tax obligations on the employer. An advance reimbursement, or other expense allowance, is treated as made under an “accountable plan” if:

1. the employee receives the advance reimbursement or other expense allowance for a deductible business expense that the employee paid or incurred while performing services as an employee of the employer,

2. the employee adequately accounts to the employer for the expense within a reasonable period of time, and

3. the employee must return any excess reimbursement or allowance within a reasonable period of time.

If an advance, reimbursement or other expense allowance to an employee does not satisfy all three of these conditions, it is treated as paid under a nonaccountable plan. All advances, reimbursements or other expense allowances paid under a nonaccountable plan are taxed to the employee and create an obligation on the employer to withhold, deposit and report employment taxes relative to all such nonaccountable plan payments.

Similarly, improper classification of employees or independent contractors could have a significant impact on federal and state tax liabilities (including unemployment tax liability), health and welfare benefit obligations, Code-qualified benefit plan participation and funding, as well as IRS penalty exposure for an employer. Worker classification can be a complex area as each case requires careful analysis of the facts and circumstances in light of general common law principles and divergent IRS and case rulings. In very general terms, classification depends on the degree of control by the employer versus independence of the worker. Factors that provide evidence of the degree of control and independence generally fall into three categories:

1. Behavioral: Does the company control or have the right to control what the worker does and how, when or where the worker does his or her job?

2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship be ongoing? Is the work performed a key aspect of the business?

However, there is no “magic” factor or set number of factors that will tip the determination one way or the other. In fact, more likely than not, there will be some factors indicative of employee status, while other factors indicate that the worker is an independent contractor. Furthermore, factors which are relevant in one situation may not be relevant in another. An in depth discussion of this issue is beyond the scope of this article, but the general recommendation is to pay careful attention to worker classifications because, again, mis-classification can result in significant liabilities for an employer.

Even if not randomly audited as part of the current IRS study, employers should be on notice that the IRS is giving greater scrutiny to employer practices and will ultimately use the information gathered through this study to focus on particular types of employers and employment tax and benefits issues. As such, it is prudent for employers to review their fringe benefit and expense reimbursement policies and procedures as well their independent contractor relationships for correct classification. Identification and correction of any errors, omissions or inconsistencies relative to employment tax and benefits is much easier and less costly if done proactively as opposed to after coming under IRS scrutiny.

In the event you receive a notice of audit pursuant to the Employment Tax National Research Program or would otherwise like assistance with compliance review of your employment tax and benefits policies and procedures or employee classifications, the employment and tax attorneys at Wilke Fleury are happy to assist you.

The following is a synopsis of the notable changes in California and federal employment laws that were enacted or modified in 2009.

California Law 
AB 5 – Electronic Discovery

Not specifically an employment bill, but it could dramatically affect employers’ costs of engaging in employment litigation. Amends California’s Civil Discovery Act to establish procedures for the discovery of electronically stored information (“ESI”). The party seeking production of ESI may specify the particular format. If no format is specified, the party producing the ESI may use any reasonable format when supplying the information. Further, the bill allows discovery through copying, testing, or sampling, as well as inspection.

AB 23 – Cal-COBRA 
Notice Requirements

Extends the federal COBRA premium subsidy to smaller employers (between two and nineteen employees) covered by Cal-COBRA. The bill imposes the following additional notice requirements on healthcare service plans, contract administrators, and insurers of small California employers:

• Notify qualified beneficiaries regarding the premium assistance available under the Federal American Recovery and Reinvestment Act of 2009 (ARRA) to subsidize Cal-COBRA coverage.

• Provide written notice after certain qualifying events (occurring between September 1, 2008 and May 13, 2009) within fourteen calendar days of the bill’s effective date, or seven business days after receiving notice of the qualifying event, whichever is later.

AB 361 – Limitations on Employer’s Ability to Rescind Medical Treatment Authorization
Prevents an employer, regardless of whether it established a medical provider network or entered into contracts with health care providers, from rescinding an authorization made for workers’ compensation medical treatment if authorization was made before the treatment was provided.

AB 412 – Nooses Prohibited in Workplace
Expands the protections of California’s Hate Crimes Law to prevent anyone, who knows a noose to be a symbol representing a threat to life, from hanging one in a place of employment for the purpose of terrorizing an employee. A violator is subject to imprisonment and civil fines up to $5,000 for the first offense.

AB 485 – California Civil Air Patrol Military Leave
Employers with more than 15 employees must provide at least ten days of leave per year, beyond other legally required leave benefits, to employees who are volunteer members of the California Wing of the Civil Air Patrol (the civilian auxiliary of the U.S. Air Force) if the employee is called to respond to an emergency operational mission.

AB 1093 – Worker’s Compensation Coverage for Third-Party Torts 
Labor Code § 3600 has been amended to provide that injuries or death inflicted by third parties at the worksite because of an employee’s protected characteristic (race, religious creed, color, national origin, age, gender, disability, sex, or sexual orientation) will not be disqualified from worker’s compensation coverage.

AB X2 5 – Alternative Workweek Schedule
Labor Code § 511 has been amended to define a “work unit” as “a division, a department, a job classification, a separate physical location or a recognizable subdivision.” A “work unit” may also include an individual employee if the employee satisfies the criteria of a “reasonably identifiable work unit.” The bill further specifies that employers may include as an alternative work-week arrangement the option of a regular schedule of eight-hour days and allows employees who have adopted a menu of schedule options to move from one schedule to another on a weekly basis with employer consent.

AB X4 17 – Wage Withholding Tables 
Effective November 1, 2009, employers must use a new state income tax withholding table to increase the amount of income taxes withheld based on existing claimed exemptions by 10%. Additionally, the bill increases the withholding rates to 6.6% for supplemental wages and to 10.23% for stock options and bonus payments paid on or after November 1, 2009. The bill further accelerates quarterly estimated tax payments of corporations and individuals with non-wage income to 30% due in April, 40% in June, zero in September, and 30% in December. Of note, the new accelerated payment schedule begins for installments due in tax years starting on January 1, 2010.

SB 54 – Same Sex Out-Of-State Marriages Recognized as Legal
Effective January 1, 2010, a valid marriage between persons of the same sex that was entered into outside of California prior to the effective date of Proposition 8 (November 5, 2008) will be recognized as a valid marriage in California. Such couples will be entitled to all the same rights, protections, obligations and duties in California that are granted upon spouses.

SB 313 – Increased Workers’ Compensation Penalties 
Increases the penalty against employers who fail to carry workers’ compensation insurance to $1,500 per employee who is employed during the time the employer was uninsured. The bill further restructures the laws governing penalties for noncompliance with payment of workers’ compensation.

SB 367 – Price Discounts for Unemployed Consumers
Effective November 2, 2009, this bill establishes that discounts offered to or conferred on a consumer because of loss of employment (including a furlough) would not be considered discrimination in violation of the Unruh Civil Rights Act.

Federal Law 
National Defense Authorization Act of 2010

The National Defense Authorization Act of 2010 (“NDAA”) went into effect on October 28, 2009. This Act expands employers’ duties and family military entitlements of the Family Medical Leave Act of 1993 (“FMLA”). The FMLA applies to public agencies, including state, local and federal employers, schools (public and private), and private sector employers with fifty or more employees. The key changes effected by the NDAA include:

• Qualifying exigency leave is now available to family members of those in the regular components of the armed forces during the servicemembers deployment to a foreign country. Previously, such leave was only available to family of servicemembers in the National Guard or Reserve who had been called to active duty.

• A family member of a veteran undergoing medical treatment, recuperation, or therapy for a serious injury or illness incurred in the line of duty may take caregiver leave if the veteran was a member of the military within five years of receiving such treatment.

• The definition of “injury or illness” is modified to include the aggravation of pre-existing injuries. Therefore, covered employees may now take up to 26 weeks of FMLA leave to care for a service member who had a pre-existing injury that was aggravated in the line of military duty.

American Recovery and Reinvestment Act
On December 21, 2009, President Obama signed into law an extension of the COBRA subsidy created by the American Recovery and Reinvestment Act (“ARRA”). This legislation both extended the period during which involuntary terminations would trigger subsidy eligibility and expanded the duration of the subsidy. The following new rules apply:

• The maximum subsidy period is extended from 9 to 15 months.

• The period during which a COBRA-qualifying event can trigger eligibility for the subsidy is extended from December 21, 2009 to February 28, 2010. Eligibility for the subsidy is conditioned on the timing of the qualifying event, which is the event causing the loss of coverage. Subsequently, if an employee experiences an involuntary termination on or before February 28, 2010, the employee will be eligible for the subsidy regardless of when COBRA coverage would eventually start.

• Employees who exhausted their nine months of subsidized COBRA coverage and did not elect to continue coverage by paying the full premiums are able to continue coverage by paying premiums retroactively. Their employers can apply the same refund rules in the ARRA so that the employees can take advantage of the subsidy for the full 15 months.

• A notice must be issued to all individuals who were or are assistance-eligible or terminated on or after October 31, 2009. Special notice must also be sent to individuals who dropped COBRA or paid the full premiums when their nine-month subsidy expired. The notice must explain their eligibility to either reinstate their coverage retroactively at the subsidized rate or receive a credit.

• To assist employers with the notice effort, the Department of Labor just issued three new Model Notices to advise employees and their dependents of these new rights.

Health Information Technology for Economic and Clinical Health Act
The Health Information Technology for Economic and Clinical Health Act (HITECH Act) was enacted on February 17, 2009 as part of the federal economic stimulus bill. The HITECH Act establishes new notice requirements for employers and health care providers when there is any breach of unsecured protected health information (PHI) of individuals. In the case of such a breach, employers and health care providers must provide notice to the affected individuals, the U.S. Department of Health and Human Services (HHS), and prominent medial outlets in certain circumstances. According to the HITECH Act, any notices are subject to the following requirements:

• The notice must contain a brief description of what happened, the types of unsecured PHI involved in the breach, steps the affected individual can take to reduce the risk of harm from the breach, a description of the entity’s investigation, efforts to mitigate harm and steps taken to prevent recurrence, and the contact information for obtaining additional information.

• The notice must be sent by first-class mail to the affected individual’s last-known mailing address. If unknown, the entity must post the notice on its website.

• If the breach involves 500 or more affected individuals, the entity must also notify HHS. If the breach involves 500 or more individuals from a state or jurisdiction, the entity must notify prominent media outlets serving the state or jurisdiction.

• An individual can prevent a covered entity from disclosing PHI if the PHI pertains to care for that individual that was paid solely out of pocket.

• The exception of not accounting for certain disclosures has been eliminated, thus requiring all disclosures of PHI to be accounted for by the covered entity in the case of a request of accounting.

• Business associates (contractor or other non-workforce member who performs services or activities) of covered entities must amend their agreements with covered entities to reflect the new privacy and security requirements under HITECH that apply to covered entities and are also now subject to same criminal and civil penalties applicable to an entity violating the same provision. Business associations must notify the covered entity if there is a loss of PHI.

• State attorneys general are now authorized to enforce these requirements after Feb. 22, 2010. Moreover, the penalties have gone up to 1.5 million for a breach of PHI that is the product of willful neglect.

Revised I-9 Form for Employers
Effective August 7, 2009, employers were to start using a new I-9 form. The new form includes changes to the types of documents that can be accepted for purposes of identity and work authorization. Expired documents cannot be accepted. Employers need not go back and change or update previously completed I-9 forms.

Generally, when an employee quits or is fired, the employer must immediately pay all earned and accrued compensation, including wages, commissions, vacation pay and productivity-based bonuses. However, an employer need not pay amounts that have not yet been earned, such as commissions or bonuses where the employee has not satisfied the conditions necessary to earn the commission or bonus.

Schachter v. Citigroup, Inc.
In a recent case, an employer offered a voluntary stock purchase plan to its employees as an incentive for the employees to work efficiently and stay with the company. Under the plan, employees could designate a percentage of their salary to be used to purchase company stock. If the employee remained with the company for two years following purchase of the stock, title to the shares vested in the employee. On the other hand, if the employee quit or was fired for cause before the end of the two-year period, the employee forfeited the shares and the wages used to purchase the shares. If the employee was fired without cause, the employee still forfeited the stock but received, without interest, a cash payment equal to the amount the employee had invested in the stock.

The plaintiff was an employee who signed up for the stock purchase plan but voluntarily quit less than two years after he purchased the stock, thereby forfeiting all his stock and the wages he used to purchase the stock. He sued his employer in a class action lawsuit, alleging the employer failed to pay earned wages. The employee argued that, since he had used earned wages to buy the stock and since he forfeited those wages when he quit less than two years later, he had not really been paid the wages at all.

The California Supreme Court rejected that argument, explaining that eligibility to receive incentive based compensation is determined by the specific terms of the plan. Because incentive based compensation rewards future, as opposed to past, conduct, it is not “earned (and the employer has no obligation to pay) until the conditions set forth in the plan have been met. Since the employees in the class action did not continue their employment for the full two years after they voluntarily purchased stock through the company incentive plan, they never met the conditions set forth in the plan and they forfeited the stock and the wages used to purchase the stock.

Lessons for Employers
Incentive based compensation is not earned unless and until the terms of the incentive plan have been satisfied. Accordingly, it is very important that the terms of your incentive-based plans be clear as to any conditions that must be met to earn the compensation. Regardless of the terms of your plan, however, you cannot fire an employee without cause simply to prevent the employee from earning the incentive based compensation. An incentive based plan constitutes a contract and all parties have an obligation of good faith and fair dealing.

By Samson R. Elsbernd

Obligations of “Employers” under the FLSA Under the federal Fair Labor Standards Act (FLSA), employers must pay a minimum wage to their employees. Employers who violate this requirement may be held liable not only for the unpaid wages, but also for an equal amount of liquidated damages. In a recent federal case, former employees of a bankrupt company sued the company’s managers for unpaid wages. The court decided that the managers could be sued for unpaid wages even though the company had filed for bankruptcy. Boucher v. Shaw (2009) 2009 DJDAR 11827.

The Facts of Boucher v. Shaw

Nevada employees were fired, and alleged they were still owed wages. The employees sued three managers: the Chairman and CEO of the company, who owned 70 percent of the company; the manager responsible for handling labor and employment matters, who owned 30 percent of the company; and the CFO, who did not have an ownership interest in the company. The plaintiffs brought suit under the FLSA. The court noted that the definition of “employer” under the FLSA is to be given an expansive interpretation in order to effectuate the FLSA’s broad remedial purposes. Thus, where an individual exercises control over the nature and structure of the employment relationship or economic control over the relationship, that individual is an employer within the meaning of the FLSA and is subject to liability. The court concluded that, because each of the individual defendants was alleged to have had control of the plaintiffs, their employment and their place of employment, the case could proceed against them. It is important to note that the court did not find that the individual managers were liable for the unpaid wages; only that the case against them could proceed. It would ultimately be up to the trier of fact, after hearing all the evidence, to determine whether the individual managers were employers and, thus, liable for the wages of the employees.

The Company’s Bankruptcy does not Bar the Employee’s Claims

The managers argued that their duty to pay unpaid wages ended when their company entered Chapter 7 liquidation. Normally, the debtor in bankruptcy proceedings has an automatic stay, which means that any actions filed after the bankruptcy may not proceed. The court in Boucher noted that the automatic stay only protects the debtor, his property and his estate. There, the company was the debtor, not the individual managers. Accordingly, the company’s automatic stay did not affect the mangers’ liability. As a result, neither the managers nor their property were protected by the company’s bankruptcy proceedings, and the managers faced personal liability for unpaid employee wages.

Why Federal Court?

As most California employers know, California employees typically bring employment cases in state, rather than federal, court. In general, California law is much more employee friendly than federal law. Manager liability for unpaid wages, however, is one of the very few instances where federal law is actually more favorable to employees than state law. The California Supreme Court has determined that officers, managers, and directors cannot be held personally liable for a corporation’s failure to pay its employees under California law. Reynolds v. Bement (2005) 36 Cal. 4th 1075, 1076.

Lessons from Boucher

Boucher is a reminder that employers must comply with both state and federal wage and hour laws. Whichever law provides greater protection for the employee will be applied. Until now, lawsuits brought under the FLSA have been extremely rare in California. Expect to see a rise in lawsuits brought under the FLSA as more companies declare bankruptcy and more employees seek their unpaid wages from upper managers.

You could be subject to the jurisdiction of the U.S. Department of Labor Office of Federal Contract Compliance Program (OFCCP) without knowing it. In a recent case, three hospitals were held liable for noncompliance with OFCCP regulations even though they were not government contractors and were not parties to any subcontract that referenced a federal contract.

In OFCCP v. UPMC Braddock, three hospitals had contracts with the University of Pittsburgh Medical Center Health Plan (Health Plan) to provide services to government employees covered by the Health Plan. The Health Plan in turn had contracted with the Federal Office of Personnel Management (OPM) to provide medical services to federal employees. The contract between the hospitals and the Health Plan did not contain any language notifying the hospitals that they were subcontractors subject to OFCCP jurisdiction. Moreover, the Health Plan contract with the OPM specifically excluded the member hospitals from its definition of “subcontractor.” The OFCCP sent letters to the hospitals requesting copies of their affirmative action plans and other documents demonstrating that they were in compliance with various federal regulations prohibiting discrimination. The hospitals refused to cooperate, arguing that they were not federal contractors or subcontractors. The OFCCP disagreed and filed an administrative complaint against the hospitals.

The Department of Labor found that the hospitals were federal subcontractors subject to OFCCP jurisdiction even though the hospitals did not agree to become federal subcontractors and even though they had no notice of the terms of the contract between the Health Plan and the OPM. The Department of Labor determined that the equal employment opportunity and affirmative action obligations imposed by the OFCCP were incorporated into the hospitals’ contracts by operation of law. The rationale behind the decision was that, because the hospitals had assumed part of the Health Plan’s obligations under the Health Plan’s contract with the government (i.e., the provision of health care services to government employees), the hospitals were subcontractors bound by the OFCCP regulations. The Department of Labor also rejected the argument that the hospitals’ contracts with the Health Plan specifically excluded them from the definition of “subcontractor,” finding that the parties could not contractually invalidate the equal opportunity provisions of federal laws.

What This Means For You.
Health care providers with 50 or more employees that provide medical care worth $50,000 or more to federal employees may be subject to OFCCP jurisdiction. Failure to comply with OFCCP requirements can result in serious consequences, including exclusion from all federal contracting and subcontracting for three years or more. Entities that are in violation of the OFCCP requirements can also be prohibited from participating in Medicare and Medicaid programs. To avoid these unwanted consequences, you should take some simple steps. First, review your contracts to determine if you are providing health care services worth more than $50,000 to federal employees. If so, consult with legal counsel to determine your potential responsibilities under the federal government’s EEO and affirmative action programs. Finally, if you receive a compliance review letter, consult with legal counsel before refusing to cooperate.

In these tough economic times, many employers are looking for ways to save money and streamline their business operations. One way employers are accomplishing this goal is by implementing furlough days for some employees. However, this raises some legal concerns regarding the impact of a furlough day for exempt employees. This question has been considered on both the state and federal levels, and the consensus is that a prospective, temporary reduction in the work schedule of exempt employees, coupled with a reduction in their salaries, is permissible under California and Federal law as an effort to reduce or limit the need for layoffs in difficult economic times.

Who is an Exempt Employee?
To qualify as exempt, an employee must meet both the salary basis test and the duties test. To satisfy the salary basis test, an employee must earn a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment (i.e., 40 hours per week). The duties test requires the employee to be engaged in the capacity of an executive, administrative or professional employee and to regularly exercise discretion and independent judgment.

Furlough of Exempt Employees 
The Division of Labor Standards Enforcement (DLSE) recently issued an Opinion Letter which laid out the conditions under which an employer could reduce the work schedules and salaries of exempt employees in order to avoid layoffs. Specifically, the DLSE concluded that an employer may reduce the number of its exempt employees’ scheduled work days and make a corresponding reduction in the employees’ salaries if the employer has experienced a significant economic downturn, the reduction is anticipated to be temporary and the employer intends to restore the employees’ work schedules and full salaries as soon as economic conditions permit. The DLSE pointed out that exempt employees whose work week and salary are reduced must still be paid at least two times the minimum wage so that they meet the salary basis test. Each employee must also continue to satisfy the duties test. The DLSE cautioned that the temporary reduction in hours and pay should be a one-time event. The DLSE noted that its opinion letter was in conformity with federal law, which also allows a prospective reduction of exempt employees’ hours so long as such reductions do not occur with such frequency that the employees’ status as salaried employees is a sham.

The DLSE’s new opinion is in notable contrast to a prior opinion issued by the DLSE, which concluded that an employer could not reduce the salary of an exempt employee during a period in which the company operated a shortened work week due to economic conditions. The DLSE stated that its prior opinion letter predated important federal cases and that it could no longer be considered persuasive.

Take Away 
Given the DLSE’s recent opinion letter, a California employer is not prohibited from implementing a one-time, temporary reduced workweek with a corresponding reduction of the salaries of exempt employees so long as the employees still meet the salary basis test by earning a monthly salary of at least twice the state minimum wage for full time employment. Such a reduction should only be made due to economic necessity and the employees’ hours and salaries should return to their pre-reduction status when the economic crisis has passed.