Email Monitoring Without a Written Policy can be Problematic!

In a recent case, the Court pointed out the importance of having a written policy regarding viewing employee business emails. The Second District Court of Appeal published Militello v. VFarm 1509. In that case, former business partners waged litigation against each other over a dispute centering on their vertically integrated cannabis business.

Plaintiff, in support of her position, retrieved prior email communications between the defendant and her husband covered by the spousal privilege from the company’s communication platform. Defendant argued that these were private and privileged emails. Plaintiff contended that the defendant did not hold a reasonable expectation of privacy on the emails because the company platform that stored the emails was not confidential and was subject to review by an administrator.

The Court of Appeal held the Plaintiff’s position unpersuasive. It was significant that Plaintiff furnished no evidence of the company’s workplace policies showing that the defendant was aware or even agreed to any email monitoring practice. The Court held that the emails remain confidential and privileged in the absence of such evidence.

Generally, California employers provide employees with work email accounts. Although many employers monitor employee email accounts, some do so without a policy explicitly informing employees of this practice.

A Favorable Decision for Staffing Agencies!

Staffing agencies have faced litigation over the issue of whether or not the end of a temporary work assignment constitutes a “discharge” of the employee’s employment with the staffing agency. In a favorable ruling for staffing agencies, the California Court of Appeal in Young v. RemX Specialty Staffing et al. held that the answer to this question is a resounding “No.”  

The facts presented indicated that Plaintiff was hired by staffing agency RemX Specialty Staffing (RemX) and placed on a temporary work assignment at Bank of the West (BOW).  RemX ended Plaintiff’s assignment at BOW for allegedly being verbally abusive on the phone. Plaintiff testified that she was “fired” and that it was “implied” that the firing was from RemX, rather than just ending her assignment at BOW. Plaintiff was paid for her work performed on the assignment in accordance with RemX’s regular payroll schedule. She did not have any other work assignments with RemX but remained eligible for additional assignments.

Plaintiff sued RemX, and after a series of motions and appeals, her only remaining claim was for PAGA penalties based on RemX’s alleged failure to timely pay final wages to a discharged employee, in violation of Labor Code section 201.3(b)(4). That statute provides “if an employee of a temporary services employer is assigned to work for a client and is discharged by the temporary services employer or leasing employer, wages are due and payable” immediately. RemX moved for summary judgment, arguing that Plaintiff was not discharged from employment with RemX, but only her assignment at BOW, and therefore, it did not violate section 201.3(b)(4). The trial court granted summary judgment for RemX, and the Plaintiff appealed.

The Court of Appeal rejected Plaintiff’s argument that a “discharge” under the statute can either mean from the staffing employer or from the temporary assignment. Looking at the legislative history and statutory construction, the Court held that a “discharge” only occurs when the staffing employee is fired from the temporary services employer (i.e., staffing agency) and not when the staffing agency terminates an employee from a particular work assignment. Because the Plaintiff failed to demonstrate a dispute of fact as to whether she was discharged from RemX, summary judgment, according to the Court of Appeal, was proper. 

This is a huge win for staffing agencies, which are often the subject of costly class and PAGA actions based on technical Labor Code violations. While this holding is arguably limited to cases involving Labor Code section 201.3, it may enable staffing agencies to argue that the end of an assignment does not constitute a discharge in other contexts, including Labor Code 202 (when wages are due at termination/resignation) as well as non-wage-based matters like wrongful termination or discrimination suits. 

The Complexities of Remote Work from Home Policies!

Employers offered remote work opportunities as a result of the pandemic. Now that the health risks of the pandemic have wound down, the complexities of offering remote work still have their obstacles. While some employers are getting resistance from those that choose to continue working from home, some employers still offer complete remote work. Other employers offer a hybrid to remain competitive and retain employees. The trend is that some workers regularly request and expect at least a partially remote work schedule. Allowing any remote work by non-exempt employees has its risks. For California employers, there are some pitfalls employers should consider when managing remote workers.

As a reminder, employers are responsible for complying with the same wage and hour laws for non-exempt workers, whether remote or not. The issues related to these laws and remote workers are claims for off-the-clock work/unpaid wages, meal and rest break violations, and unreimbursed expenses.

Timekeeping is always going to be at the forefront. To help manage these issues, employers should consider disseminating a timekeeping policy for remote workers and implementing tracking software to monitor work activity. Accurately reporting all-time work and a strict prohibition of off-the-clock work are essential. While tracking software is very helpful, a requirement that remote employees confirm in writing that they have accurately reported all their time worked will go a long way in protecting the company and defending against violation claims if they arise in the future. Additionally, employers should strictly prohibit emailing, texting, and phone calls when not clocked in and require all supervisors and upper management to refrain from contacting non-exempt employees after hours. This is critical and should be monitored.

Meal and rest breaks are another key issue. Remote workers are entitled to compliant meal and rest breaks even when working from home. Additionally, meal break starts and stop times should be accurately recorded to the minute – no rounding. To avoid unintended interruptions to meal and rest breaks of remote workers who may believe they are being helpful by responding to calls and emails even though they are on breaks, employers should distribute a meal and rest break policy for remote workers prohibiting any work while on breaks. Employers should also consider setting a break schedule so supervisors know when workers are unavailable to help eliminate potential interruptions. In addition, all lunch breaks must be taken before the 5^th hour.

California Labor Code Section 2802 requires employers to reimburse employees for “all necessary business expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties.” For remote workers, this may include internet usage, computer equipment, and cell phone usage. Even with unlimited cell phone plans, courts have held that employers must pay some reasonable percentage of the employee’s cell phone bill if used for work. This applies to all employees, not just those working remotely. The same reasoning applies to internet usage Employers may believe they have provided all necessary equipment to remote workers that are necessary to perform their duties. But there are still potential expenses that could be recovered for office supplies, furniture, and traveling to and from the company’s place of business.

Remember that once an employee is fully remote, that becomes the employee’s “regular work site” for evaluating and reimbursing travel time and mileage. To manage the risks associated with business expense claims of remote workers, employers should create a business expense reimbursement policy and provide employees with the necessary supplies and equipment needed to perform their job remotely, as well as provide a monthly stipend for incidental expenses like a cell phone or internet, if required to be used for business reasons.

It is also recommended that employees should still be required to submit a reimbursement request for any additional expenses incurred and have a mechanism to address, with proper documentation, amounts that he or she does not believe are being covered by a monthly stipend. Finally, employees should be required to obtain approval before purchasing any more important or expensive items to determine if such expenditures are reasonably necessary before seeking reimbursement.

 There are those work-from-home employees that have become very comfortable with the concept. Employers are faced with a variety of reasons why they cannot return, including they are still concerned with Covid. Assure them that the covid protocols that were in place during the pandemic, are still viable.

Intentional Misgendering is Sexual Harassment!

A relatively new area regarding sex discrimination is the intentional misgendering of an employee. In Bostock v. Clayton County, the United States Supreme Court held that treating individuals differently because of their transgender status violates Title VII’s prohibition on sex discrimination. 

Recent EEOC guidance has made it clear that the intentional misgendering of an employee can constitute an actionable hostile work environment based on sex. According to the EEOC:

Although accidental misuse of a transgender employee’s preferred name and pronouns does not violate Title VII, intentionally and repeatedly using the wrong name and pronouns to refer to a transgender employee could contribute to an unlawful hostile work environment.

For these reasons, seriously consider implementing a “Pronouns in the Workplace” policy to support your transgender and gender-nonconforming employees.

1.) Reaffirm your commitment to providing a safe and inclusive space for all while assuring employees that you will support their pronouns of choice.

2.) Prohibit discrimination and harassment against employees because of their pronouns. 

3.) Respect privacy. The disclosure of pronouns is a personal choice and is never mandated. 

4.) Support employees who choose to include their preferred pronouns in their email signature block and other communications.

5.) Explain that using incorrect pronouns will happen occasionally, and offer examples of how to handle it best. “I use she/her pronouns,” or “I go by Jim, not Jane.” “I’m so sorry; I forgot,” or “Thanks for letting me know; I’ll do my best moving forward.”

6.) Communicate to employees that intentionally misgendering another is a disciplinary infraction subject to discipline up to and including termination.

So please do not intentionally misgender a coworker. It is not only the moral/human/decent thing to do, but it’ll also keep you out of court (hopefully). 

California Paid Sick is on Target to be Doubled!

Last week, the California Senate Labor, Public Employment, and Retirement Committee approved a bill (SB 616) that, if passed, would more than double the mandatory paid sick leave. The proposed bill now moves on for consideration by the Senate appropriations committee. The bill, if enacted, would make California employees eligible for additional paid sick leave starting next year.  

As a reminder, California employees are entitled to three days or twenty-four hours of paid sick leave that must be available to the employee to use by the completion of the employee’s 120th calendar day of employment. SB 616 would substantially increase the amount of paid sick leave available annually to California employees to seven (7) days or fifty-six (56) hours.  

More specifically, if enacted in its current form, SB 616 would modify the required paid sick leave accrual method to require that California employees have no less than 56 hours of accrued sick leave or paid time off by the 280th calendar day of employment or each calendar year, beginning January 1, 2024.  

Under existing law, a California employer is not obligated to allow an employee’s total accrual of paid sick leave to exceed 48 hours or six days. In other words, the paid sick leave bank can be capped at 48 hours. SB 616 would more than double the minimum accrual cap for paid sick leave in California from 48 hours or six days to 112 hours or 14 days.

Although there are other bills making their way through the California Legislature (the California Chamber of Commerce has labeled them as “job-killers), there is no way of knowing which ones will be passed. However, SB 616 appears to be one of those bills which will be signed into law by Governor Newsom. We will keep you posted on this development.   

Federal Non-Compete Restrictions May Empact Employment Agreements Nationwide!

We have had many conversations with clients regarding “non-compete” clauses in employment agreements and whether they are enforceable. Now, the Federal Trade Commission (FTC) has proposed Federal regulations to ban non-compete clauses from employment agreements nationwide. The ban will include non-solicitation and other restrictions that are currently designed to deter employees from competing with an employer after the employment relationship concludes. While this has been the law in California (and a handful of other states to varying degrees), the FTC’s proposal will have an even broader reach than California law. The FTC is targeting any contractual term that has the effect of prohibiting a worker from seeking employment or operating a business after termination, including prohibiting employers from seeking to recoup their investment in training where an employee departs within a specified period of time.  

In addition, the FTC’s ban will expand well beyond traditional employment to impact relationships with independent contractors, externs, interns, volunteers, and even sole proprietors providing service to a client. § 910.1(f).

The regulations do identify two exceptions to the non-compete ban: (1) a franchisee in a franchisee-franchisor relationship, and (2) the sale of all or substantially all of a business to preserve the goodwill of the business. §§ 910.1(f) & 910.3.

The franchisee-franchisor exception is consistent with the “rule of reason” exception to anti-trust restrictions recognized by the FTC in conjunction with prosecuting anti-poaching cases. In essence, a franchisor-franchisee agreement against poaching employees from other franchisees actually increases competition against other brands, and will not be presumed to decrease competition.

The goodwill exception, however, only applies if the person subject to the non-compete owned at least a 25 percent interest in the business at the time of entering into the non-compete. § 910.1(e). This standard appears to be well beyond the goodwill exception under California law. California courts hold that a company cannot create sham ownership in order to enforce a covenant not to compete. Bosley Medical Group v. Abramson, 161 Cal.App.3d 284 (1984). However, a non-compete with an employee is enforceable when the employee sold all of his equity (even though it was less than 3% of the total equity in the business) in order to allow the sale of a company to be completed. Because the acquisition could not have occurred without the sale of that stock, the Court concluded that the sale, in totality, was “substantial” and therefore the non-compete could be enforced. Vacco Industries v. Van Den Berg, 5 Cal.App.4th 34 (1992). The FTC’s proposed regulations appear to hold quantification over need which will result in fewer enforceable non-competes that are designed to preserve the goodwill of a business for the prospective purchaser.

The FTC’s regulations will not simply ban non-competes in employment going forward but will require employers to give individualized notice to employees that any existing non-competes are rescinded. §§ 910.2(b)(1) & (2). Moreover, the Regulation will supersede any state law or regulation that is inconsistent with the FTC’s regulations. However, states will be entitled to create greater worker protections in this area. § 910.4.

The bad news is the FTC is not waiting for the regulations to take effect. Since the outset of 2023, it has prosecuted a handful of cases asserting that non-competes represent unfair competition. In March, the FTC reached a settlement against Anchor Glass which had entered into 1-year non-competes with over 300 of its employees against working for another company in the same or substantially similar line of work. The FTC’s complaint took the position that such agreements created anti-competitive barriers to entry into that market, reduced employee mobility, and decreased wages and benefits, similar to allegations in the FTC’s no-poach cases. Anchor and the FTC reached a Consent Agreement that resolved the litigation but enjoined Anchor from entering into or attempting to enforce non-competes, delivering notices to many employees that non-competes were not going to be enforced, and giving notice to new hires that employment would not be subject to any non-compete as well as years of compliance reporting and access to books and records on five days’ notice.  

While a private right of action does not, yet, appear to exist within the regulations, if enforced, such regulations will strip employers of the ability to enforce non-compete clauses and may give employees the power to claim that non-compete agreements constitute some type of actionable conduct such as a violation of public policy, a breach of the implied covenant of good faith and fair dealing or a predicate element to support a claim of unfair business practices.

CA Court of Appeal: Employer not Liable for Supervisor’s Harassment Outside of Work!

Recently, the California Court of Appeal rendered an important decision that is favorable toward employers on the issue of holding them strictly liable for harassment by a supervisor. This decision is somewhat contrary to California’s Fair Employment and Housing Act (FEHA) which has generally held employers are strictly liable for the actions of a supervisor when they engaged in any form of harassment. The impact of the decision established an important limitation on personal relationships between employees.  

In Atalla v. Rite Aid Corporation, the plaintiff, a pharmacist at Rite Aid, filed a FEHA sexual harassment claim against her supervisor. The alleged misconduct arose from a series of late-night text exchanges that ended with the supervisor sending a live photo of his genitals to the plaintiff. 

Rite Aid disclaimed liability on the grounds that the interaction occurred outside of the workplace and that the supervisor was not acting in the capacity of a supervisor when he sent the inappropriate text. The plaintiff claimed that the text message, along with her friendship with the supervisor, was related to the workplace because she “only interacted with him to advance her career.”

The Court of Appeal affirmed summary judgment for Rite Aid, finding that the interaction “clearly did not occur at work or during normal working hours.” The supervisor’s conduct in this context was not imputable to Rite Aid because he was not acting in the capacity of a supervisor when the text was sent. Rather, the interaction was “spawned from a personal exchange that arose from a friendship” between the plaintiff and the supervisor, and their personal relationship was “predated and independent of their respective employment with Rite Aid.” This relationship was evidenced by a large volume of text exchanges, and many prior instances of socializing outside of the workplace. 

Although the plaintiff claimed that her interactions with the supervisor were only motivated by the possibility of career advancement, the Court explained that it “does not change the fact of their personal relationship” or that she was “a willing participant in it.” 

This decision may provide protection for employers where the supervisor and employee’s personal relationship exists independent of their employment relationship. Employers should continue to provide proper training and maintain policies and procedures to deter work-related misconduct and to deter personal relationships between supervisors and subordinates. However, when such a relationship arises, this decision may help minimize the risk of liability if the harassment arises outside of the scope of employment (which will probably be the focal point of argument by both sides). 

Unexpected Financial Event Does Not Relieve the Obligation to Pay Timely!

As I am sure everyone knows by now, about the recent seizure and shutdown of two prominent regional banks – Silicon Valley Bank and Signature Bank. Those events send a message to employers to be prepared for an unexpected financial event that could create a wage & hour violation.

It is not just a banking industry scenario. A couple of years ago, a major Human Resources technology provider, the Ultimate Kronos Group, experienced a ransomware attack that prevented their clients, and employers, from accessing time and pay records for their employees. As a result, attendance, scheduling, and payroll were all thrown for a loop, and litigation went into overtime. 

From the viewpoint of plaintiff attorneys or the Department of Labor Standards Enforcement, failing financial systems, unexpected cyberattacks, or an economic downturn for businesses, employers will still be required to honor their wage and hour obligations. Because crisis typically strikes with little to no warning, employers should plan to ensure they can make payroll and consider how to handle furloughs and layoffs in advance of a crisis.

Keep in mind, an inability to access funds is not a defense for late or non-payment of wages. Penalties for non-payment of wages arise under both federal and state law — and these penalties can be significant. For example, under the federal Fair Labor Standards Act (FLSA), failing to pay minimum wage results in civil penalties of $1,000 per violation. Liquidated damages (double the unpaid wages) and even attorneys’ fees and costs are also available to employees who pursue FLSA actions. And, when pursued on a class or collective basis, employers may be exposed to greater liability and attorneys’ fees.

California’s wage and hour laws rank among the toughest in the country. In California, the inability to timely pay all wages results in penalties. California employers rack up penalties of $100 or more per employee for each period where a late payment occurs. Higher penalties for subsequent violations can also apply. Similarly, in California, employees can also seek civil penalties if not provided with a timely or accurate wage statement. And, of course, the dreaded Private Attorney General Act (PAGA) allows any aggrieved employee to represent all other employees without the procedural trappings of a class action lawsuit.

Moreover, not only is the business at risk, but individual liability can be on the line. Under the FLSA, the term “employers” includes individuals that exercise operational control over a company, such as corporate officers or directors who may also be at risk for personal liability. In California, California Labor Code section 558.1(a) similarly imposes such potential liability.

As a suggestion, If an employer suspects they will not be able to pay their employees, they should immediately consider furloughs or reducing their workforce. For furloughs, employers should notify employees as soon as possible and communicate that they cannot work. Employers will need to be mindful that, for exempt employees, if any work was performed during that workweek, the employee must be paid for the whole workweek (unless the employee was terminated). In California, any furlough without a specific return date within the pay period requires paying out final accrued pay and accrued vacation, too.

In California, waiting time penalties will accrue for up to 30 days after the employee’s termination if an employee does not receive the employee’s final pay, including accrued vacation pay at termination. For both furloughed and laid-off employees, employers must pay for all work performed prior to notice of the furlough or lay-off.

Planning for unexpected crises will spare employers from unnecessary exposure to liability. An “emergency plan” should be in place to avoid running into wage and hour issues after the fact. Consider implementing using paper checks if electronic accounts are frozen, contracting with a backup payroll vendor, and identifying alternative means of financing payroll in case an employer’s financial institution experiences a liquidity issue.

A Key Decision on the use of Severance Agreements!

Recently, the National Labor Relations Board (NLRB) issued a landmark decision in McLaren Macomb regarding the use of severance agreements that may have an impact on private employers.

An important factor of the decision is that the Board held that severance agreements containing broad non-disparagement and confidentiality provisions violate the National Labor Relations Act (NLRA) because they interfere with employees’ Section 7 rights (which provide that employees may engage in concerted activity and discussion terms and conditions of their employment with others).

Of note, this decision does not apply to managerial employees, supervisors, public sector employees, or certain other excluded classes including public-sector employees; it only applies to “employees” as defined by the NLRA. It also does not apply retroactively and, importantly, it does not apply to confidentiality provisions where the company is protecting its “confidential” business information such as trade secrets, only to the confidentiality of the agreement provisions.

But the decision leaves a lot of questions unanswered, putting employers in a challenging position until more decisions come out or if the case gets changed in the event of an appeal.

There are several options employers may want to consider.

First, employers can simply delete these provisions from the severance agreement for applicable employees. This is the safest path forward.

Second, employers might consider a disclaimer that the agreement does not prohibit the employee from engaging in activity protected by the NLRA. But the Board has previously questioned their use when employers have put these disclaimers in employee handbooks.

Third, employers might want to consider “narrowly tailored” provisions on confidentiality and non-disparagement however, this option would take further discussion.

Fourth, employers might consider the use of saving clauses to sever the offending clause from the agreement. But again, the NLRB has suggested that just offering this type of agreement might violate the NLRA.

There may be other options as well, and each should be discussed thoroughly with your counsel as the risk factors and decisions may differ by industry, company size, and circumstances.

Court of Appeals Decision Restores Independent Contractor Status!

As a reminder, in 2019, the California Legislature codified the holding in Dynamex by enacting Assembly Bill No. 5 (“AB5”), which established a test for distinguishing between employees and independent contractors. The net effect of AB5 is that workers are presumed to be employees with few narrow and complicated exceptions. Consequently, AB5 made it nearly impossible for workers and businesses of any kind to lawfully engage with each other on an independent contractor basis and for businesses to retain independent contractors without incurring the risk of, at best, being placed into an arduous audit process or, at worst, being deemed to have improperly classified its workers, and all of the repercussions associated with that finding. AB5 has, not surprisingly, been the subject of much litigation in the time since its original enactment.

One significant case, brought by the State of California against Uber and Lyft, claimed that these businesses violated AB5 by failing to classify their drivers as employees. In response, several app-based companies (including DoorDash and Instacart) asked California voters, in ballot measure Proposition 22, to exempt app-based drivers and delivery businesses from AB5. Proposition 22 made certain guarantees to workers in lieu of standard employee benefits – including 120% of minimum wage for active driving time (but not for waiting time), a partial health care subsidy for drivers who clocked enough hours per week and covering costs for on-the-job injuries. Proposition 22 passed in November 2020 with 58% of the vote.  

Despite Proposition 22’s success at the ballot box, legal battles over employee/independent contractor classification waged on. Critics of Proposition 22 contend that it is unconstitutional because it: (1) limits the State Legislature’s oversight of workers’ compensation for app-based drivers and delivery workers; (2) restricts these workers from collective bargaining; and (3) establishes an unachievable 7/8s majority vote to amend Proposition 22’s collective bargaining terms. At the front of this war was Castellanos, wherein a group of app-based drivers in California and the Services Employees International Union sought a writ of mandate, claiming Proposition 22 unconstitutionally limits the power of California’s legislature to govern by removing its abilities to grant workers the right to organize and give access to the state’s workers’ compensation program. The presiding California Superior Court judge agreed and ruled that Proposition 22 violates the California Constitution and is unenforceable because it interferes with the state’s legislative authority and future ability to pass legislation.

The Court of Appeal’s reversal of this ruling allows Proposition 22 to stand with the exception of its limitation on lawmakers’ ability to enact legislation that amends Proposition 22, such as allowing gig workers to unionize. On this issue, the Court of Appeal tossed out Proposition 22’s clause that restricts collective bargaining by workers because it invades the legislature and judiciary’s authority.

This reversal by the Court of Appeal restores some rights to classify workers as independent contractors, and for California citizens to choose to work on an independent contractor basis. But it’s best not to grow too attached to this decision as it is fully expected that it will be appealed. Also, Proposition 22 is significant not only for its impact on the gig economy in California but also for its somewhat groundbreaking attempt to undo legislation that has already been passed and enacted. It will be interesting to see whether the Court of Appeal’s decision, validating not only the terms of Proposition 22 and implicitly the method was undertaken to disempower the legislature, has a separate effect in other industries and on other legal issues.

Stay tuned.