Good Faith Belief in the Accuracy of the Wage Statement, No, PAGA Penalty!

Last week, the California Supreme Court made a significant ruling in Naranjo v. Spectrum Security Services, Inc., stating that “an employer’s objectively reasonable, good faith belief that it has provided employees with adequate wage statements precludes an award of penalties under section 226.” This decision is crucial for employers and legal professionals to understand and apply in their practices.

This ruling brings a sense of relief for employers. The Court’s analysis in the above decision suggests that an employer’s reasonable and good faith belief in its compliance with the Labor Code could potentially prevent an award of civil penalties under PAGA. This interpretation could significantly reduce the risk of penalties for employers.

This is the second time the Naranjo case has come before the California Supreme Court. The first instance dealt with the issue of pay for missed breaks, where the Court ruled that the premium penalty was considered wages and had to be reported on the itemized statements. This context is important to fully grasp the implications of the recent decision.

Of note, the case was then remanded to the Court of Appeal to address the employer’s further arguments that (1) Naranjo was not entitled to recover statutory penalties for wage statement violations because Spectrum’s violations were not “knowing and intentional” (Lab. Code, § 226(e)), and (2) Naranjo was not entitled to recover waiting time penalties for Spectrum’s late payment of final wages because it did not act “willfully” (Lab. Code, § 203).

The Court of Appeal decided that Spectrum was not liable for failing to pay break premium wages timely because the failure was not “willful.” The Court of Appeal found substantial evidence supporting the conclusion that Spectrum had a good faith basis for believing it was not liable. It also found that the Section 203 “willfulness” requirement and the Section 226 “knowing and intentional” requirement are substantially identical, so the same finding of good faith precluded an award of penalties under Section 203 precluded an award of penalties under Section 226. The California Supreme Court then granted Naranjo’s petition for review.

The California Supreme Court unanimously agreed that an employer that believes reasonably and in good faith albeit mistakenly, that it provided compliant wage statements does not fail to comply with those requirements “knowingly and intentionally” and is not liable for an award of penalties under section 226. 

Under section 226(e), knowing and intentional wage statement violations give rise to a claim for penalties of up to four thousand dollars ($4,000), along with the plaintiff’s costs and reasonable attorney’s fees. California employers have become accustomed to wage and hour litigation involving “derivative” wage statement claims that are predicated on a separate Labor Code violation. For example, many lawsuits claim employees were required to work off the clock during meal breaks—i.e., the employer failed to rerecord and compensate for all hours worked—and thus, the employees’ wage statements failed to show all hours worked and earned wages accurately. 

The Naranjo decision significantly reduces potential liability arising from technical and “one-off” Labor Code violations for employers who made reasonable and good faith efforts to comply with the Labor Code and who believe they are complying with the law. In similar lawsuits, plaintiffs often claim that the alleged wage statement violations and waiting time penalties alone give rise to at least $8,000 per employee. 

Employers acting in good faith can now remove that arbitrary assessment of potential liability from their calculus when determining how to defend and/or resolve lawsuits.

The Supreme Court’s analysis in Naranjo offers some hope for good faith employers suffering from PAGA claims. PAGA allows “aggrieved employees” to file a civil action in which they represent the State’s labor law enforcement agencies, wherein they allege any number of Labor Code violations against themselves and other current or former employees, and from which they may recover a civil penalty—typically $100—for each Labor Code violation against each employee.

The potential penalties stack up and continue to accrue during the litigation, which is difficult and costly to defend. As a result, most employers are forced to settle PAGA cases—the cost of defense coupled with the threat of potential civil penalty liability and the plaintiff’s attorney fees collectively is very expensive. 

Although the Naranjo decision expressly establishes a “good faith” defense against claims for statutory penalties under section 226, the Supreme Court’s analysis indicates that employers acting in good faith are also not liable for civil penalties under PAGA. For example, the Court explained that, as a general rule, “courts refuse to impose civil penalties against a party who acted with a good faith and reasonable belief in the legality of his or her actions.” And that if employees are “fully compensated, penalties will generally not be imposed unless there has been a grossly negligent, willful or fraudulent breach of a duty.” Further, the Court explained “civil penalties are frequently aimed at some positive element of conscious wrongdoing or bad faith.” The Court acknowledged that civil penalties are meant to “deter and punish.” Thus, employers “who proceed on a reasonable, good faith belief that they have conformed their conduct to the law’s requirements do not need to be deterred from repeating their mistake, nor do they reflect the sort of disregard of the requirements of the law and respect for others’ rights that penalty provisions are frequently designed to punish.”

The Court’s discussion on the good faith defense does not distinguish between civil and statutory penalties. The Court gave no indication that its analysis or the “good faith” defense should be limited to claims for statutory penalties. The Court noted that its discussion is not intended to upset settled interpretations of criminal provisions and “concerns only the availability of civil penalties in the Labor Code.” 

This gives hope for employers who have and continue to invest in their Labor Code compliance efforts and thus have a reasonable and good faith belief that they are in compliance. Those efforts and a valid and enforceable arbitration agreement that precludes class and collective action claims are the best lines of defense for California employers. And we may soon find that those compliance efforts, even imperfectly, will help to prevent liability under PAGA.

Religious Request Could Create an Undue Hardship!

While diversity enriches the workplace, it can also pose complex challenges for employers striving to create inclusive environments that respect everyone’s perspectives. In the intricate case of Kluge v. Brownsburg Community School Corp., a federal court was tasked with weighing in on one employer’s decision not to continue a requested religious accommodation.

In that case, the Brownsburg Community School Corporation (BCSC) defended its decision to revoke the “Last Names Only Accommodation” provided to a teacher who argued that requiring him to call transgender students by their preferred first names violated his religious beliefs.

Kluge taught Music and Orchestra at BCSC. In 2017, Kluge requested a religious accommodation to “address all students by their last names only, similar to a sports coach.” The request was granted.

Later the same year, when teachers and transgender students voiced concerns that the accommodation was causing harm to students, BCSC discussed the issue with Kluge and informed him BCSC could no longer offer the Last Names Only Accommodation. Kluge ultimately resigned and sued, alleging that BCSC failed to accommodate his religious beliefs. 

On BCSC’s motion for summary judgment, the court assumed for purposes of the motion that Kluge’s religious beliefs were sincere and focused on whether there was a genuine dispute over whether continuing the Last Names Only Accommodation created an undue hardship for BCSC.

Applying the Supreme Court standard articulated in Groff v. DeJoy (2023) 143 S. Ct. 2279, the court concluded that continuing the Last Names Only Accommodation would indeed be an undue hardship to BCSC. The court meticulously considered “all relevant factors,” including the practical impact of the accommodation in light of the nature, size, and operating costs of BCSC. It found that the Last Names Only Accommodation posed an unreasonable risk of substantial disruptive litigation, citing discrimination cases filed by other transgender students and imposing substantially increased costs as a matter of law. In essence, the court’s decision was a fair and balanced one, ensuring that BCSC was not required to make an accommodation that would put it on the “razor’s edge” of liability. The court granted summary judgment for BCSC. 

This case serves as a powerful reminder that accommodations in the workplace are not set in stone. They can always be reassessed, and new facts or circumstances may render a prior accommodation an undue hardship or undue burden to the employer.

New Federal Pregnancy Guidelines under the PWFA!

The U.S. Equal Employment Opportunity Commission (“EEOC”) has finally released its final rule to implement the Pregnant Workers Fairness Act (PWFA) on June 18, 2024. The PWFA provides key provisions for employers as to their duties to pregnant workers under Federal law.

The new provisions include the following:

• Expansive Scope of Covered Conditions
  • Conditions that qualify for a “request for accommodation” under the PWFA include current pregnancy, past pregnancy, potential pregnancy, lactation (including breastfeeding and pumping), use of birth control, menstruation, migraines, pregnancy-related conditions that are episodic-like morning sickness, postpartum depression, gestational diabetes, infertility and fertility treatments, preeclampsia, endometriosis, miscarriage, stillbirth, and having or choosing to have an abortion, among other conditions.
• Limitations on Supporting Documentation: Employer Can Request
  • Under the final rule employers are limited to reasonable documentation, which includes:
    • Minimum documentation sufficient to confirm the employee’s physical or mental condition;
    • Documentation that confirms that the physical or mental condition is related to, affected by, or arises out of pregnancy, childbirth, or related medical conditions; and
    • Documentation that describes the change or adjustment needed at work due to the limitation.
• Employees May Be Excused From “Essential Functions” for Longer
  • The PWFA allows an employee to be qualified for an accommodation, even if they cannot perform one or more essential functions of the job, if the inability to perform the essential function(s) is “temporary,” the employee could perform the essential function(s) “in the near future,” and the inability to perform the essential function(s) could be reasonably accommodated.
  • The final rule does not define “in the near future” for childbirth or related medical conditions. It is presumed to mean generally 40 weeks for a current pregnancy, but the rule provides that this would otherwise be determined “on a case-by-case basis.”
• Broad Guidance as to Possible Reasonable Accommodations
  • The rule provides specific examples of possible reasonable accommodations under the PWFA, including frequent breaks, sitting/standing, schedule changes, part-time work, paid and unpaid leave to recover, remote work, closer parking, light duty, making existing facilities accessible or modifying the work environment, job restructuring, temporarily suspending one or more essential functions, acquiring or modifying equipment, uniforms, or device, and adjusting or modifying examinations or policies.
• Modifications Considered That Don’t Impose Undue Hardship “Virtually in All Cases”
  • The final rule identified four reasonable accommodations that would be found to be a reasonable accommodation when requested by a pregnant employee “in virtually all cases,” including:
    • Allowing an employee to keep or carry water near and drink, as needed;
    • Allowing an employee to take additional restroom breaks as needed;
    • Allowing an employee whose work requires standing to sit and whose work requires sitting to stand, as needed; and 
    • Allowing employees to take breaks to eat and drink, as needed.
• Prohibited Practices
  • The final rule provides that the PWFA prohibits employers from:
    • Failing to provide a qualified employee or applicant with reasonable accommodations, including an unnecessary delay in providing reasonable accommodations;
    • Requiring a qualified employee or applicant to accept an accommodation other than one arrived at through the interactive process. ;
    • Denying employment opportunities to a qualified employee or applicant if the denial is based on the employer’s need to make a reasonable accommodation for the known limitation of the employee or applicant;
    • Requiring a qualified employee or applicant to take paid or unpaid leave if another reasonable accommodation exists and
    • Taking adverse action against a qualified employee or applicant for requesting or using a reasonable accommodation.

Recommendations:

• Train your first-level supervisors, who are likely to receive accommodation requests, about how to respond to such requests.
• Use the interactive process once an employee requests an accommodation.
• Employees may need different accommodations as their pregnancy progresses, they recover from childbirth, or related medical conditions improve or worsen.
• Review your pregnancy accommodation policies and processes to ensure compliance with the EEOC’s final regulations.

Lateral Position Changes Could Be Discriminatory!

Recently, the United States Supreme Court delivered a win to employees, holding that a lateral job transfer can be discriminatory under Title VII when the transfer brought some harm to the employee. The Supreme Court rejected case law requiring employees to show a “materially significant disadvantage” to the employee or meet other heightened standards demonstrating harm to the employee from the job transfer. Employers may expect a new wave of federal discrimination claims.

In the case. A female police officer argued that she was adversely harmed when her employer transferred her to another position against her wishes, even though the transfer did not decrease her pay or benefits. The plaintiff worked as a plainclothes officer in the Department’s Specialized Intelligence Division from 2008 to 2017. In 2017, the division’s new commander transferred her to another position and replaced her with a male police officer. The employee’s rank, pay, and benefits remained the same, and she continued to have a supervisory role in her new position. However, the employee no longer worked with high-ranking officials as in the past, and she also lost access to an unmarked take-home vehicle and was scheduled for weekend shifts.

The plaintiff sued under Title VII to challenge the transfer as discrimination based on her sex. The City moved for summary judgment, and the District Court granted summary judgment because she failed to show a material change in employment from an adverse employment action. The Eight Circuit affirmed the holding that she failed to show the transfer caused her a “materially significant disadvantage” because there was no “diminution to her title, salary, or benefits” and only minor changes in working conditions. 

The plaintiff argued to the Supreme Court that the text of Title VII § 703(a)(1) did not require that an employee show a “significant disadvantage” or meet a heightened harm standard to show she was discriminated against. Therefore, the Eight Circuit’s requirement of a heightened harm standard was at odds with the text of Title VII. The City argued that an employee had no claim absent significant, meaningful harm. 

The Supreme Court held that an employee challenging a job transfer under Title VII must show the transfer “brought about some harm concerning an identifiable term or condition of employment, but that harm need not be significant.” In making this ruling, the Supreme Court analyzed the language of Title VII and reasoned that the text does not require significant harm. Justice Elena Kagan, writing the Court’s opinion, held, “what the transferee does not have to show … is that the harm incurred was ‘significant,’ … or serious, or substantial, or any similar adjective suggesting that the disadvantage to the employee must exceed a heightened bar.” As such, an employee needs only to show they have been harmed in some way. The Court held that to demand “significance” is to add words to the statute Congress enacted, but not what Congress intended and remanded the case back to the Eight Circuit. 

Considering the decision, the Supreme Court has shifted the employment law landscape again. Employers must know that employees falling into a protected class may have viable discrimination claims under Title VII if they suffer harm when subjected to a lateral transfer. 

In light of this decision, employers must proactively review their policies and practices regarding lateral transfers to ensure compliance with the recent Supreme Court ruling. Some key steps employers may want to consider:

• Training and Awareness: Conduct training sessions for HR personnel and managers to ensure they understand the ruling’s implications. Emphasize the importance of fair treatment in lateral transfers and the potential for discrimination claims.
• Review Transfer Processes: Evaluate existing transfer processes to identify any potential areas of bias or discrimination. Consider implementing objective criteria for making transfer decisions to minimize the risk of discriminatory practices.
• Documentation: Thorough documentation of all transfer decisions, including the reasons for the transfer, can help defend against potential discrimination claims.

Proposed: Employers Cannot Contact Employees During “Nonworking” Hours!

California, as usual, is at the forefront of a change in the working relationship between employers and employees. The Legislatures are currently considering the first “right to disconnect” law in the United States, Assembly Bill 2751 (A.B. 2751). Under the proposed legislation, employers would be required to define employees’ nonworking hours in writing and prohibit employers from contacting workers during these designated nonworking hours, except in “emergencies” or schedule changes. Based on the current wage & hour laws, employers should not have contacted employees when they are off the clock unless they were being compensated.

However, the problem with this proposed legislation is that is full of ambiguities and questionable practical application, leaving the door open for misinterpretation and abuse. “As an example, “Emergency” is defined as “an unforeseen situation that threatens an employee, customer, or the public; disrupts or shuts down operations; or causes physical or environmental damage.” What constitutes a qualifying “unforeseen situation” or a “threat” remains unclear.  A violation requires a “pattern of violation,” requiring “three or more documented instances of violating the right to disconnect” before the employee may file a complaint with the Labor Commissioner. Even the proposed penalty for violating a worker’s “right to disconnect” is unclear. If an employer is shown to have a “pattern of violation,” A.B. 2751 would impose a “fine of not less than one hundred dollars,” but no upper limit is defined.  

The bill has generated concerns and opposition from the business community. For example, the California Chamber of Commerce raised concerns about its impact on various industries, vague communication boundaries, and emergency provisions. The bill fails to acknowledge the nuances of industries with unique scheduling needs, irregular hours, or on-call requirements, which would greatly hinder workplace flexibility and commercial responsiveness.

California already has a robust framework of laws to protect employee rights that govern the employment relationship, everything from daily overtime/double-time pay requirements, meal and rest break requirements and premium payments, controlled on-call pay, and reporting time pay, to name a few. The rationale being suggested is that “workers shouldn’t be punished for not being available 24/7 if they’re not being paid for 24 hours of work” seemingly ignores the fact that hourly workers receive overtime pay if they work over 8 hours and that a salaried worker’s compensation typically accounts for longer hours and availability outside of regular working hours. 

A.B. 2751 would unnecessarily restrict communication between employers and employees, hindering functionality in times of genuine need that do not meet the threshold for an “emergency.” Its blanket restrictions fail to account for existing labor laws, exempt employees, and the diverse needs of different industries. Effectively outlawing non-emergency communication outside of regular hours jeopardizes essential job and business functions and ignores the realities of modern work dynamics when companies strive to make the workplace more accessible and flexible, particularly with hybrid and remote work arrangements.

The proposed legislation prompts essential discussions about the intersection of technology, work culture, and employee rights. While the bill aims to protect workers from overwork and burnout, it raises serious questions about flexibility and adaptability in the modern workplace. A.B. 2751 may have been introduced to safeguard employee well-being. Still, its inherent ambiguities underscore its inadequacy in addressing the complex challenges of modern work-life balance, ultimately posing a hindrance rather than a solution to the issue of workplace connectivity and employee rights.

We will keep you posted.

Former Employee Destroyed Evidence: Case Dismissed!

Recently, the Ninth Circuit, in Jones v. Riot Hospitality Group, 2024 WL 927669 (9th Cir. Mar. 5, 2024), affirmed the dismissal of an employee’s claims against her employer and found that terminating sanctions were appropriate where the employee deleted relevant text messages and organized with her witnesses to do the same to deprive the defendant of their use during litigation.

In 2017, Plaintiff Alyssa Jones, a former waitress, sued her ex-employer, Riot Hospitality Group (“Riot”), for alleged Title VII violations and common law tort claims. During discovery, Riot obtained text messages between the employee, her friends, and her co-workers. In evaluating the messages, the company identified gaps in the text message exchanges wherein the employee suddenly stopped communicating with individuals she had been contacting daily.

Following a subpoena issued by Riot’s counsel, a third-party vendor produced a spreadsheet that showed the employee had deleted relevant messages between her and her co-workers. The district court ordered that the employee produce those text messages, but the employee failed to do so. As a result, the district court allowed Riot to subpoena the employee’s phones and three of her witnesses to a forensic specialist, who would extract messages with specific search terms. The forensic specialist sent the text messages to the employee and her counsel, who failed to deliver them to Riot despite multiple court orders. After the court ordered the forensic specialist to send the messages to Riot, the court assessed a nearly $70,000 discovery sanction in fees and costs against the employee and her counsel.

Upon receipt of the messages from the forensic specialist, Riot moved for terminating sanctions under Federal Rule of Civil Procedure 37(e)(2), which provides that where electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to protect it. It cannot be restored or replaced through additional discovery; the court may dismiss the action upon finding that the party acted with the intent to deprive another party of the information’s use in litigation. In determining that the employee had intentionally deleted her text messages to deprive Riot of their use in litigation and acting in concert with her witnesses to do the same, the district court dismissed the employee’s case.

On appeal, the employee argued that she did not violate FRCP 37(e) and that the district court abused its discretion in dismissing her case under FRCP 37(e)(2) because her conduct was not willful or prejudicial to Riot.

The Ninth Circuit disagreed with the employee, noting that “a district court need only find that the Rule 37(e) prerequisites are met, the spoliating party acted with the intent required under Rule 37(e)(2), and lesser sanctions are insufficient to address the loss of the ESI.” The Court explained that because “intent can rarely be shown directly, a district court may consider circumstantial evidence in determining whether a party acted with the intent required for Rule 37(e)(2) sanctions,” including timing of destruction, affirmative measures taken to delete evidence, and selective preservation.

The Ninth Circuit’s upholding of the district court’s dismissal of the employee’s case sends a strong message to litigants — that deleting relevant evidence such as text messages could result in sanctions or dismissal. Plaintiffs who take affirmative steps to deprive defendants of relevant evidence could be in for a costly and terminating outcome.

This was a good result for the employer. However, employers must remember that they are under the same Federal Rules of Civil Procedure when they receive a letter from an attorney on behalf of a current or former employee. The red flag goes up. Employers or managers cannot destroy evidence from the employee file or other places, such as text messages, as shown in the above case.

Paid Time for Security Checks!

Last week, the California Supreme Court issued another decision impacting California’s wage and hour laws. The opinion in Huerta v. CSI Electrical Contractors Inc. answered three questions in a wage and hour class action about the scope of the term “hours worked.”

This case addressed Wage Order No. 16. Although Wage Order No.16 governs the construction, drilling, logging, and mining industries, the interpretation of the term “hours worked” will likely be defined similarly for Wage Orders governing other industries.

The facts stated employees in the morning entered a Security Gate where guards scanned each worker’s badge (and sometimes peered inside vehicles and truck beds), then spent up to 10 to 15 minutes driving from the Security Gate to the parking lot where the employees parked for work. The employees also had to wait in line at the Security Gate for a security check of vehicles at the end of the day. The security check sometimes included a visual inspection of the vehicle and truck bed to look for stolen tools or endangered species that were present at the location. While driving from the Security Gate to the employee parking lot, employees had to follow specific rules designed to protect the endangered species on site, including using only permitted access roads, following slow speed limits, and not honking horns or playing music that could be heard outside their vehicles.  

With that background, three questions emerged for the high court to address.

The first is, “Is time spent on an employer’s premises in a personal vehicle waiting to scan an identification badge, have security guards peer into the vehicle, and then exit a Security Gate compensable as ‘hours worked’ within the meaning of . . . Wage Order No. 16?”  

The Court decided when an employee is required to spend time on the employer’s premises awaiting and undergoing an employer-mandated exit security procedure that includes the employer’s visual inspection of the employee’s vehicle, the time is compensable as “hours worked.” The Court found that because the employee was subject to the control of the employer and had to perform “specific and supervised tasks” (presenting a badge and undergoing the security check) when checking out at the Security Gate at the end of the workday, that is “time worked” for which the employee must be compensated. The Court recognized that the facts of this case presented more than the time it would take for an employee to scan a security badge to enter or exit a parking lot. The Court, in its analysis, focused on the exit procedure, but the same analysis would apply to entry procedures that require employees to undergo security checks.

 In addition, the Court implied that the mere scanning of a badge to facilitate the opening of a security gate would not be compensable time. It also reiterated that California’s wage and hour statutes do not incorporate a de minimis doctrine (the concept of whether a few seconds is compensable).

The second question was whether the time spent on the employer’s premises in a personal vehicle, driving between the Security Gate and the employee parking lots, while subject to certain rules from the employer, was compensable as ‘hours worked’ or as ‘employer-mandated travel’ within the meaning of Wage Order No. 16.

The Court made it clear that the time traveling between the Security Gate and the employee parking lots is compensable as “employer-mandated travel” under Wage Order No. 16, section 5(A) if the Security Gate is the first location where the employee’s presence is required for an employment-related reason other than the practical necessity of accessing the work site.  The Court provided a few examples of when an employee’s presence at an initial location is required, such as to pick up work supplies, receive work orders or other directives, or perform work before traveling to a second job site.  

The time traveling from the Security Gate to the parking lot is not compensable as “hours worked” because an employer’s imposition of ordinary workplace rules on employees while driving to the worksite in a personal vehicle does not create the requisite employer control.  This distinction is important because the term “employer-mandated travel” is unique to Wage Order No. 16 and does not require that the employee be subject to the employer’s control to be compensable. Instead, the travel need only occurred at the employer’s direction after the employee’s arrival at the “first location” where the employer required the employee’s presence. The Court specified that the Security Gate could be the “first location” the employer required the employee’s presence if it was “required for an employment-related reason other than the practical necessity of reaching the worksite.” However, the Court did not determine whether the Security Gate was the “first location” because the evidence submitted conflicted and was an issue for the trier of fact to decide.

The final question was whether the time spent on the employer’s premises, when workers are prohibited from leaving but not required to engage in employer-mandated activities, is compensable as ‘hours worked’ within the meaning of Wage Order No. 16 or California Labor Code Section 1194 when that time was designated as an unpaid ‘meal period’ under a qualifying collective bargaining agreement.

The opined when an employee is covered by a collective bargaining agreement that complies with Labor Code section 512, subdivision (e) and Wage Order No. 16, section 10(E), and that agreement provides for an “unpaid meal period,” that time is nonetheless compensable under the wage order as “hours worked” if the employer prohibits the employee from leaving the employer’s premises or a designated area during the meal period and if this prohibition prevents the employee from engaging in otherwise feasible personal activities. Under Labor Code section 1194, an employee could take action to recover unpaid wages for that time.

Based on the above decision, California employers whose employees undergo security checks or other requirements to enter and exit the workplace should carefully examine whether the time spent may be deemed compensable time for which the employee should be paid. Employees not permitted to leave the premises for meal breaks should be compensated for the time spent during an on-premises meal break, and well-tailored on-duty meal period agreements should be put in place when the facts warrant.  

Good News! Joint Employer Rule has Been Struck Down!

By way of reminder, in October 2023, the National Labor Relations Board (NLRB) issued its new Final Rule addressing and expanding the proper standard for determining joint employment status under the National Labor Relations Act (NLRA). This was an important rule with questions like:

1. When can employees from a temporary staffing agency be included in the same bargaining unit as regular employees?
2. When can employees for two franchisees be considered as part of the same bargaining unit?

The Final Rule adopted in October made it much easier for the NLRB to find joint employment. Under the highly controversial standard outlined in the new Final Rule, two entities may be considered joint employers of a group of employees if each entity can share or codetermine one or more of the employee’s essential terms and conditions of employment, which are defined exclusively as:

1. Wages, benefits, and other compensation;
2. Hours of work and scheduling;
3. The assignment of duties to be performed;
4. The supervision of the performance of duties;
5. Work rules and directions governing the manner, means, and methods of the performance of duties and the grounds for discipline;
6. The tenure of employment, including hiring and discharge; and
7. Working conditions related to the safety and health of employees.

By allowing for a finding of joint employment based merely on a finding that two entities share control over one of these seven terms and conditions of employment, joint employment will not be difficult to find in many situations. This Final Rule replaced the prior Trump NLRB joint employment standard that required that a company be found to have exercised “substantial direct and immediate control” over the most important elements of the worker’s job to be considered a joint employer.  

However, recently, Judge J. Campbell Barker, United States District Judge for the Eastern District of Texas, appointed by President Trump in 2019, issued his summary judgment opinion in a case filed by the United States Chamber of Commerce striking down the Final Rule.  

Judge Barker found that the Final Rule “would treat virtually every entity that contracts for labor as a joint employer because virtually every contract for third-party labor has terms that impact, at least indirectly . . . essential terms and conditions of employment.” While the Texas district court fell short of holding that the Final Rule was arbitrary and capricious, it held that the Final Rule failed to “resolve ambiguities in a way making the rule more predictable than common law adjudication.  . . .[and] will likely promote labor strife rather than peace by forcing an underdefined category of entities to take a seat at a bargaining table and negotiate over a multitude of influences that may otherwise be presented (and resolved) only through the invisible hand of the marketplace.” Judge Barker found that the Final Rule is unlawful due to its “sweep beyond common law limits” and issued an injunction prohibiting the NLRB from enforcing it.  

This is a big victory for employers, as many were fearful of the confusion and management challenges of dealing with organizing drives involving joint employers and the complexity of multi-employer bargaining that would likely ensue with such a broad definition of joint employment.  

For now, absent any appeal, unions, and employers can continue to rely on the existing NLRB joint employment standard, which requires that multiple employers exercise direct and immediate control of the essential terms and conditions of employment (wages, benefits, hours, hiring, discipline, firing, supervision) before joint employment can be established. In addition, employers that use temporary labor or staffing firms, staffing agencies, and franchisors should all analyze their practices and review their agreements to look at how they currently address control over terms and conditions of employment, and consider whether to modify their practices and/or renegotiate their agreements, to put themselves in the best position of avoiding being labeled as a “joint employer.” 

Clarifying the New Paid Sick Leave Law for Part-Time Employees!

There appears to be some confusion with the new California paid sick leave law that became effective January 1, 2024. The new law requires employers to provide employees at least forty (40) hours or five (5) days of Paid Sick Leave (PSL) per year, up from 24 hours/3 days in previous years.

The new and revised law still requires employers who use an accrual method of PSL to apply an accrual rate of no less than one hour of PSL for every 30 hours worked. However, the revised law states that the employer satisfies those accrual requirements only by providing the employee no less than 24 hours of PSL by the 120th day of employment/120th day of the year or 12-month period and no less than 40 hours by the 200th day of employment/200th day of the year or 12-month period. 

The issue is the way that the language of the revised law was written. It has created confusion, specifically as to whether part-time employees working less than 40 hours per week were required to be provided 24 hours by the 120th day and 40 hours by the 200th day or whether this requirement only applied to full-time employees. While a full-time employee working a 40-hour workweek would naturally accrue the requisite PSL based on the 30:1 accrual ratio, the same could not be said for employees working less than 40-hour workweeks, so this was a very important unanswered question. 

In response, earlier this month, California’s Division of Labor Standards Enforcement (DLSE) issued frequently asked questions addressing this concern and, for a rare change, provided an employer favorable opinion, explaining, 

“If an employer is using the 1 hour of paid sick leave accrued for 30 hours worked[…], then the employer does not have to provide 24 hours or 3 days by the 120th day of the year and 40 hours or 5 days by the 200th day. The requirements to provide the minimum amounts by the 120th day and the 200th day of the year are set up as a measure for employers who use other accrual methods so that the plans meet certain minimums. The measure assumes full-time employment.”

Therefore, an employer that uses a 30:1 ratio for a part-time employee complies with California’s new PSL law, even if the employee does not earn 24 hours of PSL by the 120th day of employment/120th day of the year or 12-month period, or 40 hours of PSL by the 200th day.

Hope this clarification helps!

New Notices & Pamphlets for Employees!

There have been several recent changes to certain notices and pamphlets that California employers must provide new hires. 

California Labor Code section 2810.5 requires that employers provide nonexempt employees with written notice regarding their wages, including pay rates, overtime rates, and designated paydays. The notice must be provided at the time of hire and within seven days of a change to the information outlined in the notice unless the changes are reflected in the employee’s paystub for the following pay period.

In January 2024, AB 636 amended section 2810.5 to require employers to provide employees with information regarding any “state or federal emergency or disaster declaration applicable to the county or counties where the employee will work issued within 30 days before the employee’s first day of employment, and that may affect their health and safety during employment.” The notice must also reflect the increase in mandatory paid sick leave to forty hours or five days, whichever is greater.

The updated Labor Code 2810.5 Notice can be found at http://www.dir/ca.gov/dlse/LC_2810.5_Notice.pdf

In February 2024, the EDD updated its “For Your Benefit” pamphlet. This pamphlet must be provided at the time of hire and discharge of employees. The pamphlet provides information regarding unemployment insurance, disability insurance, paid family leave, and workforce services, including when and how to apply for benefits upon termination.

 The EDD’s updated pamphlet can be found at https:edd.ca.gov/siteassets/files/pdf_pub_ctr/de2320.pdf. 

Also in February 2024, the California Department of Industrial Relations Division of Workers Compensation (DIR) updated its “Time of Hire” pamphlet, which provides employees with information about the state’s workers’ compensation, benefits, how to file a claim, and other information related to medical care.

The DIR’s updated pamphlet can be found at http://www.dir/ca.gov/DWCPamphlets/TimeOfHirePamphlet.pdf.