Employment Law

California Employers Face New Laws

Why it matters

Employers in California will be facing some new laws in the coming months as Governor Jerry Brown signed several employment-related bills on the last day of the legislative session. In addition to extending the protections of the Fair Pay Act to race and ethnicity and prohibiting employers from considering prior salary as the justification for disparity in compensation, employers will be barred from asking applicants to disclose any information regarding juvenile convictions, pursuant to another measure. The governor also signed a bill restricting employers’ use of choice of law and forum provisions. With the new laws scheduled to take effect on January 1, 2017, employers should familiarize themselves with the changes.

Detailed discussion

As the California legislative session wound down, lawmakers sent several employment-related bills to the Governor Jerry Brown’s desk for a signature. The governor obliged with regard to the following pieces of legislation:

  • Two separate bills expand upon last year’s Fair Pay Act. Similar to the Act to Establish Pay Equity recently passed in Massachusetts, Assembly Bill 1676 prohibits employers from considering prior salary as a reason to justify disparity in compensation. A second measure, Senate Bill 1063, added two new protected categories to the Fair Pay Act: race and ethnicity. Senate Bill 1063, known as “The Wage Equality Act,” bans employers from paying employees a wage rate less than the rate paid to employees of a different race or ethnicity for substantially similar work, using the same evidentiary standards and burdens as set forth in the Fair Pay Act. Both new laws are set to take effect January 1, 2017.
  • Employers are no longer permitted to ask job applicants about any juvenile court matter beginning January 1, 2017, after Gov. Brown signed Assembly Bill 1843 into law. The measure prohibits employers from asking an applicant to disclose any information regarding juvenile convictions or seeking or utilizing any information related to “an arrest, detention, processing, diversion, supervision, adjudication, or court disposition” while the person was subject to the process and jurisdiction of a juvenile court. An applicant may recover $200 or actual damages—whichever is greater—for violations of the law, with treble damages or $500 for intentional violations, plus costs and reasonable attorney’s fees.
  • In another change for employers, a new law bars the use of choice of law and forum provisions that require employees to litigate or arbitrate outside the state of California. Senate Bill 1241 provides that employers cannot require an employee “who primarily resides and works in California,” as a condition of employment, to either adjudicate outside of California a claim arising in the state or deprive the employee “of the substantive protection of California law with respect to a controversy arising in California.” Neither “primarily resides or works in California” nor “substantive protection of California law” were terms defined by the statute. The law does contain an exception for workers represented by counsel who negotiate the terms of their employment agreements. Employees may bring a private action for violations of the law with the ability to recover reasonable attorney’s fees. The new law applies only to contracts entered into, modified or extended on or after January 1, 2017.

To read A.B. 1676, click here.

To read S.B. 1063, click here.

To read S.B. 1843, click here.

To read S.B. 1241, click here.

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EEO-1 Forms Final, Employers Must Report Pay Data in 2018

Why it matters

Together with the Office of Federal Contract Compliance Programs (OFCCP), the Equal Employment Opportunity Commission (EEOC) formally adopted the final rule modifying the Employer Information Report (EEO-1) to require covered employers to submit pay information for all employees. As of March 31, 2018, employers must report the total number of workers, by gender and race/ethnic group, that fall within 12 wage bands within each of ten job classifications, using the income in Box 1 of the employee’s W-2 form. In addition, the aggregate hours worked by each employee must be shared with the EEOC, which intends to use the data to “more effectively focus agency investigations, assess complaints of discrimination, and identify existing pay disparities that may warrant further examination.”

Detailed discussion

In January, the Equal Employment Opportunity Commission (EEOC) proposed a revision to the Employer Information Report (EEO-1) that would require employers to report information about the wages paid to their workers.

Private employers with at least 100 employees (and federal contractors with 50-99 workers) are currently required to file an EEO-1 report sharing the number of individuals they employ by job category and by race, ethnicity and sex. The report—delivered to the EEOC and the Department of Labor (DOL)—contains ten job categories, ranging from Executive/Senior-Level Officials to Service Workers and 12 pay bands within those categories, starting at $19,239 and under and working up to $208,000 and over.

The initial proposal added pay information to the reporting requirements, with employers providing to the EEOC the total number of full- and part-time employees within the pay bands and gender, race and ethnicity categories on the current EEO-1 form, using the income provided in Box 1 of the employee’s W-2 form. Employers must also tally and report the total hours worked by all the employees in each pay band.

So an employer would report that it employs ten African-American men who are Craft Workers in the second pay band ($19,240 to $24,439) who worked 20,800 hours last year, for example, or 23 non-Hispanic white women Sales Workers in pay band four ($30,680 to $38,999) who worked a total of 47,840 hours.

As initially proposed, employers were to add the pay information to the report as of September 30, 2017. However, after more than 300 comments were filed on the first draft, the EEOC tweaked the proposal to extend the start date until March 31, 2018. Pursuant to the final rule, each EEO-1 report will be due on March 31 of the following year to coordinate with employers’ end-of-year income reporting obligations.

“More than 50 years after pay discrimination became illegal it remains a persistent problem for too many Americans,” EEOC Chairwoman Jenny R. Yang said in a statement about the final rule. “Collecting pay data is a significant step forward in addressing discriminatory pay practices. This information will assist employers in evaluating their pay practices to prevent pay discrimination and strengthen enforcement of our federal antidiscrimination laws.”

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Overweight, Hispanic Female Can Take Bias Suit to Jury

Why it matters

A Hispanic female plaintiff who characterized herself as having “a body size which may be perceived by some as being overweight” may pursue her discrimination claim based on a promotion that went to a slender Caucasian female, according to “a close call” by a Washington, D.C. federal court. Ana Lapera alleged that the senior vice president at Fannie Mae was biased against Hispanic and overweight employees and the reason behind her non-selection for a promotion—an emphasis on “executive presence”—was pretextual, with the supervisor using it as an excuse to target overweight and minority employees. Denying the employer’s motion for summary judgment, the court said a reasonable juror could view the evidence as Lapera depicted: that she was more qualified than the candidate selected, with more relevant education and more experience managing a large team. The plaintiff also presented evidence of bias in the form of comments from the supervisor that an overweight employee “waddled” and that a Hispanic worker “need[ed] to work on [her] accent.”

Detailed discussion

Born in Caracas, Venezuela, Ana Lapera began working for Fannie Mae in 1994. She holds a degree in systems engineering as well as a master’s degree in engineering administration and was promoted during her almost 20 years at Fannie Mae to management level positions. However, Lapera—who described herself as having “a body size which may be perceived by some as being overweight”—alleged that she was discriminated against in violation of the District of Columbia Human Rights Act (DCHRA) and Title VII based on race and personal appearance.

Lapera cited two problems: (1) a new salary grading system implemented in 2009 that assigned her an improperly low salary grade and (2) her non-selection for the position of vice president. A senior vice president (SVP) at Fannie Mae placed considerable emphasis on “executive presence,” which the plaintiff argued provided cover for criticism of and discrimination against overweight and minority employees.

The SVP allegedly commented about employees who did not “fit the team’s image,” criticized one overweight female who “waddled” in front of the directors, complained about another who exposed her midriff, and said one Hispanic worker “need[ed] to work on [her] accent because there is no way she’s going to progress with an accent like the one she has.” The same SVP selected a slender, Caucasian female for the vice president position despite Lapera’s more extensive experience and qualifications, Lapera told the court.

Pursuant to an employment agreement, Lapera pursued her claims in nonbinding arbitration. After a four-day hearing, the arbitrator ruled in favor of Fannie Mae. Lapera rejected the arbitral award and filed a complaint. The employer responded with a motion for summary judgment.

U.S. District Court Judge Beryl A. Howell issued a mixed decision, dismissing the salary claims but allowing Lapera to move forward on the allegations over her non-selection.

The employer proffered a legitimate, nondiscriminatory explanation as to why it assigned Lapera the salary grade it did and why her request for re-leveling was denied, the court said, noting that the system “did not consider in any way the characteristics or performance of the individual who occupied a given position,” instead relying on market wages for a given job description. Further, when a request for a salary increase was submitted on Lapera’s behalf by her supervisor, she was awarded an increase of $28,000 based on her performance and personal characteristics, the court pointed out.

Turning to the non-selection claims, Judge Howell noted the parties spilled “significant ink” arguing over the relative qualifications of Lapera and the selected candidate. After reviewing their resumes and supervisor comments about the two, the court deemed it “a close question” as to whether a reasonable jury could find that Lapera was significantly more qualified for the position. Given this calculus, the court looked to the rest of Lapera’s evidence.

A dispute existed as to whether Lapera had communication issues, requiring a credibility determination for the jury in light of the competing evidence, and the plaintiff’s evidence on irregularities in the hiring process (e.g., the selected candidate being permitted to apply after the deadline and her interview consisting of an hour-long lunch meeting instead of Lapera’s half-hour meeting in an office) was “murky,” the court said.

The plaintiff also emphasized bias on the part of the SVP towards Hispanic and overweight employees. The SVP congratulated Lapera after an overweight employee left Lapera’s team and repeatedly criticized employees who lacked an “executive presence,” which Lapera argued was pretext for discrimination. Evidence of bias against Hispanic employees was “less robust,” Judge Howell said, but the plaintiff proffered negative statements by the SVP about employees’ accents.

“If believed, however, this testimony permits the inference that [the SVP] held negative views of Hispanic and overweight employees, and a jury could infer that [the SVP] acted upon those views in declining to select Ms. Lapera for the Vice President of Planning and Alignment position,” the court said.

“Although a close call, reviewing the record as a whole, Ms. Lapera has produced sufficient evidence to create a genuine issue as to whether Fannie Mae’s rationale for selecting [the other candidate] for the [vice president position] was pretextual,” Judge Howell wrote, as the record supported two plausible interpretations of what happened. “One view is that [the SVP], who drove the hiring process, harbored biases toward Hispanic and overweight employees and selected [the other candidate] not because she was more qualified but because she fit the mold in terms of demographics and personal appearance that [the SVP] preferred. The other view is that, notwithstanding her subject matter expertise, Ms. Lapera simply lacked the requisite communication skills to be effective in the Vice President of Planning and Alignment role. Ultimately, a jury will get to choose between these ‘competing views.’”

To read the opinion in Lapera v. Federal National Mortgage Association, click here.

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Jury to Decide Whether Employer Considered Pre-Accommodation Performance

Why it matters

A jury should decide whether pre-accommodation job performance was considered by an employer when it terminated a worker at the end of her probationary period, a federal court in Wisconsin has ruled. A hearing-impaired employee, Elizabeth Erickson was subject to a one-year probationary period when she was first hired as a counselor. When her supervisor questioned keeping her around based on mixed evaluations, she brought up her hearing impairment as an explanation for some of her performance issues and made a formal request for accommodations. The supervisor later presented Erickson with a list of new performance concerns, but Erickson said they were based on pre-accommodation performance. She was terminated and filed suit under the Americans with Disabilities Act Amendments Act (ADAAA). Denying the employer’s summary judgment motion, the court said heavily disputed issues remained about whether Erickson’s pre-accommodation performance was considered in her termination and expressed concern that the plaintiff was given less than six weeks to improve her performance using the approved accommodations.

Detailed discussion

The Wisconsin Department of Workforce Development’s Division of Vocational Rehabilitation (DVR) assists persons with disabilities to obtain, maintain and advance in employment. Employees at the DVR operate as counselors to consumers, creating an individualized plan for each. A client of the DVR due to her hearing disability, Elizabeth Erickson’s counselor recommended that she apply for a position at the agency.

She did so, completing a “disability self-identification and accommodation survey” as part of the application for a project position, disclosing that she has had deafness in her right ear since early childhood. While she sometimes uses a hearing aid, Erickson said that in some circumstances it makes hearing more challenging and she removes it. She also noted on her application that she was seeking out the job on the recommendation of her “two hearing-disability counselors” at the DVR.

When her project position came to an end, Erickson applied for a permanent job. She was hired for a one-year “probation” period, with a review of her goals and accomplishments (GAR) scheduled every three months. At her first GAR, Erickson’s written evaluation indicated that she was meeting her goals with an exception for a low caseload.

Her six-month GAR was not much different but at the nine month review, Erickson’s supervisor expressed concern about her ability to become a counselor and let human resources know he was recommending that she not be hired on a permanent basis. Erickson disagreed with the review and at a subsequent meeting about her progress, told her supervisor for the first time that she had a hearing impairment and a disability certification on file.

The parties disputed what was said at the meeting, with Erickson claiming her supervisor stated it was “cheesy” to be bringing up her disability at this point. Erickson was then given a performance improvement plan that she refused to sign, arguing that it contained numerous errors. The plan gave Erickson a deadline to satisfy the requirements.

Erickson also filed a formal request for accommodations and provided a note from her doctor that she would benefit from having as much information as possible presented in a visual format. DVR granted Erickson’s request and began implementing the accommodations.

Approximately one month later, Erickson’s supervisor stated that she had new concerns with Erickson’s performance. Erickson objected, arguing that several of the critiques were based on her performance before the accommodations were in place. Erickson was then terminated and she sued, alleging violations of the Rehabilitation Act and the Americans with Disabilities Act Amendments Act (ADAAA).

Ruling on the DVR’s motion for summary judgment, U.S. District Court Judge William M. Conley found the case “turns on the subjective factual questions that are very much in dispute.”

“Here, Erickson had the educational background and certification required for [the position],” the court said. “Whether she was otherwise qualified to perform the job based on subjective characteristics, like organizational ability or sound judgment, cannot be determined in defendant’s favor on the record at summary judgment.”

While DVR argued that the evidence demonstrated that Erickson was terminated because of her poor attitude, deficient performance, and questionable professionalism—not her hearing disability—the plaintiff countered that the performance issues relied upon by the employer occurred pre-accommodation.

“Defendants’ consideration of her performance before reasonable accommodations were in place and only providing six weeks for the accommodations to be in place (even assuming those accommodations were adequate) before terminating her employment also provides a basis for a reasonable jury to find causation here,” the court wrote.

Judge Conley also kept alive Erickson’s failure to accommodate claim, noting that a reasonable jury might find DVR’s awareness of her disability dated back to 2010, when she self-identified on a form for her project position or even 2002, when she was a consumer of DVR services. “Given Erickson’s early disclosure of her disability, DVR arguably had an obligation to engage in an interactive process at the outset of her permanent employment … rather than waiting for Erickson to make a formal request for an accommodation a year later,” the court suggested.

Erickson did make a formal request for accommodations later during her time at DVR, the judge noted, but less than six weeks elapsed between her termination and when the accommodations were put in place. “A reasonable jury could find that defendants’ decision to terminate Erickson’s employment within a few weeks of establishing a possible accommodation constitutes an effective denial of her request for an accommodation.”

To read the opinion and order in Erickson v. Department of Workforce Development, click here.

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Employer Can’t Offset Overtime Work With Paid Lunch, Breaks

Why it matters

Do paid lunch breaks relieve an employer of paying overtime for work performed prior to and after a worker’s shift? No, the Third Circuit Court of Appeals ruled in a case involving a group of employees who filed a Fair Labor Standards Act suit against DuPont. The workers sought overtime compensation for the time they spent donning and doffing their uniforms and protective gear as well as “shift relief” before and after their regularly scheduled shifts. DuPont moved for summary judgment, arguing that, because the company provided paid meal breaks during the shift, it was not required to pay for the overtime. A federal district court agreed the offset was legal but the federal appellate panel reversed. “Compensation included in, and used in calculating, the regular rate of pay is reflective of the first forty hours worked,” the court said. “[A]llowing employers to then credit that compensation against overtime would necessarily shortchange employees.”

Detailed discussion

Three employees of E.I. DuPont filed a Fair Labor Standards Act (FLSA) collective action against their employer, seeking overtime compensation for the time they spent donning and doffing their uniforms and protective gear and performing “shift relief” before and after their regularly-scheduled shifts at a Pennsylvania manufacturing plant.

The time spent donning, doffing and providing shift relief—which involved employees from the outgoing shift sharing information about the status of work with incoming shift employees—ranged from 30 to 60 minutes per day.

As part of the employees’ regular wages, DuPont chose to pay for meal breaks during their shifts. The policy was set forth in the employee handbook, which stated: “Employees working in areas requiring 24 hours per day staffing and [who] are required to make shift relief will be paid for their lunch time as part of their scheduled work shift.” The plaintiffs, who worked 12-hour, four-shift schedules, were entitled to one 30-minute paid lunch break per shift in addition to two non-consecutive 30-minute breaks. The paid break time always exceeded the amount of time the plaintiffs spent donning, doffing and providing shift relief, the parties agreed.

Based on its compensation plan, DuPont moved for summary judgment, arguing that the FLSA allowed the employer to use paid non-work time to offset the required overtime. A federal district court judge agreed but the Third Circuit Court of Appeals reversed.

Reviewing the history of the federal statute, the panel emphasized that one of the “bedrock principles of the FLSA is the requirement that employers pay employees for all hours worked,” at a rate based upon the total remuneration divided by the total number of hours actually worked. Only explicit statutory exclusions can impact this regular rate of pay, the court said.

The FLSA does permit an employer to use certain compensation already given to an employee as a credit against its overtime liability owed to the worker but only in three categories of compensation that are characterized as “extra compensation provided by a premium rate,” such as not less than one and one-half times the regular rate for Saturdays, Sundays and holidays, for example, or pursuant to a collective bargaining agreement.

“[T]he three categories of excludable compensation that qualify for the offsetting provision … are paid at a premium rate,” the panel said, adding that the regulations also support limiting employers’ ability to offset overtime liability.

“Nothing in the FLSA authorizes the type of offsetting DuPont advances here, where an employer seeks to credit compensation that it included in calculating an employee’s regular rate of pay against its overtime liability,” the Third Circuit wrote. “Rather, the statute only provides for an offset of an employer’s overtime liability using other compensation excluded from the regular rate … and paid to an employee at a premium rate.”

Essentially, where a credit is allowed, the statute says so, the court explained, and at the point at which compensation is included in the regular rate, an employer may not use that compensation to offset other compensation owed under the FLSA.

“It is undisputed that the compensation paid for meal breaks was included in plaintiffs’ regular rate of pay, and thus could not qualify as ‘extra compensation,’” the panel wrote, not persuaded by DuPont’s contention that the statute did not expressly prohibit the offsetting it used.

“We disagree with DuPont’s notion that the FLSA’s silence indicates permission. While it is true that the statute does not explicitly set forth this prohibition, the policy rationales underlying the FLSA do not permit crediting compensation used in calculating an employee’s regular rate of pay because it would allow employers to double-count the compensation,” the court said, citing an amicus brief filed by the Department of Labor (DOL) in the case.

“Compensation included in, and used for calculating, the regular rate of pay is reflective of the first forty hours worked,” the panel said. “We agree with the reasoning of the DOL that allowing employers to then credit that compensation against overtime would necessarily shortchange employees.”

The statutory scheme permits just three exclusions for offsetting compensation, which “makes sense,” the Third Circuit said. “Here, permitting DuPont to use pay given for straight time – and included in the regular rate of pay – as an offset against overtime pay is precisely the type of ‘creative bookkeeping’ … the FLSA sought to eradicate.”

To read the opinion in Smiley v. E.I. DuPont de Nemours, click here.

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