New Standard for Meal/Rest Periods:

On April 12, 2012, the California Supreme Court issued its ruling on Brinker Restaurant Corp. v. The Superior Court of San Diego County.  This case ultimately stemmed from a class action suit in which the plaintiff class consisted of current or former cooks, stewards, buspersons, waiting staff, and host staff who worked in restaurants owned and operated by Brinker Restaurant Corp (“Brinker”).  The plaintiffs brought the class action in response to Brinker’s alleged failure to provide its employees with proper meal periods, rest breaks, or premium wages for work performed during break periods.  The case came before the California Supreme Court so that it could review the question of class certification.  In its analysis of the class certification issues, the Court spelled out the meaning of employment regulations with regards to the following: (1) the rules for providing rest breaks, (2) the employer’s duty to provide a meal period, and (3) the rules governing the frequency of meal periods.  This blog summarizes the rules established in the Court’s analysis of these issues.

Rules for Providing Rest Breaks

The court first discussed the issue of how many rest periods an employee is entitled to during any particular shift.  It determined that the governing law for this issue was Wage Order No. 5, subdivision 12.  Under Wage Order No. 5, the Court spelled out that an employee is entitled to one 10 minute break for a shift of 3.5-6 hours in duration; two 10 minute breaks (or a total of 20 minutes of break time) for a shift from 6-10 hours in duration; and three 10 minute breaks (30 minutes total) for a shift 10 hours or longer.  Brinker, S166350 at page 20.  This rule needed clarification because the Appeals Court below had applied the rule incorrectly due to a misinterpretation of the legislation’s use of the phrase “major fraction thereof.”  However, this Court clarified the rule laid out above, reasoning that the Appellate Court’s application of the rule was irreconcilable with the plain language of the statute.

Employer’s Duty to Provide a Meal Period

With regards to employer provision of a meal period, the issue was whether the employer must ensure that the employee is taking advantage of their meal break or if the employer must merely provide the opportunity for an uninterrupted break.  To answer this question, the Court first referred to the historical governing regulation, Wage Order No. 5, subdivision 11(A), which stated that an employer must provide a “duty free” meal period.  It then checked this principal against section 512, which was passed in 1999 (and cited as Stats. 1999, ch. 134, § 6, p. 1823) to determine if the historical principals were consistent with the most recent legislation.  After analyzing both pieces of legislation, the Court determined both pieces of legislation were consistent with one another.  It further held that under the two statutes, an employer’s duty to provide a meal period are as follows: (1) to relieve the employee of all duties for the meal period, (2) relinquish control over the employees activities, and (3) provide a reasonable opportunity for an uninterrupted 30 minute meal period.  Brinker, page 36.  The employer need not ensure that work is not performed during the period, and no liability attaches if the employee works during the period unless the employer coerces or encourages the employee to do so. [Although the legal standard changed some for imposing liability, the burden remains on the employer and employers should still be cautious about employees working during any such break.]

Rules Governing the Frequency of the Meal Periods

After determining what the employer’s duty was with regard to the provision of a meal period, the Court then turned to how often the employer must provide meal periods.  In order to parse out a definitive rule for how an employer must provide meal periods, the Court again turned to section 512(a) to spell out a definitive rule for how often an employer must provide a meal period.  The court determined that for workers working a shift longer than 6 hours, a meal period must be provided before the start of the 6^th hour of work at the latest; for shifts longer than 10 hours, a second meal period must be provided before the start of the 11^th hour of work.  Brinker, page 36-37.  If the shift is only 6 hours in length, the meal period may be waived in writing by employee; the same is true of the second meal period (but only the second meal period) for 12 hour shifts.  Brinker, page 37.  It is assumed that for shifts less than 5 hours, no meal period need be provided because the shift would conclude prior to the time an employer would be required to provide a meal period.

The full text of the California Supreme Court’s Ruling is available in Word Format at http://www.courtinfo.ca.gov/opinions/documents/S166350.DOC and in Acrobat at http://www.courtinfo.ca.gov/opinions/documents/S166350.PDF.

This Fox Business article provides a good summary on handling OSHA inspections and the factors to consider before hand.

http://smallbusiness.foxbusiness.com/legal-hr/2011/10/27/preparing-for-osha-inspection/

This is a good summary article for any new business owner, or those thinking of starting a business. It lays out the top 10 legal pitfalls you should strive to avoid when starting a new venture.  It was written by Mark Britton and posted on Fox’ Small Business Center web page this morning:

The etymology of the word “entrepreneur” is well established. Since the earliest of French times, it has meant “someone who breaks into hives when coming within 20 feet of a lawyer.”

While I’m joking regarding the word’s origins, I’m quite serious (albeit figurative) regarding the entrepreneurial response to lawyers. Most young entrepreneurs see themselves as an unrivaled visionary and the last thing they need is some old dude in a three-piece pulling on the handbrake.

Until something else does.

Nothing will grind the entrepreneurial party train to a halt faster than a big lawsuit, nasty contract dispute or some other legal circus animal that no one bothered to stop from coming on board. The lawyer-averse entrepreneur suddenly finds himself begging for a hug from the old dude.

So, before you need to beg for that hug, here are 10 pitfalls that often cause startups legal trouble. A penny of legal proactivity in each of these areas will offer a pound of protection as your business matures.

1.   Not Hiring a Startup Lawyer: There are a lot of lawyers that represent small businesses, but there are only a few that regularly represent startups–particularly when it comes to fundraising from sophisticated angels and venture capitalists. There is a “market” around angel and VC funding and if your lawyer is not immersed in that market you can get fleeced.

2.   Not Having Founders’ Agreements: How do you split the equity pie? Who contributes what? Who acts as CEO? What if a founder stops performing? There are so many questions that founders never think through because everything is going to be “awesome.” However, when cash and humans are involved, things are seldom uniformly awesome.

3.   Choosing the Wrong Corporate Entity: While this sounds mundane, it is actually quite important. Whether you want to run your business as a C Corp, S Corp, LLC, LP etc. is wholly dependent on your long-term objectives. Different structures offer different opportunities and restrictions, and changing your structure years later is administratively painful and expensive.

4.   Using Someone Else’s Trade Name: Many entrepreneurs will lock on a company name without researching whether someone else owns that name. They will put up a web site, print a bunch of advertising collateral, and then they get a letter from some Malaysian conglomerate that says, “Quit using our name and pay us $1 million in damages.”

5.   Comingling Accounts: When money first starts coming in – either from investors or sales–it is easy to mix personal and business accounts. Don’t do it. The more you do, the more that someone can pursue your personal assets for any unpaid corporate liabilities.

6.   Failing to Protect Intellectual Property: Most great ideas are supported by a product or process that should be patented. If you are telling people all about your idea without a NDA or a patent application on file, you run the risk that your great idea will soon be your competitor’s great idea. Identify your core pieces of intellectual property and patent them.

7.   Failing to Have Adequate Employee Agreements: While these are less extensive than the founders’ agreements, you need at least a standard agreement in place for all of your employees and consultants that covers confidentiality, ownership of things they develop, etc. The agreement will not feel that important early on, but it will come in handy when your first employee is hijacked by a competitor.

8.   Failing to Check for Employee Agreements: If you are hiring someone from a company that has followed step No. 7, failing to investigate their former employee agreements can cause problems – especially if you are hiring them for their technical knowhow. If their “knowhow” is owned by their former employer or is blocked by a non-competition agreement, you may be getting less value than you bargained for.

9.   Failing to Comply with Federal or State Securities Laws: If you are asking even a couple of people for money – whether it is an investment or a loan – you must make sure you are observing the various securities laws. While you may not need to “register” your securities, you may need to file for an “exemption.” An improper offering can lead to regulatory fines and, maybe even worse, unwinding of a transaction.

10. Understand Key Contracts: If a third-party is important to a core part of your business, you need a contract with that party and you need to understand the core terms of that contract. In a breach-of-contract lawsuit, ignorance is not a defense.

Recently, a California Court of Appeal held that compliance with Labor Code Section 512 Meal Period provisions requires employers to merely “provide” a meal period, and not “ensure” that a meal period was actually taken.  The court cited the statutory language of Labor Code Section 512 and IWC Wage Order 5-2001 at issue in this case, both of which require employers to “provide” a meal period. The court noted that the Division of Labor Standards Enforcement’s current enforcement position is that employers need only “provide” meal periods to employees. The Court also noted that requiring large employers to “ensure” meal periods are taken would create an impractical standard and place an undue burden on employers.

This case follows on a string of other similar cases discussing the same issue. The California Supreme Court is presently considering this exact issue in two pending cases (Brinker Restaurant v. Superior Court and Brinkley v. Public Storage). As such, it is expected that the California Supreme Court will grant review of this case and hold any decision pending the outcome of Brinker.

The appellate court has also held that the trial court properly denied class certification in this wage and hour class action involving 3,000 employees in more than 130 restaurants. The court held that individual issuers would predominate, because absent a universal practice regarding breaks, plaintiffs would have to explain violations on a restaurant-by-restaurant and supervisor-by-supervisor basis. The appellate court also upheld the trial court’s ruling that the employee’s proffered statistical evidence would not support class certification, because employees would still need to explain how and why breaks were missed. Lastly, the court held that substantial conflicts of interest existed among class members, because the hourly employees often temporarily assumed supervisory duties, including managing meal and rest breaks-meaning that class members would be accusing one another of violating Labor Code provisions.

If you have questions about meal and rest periods for your employers you can give us a call at our office to set up an appointment or compliance review.

Recently, the US Equal Employment Opportunity Commission (“EEOC”) announced that Trinity Products, Inc (“Trinity”), a billboards and signposts manufacturer, agreed to pay $55,000 to settle a sexual harassment and retaliation suit filed by the EEOC. The EEOC alleged that a “high level manager harassed his assistant with offensive language and gestures and requests for sexual favors and sought to replace her after she complained to other supervisors about his conduct, resulting in her discharge.” (EEOC, et al. v. Trinity Products, Inc., et al., Case No. 4:09-CV-01617 CAS). As part of the settlement, Trinity must distribute a notice informing employees of their rights under federal anti-discrimination laws and provide sexual harassment training for all managers.

The above case is a reminder that the “language” used by one employee can easily be considered “offensive” and sexual harassing by another employee. An employee’s stray comment, sexual inference or joke is often considered sexual harassment by a co-worker. Interestingly, the improper comments are often made by those employees in a supervisory, management or senior executive position.

To reduce company liability and prevent harassment allegations, claims and lawsuits, many companies conduct sexual harassment prevention training on an annual basis. Employees should be provided with the legal definition of sexual harassment, given examples of sexual harassment based on common work-day interactions, provided the company’s reporting procedures and encouraged to report all incidents without fear of retaliation.

Creating a culture where employees are empowered to report sexual harassment often starts with a well drafted employee handbook that clearly defines the company’s reporting procedures. To prevent sexual harassment, we recommend that all employers review their handbook policies for clarity and consider sexual harassment prevention training on an annual basis. Indeed, this training is a requirement for employers with more than 50 employees, which includes contractors and part-time employees.  Additionally, the training should be considered by smaller employers to bolster their defenses in the event of similar litigation.

Liberty Law provides economical harassment prevention training that complies with the law, adding to the employer’s defense in the event of litigation. Additionally, Liberty Law will provide this training and seminar free of charge to its level 2 and 3 monthly subscribers (more details here) after 6 months of engagement.

In Otsuka v. Polo Ralph Lauren Corp., a federal district court in Northern California recently approved a $4 million class action settlement for unpaid wages. Plaintiffs alleged that, as part of the retailer’s loss prevention program, they were required to submit to inspections of their personal bags and belongings before exiting the store. However, the inspections occurred after the employees had already clocked out. The settlement will compensate as many as 6,700 class members for the off-the-clock time waiting for and submitting to these bag inspections.    Employers are cautioned against retaining control over employees after the employee has clocked out.  Retaining sufficient control over what the employee does after clocking out, may amount to nothing short of forcing the employee to work off the clock, thereby entitling the employees to back pay, penalties and attorneys fees.

The U.S. Department of Labor (“DOL”) has published an Administrator’s Interpretation to address the question of whether an employee is entitled to leave under the Family Medical Leave Act (“FMLA”) to care for a child they are not biologically related to.  The FMLA provides that an eligible employee can take up to 12 weeks of unpaid leave for, among other things, the birth and care of the employee’s own newborn child, for placement of a son or daughter with the employee for adoption or foster care, and to care for a son or daughter with a serious health condition.  Under the FMLA, employees who have no biological or legal relationship with a child may still be considered to stand in “loco parentis” to the child and be entitled to leave to care for the child.  Such a relationship can be demonstrated either by providing day-to-day care for the child, or financial support to the child. The DOL memo also makes it clear that same sex partners can establish the requisite in loco parentis relationship, providing in part that “where an employee provides day-to-day care for his or her unmarried partner’s child (with whom there is no legal or biological relationship) but does not financially support the child, the employee could be considered to stand in loco parentis to the child and therefore be entitled to FMLA leave to care for the child if the child had a serious health condition.”  The Interpretation further states that the same applies for “an employee who will share equally in the raising of a child with the child’s biological parent” and “an employee who will share equally in the raising of an adopted child with a same sex partner, [but] does not have a legal relationship with the child.”  The DOL also notes that “the fact that a child has a biological parent in the home, or has both a mother and a father, does not prevent a finding that the child is the ’son or daughter’ of an employee who lacks a biological or legal relationship with the child for purposes of taking FMLA leave.”

Employers need to be aware that the FMLA and California child care leave laws are not  necessarily limited to traditional definitions of family and parentage.  When faced with a request for child care leave, employers need to make an individualized fact-based determination regarding the relationship between the employee and the child.

As discussed in my earlier posts  here, congress has repeatedly extended the benefits to employees under COBRA. And now, for the third ime, the COBRA premium subsidy program has been extended, this time through May 31, 2010, under the Continuing Extension Act of 2010 (Act). The key provisions of the Act include:

• The extension of the eligibility period for the COBRA subsidy through May 31, 2010.
• A new special election period and related notice requirement for individuals who experience a qualifying event that is related to a termination of employment on or after April 1, 2010, and before April 15, 2010.

The excerpts below are from an article posted by the law firm of Drinker Biddle, a large national law firm.

Special Election Period

A health plan must extend a special COBRA election period to an individual who experienced an involuntary termination of employment on or after April 1, 2010, and prior to April 15, 2010, and who would be an “assistance eligible individual” (AEI) but who does not have a COBRA election in effect on April 15, 2010. The special election period runs from April 15, 2010, through the date 60 days after the Notice of Special Election Period is provided to that individual.

Note about effective date of COBRA subsidy. Although not specifically addressed in the Act, due to the short, 15-day gap between the expiration of the COBRA subsidy on March 31, 2010, and enactment of the Act, we believe that an individual’s COBRA subsidy becomes effective as of the first day of COBRA coverage if he or she elects coverage during the special election period.

Notice of Special Election Period

In the case of any individual who experienced a qualifying event related to a termination of employment on or after April 1, 2010, and prior to April 15, 2010, a plan administrator must provide the general COBRA notice, including a description of the availability of premium reduction in the case of a qualifying event that is an involuntary termination of employment, within 60 days of enactment of the Act (i.e., by June 14, 2010). If the plan administrator has already distributed the general COBRA notice to such individuals, then the plan administrator may simply supplement it with an additional notice describing the extension of the availability of premium reduction with respect to involuntary terminations through May 31, 2010, and the special election period.

Note about the notice requirement. The Act is not clear on whether this notice applies only to AEIs, or to any individual who has a qualifying event related to a termination of employment, whether voluntary or involuntary, during the period April 1, 2010, through April 14, 2010. The more conservative approach is for a plan administrator to provide the special election notice to any individual who experienced a qualifying event related to a termination of employment on or after April 1, 2010, and prior to April 15, 2010, in order to notify all individuals who may potentially be eligible for the COBRA subsidy, including those who an employer may have incorrectly classified as voluntarily terminated.

A Reminder – Expansion of Assistance Eligible Individuals

Under ARRA, only individuals who experienced a qualifying event that was an employee’s involuntary termination of employment could become AEIs and take advantage of the COBRA premium subsidy. The Temporary Extension Act of 2010 expanded the premium subsidy to include as a qualifying event for purposes of the subsidy, a reduction of hours that occurred at any time on or after September 1, 2008, and is followed by an involuntary termination of employment that occurs on or after March 2, 2010 (and before June 1, 2010). Individuals who experience a qualifying event that falls under this expanded definition and are otherwise eligible AEIs (Reduced Hours AEIs) will be eligible for the COBRA subsidy beginning with the first day of the first period of coverage for which the individual is a Reduced Hours AEI. The Reduced Hours AEI’s maximum continuation coverage period is determined as if the individual had elected COBRA when initially eligible due to the reduction of hours.

Action Items

Plan sponsors and administrators should consider the following immediate action items:

• Notices. Plan administrators should update their COBRA notices and other plan communications to include the extension of the eligibility period to May 31, 2010.
• Assess Prior Terminations. Identify covered employees (and their qualified beneficiaries) who became eligible for COBRA on or after April 1, 2010, and before April 15, 2010, as well as their COBRA elections. Provide an updated COBRA notice to these individuals that includes a description of the extended eligibility period and the special election period. Identify those employees and beneficiaries in the group whose qualifying event is the employee’s involuntary termination of employment and who are eligible for the COBRA subsidy.
• Continue to Monitor Reduced Hours AEIs. Plan administrators should continue to identify any Reduced Hours AEIs, and provide a new notice to them upon involuntary termination. An individual in this group may be eligible for the special election period if, upon a reduction in hours the individual did not elect, or elected and later discontinued, COBRA.
• Stay Tuned. Two separate bills in Congress propose to further extend the COBRA subsidy eligibility period through June 30, 2010, or year end.

COBRA Update, Again…

President Obama recently signed the Hiring Incentives to Restore Employment (HIRE) Act, containing more than $17 Billion in tax credits designed to stimulate employment. The Act also includes $20 Billion for highway and transit infrastructure programs as well. One of the most important provisions for businesses is a tax credit for hiring from the ranks of the unemployed.

Under the Act, when an employer hires a “qualified employee” the employer is excused from paying the normal Social Security match of 6.2% of the wages in 2010. What is a qualified employee you ask? A qualifying employee is one who

• is hired after Feb. 3, 2010 and before Jan. 1, 2011;
• is not hired to replace another employee;
• is not related to the employer;
• and certifies under penalty of perjury that he or she has not been employed for more than 40 hours during the 60-day period ending on the date that employment begins with the new employer.

This incentive can save the employer over $6,000 annually for each qualified employee that is hired. Under certain circumstances, the employer who hires a new employee, and retains their services for 52 weeks, may also be able to receive an additional tax credit available on the 2011 tax return equal to the lesser of $1,000 or 6.2% of the wages paid to an employee for those 52 weeks.

These tax incentives are meant to spur job creation, especially for small businesses who are undecided about whether to begin to ramp up expansion efforts in light of recent economic challenges.

Here is the press release from the Ways & Means Committee Chair describing this bill.

I discussed the importance of properly classifying those in your workplace (i.e., employee or independent contractor) in this older post.

Matthew Nelson of Dinsmore & Shohl writes here that UPS just entered into a $12.8 million settlement in a case dealing with the improper classification of their northern California drivers. He writes that “[t]he drivers claimed they were wrongfully classified as independent contractors rather than regular UPS employees, and as a result, were denied the benefits and protections of, among other things, the Fair Labor Standards Act (“FLSA”). Particularly, the drivers focused on the FLSA’s minimum wage and overtime guarantees.”

The drivers alleged that UPS controlled almost every aspect of the working relationship; including, delivery times for packages, that UPS dictated the drivers’ dispatches, set the prices, and even controlled what the drivers wore. Essentially, the drivers claimed they were such an integral part of UPS’s business, that they could not be said to have any separate or distinct business of their own. The court allowed the case to proceed as a class action, and the group eventually included roughly 2,400 UPS delivery drivers. Mr. Nelson also notes that “UPS denied the allegations, but eventually agreed to settle the case for $12.8 million (the settlement received provisional approval, but must still receive final approval from the court).”

If you are an employer utilizing independent contractors in your business, make sure that the classification is correct and that you aren’t simply postponing liabilities to a later point time.

You must properly classify those in your workplace (employee v. independent contractors)

This month, the EEOC and Sears, Roebuck & Co. entered into a court approved settlement agreement in the amount of $6,200,000.00 entitling the 235 impacted employees to over $26,000 each.  The distribution is being carried out pursuant to the terms of a consent decree approved by Federal District Judge Wayne Anderson on September 29, 2009. You can read the EEOC’s press release here.

In its lawsuit against Sears, the EEOC had alleged that Sears maintained an inflexible workers’ compensation leave exhaustion policy and terminated employees instead of providing them with reasonable accommodations for their disabilities, in violation of the ADA.

This large settlement reminds employers that if employees are out on some form of statutory leave, like the workers’ compensation leave at issue in the Sears matter, and the employee exhausts the leave but is still experiencing a medical condition that qualifies under the ADA or California’s Fair Employment and Housing Act (FEHA), the employer must engage in the “interactive process” to determine if a reasonable accommodation (including a possible extension of the employee’s leave) is available and can be provided to the employee without creating an undue hardship on the employer.  Otherwise, strict application of leave policies that result in the termination of an employee who fails to return to work at the exhaustion of such leave may result in significant liability for the employer.