As the Market Goes Down, Layoffs Go Up

As the market continues to be volatile, more and more California employees are facing actual and potential layoffs (for example, on Friday, the San Francisco law firm of Heller Ehrman laid off more than 100 employees). Here’s what employees and employers alike need to know about the legal rights and obligations associated with layoffs:

When Final Wages and Benefits Are Due

Under California law, if an employee is laid off without a definite return-to-work date that is in the same pay period as the last day worked, the employee must be paid all wages and benefits due on the day that they are laid off. This includes earned but unused vacation benefits, earned bonuses and commissions, expense reimbursements, and most other earned deferred compensation. Payment of final wages and benefits to laid-off employees cannot be delayed to coincide with the regular payroll schedule. Employees who do not receive all wages and benefits on their last day of work are entitled to “waiting time penalties” in the amount of one day’s wages for each day that payment is delayed, up to a cap of thirty days. This applies to all employees and employers in California, regardless of the size of the company.

California’s “Baby” WARN Act

Companies that have employed 75 or more persons in the preceding 12 months also have legal obligations under the California “Baby” WARN Act (the analogous state law to the Federal Worker Adjustment and Retraining Notification Act) for “mass layoffs.” A mass layoff is a layoff involving 50 or more employees during a 30-day period due to cessation of work, relocation and transfer of work, and closures.

Generally, employers must give laid-off employees 60-days notice of the impending layoff, as well as provide notice to the California Employment Development Department (EDD). Failure to provide the required notice results in back-pay liability to employees during the violation period, as well as civil penalties. Employees are authorized to bring civil actions for enforcement of the WARN Act requirements, and can recover attorneys fees and costs paid to bring suit.

Unemployment Insurance Benefits

Unless an employee is terminated for “gross misconduct,” he or she is entitled to Unemployment Insurance (UI) benefits for up to eighteen months following termination (or layoff). UI benefits can be applied for online through the EDD here.

COBRA and Retirement Benefits

Employers who provide group health coverage to their employees must provide notice of COBRA rights to laid-off employees, as well as notification of the employee’s status to the health plan administrator within 30 days of the layoff. It is also good practice for employers to provide laid-off employees with information about their retirement benefit plans.

Employees should be mindful to review their deferred compensation plans, such as employee stock ownership plans (ESOPs) to make certain they understand how and when the compensation can be liquidated.

Employees Continue to Get the Shaft in GOP’s “Ownership Society”

In his speech last night, accepting the DNC nomination for the presidency, Barak Obama highlighted a constant refrain of the Bush GOP over the last eight years regarding the “ownership society”…

"For over two decades, [McCain has] subscribed to that old, discredited Republican philosophy: Give more and more to those with the most and hope that prosperity trickles down to everyone else. In Washington, they call this the 'ownership society,' but what it really means is 'you're on your own’. Well, it's time for them to own their failure.” (source)

The heart of the “ownership society” philosophy is that Americans need greater ownership – literally, not figuratively – in health care, home ownership, and retirement assets. (source). Many have attributed the current subprime mortgage crisis, in significant part, to the flawed rationale of encouraging “ownership” at any cost, and without an economic infrastructure that supports it. (source).

Another failure of the “ownership society” philosophy is highlighted today in a New York Times article, which reported that employees of Fannie Mae and Freddie Mac, the mortgage monoliths at the center of the subprime meltdown, have lost nearly $100 million in compensation assets paid out in Employee Stock Ownership Plans (ESOPs). The Times reports that at the end of 2006, Fannie Mae/Freddy Mac employees owned $116M in company stock. Today, the value of that investment is roughly $17.5M.

ESOPs have been a popular trend under the Bush administration, allowing companies to appear to offer rich compensation packages to employees while not having to actually reach into their pockets to pay employees more, and while reaping major tax benefits extended under the Republican tax scheme. Many employees, such as those at Fannie Mae/Freddy Mac, don’t read the fine print on these “benefit” packages, which frequently limit the employees’ ability to diversify their investments until retirement. Like their colleagues at Enron and WorldCom, Fannie Mae/Freddie Mac employees are learning that investing in one’s company also means that you’re investing in the political policies that impact the economy as a whole – and the political leaders who set those policies.

Signing an Arbitration Agreement Can Shorten Statute of Limitations for Employment Claims

More and more employers are requiring their employees to sign arbitration agreements as a condition of new or continued employment. The main advantage for employers is the gamble that an arbitrator is less likely to impose big punitive or emotional distress damages than a jury. In a decision issued on August 21, 2008, the California Court of Appeal issued a decision that highlights another advantage – a shortened statute of limitations period for employees to bring their claims.

In Pearson Dental Supplies, Inc. v. Superior Court (Turcios), the plaintiff employee (Turcios) brought a race discrimination suit against his employer, Pearson, under the California Fair Employment and Housing Act (FEHA). A year into his employment, Pearson asked Turcios to sign a “Dispute Resolution Agreement” which provided that all employment disputes would be submitted to binding arbitration, and that Mr. Turcios must raise any claims he has within one year of the adverse employment action. In 2006, Pearson terminated Turcios and he filed filed a civil suit. The employer filed a motion to compel arbitration, which was granted. The arbitrator then found that Turcios had not timely filed a petition to arbitrate (having instead filed a civil suit), and therefore his claims were time barred. Turcios asked the trial court to vacate the arbitrator’s ruling, arguing among other things, that the limitations shortening provision of the arbitration agreement is unenforceable. The trial court agreed.

Overturning the trial court, the Court of Appeals held that the arbitration agreement’s shortening of the time to bring the plaintiff’s claim is enforceable.

This decision comes on the heels of a string of litigation in California regarding arbitration agreements.

*In February of this year, in Metters v. Ralph’s Grocery Co. (2008) 161 Cal. App. 4th 696, the California appellate court held that a purported arbitration agreement is unenforceable where the agreement does not present as a contract, references policies not recited in the document signed by the employee, and is saturated with incomprehensible legalese.

*Mitri v. Arnel Management Co. (2007) 157 Cal. App. 4th 1164, held that an arbitration provision contained in an employee handbook is not enforceable as an agreement to arbitrate.

*Gentry v. Superior Court (Circuit City) (2006) 42 Cal. 4th 443, held that class action waivers in arbitration agreements are not enforceable if the court determines that the claims can best be adjudicated in a class arbitration.

Although it is tempting to read Pearson as a victory for employers, businesses should keep in mind that the whatever money they may think they’re saving by requiring arbitration can easily be spent litigating the enforceability of the agreement itself, and can often end in a ruling that the agreement fails to meet minimum due process standards. Arbitration agreements must be carefully drafted, and must be presented to employees in a manner that fully permits the employee to appreciate the gravity of what they are agreeing to.

Federal Government Doesn’t Want Transgendered Employee to Help Fight War on Terror

Trial concluded this morning in Shroer v. Billington (Library of Congress), a case that considers whether or not a transgendered job applicant is covered by federal antidiscrimination laws.

After more than 25 years as an Airborne Ranger with Special Forces training, after having served in combat operations in Panama, Haiti and Rwanda, and after having spent years advising top U.S. officials – including Vice-President Cheney – regarding terrorism issues, David Schroer was denied a terrorism specialist position with the Library of Congress because he had decided to finally make the change and live his (now her) life as Diane Schroer. Upon learning of Schroer’s impending switch, the Library rescinded its previous job offer, stating that “for the good of the service” Diane would not be a “good fit.” (source)

Schroer brought claims under Title VII, alleging that she was discriminated against based on her sex. Specifically she claims that (1) the decision to rescind her job offer was unlawful “sexual stereotyping” and (2) that Title VII’s prohibition of sex discrimination prohibits discrimination against transsexuals as transsexuals. The Department of Justice, defending the Library, contends that Title VII doesn’t protect Diane because gender-identity discrimination is not covered by the statute. Judge Robertson denied the DOJ’s multiple motions for summary judgment, noting that the definition of “sex” under the Civil Rights Act is broader than just chromosomal make-up, and extends to social, cultural and identity elements. (source)

Following the bench trial, which has been submitted to the court for a ruling, the court will determine whether or not the Library considered Schroer’s “failure to conform to masculinity stereotypes” in rescinding her job offer. In addition, the court will determine whether or not the “legitimate business reasons” offered by the Library were, in fact, legitimate.

The “legitimate business reasons” offered by the Library – that Schroer’s military and intelligence contacts will not be valuable once she completes the male-to-female sexual reassignment, and that military and government contacts will be reluctant to deal with Schroer – highlight the existence and insidiousness of the discrimination at issue in the case. Essentially, the Library contends that the fear of other people’s prejudice absolves the government from having to act in a non-discriminatory manner.

A video of Diane Schroer discussing her military background and her case can be found on the ACLU’s website (here).

Appellate Court Lets Employers Off Easy For Meal & Rest Periods, Off-The-Clock Work

On July 22nd the Fourth Appellate District issued its revised opinion in Brinker Restaurant Corp. v. Superior Court (Hohnbaum, et al) (2008) __ Cal.App.4th __. The Court's holding marks a victory for employers and trade associations, who have been working tirelessly to have the state's meal and rest period requirements relaxed. In essence, the decision places the burden on employees to assert their right to meal and rest periods.

More importantly, the decision threatens to make the class action form virtually unavailable for adjudicating meal and rest period claims by requiring courts to ask why each meal and rest period is missed. Unless a class of employees are subjected to a uniform policy or practice prohibiting them from taking meal and rest periods, the decision implies that the need for individualized inquiry is assured.

After giving cursory note to the idea that California's wage and hour laws should be "liberally construed" with an eye to the remedial purpose of the Labor Code, and after noting that the meal and rest period requirements of the Code have a long history in California, the Court nonetheless finds:

With these principles in mind, we conclude the class certification order is erroneous and must be vacated because the court failed to properly consider the elements of plaintiffs' claims in determining if they were susceptible to class treatment. Specifically, we conclude that (1) while employers cannot impede, discourage or dissuade employees from taking rest periods, they need only provide, not ensure, rest periods are taken; (2) employers need only authorize and permit rest periods every four hours or major fraction thereof and they need not, where impracticable, be in the middle of each work period; (3) employers are not required to provide a meal period for every five consecutive hours worked; (4) while employers cannot impede, discourage or dissuade employees from taking meal periods, they need only provide them and not ensure they are taken; and (5) while employers cannot coerce, require or compel employees to work off the clock, they can only be held liable for employees working off the clock if they knew or should have known they were doing so. We further conclude that because the rest and meal breaks need only be "made available" and not "ensured," individual issues predominate and, based upon the evidence presented to the trial court, they are not amenable to class treatment. Finally, we conclude the off-the-clock claims are also not amenable to class treatment as individual issues predominate on the issue of whether Brinker forced employees to work off the clock, whether Brinker changed time records, and whether Brinker knew or should have known employees were working off the clock.

The decision similarly finds that plaintiffs' off the clock claims require an individualized inquiry, as plaintiffs must show not only that time was worked off the clock, but also that employers had actual or constructive knowledge that the time was being worked. While employer actual or constructive knowledge of off the clock work is not a new requirement in order to establish liability, the decision goes further in suggesting that it is necessary to ask why the off the clock time is being worked:

Plaintiffs propose to prove class-wide violations by Brinker by submitting declarations, statistical evidence and survey evidence showing the number of times employees worked during a meal period and the number of times changes were made to time cards. However, they do not submit evidence showing, on a class-wide basis, the reason why they worked off the clock.

Other language in the decision suggests that employees who work off the clock "by their own choice" even with their employer's knowledge are not entitled to recover for the time worked. If interpreted narrowly, this would mean that non-exempt employees who "choose" to work off the clock are not entitled to compensation for that time. Given that employers are becoming increasingly clever about the kinds of subtle and indirect productivity pressures placed on employees, this kind of interpretation could provide employers with even greater opportunities to exploit their workforces without consequence.

While the decision, already transferred by the Supreme Court back to the Court of Appeal may be a good candidate for cert to the Supreme Court, it will nonetheless disrupt ongoing litigation and impede new lawsuits for some time to come.