California Court of Appeals Provides Guidance to Employers Regarding Meal and Break Periods
On July 22, 2008, the California Court of Appeals clarified what the obligations are of employers with regard to providing meal and break periods to nonexempt employees. Plaintiffs (restaurant waiters, servers, busboys and cooks) sued a national restaurant chain for not providing their statutory break periods and rest periods. In addition to claiming that they were not allowed any breaks or meal periods, plaintiffs also contended that they were forced to take their meal break at the beginning of their shifts. California law allows employees to take a 30-minute, unpaid meal period for every 5 hours of work. The court held that an employer is required only to “provide” or “make available” meal and break periods to its employees. Prior to this decision, an employer was obligated to not only make such periods available but also to ensure that its employees took their breaks. The court further ruled that an employer must authorize and permit rest periods after four hours of work but that the rest period need not be in the middle of the four-hour work period. Additionally, the court held that an employer may only be liable for “off-the-clock” work if it knew or should have known that its employees were working off-the-clock. Employers should carefully review their handbook provisions regarding meal and break periods and revise them, if necessary, according to this groundbreaking decision.

Brinker v Superior Court, ___Cal.Rptr.3d ___, 2008 WL 2806613 (Cal. App. 4 Dist., July 22, 2008)

Contact for more information: Kristine E. Kwong

Social Security Administration “No-Match” Letters Not Evidence of Undocumented Immigration Status
Employer Aramark received “no-match” letters from the Social Security Administration (SSA) indicating that the information reported by the company for 48 of its employees did not match the SSA’s database of information. Aramark gave the employees in question three days to correct the deficiencies in documentation. It subsequently terminated 33 employees who did not timely comply with that request, suspecting that those employees were in fact undocumented. The employees’ union filed a grievance and later sued, claiming that the terminations were without just cause and in breach of the collective bargaining agreement. The United States Court of Appeals for the Ninth Circuit stated that “no-match” letters themselves and the worker’s failure to provide corrective documentation were not evidence that any particular employees were undocumented workers or that there were any immigration violations. Consequently, the court found these terminations improper. While it is clear that employers should not interpret “no-match” letters as proof of questionable immigration status, it is unclear how similar letters from other government agencies should be read as the court did not address that issue.

Aramark Facility Services v. Service Employees International Union, Local 1877, AFL CIO, 530 F.3d 817 (9th Cir. 2008)

Contact for more information: Fernando A. Vicente

New California Law: Limit on Wage and Hour Releases
Governor Arnold Schwarzenegger recently signed into law AB 2075, which modifies Cal. Lab. Code Section 206.5. The new provision takes effect on January 1, 2009.Section 206.5 currently prohibits an employer from requiring the “execution of a release” of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned unless payment of those wages has been made. Consequently, an employer cannot condition payment of earned wages on an employee’s execution of a release, and an employee cannot waive wages owed by an employer, unless all wages have already been paid. A violation of Section 206.5 will invalidate the release agreement, be deemed a misdemeanor, and may also result in civil ramifications. The new Section 206.5(b) defines a “release.” For the purpose of the amended Section 206.5, “execution of a release” will now prohibit an employer from requiring an employee, as a condition of being paid, to execute a statement of hours that he or she worked during a pay period which the employer knows to be false.Employers should closely review their employee release agreements, time recording documents and processes in light of the soon-to-be-modified Section 206.5.

Contact for more information: Olga Simanovsky

Independent Contractor or Employee? A Case Study
A newspaper publisher, Antelope Valley Press (AVP), required its carriers to sign a contract entitled "Independent Contractor Distribution Agreement." The California State Compensation Insurance Fund classified AVP's newspaper carriers as "employees" for purposes of AVP's workers' compensation policy. The Insurance Commissioner adopted that decision. AVP appealed because of the premium it was assessed for its worker's compensation coverage. As noted in S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341, 350, the "control-of-work" analysis is the most significant consideration in determining the employee-employer relationship. The right to discharge at will without cause is an important indicator of employee status. Under the terms of AVP’s contract with its carriers, that right is clearly given to AVP. Only a 30-day written notice to the carrier is required. Further, the carriers are not the contracting parties best situated to distribute the risk and cost of injury as an expense of doing business. Another indicator of the employee-employer relationship in AVP’s case is that the carriers’ responsibilities include procuring new subscribers, according to their contracts. Persons working in AVP's circulation department, with procurement of new subscribers as one of their tasks are considered "employees" by AVP. Last, the notion of an independent contractor being someone hired for a specific result that is attainable within a reasonably short period of time, such as plumbing work, tax service, construction of an addition to a building, or creating a work of art for a building's lobby, is at odds with the tasks of these carriers, who engage in prolonged service to AVP. The decision from which AVP appealed was affirmed.

Antelope Valley Press v. Steve Poizener, as Insurance Commissioner, 162 Cal. App. 4th 839 (2008)

Contact for more information: Jason J. Kim

California Workers’ Compensation Medical Review Process Clarified
State Compensation Insurance Fund (SCIF) submitted for utilization review (UR) a treatment authorization request from an injured worker's primary treating physician. When SCIF failed to communicate the decision of the UR doctor within the 14-day statutory deadline mandated by Cal. Lab. Code Section 4610, the injured worker requested an expedited hearing. At the hearing, the UR doctor’s report was excluded for being untimely issued. SCIF appealed. The Workers’ Compensation Appeals Board upheld the decision to exclude the UR report, indicating that failure to meet the deadlines meant that SCIF was precluded from using the UR process in Section 4610. However, the Board also held that nothing precluded SCIF from disputing the treatment request by using the dispute resolution procedure set forth in Cal. Lab. Code Section 4062. Both SCIF and the applicant filed a petition for writ of review. The California Supreme Court granted the petition to eliminate any remaining confusion as to what procedures are available to employers when they desire to dispute a medical treatment authorization request submitted by an employee’s treating physician, and whether any such procedure can be used in addition to, or in place of, each other. The Supreme Court concluded that the language of Cal. Lab. Code Sections 4610 and 4062 mandate that: (1) employers must use the utilization review process in Cal. Lab. Code Section 4610 to review and resolve employee requests for treatment; and (2) only an employee, not an employer, may use the provisions of Cal. Lab. Code Section 4062 to resolve a dispute over a treatment request. As a result an employer may no longer “pick and choose” its medical review methods. Instead, it is bound by the utilization review process of Cal. Lab. Code Section 4610. In light of this holding, employers and adjusters need to be aware of, and strictly comply with, the restrictive timelines imposed by Section 4610. Failure to conform with this procedure will leave the employer with no recourse to dispute unnecessary and/or unreasonable treatment, which may result in significant cost increases on these claims.

State Compensation Insurance Fund v. WCAB and Brice Sandhagen, 2008 Cal. LEXIS 7905 (July 3, 2008)

Contact for more information: Carrie L. Dixon

State Supreme Court Strictly Construes Statute Barring Noncompete Agreements
A tax manager with the accounting firm of Arthur Andersen was employed in the firm's tax group. The firm was indicted in 2002. HSBC USA purchased the tax group and asked the tax manager to sign a noncompete agreement preventing him from working for or soliciting clients if he should leave the company. The tax manager refused to sign the document because he believed that it required him to give up indemnity protections already due to him from Arthur Andersen. The employee was terminated for refusing to sign the agreement. He sued Arthur Andersen and HSBC for anti-competitive business practices, alleging a violation of Cal. Bus. & Prof. Code Section 16600, which prohibits contracts that "restrain" trade. Arthur Andersen argued that the term “restrain” in Section 16600 should make illegal only those contracts which totally prohibit employees from their business or profession. Arthur Andersen also argued for the adoption of the Ninth Circuit’s so-called “narrow restraint” exception to Section 16600, which allows for limited employment "restraints." The California Supreme Court rejected both of those arguments and held, 7-0, that noncompetition agreements, even if they are written narrowly, are invalid under 16600 unless they fall within a few limited exceptions. The decision highlights the division between California and states which enforce noncompetition agreements. California employers may still be able to address trade secret concerns with well drafted agreements.

Edwards v. Arthur Andersen LLP, ___ Cal. Rptr. 3d ___, 2008 WL 3083156 (August 7, 2008)

Contact for more information: Clint D. Robison

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.