APRIL 2002

I. LEGISLATIVE/REGULATORY UPDATE
Pending Legislation

New Law Affects Use of Social Security Numbers

SB168 (Bowen), effective July 1, 2002, prohibits employers from posting or displaying employees' Social Security Numbers ("SSNs"), or printing them on identification cards. The law also prohibits employers from requiring an employee to transmit his or her SSN over the Internet unless the connection is secure or the SSN is encrypted. In addition, if the SSN is used to access information on a website, there must be an additional authentication device such as a password or a personal identification number.

The new law allows businesses to continue to use SSNs as required by state or federal law, and for "internal verification and administrative purposes." It is unclear which uses of SSNs fall under the "administrative purposes" exclusion of the legislation. For example, in a growing number of electronic human resources and payroll systems, employees use SSNs to access and maintain their own personal data. Employers who use the Internet to transmit personnel, benefits, and payroll data also may be affected.

Pending State Legislation

Numerous proposals were submitted before the February 22, 2002 deadline for consideration in this legislative session. Below is a brief synopsis of many of the bills. We will, of course, continue to update you as the bills wind through the Legislature:

* AB 2509 (Goldberg) would grant all local entities permission to establish labor laws, fines, and penalties. State agencies would be prohibited from using the threat of withholding state funding from local government entities that establish local labor standards. The standards may include any legal requirement regarding wages, hours worked, and other conditions of employment as long as they do not conflict with state law.

* AB 2752 (Alquist) would require employers to bear the burden of proving by clear and convincing evidence that they are not guilty of discriminating against an injured worker. Under AB 2752, employees involved directly, indirectly, or as witnesses in workers' compensation or OSHA related complaints will be able to claim discrimination if the employer takes any adverse employment action within six months of the complaint. Violators could face up to $250,000 in fines in addition to possible imprisonment.

* AB 2989 (Assembly Labor Committee) seeks to establish a severance pay entitlement for non-exempt workers when a business with 100 or more employees closes or relocates, and has a severance pay plan for exempt employees. To be eligible, an employee would need to have been with the business for more than three years. The severance pay would be equal to one week of pay for each year of employment. AB 2989 would also grant the Labor Commissioner authority to examine all books and records of the business.

* SB 1538 (Burton) would invalidate compulsory binding arbitration agreements with respect to employment claims covered by the California Fair Employment and Housing Act. This bill has been referred to the Judiciary Committee.

II. JUDICIAL UPDATE

Employer Liable for Injuries to Contractor's Employee

The California Supreme Court recently decided two cases that clarify the civil liability of a hiring company for work-related injuries to an independent contractor's employee. In both cases, the Court ruled that civil damages could be awarded against the hiring company, even though the contractor's exposure is limited to payment of workers' compensation benefits.

In Hooker v. Department of Transportation, the Court ruled that when a hiring company retains control of safety in the work environment and is negligent in exercising that control, the hiring company could be held liable for the worker's injuries if the company's negligence affirmatively contributed to the injuries. In McKown v. Wal-Mart Stores, Inc., the high court stated that when a hiring company provides faulty equipment to a contractor's employee, the hiring company may be liable if the unsafe equipment contributes to the injuries.

When retaining an independent contractor, employers are encouraged to: (1) hire contractors with good safety records; (2) only provide as much control over an independent contractor's services as is absolutely necessary; (3) confirm that any equipment provided to employees or to an independent contractor's employees is in safe working condition; (4) follow safe work practices at employment facilities, and regularly train employees and supervisors on safety; and (5) create and implement an injury and illness prevention program.

U.S. Supreme Court Strikes Down FMLA Regulation

In Ragsdale v. Wolverine Worldwide, Inc., Wolverine Worldwide, Inc. (the "Employer") granted its employee, Tracey Ragsdale (the "Employee"), 30 weeks of medical leave under its leave policy. The Employer held the Employee's job open and maintained her health benefits but did not notify her that 12 weeks of the absence would count against FMLA leave. After the 30 weeks expired, the Employee requested additional leave or permission to work part-time. The Employer refused, and terminated her when she did not return to work. The Employee filed suit, alleging that under the Department of Labor (DOL) regulations, the Employer was required to grant her 12 additional weeks of leave because it had not informed her that the 30-week absence would count against her FMLA entitlement. The Employer argued, in part, that it provided a more generous leave package than the law required. The trial judge and the intermediate appellate court found that the regulation was in conflict with FMLA and therefore was invalid because it required the Employer to grant the Employee more than 12 weeks of FMLA leave in one year. The Supreme Court agreed and invalidated the regulation.

The Court found that the DOL regulation unlawfully punishes an employer's failure to provide timely notice of the FMLA designation by denying the employer any credit for leave granted before the notice. This penalty, the justices reasoned, is unconnected to any harm that the employee might suffer from the employer's lapse. The court found this harsh penalty to be incompatible with FMLA's remedial purpose, and therefore found it to be unlawful. The Court stopped short of holding employers never have to give employees notice of FMLA leave.

The Court refused to rule on the validity of the notice requirement. Rather, the Court found that the penalty, effectively granting the employee an additional 12 weeks of leave, was contrary to the purpose of the FMLA and inconsistent with Congress' intent.

The California Family Rights Act (CFRA) regulations incorporate the FMLA regulations. They also contain similar designation requirements with potentially greater penalties for non-compliance. In response to Ragsdale, employers should review how leave requests are received and evaluated, and confirm that managers recognize FMLA/CFRA leaves. Despite this ruling, employers are still encouraged to comply with the DOL requirements regarding timely notices.

U.S. Supreme Court Restricts Illegal Employee Rights in Employment Cases

In Hoffman Plastic Compounds, Inc. v. NLRB, the justices held that the National Labor Relations Board (NLRB) may not award backpay to an employee who was not legally authorized to work in the United States.

Jose Castro (the "Employee") was hired by Hoffman Plastic Compounds (the "Employer") in May 1988. He and several other employees were laid off by the Employer shortly after they supported a successful union organizing campaign. After the Employee filed unfair labor practice charges against the Employer, an administrative law judge (ALJ) initially ordered that he be reinstated with backpay; however, that order was later overturned when the ALJ discovered that the Employee was a Mexican national who had borrowed a friend's birth certificate to obtain employment.

The NLRB agreed that the Employee should not be reinstated but awarded him backpay for the period between his layoff and the date the Employer discovered his illegal status. The Supreme Court overturned even that limited award, finding that the nation's immigration policy, as expressed by Congress in the Immigration Reform and Control Act, "foreclosed the Board from awarding backpay to an undocumented alien who has never been legally authorized to work in the United States." According to the Court, awarding backpay in such situations would condone prior violations of the immigration laws and encourage future violations.

Marital Status Discrimination is Independent of the Identity of One's Spouse

In Chen v. County of Orange, a California court of appeal dismissed an employee's marital status discrimination claim because she failed to show that the alleged bias was based on her status as a married woman. According to the court, "marital status is independent of the identity of one's spouse"; thus, any discriminatory treatment directed toward the employee because of the unpopularity of her spouse does not violate state law. The ruling supports the proposition that the specific identity or actions of an individual's spouse will not support a discrimination claim õ to be actionable, the alleged illegal act must have stemmed from the fact that the employee is married.

In the case, Victoria Chen (the "Employee") did not obtain a promotion in the Orange County District Attorney's office (the "Employer"). Shortly thereafter, she sued the Employer alleging marital status discrimination, among other claims. According to the Employee, she received unfavorable assignments throughout her employment because she dated and eventually married a high-level management attorney in the same office. The Employee alleged that her husband was not in good graces with the Employer. The court rejected the Employee's claim, holding that while California's Fair Employment and Housing Act prohibits discrimination based upon one's marital status, it does not apply to the situation in which an employee is discriminated against because of the identity of her spouse. Examples of marital status discrimination, the court found, included refusing to hire single mothers because they are not married or granting maternity leave only to married employees.

The case further clarifies the point that in order for an employee to establish a marital status discrimination claim under California law, an employee must prove that the discrimination stems from whether he or she is married, not to whom he or she is married. Employers should review their policies and practices to ensure that unlawful discrimination against either single or married individuals based on their marital status is not occurring.

Court Finds California Employer Violated Implied Contract

In Janes v. Wal-Mart Stores, Inc., the Ninth Circuit Court of Appeals recently upheld a verdict in favor of an employee who claimed he was terminated without good cause. According to the federal appellate court with jurisdiction over California, the jury reasonably found that the employer's reasons for firing the employee were not "fair and honest." This ruling illustrates the importance of requiring employees to acknowledge in writing that they are employed at-will and may be discharged without cause or notice.

In the case, Jeffrey Janes (the "Employee") was employed by Wal-Mart Stores, Inc. (the "Employer") as an assistant warehouse manager in charge of the meat department. He signed an employment application that stated: "I [understand] the company can terminate my employment at any time with or without cause."

Subsequently, the Employee took meat from the Employer's "bone barrel," a receptacle in which expired meat is placed. He and several other employees then took the meat and ate it for lunch. After learning of the Employee's conduct, the Employer terminated his employment for "violation of company policy." The Employer had a strict written dishonesty policy that prohibited employees from taking "anything, large or small."

The Employee sued the Employer, alleging breach of contract. According to the lawsuit, an implied contract had been formed that prevented the Employer from terminating him unless good cause exists. To support his claim that an implied contract superseded the at-will statement in the application, the Employee pointed to the Employer's personnel policies for disciplining employees and other conduct, including a promotion. A jury returned a verdict in his favor and awarded him $167,000 in damages. The Employer appealed.

The appellate court refused to address the issue that the implied contract should not have been considered in light of the provision in the employment application stating that the employment was at-will. The court found that the Employer waived that argument because the company failed to raise it before the trial judge. Thus, the court upheld the finding that an implied agreement to terminate for cause existed. The court upheld the verdict and found "manifest injustice would not result from allowing an employee fired for eating a few pieces of expired meat to keep his jury award."

The ruling reminds employers to carefully review any adverse action taken against an employee to ensure it is warranted. In this case, the Employee claimed that he did not know he was doing anything wrong by taking and eating the expired meat. Although the application with the at-will provision proved to be of little assistance to the Employer in this case, employers should continue to ensure that such language is included in all employment applications and the company's handbook. Employers should also require employees to sign a form acknowledging that they understand the at-will nature of their employment. None of these steps will be successful, however, unless the company protects the at-will relationship after hiring and does not issue policies or make statements that undermine that status.

If you would like to discuss these or any other employment law matters, please do not hesitate to contact any member of Klinedinst's Employment Law Department.