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MARCH 2002 I. LEGISLATIVE/REGULATORY
UPDATE Below are three pending California bills: * AB 1357 (Wiggins): AB 1357 would mandate that California small businesses match state employee rates and benefits in order to be eligible to bid on certain state contracts. This bill would require businesses that perform particular kinds of work for state agencies to pay employees 85% of what the state employer would have to pay state employees for similar work. This bill passed Assembly vote and is now pending in the Senate. * SB 1599 (McLeod): This bill would make it illegal, subject to certain exceptions, for an employer to refuse to select a person for training leading to employment on the basis of that person's age. SB 1599 passed Assembly vote and has been referred to the Senate Judiciary Committee. * SB X3 2 (3d Ex. Session): This bill would make the latest unemployment insurance benefit increase retroactive to September 11, 2001. The most recent benefit increase, resulting from enactment of SB 40, boosted the maximum weekly UI benefit to $330 per week for qualified employees who filed new claims after January 1, 2002. The bill also authorized an increase to $370 in 2003, $410 in 2004, and $450 in 2005. If the bill is enacted, the UI tax on employers may increase. Governor Davis Approves 20% Increase in Workers' Compensation Benefits Legislation increasing workers' compensation benefits was signed by Governor Gray Davis. Maximum benefits for temporarily and permanently disabled workers will go up 20% * from $490 to $602 per week beginning January 1, 2003. The benefits will increase to $728 per week in 2004 and $840 per week in 2005, and annually thereafter based on cost-of-living adjustments in the state's average weekly wage. The legislation allows disabled employees to choose a one-time payment of $10,000 instead of vocational rehabilitation, increases funding to investigate and prosecute employers who do not pay for workers' compensation, and raises other penalties for workers' compensation violations by employers. The bill also expands the definition of first aid to allow employers to pay directly for a wider range of medical costs outside the workers' compensation system and allows employers to require that injured employees be treated for 180 days (instead of 90 days) by the company's physician or designated HMO. Additionally, the bill will offer grants for employers of up to $2,500 to help sustain modified duty programs for injured employees who return to work. However, funds for the grants will not be appropriated until 2004. Due to the impending benefit increases, it is more important than ever for employers to review workers' compensation policies and to compare coverage offered by several different carriers. Moreover, employers should promptly investigate any accidents and correct any workplace hazards. Also, employers should display the mandatory workers' compensation poster in the workplace. New Background Check Requirements An overbroad and ambiguous piece of legislation which passed last year and became effective January 1, 2002, changes what employers must do when conducting background checks on applicants for employment or current employees. AB 655 (Wright) amends and broadens existing requirements under California's Investigative Consumer Reporting Agencies Act (ICRA). General Scope and Coverage ICRA applies to a much broader spectrum of organizations than just credit companies and to a much wider range of reports than simply credit checks. The Act covers all companies doing business in California, including third-party companies (i.e., private investigation agencies and consultants) that generate "investigative consumer reports." Investigative consumer reports are defined as any report on the "character, general reputation, personal characteristics, or mode of living" of an applicant or employee. ICRA's Notice Requirements Once an employer decides to initiate an investigative report regarding an applicant or employee, the applicant or employee must be notified as such in writing within three days. The notice must include:
These amendments to ICRA require employees to provide notice to all applicants and employees even when the report is prepared internally. In addition, ICRA now requires employers to inform employees or applicants that the employer is seeking an investigative consumer report for a promotion, reassignment, or retention decision. ICRA's Disclosure Requirements ICRA now requires employers to provide every applicant and employee with a copy of the investigative report, regardless as to whether such copies are requested. Employers are also required to provide the name and contact information for any third-party company issuing the report. The information must be provided at the time of the meeting or interview with the employee or within seven days of the date the report is received, whichever is earlier. California law previously allowed employers to internally prepare reports without disclosing the results to the employee or the applicant. Now, however, employers are apparently required to provide all applicants and employees with such reports generated by company employees. This requirement holds true regardless of whether the individual requests a copy of the report or whether an adverse action was taken against the individual based on the report. When an investigative consumer report is obtained from an outside agency, the employee or applicant must be provided a copy of the report. When the investigative consumer report is prepared internally, the new amendments appear to require that the information generated by the investigation, not simply a summary, be provided. An employer also must certify to the outside agency that it has made the required disclosures to the applicant or employee and that the employer will comply with the requirement to provide a copy of the report to him or her. The new amendments make clear that ICRA's notice requirements do not apply to reports arising from an investigation "based upon the suspicion of wrongdoing by the subject of the investigation." Thus, employers are not required to give notice to an employee who is the subject of an investigation when he or she is reasonably suspected of harassment. Similarly, an employer does not need to provide notice when it has a "good-faith belief that the employee is engaged in any criminal activity likely to result in a loss to the employer." Penalties for Violations Employers who violate ICRA are subject to substantial liability. Under the amended statute, penalties for non-compliance are attorneys' fees and the greater of $10,000 or actual damages. Additionally, if the employee or applicant can show that the employer was grossly negligent or willful, he or she may be entitled to recover punitive damages. The new more broad sweep of ICRA creates enormous uncertainty and raises many questions, including whether routine reference checks fall under its purview. The only certainty is a significant amount of litigation over the scope and application of the amendments. Until the courts offer some guidance about the scope and impact of ICRA, companies should take great care to ensure the statute's new notice and disclosure obligations are not violated. The application of AB 655 is clearly wider than the initial legislative intent. As such, its sponsor, Assemblyman Wright, has been contacted by numerous employer groups and is gathering information for additional legislation to clarify ICRA's impact. II. JUDICIAL UPDATE California Court to Clarify Applicability of Burlington/Faragher Affirmative Defense The California Supreme Court has agreed to decide if employers that provide certain types of training and policies can still be held liable under California law when their managers sexually harass other employees. The court granted review of Department of Health Services v. Superior Court of Sacramento (2001) 94 Cal.App.4th 14. At issue in the case is an affirmative defense promulgated under Title VII, the federal anti-discrimination law. Under recent federal decisions, employers cannot be liable under Title VII for sexual harassment committed by a supervisor if the employer exercised reasonable care to prevent and correct the harassment and if the plaintiff failed to take advantage of preventative measures provided by the employer. The defense was established in a pair of U.S. Supreme Court rulings * Burlington Industries v. Ellerth (1998) 524 U.S. 742 and Faragher v. City of Boca Raton (1998) 524 U.S. 775. While the defense is valid under federal law, it has been unclear whether it can be used in cases brought under California's Fair Employment and Housing Act. The case involves Theresa McGinnis, a Department of Health Services employee who claimed that her supervisor had sexually harassed her over an extended period of time. The DHS invoked the Burlington/Faragher defense, claiming that it was not liable because it had developed a comprehensive policy and program to combat sexual harassment and because McGinnis failed to avail herself of those measures in a timely manner. The Supreme Court's decision will be a critical ruling for California employers. Employer and Employee Duties and Obligations Under FMLA Considered In Bailey v. Southwest Gas Company (9th Cir. 2002) 275 F.3d 1181, employers' and employees' duties and obligations under the Family and Medical Leave Act (FMLA) were considered. The court held that under FMLA, an employer may request from an employee information about specific medical conditions and medications when the employee raises these issues as justification for failure to comply with the employer's overtime policy. In Bailey, the employee argued that she was taking medication that made her drowsy and interfered with her ability to work overtime under the company's overtime policy. The employee's job required her to work with natural gas and drive long distances at night, and required overtime during busy periods. Her employer recognized the potential of a medical condition compromising job performance and of a FMLA issue. Therefore, the employer requested the employee to obtain information from her doctor as to the specific medical condition and how it affected her ability to work overtime. The employer also eventually asked the employee to have her physician complete a FMLA Certification of Health Care Provider form. The employee never provided a complete certification from her doctor or any information regarding her medical problem. Her physician never addressed whether she could work overtime, whether the medication she took affected her job performance or safety, and whether she had a serious medical condition. The employee refused to provide additional information and was ultimately terminated. The court found that while the employer complied with its duties and responsibilities under FMLA, the employee had "failed to shoulder her burden." According to the court, the employer had both the right and the responsibility under FMLA to inquire further. The court found that the employer was justified in considering the failure to cooperate as insubordination. Bailey discusses the following obligations of employer and employee:
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.
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