OCTOBER 2002

I. LEGISLATIVE/REGULATORY UPDATE
Pending Legislation

California Becomes First State With Paid Family & Medical Leave

Governor Gray Davis signed SB 1661 (Kuehl) - a law that makes California the first state to offer employees paid family and medical leave. SB 1661 provides up to six weeks of family temporary disability insurance ("FTDI") benefits in a 12-month period for employees who take leave to care for a sick child, spouse, parent, or domestic partner with a serious health condition, or to bond with a new child. Employees will be eligible to receive 55% of their wages during their absence, up to a maximum of $728 a week. The maximum will be adjusted annually. The new benefit will be funded by a payroll tax on employees. FTDI will be administered through California's unemployment compensation disability insurance program.

The bill originally called for employers and employees to share the costs. Under the final version of the law, employees will be permitted to start taking time off as of July 1, 2004, although mandatory employee contributions will begin on January 1, 2004. The payroll deductions will average about $27 a year and range up to $70 a year for those earning more than $72,000 annually.

The law includes critical limitations:

There is a seven day waiting period before an employee may qualify to receive benefits;

The employee must produce a medical certification;

The employee is not eligible for benefits if he or she is receiving unemployment or other disability benefits;

The employee is not eligible for benefits for any day that another family member is able and available to care for the ill or injured family member; and

Employers may require an employee to utilize up to two weeks of earned but unused vacation leave prior to receiving any FTDI benefits.

Importantly, the FTDI program does not provide a right to family or medical leave or job protection for an employee who qualifies for benefits. Rather, employees' leave rights continue to be governed by existing state and federal family and medical leave laws (i.e., FMLA, CFRA, PDL).

Similar to disability insurance contributions, employers will be responsible for processing employee contributions under FTDI. Additionally, employers will likely encounter more employees seeking leave for longer time periods, and may have increased costs associated with hiring and training temporary replacement employees.

Governor Davis Signs Bill Revising California's Law Regarding Background Checks

Last year, California passed the Investigative Consumer Reporting Agencies Act ("ICRAA"). ICRAA set out a number of confusing requirements for employers who conduct background or reference checks on applicants or employees. Two bills - AB 1068 (Wright) and AB 2868 (Wright) - signed by Governor Davis on September 28, 2002 clarify some of these requirements.

ICRAA required any person who collected a consumer's information, without the aid of an agency, to provide that information to the consumer (i.e., the employee). Employers thus wondered whether they must share the results of their own background and reference checks with applicants. Employers also questioned whether they had to share the results of internal investigations into employee misconduct with the employees involved. Under the new law:

An employer conducting reference checks without the help of an outside agency need not comply with ICRAA.

An employer conducting background checks without the help of an outside agency generally need not comply with ICRAA, unless the information collected is a matter of public record (such as a criminal record).

An employer conducting an internal investigation need not comply with ICRAA. Employers should note, however, that: (1) they remain obligated to comply with the Labor Code, which provides employees with a right to review their personnel files, and (2) federal and state law is unclear as to whether an employer conducting an investigation through an outside agency must give a copy of the investigation to the employee involved.

An employer using an agency to conduct background or reference checks must comply with ICRAA. Although ICRAA previously mandated that employers who obtain an investigative consumer report provide the applicant or employee with a copy of the report, the new law requires only that employers provide the applicant or employee with a means (such as a "check box") to request a copy.

Notice of Mass Layoff, Relocation, and Termination

On September 21, 2002, Governor Davis signed AB 2957 (Koretz), California's own version of the federal Worker Adjustment and Retraining Notification Act (the "WARN Act"). This new law requires covered employers to provide 60 days' written notice of any mass layoff, relocation, or termination of industrial or commercial operations to all affected employees, the Employment Development Department, the local workforce investment board, and the chief elected official of each city and county affected by the event. Employers that fail to provide the required notice may be liable for back pay, benefits, penalties, attorneys' fees and court costs. This law takes effect on January 1, 2003.

Since 1988, the WARN Act has required employers with 100 or more employees to provide written notice 60 days in advance of any covered "plant closing" or "mass layoff." The new California law generally tracks the WARN Act, but has a number of significant differences. California's law applies to any industrial or commercial facility that employs, or has employed, 75 or more persons within the 12 months preceding the layoff. By contrast, the WARN Act only covers employers with 100 or more "full-time employees." Under the new law, notice of a layoff is required whenever an employer lays off 50 or more employees at single work site. Under the WARN Act, notice of a layoff is only required if the layoff of 50 or more affects more than one-third of the employees at the single work site. In determining both coverage under the law and whether a covered event has occurred, the California law does not exclude employees with part-time schedules, whereas the WARN Act excludes employees who work less than 20 hours per week. Both laws exclude employees employed for fewer than six of the 12 months preceding the time in which notice is required.

Information required in the California notice is the same as that required by the WARN Act. Like the WARN Act, the new state law also provides for aggregating separate layoffs occurring within any 30-day period. Finally, like the WARN Act, the new law provides only very limited exceptions, and provides for damages plus attorneys' fees awards to employees who are not given the required notice.

The new California law will affect more employers and more layoffs than those already covered under the WARN Act. There are also subtle differences now between state and federal law which will require a careful analysis of any contemplated workforce reduction. Because proper notice is critical to avoid costly violations, it will be important to seek legal advice in advance of planning a layoff, relocation, or termination.

New Statute of Limitations

Governor Davis also signed SB 688 which, while not directly impacting employment issues, should be of interest to many California employers. Under this new law, employees bringing claims falling under the "personal injury" statute of limitations will have two years, instead of one year, to assert a claim. This means that claims for wrongful termination in violation of public policy, intentional and negligent infliction of emotional distress, and defamation will now be subject to a longer statute of limitations. SB 688 will take effect January 1, 2003.

Other New Laws

In September, Governor Davis signed a number of other bills which will impact California employers. The new laws include:

AB 1599 (Negrete-McLeod): This law will expand the age discrimination provisions of the California Fair Employment and Housing Act to apply to employee training and benefits programs.

SB 1471 (Diaz): This law makes illegal (as a per se violation of the statute) any employer policy that provides for discipline against an employee who uses sick leave to attend to an illness of a child, parent, spouse, or domestic partner.

AB 2509 (Goldberg): AB 2509 will permit local governments to enforce their own labor standards (i.e., living wage ordinances) on state-funded economic development projects.

AB 1146 (Chan): This law will toll the limitations period within which a civil action must be filed in situations where the California Department of Fair Employment and Housing ("DFEH") has deferred its investigation of a complaint to the United States Equal Employment Opportunity Commission ("EEOC") or when, after an investigation by the DFEH, the EEOC agrees to review the DFEH determination or conducts its own investigation.

AB 2195 (Corbett): AB 2195 prohibits discharging or discriminating against an employee for certain activities relating to attending court or seeking assistance on account of being a victim of sexual assault. This law will also permit victims of sexual assault to use paid or unpaid leave to attend such activities.

II. JUDICIAL UPDATE

Vegans Cannot Claim Religious Discrimination

In the nation's first known ruling on the issue, an appeals court in Los Angeles has ruled that vegans cannot sue for religious discrimination under California's Fair Employment and Housing Act.

In Friedman v. Southern California Permanente Medical Group, computer programmer Jerold Friedman ("the Employee") had claimed that he was denied a job for refusing a mumps vaccine that was grown in chicken embryos. Accepting the vaccine, he said, would have violated his religious belief that all animal species are equal and deserve equal treatment.

The court of appeal rejected the Employee's argument and held that veganism is a moral philosophical practice, not a religion. In a ruling that surveyed decades of past cases on religious issues, the court concluded that a religious creed must address "fundamental and ultimate questions having to do with deep and imponderable matters." The court determined that veganism does not meet the test. "There is no apparent spiritual or otherworldly component to [the Employee's] beliefs," the court held. The court further opined that the Employee's beliefs do not address "the meaning of human existence; the purpose of life; theories of humankind's nature or its place in the universe; matters of human life and death, or the exercise of faith."

The court highlighted the absence of religious ceremonies, teachers or leaders, holidays, and other conventions as further evidence that the Employee's veganism is "a moral and secular, rather than religious, philosophy." The Employee plans to appeal to California's Supreme Court.

California Court Rejects the Inevitable Disclosure Doctrine

Because California law generally does not enforce non-compete agreements, employers have tried to prevent former employees from working for competitors by arguing that such employment would cause the employee to inevitably disclose trade secrets. Recently, a California appellate court soundly rejected the inevitable disclosure doctrine. Notably, the court expressly acknowledged that employers have other means available for protecting trade secrets.

Schlage Lock Company used the inevitable disclosure doctrine to seek an injunction preventing its former vice president of sales from working in a similar position for a competitor. In denying the injunction, the appellate court rejected the inevitable disclosure doctrine, reasoning that it is counter to California's strong public policy of favoring employee mobility. The court further opined that the doctrine unfairly alters the employment relationship because it binds the employee by a court-imposed contract not to compete with no opportunity to negotiate terms. The court also emphasized that the doctrine of inevitable disclosure is not needed because California law protects trade secrets by allowing agreements that prohibit the solicitation of the former employer's customers.

This ruling is not helpful for employers who had hoped to use the doctrine of inevitable disclosure to prevent key employees from competing. However, the court emphasized that employers can take some significant steps to preserve the confidentiality of trade secrets. These steps include: carefully maintaining the secrecy of any trade secret information and not commingling it with non-secret information; requiring employees to sign confidentiality agreements; entering into well-designed agreements that prohibit the solicitation of customers and employees. Such agreements must be "narrowly drafted for the purpose of protecting trade secrets."

In light of Schlage Lock Co. v. White, employers should evaluate their employment agreements to ensure that the agreements include properly written clauses that provide them the best possible protection against any use or disclosure of trade secrets.

This year has already resulted in several new laws and cases which will have a significant impact on California employers in the years to come. All new laws and trends will be reviewed in our annual Employment Law Symposium on January 16, 2003. Additional details and registration information are available by clicking here.

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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