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OCTOBER 2003 I. LEGISLATIVE/REGULATORY
UPDATE New Law Extends COBRA and Cal-COBRA Coverage Under the federal COBRA law, employees and their dependents who lose health care coverage because their employment was terminated, or for other reasons, and who work for employers with 20 or more employees are generally entitled to a temporary extension of health care benefits. This typically runs up to 18 months, but can be extended to 29 months for certain disabled individuals. California’s own law, known as Cal-COBRA, applies to employers with 2-19 employees, and mirrors many federal COBRA requirements. Last year, Governor Davis signed AB 1401 into law, extending continuation coverage to 36 months for individuals whose Cal-COBRA or COBRA coverage began on or after January 1, 2003. Under COBRA and Cal-COBRA, the period of continued coverage depends upon the type of event that triggered the individual’s loss of employer-provided health benefits. If the “qualifying event” is lost employment or reduced hours, the continuation period is 18 months; if it is a death or divorce, coverage is for 36 months. Under COBRA, health plans may charge up to 102% of the group monthly premium cost for the continuation coverage, or 150% if the individual is eligible for an 11-month disability extension. Cal-COBRA permits plans to charge up to 110%. Under Cal-COBRA, all HMOs and insured health plans must offer individuals who have exhausted their initial 18 months (or 29 months for a disability extension) of COBRA or Cal-COBRA continuation coverage the ability to extend it up to 36 months. To obtain the extended coverage, the individual must notify the carrier in writing no later than 30 days before the end of the initial 18-month (or 29-month) COBRA or Cal-COBRA period. The extended coverage only applies to individuals who begin COBRA or Cal-COBRA coverage on or after January 1, 2003. This means the earliest the new extended coverage would kick in would be July 1, 2004. The new extension is not available to anyone already entitled to 36 months of COBRA or Cal-COBRA coverage (because the qualifying event was death or divorce). Others who cannot receive this extra coverage include those who lost continuation coverage for a reason such as nonpayment and those whose employment was terminated for gross misconduct. Finally, self-insured plans and non-core coverages, such as dental and vision plans, are not subject to the new extension. Although the new law specifically applies to HMOs and insured health plans, and places no new obligations on employers, employers would be prudent to revise their standard COBRA notice to reflect that an extension of coverage to 36 months may be available under Cal-COBRA. Small employers who are covered only by Cal-COBRA should revise their Cal-COBRA notices to include the longer coverage period.
September 12, 2003 was the deadline for legislation to be forwarded to Governor Davis, who had until October 12, 2003 to take action. Before leaving office, Governor Davis signed the following bills into law: AB 226 (Vargas) prohibits an insurer from issuing or delivering a life insurance policy purchased by a California employer that designates the employer as the beneficiary of the policy and that insures the life of a California resident who is the employer’s current or former nonexempt employee. The law provides that such prohibited policies purchased on or after the effective date of the law are void. However, policies purchased prior to the effective date remain in effect until the next premium payment date on or after the date five years from the effective date of the law, but no later than January 1, 2010, at which time they would become void, unless they fall within a specified exception. AB 226 will be codified in Insurance Code sections 10110.1 and 10110.4. AB 223 (Diaz) permits employees to recover from their employers all costs (including attorney’s fees) associated with litigating any appeal of the Department of Labor decision if the employee is “successful” in the appeal. Generally, an employee may pursue claims for unpaid wages with either an administrative complaint (through the Department of Labor, Division of Labor Standards Enforcement), or with a civil lawsuit. If an administrative action is pursued, either party may appeal the decision of the Labor Commissioner to a civil trial court, where the matter will be reheard. If such an appeal is undertaken, and the party seeking review is unsuccessful, the trial court is required to assess costs and reasonable attorneys’ fees against the party who filed the appeal. Prior to the enactment of AB 223, an appealing employee was deemed to be “successful” only if he or she recovered more on appeal than what was awarded by Department of Labor. Under AB 223, however, an employee will be deemed to have been “successful” with respect to his or her appeal if any award is issued by the court (even if such award is less than what was issued by the Department of Labor). SB 796 (Dunn) was also signed into law by Governor Davis. Under existing law, the California Labor and Workforce Development Agency (and its departments, divisions, commissions, etc.) may assess and collect civil penalties against employers for violations of the California Labor Code. SB 796 permits employees bringing civil lawsuits to address such violations to recover a portion of the penalties assessed. Twenty-five percent of the penalties assessed would be provided to the aggrieved employee, with the remainder going to the State. SB 796 also permits the employee to recover all attorneys’ fees and costs incurred in pursuing such penalties. Governor Davis did, however, veto two potentially onerous pieces of legislation. AB 274 (Koretz) sought to create a rebuttable presumption that an employer has retaliated against its employee in any circumstance in which the employer discharges, demotes, suspends, or reduces the hours or pay of an employee within 60 days after the date upon which the employee has made a claim, or engaged in otherwise protected activity, under the California Labor Code. AB 1715 (Korbett), which sought to invalidate pre-employment arbitration agreements with respect to any claim arising under the California Fair Employment and Housing Act, was also vetoed.
The U.S. Senate voted to block a proposal by the Bush Administration to revise the rules governing the overtime provisions of the Fair Labor Standards Act (“FLSA”). The lawmakers voted 54-45 to accept an amendment to an appropriations bill that blocks the Department of Labor from using any funds from the fiscal year 2004 budget to enact the rule changes. In July, the House of Representatives defeated a similar measure by the slim majority of 213-210. Estimates on how the new FLSA rules would affect overtime eligibility vary widely. The appropriations bill must now go to a conference committee of members of the House of Representatives and Senate to hammer out the differences before being sent to the White House to be signed into law. President Bush has vowed to veto legislation that includes any measure that attempts to block the rule changes.
The House of Representatives has voted overwhelmingly to reauthorize the Fair Credit Reporting Act (“FCRA”) and to include a provision in the bill to remove third-party investigations of alleged employee misconduct from the notice and disclosure requirements of the law. The vote for the Fair and Accurate Credit Transaction Act (FACT, H.R. 2622) was 392-30. The House-passed bill would amend Title VI of the FCRA to remove obstacles to workplace investigations created in 1999 when the Federal Trade Commission (“FTC”) issued what has become known as the “Vail Opinion Letter.” The FTC letter, responding to a question posed by Judy Vail, a Portland, Ore., attorney, stated that the notification and disclosure requirements of FCRA applied whenever employers hired third-party organizations to investigate allegations of workplace sexual harassment. The letter severely hampered an employer’s ability to conduct impartial workplace investigations. As passed by the House, FACT would still require employers to provide a summary of a third-party investigator’s findings to an employee once the investigation concludes. A Senate version of the FCRA reauthorization bill could be introduced soon. According to a press spokesperson with the Senate Banking, Housing, and Urban Affairs Committee, members of the committee are currently drafting the legislation, which could include provisions similar to H.R. 2622, given the bill’s bipartisan support in the House.
II. JUDICIAL UPDATE
In Operating Engineers Local 3 v. Johnson, a California court of appeal ruled that an employee injured because a supervisor did not keep her disciplinary matters private may bypass the workers’ compensation system and seek damages in superior court. Bonita Vinsion (“the Employee”) sued Alameda County (“the Employer”) and Sylvia Johnson (“the Supervisor”) for violating her constitutional right of privacy. The Employee alleged that at a managerial meeting, the Supervisor announced the Employee would be reprimanded and directed her to write her own letter of reprimand. The Supervisor then distributed the meeting minutes, with the reprimand action printed in bold, to a larger group of employees. A jury awarded the Employee $10,000.00. The Employer appealed, arguing that workers’ compensation was the Employee’s only remedy. The court of appeal refused to throw out the jury verdict. The court explained that an employee is not limited to the workers’ compensation system if the employer’s conduct is not considered to be a normal risk of the employment relationship. Reprimands are generally a normal employment risk. However, having information about a reprimand intentionally disseminated to other employees with no reason to know exceeds an employee’s normal workplace risks.
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
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