MAY 2005

I. LEGISLATIVE/REGULATORY UPDATE
Pending Legislation

The Fair and Accurate Credit Transactions Act of 2003

In December 2003, Congress addressed the national concern of individual identity theft by enacting the Fair and Accurate Credit Transactions Act of 2003. The law requires several government agencies to adopt consistent and comparable rules regarding the proper disposal of consumer information and records. The Federal Trade Commissions (“FTC”) has issued a final rule on this topic that could affect virtually all employers.

Beginning June 1, 2005, “[a]ny person who maintains or otherwise possesses consumer information for a business purpose must properly dispose of such information by taking reasonable measures to protect against unauthorized access to or use of the information in connection with is disposal.” Consumer information means “any record about an individual, whether in paper, electronic, or other form, that is a consumer report or is derived from a consumer report.” Consumer information also means a “compilation of such records.” It does not include information “that does not identify individuals, such as aggregate information or blind data.” The meaning of “consumer report” is the same as the term’s meaning under the Fair Credit Reporting Act. “Disposal” includes (1) the discarding or abandoning of consumer information or (2) the sale, donation, or transfer of any medium, including computer equipment, on which consumer information is stored.

Therefore, any employer that performs credit checks on its employees, obtains personal information about its employees from various referral services, or otherwise obtains personal information derived from credit reports must be careful to dispose of the information in a way that protects its sensitivity.

The FTC provides some illustrations to comply with this rule:

1. implementing and monitoring compliance with policies and procedures that require the burning, pulverizing, or shredding of papers containing consumer information so that the information cannot practicably be read or reconstructed;
   
2. implementing and monitoring compliance with policies and procedures that require the destruction or erasure of electronic media containing consumer information so that the information cannot practicably be read or reconstructed; and
   
3. after due diligence, entering into a monitoring compliance contract with another party engaged in the business or record destruction to dispose of material specifically identified as consumer information in a manner consistent with the FTC’s rule.

Employers whose employees’ identities are stolen may be subject to actual damages from their employees, statutory damages of up to $1,000 per employee, civil fines of up to $2,500 per employee, and class-action lawsuits.

To avoid these penalties and fulfill these requirements, employers are advised to institute company-wide procedures for separating print and other media containing consumer information from regular office trash and informing all employees who handle consumer information about the law. Employers should also ensure they are properly disposing of electronic information. Finally, employers should consider investing in a shredder or a disposal service that can destroy these sensitive documents.

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Pending California Legislation

SB 855 (Poochigian) would require a specific notice of intent to sue and permit a brief period of time in which a business could remedy ADA access issues prior to a lawsuit being filed. SB 855 was rejected by the Senate Judiciary Committee.

AB 1700 (Pavley) seeks to restrict confidential settlement agreements when a “public danger” is involved and to create a public right of access to any information related to the alleged danger. AB 1700 passed out of the Assembly Judiciary Committee on a party line vote of 6 3.

AB 1310 (Nunez) would require employers to set forth a very detailed notice process in order to be able to utilize a severance agreement. AB 1310 passed the Assembly Labor and Employment Committee and is now before the full Assembly.

California Division of Labor Standards Enforcement Proposes Additional Modifications to Proposed Meal and Rest Period Regulations

On May 9, 2005, the Division of Labor Standards Enforcement (“DLSE”) proposed additional modifications to the text of the proposed meal and rest period regulations. As you may recall, on December 10, 2004, the DLSE initially proposed its modified meal and rest period regulations as emergency regulations. The DLSE withdrew the emergency regulations on December 20, 2004 and opted instead to introduce permanent regulations using the regular rule making process. As part of this process, the DLSE held three hearings in February and March 2005 and collected comments on the proposed regulations. As a result of these hearings, the DLSE has further modified the proposed regulations.

Notable aspects of the regulations as now modified by the DLSE include:

• The definition of meal period, formerly quite lengthy, now simply refers to a meal period “as provided in Labor Code section 512(a).”
  
• The “work period” definition is clarified to refer to the time period between when the employee starts and stops work for the day, not the time period between when the employee commences work and takes a meal period.
  
• The regulations specifically exempt agricultural workers and certain workers in the baking industry (certain baking industry workers are already exempted under Labor Code section 512(c)).
  
• The proposed new regulations delete the requirement that the employer make the meal period “available” to the employee, but require the employer to affirmatively inform the employee, orally or in writing, of his or her right to take a meal period and afford him or her the opportunity to take it.
  
• The proposed new regulations delete the requirement that the employer post the applicable Industrial Welfare Commission order.
  
• The employer is still required to keep accurate time records of meal periods.
  
• Even if the employer does not inform the employee of the right to take a meal period, the employer may still establish, by a preponderance of the evidence, that a meal period was in fact actually made available to the employee and the employee was in fact actually afforded the opportunity to take the meal period.
  
• The proposed regulations clarify, with charts and examples, that if the work period is more than five hours but not more than six hours, the employer must provide a meal period between the fifth and sixth hour, unless waived.
  
• The proposed regulations also clarify that if the employee’s work period is more than 10 hours but less than 12 hours, the employer must provide a second meal period between the 10th and 12th hour, unless waived (the employee may only waive the second meal period if he or she did not waive the first meal period)
  .
• The proposed regulations specify that an employer cannot retaliate against an employee for exercising his or her right to take a meal period.
  

The proposed regulations place a burden on the employer that the regulations as originally modified did not, i.e., to inform the employee, orally or in writing, of his or her right to take a meal period. If this proposal survives, employers, to ensure compliance, will want to have a written acknowledgment from each employee of their understanding of their right to take a meal period.

The DLSE will accept comments regarding the proposed changes to the regulations between May 10 and May 25, 2005. Written comments must be submitted to the DLSE no later than 5:00 p.m. on May 25.

II. JUDICIAL UPDATE

Transferring a Harasser May Spell Expensive Trouble

In Gober v. Ralphs Grocery Company, Roger Misiolek was the store manager of the Ralphs supermarket in Escondido. While working there in 1995 and 1996, he inappropriately touched employees, made profanity-laced comments, and threw things at store employees. After employees complained about his conduct, he was transferred to the Mission Viejo store, where he acted no better. In 1996, six employees (“the Employees”) sued Ralphs (“the Employer”) for sexual harassment. The Employees received compensatory damage awards totaling $550,000. During trial, the jury awarded a total of $3.3 million in punitive damages against the Employer.

The Employer successfully appealed the ruling regarding the amount of punitive damages, and the matter was sent back to trial. This time, the jury awarded $30 million against the Employer. In response to the Employer’s contention that the punitive damages were too high, however, the court gave the employees the choice of accepting punitive damages in the amount of 15 times their individual compensatory damages award or going to trial on the punitive damages issue yet again. The two employees who received the highest awards accepted the judge’s offer. The four remaining employees refused the offer and appealed the order granting a new trial, while the Employer appealed the entire award against it.

The court of appeal affirmed the trial judge’s decisions remanding the matter back to trial. Importantly, the court of appeal provided some guidance to the trial court regarding the evidence that would be admitted during the retrial. Specifically, the Employees wanted to present evidence demonstrating sexual harassment committed against other employees both before and after the harassment they had experienced. The court of appeal held that evidence of prior episodes of harassment could be presented at the punitive damages portion of the trial to demonstrate that the Employer allowed repeated sexual harassment to occur. The court, however, disapproved on allowing evidence of sexual harassment after the episodes committed against the Employees because it had no bearing on the Employer’s knowledge or conduct at the time the wrongful acts occurred.

The court went on to opine, however, that if during the punitive damages phase the Employer “opens the door” by arguing it “cleaned up its act and learned its lesson,” then later episodes of sexual harassment could be introduced.

FEHA Does Not Protect Unpaid Volunteers

In Mendoza v. Town of Ross, Peter Mendoza (“Mendoza”), served as a volunteer community service officer for the Ross, California police department. When Mendoza’s position was terminated, he sued the town alleging that he was wrongfully dismissed in violation of public policy and contrary to the disability discrimination provisions of the California Fair Employment and Housing Act (“FEHA”). The town moved to dismiss the lawsuit because FEHA covers employees and Mendoza was not an employee. The trial judge agreed, and Mendoza appealed.

The appeals court first concluded that Mendoza had not been “hired” through the town’s formal employment process but rather was appointed to his volunteer position by the police department. The court most significantly relied, however, on the fact that Mendoza received no pay, benefits, or other compensation for his service and therefore was not an “employee” entitled to protection under FEHA.

Mendoza does not leave volunteers who harass or who are the object of harassment with no obligations or remedies at all. The FEHA has been expanded to make an employer responsible for certain acts of harassment committed by volunteers. Additionally, volunteers themselves certainly have rights under other California statutes, such as the Unruh Act.

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.