HOT
EMPLOYMENT ISSUES FOR SOFTWARE COMPANIES
By Stacey McKee Knight & Jeremy Gray
Partners, Katten Muchin Zavis Rosenman
As a parting
shot to California employers, Governor Davis signed a series of
laws expanding employees' rights and creating new challenges for
businesses operating in this State. In addition to the well publicized
legislation that requires California employers to provide their
employees with health care coverage, the outgoing Governor also
armed every employee with a private right of action to enforce
California's Labor Code. Labor Code section 2698 - - the so-called
"bounty hunter" statute - - empowers employees to bring
a civil action on behalf of themselves and all other employees
for any violation of California's wage and hour laws. The best
(and perhaps only) defense to this devastating new weapon is full
compliance with the Labor Code, i.e. even with the comparatively
inconsequential rules governing matters such as posting and pay
stub regulation. The Legislature also created new protections
for employees who report suspected illegal conduct to law enforcement
and mandated reciprocity in benefits to domestic partners. While
an exhaustive discussion of every new California law is beyond
the scope of this article, the following provides a summary of
the most dramatic changes.
It is recommended that your employee handbook be reviewed and
updated, as some of these changes currently impact existing policies.
Failure to update employee handbooks will cause the loss of opportunities
and potential liability for the employer.
Bounty Hunter Law: Before Labor Code section 2699 (effective
January 1, 2004), the bulk of the California's wage and hour laws
were solely enforced by administrative agencies which assessed
and collected civil penalties. Section 2699, which has been dubbed
the "bounty hunter" law, dramatically alters this structure
by permitting "aggrieved employees" to sue on behalf
of themselves and other employees for any violation of California's
Labor Code (with the exception of the recently enacted workers
compensation reform laws) provided a state agency has not already
cited the employer and initiated proceedings to collect applicable
penalties1 The law does not require aggrieved employees
to meet the strict standards that typically govern class certification.
Employees may also recover attorney fees and enhanced penalties.
If the Labor Code does not specify a penalty for a violation,
the law creates a default penalty of $100 for each employee per
pay period for the initial violation and $200 per employee for
each subsequent pay period.2 Unlike other sections
of the Labor Code, Section 2699 does not give Courts discretion
to award less than the full penalty or permit a reduction in fines
if the violation is not willful. Penalties can add up quickly.
For example, if an employer with 40 employees fails to post the
regulations concerning the new PFL law described above, it is
liable for $4,000 (40 X $100) in penalties the first pay period
and $8,000 (40 X $200) in penalties for every subsequent pay period.
The suing employee keeps 25% of the penalties. The law distributes
50% of any award to the General Fund and the remaining 25% to
the Department of Labor and Workforce Development to fund labor
education programs. Given the litigation incentives for employees,
it is critical for employers to consult with employment counsel
and conduct a full scale audit of their compliance with the Labor
Code to reduce the risks of falling prey to this new law.
Employee
Health Care Benefits: The Health Insurance Act of 2003 mandates
that employers provide health insurance to eligible employees
or make contributions to a state entity that will obtain insurance.3
Effective January 1, 2006, employers with 200 or more employees
in the State are required to pay at least 80 percent of the health
insurance premiums for eligible workers and their dependents or
contribute amounts yet to be determined to a state purchasing
agency.4 By the following year, employers with 20 to
199 California employees must provide such insurance benefits
or make payments to the Program, for employees but not their dependents.5
The law allows penalties of up to 200% of the cost of the coverage.6
Employers with between 20 and 49 employees in the state have been
given a reprieve from the new law until the Legislature first
authorizes a tax credit equal to 20% of the employer's net cost
of the fee.7 Only employers with fewer than 20 employees
in California are exempt.8
Although Governor Schwarzenegger has not sought to repeal this
law, its opponents will likely seek a statewide voter referendum
and/or challenge it in court.
Domestic Partner Coverage: The Domestic Partner Rights
and Responsibilities Act requires employers to grant to registered
domestic partners all of the same rights and responsibilities
afforded to married spouses under State law.9 If an
employer offers employer-provided health care coverage to spouses,
it must provide the same benefits to an employee's registered
domestic partner. Similarly, the law expands the prohibition against
discrimination on the basis of "marital status" in the
Fair Employment & Housing Act10 to include domestic
partners. Although the bill is designed to provide reciprocity
to registered domestic partners, in some situations, it provides
greater benefits than are available to spouses. For example, if
an employee takes a leave under the California Family Rights Act
(CFRA) to care for a domestic partner with a serious health condition,
the employer is not entitled to concurrently designate the leave
under the FMLA because domestic partners are not permitted leave
under the federal law. As a result, an employee could potentially
take 12 workweeks of CFRA11 leave to care for a domestic
partner and still be eligible to take 12 additional weeks of FMLA
leave.
Paid Family Leave: Effective July 1, 2004, the "paid
family leave" ("PFL") act provides up to six weeks
of wage replacement benefits to employees who take time off to
care for a seriously ill child, spouse, parent or domestic partner
or to bond with a new child.12 For now, the law is
funded entirely through employee contributions to State Disability
Insurance ("SDI").
Although eligible employees may not begin recovering until after
July 1, 2004, the PFL imposes certain obligations on employers
effective January 1, 2004. First, employers must provide all new
employees with a brochure on PFL. Second, employers must provide
the brochure to all employees who leave work on or after July
1, 2004, for a PFL qualifying leave. Finally, employers must display
a new poster describing the PFL program. The brochure and poster
are available at www.edd.ca.gov.
Employers should consult employment counsel when determining whether
an employee who is receiving PFL benefits is entitled to reinstatement
rights to avoid a wrongful termination and/or retaliation claim.
The new law does not address the "right" of an employee
to take a leave, and/or be reinstated. Such rights remain the
province of the FMLA, CFRA and/or Pregnancy Disability Leave Law.
The PFL merely provide for wage-replacement benefits.
Employers who wish to require their employees to use their accrued
vacation time must provide notice to their employees of the requirement
in an employee handbook or similar document. The law does not
allow employers to require employees to use sick leave. We suggest
an immediate review and update of employee handbooks to address
the PFL/vacation issue.
Whistle-Blower Protection: In the wake of Enron, Worldcom
and other corporate scandals, the Legislature amended the Labor
Code to increase protection for employees who blow the whistle
on their employers to state or federal agencies. The employees
need only reasonably believe that their employer violated the
law. The law also adds protection to employees who refuse to participate
in an activity the employee believes is unlawful. Employers charged
with retaliation under this statute must prove by "clear
and convincing" evidence that any adverse employment action
was taken for a legitimate reasons. The law directs the California
Attorney General to establish a "whistleblower hotline."
Employers must post a list of employee rights and responsibilities
under the statute, including the telephone number of the whistleblower
hotline, (800) 952-5225.
For more information contact:
Stacey McKee
Knight or Jeremy Gray
Katten Muchin Zavis Rosenman
2029 Century Park East, Suite 2600
Los Angeles, California 90067
Telephone: (310) 788-4400
Facsimile: (310) 788-4471
stacey.knight@kmzr.com
jeremy.gray@kmzr.com
1. Cal. Lab.
Code § 2699(g).
2. Cal. Lab. Code § 2699(e).
3. Cal. Lab. Code §§ 2120 et seq.
4. Cal. Lab. Code §§ 2120.1(a), 2122.3, 2140, et seq.
5. Cal. Lab. Code §§ 2120.1(b), 2122.4, 2140 et seq.
6. Cal. Lab. Code § 2140.8.
7. Cal. Lab. Code § 2120.1(b).
8. Cal. Lab. Code §§ 2120.1, 2122.5.
9. Cal. Fam. Code 297.5(a).
10. Cal. Gov't Code § 12940.
11. Cal. Gov't Code §§ 12945.1-12945.2.
12. Cal. Unemp. Ins. Code § 3301(a)(1).
