Employment Law Observer

Insight & Commentary on Employment & Agency Issues

Barger & Wolen and Hinshaw & Culbertson Announce Merger

Posted in News

Combined Firms Create Powerhouse Insurance Practice with 120 Attorneys Dedicated to Serving the Insurance Industry


Chicago and Los Angeles — September 2, 2014 — Barger & Wolen and Hinshaw & Culberston, a national law firm with 460 lawyers in 22 offices around the country, announced today they will combine forces. The merger creates one of the largest insurance law practices in the United States with 120 full-time attorneys dedicated to providing legal counsel to insurance companies and financial services firms that shape the insurance industry.

The partner votes took place on August 28, 2014, and the merger will become effective on October 1, 2014. The combined firm will keep the name Hinshaw & Culbertson and have over 500 attorneys in 11 states as well as London.

Click here for the full press release. For more information, contact Heather Morse.



Hold the cellphone! Who pays if it’s work?

Posted in California Court of Appeal, Media Mention

In an August 19, 2014, Daily Journal article, Hold the cellphone! Who pays if it’s work?, Michael Newman writes about a recent California appellate opinion providing employers insight into how they should reimburse employees for work calls make on private cell phone lines.  Newman notes, however, that while on the surface Cochran v. Schwan’s Home Service Inc. provides a definitive rule, in reality it provides little guidance as to how employers should comply with it.

Cochran focuses in on California Labor Code 2802 which requires employers to indemnify employees for “all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer.”

The Second District Court of Appeal, interpreting this statute, held that “when employees must use their personal cell phones for work-related calls,” the law “requires an employer to reimburse them.”

The court went on to hold that even if the employee incurs no additional expense due to his or her work-related calls, the employer is still required to reimburse the employee. “Otherwise,” the court reasoned, “the employer would receive a windfall because it would be passing its operating expenses onto the employee.”

But if the employee has incurred no additional expense, what proportion of the phone bill must the employer cover? Here is where the seemingly bright line rule becomes very murky: “[T]he employer must pay some reasonable percentage of the employee’s cell phone bill.”

According to Newman, such a standard provides little help to the employers, and unfortunately there are few options guaranteed to eliminate the risk that an employer will inadvertently violate the law. He does have some suggestions:

  • The most risk-averse option, but also the most extreme, is for employers to offer to pay the entirety of the phone bills of their employees who use personal cellphones for work, or else to supply cellphones to their employees. If the standard is “some reasonable percentage,” it would be hard to dispute that paying all of the bill will exceed this standard. However, most employers will likely shy away from this option.
  • A more moderate response would be for employers to pay some large percentage of such bills. Again, the aim would be to clearly exceed “some reasonable percentage,” providing a comfortable cushion. Naturally, the smaller this percentage becomes, the greater the chance that some court or jury will find it not to be “reasonable.” But the advantage of such an approach would be to reduce the paperwork associated with reimbursement.
  • Another possible option would be for the employee to submit periodic proof of the total amount of each phone bill, together with proof as to the proportion of time that was spent on work calls as opposed to non-work calls. The employer would then pay the proportion of the total bill matching this ratio. It should be noted, however, that under the reasoning of Cochran, it does not matter whether the employee actually paid the bill or not. The employer is likely on the hook for the “reasonable percentage” either way.

If you would like more information on the Cochran decision, or how you can implement a cellphone reimbursement policy for your company, please contact Michael Newman.

Must Employers Reimburse Employees For Work Calls On Private Cell Phones?

Posted in California Court of Appeal, Case Updates, Class Actions

In Cochran v. Schwan’s Home Service, Inc., the California Court of Appeal for the Second Appellate District dealt with the question of whether employers are required to reimburse employees for work-related calls made on their personal cell phones.

Cochran involved a putative class action against Home Service on behalf of customer service managers who were not reimbursed for expenses pertaining to the work-related use of their personal cell phones. They claimed that they were entitled to such reimbursement under Labor Code 2802(a), which provides:

An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.

The trial court denied class certification, basing its ruling on the assumption that an employee does not suffer an expenditure loss if his or her cell phone chargers were paid for by a third person, or if the employee did not purchase a different cell phone plan because of cell phone usage at work. In addition, the trial court assumed that liability could not be determined without an inquiry into the specifics of each class members’ cell phone plan.

The Court of Appeal ruled that this reasoning was erroneous:

Does an employer always have to reimburse an employee for the reasonable expense of the mandatory use of a personal cell phone, or is the reimbursement obligation limited to the situation in which the employee incurred an extra expense that he or she would not have otherwise incurred absent the job? The answer is that reimbursement is always required. Otherwise, the employer would receive a windfall because it would be passing its operating expenses onto the employee. Thus, to be in compliance with [Labor Code] section 2802, the employer must pay some reasonable percentage of the employee’s cell phone bill. Because of the differences in cell phone plans and worked-related scenarios, the calculation of reimbursement must be left to the trial court and parties in each particular case.

As the Court reasoned, if an employee is required to make work-related calls on a personal cell phone, then he or she is incurring an expense that must be reimbursed by an employer under section 2802. It does not matter whether the phone bill is paid by a third person, or at all:

In other words, it is no concern to the employer that the employee may pass on the expense to a family member or friend, or to a carrier that has to then write off a loss. It is irrelevant whether the employee changed plans to accommodate worked-related cell phone usage. Also, the details of the employee’s cell phone plan do not factor into the liability analysis. Not only does our interpretation prevent employers from passing on operating expenses, it also prevents them from digging into the private lives of their employees to unearth how they handle their finances vis-à-vis family, friends and creditors. To show liability under section 2802, an employee need only show that he or she was required to use a personal cell phone to make work-related calls, and he or she was not reimbursed.

In short, employers must reimburse employees for “some reasonable percentage” of the employee cell phone bill if the employee uses that personal cell phone for work calls.  Of course, the court did not provide any standard for what constitutes “some reasonable percentage,” which leaves employers with the difficult question: How much is “reasonable”?  Considering the fact that Labor Code 2802 allows employees to recover attorney fees incurred in “enforcing the rights granted by” that section, getting the answer wrong could have serious consequences for employers.

If you would like to discuss employers’ options for dealing with the Cochran decision, or with Labor Code 2802 in general, please contact the author of this article.

Standard for Class Certification of Independent Contractors Clarified by California Supreme Court

Posted in California Supreme Court, Case Updates, Class Actions, Independent Contractor v. Employee

By Mark Chuang

In Ayala v. Antelope Valley Newspapers, the California Supreme Court held that the proper test for determining whether newspaper carriers could proceed as a class on the issue of their employment status was the employer’s right to control their conduct, not how that right was exercised.

In so holding, the state’s highest court reversed a lower court’s denial of class certification to a group of carriers who argued they were improperly classified as independent contractors.  The trial court had held that common questions did not predominate because determining each employee’s status would require an individualized determination of how much the employer controlled their work.

Courts will only allow class actions to proceed where common questions of fact and law “predominate.”  In Ayala, the Court held that the trial court had applied the wrong analysis to decide whether the predominance element had been satisfied.

Antelope Valley circulates newspapers through individual carriers using a standard form contract.  Ayala sued on behalf of a class of carriers that alleged they were improperly treated as independent contractors instead of employees.

The principal test to determine whether an employee or independent contractor relationship exists is whether the employer controls the manner and means of the individual’s work.

Ayala sought class certification, arguing that the common issue among all individuals was the employer’s right to control, as established in the standard form contract that the carriers each signed.

Antelope Valley opposed certification stating that the question of employee status could not be resolved on a common basis but rather would require unmanageable individual issues regarding the degree of control the employer actually exercised over the carriers.

The trial court denied class certification concluding that common issues did not predominate because resolving the question of employee status would require “heavily individualized inquiries” into the employer’s control over the work.

The appeals court reversed in part, and the case eventually reached the California Supreme Court.

The Court held that the trial court had used the wrong analytical approach.  What is most important, the Court held, is not how much control an employer exercises, but rather, how much control the employer retains the right to exercise that control.  Accordingly, at the certification stage, the relevant inquiry was whether Antelope Valley’s right of control over its employees was sufficiently uniform to permit a class-wide assessment.

The key document on this issue was the standard form contract, which established the employer’s right to control.  Because the trial court did not give the contract the consideration it merited, the Court remanded the case with instructions to consider certification again – this time using the correct standard.

Mark Chuang is a summer associate in Barger & Wolen’s San Francisco office.

Unauthorized Work Status Does Not Bar Discrimination Claims

Posted in California Supreme Court, Case Updates, Fair Employment and Housing Act, Wrongful Termination

By Mark Chuang

In Salas v. Sierra Chemical Co., the California Supreme Court held that an undocumented worker who was wrongfully terminated in violation of the California Fair Employment and Housing Act (FEHA) may be awarded lost pay damages, even if the employee was ineligible for employment to begin with under federal law.

Salas was a seasonal production line employee with Sierra Chemical.  He injured his back while stacking crates on the production line and claimed he needed to change his work routine while he was recovering.  Salas filed a workers’ compensation claim for his injury, but his employer told him that he could only return to work after he obtained a doctor’s release.  He never returned.  Sometime thereafter, his employer learned that Salas had used falsified identification documents to gain employment and was not authorized to work.

Salas sued his employer alleging that it failed to provide reasonable accommodations for his disability and that it was punishing him for filing a workers’ compensation claim in violation of the FEHA.  The employer argued that because Salas was never authorized to work and used false documents to conceal this fact, he should not be entitled to damages.

The case highlights the complex interplay between state and federal law with respect to undocumented workers.  California law states that “[a]ll protections, rights and remedies available under state law . . . are available to all individuals regardless of immigration status . . . .”  Federal law requires that employers verify the work eligibility of all new employees.

Attempting to reconcile these principles, the Salas Court stated that federal law does not prohibit a California employer from paying an employee who obtained employment through falsified documents, so long as it was unaware of the employee’s unauthorized work status.  It held that a court may award lost pay damages for any period before the employer discovers the employee’s ineligibility to work.

The Court went on to state that “not allowing unauthorized workers to obtain state remedies for unlawful discharge . . . would effectively immunize employers that . . . discriminate against their workers on grounds such as disability . . . or fail to pay the wages that state law requires.”

The Salas case makes clear that an employer who unknowingly hires an undocumented worker cannot escape a judgment awarding damages under FEHA for the period before the employer learns of the employee’s unauthorized work status.

Mark Chuang is a summer associate in Barger & Wolen’s San Francisco office.

After NLRB v. Canning: A Practical Guide For Employers

Posted in Case Updates, NLRB, United States Supreme Court

The Supreme Court’s decision last week in NLRB v. Canning left many employers scratching their heads – and with good reason.

Sure, the unanimous ruling served as a rebuke to the Obama Administration, and hundreds of National Labor Relations Board (“NLRB”) rulings expanding employee rights and protections have been wiped off the books.  But what exactly is the current state of the law?  And how should you, as an employer, proceed in terms of creating and implementing employment-related policies?

This post will endeavor to provide some practical insights.

In Canning, the Court ruled that President Obama overreached his executive authority by unilaterally appointing a voting majority to the NLRB in January 2012 when the Senate was still technically in session.  It’s an arcane issue with weighty implications.

In a nutshell, the U.S. Constitution allows Presidents to appoint federal officers when the Congress is in recess.  Senate Republicans expected President Obama to appoint members to the NLRB during the traditional winter break in the 2011-12 session.  To block the appointments, the Senate avoided going into recess, entering instead into a series of “pro forma” sessions during which no real business was conducted.

President Obama took the position that the Senate had, in fact, entered into a “recess”, and he stacked the board with union-friendly members who never otherwise would have been approved by the Senate.  The Canning decision invalidated those appointments – but not before the controversial recess appointees issued hundreds of decisions and orders that directly impact employers.

Important NLRB cases decided by the recess appointees include:

  • Banner Health Systems, where the NLRB held that an employer may not ask an employee who was subject to an investigation to refrain from discussing the matter during the investigation.
  • The issue of off-duty employee access rights came up several times, culminating in Marriott International, Inc., where the board severely restricted employers’ ability to control off-duty employees’ access to the workplace.
  • The board also issued numerous rulings relating to employees’ use of social media, including Karl Knauz Motors, Inc., where the board held unlawful an employer handbook rule relating to social media postings that prohibited “disrespectful language” or “any other language which injures the image or reputation of the Dealership.”

So how to proceed from here?

The aforementioned rulings and many others are no longer the law of the land, but for exactly how long remains unclear.  As Canning percolated through the lower courts, President Obama put an end to the NLRB uncertainty prospectively by nominating five candidates considered to be politically moderate, including two Republicans, all of whom were confirmed by the Senate in August of  2013.

The bottom line is that the Democrat appointees still control the NLRB.  The current majority is thus likely to rule the same way as the improperly constituted board when and if the voided cases are heard again.  Herein lies the challenge for employers.

Over the past few days, some commentators have opined that the NLRB will move swiftly to re-hear those cases and affirm the prior rulings.  Others believe that the NLRB already has a full plate and will not be able to accommodate additional work.  No one knows for sure.

We believe that the most prudent approach for employers is to proceed with caution.  If you are making a real-world employment decision involving an issue addressed in a voided NLRB ruling, keep in mind that:

  1. the current state of the law is as it existed prior to January 1, 2012; and
  2. that could change quickly – even between the time you make a decision and implement it.   If you already doing so, we recommend that you start monitoring NLRB decisions to stay abreast of any developments.

Also, you might consider refraining from updating your employee handbook for now, particularly with regard to areas where the law is in flux, such as policies relating to social media, employee discipline and employee access to the work place.  The NLRB positions on these issues will likely become clearer in the coming months.

The impact of Canning will vary depending on your business’s particular needs and employment goals. For more information about the case and how it may affect you, please contact Royal Oakes, Michael Newman, or Peter Felsenfeld.

Supreme Court Strikes NLRB Recess Appointments

Posted in Case Updates, NLRB, United States Supreme Court

The United States Supreme Court has struck down President Obama’s controversial 2012 nominations to the NLRB, holding that the President violated the Constitution by using his recess appointments power when the Senate was still in session.

The ruling in NLRB v. Noel Canning calls into question hundreds of mostly pro-union NLRB decisions rendered by the improperly constituted board.  It also will limit the ability of future presidents unilaterally to fill agency vacancies with highly partisan appointees.

From the Washington Post’s, Supreme Court rebukes Obama on recess appointments:

The case was a rarity in that the Supreme Court has never had reason to play referee on the issue before and has no precedent to rely on. While the current battle is between Obama and Senate Republicans, the tension has existed equally when a Republican has occupied the White House and Democrats objected to his appointments.

We are currently reviewing the decision and will provide our readers a detailed analysis.  In our initial reading of the decision, however, it is clear that the Court agrees the cat and mouse game between the Executive Branch and Congress regarding recess appointments had become untenable. The Canning ruling appears to provide a reasonable framework for applying the Constitution’s Appointments Clause in the modern era.

To learn how this decision impacts your business, please contact Royal Oakes, Michael Newman, or Peter Felsenfeld. Click here to read prior posts on the case.


States Crack Down on Workers’ Comp Premium Fraud

Posted in Media Mention

Several states have intensified investigations and criminal prosecutions of employers skirting the workers’ comp system. Michael Newman, who was quoted in a June 24th issue of Risk & Insurance, says employees suffer at the hands of fraudster employers.

An injured employee who is improperly designated as an independent contractor is not able to obtain the benefits of workers compensation protection,” he said. “If injured on the job, their only recourse is to sue the business for negligence, which may or may not garner them a full recovery.”

In recent months, state governments have been cracking down on premium fraud, investigating companies and stepping up criminal prosecution.  The article focused on the New York’s Grand Jury investigation from September 2013-February 204.

The panel found that employee misclassification was a common practice among employers in the construction industry looking to avoid high premiums, costing the city and state millions in lost revenue and uncovered healthcare costs. The investigation built on a June 2013 study by the Fiscal Policy Institute that estimated that employer fraud in the construction industry cost New York about $500 million in 2011.

The Grand Jury found that it was far too easy for “unscrupulous” employers to submit false information on the applications to the New York State Insurance Fund, which covers 40 percent of the state’s workers’ comp needs.

While misclassification was the most common offense, employers also skirted high premiums by paying employees off the books, under-reporting the number of employees on payroll, or neglecting to secure insurance altogether.

For read the full article, click here.

Age Discrimination No Longer Requires Proof of Younger Replacement

Posted in Case Updates, EEOC

By Mark Chuang

In EEOC v. Lehi Roller Mills Co., the United States District Court for the District of Utah held that a plaintiff alleging age discrimination under the Age Discrimination in Employment Act of 1967 (ADEA) need not show that he was replaced by someone that was substantially younger if direct evidence is presented creating an inference of discrimination.

Under the traditional approach, a prima facie case of age discrimination under the ADEA requires the plaintiff to show that his or her replacement was substantially younger, creating the inference that the employment decision was based on illegal age discrimination.  Lehi Roller Mills indicates that the age disparity may no longer be a required element.

In that case, James Breece, a 49-year-old baking company employee, filed a charge of discrimination with the Equal Employment Opportunity Commission (EEOC), alleging he was fired because of his age.  The employer moved for summary judgment on the grounds that that the EEOC did not establish a prima facie case of age discrimination because the plaintiff’s replacement was not substantially younger.

The district court rejected this argument, stating that where there is direct evidence which allows for an inference of discrimination, the substantially younger showing is “flexible” and “not a required element.”  It held that there can be a finding of age discrimination even though the hired replacement was older than the plaintiff.

In his complaint, the plaintiff alleged that during the meeting placing him on leave, he was told that he was “getting old,” and that the president of the company explained the termination to plaintiff’s daughter by stating he was “not as young as he used to be.”  There was also evidence presented that when discussing the termination, the chief operations officer stated that the company] wanted to bring in a new, younger management team.

The court stated that even though the employer never directly said it was firing plaintiff because of his age, the alleged statements “constitute[d] direct evidence of discriminatory motive under the ADEA.”  Accordingly, it denied the employer’s motion for summary judgment.

Lehi Roller makes clear that a plaintiff bringing a claim for age discrimination need not necessarily establish all the traditional elements of a prima facie case if direct evidence is presented that creates the inference that the employment decision was based on an illegal discriminatory criterion.

Mark Chuang is a summer associate in Barger & Wolen’s San Francisco office.

Employment Discrimination Plaintiff Cannot Change Legal Theories at Trial

Posted in California Court of Appeal, Case Updates, Fair Employment and Housing Act

In Rosenfeld v. Abraham Joshua Heschel Day School, Inc., the Second Appellate District held that a plaintiff whose pleadings alleged intentional employment discrimination could not assert a disparate impact theory for the first time at trial.

The case highlights the distinction between “disparate treatment” and “disparate impact” theories under California’s Fair Employment and Housing Act (“FEHA”).  Disparate treatment is intentional discrimination against an individual on prohibited grounds, such as race, sex or another protected category.

Under a disparate impact theory, a plaintiff is not required to prove intentional discrimination.  A disparate impact exist where an employer’s facially neutral policy has a disproportionate adverse impact on a protected class.

Rosenfeld was a teacher at a private Jewish elementary school in Northridge, California.  She resigned in August of 2007 at the age of 60 and later sued the school for age discrimination.

In her pleadings, Rosenfeld alleged that the school gradually reduced her hours to an intolerable level “in an effort to force her out because of her age.”  The school countered that the reduction in Rosenfeld’s hours was due to a decline in enrollment.

Rosenfeld’s pleadings solely alleged age discrimination under a theory of disparate treatment.  Shortly before trial, however, Rosenfeld filed a trial brief alleging disparate impact for the first time.  The trial court precluded her from arguing disparate impact, stating that Rosenfeld couldn’t “raise a completely different theory on the eve of trial.”

The jury ultimately returned a defense verdict.  Rosenfeld unsuccessfully moved for a new trial and then appealed, among other things, the trial court’s decision to disallow the disparate impact claim.

On appeal, Rosenfeld argued that she was not required to specifically plead disparate impact.  The school was sufficiently on notice of the disparate impact theory, Rosenfeld argued, because she had retained a statistical expert and proposed a disparate impact jury instruction.

The court rejected this argument.  Affirming the trial court’s ruling, the court noting that Rosenfeld’s pleadings, discovery responses and case management conference statements never mentioned a disparate impact theory.

Thus, Rosenfeld failed to give timely notice to [the school] that she intended to pursue a disparate impact theory at trial.”

The Rosenfeld case makes clear that an employment discrimination plaintiff must explicitly allege a disparate impact if he or she wants to proceed under that theory.  It is not enough to assert that the disparate impact theory is implicit in the intentional discrimination claims.  This is a positive development for employers.