Thursday, August 22, 2013

Are Your Criminal Background Checks Breaking the Law?

The city of San Francisco passed a new ordinance earlier this month, banning private employers with city contracts from performing criminal background checks for hiring purposes.  Embezzlers, murderers, identity thieves.  Employers and employees alike may be a bit  on edge about the impact of this ordinance.   But for the most of us in the great state of California, employers can perform background checks when hiring new employees.  There are limits, however, on how far back those checks can go and how employers can use this information when making hiring decisions.

Let's start with an important background assumption.  The federal Equal Employment Opportunity Commission (the "EEOC") released new guidelines earlier this year stating:
"National data supports a finding that criminal record exclusions have a disparate impact based on race and national origin. The national data provides a basis for the Commission to investigate Title VII disparate impact charges challenging criminal record exclusions."
Because of this finding, the EEOC's guidelines proclaim:
 "An employer’s neutral policy (e.g., excluding applicants from employment based on certain criminal conduct) may disproportionately impact some individuals protected under Title VII, and may violate the law if not job related and consistent with business necessity (disparate impact liability)."
 Title VII of the Civil Rights Act of 1964  prevents employers from discriminating against applicants (and employees) on the basis of race, color, religion, national origin, or sex (including pregnancy, childbirth, and related medical condition).

What does this all mean?

If your company excludes all applicants with criminal convictions (generally arrests that did not result in convictions may not be considered), the EEOC will presume that the practice has the effect of eliminating more Hispanic and African-American applicants than applicants of other national origins and races.  That is, your practice has a "disparate impact" on these applicants and your company may be at risk for a Title VII discrimination lawsuit. 

What can you do to protect your business?

The EEOC guidelines allow employers to take criminal background history into account when it is " job related and consistent with business necessity."   This means that employers can take into account whether a specific criminal conviction is related to the job that the applicant is applying for.  For example, if an applicant applying for a cashier job or a job handling credit card information and the background check shows that this individual was convicted of identity theft two years ago, then an employer who rejects an applicant on this basis will likely have a good defense to a potential discrimination claim by the applicant.

Specifically, the EEOC states that employers should perform an individualized assessment of each applicant, including considering the following factors:
  • The nature and gravity of the offense or conduct.
  • The time that has passed since the offense or conduct and/or completion of the sentence.
  • The nature of the job held or sought.
  • The facts or circumstances surrounding the offense or conduct.
  • The number of offenses for which the individual was convicted.
  • Older age at the time of conviction, or release from prison.
  • Evidence that the individual performed the same type of work, post conviction, with the same or a different employer, with no known incidents of criminal conduct.
  • The length and consistency of employment history before and after the offense or conduct;
  • Rehabilitation efforts, e.g., education/training.
  • Employment or character references and any other information regarding fitness for the particular position.
  • Whether the individual is bonded under a federal, state, or local bonding program.
Fair Credit Reporting Act Restrictions and Other Laws Governing Background Checks

The EEOC guidelines are only part of the equation here.  In addition, the federal Fair Credit Reporting Act and California's equivalent laws, including the Investigative Consumer Reporting Agencies Act, also place limitations on on background checks.  For example, background checks can only go back 7 years, and applicants rejected because of a criminal conviction must receive certain specified notices and an opportunity to respond.  Violations of these Acts may result in fines.  

For California employers, certain misdemeanors - such as certain marijuana convictions - are specifically excluded from consideration.  Also, don't forget that arrests which did not lead to convictions may not generally be considered.

This is a complicated area of law, so it's important that your company chooses its background check vendor wisely and makes individualized assessments of whether to reject applicants with criminal convictions.  If you're unsure of whether or not your company is complying, it's a good idea to consult with employment lawyer. 

Saturday, January 5, 2013

Written Agreements Required for Commissioned Employees

Effective January 1, 2013, employers entering into contracts to pay commissions to California-based employees now must do so via a written contract which specifically sets forth the method for computing and paying the commissions.  The newly effective law further requires that the commission contract must be signed by, and a copy must be given to, the employee.  The employer must also obtain a signed receipt for the contract from the employee.

For many California employers, the new law's writing and record keeping requirements amount, at most, to a change in form over substance.  This is because many cautious employers put their commision agreements in writing long before now, finding that clearly written, current plans go a long way toward reducing the risk of confusion and, when relationships deteriorate, litigation over commission-based employees' compensation.  However, as what was formerly simply good practice has been recently converted into a legal obligation, now is a good time for all employers to ensure that their practices include providing compliant plans to all new commission-based employees.  As a related matter, now is also a good time to make sure that all within the organization who have the authority to change these plans understand that any changes to commission-based compensation must be memorialized appropriately and retained for the file.  Finally, now is also a good time to review existing commissioned employees' files to make sure that current, written agreements are in place.

Concurrent with the commission-related file review, employers may wish to take this opportunity to ensure that newly hired non-exempt employees are receiving the notices required by Labor Code section 2810.5, as this law also went into effect relatively recently, on January 1, 2012, and may have slipped under some managers' or employers' radar.  The Section 2810.5 notices must include:

  • The rate or rates of pay and basis thereof, whether paid by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime, as applicable.
  • Allowances, if any, claimed as part of the minimum wage, including meal or lodging allowances.
  • The regular payday designated by the employer in accordance with the requirements of the Labor Code.
  • The name of the employer, including any "doing business as" names used by the employer.
  • The physical address of the employer's main office or principal place of business, and a mailing address, if different.
  • The telephone number of the employer.
  • The name, address, and telephone number of the employer's workers' compensation carrier.
  • Any other information the Labor Commissioner deems material and necessary.

To help employers comply with this law, the Department of Labor Standards Enforcement (the "DLSE") was directed to prepare a template for employers' use.  The most recent version of that template, as well as a helpful FAQ section, is currently available online at the DLSE's website at:

Monday, September 10, 2012

“E tu, Brute?”

Especially in today’s challenging economy, most businesses find new competition challenging and worrisome, regardless of the source.   When it comes at the hands of a former employee, rather than a stranger, deeply emotional and polar opposite views on whether and, if so, how post-employment competition may take place set the stage for an additional potential challenge:  highly contentious and expensive litigation.  Recognizing this, many employers nationwide attempt to set the “ground rules” by conditioning employment on signing a noncompetition agreement.   
However, the general rule, by statute, in California is that agreements restricting former employees from competing – whether for potential clients, actual clients, or other employees – are unenforceable.[1]  Employers who spend hard-earned resources training and developing employees often take this news especially hard.  What about the value of loyalty?  What about the value of honoring our agreement not to compete before the employment relationship even began?   How can I survive if the employees trained at my expense can then use that training to turn on me?  These are fair questions and they have been raised, and fought hard, by former employers and their advocates.  However, at the end of the day, the California legislature and courts adopted a strong public policy favoring open competition and workforce mobility over, among other things, freedom of contract. 
However, California lawmakers also created a couple narrow exceptions to the general rule.  For instance, covenants not to compete generally are enforceable in connection with the sale of the goodwill of a business.[2]  The rationale for this exception is that it would be ‘unfair’ for the seller of the goodwill of a business to engage in competition which diminishes the value of the asset he sold. 
Recently, in Fillpoint v. Maas,[3] the California Court of Appeal explored the circumstances under which a covenant not to compete may be sufficiently tied to the sale of goodwill for purposes of this exception.   In the past it was unclear whether covenants placed outside business sale or merger agreements should be methodically excluded from possible enforcement.  The Court recognized, though, that the noncompete statute did not limit the exception’s application to particular documents.  Accordingly, the Court announced that where, as in Fillpoint, an employment agreement is entered into (1) at roughly the same time and (2) as part of the same transaction as a business or stock purchase agreement, and where the two agreements contain different noncompete clauses, the agreements should be read together.  The Court found in Fillpoint that the employee’s agreement to sell his stock to the entity acquiring his employer, and to remain employed with that entity for three years, was all part of one integrated plan and that the employment agreement’s noncompete clause was entered into “in connection with” the sale of the goodwill of a business.  However, this was only the beginning of an analysis which did not end well for the acquiring entity.
In full accord with earlier decisions, the Court further explained that the sale-of-goodwill exception is limited.  Where noncompete agreements impose terms more onerous than necessary to protect the purchased goodwill, they impermissibly conflict with California’s “deeply rooted public policy favoring open competition.”   The agreements must be narrowly tailored in terms of time and scope, geographic and otherwise, to be enforceable. 
While analyzing the agreements in Fillpoint as one transaction helped the employment agreement clear the initial, “in connection with” the sale of goodwill hurdle, at the next stage of the analysis, comparing the agreements’ terms side by side highlighted the overbreadth, and resulting unenforceability, of the employment agreement.   Specifically, the purchase agreement precluded competition for three years after the acquisition; the employment agreement prevented it for one year after the employment relationship terminated.  Once three years was “teed up” by the purchase agreement as the appropriate timeframe, the additional year of protection imposed by the employment agreement struck the court as impermissibly overbroad.   The fact that the additional year did not begin to run until the employee separated, which occurred three and one half years post-acquisition and, thus, six months after the purchaser had already received the full benefit of the purchase agreement’s terms, struck a particularly strong chord with the Court.[4] 
The Court also took issue with the employment agreement’s intent.  The Court easily found that the purchase agreement, with its terms triggered upon the sale of the goodwill, was legitimately designed to protect goodwill.  In contrast, it found that the true point of the employment agreement’s noncompete clause was to impermissibly restrict the employee’s “fundamental right to pursue a profession.”  Key to the Court’s conclusion was the fact that the employment agreement’s terms, which were triggered upon the termination of employment, barred the employee from (1) making sales contacts or making actual sales to anyone who was a customer or potential customer of the acquiring entity during the two years preceding the employee’s departure, or assisting others in doing so; (2) working for or owning an interest in any business that was in the same business as, or would compete with the acquiring entity; or (3) employing or soliciting for employment any of the acquiring entity’s employees or consultants.  Accordingly, the Court held the employment agreement was not enforceable. 
Thus, while in theory noncompete clauses contained outside purchase agreements may qualify for enforcement under the sale of goodwill exception, the better approach seems to be to include all such terms in the purchase agreement.  With the benefit of hindsight, particularly given that the Fillpoint employee resigned three and one half years post-acquisition, the acquiring entity would likely have had more success with, for instance, a four year noncompete clause in the purchase agreement and no such restrictions in the employment agreement (rather than the bargained for, yet unenforceable, three years of protection in the purchase agreement plus an additional year in the employment agreement).    
In conclusion, while outside the limited sale or dissolution[5] contexts California employers cannot prevent former employees from all compeition, former employees can be prohibited from competing in ways defined by law as "unfair."  For instance,  it is "unfair," indeed, unlawful, to use a former employer’s property or trade secrets to compete.  A well drafted agreement defining key intellectual property, such as customer lists, as trade secret, in combination with policies and practices that, in fact, render them protectable, can go a long way toward discouraging departing employees from acting unlawfully and/or providing recourse if they do.  Taking these sorts of precautions is wise as departed employees, with their intimate knowledge of their former employer’s strengths, weaknesses, methods, customers, and pricing, are often in a unique position to deal a severe blow to their former ally, sparking sentiments such as Caesar’s famous words to the once-trusted Brutus.[6]  

[1] California Business and Professions Code section 16600 (“Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”).
[2] California Business and Professions Code section 16601.
[3] Fillpoint, LLC, v. Maas et al., Case No. G045057, 2012 Cal. App. LEXIS 914 (Cal. Ct. App. Aug. 24, 2012).
[4] The Court reasoned, “[The employee] satisfied his covenant not to compete for three years under the purchase agreement.  The employment agreement’s covenant not to compete for an additional year, including its broad nonsolicitation agreement, cannot be reconciled with California’s strong public policy permitting employees the right to pursue a lawful occupation of their own choice.”
[5] Another statutory exception, which was not addressed in Fillpoint and is beyond the scope of this blog article, involves partnership dissolutions.
[6] The famous quote in this blog’s title, “E tu, Brute?”, is from William Shakespeare’s play Julius Caesar.

Tuesday, August 14, 2012

Meal Periods and Rest Breaks – What’s New; What’s Not

The letter of California law has, for years, generally required that employers must “provide” a thirty-minute, uninterrupted meal period for each work shift that exceeds five hours**.  For years, lawyers have vigorously debated whether employers may satisfy their “provide” obligation by simply making meal periods available, or, instead, whether employers must “ensure” that meal periods are taken.  Employers wishing to "play it safe" while the debate raged not only maintained formal and informal policies requiring their employees to take full, timely meal breaks, but also went to great lengths to actively police, and thereby attempt to “ensure,” the taking of breaks.

In April 2012, the California Supreme Court ruled in its long awaited Brinker decision that “provide” means “make available,” not “ensure.”  The Court further clarified that an employer’s obligation is satisfied where the employer:

  • Relieves its employees of all duty,
  • Relinquishes control over their activities,
  • Permits them a reasonable opportunity to take an uninterrupted thirty-minute break, and
  • Does not impede or discourage them from doing so.
This clarification was applauded by employers and those who defend them in wage and hour litigation.  By way of further good news, the Court also rejected the so-called “rolling five” rule, which would have required employers to provide a second meal period within five hours of the first meal period.  This clarification was particularly welcome in industries where “early lunching,” such as the restaurant industry at issue in Brinker, is common.

Now for what has not changed …

While it is now clear that employers may lawfully permit their employees to choose to work through their meal breaks, as a practical matter, doing so – even post-Brinker – still puts employers at risk.  This is because the element of choice may create the appearance of pressure, or may incentivize mid-level managers, peers or others to exert actual pressure, to work through breaks.  This, in turn, may call into question whether the employee was “impeded” or “discouraged” from taking his or her break.  Employers permitting employees to choose to work through breaks also run the risk that employees who at one time voluntarily worked through their breaks may, after the fact, claim that, instead, they were pressured or discouraged from taking their breaks.  Unfortunately, “lapses in memory” are relatively common once an employment relationship ends or becomes strained, and an employee's self serving testimony regarding the reasons for missed breaks may be difficult to overcome.  For these and other reasons, keeping rules requiring breaks and practices of monitoring compliance in place, coupled with addressing and, as appropriate, documenting instances of and reasons for an employee’s noncompliance with the rules, remains the best way for employers to prospectively manage meal and rest period litigation risk.

More news (for some)

The Court also clarified the rules regarding rest breaks, resolving confusion over the requirement that employers must authorize and permit rest periods of at least ten minutes for each work period of four hours “or major fraction thereof” (this phrase being the source of the confusion).  The Court explained that “major fraction thereof” means more than two hours (not three and one half hours, as previously urged by some).  The Court confirmed that, by way of exception (as stated in the relevant Wage Order), no break is required where the entire shift does not exceed three and one half hours.  Thus, employees are entitled to:
  • 10 minutes rest for shifts from 3.5 to 6 hours in length,
  • 20 minutes for shifts of more than 6 hours up to 10 hours,
  • 30 minutes for shifts of more than 10 hours up to 14 hours, and so on.
As to the timing of the breaks, the Court further held that employers are subject to a duty to make a good faith effort to authorize and permit rest breaks in the middle of each work period, but may deviate from that preferred course where practical considerations render it infeasible.  The Court declined to opine on the circumstances which might qualify as “infeasible.”  

Finally, the Court found that the written rest break policy at issue in Brinker missed the mark as it failed to give full effect to the “major fraction thereof” requirement.  As the Court found that this deficiency provided significant evidence of a uniform policy, it also determined that the trial court's certification of these claims for litigation on a class wide basis was appropriate.  The lesson to be learned from the level of scrutiny to which the Court subjected Brinker's written policies and the disappointing result as to the rest period claims after years of expensive litigation, is that now is a good time for all cautious California employers to carefully and critically review their policies' language for specificity and accuracy.

** California Labor Code section 512(a) provides, “An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee.  An employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived.”

Saturday, June 11, 2011

A Changing in the Editorial Tide

It's been a while since you've heard from us and we apologize to our readers.  Contributing attorney Meredith Williams is leaving our blog and the law firm of Miller | Williams LLP to take a full-time in-house position.  Partner Kirsten Miller will continue offering quality advice to our blog readers and offering employment litigation and advice and counseling services to California businesses through her firm, the Law Office of Kirsten Miller.  We hope you'll enjoy her insights on important everyday legal topics and emerging legal issues!

Friday, December 10, 2010

Were Your Employees Naughty or Nice? Year-End Bonuses

In one of the most fantastic Christmas movies ever made (for those of you with a sense of humor, that is...), Clark Griswold is so upset by the fact that his Christmas bonus is a one-year membership in the Jelly of the Month Club instead of the cash he was counting on to build his family a swimming pool that he loses his temper - cursing his boss, Clark adds that if anyone needs a last-minute gift idea, he should bring him his boss tied up on a bow.  Clark's Christmas wish is granted by his crazy cousin-in-law, who kidnaps his boss.

Among other important holiday lessons, National Lampoon's Christmas Vacation teaches us that year-end bonuses can raise a host of problems.  Here are a couple to consider as you head into the last few weeks of the year:

Forgoing or Reducing Year-End Bonuses 
If your company usually provides year-end bonuses, but is forgoing them or reducing the amount of the bonuses to save cash this year, expect some upset employees.  Cookies, anyone?

Upset feelings aside, you are not required to give out bonuses each year, nor are you prevented from changing the amount, so long as your company does not have an established bonus plan or employee contracts that obligate you to pay year-end bonuses or pay bonuses in a specified amount.

If your company does have an established bonus plan, or is contractually required to provide them to certain employees, failure to meet the plan or contractual obligations may expose your company to liability for breach of contract and/or liability for unpaid wages.   In addition, if you customarily provide employees with bonuses every year, it's possible that your employees may be able to claim that you breached an implied contact to provide bonuses.  Because of the potential legal liability involved in straying from your company's usual bonus practices, it's a good idea to review these issues carefully before making any final decisions, especially since unhappy employees are more likely to bring a lawsuit.

Including Bonuses in Overtime Pay Calculations
If your company is providing year-end bonuses this year, remember that under certain circumstances, bonuses should be included in your non-exempt employees' regular rate of pay when calculating their overtime rates.  Generally, bonuses that are discretionary and paid purely as gifts for past services do not need to be included when calculating your employees' regular rates of pay.

Bonuses that are measured by or dependent upon an employee's hours worked, production, or efficiency, on the other hand, must generally be included his or her regular rate of pay for purposes of calculating overtime pay. Other types of bonuses that must generally be included in overtime calculations include bonuses based on duration of service, bonuses promised at the time of hire, and bonuses that are so significant that they could be construed as part of an employee's overall compensation.  Understanding your overtime pay obligations as they relate to bonuses is important since failure to do so can result in unpaid wages, exposing you to legal liability.

Concerned your employees are plotting to kidnap you? Don't worry, it's just a movie!

Important Must-See Moments from National Lampoon's Christmas Vacation
Lastly, and most importantly, in case you've somehow missed National Lampoon's Christmas Vacation, you can watch the flip-out/kidnapping scene here:; or watch a montage of some of the best scenes here:

For specific advice about how laws governing bonuses apply to your company, please consult a California employment law attorney.

Friday, December 3, 2010

Christmas, Hanukkah, Kwanzaa, Winter Solstice...Religious Discrimination and Holiday Celebrations

The holidays are here!! That wonderful time of year when the snow starts to fall and the lights go up on all the houses...oh wait...that's not what the holidays look like for everyone, is it?  Not in Los Angeles at least!  There's definitely no snow.  There are lights, but not just traditional Christmas lights...there are big menorahs, blue lights mixed in with white, and even the Scientology Center near Hollywood and Highland has a big Santa Clause winter wonderland exhibit!

Avoid Karaoke...
It's also the time of year for office "holiday" parties! An event that will forever remind me of that scene in Bridget Jones's Diary where Bridget is drunk and singing karaoke in reindeer antlers.  In addition to reminding us about memories of getting a little too tipsy with co-workers and bosses that we'd rather forget and that karaoke, alcohol and co-workers don't mix, office holiday parties also remind us that not everyone celebrates the holidays or "our" holiday.

Laws Prohibiting Religious Discrimination in the Workplace
I thought this would be a good time of year to remind readers about the laws prohibiting religious discrimination and harassment in the workplace.  Religious discrimination in the workplace is prohibited by both Title VII of the federal Civil Rights Act and the California Fair Employment and Housing Act (FEHA).  Religion encompasses more than just traditional religions and includes atheism.  To be considered a "religion" or "religious creed," the beliefs and practices must hold  “a place of importance parallel to that of traditionally recognized religions.”*

Reasonable Accommodations for Religious Beliefs and Observances
Both federal and state statutes require employers to make reasonable accommodations for employees' religious beliefs, observances and practices.  Under California law, this includes observance of the Sabbath and other religious holy days or days of observance.  Reasonable accommodations allow employees time off for observance, as well as time for necessary travel before and after the religious observance.

Harassment Includes Seemingly "Harmless" Jokes about Traditional Religions
Harassment based on religion is also prohibited by law.  Harassment can include severe or pervasive conduct that a reasonable person might find offensive.  Common examples of this conduct include making jokes about religion or forwarding an email containing such jokes.  Often people are less sensitive to jokes making fun of their own religion or jokes about religions and observances that have been subject to less historical discrimination, such as Christianity and Christmas.  However, this conduct is equally prohibited under the law, and employers should keep a look out for this type of behavior as well.  This is especially important because, for many of us, we are living in an increasingly secularized culture, where many people don't think twice before making a religious joke.

Office Holiday Party Tips...
As for your office holiday party, here are a few tips: (1) avoid karaoke; (2) limit the amount of alcohol; (3) keep decorations religion-neutral by focusing on secular, winter themes; (4) don't make attendance mandatory; and (5) have fun!

Happy holidays!

*Friedman v. S. Cal. Permanente Med. Group, 102 Cal. App. 4th 39, 69, (2002) (holding that veganism is not a religion).