United States: A Review of Key Cases and New Laws Affecting Employers (US Employment Litigation Round-Up for October 2014)

New California Employment Laws Impose Additional Responsibilities On Employers

Development: California Governor Jerry Brown has signed a series of bills aimed at increasing protections for California workers. Most notable are the implementation of a paid sick leave requirement in California and a new law that imposes statutory joint employer liability on companies that use staffing agencies.

Mandatory Paid Sick Leave (AB 1522): As of July 1, 2015, employers are required to provide paid sick leave to all employees, both exempt and non-exempt, who work in California for 30 or more days after commencing employment. Below are some of the key provisions of the new legislation:

  • Employees must accrue paid sick leave at a rate of no less than one hour per 30 hours worked.
  • Employees may use accrued paid sick days beginning on the 90th day of employment. The employer may limit the use of accrued paid sick leave to 24 hours or three days in each year of employment.
  • Employers may limit an employee's total accrual of sick leave to 48 hours or six days.
  • A paid-time-off policy that provides the full amount of required leave at the beginning of each year will satisfy the requirement.
  • Employers must notify workers in pay statements or separate documents each time they are paid of the amount of sick leave they have accrued.
  • Employers are not required to compensate employees for accrued, unused paid sick days upon termination of employment. If the terminated employee is rehired within one year, the employee shall be entitled to use those previously accrued and unused sick days.

Under the new law, for every sick day unlawfully withheld, treble damages are available up to a maximum of $250, not to exceed an aggregate penalty of $4,000.

Joint Employer Liability For Violations of Labor Provider (AB 1897): The new law createsLabor Code section 2810.3, which imposes joint liability on companies whose labor contractors or staffing agencies violate wage and workplace safety laws. The new law provides that a business entity with a workforce of more than 25 workers (including both employees and temp hires), or five or more temporary workers at any given time, that obtains or is provided with workers to perform labor within its usual course of business from a labor contractor will share responsibility and liability with the labor contractor for payment of wages and failure to secure valid workers' compensation coverage. The law does not apply when the workers provided are properly classified as exempt employees.

Impact: In light of the new joint employer law, employers that use labor contractors and temporary agencies should obtain clear representations from such providers that they have proper insurance and comply with wage-and-hour laws. Employers should also consider conducting due diligence to confirm compliance with the representations.Further, while often difficult to negotiate, employers should consideradding indemnification clauses in their contracts with such agencies that would require the contractor to cover this shared liability.Finally, employers will be challenged to manage different processes in California and outside California, since maintaining a separation between the employer and labor contractor is often key in other states to avoid precisely this type of joint employer liability under the common law.

EEOC Files Two Sex Bias Lawsuits Based on Transgender Discrimination

Decision: The US Equal Employment Opportunity Commission (EEOC) recently filed its first ever lawsuits alleging sexual discrimination against transgender individuals in violation of Title VII of the Civil Rights Act of 1964. In the first action, EEOC v. R.G. & G.R. Harris Funeral Homes Inc., the EEOC alleged that the defendant funeral home illegally fired a funeral director after being informed that the funeral director was undergoing a gender transition from male to female and intended to dress in appropriate business attire at work as a woman. In the second action, EEOC v. Lakeland Eye Clinic, P.A., the EEOC alleged that the defendant eye care clinic terminated the plaintiff (i) because she was transgender, (ii) because of her transition from male to female while she was employed with the defendant and (iii) because the plaintiff did not conform to the defendant's sex- or gender-based preferences, expectations or stereotypes.

Impact: This is the first time the agency has pursued allegations in federal court that transgender discrimination is a form of sex discrimination prohibited under Title VII. These cases are an important reminder that the EEOC views transgender discrimination as violative of Title VII. The agency stated its position on transgender discrimination in the commission's 2012 ruling in Macy v. Holder. In Macy, the EEOC determined in a federal employee case that Title VII applies to discrimination based on transgender status, gender identity or an employee's transitioning between genders. Employers should consider reviewing their anti-discrimination policies to ensure that they are consistent with the EEOC's view that transgender discrimination violates Title VII as well as with the many state and local laws that prohibit transgender discrimination.

California Court of Appeal Holds That A Parent Holding Company May Be Liable for the Unlawful Wage and Hour Practices of a Subsidiary

Decision: In Castaneda v. The Ensign Group, the California Court of Appeal issued a published decision holding that a corporate parent that has no employees can be found liable for its subsidiary's nonpayment of overtime and minimum wages to employees if the parent wholly owns the subsidiary and exercises control over the subsidiary's operations and employees.

The plaintiff in Castaneda filed a putative wage and hour class action against his employer and its parent holding company, alleging that the parent was the alter ego of the company where he worked. The Court of Appeal found that the parent company "has more than a contractual relationship with [its] subsidiary" because evidence showed that it had "structural and management control" over it. Specifically, the court found that the parent company was involved in recruiting and interviewing the subsidiary's employees and that it provided essential, centralized services to the subsidiary, including human resources, accounting and payroll functions. Additionally, the court found that the subsidiary's employees were required to use the parent's forms and templates, received their paychecks from the parent and subsidiary, that the parent controlled the manner in which employees clocked in and out for shifts and that it provided the subsidiary with its policy and training videos for newly hired employees. As a result, the court explained that "the basis for liability is the owner's failure to perform the duty of seeing to it that the prohibited [wage and hour] condition does not exist." 

Impact: Viewed narrowly, this decision only affects claims under limited circumstances under California state law. However, the decision underscores the challenges when companies attempt to exercise a degree of control over affiliates and contracting parties for compliance reasons, only to find that those efforts are held up as evidence for imposing liability on the company when a lapse occurs at the affiliate or contracting party. The appellate court's decision underscores the need for companies to find the right balance between ensuring compliance and not exercising undue control—a balance that is different for each company depending on its facts. At a minimum, corporate parents that are involved in their subsidiary's operations should be cognizant of their subsidiary's employment policies and practices and take steps to ensure that they comply with the law.

Texas Supreme Court Permits Injunction To Remove Defamatory Internet Posts

Decision: The Texas Supreme Court recently issued a groundbreaking decision holding, for the first time, that a party can be entitled to injunctive relief as a remedy for defamation. In Kinney v. Barnes et al., the plaintiff alleged that his former employer, a legal recruiting company, made defamatory Internet postings accusing him of bribing an associate K&L Gates LLP to hire a job candidate. The plaintiff sought an injunction requiring the recruiting company to remove the postings. The Court determined that if the plaintiff proved at trial that the alleged statements were in fact defamatory, an injunction requiring the removal of the posted statements would not infringe upon the employer's free-speech rights under the Texas Constitution.

Impact: Before this decision, the Texas courts, like courts in many other jurisdictions, had held that the only possible remedy for defamation was an award of monetary damages. This was because monetary damages were thought to penalize a person's abuse of the right to free speech, which is constitutionally permissible, whereas injunctive relief was thought of as an impermissible prior restraint on individuals' constitutional rights to speak freely. Now, however, existing online speech that has been adjudicated defamatory may be subject to a deletion order without implicating the right to free speech because, in the Texas Supreme Court's view, ordering the deletion of defamatory statements posted on a website does not raise the risk of impermissibly enjoining future speech. This ruling will benefit companies seeking to have defamatory postings by individuals such as former employees removed from the Internet. While this case only has precedential effect on courts in Texas, it may be an indication that courts in other jurisdiction will re-examine existing precedent in this area.


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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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