Sue Everyone And Let The Courts Sort Them Out When most people go to work for an employer they recognize that they are paid to do a particular job in exchange for compensation. This is the basic contractual at will employment relationship. Accordingly, if the employer fails to correctly pay the employee and an employee has to sue to recover those wages, one would assume the employee would sue the employer. You would be wrong, however, according to logic used by the State Division of Labor Standards Enforcement (“DLSE”), the plaintiffs’ bar and various union organizations throughout the state. If they have their way, everyone who had anything to do with the payment of wages, including co-employees in all levels of management, will be subject to suit. Moreover, every individual defendant could be personally liable for all wages, penalties, interest and attorney fees if the plaintiff wins. The fact that individuals genuinely believe they were acting appropriately and within the law makes no difference. Whether or not

individuals can be held personally liable for wage and hour violations is a question that will be decided in the next few months by the California Supreme Court in the case of Reynolds v. Bement.

The Reynolds case involves a chain of auto body shops located throughout California. The managers of the shops were salaried and considered by their employer as exempt employees. In other words, as managerial employees they were not entitled to overtime. The plaintiff, a former manager, sued the employer through a class action lawsuit, alleging that the employer had misclassified its managers and that all the salaried managers were entitled to overtime pay over the last four years. Thus, as you can imagine, the potential exposure to the employer, if it improperly classified its managers, could amount to several million dollars.

After a year of litigation, the plaintiff amended the complaint to add additional defendants. The plaintiffs relied upon an administrative regulation created by the Industrial Welfare Commission (“IWC”) defining “employer,” to add several executive management personnel as individually named defendants. Each of the individually named defendants were employees. Nevertheless, plaintiff broadly interpreted the IWC’s regulation of employer to include: “Every person who directly or indirectly or through an agent or any other person employs or exercises control over wages, hours or working conditions of any person.”

In response, the defendants sought a dismissal of the amended complaint. The dismissal was granted by the Court of Appeals, which correctly found the definition of employer used by plaintiffs went too far by imposing a huge potential liability against co-employees for the payment of wages, by the true organizational employer. That ruling is now before the California Supreme Court.

Should the Supreme Court find in favor of the plaintiff, the decision will have a far reaching effect on how wage an hour claims are litigated. Namely the cost of litigating those claims will go up. Rather then simply defending an organization, the organization will be forced to incur the cost of defending every person who exercised any control over wages, hours or working conditions of any person. Furthermore, the cost of insurance will go up accordingly, assuming that an employer could afford the cost of insurance to defend such an action in the first place. Finally, the toll of time and resources in the defense of a dramatically expanded action will serve to only make it more difficult to do business and stay competitive in an already challenging business environment.

As an employer you can take several steps to help minimize the potential exposure to this type of litigation. First, periodically review the actual duties and responsibilities of your exempt employees. In California, they must spend the majority of their time (greater then 50%) engaged in exempt functions. Second, periodically review the Industrial Wage Order that is applicable to your industry to ensure that your exempt employees are continuing to engage in exempt functions as described in the specific Wage Order. Finally, if you are confused as to the scope of a Wage Order or whether or not an employee should be classified as exempt, talk with your attorney.

For more information about the topic above, contact Larry Kazanjian at lkazanjian@pkwp-law.com or (916) 442.3552. To read Mr. Kazanjian's professional profile on the Palmer Kazanjian Wohl Perkins website, click here . Return to Top

Understanding Gender Identity Discrimination
and Harassment in California

Effective January 2004, the State Legislature expanded the definition of sexual discrimination and harassment to include a new category: gender identity. This new category may create substantial changes to the treatment of employees in your workforce. So, understanding “gender identity” and the scope of the Legislature’s protection is important. There are no reported cases interpreting this new law, but the legislation and definitions provide insight into how the new protection may be interpreted.

In enacting this amendment to the existing protections against employment discrimination and harassment, the Legislature stated:

This bill would expand the prohibition on sexual discrimination and harassment by including gender, as defined, in the definition of sex. The bill would permit employers to require employees to comply with reasonable workplace appearance, grooming, and dress standards consistent with state and federal law, provided that employees are allowed to appear or dress consistently with their gender identity (emphasis added).

Definition of Gender Identity

The term “gender identity” was not added to the list of protected classifications. Rather, the definition of “sex,” which is already included as a protected classification, was expanded to include “gender identity.” This expansion of the definition leaves open an argument that the protection should apply retroactively. However, this issue has not been decided and the enacting legislation is silent on the issue.

The definition of “sex” now specifically includes “gender” as that term is defined in the California Penal Code. The penal code definition reads, as modified by the new legislation:

[G]ender means the employee’s actual sex or the employer’s perception of the employee’s sex, and includes the employer’s perception of the employee’s identity, appearance, or behavior, whether or not that identity, appearance, or behavior is different from that traditionally associated with the employee’s sex at birth.

Based upon this definition, gender identity protection seems to fall into at least three categories:

1. Traditional discrimination based upon an employee’s gender. An employer terminates an employee because of his/her gender.

2. Discrimination based upon an employer’s perception of an employee’s gender that is inaccurate. An employer terminates an employee based upon the perception that the employee is female; however, the employee is actually male whose identity, appearance or behaviors have given the employer the perception that the employee is female.

3. Discrimination based upon the employee’s identity, appearance or behavior that is different from the gender traditionally associated with the employee’s sex at birth. An employer, perceiving an employee to be male, terminates the employee because the employee’s identity, appearance and behavior are traditionally associated with a female.

Dress and Grooming Standards

Although the scope of the protections expanded by “gender identity” will be left to the Courts to determine, the Legislature provided a specific provision dealing with dress and grooming standards. It reads:

Nothing in this part relating to gender-based discrimination affects the ability of an employer to require an employee to adhere to reasonable workplace appearance, grooming, and dress standards not precluded by other provisions of state or federal law, provided that an employer shall allow an employee to appear or dress consistently with the employee’s gender identity (emphasis added).

This final clause may prove to be problematic for some employers. It requires an employer to permit an employee to dress consistently with the employee’s gender identity regardless of whether the gender identity corresponds with the gender associated with the employee’s sex at birth. Thus, an employee whom an employer perceives to be male has the right to come to work dressed as a female. So long as the employee has complied with the employer’s dress and grooming standards for females, the employer can take no disciplinary action against the employee for dressing as a female.

There are no exceptions for business disruption or employee morale that are reasons some employers may offer for taking disciplinary action against such an employee. The message sent by the Legislature is that, so long as dress and grooming standards are met, the gender by which employees choose to portray themselves is irrelevant to the workplace.

Recommendations for Compliance

First, there is no need to modify any existing policy prohibiting discrimination and harassment. By definition, gender identity is included in the term “sex.” Any additional reference would be redundant.

Second, most written dress and grooming standards are not gender-specific and therefore would not require any modification. However, it may be necessary to instruct supervisors and managers on the ramifications of gender identity on dress-and-grooming and other employee policies. Those written dress-and-grooming policies that outline separate standards for men and women should be amended to reference the applicability of gender identity.

For more information about the topic above, contact Treaver Hodson at thodson@pkwp-law.com or (916) 442.3552. To read Mr. Hodson's professional profile on the Palmer Kazanjian Wohl Perkins website, click here . Return to Top

The Do's And Don'ts Of Employment Inquiries With the number of protected classes ever on the increase (as of January 1, 2004, gender identity is now a protected class – see the article in this newsletter titled “Understanding Gender Identity Discrimination and Harassment in California”) employers are hard-pressed to know what questions they can and cannot ask of applicants and/or employees. A well intended, innocent question, such as, “What was your maiden name?” or “Do you have any children?”, may leave an employer open to charges of discrimination based upon national origin, sex, marital status, gender identity, and/or sexual orientation. To insulate itself from potential claims, an employer should familiarize itself with the subject areas that could present potential problems; that is, subject areas which are protected by federal and/or state statutes. Below is a list of some of the subject areas that present a struggle for employers. Mental and or Physical Health: All inquiries into an applicant’s general health, medical condition and/or mental or physical disabilities are prohibited. An employer may not, consistent with state or federal law, require a psychological or medical examination of an applicant. After a job offer has been made, an employer may condition final approval for hire upon the results of a medical and/or psychological examination so long as such examination is job related and consistent with business necessity. Photographs and/or Physical Descriptions: An employer may not require applicants to submit photographs or provide physical descriptions of themselves with applications. Similarly, an employer may not request information relating to an applicant’s height or weight. Federal and state law permits an employer to require an applicant to submit a photograph upon hire. National Origin: Where speaking a language other than English is relevant to a job, an employer may ask a job applicant, “Do you speak a language other than English?” However, if challenged later, the employer carries the burden to prove that the inquiry was directly related to the job at issue. Questions related to ancestry, lineage, nationality of applicant and/or applicant’s spouse, parent or other relatives are strictly prohibited. Sex and Marital Status: If applicant is a minor, the employer may inquire as to the name and address of a parent or guardian Additionally, if an employer has a policy regarding supervision of employees who are related, such policy may be distributed to both applicants and employees. However, all questions relating to an applicant’s or employee’s sex or marital status violate the anti-discrimination statutes and leave the employer open to many legal challenges. Do not ask questions about (a) number of children; (b) number of pregnancies; and/or (c) whether employee has ever been married or divorced. And never ask the applicant’s gender. Religion: An employer may advise an applicant and/or employee of the days and hours to be worked; an employer may not question an applicant and/or employee as to whether the days and hours to be worked conflict with his or her religious beliefs. Nor may an employer inquire as to what church the applicant or employee attends, or whether he or she observes any religious customs or traditions. Age: Other than advising applicants that their hire is subject to verification of meeting the legal age requirements (if any) for the job, an employer may not discuss age in any other manner. An employer should not ask for the date of completion of high school or college, the birth date of applicant or the specific age of applicant or employee. Sexual Orientation: Absolutely no questions regarding a person’s sexual orientation are allowed. The law does not recognize any exception to this rule. Because no business justification exists for any inquiry into this area, it is presumed that any such inquiry is unlawful. Race: The same is true for race – no questions are allowed because no reasonable justification exists for any inquiry into this area. The above list represents some of the major areas of inquiry that could potentially subject an employer to claims of unlawful conduct. As the number of protected classes continue to grow, so too do the number of unlawful inquiries.

For more information about the topic above, contact Larry Kazanjian at lkazanjian@pkwp-law.com or (916) 442.3552. To read Mr. Kazanjian's professional profile on the Palmer Kazanjian Wohl Perkins website, click here . Return to To

Can Injured Employees Use Cal-OSHA Standards As A Sword? Can Injured Employees Use Cal-OSHA Standards As A Sword? The answer is clearly “yes.” But, how can the safety standards be used and against whom? Employers? Third parties? How about employers through third parties? Employers Assume an employee is injured on the job and the injury relates to, or can be related to, one of the many Cal-OSHA safety standards found in the California Code of Regulations. If the employee is represented, it is beyond tempting for the employee’s attorney to claim that the safety standard was not met, and that the failure was the cause of the injury. But, the employer can find some protection in the exclusivity provisions of the Workers’ Compensation Act. The employee is not permitted to file a civil action claiming negligence. Rather, the employee is limited to claims within the workers’ compensation system. The primary claim within the system seeks recovery for the medical costs and lost wages associated with the injury. A common secondary claim within the system alleges a “serious and willful” violation under Labor Code section 4553. The standard to establish a serious and willful violation and resulting increased penalty is quite high. The employee must show that the employer’s conduct was with knowledge of the peril, or done with a positive and active disregard of the consequences. See, e.g., Hawaiian Pineapple Co. v. Industrial Acc. Comm. 40 Cal.2d 656, 643 (1953). The employer is not liable unless the employee shows that the employer’s disregard was more than carelessness or even gross carelessness. Id. Nevertheless, evidence of the employer’s failure to adhere to safety regulations has the practical effect of making the employee’s burden significantly easier. Accordingly, even though injury claims against employers are subject to the exclusivity provisions of the Workers’ Compensation Act, employers have good reason to avoid violations of safety regulations. Third Parties Until recently, the use of evidence of safety violations by employees to prove liability for workplace injuries against third parties (not the employer) was expressly barred by statute. See Cal. Labor Code § 6304.5 (former version). However, that statute was amended by the Legislature in 1999. The amendment and its ambiguity have spawned conflicting appellate decisions. In Elsner v. Uveges, 106 Cal.App.4th 73 (2003), one appellate court ruled that an employee cannot introduce evidence of safety standard violations in an action against a third party. More recently in Gradle v. Doppelmayer, 2004 DJDAR 2589 (Feb. 27, 2004), another appellate court reached the opposite result. The Gradle court ruled that the Legislature’s amendment changed the prior and long-standing rule that evidence of safety violations is inadmissible in actions against third parties. The ruling is critical in many instances to the third party defendant. It may well be critical to employers too for the reasons discussed below. In Gradle, an employee of the June Mountain ski area lost his leg when he fell into the ski lift machinery he was attempting to repair. The employer and owner of June Mountain had contracted with Doppelmayer USA, Inc. to retrofit the ski lift in question. For some reason certain safety guards were not put in place. The employee sued Doppelmayer claiming among other things that the company was negligent in conducting the retrofit. The employee sought to introduce evidence that California safety standards require the guards that were missing, and from such evidence, a finding that Doppelmayer’s failure was negligence per se. Obviously, Doppelmayer wanted to exclude any evidence of the safety standards, and argued that Labor Code section 6304.5 had always barred such evidence. The employee argued that the amendment now permitted the introduction of such evidence. The appellate court agreed. Evidence of safety violations most commonly functions to make an employee’s third party negligence action easier to prove. For that reason, attorneys representing employees have reason to celebrate the Gradle decision. However, the California Supreme Court is scheduled to review the Elsner decision, and in doing is likely to resolve the conflict between the two decisions. Will it be good for plaintiff/employee attorneys or the third parties? We will just have to wait and see. Employers Through Third Parties But, why should employers care? The Gradle and Elsner cases only concern third party liability. The employer is still protected by the workers’ compensation exclusivity, right? Maybe. Take the Gradle case. The employee sues a third party, Doppelmayer. Assume employee prevails in showing Doppelmayer was negligent and liable to employee for the lost leg. After paying out big bucks to employee, Doppelmayer sues the employer, June Mountain, seeking indemnity. If the indemnity sought is implied or equitable (i.e., June Mountain should have put the guards on, so the employer is also responsible), June Mountain is protected by the exclusivity of workers’ compensation. But, there is no such protection if June Mountain has agreed by contract to indemnify Doppelmayer. Perhaps the retrofit contract between June Mountain and Doppelmayer provides that June Mountain will indemnify Doppelmayer for any claims made against Doppelmayer in relation to the retrofit. On such facts, the employer now has every reason to be concerned about the admissibility of safety standards in the third party action. Employers cannot control the Supreme Court, and ultimately whether or not evidence of safety standards is admissible in third party actions. And, depending on any set of unique facts, it may turn out to be in an employer’s best interest to have the evidence admitted. Employers can, however, control their agreements with subcontractors and vendors. In particular, employers should be careful when agreeing to indemnify the subcontractors and vendors. Depending on the wording of such agreements, the employer may step outside the exclusivity of workers’ compensation and expose itself to liability through third party actions.

For more information about the topic above, contact Larry Kazanjian at lkazanjian@pkwp-law.com or (916) 442.3552. To read Mr. Kazanjian's professional profile on the Palmer Kazanjian website, click here . Return to Top

Updating Your Retirement Plan Is Less Taxing Than IRS As part of its ongoing effort to improve compliance in the retirement plan arena, the IRS recently published “Ten Reasons to Identify and Correct Mistakes in Your Retirement Plan.” Some interesting tidbits from the IRS article are summarized here. The excuses the IRS hears most for not regularly reviewing retirement plan operations and bringing plans into compliance are: We don't have any problems with our retirement plan. (We haven't looked too closely but we hope it's okay.) A close look at our plan would be expensive. If we find a problem with our plan it will be too expensive to fix. And how do we know what to do to fix it? We don't have the (insert one or more) (a) time, (b) staff, (c) money to deal with retirement plan issues on a regular basis. I don't want to have any contact with the IRS that I can avoid. If there's a problem with the plan I don't want upper management to know about it. I paid the accountants to do the annual financial audit so we're okay. A few good reasons the IRS cites for identifying and fixing mistakes in the operation of retirement plans include: What you don't know can hurt you. Hoping that your retirement plan is operating according to its terms and within the law isn't enough. A program of regular review and analysis of the plan document and its operation is essential to keeping the plan healthy. Problems in plan administration are easier – and cheaper – to fix when they're small and haven't continued over a long period of time. Without regular oversight and review, retirement plans can quickly stumble into trouble – sometimes big trouble. As Bob Dylan said in another context, “The times they are a-changin.” And so is the law related to retirement plans. Frequently. Ten major changes in pension law in the past 25 years and numerous smaller changes mean that what worked last year may no longer work now. Of course, these changes may also mean you can simplify some areas of plan administration or improve benefits. Changes to pension law in the future are a good bet. Plan language and operation will need to be changed to keep the plan within the law and to take advantage of increased benefit limits. An objective – and fresh – set of eyes may see problems the plan's day-to-day administrators don't. An independent review of the plan and its operation may turn up not only problems that hide in everyday operation of the plan but opportunities for changes that will improve benefits for participants. Or even save money on plan administration. Ignorance may be bliss but it's not cheaper. At least not with retirement plans. Mistakes in retirement plan operations seldom go away on their own. They often continue year after year unless they're found and corrected. Finding a mistake in the first year it's made will be easier and less expensive to fix than the same mistake repeated over five, ten or fifteen years. And the correction programs sponsored by the IRS are structured to provide financial incentives for finding and correcting mistakes earlier rather than later. Plan participants expect their retirement plan to deliver what's promised. Mistakes in plan operation can take away from the significant employee morale boost provided by sponsorship of a retirement plan. Liability for failure to follow the terms of the plan and stay within the law is a real risk for plan sponsors. Ongoing independent review of plan operations and correcting mistakes reduces that risk. The IRS encourages appropriate use of its correction programs. Many problems found within two years can be corrected without any involvement by or notification of the IRS. For more complex plan operation problems, a small fee (based on the size of the plan) payable to the IRS may be required. For companies hesitant about working with the IRS, a “John Doe” program allows a plan sponsor to tell the IRS about a problem and find out what correction will be required on an anonymous basis. Importantly, using IRS correction programs won't cause an audit. However, if a mistake isn't found until an IRS audit of your plan, it will cost more than if you found and corrected the error on your own. Ensuring that the retirement plan you and your employees count on is in good running order keeps the promise you made in setting up the plan. It’s the right thing to do.

For more information about the topic above, contact Treaver Hodson at thodson@pkwp-law.com or (916) 442.3552. To read Mr. Hodson's professional profile on the Palmer Kazanjian Wohl Perkins website, click here . Return to Top

This communication contains general information and is not intended to provide legal advice. Should you require legal advice, please seek the assistance of legal counsel. To unsubscribe to this newsletter: click here. © Copyright 2004 Palmer Kazanjian Wohl Perkins LLP