Privacy – A Balancing Act for Employers

Robert Fried, a partner in the Pleasanton office of Atkinson, Andelson, Loya, Rudd and Romo, manages the Northern California private sector labor employment practice for the firm’s Employer Services Practice Group. He is the author of some of California’s leading texts on human resources practices. Robert has been consistently named as one of the top litigators in the San Francisco Bay Area by Bay Area Lawyer Magazine.

Marcia A. Ross, a partner in the Fresno office of the Atkinson firm, focuses on assisting employers in compliance with state and federal leaves of absence and reasonable accommodation laws and regulations. She represents employers in all aspects of labor relations and employment law, and is experienced in dealing with union contract compliance, grievances and arbitration, union organizing and union election situations. Marcia is a frequent guest lecturer on labor and employment law topics.

In the increasingly complicated electronic age, employers are faced with new challenges in their efforts to protect their business interests and comply with obligations to protect employee privacy.

Employee privacy rights are derived from a variety of federal and state laws and regulations. In California, privacy is guaranteed to all individuals by Article I, Section 1 of the California Constitution. This law applies to private employers. However, this right of privacy is not unlimited. Employees have a privacy interest in confidential or personal information, which is referred to as “informational privacy,” and a privacy interest in making their own choices and decisions, which is referred to as “autonomy privacy.”

An employee must establish the following elements in order to state a claim against his or her employer for violation of his or her right to privacy: (1) a cognizable privacy interest; (2) a reasonable expectation of privacy; and (3) a serious invasion of that privacy interest. The nature and extent of an employee’s privacy interest is measured using objective standards based on accepted societal norms relating to privacy with consideration of the realities of the workplace.

Once the employee establishes a privacy interest, an expectation of privacy and an invasion of that interest, an employer can defend itself by establishing that it had an important business reason for violating the employee’s privacy and that other, less intrusive means, of satisfying the business purpose were not available. Employer business needs include measures necessary to satisfy productivity and efficiency standards, allow for adequate supervision of the workforce and provide for workplace safety.

Courts apply a balancing test in analyzing whether a privacy violation has occurred. The court will weigh the employee’s reasonable expectation of privacy in the specific situation and circumstances involved in the employee’s claim for violation of privacy against the employer’s need to take the action being challenged. The court will look at the importance of the employer’s business need and whether or not the employer utilized the least intrusive method to achieve its purpose.

Privacy-related lawsuits brought against employers include claims based on alleged violations of the constitutional right of privacy and common law tort claims for invasion of privacy. Employee privacy is also protected under the California Labor Code and federal and state laws prohibiting discrimination and harassment.¹

As will be discussed in more detail below, employers can protect their business interests and reduce the likelihood of employee privacy claims by taking specific steps to reduce the employees’ expectations of privacy in the workplace and by ensuring that they utilize the least intrusive methods when they undertake actions that could impact employee privacy rights. Whenever possible, employers should give employees advance notice of the planned action and attempt to obtain employee consent to the action.

Searches of personal property
Under the constitutional right to privacy, employees have a privacy interest in items they bring into the workplace, such as purses and handbags, briefcases, and tool boxes. Employees also have a privacy interest in any work areas that are reserved for their exclusive use, such as desks, offices, lockers and company vehicles.

Employers can reduce employees’ expectation of privacy by maintaining written policies reserving the right to conduct workplace searches and informing employees that anything they bring into the workplace may be searched. Prior to any search of employee property or work areas, an employer should attempt to obtain employee consent to the search. Consent is a defense to any privacy violation claim.

Employers can also protect themselves by ensuring that any workplace search is based on objective evidence of potential work-related misconduct, such as concealed drugs, weapons or stolen property, or that the search was necessary for a significant business reason, such as the need to find work-related documents when the employee was out of his or her office. Employers should limit the scope of any search and limit those involved in any search to those absolutely necessary for a successful result.

Access to employee computers and E-Mail messages
Business use of computers, email and the Internet is widespread and, in many cases, essential. This creates particular problems for employers that need to ensure that employee use of company-provided computer resources is appropriate. Because most computer systems require a password for access, employees may believe that their e-mail messages, information on their work computer and information about their use of the Internet are private.

To reduce employee expectations of privacy relating to their use of company-provided computer resources, every employer should have a written policy reserving the right to access e-mail messages and other information maintained on the computer, as well as the right to audit employee internet access using company resources. The courts have supported employers in such situations finding that employees had no right of privacy in information stored in their workplace computer when the employer had a clearly disseminated computer-use policy.²

The written policy should clearly outline the limitations on employee use of the company-provided computer and prohibit any use for improper or illegal purposes. A written computer policy reserving the right to access all information and requiring all employees to disclose their passwords to the system administrator should diminish any expectation of privacy. Absence of such a policy could significantly undermine the employer’s ability to argue that the expectation of privacy had been diminished. See Zieglar, supra at 9086.

Employers should be aware that this right to access employee computer information carries certain responsibilities. Any employee personal information that is accessed in the course of employer searches should be treated as private information and not disseminated. However, when the information uncovered discloses possible criminal activity very different considerations arise. Courts have held that an employer that who discovered an employee was accessing child pornography on his work computer was required to investigate, report the activity to appropriate law enforcement authorities and to take effective action to stop the employee’s illegal activity.³

Interception of employee emails by employers using certain software programs may risk potential violation of the Federal Wiretap Act. One federal court held that a software program that copies the email while it is being transmitted and then delivers the copy to someone other than the intended recipient creates an “interception” which is prohibited under that federal law.⁴ In order to avoid violation of the wiretapping laws, employers should be sure that employees are informed that the employer may monitor their emails and that the employees expressly agree to such monitoring.

Employee blogs
The increase in employee use of “blogs” and websites intended for sharing personal information creates other potential risks for employers. Employers have a valid interest in ensuring that such websites and blogs are not used to defame the employer or co-workers or to reveal private company or co-worker information.

Employees have protected rights to engage in legal on-work conduct. Consequently, employers can include limited restrictions on employee work-related communications on these personal websites and blogs, but such policies cannot prohibit employees from personal use of the Internet during off-work hours. Employers should also be cautious about use of information that they might obtain by accessing employees’ private websites.

Labor rights - a privacy trump card?
Although not “privacy” rights in a traditional sense, the National Labor Relations Act guarantees employee rights to freely engage in concerted or union related activity, including the right to discuss such matters away from the employer’s eyes and ears. The separate statutory source for these rights means that situations can arise where, even though the civil courts might view an employee’s privacy rights as diminished, or the employer’s right to access and review information on workplace computers as clear, the NLRB might nonetheless conclude that the actions of the employer in doing so are unlawful. In a potentially landmark case presently pending after oral argument case,⁵ the NLRB posed the questions for decision:

• Do employees have a right to use their employer’s e-mail system (or other computer-based communication systems) to communicate with other employees about union or other concerted, protected matters? If so, what restrictions, if any, may an employer place on those communications? If not, does an employer nevertheless violate the Act if it permits non–job-related e-mails but not those related to union or other concerted, protected matters?
  
  
• Should the Board apply traditional rules regarding solicitation and/or distribution to employees’ use of their employer’s e-mail system? If so, how should those rules be applied? If not, what standard should be applied?
  
  
• If employees have a right to use their employer’s e-mail system, may an employer nevertheless prohibit e-mail access to its employees by non-employees? If employees have a right to use their employer’s e-mail system, to what extent may an employer monitor that use to prevent unauthorized use?
  

Work place surveillance
Employers have a variety of business reasons why they may want to monitor their workplace. Depending upon the nature of the business, surveillance may be utilized to prevent theft or to provide enhanced security for the business and its employees. Employers should be aware that there are restrictions on video and/or audio taping in the workplace.

The California Labor Code contains a provision prohibiting audio or video recording of an employee in a restroom, locker room or room designated for changing clothes, unless the taping is authorized by a court order. Video surveillance using a device that records both audio and visual signals has also been found to violate federal law.⁶ California law also recognizes a tort claim for invasion of privacy, including claims for intrusion into seclusion, which utilizes the “reasonable expectation of privacy” standard for determination of the validity of the claim.

Employers can limit potential liability for such invasion of privacy claims by limiting workplace surveillance to public areas and by giving employees advance notice of the use of surveillance devices.

The danger of using surveillance devices in private areas is illustrated by a recent California case involving installation of motion-activated video surveillance devices in a private office. The employer was using these devices to try to identify individuals who were accessing workplace computers at night to view pornographic websites. The employer did not warn employees about the camera or that they could be subject to video recording in offices. Two female employees sued for violation of privacy asserting that they used the private office to change clothes before going to the gym. The court held that the employees had a reasonable expectation that they would not be videotaped in the office and that the employer had not demonstrated that there were not less intrusive methods of conducting its investigation.⁷

Employers should also be aware of potential privacy violations created by the use of cellular telephones equipped with digital cameras. Improper use of digital image devices could give rise to harassment claims as well as invasion of privacy claims involving co-workers or other individuals in the workplace. Employers should include prohibitions against improper use of such cameras in the workplace, including use in private areas such as restrooms or locker rooms, in its work rules and/or employee handbook.

Other electronic devices that create the potential for employee privacy violations are global positioning system (GPS) devices or radio frequency identification (RFID)-enabled security badges. These devices allow an employer to monitor employee locations and movement inside and outside of the workplace. If such monitoring occurs during non-work time, including meal and rest periods, employees may assert invasion of privacy claims. Employers should limit the use of such devices and, if possible, use devices which can be turned off when the employee is off duty.

There are many other potential employee privacy issues that are beyond the limited scope of this article. Employers should be aware that privacy issues may arise in situations involving drug and alcohol testing, background checks, credit checks, criminal history checks, and employee medical examinations.

Employers also have obligations to protect employee personnel information, including social security numbers, medical information and other personal information disclosed by the employee during employment and retained in employer records and files.

1 Title VII of the Civil Rights Act, Americans with Disabilities Act and the California Fair Employment and Housing Act.
2 United States v. Ziegler, 456 F.3d 1138 (9th Cir. 2006). Significantly, the Ninth endorsed the rationale of a carefully worded CA appellate case, TBG Ins. Services Corp. v. Superior Court, 96 Cal. App. 4th 443 (Cal Ct. App. 2002) which, in the special context of California’s consti- tutional privacy protection, nonetheless viewed the “diminished expectation of privacy” in work place computers as the “societal norm.”
3 Doe v. XYC Corp., 887 A.2d 1156 (N. J. Super. Ct. Dec. 27, 2005).
4 United States v. Councilman, 418 F.3d 67 (1st Cir. 2005).
5 The Guard Publishing Company dba The Register-Guard and Cases 36-CA-8743-1 36-CA- 8849-1 Eugene Newspaper Guild, 36-CA-8789-1 CWA LOCAL 37194 36-CA-8842-1
6 Electronic Communications Privacy Act of 1986.
7 Hernandez v. Hillsides Inc. , 142 Cal.App. 4th 1377 (Cal Ct. App. 2006).

By Tanya Butler, M.S.,
Helpline Consultant

Changes in technology, flexible work schedules, and remote work teams-these are some of the realities that have altered the ways that supervisors need to manage in today's workplace.

Old strategies of “managing by walking around” and monitoring face time no longer work when employees or teams are working in different locations. Today, you are more likely to find these situations:

• Meetings held via conference call, email, chat room or virtual meeting space.
• Presentations and training conducted by the click of a mouse.
• Collaboration with remote co-workers and employees online to prepare for face-to-face meetings with advance materials.
• Review of contracts or edits to a document are done in real time.
• Printed materials are rare and we send people to the Web instead.
• The posting of job opportunities, new information, photos, document changes and training schedules are just some of the tasks that are now handled online.

What’s a manager to do? Learn long distance leadership.

How do I improve communications in a virtual environment?
Long distance leadership frequently means changing the way a manager works. In the old school of leadership, managers are hands-on, physically checking in on the work being done, and getting water cooler updates. They are concerned about how they will control the quantity and quality of work when employees are scattered about at various locations.

Email is becoming the primary means of communication with employees. A good long distance manager responds promptly to email inquiries. If an employee walked into a manager’s office during the day with a question, the manager would probably take a few minutes to respond. An email inquiry is often like someone popping in the office with a quick question. The employee is waiting for manager prompt attention. If an immediate response is not possible, try to get back to the employee within a day or two at most.

At a more fundamental level, managing from a distance means learning to delegate succinctly, and build trust diligently. Successful managers of telecommuters and virtual teams provide individuals with both purpose and process. They communicate clear team and individual goals, and provide understandable guidelines for how to achieve those goals.

Leadership is often an informal exchange in the hall or a casual conversation at lunchtime. These spontaneous exchanges of information become intentional communication for the long distance manager. Distance leadership relies heavily on the written word. It is important to have clear, concise, consistent communication with employees.

Communicating via blogs
A blog (or weblog) is a great way to maintain ongoing, consistent communication with employees. A manager can post daily, weekly, or as needed, updates and messages to employees. Blogs are meant to be informal, casual forms of communication. Managers can share what is going on each week in the program, or talk about upcoming events, new postings, etc.

Managers can add a “comments feature” so that employees can post questions or share comments that are visible to all. A blog is a nice tool for creating an employee community. It allows a manager to communicate in a very personal, informal way with employees.

Web sites are an interactive tool
Employee sections of agency websites are often quite static. The information rarely changes and there is little reason for employees to check it from time to time. This is a huge mistake. Not only is it an excellent recruitment tool among Internet savvy people, it is a great place for creating an interactive community by posting new employee opportunities, photos and recognition notices.

An effective distance leadership technique is to create web based groups of employees. Perhaps all the employees doing certain types of work can become members of that specific group so that the manager can share job specific information with them. Group members would have access to a group “page” where they can get information, exchange ideas, sign up for new projects or check a calendar of training or events specific to their areas of work and interest. The group could have a homepage with links to basic information or a place for “breaking news.” Managers may even have a file area where employees can share information and data.

Tips for long distance managing
If managers are providing long distance leadership to employees, the following tips will help manage expectations, people and communications.

• Set clear goals.
• Be certain the tasks are understood.
• Establish responsibility for completing tasks, including dates when things should be submitted, reviewed, completed.
• Have a process for regular communication with one another.
• Don’t abuse email. Most people get more than they want, so be sure manager use it wisely. Be brief and to the point. Learn proper email etiquette.
• Consider creating a blog or web-based groups of employees.
• Make appointments to call employees from time to time and build a personal relationship. In-person conversations help two people not only learn facts about one another, but also how to relate to one another.
• Send regular, consistent updates and keep employees informed of overall happening in the organization. Share information about new employees, new employees, and important events. Help employees feel connected.
• Follow up. Send a notice before something is due as a gentle reminder.
• Send an annual summary of work performed, clients served, outcomes reached.
• Share achievements among employees.
  
• Send each employee a handwritten card at least once a year. Email is convenient, but a personal note is still a nice touch.
• Be personal and make an effort to combine high tech with high touch.

Clearly defined goals and guidelines help to foster trust. Developing the kind of social warmth, spontaneous humor and social bonding that comes naturally when people get together, is the challenge of working virtually.

To overcome this problem, core teams typically come together once each quarter, to spend 2-3 days physically working together. Teams have also developed trust by building strategies using the technical tool of the virtual workplace. One technique is to start a conference call with an opportunity for everyone to check in personally before moving on to project status.

(Editor’s Note: Next month, look for Part 2 of this article.)

When Transsexual Employees Transition

By Mark Nelson, J.D.,
Helpline Consultant

The term “transsexual” refers to individuals who wish to take on the lifelong social role of the gender they identify with, as opposed to the one they were assigned at birth. This may involve behavior modification, hormone treatments, and even sex reassignment surgery.

By contrast, the much broader term “transgender” refers to any individual who does not conform to the social stereotypes of either masculine or feminine and can, for example, include cross-dressers who, unlike transsexuals, do not wish to make their identification with the other gender a permanent one. Transsexuals may identify under the umbrella term transgender, but transgender individuals are not necessarily transsexual.

These terms are sensitive ones to individuals who identify as one or both and deference must be given to how they wish to be regarded. This article focuses on the narrow topic of transsexuals in transition, whether from male to female (MTF) or female to male (FTM). (Note: Future articles will address the broader topic of transgender employees.)

Despite a growing number of states that prohibit gender identity discrimination in employment via case law or by statute (25 if you add D.C), transsexuals still experience higher rates of unemployment and face untold discrimination and harassment in and out of the workplace.

We, as HR professionals, must acknowledge the courage necessary for an employee to undergo a transition before we can even begin to facilitate that process for them. There can be no room for anything less; such a negative perspective not only signals a lack of compassion and professionalism, it can also provide all the circumstantial evidence necessary to support a claim of an illegal discriminatory motive, especially if such courtesies are always extended to other employees when medical issues arise. And, of course, just because that transition necessarily involves an outward expression of their identification with another gender, it does not mean we can disregard the employee’s concerns for privacy throughout their transition.

EEO policies
First and foremost, update your EEO policy to reflect the company’s commitment to prohibiting discrimination or harassment on the basis of gender identity. Do not rely on the catch-all phrase “and any other characteristic protected by law” at the end of a long list of other protected classes, all referenced by name. You want the employee to know the company supports them when the time is ready to undergo the transition.

Reasonable accommodation
Even if the employee’s transition does not involve any time away from work (i.e., signaling FMLA and CFRA), California is no longer aligned with federal disability law, which definitionally excludes transsexuals. In other words, in California, transsexuals enjoy access to reasonable accommodations. When an employee makes the request, be prepared to engage in the interactive process with them.

Restroom access
Transsexual employees should have access to the bathroom that corresponds with their fulltime gender expression, regardless of physical characteristics. Whether they have had, or intend to have, sex reassignment surgery is none of our business nor is it the business of their colleagues.

That said, however, respect your employee’s wishes. If a transsexual employee would feel more comfortable using a single-stall restroom, accommodate the request if such facilities exist. Consider installing a unisex single-stall restroom regardless. In cases where nudity may be unavoidable, as with a dressing room, make accommodations for the employee that assures adequate respect for their privacy.

Dress codes
California’s Government Code Section 12949 provides that employers shall not be prohibited from requiring employees “adhere to reasonable workplace appearance, grooming, and dress standards…provided that an employer shall allow an employee to appear or dress consistently with the employee’s gender identity.” If the employee abides by the dress code appropriate for their gender expression, this should be a non-issue.

Names and pronouns
Refer to the employee with the name and pronoun that reflects their fulltime gender expression. Your company’s diversity training should already adequately address this courtesy, as well as the other topics addressed above.

Introductions
While the process of transition happens over the course of several months and even years, the moment an individual finally identifies as a member of the other gender may seem rather sudden – as if the employee leaves work one day and reappears the following with a new gender assignment.

Invite the employee to discuss how they want their new identity and name change to be handled and follow their lead. They may wish the announcement to be made before they return in, say, an already scheduled all-employee meeting. If this is the case, ensure a statement of support from the top accompanies the news. If the employee wishes to have the matter handled with more discretion, respect their wishes and let them address it in due course, assuring them of the company’s support.

Conclusion
The one underlying thread to this entire discussion is ensuring that the transsexual employee know the company respects them and extends them the dignity afforded all employees in the company..

(Editor’s Note: If you have any additional questions on this topic, or which to discuss specific situations, the Employers Group Helpline is available.)

How you Label Termination “Pay” Affects UI Benefits

By Sarah Rios,
Manager Unemployment Insurance Services

It is not uncommon for an employer to award extra money to an employee at the time of termination—and just as common that an employer will label the pay as “severance pay”.

Any money received by an employee as “severance pay” is not counted as wages for unemployment insurance purposes. It is important for employers to know that merely labeling such pay is not the controlling factor. Simply assigning the label of “severance pay” or “in lieu of notice pay” does not make it so.

The California Employment Development Department (EDD) will look at the actual purpose or plan for distributing the money. Determining factors include:

• Is there an established plan for payment at time of separation? Is the amount and to who paid discretionary?
  
  
• Was advance notice of termination given? Is there a collective bargaining agreement?
  
  
• Is the money intended to be for an individual or a group?
  
  
• Will money be paid in a lump sum or at intervals?

These factors and others will determine whether or not the money paid will be considered when paying unemployment insurance benefits.

Pay In-Lieu-of-Notice / Continuation Pay
Generally, Pay In Lieu-of-Notice would be counted as wages for UI purposes. After the last day the individual is paid, the former employee may file a claim for UI benefits. Also Wage Continuation Pay in the same manner as if the individual was working would be disqualified for UI benefits while receiving Wage Continuation.

Plan ahead with the EDD
If you will be separating a number of employees, you should contact the EDD with information about any monies that will be paid in addition to regular salary. The EDD can then establish whether that money constitutes Severance Pay, Pay In Lieu-of-Notice Pay, or Wage Continuation Pay. The EDD will then issue a Wage Notice. This is helpful so that each claim for benefits can be treated consistently.

Special note
Be very careful with “golden handshake” agreements that offer a sum of money to the employee in exchange for “not filing any claims against the company.” Filing a claim for unemployment insurance benefits does not void such an agreement, since the right to file a UI claim is not controlled by the employe.

Preparing for the SPHR
A personal account

By Kimberly Nwamanna,
Helpline Consultant

It seems like yesterday when I interviewed for the third time with “the” ideal organization and was asked if I have a human resources certification, such as the PHR or SPHR. My heart sank when I heard the question, because I knew that this could be a deal breaker. Going as far as a third and final interview is usually a positive sign. After all, I was qualified, had proven I had the knowledge and ability to apply my skills, and personality-wise, I seemed to click with the hiring manager.

In the end, a job offer was not extended – without an explanation. I naturally assumed it was directly attributed to not being certified. Thus, I began to reflect, ask questions of other HR professionals, and still I came up with the opinion that certification should bear no relevance regarding HR professional acumen.

The relevance of an PHR/SPHR
Is there really any relevance or correlation to obtaining a professional certification and applying the knowledge that an HR professional have? Should a professional certification be relevant to California employers? Do HR professionals really need this to be effective? I set out to find the answers, and ultimately discovered that the journey itself was paramount.

A change of heart
Human resources professional certifications are generally awarded to individuals who possess theoretical knowledge and practical experience in human resources. By sticking to my opinion, I had rejected the significance of “theoretical knowledge” as a measure for applying HR knowledge. So, on October 10, 2006, I embarked on my own quest to obtain my Senior Professionals in Human Resources Certification (SPHR) designation from the Human Resources Certification Institute (HRCI), a credentialing organization.

Preparing for the exam
The first approach taken was to review HRCI’s Body of Knowledge (BOK) which reflects the examination specifications. The BOK has a list of standards designed to help exam candidates prepare for the exam. Additionally, the BOK identifies specific content within each category that may be tested.

Secondly, I sought advice from others who were already certified. The overwhelming consensus was that retaining content is principal, but acquiring testing techniques and skills would be indispensable. Consequently, the four months preceding the exam, I plunged into understanding everything that I could about the psychology of the exam, attended web-based seminars, and used a certification learning system study tool. Periodically, I practiced answering sample exam questions for the purposes of gauging and fine-tuning my depth of knowledge, along with identifying BOKs to concentrate on.

Four weeks before the exam, I went into panic mode, but recovered quickly by focusing solely on mastering sample test questions. One major challenge was to dissect my predisposition to inject “expert” recommendations in rationalizing test questions. However, once I realized a technique to deconstruct the questions, my overall score and understanding increased. This was my “ah-ha” moment.

One week prior to examination date, my confidence fell apart. After all, I heard stories of disappointment and frustration, from those I respected. Fortunately, I also received positive encouragement from colleagues just as I was about to convince myself to put off testing until the next time around.

On the day of the exam, with my Jamba Juice in hand, I showed up an hour and a half early. I was advised to arrive early and to be prepared for a long line of testers. Fortunately, there wasn’t a line, and I had an opportunity to relax.

Go for it
If you are still deciding whether to obtain your PHR/SPHR certification, don’t regard the designation as a measure of how you apply your knowledge, skills or ability. Instead, consider it as a benchmark and validation of your general knowledge with respect to federal laws, regulations and practices. In spite of my quandary, I had to realize that if my HR aptitude were to be measured, some assessors or interviewers, find PHR/SPHR certificated professionals easier and quicker to appraise. Tests are established as a mean to measure general knowledge, skills and ability.

I’m now an advocate for enrolling in a study course and testing skills preparation class. It would’ve saved valuable time and provided a clear structure. I spent approximately 20 - 25 hours weekly studying/preparing, but taking a course would’ve cut this time down. Many people I polled suggest studying about 15 hours per week.

Did I pass?
I finished the test before the four and a half hours allocated, giving myself ample time to review all of the answers one more time. The test results were automatically submitted. I braced myself for the immediate preliminary results, which seemed to take 30 minutes, but I’m sure it was only 30 seconds. Whew, I passed! My next step – start studying for the SPHR-CA.

(Editors Note: An interest list is now forming for a PHR / SPHR test-taking preparation course, please email training@employersgroup.com.)

By Matt Bartosiak,
Helpline Manager

Employers Group Helpline answers thousands of member questions each year. From the many questions we receive, we have formed a list of 11 tips to help make your job easier, give you more flexibility, and still keep you in compliance. Here are some things that you may not know that can really help.

1. Exempt employees working while on a vacation day
Under the fixed salary rule for exempt employees, if the employee works any part of the day, then they must be paid for the whole day. Be careful about employees answering voice mail or email on days off. It is best to have a policy that no work shall be done on vacation days unless expressly authorized by one’s superior. Be sure to expressly talk about phones and email. If unauthorized work is performed, the employee has to be paid for the work in 4-hour increments. If the offsite work did not exceed four hours, the employer could meet the full day pay requirement by charging a partial day vacation (also in 4- hour increments).

2. Switching days on an alternative work schedule
An alternative work schedule is one voted on by employees whereby they agree to work longer than 8 hours a day at straight time. The general rule is that once such a schedule is accepted by a 2/3 employee vote, then the days of the week must be listed along with how many hours are to be worked each day. If the schedule is not adhered to, then the exception to “after 8 overtime” is lost for that workweek. However, many employers do not know that the state allows an employer to switch the scheduled days worked (e.g. Thursday for Friday) once every quarter without losing the “after 8” overtime exception. This is especially useful to know so the employer can be more flexible in holiday weeks.

3. Employees who won’t take vacations
This is usually a problem with managers. The employer has 2 choices: (1) pay them and do not give the time off, or (2) give plenty of notice that if vacation is not taken, them it will be scheduled for the employee. Be sure to follow the rule that states that the vacation must be at least 90 days on the books before it can be scheduled.

4. Payroll stubs - failure to report accurate data
Know that claims regarding this infraction are a growing plaintiff’s’ attorney gold mine. Remember, now that the payments for missed meal periods and rest periods are deemed a “wage,” they must be included in the pay stub boxes for “gross wages earned” and “net wages earned.” Aggregate penalties can go up as high as $4,000, per employee.

5. Missed meal and rest period payments
These must be paid at the “regular rate” (the rate on which overtime must be based). Once the regular rate is determined, it is payable to the employee. But, there is another step: now you must include that “regular rate” payment in a second calculation of the “regular rate” for the purposes of determining the overtime premium. Lastly, remember the payment made to the employee for a missed meal or rest period is not considered an hour worked when calculating total hours worked for the day or week. (Note: if you need help with the regular rate, call our Helpline.)

6. Maybe your overtime bill can be less
In California, if you quote and pay a salary to a non-exempt employee, then you may very well be liable for a larger overtime payment than you would if you had paid the non-exempt employee on an hourly rate. (Again, call the Consulting Helpline for details.)

7. Do we have to excuse the employee if they are genuinely sick?
No, but many employers think so. Once the sick leave is used up, you don’t have to excuse the sick day even with a doctor’s note. Of course, there are exceptions mandated by law—reasonable accommodation under the ADA or time available under FMLA or CFRA. These are the main ones. The point is, you don’t have to excuse genuine sickness unless the employee has a legal protection or has the day available by company policy.

8. Medical leave - you chase me, I don’t chase you
One thing that every medical leave policy should have is a requirement that where a medical leave is extended by the doctor, then it is the employee’s responsibility to call the employer BEFORE the original return date to make sure the extension was received, and put this rule in bold. This will save you a lot of headaches!

9. When you want your “stuff back”
In California, retrieving issued equipment, etc. can be very difficult. The employer is allowed to take deposits, or have the employee sign an agreement allowing you to deduct the cost of items not returned. However, sometimes no agreement was signed by the employee, things were left out, or it is a “touchy’ situation.

Two ideas. First, if you haven’t paid all wages due yet and the ex-employee calls you (or you call them) about coming in for the final monies, say to them “be sure to bring back x, y, and z so that we can complete the final wages transaction.” You don’t exactly say that final wages will not be paid if items are not turned in then, but you infer it. Remember that resigned employees have the right to request that the final payment be mailed.

Alternatively, you can say that you will have someone deliver their final wages (someone they like or get along with) and that they should have x, y, and z ready to be picked up by that person so that the final-wages-due transaction can be completed. Again you let the ex-employee assume that payment of final wages is contingent on handing over company property. This tactic works in more situations than you would think.

10. Time keeping records
Always have the nonexempt employees attest by their signature that the hours recorded (and meal times) are correct and that they have taken all required rest periods and meal periods. Ask us for the form.

11. Responding to EDD unemployment calls
Failure to respond to these calls will most likely result in unnecessary unemployment hearings. The EDD person calling will make a decision regarding the ex-employee’s UI eligibility and may not have all the documents you submitted, or may need additional information. However, be ready and educate yourself on basic UI concepts. (Note: Some of the questions asked can be “tricky,” so for more information, contact Sarah Rios, EG’s Manager of Unemployment Insurance at extension 3965.)

(Editor’s Note: Be sure to take advantage of EG’s Consulting Helpline, as well as our HR Reference Center library, to get the facts, advice, and the materials you need – when you need it!)

Employee is Not Administratively Exempt

By Jim Kuns, J.D.,
Senior Helpline Consultant

A California Court of Appeal recently held that an employee is not administratively exempt in California if the employee is regularly engaged in the core day-to-day business of the employer; see Eicher v. Advanced Business Integrators, Inc. (2007). Numerous claims of improper exemption classification come from employees who were classified as “administratively” exempt by their employer.

Michael J. Eicher, a former employee, was hired as a consultant in March 2000 by ABI (Advance Business Integrators). ABI owns a software program named MasterMind. The program is used by sporting entertainment event venues to keep track of costs, to schedule staff, and to manage payroll, credentialing, and security. Eicher spent half of his time in the office and the other half on-site at customers' venues. He frequently worked overtime. He spent most of his working time providing customer service and training on the ABI’s software.

Eicher claimed he was improperly classified as an exempt employee and sought missed overtime pay for hours worked while he was employed at ABI. Eicher lost his initial claim before a California Labor Commissioner who agreed with ABI. The Commissioner determined that Eicher was an exempt ‘administrative’ employee who was properly paid on a salary basis, and was not entitled to overtime pay.

Eicher prevailed, however, in an appeal to the superior court. That court found that he was not an exempt administrative employee and awarded more than $50,000 in missed overtime pay. The court determined that ABI did not prove that Eicher performed office or non-manual work “directly related to management policies or general business operations of ABI or its customers.” ABI appealed the superior court decision.

The California Court of Appeal restated the applicable overtime law: “Any work in excess of eight hours in one workday and any work in excess of 40 hours in any one workweek ...shall be compensated at the rate of no less than one and one-half times the regular rate of pay for an employee. …However, [t]he Industrial Welfare Commission may establish exemptions from the requirement that an overtime rate of compensation be paid …for executive, administrative, and professional employees, provided that the employee is primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises discretion and independent judgment in performing those duties, and earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” [Emphasis added]

The court then looked to the relevant Industrial Welfare Commission’s Wage Order 4-2001, regarding professional, technical, clerical, mechanical, and similar occupations. It noted that the wage order provides a five-part test to determine whether the administrative employee exemption applies.

“The employee must (1) perform ‘office or non-manual work directly related to management policies or general business operations’ of the employer or its customers, (2) ‘customarily and regularly exercise discretion and independent judgment,’ (3) ‘perform under only general supervision work along specialized or technical lines requiring special training’ or ‘execute under only general supervision special assignments and tasks,’ (4) be engaged in the activities meeting the test for the exemption at least 50 percent of the time, and (5) earn twice the state's minimum wage. …[E]ach of the five elements must be satisfied to find the employee exempt as an administrative employee.” [Emphasis added]

In its appeal ABI claimed the lower court didn’t correctly apply the administrative exemption test regarding whether or not Eicher was an exempt administrative employee. The court, ABI asserted, only addressed whether or not Eicher performed office work directly related to “management policies,” and failed to properly analyze whether or not he performed office work directly related to the “general business operations” of the company.

The Appeal Court noted that: “Federal and California authorities ‘draw a distinction between administrative employees, who are usually described as employees performing work directly related to management policies or general business operations of his employer or his employer's customers,’ [fn. omitted] and production employees, who have been described as ‘those whose primary duty is producing the commodity or commodities, whether goods or services, that the enterprise exists to produce.’”

The court found Eicher's duties were comparable to those of claims representatives in a related California Appeal Court decision in Bell v. Farmers Ins. Exchange (2001). “Eicher regularly engaged in the core day-to-day business of ABI-that is, implementing the ABI MasterMind product at customer venues and supporting the customers, whether at the customer venues or in the ABI office. While he was required to learn of the customers' management policies and business operations in the course of his work, in order to ensure that the product met the needs of the customers, he did so only to implement the software in the most beneficial way for the customers and not to participate in policy-making or alter the general operation of the business. Eicher's service in implementing the software merely automated processes the customer had previously handled manually.”

ABI claimed at the appeal level that under federal regulations an exempt administrative employee is one who “ carr[ies] out major assignments in conducting the operations of the business, or whose work affects business operations to a substantial degree.” The court dispensed with that assertion saying: “Eicher was often the ‘point person’ in working with customers, the concept of what is a ‘major assignment’ with respect to ABI's business operations was not established with evidence or argument at trial. …[W]e have found no evidence that California courts have found persuasive under California law this expansive definition of an exempt administrative employee as someone who carries out major assignments. The command to interpret exemption statutes narrowly to protect employees leads us to believe such an expansive interpretation is not appropriate.”

To avoid expensive claims and or litigation employers should carefully reevaluate the exempt status of their employees. It is an insufficient defense to claim that other companies similarly situated consider a like job classification to be exempt.

(Editor’s Note: Contact the Employers Group’s Helpline Consultants if you need help in determining an employee’s exempt status.)

Flex Plans and Debit Cards

Tom Jacobs, J,D. is co-founder, CEO and General Counsel for eflexgroup, Inc., an Internet-based third party administrator of flexible spending plans, HRAs, COBRA, HSAs, and Transportation benefits. The company provides the flex plans offered to EG staff, and is a preferred flexible spending plan provider for EG members.

You are the enrollment manager of a growing company that prides itself in offering state-of-the-art benefits - and you are leading an employee meeting where you’re proudly holding up your Flexible Spending Account debit card for the first time.

Then, you announce that the card serves as a means for participants to draw flex dollars directly from their health or dependent care flexible savings accounts, and the employee meeting attendees immediately notice your company’s logo embossed on the card. Knowing that introduction of the card will increase participation in the company’s Flex Plan, you begin to tell the group how the plan works, and how to use the card.

Benefits employees - AND your company
Have you reached this stage yet in the management of the Flexible Spending Plan employee benefit? If so, you are probably like many employers who’ve taken a serious approach to turning this employee benefit into an HR profit center.

An employer can decrease its FICA, workers ‘compensation premium and other employment taxes to the extent they can encourage their employees to participate. Many employers are dropping over $300,000 annually to the bottom line in FICA and workers comp insurance premium savings as a result of these plans, and are focusing their efforts toward putting the tools in place to foster increased participation.

If you haven’t implemented the Flex Plan debit card yet, it is likely that you will in the future, both to meet the growing expectations of your employees, as well as to remain competitive in your market for recruitment of staff.

Debit cards foster plan participation
Market history has shown that the Flex Plan debit cards foster increased participation because that intangible benefit that you have tried to communicate in the past has just become tangible: they see you holding it in your hand, and they want it their hands, too.

How it works
Section 125 Cafeteria Plans, also known as Flexible Spending Plans, came into existence as an employee benefit in 1978, and now over 60 million employees participate in these plans through their employer. The plans allow employees to spend money on expenses they would be spending money on anyway, only with pre-tax dollars. This gives the employees an increase in take home pay because their taxable income is lowered to the extent they participate in the plan, and the employer also enjoys a break in employment taxes.

Typically, an employer will offer a “POP” or premium only plan (employee’s portion of health premiums), a health FSA (for unreimbursed out-of-pocket medical expenses), and a Dependent care FSA (for day care expenses). Many employers also offer the individual premium FSA (for health related premiums employees pay for from home).

What to tell employees
Employers have found that Flex Plans can be a challenge to communicate effectively, but those that have switched to using the Flex Plan debit card have experienced increased participation in the plans, increased FICA savings, and increased employee satisfaction in the benefit.

• Convenience and IRS requirements
  The first thing to advise employees is that use of the card requires a slight adjustment in thinking and communication. It is of paramount importance to communicate that the card is a convenience, in that the participant gets his or her money up front, since the provider is paid at the point of sale by VISA or Mastercard. However, the participant will likely still have to submit a receipt to the Flex Plan Administrator, usually 50% of the time.
  
  This is because the IRS still has claim substantiation rules, which means the employer is responsible for making sure the plan remains a qualifying plan to keep its tax favorable treatment. As long as the IRS rules are followed, the expenses paid through the plan are paid on a pre-tax basis.
  
  In addition to the requirement of having a plan document, the IRS requires that the employer make sure the expenses conform to its guidelines under Section 213d if the IRS Code. Section 213d identifies qualified expenses as those incurred to address personal injury or illness of the employee or immediate family. A claim coming from a dentist needs to be reviewed to make sure the procedure was a filling, and was not for bleaching of the teeth. A claim from a pharmacy needs to be reviewed to make sure the expense was for aspirin, not for vitamins. Accordingly, the IRS requires employers and administrators to follow the regulations to make sure the expenses are proper plan expenses.
  
  
• Receipt of card
  The second most important thing to tell employees is that in two weeks they will be receiving their Flex Plan debit card in the mail, it will be in a plain white envelope, DON’T THROW IT AWAY! This will happen to some extent, regardless.
  
  
• Possible technology glitches
  The third most important thing to tell employees is that the card technology is such that it may not work 5% of the time, and not to worry, just pay for it, submit the claim the old fashion way, and they will be quickly reimbursed. The cards only know where they are, not what they are buying. This is because the Flex Plan debit cards operate off of Merchant Codes, of which there are about 3,000. These codes are programmed into the registers at the point of sale, and allow the electronic identification of what type of merchant was visited, such as ‘gas station’ or ‘restaurant’.
  
  Most Flex Plan administrators turn on about 30 of the 3,000 merchant codes, such as ‘clinics’ and ‘hospitals’, that are medically related. The card will not work at a gas station, it will work at a dental office. Given this, if a participant goes to grocery store that has a pharmacy in it, and the manager set the register at the pharmacy for ‘grocery store,’ then the purchase will be declined.
  
  In 2006, an IRS revenue ruling (Notice 2006-69) required all non-medical merchant code businesses such as pharmacies and department stores to have an inventory tracking system in place, so that FSA items can purchased with the card. This is a remarkable development, because purchases at pharmacies and other stores that have the inventory tracking capability require no further substantiation, the purchases are auto-adjudicated.
  
  Non-pharmacy merchants must have this in place by 12/31/2007, and pharmacies by 12/31/2008, in order to capture the Flex Plan dollars. These merchants must make available to the employer the detailed records of all such transactions for IRS review.
  
  Once you have accepted the Flex Plan and debit card into your company culture, communication becomes easier, and all appropriate staff will be able to field the issues raised above. Despite the issues employers face in effectively communicating this employee benefit, once the issues are thought through they can and do experience great success in increasing employee participation and satisfaction, and creating savings for the employer.
  
  The debit card, once implemented, will serve to increase participation further, and it can be a very pleasant experience for its users, provided proper communication is made.

Is History Repeating Itself?
AB1825 complacency could catch you off guard!

By Annette Muepo,
Regional Client Services Manager,
Los Angeles

Time and again in the arena of employment law, we have seen laws enacted that threaten the way employers do business. Given the gravity of such alarms, many companies have, over the years, panicked. This dilemma is always a challenge for human resource managers.

In the eighties, it was COBRA (Consolidated Omnibus Budget Reconciliation Act), the law passed by the U.S. Congress in 1985 mandating an insurance program be given to certain employees to ensure their ability to continue health insurance coverage after leaving employment. This sent shivers up the spines of many employers, HR executives and benefits administrators across the country. Nevertheless, within a year of its enactment, all the histrionics over COBRA’S impact was replaced with yawns and near indifference.

Then along came HIPAA (Health Insurance Portability and Accountability Act). Although enacted in 1996, the advent of the first implementation date was treated by HR professionals as the equivalent of “Y2K” events during the first years of the new millennium. Classes were held, training was completed, forms were designed, processes prepared, and even new jobs were created. Now, not much “lippa” is being given to HIPAA.

There’s still the occasional outburst of “what about medical privacy?!” at the mere mention of an insurance claim form being copied, or an indignant frown by a payroll administrator for anything less than a sacrament-like handling of a medical insurance billing roster. However, for the most part, things have simmered down considerably.

And now, it’s all about AB 1825!
So it went in California, with the passage of AB 1825 (California's harassment training law). A far more straightforward requirement for a majority of our state’s employers, it was difficult to see where there might be exceptions to be exploited - how not to have to do the right thing.

Many HR professionals saw this as a great opportunity to “get a seat the table,” so to speak, as the enormous responsibility of educating and activating their employees in the ways and means of creating a more ethical workplace was left to them. HR administrators, generalists and executives alike hurriedly and strategically identified every person subject to the requirement and “got them scheduled” in anticipation of the dreaded regulations and penalties being projected, should their company not be in compliance.

2005 proved to be a year in which unprecedented levels of training were scheduled and delivered, and trainers of every ilk professed their competence, all the while preying upon our worst fears. But now, things have changed…dramatically.

What a difference two years can make
By the looks of things today, you wouldn’t know that this is the year most California employers should be scheduling their next rounds of training as required by law to refresh their supervisors on the topic of harassment prevention. Markedly less activity is one way to describe the huge fall off of requests and basic interest in the subject. Focused diligence is seemingly being replaced more and more with “bad practices” by otherwise conscientious, committed and proactive HR professionals.

These practices will invariably leave you and your company more exposed to litigation, not to mention making you and your company seem, to your employees, less than serious about their workplace. See if you or your company is unwittingly engaging in this short list of “bad practices.”

Practice #1: The “Rules” Defense - You think because the regulations have gone through endless iterations that they will probably change again, so you don’t need to take anything too seriously. You figure your company can’t get in trouble because no one knows for sure what “trouble” really means.

What you need to know: On July 18, 2007, the Office of Administrative Law (OAL) approved final regulations for AB1825. The regulations become effective on August 17, 2007. The purpose of the FEHC regulations is to provide clarity to employers on the specific requirements of the harassment training law, as well as practical guidelines for compliance.

Practice #2: The “time is at premium” rationale - Scheduling training takes so much time, with postponements, and cancellations, etc., so you just worry about new hires. You’ll get to the others later.

What you need to know: It’s not just about training employees. It is about leading the way in your company to foster and sustain a safe and ethically conscious workplace. Ensuring compliance with AB1825 shows that your company is serious about its reputation and integrity, values that benefit every aspect of your company’s operations.

Practice #3: “What they don’t know won’t hurt us” theory - “Let’s not give these people any ideas.” your executives say. Since your company has been complaint free, you fear giving out the information would give your otherwise “happy” employees excuses for putting management on defense. Talking about lawsuits is just fear mongering.

What you need to know: California Government Code §12940(k) requires employers to take "all reasonable steps necessary to prevent discrimination and harassment from occurring." Basic harassment prevention training for all employees is part of a reasonable step, necessary to prevent workplace harassment and discrimination.

Practice #4: “They can’t check every company—who’s gonna know?” philosophy - You decide to pass out acknowledgement forms to all employees who have been trained at least once in 2005, asking them to date it for any day in 2007, and stick that form into their personnel file.

What you need to know: Probably the worst practice of all, if your company is engaging in it. As a best practice, a consistent, and regularly engaged in training program helps to establish valuable legal defenses. As importantly, it sends a “constant and consistent” message to employees about expected standards of conduct, and is critical to maximizing changes in behavior and mitigating risks.

Don’t take any unnecessary risks
Employers Group strongly believes that every employer should treat AB1825 as a catalyst and benchmark for the comprehensive training that is required across your organization. Develop a simple, consistent and easily understood message. Know and enforce your own policies and insist that your management speak with a single voice regarding your company’s anti-discrimination and harassment policies. Let’s all try to replace bad practices with better ones.

(Editor’s note: For information about Employer’s Groups offerings for harassment prevention training, see the box on page 15 of this newsletter.)

California’s Best Places to
Work Program

By Ken Tiratira,
Executive Vice President of Client Services

Just as California employers are always looking for inspired, productive workers, the people they seek want a great place to work! It is my pleasure to provide you the details about Employers Group’s “Best Places to Work” Program, which we launched last month. If you haven’t already jumped in yet, there’s still time since the deadline to register is September 1, 2007.

After the huge success last year with our “Best Places to Work” program in San Diego, we received numerous requests to deliver another comprehensive, statistically valid survey that would encompass the entire State of California. Thus, we’ve expanded the program to make it statewide this year – with the intention to conduct the program annually hereafter.

Any California employer with 25 or more regular employees is eligible to apply, we hope to see plenty of participation among EG members! There is no fee to enter, and every entrant will receive a “participant score report,” which will help to benchmark the company’s performance against the survey indicators.

Looking for the “Top 40”
A total of 40 top-ranked companies throughout the state will be determined, with 10 each from four company-size categories: Growing (25 to 49 employees), Small (50 to 99 employees), Medium (100 to 499 employees, and Large (more than 500 employees)—AND, they will be representative of all major metro areas in the state.

Finalists will be determined by the scores from both the Workplace Assessment and the Employee Satisfaction Survey. The 40 top-ranked companies (10 each from the four company-size categories) in the state will be featured in Employers Group’s media campaign, which will be geared to garner press coverage.

How it works
Employers Group research team will measure 125 different criteria, called a Workplace Assessment, which companies will receive when they register for the program. This first phase involves an extensive questionnaire designed to measure company policies and practices in nine categories. A blind-scoring system devised by a panel of seasoned HR professionals will be used to select the semi-finalists. The assessment dimensions include:

1. Work-Life Balance
2. Employee Voice & Workplace Culture
3. Community Involvement
4. Employee Turnover
5. Pay Practices
6. Benefits
7. Perks And Incentives
8. Training & Advancement Opportunity
9. Diversity

The semi-finalists selected from the initial Workplace Assessment will be contacted to move into the second phase, the Employee Satisfaction Survey – a set of 12 questions designed to evaluate how employees rate their company, from pay and benefits to management trust and communication.

Employers Group will provide instructions for randomly selecting the employees to be surveyed, and the employee responses will be anonymous. This survey is available in English and Spanish.

Timeline
Participating employers must register for the program and complete the Workplace Assessment by September 1, 2007. Semi-finalists will be notified in October, and will be invited to participate in the second phase, the Employee Satisfaction Survey. The top 40 companies statewide will be announced in December. Award ceremonies to honor the winners throughout the state will be held in January 2008.

Why you should participate
Today’s competition for good employees is intense and California employers want to know how their offerings compare on the market. The top ranked companies in the 2006 “San Diego Best Places to Work” program enjoyed extensive media coverage and became widely recognized for not only providing the best pay and perks, but also for having people who love their jobs!

Magda Marquet, CEO of Althea Technologies, a San Diego biotech company that participated in last year’s San Diego Best Places to Work program, offers her viewpoint:

“Being ranked last year as one of San Diego’s best places to work helped raise our profile and recruit new employees to our team. We look forward to participating this year in the statewide “California’s Best Places to Work” survey conducted by Employers Group.”

Receive your company’s score report
For this article, I asked Juan Garcia, Employers Group’s Director of Research to comment:

“Companies participate because, obviously, they’d like the prestige and wonderful PR that comes from winning. But what they also receive is a Participant Score Report which is, in essence, a measure of the strength of their offerings to employees.

“In certain job categories the competition is fierce for good employees, so finding out where employers rank is important to their overall success in recruiting and retaining employees.”

For registration information about the “California’s Best Places to Work” visit www.employersgroup.com/cabest. If you have any questions about the registration process, you can also call 213.765.3920.