2008 Economic Outlook for California Businesses

By Jack Kyser,
Chief Economist, Los Angeles County
Economic Development Corporation

To frame this discussion, we need to first look at the national outlook.

An important feature of the 2008 outlook for the nation will be the health of the nation’s financial system. It took a hit in the second half of 2007 during the meltdown of the sub-prime lending sector. There is concern that exposure to questionable mortgage-related investments by banks and other financial institutions will reduce their willingness to make other types of loans. This would continue to make it hard for business and consumers to obtain loans even if their credit status is good.

The housing industry will continue to struggle in 2008, with another decline in new construction and a continued growth in foreclosures. The media have focused on the problems in housing, which makes people nervous about buying a home (will the price go down?). Housing woes could easily stretch into early 2009, which is not good news for allied sectors like producers of construction materials and equipment, appliances and furniture.

In the meantime, the domestic auto industry will continue to deal with its problems. Sales in 2008 are expected to run at 15.9 million units, down from 16.0 million in 2007. The planned plant closures will hurt the Mid-West economy. Worse, the “Detroit 3” will be pruning their roster of dealers, which is not good news for the cities in which they are located. Energy prices will also continue at high levels, which exacerbates the problems of the “Detroit 3.”

Finally, the U.S. dollar will continue to slide down in value in 2008. While this disturbs some people, to date the weak dollar has helped U.S. exports of manufactured products and commodities, as well as the travel and tourism industry.

The upcoming November 2008 presidential election means there will be lots of talk about the nation’s problems but little concrete action on any of them. Despite all this bad news, the forecast for 2008 is a continuation of the two-track economy, with housing struggling, while most other sectors continue to trundle along at a moderate pace. The net result: GDP should increase by 2.6% after a 2.2% gain in 2007.

California
Housing will be an ongoing problem in the state. There will be vigorous debate in Sacramento over health care and water (it looks like the drought situation will continue into 2008). The latter two issues could end up as ballot initiatives in 2008. The state’s government also will be grappling with a budget deficit, which means spending cuts for various programs, with trickle down to local governments.

In the meantime, several industries will continue to provide stimulus for the state during 2008.

• Agriculture
  Thus far, the drought has not been as much a problem as feared. However, there is concern over the situation in 2008. In the meantime, farm exports have benefited from the weak U.S. dollar. However, the agricultural sector in San Diego County did take a hit from the late 2007 wildfires, with the loss of 20,000 acres of avocado tree stock, which will take years to replace. While there is concern about the farm labor supply, no problems were encountered in the state during 2007 and this situation could continue into 2008.


• International trade
  In 2007, California ports saw weak import growth but robust gains in exports. In 2008, exports should continue to move ahead (helped by the weak dollar) while there should be a little stronger growth in imports. In the meantime, port expansion plans in Southern California will continue to be blocked by environmental concerns, which are also becoming an issue at both Oakland and San Diego. Some shipping lines feel that using California’s container ports has become too expensive, and are sending more goods via the Panama Canal to east coast ports. Also in 2008, the ILWU’s contract will expire. There is some nervousness about this on the part of shippers.
  


• Technology/Aerospace
  There should be continued slow, steady growth in the sector, with sales of business and consumer items doing well but not great. On the aerospace side, however, subcontractors for Airbus and Boeing in the state are rolling in clover as both firms recorded unexpectedly strong sales in 2007. While new airliner orders should simmer down in 2008, the backlogs are quite large. On the U.S. government and military side, there will continue to be solid business. Global geo-politics will hold defense and intelligence spending at high levels much longer than expected, with a focus on intelligence gathering equipment. There are indications that a significant amount of “black” program work is going on. A lot of this work is probably in California.

Troubled industries

• Housing activity
  Both new construction and resale will continue to decline during 2008. Prices will also slide. This is somewhat ominous news for local governments if there are requests for downward property tax assessments. Much of the pain will be felt in inland areas of the state, where large amounts of entry level housing were built and purchased with sub-prime loans. Moreover, home buyers who need to use “jumbo” loans will also have to pay higher rates to get these loans. As noted above, the troubles in housing could last into 2009. And when the recovery comes, it will be very modest.
  
  
• Motion picture/TV production
  This industry closed out 2007 with a strike by the Writers Guild (WGA). Worse yet, the contracts of the Directors and Screen Actors guilds both expire in June 2008. There could be over 12 months of labor unrest for this high profile industry. The issues for all three unions are much the same. The dialogue between the WGA and the studios has been quite heated, and there are signs this dispute could be longer than the last walkout in 1988, which went on five months. Most of the impact will be felt in Los Angeles County, which accounts for 87.5% of the industry’s employment in the state.

In the meantime, the motion pic-ture/TV production industry is still fighting piracy and run-away production (this has hurt other areas in California). There has been little recent discussion of incentives in Sacramento, and with the budget deficit, prospects are not good for any action in 2008.

A mixed situation in nonresidential real estate

• The office market
  The lowest vacancy rates are found in the San Jose area (9.0%) and Los Angeles County (9.2%). The highest office vacancy rate is the Sacramento area’s 15.0%. Vacancy rates are moving down in Los Angeles County, the San Francisco area, and Oakland/East Bay. With modest amounts of new space under construction, lease rates are climbing. In other metro areas in the state, office vacancy rates are moving up, while there is a significant amount of new space under construction, especially in the Riverside-San Bernardino area and San Diego County.
  


• Industrial real estate
  The situation in the industrial real estate market in the state is somewhat healthier. The highest vacancy rates are in Sacramento (12.8%) and the San Jose area (11.1%). Fortunately, only modest amounts of new space are under construction in these areas. The strongest industrial real estate markets in the state are found in Oakland/East Bay (2.8% vacancy) and Los Angeles County (1.6%, the lowest rate in the nation). Comparatively speaking, only modest amounts of new space are under construction in both areas, which makes it difficult for firms that need to expand.
  

Trends by area in California
The three Bay Area metros (Oakland, San Francisco and San Jose) will continue to set the pace in job growth in 2008, albeit at modest rates. In the south, Orange County will be struggling employment-wise, with weakness in both construction and financial services. Los Angeles County will record job growth, despite the labor disputes in the entertainment industry. The Riverside-San Bernardino area will see slow (for them) job growth in 2008, due to problems in housing with spillover into retail.

Net results
Non-farm employment growth in California will be a modest 0.8% in 2008 or 123,000 jobs. In 2007, employment rose by 1.4% or by 207,900 jobs. The weakest employment sectors in 2008 will be construction and manufacturing. The unemployment rate will move up to 5.5% in 2008, compared with the recent low of 4.9% in 2006.

Total personal income should rise by 5.5% in 2008, outpacing growth in retail sales. The latter will be restrained by continued weakness in home appliances and furniture, and autos. The number of new housing units permitted in the state will sink to 102,000 units in 2008.

The economy in 2008 will start the year slow, but should be exhibiting a little more strength by year end. However, the national and state economies will be walking a tightrope. Business people will have to thoughtfully monitor both the overall economy, as well as trends in their industry sector.

Don’t Over Think Write-Ups

Don’t make unnecessary conclusions
In a criminal trial, the prosecution must take the jury into the mind of the defendant and prove the employee acted with “mens rea,” or a “guilty mind.” By contrast, in the workplace, you’re never required to prove “beyond a reasonable doubt” that the employee acted with “willful disregard” of anything before disciplining them. If you reference such strong language in a disciplinary action, be prepared to prove it, especially if you discharge the employee as a result.

The actions or substandard performance generally speak for themselves and attaching conclusions as to the employee’s state of mind (e.g., willful, reckless, etc.) is irrelevant, unless the employee admits as much. In other words, we can’t always tell if the employee “intended” his actions, but we don’t need to; if his “poor exercise of judgment” in deciding to behave the way he did falls below the company’s expectations, that’s reason enough to cite for discipline.

Focus on the big picture
If you’re preoccupied with any issues while you’re putting together a write-up, make sure they’re centered on whether you’re telling a narrative that’s easily understood. Focus on the one underlying reason that caused you to decide discipline was necessary and work back from there.

Stated differently, discipline doesn’t just happen; there’s always a triggering event – a straw that broke the camel’s back – and the reader will want to start with that to get the best picture. Your narrative can build from there. There should be logic to your narrative, just as there was logic to your decision to do a “write up” on the employee in the first place. Focusing on the “A Story” is the best way to flesh that out.

If you have any questions or would like to explore the possibility of taking classes in performance documentation, please call us at 800-748-8484 and our Helpline Consultants can lead you in the right direction.

Employee Retention
The generation issues

The Baby Boomer generation is closing in on retirement, resulting in the loss of valuable knowledge and skills for any company. As these 80 million Baby Boomers retire, only 46 million Generation X’ers will be available to immediately replace them, and only 76 million Generation Y’ers, from entry to specialized, to replace both generations. Clearly, there will be a national workforce shortage.

Retaining older workers
The perceptions some employers have about the cost of hiring and retaining older workers are a key obstacle for keeping these workers employed. These misperceptions include:

• The higher cost of employing older workers,
  


• The costs and benefits of remaining in the workforce (from both the employer and employee point of view), and
  


• Changes in industry and job skill requirements that may hinder older workers from staying employed or finding suitable new employment.

Best practices and “lessons learned” point to nontraditional recruiting techniques that focus on older Americans, such as partnerships with national organizations (including AARP) to help promote themselves as employers of older workers. Many employers rehire their own retirees for specific needs, both short and long term.

Still others provide flexible schedules and adapt job designs to meet the preferences and physical constraints of older workers. Employers who are creative in designing jobs and who allow for flexible work locations away from the traditional office, have an advantage in engaging both older and younger workers.

Three reasons older workers retire:

• Elder care responsibilities, children returning home after college, and taking on the responsibility of parenting their grandchildren - responsibilities they were not prepared for;
  


• Physical and financial constraints, and
  


• A desire to pursue other interests.

To address these concerns, one employer provides workers 10 days off each year for elder care and flexible work arrangements where they are not required to be in the office every day.

Benefits and incentives
Offer the right mix of benefits and incentives to attract older workers, such as tuition assistance, time off for elder care, employee discounts and pension plans that allow retirees to return to work.

Provide employees with financial literacy skills to ensure they have a realistic plan to provide for retirement security. Treat all employees in a fair and consistent manner and employ a consistent performance management system to prevent age discrimination complaints.

Employee engagement
As employee productivity is clearly connected with employee engagement, creating an environment that encourages employee engagement is considered to be essential in the effective management of human capital. Engaged employees care about the future of the company and are willing to invest the discretionary effort. They feel a strong emotional bond to the organization that employs them.

Plan ahead
Businesses can plan ahead for the boomer exodus by cultivating their younger workers now for future staff and management positions.

How “generation friendly” are your current work rules, management styles and company benefits? How are older workers and younger workers encouraged to work successfully together?

Believing that the worker shortage is “far off” will catch your company in a non-competitive position in just a few years. There are no quick fixes here. Given the changing demographics, every company should have a task force charged with ensuring competitiveness for the times ahead when there will be a smaller pool of workers to pull from.

Reference Checks
Using them correctly and how they differ from background checks

Most employers are confused about whether it is best to conduct reference checks on candidates – and when to conduct them. Is it a waste of time and effort or should a company just do it? A valiant effort may prove to be enlightening…or maybe not. After all, candidates are being advised to prepare to submit references to potential employers.

To further complicate matters, employers are not sure about the difference between a background check and a reference check. What is a background check? A background check, also called an investigative consumer report, is the process of acquiring and reviewing official and commercial records about a candidate.

Background checks
Many companies pay a private third party business to conduct the background checks. Information usually includes the following:

• Past employment,
  
• Credit worthiness,
  
• Social Security Number,
  
• Motor Vehicle report,
  
• Educational history, and
  
• Criminal history.
  

Background checks are important because they allow employers to be better informed and have a less subjective evaluation of a candidate. An employer must give a candidate a copy of any public records obtained in checking their background. This is governed by the Consumer Credit Reporting Agencies Act (CA Civil Code §1785), which adds to the rights you have under the FCRA. For further information, go to www.privacyrights.org.

Background checks also pose risks such as improper and illegal discrimination, identity theft and violation of privacy. In California, a background check may be conducted after a candidate has consented to and is given notice. (CA Civil Code §1786.16(2))

Many employers are now taking extra care in conducting reliable and accurate background checks. Courts are finding employers guilty of “negligent hiring” when the employer hires without diligent efforts to verify an individual’s background and that employee commits a violent or serious act.

Reference checks
Reference checks consist of non-public record of information. This information may include inquiry into personal references, professional references, achievement record, character and reputation. The information obtained may be as simple as a telephone call to a former supervisor to verify reputation. Simple factual information obtained by an employer, such as date of employment, job title and salary, generally are not considered consumer reports. However, if the factual information obtained includes background check information, then the employer may be required to obtain a disclosure and consent from a candidate.

Objective references should be checked as soon as you have narrowed down to a few candidates. Many employers make offers contingent upon the results of a reference check (as oppose to a background check). Ideally, this should be done well before an offer is made, especially since factual information can be followed up with an additional interview armed with that knowledge. Also, making an offer contingent on a reference check could create a legal relationship between the employee and the candidate.

A mistake many employers make in conducting reference checks is being inconsistent. As an example, employers may check some candidates while bypassing others. A better practice would be to conduct an objective reference with the same scope for each position.

Truth telling benefit vs. protected information
Reference checks offer an incentive for candidates to tell the truth. Conducted effectively and without discriminatory bias, reference checks could reduce fraud and negligent hiring liability.

On the other hand, employers may find themselves regretting conducting reference checks. Often reference checks uncloak information that is considered “protected information,” such as a recent history of work related injury, marital status, number of children, or age. Moreover, references quite often conclude with good results. References, and letters of recommendation for that matter, suffer from leniency. They generally have low reliability and a low decisive factor. It is difficult to be certain of the resulting motive whether positive or negative.

Notable experts and organizational policies advise employers to conduct objective reference checks. Ironically, and almost in the same breath, employers are advised to respond to reference checks with caution. Let me illustrate. A typical policy for responding to employment reference checks is that “You may safely provide only the employee’s job title and classification, base salary and time base, dates of employment, and duties and responsibilities.”

So, what is an employer to do? Ensure that your practices and policies are compliant and are not in conflict with each other, train supervisors on nondiscriminatory interviewing and hiring practices, and seek legal consultation on your reference checking practices and procedures.

Equal Employment Opportunity
They won and so can you!

On November 8, 2007, the Department of Labor honored employers for their best practices in equal employment opportunity. The winning companies demonstrated through programs or activities, exemplary and innovative efforts to increase the employment opportunities of employees, including minorities, women, individuals with disabilities, and veterans.

Raytheon Company, Waltham, MA, received the Secretary of Labor's Opportunity Award; Cornell University, Ithaca, NY; Public Service Enterprise Group, Newark, NJ; and Rush University Medical Center, Chicago, IL received the Exemplary Voluntary Efforts (EVE) Award; and the Sensory Access Foundation of Sunnyvale, CA received the Exemplary Public Interest Contribution (EPIC) Award.

Impressive, but doable!
It may not be as complex as you think to qualify for one of those awards. At a minimum, you can avoid tumultuous audits and consequential conciliation agreements and other sanctions. Let’s just sort out how those companies achieved this milestone by being the best in compliance. The focus will be on the following practical, yet innovative, initiatives that were responsible for separating those companies from the rest of the pack.

Fostering inclusiveness
The purpose of having an affirmative action program in place is to provide an atmosphere where everyone feels valued and empowered to perform at a maximum potential, regardless of the differences among people, including but not limited to age, race, gender, sexual orientation, family history, or physical ability.

For example, some of the winners use diversity initiatives to build relationships and enhance employee understanding about cross-cultural differences. The initiatives enable participants to illustrate the power of an inclusive culture, enhance internal support for diversity, and help participants become change agents.

Others embrace Employee Diversity Councils (EDC) to provide a forum where people can build networks and share dialogue. In addition to helping individuals meet their personal goals, the groups work to help the company achieve its business objectives. The EDC uses partnerships between senior leaders and representatives of the EDC to energize the activities of groups, such as: Asian Pacific Association, American Indian Network, Black Employee Network, Hispanic Employees Association, and Women's Network.

It is worth noting that the key to inclusiveness is open communication. Some of the winning companies launched extensive advertising campaigns to inform business partners, employees, potential job candidates, and the media about their commitment to diversity.

Talent retention and acquisition strategy
Some programs were developed to provide a pipeline of diverse talents for the involved organizations.

Most of the winning companies use a variety of educational programs to inform employees about why diversity matters to business and how to achieve it in the workplace. Some also support partnerships with universities and community colleges to create a pipeline of talents.

Clearly, a significant number of companies face a shortage of skilled workers as baby boomers are beginning to retire. To meet this challenge, companies developed a Degree Program. The program’s business objective was to develop a continuous pipeline of diverse talent for employment in entry-level technical trade positions at those companies, and establish a commitment to education that would generate renewed interest in technical trade careers. This program, a partnership with Community Colleges, combines classroom instruction with technical apprentice-level training at participating companies’ Training and Development Centers. Employees also mentor students on the job and in the classroom.

Other innovative initiatives were designed to engage middle school students in math by illustrating the connection between math, their passions and interests, and "cool" careers. For example, an engaging website like Raytheon’s MathMovesU.com targets students to stimulate interest in everyday math through compelling and relevant content and prize winning contests and events.

Other initiatives

• Creation of an Affirmative Action Program (AAP) that includes diversity and work/life considerations;
  
  
• Establishment of a discrimination complaint procedure;
  
  
• Employee diversity training opportunities, including online training, diversity recruitment training, and a new supervisor program with a diversity module;
  
  
• Work/life/family programming that incorporates diversity;
  
  
• Increasing the outreach efforts to women and minority vendors and contractors, and
  
  
• Implementation of workplace accommodation programs for employees with disabilities.

Applying the above measures to your workplace should be reasonable and achievable to eventually attain both your business and workforce goals. For information about Employers Group’s AAP services, please contact ayounies@employersgroup.com.

By Ahmed Younies,
Compliance Specialist, and
Specialized HR Services

Do you know the Answers to these Questions?
The six most common EG Helpline questions

Thousands of Employers Group members use the Consulting Helpline every year. Plus, in our annual survey of members, the Helpline is always ranked the most valuable service we provide. Our Helpline consultants are a phone call away for your everyday questions, plus you can get answers to thousands of employment law questions on our Web site – on the home page under ”Our Resources,” click on Knowledge Center. Here you will find Employment Law Answers Online, as well as other content rich options.

Now, ready to test your knowledge? See if you can answer these “Top Six” most commonly asked questions!

1. How do I calculate travel time?
In California, all travel time performed by a nonexempt employee must be paid, no matter when it happens. The employer may pay a different rate for travel time occurring outside of the employee’s usual schedule, as long as it meets minimum wage. Since travel time is hours worked, if two rates are paid, the overtime premium must be based on a blended rate. Also, normal commute time spent traveling to a “common carrier” may be subtracted. When the employee is relieved of all duty (as in staying at a hotel), the employee is off the clock. Since travel time is hours worked, it may push the employee into overtime.

2. How do I use the 12-month rule to calculate FMLA/CFRA eligibility?
An employer may use a fixed year, a calendar year, or a year that starts with the first day of leave. The most advantageous 12-month period to use is the 12-month rolling backward method. This will prevent an employee from “stacking” leaves (one right after another). Every day the amount of leave taken is measured, 12 months back from the present day. Example: today is November 23, 2007. Did the employee exceed 12 weeks from November 23, 2007 back 12 months to November 23, 2006? No? Therefore, November 23 is excused under FMLA. Tomorrow is November 24, 2007. Did the employee exceed 12 weeks for November 24, 2007 back 12 months to November 24, 2006? No? Therefore November 24 is excused as a day of FMLA leave. This process is followed until 12 weeks is exhausted.

3. If employees resign, must the employer keep them through the specified date?
The answer is no, but the employer may want to. If an employee is not paid, but is kept on benefits during the resignation period, then the employee will be able to collect unemployment on the employer’s account. The employee does not actually have to be at work!

4. We have an alternative workweek schedule and you want to switch days for one week?
Although alternative workweek schedules are to be constant, the state allows the days to be switched once a quarter. What happens if the employee is prevented from working the total hours of the shift? In this case, overtime must be paid after 8 hours of work, but just for that specific day.

5. What’s the longest we can work an employee before giving the required meal period?
Presently, an employee can work up to five (5) hours without a meal break. At that point, they must take the meal break. There are three exceptions – (A) if the workday is not longer than 6 hours, then the employee may waive the meal period in writing; (B) if the shift is from 10 to 23 hours, the employee may waive the second meal period in writing, and (C) when the nature of the work prevents the employee from being relieved of all duty and the employee agrees in writing to work and eat during the period.

6. What is the current pay rate for computer professionals?
Effective January 1, 2008, the required pay rate must equal or exceed $36.00/hour or it’s salary equivalent, $74,880/annually. This is a decrease from the previous required amount of $49.77. What many employers forget is that each hour of work must average out to $36.00. You pay after 40 hours, but it is at straight time. This is still required if the person is salaried.

Employers Still Bear the Brunt of Health Care Reform

Eight weeks into the Healthcare Reform Special Session and about four weeks after Governor Arnold Schwarzenegger vetoed the Democratic Leadership’s proposal – AB 8 – Assembly Speaker Fabian Núñez and Senate President Pro Tem Don Perata announced their new Democratic health care proposal – ABX1 1. The proposal aims to strike a compromise between the Governor’s demand for an individual mandate and the Democrats push for broader employer contribution and affordability. The compromise proposal includes:

• 2% - 6.5% of employer payroll (sliding scale)
  


• Individual mandate (including tax credits and subsidies)
  


• $2 tobacco tax increase (replaces leasing of the lottery)
  


• New tax on hospitals (revenues used for subsidies)
  

There are still significant gaps between ABX1 1 (the Democratic leadership’s proposal) and ABX1 2 (the Governor’s proposal), primarily the funding sources and the breadth of the mandate provisions. These and several additional problems would still need to be addressed before any health care reform will happen in California. The Governor’s office continues to work daily on the issue, bringing affected parties into small work groups to try and hammer out the remaining differences.

Employers on the hook
The worst part of the Democratic leadership’s proposed compromise for the employer community is the low $250,000 payroll threshold that kicks in the sliding scale percentage of 2% to 6.5% “play or pay” mandate on employers. If an employer is not providing any health benefits currently, then under this proposal, an employer has two options: 1) contribute 6.5% of its payroll to a public fund to subsidize those with no insurance and financial help to those who cannot pay the full cost of insurance, or 2) spend the same amount of dollars offering employee health benefits.

Payroll is deemed to be Social Security wages, and includes part-time and seasonal workers. If an employer is paying less than the percentage required by the sliding scale, then the difference must also be paid into a publicly created fund. This means a significant portion of the burden of providing the primary financing for the reform will again be put on employers, even those with only a handful of employees.

There also seems to be broad exemptions from the individual mandate that could lead to a large portion of the population being excluded from the pool, meaning no universal coverage and higher costs for those who purchase insurance.

The proposal also establishes a public insurer, similar to what was contained in AB 8, which has the potential to eventually create a “single payer” system. Single payer has been rejected by voters numerous times.

The long shot
Additionally, the Democrats’ proposal includes a $2 per pack increase in the tobacco tax as one of its funding mechanisms – which is also a tax increase that the voters rejected just last year. Even this revenue source is suspect as historical trends show that the tobacco tax is a declining source of revenue, and more importantly, would likely result in significant opposition by the well-financed tobacco lobby. The current proposal is silent regarding how any budgetary shortfalls will be addressed and/or overcome.

Finally, it is critical to point out that any legislative solution only lays the framework for a statewide initiative, subject to voter approval in November of 2008.

Late breaking news
As of this writing…on November 26, 2007, Assembly Speaker Núñez cancelled a scheduled floor vote on the proposal, rescheduling it for December 5 – the same day the Senate and Assembly Republican caucus meet in San Diego for an annual policy retreat. The scheduling conflict may actually be irrelevant as there is, to date, no Republican support for either the Governor’s healthcare reform proposal or ABX1 1.

The Governor and the Legislature’s Democratic majority are motivated by the Secretary of State’s deadline for putting a measure on the November 2008 ballot. Between submitting a measure, receiving a title and summary and gathering signatures, proponents must start the qualification process nearly a year in advance. The floor session is predicated on the Governor, Núñez, and Perata coming to an agreement. The Governor’s plan has not succeeded in the Legislature, while he vetoed the Democrats’ plan.

If and when a health deal is struck, it would have to pass through the Legislature, and then the Governor and legislative leadership must lead the campaign to gather signatures to qualify the funding portion – the hospital tax, employer mandate and, potentially, tobacco tax – for the ballot.

The powerful tobacco industry, fresh from a successful fight against a similar tax increase initiative last year, may make it difficult for Democrats to sell their proposal to the voters. Depending on the details of any plan that might make it on the ballot, insurers may balk. The employer community may be split between those businesses that offer health insurance now at rates exceeding 15% of payroll supporting the proposal, with employers that do not provide benefits now opposing the dramatic cost increases to their bottom lines. And, labor unions, traditionally Democratic allies, are still resisting the individual mandate, concerned over subsidy levels (a perceived lack of affordability for the working class) and, for certain unions such as the nurses, preferring the single payer model.

What to expect
The bottom line from all this is that uncertainty prevails. Most observers believe a compromise will not be reached in the next six weeks and the health care debate will continue to roll on in the California Legislature when it reconvenes in January.

The state’s increasingly bleak economic picture makes finding sufficient funding even more difficult, as an $8 billion State Budget deficit is projected. Even if a compromise is struck and a measure enacted, its approval by the voters is not guaranteed. And lastly, if the voters were to approve it, a legal challenge based on ERISA is virtually certain. Herein lies the true tragedy as the Legislature and the Governor appear to have squandered a rare opportunity to implement meaningful health care reform.

Employer Denied “Mixed Motive” Defense

In a recent California Court of Appeal case in the 1st District, the court supported the recent California Supreme Court decision in Gentry v. Superior Court to address practical real world issues facing employees attempting to resolve wage and hour claims by using class action suits. (See EG’s October 2007 newsletter, page 7, for an article about the Gentry case.) In the recent case, the court found a mandatory arbitration agreement to be one-sided and unconscionable in its restrictions – see Murphy v. Check 'N Go of California, Inc. (2007).

Lisa Murphy was employed by Check 'N Go of California, Inc. (the company) for eight years. For the last seven years of her employment (ending in 2005) she was classified as an exempt Retail Manager, and was paid on a salary basis. In 2006 she sued the company in a class action claiming that she and others similarly situated were misclassified, and should have been hourly paid employees.

Murphy’s suit claims the employer violated the California Business and Professions Code among other codes, and that the company failed to pay overtime, or to provide: accurate itemized wage statements adequate meal and rest periods, and wages upon termination, during the four years prior to the filing of the complaint.

In 2004, Murphy signed the company’s “Dispute Resolution Agreement” (the agreement). She said that the agreement came to her office “as part of our regular mailings from the company. All employees had to sign the agreement and return the signature pages to the corporate offices.” Murphy claims that she was unaware of her ability to revise or opt out of the agreement. “I understood,” she says, “that I had to sign the [agreement] as part of my job working for the company.”

The agreement stated that it covered all non-discrimination and insurance claims including “any assertion by you or us that this Agreement is substantively or procedurally unconscionable,” and “any pre-existing or present claim that you or we actually assert or could assert against each other.” The agreement provided for four ways to resolve disputes: an open door policy; use of an employee relations committee; mediation; and arbitration.

“Arbitration became mandatory if either party chose to resolve a claim using that procedure. [I]f the claimant or the person or entity against whom a Covered Claim is asserted elects to arbitrate the claim, then neither you nor we may file or maintain a lawsuit in a court and neither you nor we may join or participate in a class action or a representative action, act as a private attorney general or a representative of others, or otherwise consolidate the Covered Claim with the claims of others.” The agreement also provides for the severance of any part of the agreement found to be unenforceable, and for enforcement of the other provisions that are not invalidated.

The document cautioned an employee that, “Before signing this Dispute Resolution Agreement, you should carefully review the entire agreement and, if you want, consult with an independent attorney. By signing this agreement and by commencing or continuing an at-will employment relationship, you and we agree to exclusively use this dispute resolution program to resolve all employment-related disputes covered by the program.”

Murphy claimed the agreement was unconscionable. She also asserted that a class action was the proper procedure to follow because of the difficulty of prosecuting such cases individually. There are relatively small sums of money involved in individual cases, and it is difficult for plaintiffs to find counsel willing to take them, despite the availability of statutory attorneys' fees.

Murphy’s attorney argued that “[t]he blunt reality is that employers want to limit class actions because they do not want to reform business practices that reduce profits regardless of the legality of the practices... [I]f the employer can limit attacks on its global classification decision to the odd lawsuit or arbitration here and there, it will have no incentive to truly examine whether its practices comply with the law and make changes if they do not. As a matter of simple economics, a few individual settlements or even lost trials or arbitrations will be more than made up exponentially by the savings from the decision to (mis)classify employees as exempt and pay them a fixed salary for 45, 50, 55 and or more hours per week. The employees who have no idea their rights are being violated or who can't find attorneys to take on their relatively small individual cases will continue to be exploited by working unpaid overtime hours...”

The Appeal Court noted that: “...Gentry confirmed ... [the real world] reasoning was not confined to consumer actions involving miniscule damages, and extended [the] rationale to wage and hour cases where a class action waiver could likewise be ‘exculpatory’ in practical terms because it can make it very difficult for those injured by unlawful conduct to pursue a legal remedy.”

The lower court determined that: the company’s 2004 arbitration agreement was a contract of adhesion. A contract of adhesion is generally a standardized contract drafted by the stronger party and presented to the weaker party on a take it or leave it basis.

At the appellate level the court determined the remaining issues in the case were: whether the class action waiver in the arbitration agreement is unconscionable, and whether that question should be resolved by the court, rather than an arbitrator appointed under the agreement. The Appellate Court decided that the court was “...empowered to decide the unconscionability issue... [and] that the class action waiver is unconscionable...”

The court noted that California Civil Code section 1670.5(a) states that “[i]f the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. ...The court has discretion under this statute to refuse to enforce an entire agreement if the agreement is ‘permeated’ by unconscionability. ...An employment arbitration agreement can be considered permeated by unconscionability if it contains more than one unlawful provision... Such multiple defects indicate a systematic effort to impose arbitration on an employee not simply as an alternative to litigation, but as an inferior forum that works to the employer's advantage.”

Employers are urged to have their arbitration agreements reviewed by competent legal counsel.

2008 HR Forecast
Expected workplace changes

With 2008 almost here, companies can expect another year of aggressive employee retention goals, smarter budgeting and an emphasis on work-life balance. To help employers with their planning, Employers Group’s Research Services has put together the following examples of what workplace changes HR professionals should expect this coming year.

More strategic employee compensation
As of 2005, salary increases have hit a plateau despite California’s tight job market and high turnover rates. According to Employers Group’s HR Budgets and Human Capital Benchmark Survey, excluding figures from executives, the projected average merit increases will rise slightly from 3.87 percent in 2007, to 3.92 percent next year. The trend seems to be that employers are getting smarter and stricter when it comes to their budget practices. Instead of throwing money at the problem (which, in this case is high turnover), for 2008, employers seem to be evaluating how and where their money should be distributed, addressing the growing concern amongst employers regarding the discrepancy between worker productivity and salary pay.

Exempt employees will see a drop in merit and general increases for 2008, but also a significant rise in alternate pay (i.e. incentives, bonuses and awards), suggesting that employers are beginning to tie compensation with employee performance.With the continued high costs (i.e., rising benefit costs) to keep employees, employers are becoming more concerned with investing in alternate pay to ensure they are getting what they pay for.

Work-life balance more of a priority
Within recent years, work-life balance has continued to become a priority for employees. According to the 2007 Monster Work/Life Balance Survey, 89 percent of employees polled believe work /life balance programs, such as flextime and telecommuting, are important when evaluating a new job. However, those results also showed that half of HR professionals polled consider work/life balance to be an important initiative for their companies.

There’s probably little surprise, therefore, that the survey findings also revealed that only 29 percent of workers view their employer's work/life balance initiatives as good or excellent; in fact, 58 percent say their employer encourages too much work.

For 2008 and the next few years to come, it is likely that HR professionals will have to start adopting more of these policies. Already nearly half (44 percent) of chief information officers (CIOs) surveyed said their companies’ IT workforce is telecommuting at a rate that is the same or higher than five years ago; only 3 percent said IT staff work remotely less frequently today than five years ago.

Ultimately, according to Workforce Management, the attitude of “live to work” will shift toward one of “work to live” as people devote more attention to family and life interests. The rise in telecommuting will allow people to decompartmentalize and integrate their lives. More and people will work from their homes, and as a result, work will become more mundane rather than all encompassing, and terms such as “employee burnout” and “workaholic” will be less common.

Despite challenges, employers getting smarter
Many of the challenges employers faced this year, will unfortunately carry on to 2008. Unemployment is expected to stay low, dropping from 5.0 percent in 2007 to a projected 4.9 percent rate in 2008; therefore, the job market will continue to remain tighter than ever. Also, starting in 2008, hundreds of thousands of Baby Boomers (76 million born 1946-1964) will begin to retire, creating the largest exodus out of the workforce by a single generation. Consequently, companies are (according to recent data) starting to reassess what their employees want. 2008 is revealing a workplace as an employee’s market. Whether, it means more “nontraditional” benefits such as telecommuting or flex-time, the universal consensus for the future is that employers will need to be flexible.

Meeting your compensation and benefit needs
A key membership benefit of Employers Group is access to a wide range of surveys covering compensation, benefits, and economic trends. The surveys not only cover California's diverse labor market, but members also have access to a number of national surveys covering key labor markets across the U.S. Whether you need data for one job or as part of a formal compensation plan, EG's comprehensive survey program can help you estimate current labor market rates and practices for your organization. For more information or questions, please contact us at 213.765.3920 or at surveys@employersgroup.com.

Building and Managing a Virtual Workplace

“Work is something you do, not someplace you go.”
 	- Woody Leonhard, The Underground Guide to Telecommuting

The virtual workplace is no longer a “nice to have” perk for progressive companies, but a must-have for all competitive employers. How well your company can build and manage a virtual workforce could be the defining challenge your HR function faces in the next several years.

More than 80 percent of companies are “virtual workplaces,” meaning at least some of their employees work away from their supervisors and/or workgroups. On average, organizations classify 27 percent of their employees as virtual, according to Nemertes Research, an independent research firm that specializes in quantifying the business impact of technology.

Why are so many companies adopting the virtual workplace? It is a win-win-win for these reasons:

• A more productive workforce:
  Studies show that virtual workers, when compared to their office-bound colleagues, tend to be more productive (up to 16% more productive) and stay with a company longer.
  
  
• Reduced overhead:
  Get rid of the fancy digs and eliminate costly overhead. IBM, for example, saves about $100 million a year by letting 140,000 employees work from home, on the road, or at client locations.
  
  
• A recruitment edge:
  Gen X and Y make up the majority of candidates on the market, and they look for opportunities where they can develop their skill set without having to sacrifice every other area of their life. Comfortable and confident technology users for the most part, the virtual workplace is the perfect place for Gen X and Y to work smarter, not harder, and find work-life balance.

Building a successful virtual workplace depends on how well your organization can tailor its technology, training and tracking:

Technology
Beyond BlackBerrys, new collaborative technologies are making it easier and easier to bring together remote teams. To keep your virtual team communicating, the options are varied and typically non-capital intensive: VOIP (Voice Over Internet Protocol), instant messaging, web conferencing, audio and video conferencing, shared workspaces and email all enable a rapid flow of information.

Training
There is nothing worse than trying to solve a problem alone, and poor training can make virtual workers feel isolated. Training should encompass all aspects of their goals, as well as the collaborative technologies they’ll be using and “success tips,” such as time management and home office efficiency. To keep the connection strong, Colleen Garton, author of Managing Without Walls, says that managers should check in each day with virtual workers.

Tracking
Manage your virtual worker by objective, rather than oversight. Instead of measuring the number of widgets he or she might produce at home compared to in the office, set goals for what needs to be accomplished, and measure the quality and timeliness of their work. This will most likely mean revamping performance management systems, but the emphasis on results versus activity and the trust imparted on the employee will likely make it a welcome change.

The virtual revolution is here, and the most progressive employers will embrace it and give their employees the tools to be successful and productive from a virtual office.

A Cultural Perspective: The Hispanic Employee

The growth of the Hispanic (or Latino) community in California is rising at an unprecedented rate. Just driving around Los Angeles, I can see communities that were once dominated by other ethnic groups are now Hispanic-dominated areas.

Within these Hispanic communities, American companies are cashing in by advertising their products and services in Spanish. Not only have they become part of the California workforce, but they have also become a large group of consumers. It is estimated that by 2020 the state’s Hispanic population will double. With the numbers fast approaching, if you haven’t hired a Hispanic employee yet, most likely you will do so very soon.

If you are a non-Hispanic employer or manager and you hire Hispanics to be a part of your workforce, there can be quite a few challenges you may not have expected.
You hire the Hispanic employee based on skill set, right? They should go on their merry way and perform to expectations just like every other employee. This is not always the case. The first challenge that could cause “performance not to meet expectations” is the language barrier.

Language issues
Although there are many excellent employees who have the technical abilities you are looking for, many of these may not necessarily be fluent in English. Having said that, you should have the job description translated into Spanish. It should be clear and concise with the list of expectations.

Secondly, all written communication of policies, procedures and benefits should be written and translated in a way that Spanish speaking employees can relate to and understand. For example, health insurance, life insurance, and 401(k), to name a few, are very foreign to these employees. For the vast majority of Hispanic employees, there is not an equivalent program for these kinds of employee benefits in their countries. So when they don’t understand how insurances will benefit them, as well as their families, they usually decline them.

I remember a time when we were going through open enrollment and we had a guest speaker come in to explain our 401(k) program. All the English speaking employees were excited about the program and started to sign up. I noticed that a group of Hispanic employees with limited English just sat there. When I approached them and asked why they were not interested in signing up, they said they didn’t understand the benefit of having money deducted from their paychecks.

It is important to have a designated translator at your company, even if this means you pay them to help out with translations. You can also request vendors to send in representatives who can speak both English and Spanish.

My background is an example
I was born and raised in California, the daughter of two immigrants. My father was from Bilbao, Spain, and my mother is from San Salvador, El Salvador. My father worked and my mother stayed home to care for the children. I am considered to be “Hispanic,” and tend to be placed into a general “Hispanic” pot. If you take a look at my background, I have two very different cultures, plus my American culture. Growing up in California and meeting different people, many were surprised that I was educated, well-traveled and came from a middle class family. They assumed, as is often portraied in the media, that because I am “Hispanic,” I am less educated.

Watch your assumptions
This leads us to the second challenge. The mistake employers make is assuming that Hispanics are fairly similar and if a program is working with one group of Hispanics, then it will work with another.

Hispanics are very different, depending upon their heritage. Hispanics come from a lineage of 22 different countries. Some Hispanics are Asian, Native American, Caucasian, Mulatto, Mestizo or Black. Hispanics are very sensitive to divisions based on heritage, education, skin color and socio-economic status.

As an employer, you must recognize the diversity of the Hispanic community. If you employ a vast majority of Hispanics in your company, I highly recommend your management team take the time to familiarize themselves with some common Hispanic cultural traits. This will help your management better understand and interact with Hispanic staff members. They will be able to create a more inclusive and comfortable environment for everyone.

Expecting an automatic “fitting in”
The third challenge is we expect them to fit right in. When we hire Hispanic employees, we expect them to assimilate to the American work standards and immediately be productive. This is not easy for any immigrant, regardless if they are Hispanic or not.

Let me give you some very general perspectives on Hispanic’s viewpoints. Most Hispanic workers have a distrust of government, businesses, and law enforcement because of their own personal experiences with these types of institutions in their countries of origin. So there is already a distrust factor with the employer. They are not sure whether they should believe their employer or not.

For example, you are telling them to sign up for the company’s 401(k) plan, but you need to deduct a certain percentage from their paycheck. As a company, you will match their contribution. On one hand, this program sounds wonderful. On the other hand, is this a trick to steal money from me?

Another factor that can add to their distrust is their past experience with another employer. People from the Latino countries seek to relieve their frustration, pain and suffering due to poor economic status by taking their chances to come to the United States. They are desperate to make as much money as possible even if this means taking on riskier jobs or working in poor conditions.

Some employers do take advantage of this and do not treat them with respect. Hispanics respect authority regardless of how they are treated and whoever is in this position of power must be looked up to and agreed with. Most of them remain quiet and eventually leave. So if they have had these bad experiences, it may take longer to get them to trust you and open up.

5. Where’s the beef?
Your audience and the type of event will determine the content of your program. Knowing the desired outcome will provide guidance on speakers, topics, materials, agendas, promotions/giveaways, etc. These are frequently the hardest components to plan in an event and the ones most likely to change. Plan to spend a significant amount of time tweaking content and continuously following up to ensure everything is in order. There are almost always last-minute changes, so have some contingency plans up front.

How you can change the dynamic
Open the lines of communication with your Hispanic employees. Ask them for their input and ideas, even if you have to use a translator. Get them involved with the business and make them feel a part of it. Share with them the goals of the company and what they need to do accomplish these goals. Once the goals are reached, reward them and make them feel valued. Talk to them about opportunities for growth and promotion. If you create this environment, they will open up and become extremely loyal. They will help you out when you need them the most.

Training can help
The fourth challenge is training. This is an area that is overlooked for Hispanic employees. If you send them to an English training course with limited English skills, most likely you have wasted your money. You can encourage your employees to attend ESL classes or may even pay for some English courses, but keep in mind that a lot of them have two jobs. So, the class schedule may not fit their work schedules. This does not mean they are not interested, but unfortunately they just can’t do it.

The solution is to offer the same training courses in Spanish. You can also ask them directly what courses they would like to attend. Give them a list of available courses that include communication with management and building teamwork.

Secondly, select a trainer that can relate to the group of Hispanics they are training. Remember, all Hispanics are not the same. Some of the participants may not even know how to read or write in Spanish, so the trainer must be able to help these individuals along and incorporate different training techniques so no one feels left out.

I can say from my own personal experience that when I have taught a course to a group of Hispanic employees in Spanish, they are so appreciative that their employer has given this to them. The employer has earned “brownie points” and it goes a long way.

Concluding thoughts
I hope this information provides some insights and helps close the gap a little bit more. We are all very different and are influenced by our heritage, language, country, income level and education. By getting to know us individually, and we in turn getting to know you better, our lines of communication will open up to a successful working relationship.

AB 1825 Reminder!
It’s NOT too late to get your
harassment prevention training this year.

The end of 2007 is fast approaching. If you elected the training-year-method to complete your AB1825 training and you did training in 2005, you must provide training to all of your supervisory employees by December 31, 2007. Employers Group has FOUR solutions to assist you in completing this requirement.

1) On-Site at your Location
Dates and times in December are still available; however, to get your first choice, please contact your Client Services Manager as soon as possible.

2) Public Courses
If you have just a few supervisors that still need to be trained, send them to a public course! All classes are from 9am-Noon:

• 12/12 Los Angeles
  
• 12/13 Ontario
  
• 12/18 San Diego
  
• 12/19 San Francisco
  
• 12/28 Costa Mesa
  
• 12/28 Woodland Hills

Register for any of the above by calling 800.748.8484 Option #3, or by visiting the event webpage.

3) Employer-Specific Online Training
If you have 15 or more individuals that need training and it will be impossible to have them in a session together, our online training incorporates your company’s policies and logo, allowing your employee to complete the program when they have time. This course is guaranteed to last the required 2 hours and is highly interactive. Contact your Client Services Manager for more details.

4) Express Online Training
If you have less than 15 employees and do not want to manage your own online training program, use Employers Group’s Express Online Training program. You provide the name and email address of the trainees, and we do everything else! For an order form, email training@employersgroup.com.