ICE Ignites the SSA “No-Match” Keg of Dynamite

Josie Gonzalez is the managing partner of the immigration law firm of Gonzalez & Harris in Pasadena. Josie is Employers Group’s designated immigration attorney on behalf of California employers. (Editor’s note: this article contains information known to Josie as of September 12, 2007.)

Much to the dismay of many employers, the Department of Homeland Security (DHS) and its immigration enforcement arm, Immigration and Customs Enforcement (ICE), have turned up the heat on the business community by issuing a regulation on August 15, 2007 that addresses employer liability for knowingly continuing the employment of unauthorized workers under a “constructive knowledge” standard. (72 Fed Reg. 45611)

What the regulation says
The ICE regulation explains how an employer can gain constructive knowledge that it is employing an unauthorized worker when it fails to exercise due diligence after receipt of a no-match letter from the Social Security Administration (SSA) advising it that the name and number on the W-2 do not match SSA records.

“Constructive knowledge” is a legal standard akin to “willful blindness.” It has been defined as “a mental state in which the defendant is aware that the fact in question is highly probable but consciously avoids enlightenment.” According to established case law, “deliberate failure to investigate suspicious circumstances imputes knowledge.” (United States v. Jewell, 532 F2d 697 (9th Cir.1976)

Since the no-match discrepancy may be the result of clerical errors, the letter, standing alone, is not proof that the employee lacks the right to work in the U.S. But a total disregard of the letter combined with other evidence obtained during ICE investigations can establish constructive knowledge based on a “totality of the circumstances.”

The regulation sets forth guidance on how to establish “safe harbor” protection against a finding of constructive knowledge. This guidance, currently posted on the websites of both the SSA (www.ssa.gov/employer/noMatchNotices.htm) and ICE (www.ice.gov), is intended to be disseminated to employers in an SSA mailing that contains both the no-match letter and a separate insert from ICE describing the steps to take and the timetable to respond to the letter.

Challenged by labor unions’ TRO
Implementation of the regulation, however, has been challenged by the AFL-CIO, ACLU and California labor unions, resulting in the issuance of a nationwide Temporary Restraining Order (TRO) on August 31, 2007 – which also halted the ICE insert with the SSA letter. The lawsuit alleges that 17.8 million errors in the SSA database will result in wrongful discharges, and that the regulation is beyond the scope of the immigration laws.

In a declaration in support of DHS’ opposition to the TRO from David Rust, an Acting Deputy Commissioner within the SSA, it states that SSA intends to send 141,000 letters, affecting over 8 million workers. In order to minimize the impact on its field offices and regulate the volume of calls to its 800 number, it planned to release the letters in varying amounts each day, ranging from an initial 500 to upwards of 3,200 daily between September 2007 and early November 2007. SSA declared that uncoupling the SSA letter from the ICE insert would be laborious and impact its resources. Now, with the TRO, the timing for mailing of these letters and the inclusion of the ICE insert is uncertain.

What to do in the meantime
Regardless of the outcome of this litigation, employers who have already received no-match letters in prior years need to realize that ICE views these regulations as merely a reflection of current immigration law regarding an employer’s responsibility when confronted with evidence which, under a “totality of the circumstances” standard, raises serious doubts about the legality of one’s workforce.

Today, an employer who does nothing meaningfully to address the receipt of a no-match letter is sitting on a keg of dynamite and may find itself in the same shoes as others that ICE has criminally prosecuted over the last two years. It’s not a pretty picture.

Corporations, executives and managers have faced felony charges, and personal and corporate assets such as real property, bank accounts, automobiles and inventory have been seized under criminal forfeiture statutes. The parade of “horribles” describing these prosecutions can be found on the ICE website. Adopting a sensible approach to the receipt of the no-match letter that is non-discriminatory and comports with fair labor standards is essential.

This article will describe the “safe harbor” provisions under the new regulations. Along with the release of the regulations, DHS announced a 26 point edict including efforts to improve worksite enforcement and to streamline guest worker programs. A description of most important points is included.

“Safe Harbor” steps
The regulation superficially sets forth simple steps to take to achieve safe harbor protection. The first four steps are clear and non-controversial; however, a resolution of the no-match is normally not reached after taking these steps.

1. Within 30 days of receipt of letter, check records to ensure mismatch is not result of employer error;
   
   
2. If the discrepancy is not resolved, ask the employee to confirm the accuracy of the number;
   
   
3. If the records are accurate, ask the employee to resolve the no match with SSA within 90 days from the receipt of no-match letter;
   
   
4. If able to resolve, verify the correction by using SSA records described at www.ssa.gov/employer/ssnv.htm or by calling the SSA at 1-800 772-6270, and retain a record of the verification.

Records of verified resolutions such as SSA correspondence, computer generated printouts, or SSNVS screen prints documenting the discrepancy correction should be kept with the employee’s I-9. The correction can be accomplished by updating the I-9 or completing a new I-9.

Special I-9 process
The devil is always in the details and such is the case with the final “safe harbor” guidance. If not resolved with SSA within 90 days and the employee insists that, notwithstanding the SSA discrepancy, he does have the legal right to work, re-verification of work authorization is required through the completion of a new I-9 within 93 days. The employee cannot use the disputed social security card or a receipt for the social security card and must present a document that contains a photo. The new I-9 must be retained for the same period as the original I-9.

Two examples of how an I-9 would be completed in these circumstances are:

1. An employee insists that he is a U.S. citizen. Instead of presenting the problem social security card for the new I-9, a U.S. passport, or a birth certificate and driver’s license are used.
   
   
2. A permanent resident, in lieu of using a social security card and driver’s license, presents an immigration-issued work authorization card containing a photo, thus establishing work eligibility and identity.

As soon as it is evident that the social security no-match is not attributable to employer or employee error, the employee should be notified that re-verification of work authorization will be required in order to continue employment. There can be delays in securing a birth certificate, and securing a U.S. passport for an individual born abroad to U.S. citizen parent(s) is complicated. An individual might have gained permanent residence many years ago but has now lost the green card and doesn’t know the alien number, thus making it very difficult to secure a replacement card.

If the employee cannot present alternate documentation and the SSA discrepancy cannot be resolved, per ICE guidance, the employee must be terminated if the employer is to establish safe-harbor protection.

Since litigation is currently clouding the implementation of the regulations, an employer should be free to develop alternate due diligence steps to handle the receipt of earlier no match letters. In fact, until the litigation is resolved, following the precise steps outlined by the regulations might subject an employer to lawsuits, particularly from unions or trigger organizing drives.

DHS announces additional enforcement measures
In its 26-point enforcement manifesto, DHS announced some interesting employer-related provisions, summarized below.

• It intends to publish a regulation that will reduce the number of documents that employers can accept to confirm the identity and work authorization of its employees. Although not specifically stated, one wonders if this means that a new I-9 will finally be released?
  
  
• ICE will increase civil fines to account for inflation and boost them by 25%. Since the primary enforcement vehicle is criminal not civil, this news isn’t viewed as particularly noteworthy.
  
  
• DHS will soon publish a proposed regulation to require that all federal contractors and vendors use E-Verify, the federal electronic employment verification system, to verify employees’ right to work.


• The Department of Labor (DOL) will reform the H-2A agricultural seasonal worker program. Most believe that these reforms are inadequate.
  
  
• DOL will issue regulations streamlining the H-2B program for non-agricultural seasonal workers. Most employers need year-round, not seasonal workers. A worker who has been terminated as a result of the no-match letter would generally be found ineligible for H-2B consideration.
  
  
• A study is being conducted to determine how undocumented workers can be prevented from earning credit for illegal work. Currently, an employee who manages to secure legal status can request that prior earnings be credited to a valid social security account.

In conclusion, one wonders if these aggressive new measures aimed at combating unauthorized employment at the worksite are meant to serve as a catalyst to prompt Congress to pass ameliorative immigration laws, or whether the Bush administration has simply given up on its “comprehensive immigration goals.”

More than ever, employers must be vigilant in their compliance efforts. They should establish a comprehensive compliance program that encompasses both I-9 procedures and no-match letters, and set up process flows to handle and track each safe harbor step. Concurrently, they need to assess production needs and explore all viable options to secure workers.

Dear EG Members:

Six months have passed since I began my role as President and CEO of Employers Group. I’d like to thank you for the candid and encouraging feedback you have given me and our leadership team during this transition.

As you may have noticed, we have been very busy implementing broad, strategic and operational changes, as well as best practices to better serve you. Your comments and suggestions help fuel and reinforce these positive changes. Here are a few of the highlights we hope you have noticed so far.

A more responsive customer service staff
We have more than doubled our client serving professional staff and equipped everyone with the necessary communication tools (i.e., BlackBerrys, laptops, etc.) to easily communicate with you. Overall, we have raised our expectations of staff to proactively connect with members, with greater accountability for your satisfaction.

Quality Assurance program launched
We have hired a Quality Assurance/Customer Satisfaction lead to ensure your needs are not only met, but exceeded.

New-and-improved courses and training catalog
Our training catalog will be released semiannually to better meet your planning and budgetary needs. Look for our next catalog to be released in January, 2008!

Legal & legislative expertise

• While EG has always been a leader in providing members with legal and legislative knowledge, we’re working smarter with our Legal Committee to be the first to bring you everything you need to stay in compliance.
  
  
• We are now holding our famous Workplace and Employment Law Updates throughout the state, covering recent legislation and regulation changes that impact you.

Other changes

• We have expanded by opening new “live” EG offices in Ontario, Woodland Hills and San Diego, with new locations coming soon, including San Jose and Oakland.
  
  
• We successfully launched our California’s Best Places to Work survey, a first-ever statewide program that has drawn an extraordinary response.
  
  
• We have developed a Latino business vertical serving all needs of Latino businesses, including offering training courses for Spanish speaking employees. And, we have also hired many new Helpline consultants and training specialists with bilingual capabilities in both Spanish and Chinese.

Our Vision, Mission and Values
As you can imagine, in order to successfully implement all these changes we had to make sure we were all on the same page as to who we are, what we do and how we deliver excellent service to our members.

I am pleased to present Employers Group’s NEW Vision, Mission and Values statements. These declarations came from a collaborative effort by everyone at EG. I believe they reflect the renewed and re-energized EG and the direction we are taking to provide the best customer service possible to meet your HR and business needs.

And to think we’re just getting started! Stay tuned, because this is just the beginning, as many new initiatives are underway to drive even more new services and results in 2008. We appreciate your membership, and welcome your continued input and support as we move forward.

Mark W. Wilbur
President and CEO

By Kimberly Nwamanna,
Helpline Consultant

In July, San Francisco began rolling out its plan to offer free or low-cost healthcare to all uninsured residents thr-ough a new employer mandate and an expansion of its public health safety net called Healthy San Francisco program. The program is intended to provide basic, preventive health care to uninsured residents.

San Francisco finalized regulations implementing the San Francisco Health Care Security Ordinance (HCSO) on July 12, 2007.

What is HSCO?
The HSCO is a regulation that mandates eligible employers spend a minimum amount per covered employee on healthcare. It was finalized by the Office of Labor Standards Enforcement (OLSE) and originally passed by the San Francisco Board of Supervisors in July, 2006.

What is Healthy San Francisco?
Healthy San Francisco (formerly Health Access Program) is a healthcare services program for uninsured San Francisco residents. This program is financed through a combination of employer, individual, the City and County of San Francisco contributions, and other public sources.

Healthy San Francisco is expected to offer healthcare services up to 16,000 employees and individuals. The city already spends about $115 million annually to care for 50,000 of its 82,000 uninsured residents between 19 and 64 years old.

The Healthy San Francisco program does not provide care for people when they are outside of the city. It currently only provides care at 20 clinics and one hospital within the city.

Who is a covered employer?
Medium-sized and large employers must contribute to the healthcare of employees who work in the City and County of San Francisco regardless whether the employee actually lives there. However, employers are required to make healthcare expenditures for only employees that perform work in San Francisco.

For example: an employer having 55 employees – 30 of which do not work in San Francisco – would comply with the spending requirement, but pay only for the 25 employees who work in San Francisco.

Employers who are contracted with the City and County are generally required to be covered by the Health Care Accountability Ordinance (HCAO). Nonprofit employers with less than 50 employees and employers with fewer than 20 employees are exempt from this mandate.

• Verify and sign a voluntary waiver that they are receiving healthcare coverage through another employer. The employee may revoke this opt-out at any time.
  
  
• Are eligible for other city, state and federal programs such as Medicare and/or CHAMPUS.
  
  
• Earn over $74,558 a year in 2007

How much is an employer mandated to spend?
Most employers are required to contribute at least $1.17 an hour on healthcare for employees. Employers may reimburse employees for the cost of healthcare, provide coverage through private health insurance, contributing to a health savings account or helping employees pay for the cost of Healthy San Francisco.

Employers with at least 20 to 49 employees are required to contribute starting April 1, 2008. For employers with more than 50 employees contributions must start on January 1, 2008. The rates are expected to increase 5% annually depending on growth indices. The chart illustrates the expenditure rate schedule for employers.

What is a healthcare expenditure?
The regulations define expenditures as “any amount paid by a covered employer to a covered employee or to another party on behalf of its covered employee for the purpose of providing healthcare services for its employees.”

What are employers required to spend money on?
Employers must contribute the required amount of expenditures on healthcare for their employee. However, employers are not required to purchase health insurance or pay into the Healthy San Francisco program. These are the healthcare options employers will contribute towards:

• insurance
  
  
• public programs for the uninsured, such as Healthy San Francisco
  
  
• health savings accounts, or
  
  
• direct reimbursement to employees for health expenses.

Employers may contribute to nonresidents’ healthcare through medical reimbursement accounts if the employer chooses to contribute to Healthy San Francisco.

Currently, Healthy San Francisco does not cover dental or vision care, but does provide mental health and substance abuse services and prescription drugs.

What is at issue?
The Golden Gate Restaurant Association and the San Francisco City Attorney's Office are fighting the mandated regulation in Federal Court against San Francisco. They argue that the health plan is superseded by federal law restricting local governments from administering employee benefits. Only Congress has such authority. (The Employee Retirement Income Security Act [ERISA] prohibits local governments from interfering in employers’ employee benefits plans.) Conversely, San Francisco’s legal representatives insist that the HCSO allows employers to comply however they wish.

The Learned Professional
As in exempt or nonexempt

By Mark Nelson, J.D.,
Helpline Consultant

For employees to be paid on a salary basis, they must be exempt from overtime requirements. Most employees paid on an exempt salary basis fall under what we commonly refer to as the “white collar” exemptions:

• an executive exemption for supervisors
  
  
• an administrative exemption for office employees in business operations, and
  
  
• a professional exemption, generally reserved for those employees with advanced degrees practicing a recognized profession.

Recognizing professional exemptions
In California, under the professional exemption, the wage orders delineate eight recognized professions for which the employee must be licensed or certified to practice in California: law, medicine, dentistry, optometry, architecture, engineering, teaching, and accounting.

In addition to the delineated professions, the wage orders also go on to include a more general “learned profession” category for the employee who is not in one of the eight professions, but is still “primarily engaged in an occupation commonly recognized as a learned…profession” requiring “knowledge of an advanced type in a field or science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished from a general academic education and from an apprenticeship, and from training in the performance of routine mental, manual, or physical processes...”

Traditionally, the California agency enforcing our wage orders, the Division of Labor Standards Enforcement, took the position that to meet this test, employees must have a degree above a B.A. or B.S.

In December of 2006, however, without any fanfare, the agency revised their position to permit employees with a bachelor’s degree to qualify under the learned professional category as well. The change is good news for employees excluded under the old rules, specifically analysts, scientists, researchers, and other individuals functioning at high levels in very specialized professions, but excluded from exemption status under the wage orders by virtue of the absence of a masters or Ph.D.

For additional information or clarification about exempt and nonexempt positions, please feel free to call the Employers Group Helpline.

UI Charge Statements Arriving Soon
Taking action can save you money!

By Sarah Rios,
Manager Unemployment Insurance Services

California employers will soon be receiving the annual Statement of Charges, form DE428, from the Employment Development Department (EDD). This statement lists all of the past employees who have collected UI benefits charged to your account during the EDD’s fiscal year, July 1, 2006 through June 30, 2007. It lists the claimant’s name, SSN, claim date, and the amount of money charged against your account for each claimant.

Pay attention to the statement
There is a potential saving if you are diligent in auditing this statement. The EDD allows you 60 days to protest any charges you feel are incorrect. Removing even one charge may result in your tax contribution rate being lowered.

Even if your new 2008 Contribution Rate Notice is issued prior to the EDD’s response to your DE428 protests, the EDD will reissue a new Contribution Rate Notice after charges have been removed. If the contribution rate has been lowered, the effect is retroactive.

Protest categories
Many employers are confused about what can and cannot be protested on a DE428. There are basically four categories of protest:

• the last decision issued on the reason for separation was favorable to the employer
  
  
• you never received a UI claim on the former employee
  
  
• you never received a determination/ruling on a timely protest
  
  
• clerical errors such as wrong SUI account, wrong SSA#, not your employee...
  

Note: Employers who have elected reimbursable financing do not receive relief of charges since there is no reserve account to be credited.

What you cannot protest
If you received an unfavorable ruling from the EDD or an unfavorable decision from an Administrative Law Judge, but you did not appeal it, you have no basis for a protest to the charge on your Statement of Charges. No matter how strongly you feel that the person should not be eligible to collect, if you did not take action within the time limits upon notice of the claim, ruling, or decision, you do not have any protests rights on the DE428.

Petition of review
After you protest the charges you feel should be removed, the EDD will send you an acknowledgement letter stating that your request is either granted and the charges will be removed, or your request is denied and the charges will not be removed. At that point, you can ask for a Petition of Review. The EDD will respond by sending you a Petition Information Sheet. This will include the information that the EDD has on record. The next thing that you will receive is a hearing notice listing the issues.

Keeping up with the process is worth it
Be aware that this process, although very worthwhile, can take a few years to accomplish. You can appear at these hearings by telephone. After explaining your position, (e.g., you never received the claim notice) you will need to establish why your reserve account should be relieved of charges.

You will be asked to verify the address where the claim was mailed and explain your mail delivery procedures. You will be asked for the claimant’s hire date, job title, rate of pay, and last day worked. You will also be asked the circumstances of the separation in order for the Administrative Law Judge to determine whether or not relief of charges should be granted. Could the person have had a leave of absence? Did the claimant ask for one? Did the claimant give a reason for quitting? Did the employer ask the claimant for the reason for quitting? What was the final incident that led to the termination? Had the claimant been warned?

It may seem somewhat cumbersome and drawn out, but even a single charge for $1 may lower your unemployment tax contribution rate. The removal of charges has a domino effect. Not only could your rate be lowered for that year, it continues forward to the current year. The bottom line: you could save thousands of dollars due to the cumulative effect.

COBRA Tips (Part 1)

By Matt Bartosiak,
Helpline Manager

COBRA administration is a complex and tricky matter. Penalties can be expensive, not to mention the issue of possibly being mandated by a court to pay the medical bills of an ex-employee who was illegally denied COBRA rights. Even if your company has a third party administrator, it is in the employer’s interest to know that COBRA is being administered correctly – and additionally, to be knowledgeable about employer liabilities and rights.

This article addresses certain points many employers may not be aware of, as well as some of the opportunities companies have concerning their COBRA obligations

Mail to home address
Always mail COBRA notices rather than hand them out. While mailing is not mandated, it is the best way to ensure that all qualified beneficiaries (COBRA entitled persons) are notified of their rights. You only have to prove that the notice was sent, not received (photocopy of the postmark). Hint: Get an address update every year, and make it the obligation of the qualified beneficiaries to keep the company apprised of all address changes in all COBRA notices. Also, ask for dependents’ legal addresses on enrollment forms (if they don’t reside with the employee).

Calendar days and postmark
The “day count” in COBRA is calendar days, business days are never used. The legal date of everything in COBRA is the postmark date—save those envelopes. This is true of all notices, elections, and payments.

Notice following qualifying events
Regarding COBRA notices in divorce/legal separation cases, or loss of dependent child status, the administrator should always include the rule that notice must be provided no later than 60 days following one of these qualifying COBRA events, or 60 days from the date coverage actually is lost because of one of these events, whichever date is later. If the plan administrator is not notified, then there is no obligation to offer COBRA to these individuals who lose coverage.

Divorce/legal separation
If a spouse is dropped from coverage before the legal date of divorce or separation, then there is no COBRA right for the spouse until that legal date. The COBRA continuation coverage is 36 months from the divorce/legal separation. Yes, this means that there could be a gap in coverage. Always ask to see the legal proof.

Not entitled to COBRA
If a person asks for COBRA and is not entitled (e.g., they never had coverage), then this information has to be provided in a letter. In the old days, you could just say “no” by phone.

When health providers call
Be careful to give complete information if you are asked if a certain COBRA eligible person is covered. You should respond: “No, this person is not covered as of now, but is still in a COBRA election period,” etc.

Payments and coverage
You don’t have to provide coverage until the first payment is received. Of course, if it’s on time, the coverage is retroactive to the beginning of the continuation period.

The best tip of all
Sometimes a COBRA person’s health expenses can really hurt your premiums next year. Employers are allowed to offer alternative coverage and have the qualified beneficiary wave their COBRA rights. The COBRA right must be waived on the election form. The alternative coverage doesn’t have to (1) be the same, (2) be as good, or (3) be as long; they just have to accept it. Note, if there is a second qualifying event during the alternative coverage period, then the affected qualified beneficiaries must be offered COBRA.

(Editor’s Note: See next month’s newsletter for more COBRA Tips. Matt Bartosiak teaches COBRA courses for EG members, and is recognized as a COBRA expert. He makes his classes interesting and fun—all in plain English. Check out upcoming COBRA classes in the EG Training catalog, or at www.employersgroup.com.)

2007 Bills Passed
But will the Governor Sign or Veto?

By Wendy Taylor,
Communications and
Public Relations Manager

Although a multitude of bills were proposed in this year’s California legislative session (more than 2,800), only about 900 were approved. Of those, only about 30 bills are employer-related and would affect workplace laws in 2008. Governor Schwarzenegger, however, has until October 14 to either sign or veto them, and if he remains true to his previous patterns, he will veto at least two-thirds of the employer bills.

Further, any bills that did not pass will not be considered until the Legislature reconvenes on January 7, 2008.

Healthcare
Of the bills that were passed, AB8 remains at the top of the list for employers’ concern because it deals with healthcare reform. Known as the “pay or play” bill, it means that employers would either have to offer health insurance plans to their employees that meet certain minimum requirements, or if not, would be required to pay the state 7.5% of payroll to create a “pool” that employees could access to purchase insurance.

Although the Governor has indicated he will veto this bill, he has called for a Special Session to deal entirely with this issue. As of this writing on September 17, 2007, the Legislature has officially begun this session, which means that bills specifically on this issue can be introduced right away.

Special Session rules prohibit the introduction of any bill that is not “germane” to the issue of the session. Any bill that is enacted can take effect immediately upon the Governor's signature, instead of the following January 1, which is the usual case.

The Governor’s healthcare agenda
Employers support the Governor's criteria:

1. guaranteed issuance (every California should be able to get health insurance);
   
   
2. individual mandate that everyone should be required to have health insurance (individuals should not be relieved of some responsibility);
   
   
3. Medi-Cal reimbursements should be increased;
   
   
4. cost containment, and
   
   
5. employer participation in some form.

Certainly, all the developments will be covered by mainstream news sources, but we will also keep you informed on the details as the Special Session progresses via our Website weekly updates. Check our home page, at the end of the far left column under “What’s New.”

Other HR-related bills passed
On the rest of the legislative front, the worst bills that were passed by the Legislature are listed here; however, it remains to be seen which ones the Governor will sign or veto.

AB 437 – Employment: discrimination
This bill attempts to undo the employer-favorable recent Ledbetter decision by the US Supreme Court, applying to Title VII cases, which found that an employee's discrimination claim was time-barred because the mere issuance of paychecks for years after an alleged discriminatory pay decision did not keep the claim alive. By essentially removing any statute of limitations from any type of action, including employment discrimination, this bill would allow employees to bring discrimination claims YEARS AFTER the alleged discriminatory act, simply by claiming that pay was impacted and that paychecks kept getting issued.

AB 448 – Compensation recovery actions: liquidated damages
This bill permits employees to recover liquidated damagers in complaints brought before the Labor Commission alleging payment of less than the state minimum wage.

SB 622 – Independent contractors
This bill is about misclassification of employees as independent contractors, and would prohibit “willful” misclassification. The bill would authorize the Labor and Workforce Development Agency to assess specified civil penalties from employers violating the bill – and, it would entitle employees who suffer actual harm (or a labor union) to bring actions to recover these civil penalties. Thus, it would increase the likelihood of lawsuits.

Workers’ Comp
AB 1636 – Supplemental job displacement
This bill requires employers to pay disability benefits (on or after January 1, 2008) no later than 74 days after termination of temporary disability. The bill would require the employer, if the percentage of the permanent disability cannot be determined, to provide a voucher based on the reasonable estimate – and if the percentage is later determined to be higher, to provide an additional voucher amount immediately.

SB 936 – Permanent disability schedule
Another bill that would roll back the cost savings under the previous reform, specifically by revising the formula for computing spermanent disability for injuries that occur after January 1, 2008. In essence, it could double permanent disability costs.

SB 942 – Lost wages from failure to accommodate
This bill says that an employer who refuses to reinstate an employee who is willing and available to return to work to his/her pre-injury job, there could be a case for discrimination. The bill expands anti-discrimination laws related to workers’ comp, thus increasing the likelihood of more lawsuits against employers.

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

The California Supreme Court recently held that class arbitration waivers in employment agreements may be procedurally unconscionable and won’t be permitted if a court decides that class arbitration would be a more efficient way to assure employee rights; see Gentry v. Superior Court (2007).

In 2002, Robert Gentry, a Circuit City employee since 1995, filed a class action lawsuit claiming primarily that the company violated California’s Labor, and Business and Professions Codes. He asserted that he and other salaried exempt customer service managers were “illegally misclassified” as “exempt managerial/executive employees” and were therefore improperly denied overtime pay.

Upon hire, Gentry was given information that included an “Associate Issue Resolution Package” and a copy of the company’s “Dispute Resolution Rules and Procedures.” Those rules and procedures allowed certain options to employees, which included arbitration, for resolving employment-related disputes. If an employee chose arbitration, he/she agreed to “dismiss any civil action brought by him in contravention of the terms of the parties' agreement.”

The agreement contained a class arbitration waiver, which states: “The Arbitrator shall not consolidate claims of different Associates into one proceeding, nor shall the Arbitrator have the power to hear arbitration as a class action....” The agreement also included limitations on damages, attorney fees, and the statute of limitations which were not as good as those provided by law. Gentry did not opt out of using the arbitration procedure.

When Gentry filed his suit in 2002, California courts were not in agreement on whether class action waivers were legal. The lower court found the cost-splitting and limitations-on-remedies parts of the Circuit City arbitration agreement to be unconscionable. However, the court ordered Gentry to arbitrate the other claims individually, thus enforcing the class action waiver provision.

The Supreme Court reconfirmed the importance of overtime legislation to the public interest. “An employee’s right to wages and overtime compensation clearly have different sources. Straight-time wages (above the minimum wage) are a matter of private contract between the employer and employee. Entitlement to overtime compensation, on the other hand, is mandated by statute and is based on an important public policy...

“‘The duty to pay overtime wages is a duty imposed by the state; it is not a matter left to the private discretion of the employer. …California courts have long recognized [that] wage and hours laws ‘concern not only the health and welfare of the workers themselves, but also the public health and general welfare.’ ...[O]ne purpose of requiring payment of overtime wages is ‘to spread employment throughout the work force by putting financial pressure on the employer....’ ‘…Thus, overtime wages are another example of a public policy fostering society's interest in a stable job market. …The Legislature's decision to criminalize certain employer conduct reflects a determination [that] the conduct affects a broad public interest.... Under Labor Code section 1199 it is a crime for an employer to fail to pay overtime wages as fixed by the Industrial Welfare Commission.’…Moreover, the overtime laws also serve the important public policy goal of protecting employees in a relatively weak bargaining position against the evil of ‘overwork.’”

The Court determined that “the statutory right to receive overtime pay embodied in section 1194 [of the California Labor Code] is unwaivable.” The Court concluded that under some circumstances such a provision in an arbitration agreement would lead to a de facto waiver and “…would impermissibly interfere with employees' ability to vindicate unwaivable rights and to enforce the overtime laws.”

Individual awards in wage and hour cases are usually comparatively low. “…litigation also usually involves workers at the lower end of the pay scale, since professional, executive, and administrative employees are generally exempt from overtime statutes and regulations. ...According to the DLSE's report in response to Gentry’s Public Records Act request, the average award from its wage adjudication unit for 2000-2005 was $6,038.”

The Court reasoned that Section 1194 permits employees to recover reasonable attorney fees if they prevail in overtime litigation. However, employees and their attorneys have to decide if the typically modest recovery is worth the risk of not winning the suit and then being in debt because of costs such as attorney fees.

“Moreover, the award of “reasonable” fees and costs are at the discretion of the trial court. Assuming that the arbitrator had similar discretion, there is still a risk that even a prevailing plaintiff/employee may be under compensated for such expenses. Given these risks and economic realities, class actions play an important function in enforcing overtime laws by permitting employees who are subject to the same unlawful payment practices a relatively inexpensive way to resolve their disputes. …[T]he class suit both eliminates the possibility of repetitious litigation and provides small claimants with a method of obtaining redress for claims which would otherwise be too small to warrant individual litigation.”

We also agree ...“class actions may be needed to assure the effective enforcement of statutory policies even though some claims are large enough to provide an incentive for individual action. While employees may succeed under favorable circumstances in recovering unpaid overtime through a lawsuit or a wage claim filed with the Labor Commissioner, a class action may still be justified if these alternatives offer no more than the prospect of ‘random and fragmentary enforcement’ of the employer's legal obligation to pay overtime.”

The Court did concede that “We do not foreclose the possibility that there may be circumstances under which individual arbitrations may satisfactorily address the overtime claims of a class of similarly aggrieved employees, or that an employer may devise a system of individual arbitration that does not disadvantage employees in vindicating their rights under section 1194. But class arbitration waivers cannot, consistent with the strong public policy behind section 1194, be used to weaken or undermine the private enforcement of overtime pay legislation by placing formidable practical obstacles in the way of employees' prosecution of those claims.”

Employers should review their arbitration agreements to assure compliance.

Distributed Work Arrangements
What they are, and do they suit your business?

By Tanya Butler, M.S.,
Helpline Consultant

A distributed work arrangement (DWA) is a decentralized organizational structure where the core organization distributes a portion of its functions to a remote site. Distributed work starts with the premise that work is an activity, not a location, and encompasses all manner of decentralized work:

• full and part time home offices
  
  
• satellite offices
  
  
• mobile (phones/BlackBerrys, etc.)
  
  
• telework centers
  
  
• executive suites and business centers
  
  
• new ways of working in traditional offices: open plan offices, hoteling, touchdown spaces, huddle rooms

Technological advances and changes in the global economy are increasing the geographic distribution of work in industries as diverse as banking, wine production, and clothing design. Many workers communicate regularly with distant coworkers; some monitor and manipulate tools and objects at a distance. Work teams are spread across different cities or countries. Joint ventures and multi-organizational projects entail work in many locations.

Telecommuting, e-commuting, e-work, telework, working at home (WAH), or working from home (WFH) is a work arrangement in which employees enjoy limited flexibility in working location and hours. In other words, the daily commute to a central place of work is replaced by telecommunication links. Telework is a broader term, referring to substituting telecommunications for any form of work-related travel, thereby eliminating the distance restrictions of telecommuting.

Defining the differences
A popular motto is “work is something you do, not something you travel to.” A successful telecommuting program requires a management style based on results and not on close scrutiny of individual – or, “management by objectives” as opposed to “management by observation.”

Long distance telework is facilitated by tools such as virtual private networks, videoconferencing, and Voice over IP. It can be efficient and useful for companies as it allows staff and workers to communicate over long distances, saving significant amounts of travel time and cost. Today’s broadband Internet connections provide workers with enough bandwidth at home to link their home office to their corporate intranet and internal phone networks.

24/7 possibilities
Telecommuting options increase the employability of marginalized groups, such as mothers and fathers with small children, the handicapped and people living in remote areas. It can also reduce an individual's carbon footprint, through minimizing daily commuting.

Telecommuting provides employee flexibility, eases the working parent's burden, increases employee productivity, and reduces absenteeism. Virtual offices allow employers to keep valuable employees, allow employers to hire employees otherwise not available, and have facilitated productive re-engineering of order-management and customer service processes.

The set up also offers possibilities for increased service and “internationalizing” the work, since telecommuters in different time zones can ensure that a company is virtually open for business around the clock. Telework has also enabled offshore outsourcing.

Distributed work
Telecommuters need not necessarily work from the home. A more recent extension of telecommuting is distributed work. Distributed work entails working in places beyond the confines of traditional offices. It can refer to arrangements that permit or require workers to perform work more effectively at any appropriate location, such as their homes and customers’ sites via technology.

These work arrangements are likely to become more popular with current trends towards greater customization of services and virtual organizing. Distributed work offers great potential for firms to reduce costs, enhance competitive advantage and agility, access a greater variety of scarce talents, and improve employee flexibility, effectiveness and productivity.

Drawbacks to consider
Some people see telecommuting as more a “complement rather than a substitute for work in the workplace.” Thus, some workers may find their work load increased to the point where they are under more stress than before. Distractions at home can have a similar effect, especially among workers who leave the office to better care for small children and the infirm.

Fellow employees in the employers’ office sometimes resent home telecommuters. Even when a company successfully implements telecommuting practices, increasing productivity and decreasing stress, they face an increased risk of confidential data loss and risks to data integrity resulting from the increased geographical diversity of their network and the loss of direct corporate control over the telecommuter's physical work environment. For instance, a major breach of privacy by the United States Department of Veterans Affairs resulted from a laptop being stolen from a worker who took his work home. The result was described as "potentially the largest loss of Social Security numbers to date."

Initially, managers may see a drop in productivity during a teleworker’s first few months. This occurs while the employee, his peers, and the manager adjust to the new work regimen. It could also be due to a poor “home” office setup. Managers need to be patient and let the teleworker adapt; eventually, productivity will rise.

Management needs to recognize the communication barriers that telecommuters experience. The feeling of alienation can be very difficult for the teleworker. The job should be clearly defined, as well as its objectives. Performance measures should be thorough and apparent.

Managers need to be aware that although overhead decreases, the cost of technology becomes greater. Information Technology (IT) managers experience greater demands because of user requirements for remote access through laptops, pdas, and home computers. Use of non-standard software can create problems. Setting up security and virtual private networks increase IT’s demands.

Managing for results
Traditional line managers are accustomed to managing by observation and not necessarily by results, which can create an obstacle in newly adopting to telecommuting. Liability and workers’ compensation can become serious issues as well. Companies considering telecommuting should be sure to check on local legal issues, union issues, and zoning laws.

Telecommuting should incorporate training and development that includes evaluation, simulation programs, team meetings, written materials, and forums. Information sharing should be considered synchronous in a virtual office and building processes to handle conflicts should be developed. Operational and administrative support should be redesigned to support the virtual office environment, as well as technical support.

(Editor’s note: See next month’s newsletter for an article from Employers Group’s recruitment partner, Decision Tool Box – a company that closed its office in a high-rise, high rent office building and all of its employees work at home. Further, as a recruiter, Decision Tool Box has found that using virtual workers is a hiring incentive.)

Get Next Year’s Training Budget Approved

By Jeff Hull,
Director of Learning Services

It is that time of year again when HR and training professionals should be submitting next year’s training budget. This is no small task as many companies continue to tighten expenditures that not directly relate to the bottom line. But, wait! Doesn’t training relate directly to the bottom line?

More often than we would like to see, much-needed training is not even getting to the budget submission process because it is perceived as expensive, the costs outweigh the benefits and everyday operations suffer because trainees are in training rather than performing their daily tasks.

To stop this insanity, training can no longer be viewed as an expense, but rather as an investment! While this has been the mantra for the last several years, many HR and training professionals have not been given the tools and resources needed to calculate the projected return on investment for training thereby creating the investment concept.

The basis for getting training approved is that it must correlate directly to a business need. Nothing has diluted the effectiveness of company-sponsored training more than providing training for the “feel good” nature of just wanting to develop employees with no end goal in sight. While developing employees is a noble cause, it will not receive the executive nod of approval unless it equates to real business results.

Step 1: Needs assessment
Identify the organization’s long-term goals as they relate to human capital and specifically which are training-related. Once identified, management must analyze the perceived skill gaps of employees that training can support. In this process, management must ask employees what they perceive their needs to be and what is needed – by way of training – for the organization to improve. This typically provides the richest data because it sheds light on unsaid problems or issues not yet on management’s radar screen.

At this point, the organization should have enough information to identify target populations, business-related results, training topics and training hours as well as logistical concerns.

Step 2: Identify costs
This is often the easiest step and one that has traditionally been a significant part of the budgeting process; however, costs should be divided into direct and indirect costs. Direct costs typically include course design fees, facilitator costs, materials fees, travel costs (instructor and participants), and logistics-related costs (facilities, meals, refreshments). Indirect may include administrative time needed to organize training programs or any internal charge-backs that do not directly correlate to a specific training program.

In these calculations, many companies erroneously include participant compensation. Participant compensation should only be included if an individual needs to be replaced on the job while in training or if the individual is revenue generating and is unable to generate revenue while in training. The costs should be totaled.

Depending on the training scope and population, the total costs should be broken down to a per-participant and per-learning hour cost. As an example, if 10 individuals were trained in harassment prevention training totaling $1,500, and lasting three hours, the following should be calculated:

This information should be collected and retained for each internal or external training program enabling later cost comparisons and training effectiveness for dollar spent.

Step 3: Identify benefits and savings
This is often the most difficult part; however, if the needs assessment step was done correctly it will be infinitely easier as the business results drive training-related benefits and cost savings. Some examples may include:

• reduced turnover costs through better supervisory skills
  
  
• increased production flow through better communication skills
  
  
• less lost-work time through better conflict management skills
  
  
• improved customer satisfaction through better relationship skills
  
  
• reduced litigation fees related to harassment complaints

The question that often arises in identifying benefits is “how do we know training directly affected these issues?” There are many variables that directly or indirectly affect each and rarely can any be completely isolated; however, a percentage can be reasonably allocated.

As an example: Costs associated with high turnover may be attributable to 50% poor supervisory skills, 25% competition for talent and 25% compensation and benefits. With training, the representative portion of turnover costs relating to poor supervisory skills may be reduced from 50% to 20%, creating a benefit of a 30% reduction in turnover costs. Once all of the benefits and cost savings are identified, they should be totaled.

Step 4: Cost/Benefit analysis and ROI
Conduct a Cost / Benefit Analysis. Simply put, if the benefits outweigh the costs, then – in most cases – the training investment should be approved. As an example:

For every $1 spent, the company will receive $4.20 in benefit/savings ($84,000 divided by $20,000). As stated earlier, if the benefits outweigh the costs, then the initiative likely should be approved; however, for public companies the benefit can be compared to its earnings per share (EPS). If the benefit is greater than EPS, then it should be approved. If it is less, then current business practices are yielding a better return.

Calculate Return on Investment (ROI). What is the return on investment of the training investment? In this example, the ROI is 320% (a pretty good return on money spent).

Verify Cost/Benefit and ROI
Once the training initiative is complete and the desired timeframe (i.e. next year’s financials or year-end turnover) has been achieved, the company should determine if the training-related aspects of the business objectives were met. Doing so will allow the calculations to be refined more and lend credibility to the process.

If these calculations are done for every internal or external training initiative, companies can analyze the success of every training program on a cost basis rather than just to the skills learned or the behaviors that changed as a result of training.

HR and training professionals must speak in these terms so that training becomes viewed as an investment instead of an unnecessary expense. Not only will the company get the training that it needs, but the HR and training professional will get added respect by aligning human capital strategies to business objectives.

2008 Projected Merit Increases Cross the Magical 4.0 Percent Barrier!

By Jennifer Shin,
Research Marketing and
Communication Coordinator

While some emp-loyees have gro-aned at recent years’ stagnant salary increases, many may finally breathe a sigh of relief: For the first time since 2002, projected salary increases for 2008 have topped the 4 percent mark! Although, salary increases aren’t sky high as compared to last year’s numbers, the data collected from Employers Group’s 2008 HR Budgets and Human Capital Benchmark Survey suggests employers are fast becoming savvy in budgeting increases, while retaining and recruiting quality workers.

About the survey
As one of the longest-running and sought after compensation surveys, EG’s 2008 Budget and Salary Increases survey was conducted in July and August of 2007, surveying hundreds of California companies on their projected and actual salary increases, as well as other key HR metrics. The annual survey, due out this month to eligible members, is EG’s latest effort to support the need for of its members to understand the economics side of HR.

Merit increases fall for exempt and executive, but reflect a strong job market
According to surveyed data, excluding figures from executives, the projected average merit increases will move up from 3.87 percent in 2007, to 3.92 percent. Total increases, defined as merit, plus general increases and other forms of pay, i.e., bonuses, etc, will be as follows: Hourly non-clerical 4.17 percent, up from 4.0 percent; Hourly Clerical 4.09, down from 4.24 percent; Exempt 4.21, down from 4.39 percent; Executives 4.32, down from 4.6 percent.

The average pay increases stemming from merit plans rose from 4.01 percent in 2006 to 4.14 percent in 2007. These figures include increases to executives, managers, exempt and hourly employees. Alternate pay also had some interesting fluctuations: rates fell dramatically for Nonexempt Clerical and Executive esmployees (although general and merit increases rose for these categories), while alternate pay for the Salary Exempt jumped from 3.06 percent to 4.66 percent. Consequently, total increases figures (defined as merit plus bonuses and or general increases) had a slight rise this year: from 4.30 percent in 2006 to 4.37 percent in 2007.

Also similar to last year, the median number of separations experienced by firms in California over the last 12 months remained a steady (and high) 16 percent. Employers often view high turnover as a bad thing. However, instead, these numbers in relation to the estimated steady salary increases, indicate that the state is currently enjoying a booming job market – one where employees are moving from one excellent prospect to the next, and where employers have the opportunity to recruit quality workers.

Employers aren’t necessarily getting cheaper - maybe just smarter
Many HR professionals may be wondering why salary increases aren’t higher for 2008. Turnover is high, and the job market tight – both key factors that often lead to skyrocket salary increases. However, the answer may 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.

For example, this year’s data indicates that exempt employees will see a drop in merit and general increases for 2008, but a significant rise in alternate pay (i.e. incentives, bonuses and awards). This suggests that employers are actively trying to tie compensation with employee performance, and maybe, it’s about time.

Studies show that healthcare is more expensive than it was a decade ago; causing companies to spend more on benefits at the expense of wages, adding that these forces have caused a growing share of the economy to go to companies instead of workers’ paychecks. With all the high costs of trying to keep employees, it would make sense for employers to invest in alternate pay to ensure that companies are getting what they pay for.

Every year, HR professionals face challenging retention and recruitment obstacles, as California’s job market becomes more and more competitive. However, Employers Group’s 2008 Budget and Salary Increases report suggests that employers are facing these challenges head on, by creating a compensation plan that not only rewards, but also motivates quality employees.

Obtain a copy of the 2008 Projected Salary Budgets and Economics Trends Survey!
Published in September, the Budget Survey is our annual measure of actual 2007 and projected 2008 salary budget increases and labor forecasts from hundreds of California firms. If you need to know salary increase projections or how to gauge your labor costs against other California businesses, then this is the report for you! The book report is now available! Participating member companies will receive a complimentary copy; others may purchase the full report. For more information, write to surveys@employersgroup.com.