Why HR in California is Different

Over the past century, business growth in California has surpassed every state and many nations, creating the 8th largest economy worldwide. As California businesses have grown, so have the numbers of workers attracted to this thriving economy. The competition for talent makes employee retention a top priority. California’s booming economy is also defined by other distinguishing characteristics, such as leading the country in start up companies, entrepreneurial ventures, mid-cap companies – as well as ranking #1 for female-owned businesses.

This article addresses many of the exclusive employment laws and regulations that California HR professionals face as compared to those in other states. If your company is a “satellite or subsidiary” of an organization headquartered or based outside of the Golden State, you may wish to pass along this article to your company’s corporate HR to explain just what you are up against in California.

California laws take precedence
California’s employment laws take precedence for California employees over those in other states – and even over some federal laws. Additionally, California regulations are subject to enforcement by up to six different state regulatory agencies, whereas other states are usually subject to two or three.

Outlined below are just some of the many California requirements and laws that are not required in other states.

Employee overtime
White-collar overtime exemptions
Risk/Potential Impact: Misclassification of non-exempt employees as exempt can result in up to four years of back overtime pay, plus interest and penalties.

In analyzing the overtime exemptions, most state laws and federal law examine job duties on a qualitative basis, asking whether the “primary” duty is of an exempt nature. California takes a quantitative approach: generally, an employee is exempt only if he or she spends more than 50% of his or her time performing “exempt” duties.

Pay for computer professionals
Risk/Potential Impact: California employers can be liable for back overtime pay.

Employees must meet specific requirements to qualify for California’s computer professionals’ exemption. In 2007, California computer professionals must have been paid a minimum of $49.77 per hour ($103,523 per year) to be exempt from overtime pay. In 2008, the minimum hourly rate for computer professionals to be exempt decreased to $36.00 per hour ($74,880 per year). Federal law in most other states only requires $27.63 per hour ($57,471 per year). Furthermore, the California computer professional must still be paid this hourly rate for all hours worked in the workweek. Employers frequently forget the latter point. It is essential that detailed time records be kept so that the employer has proof of meeting this requirement. Otherwise, employers can be liable for back overtime pay if duty and compensation requirements are not met.

Overtime premiums
Risk/Potential Impact: Failure to correctly calculate overtime for California employees can result in under payment, which can lead to huge penalties.

California requires time-and-a-half overtime after eight hours worked in a day and double overtime after 12 hours worked in a day. Many employers fail to realize that daily overtime “kicks in” regardless of the total hours worked in the week. Furthermore, California has a 7th day premium applicable when all seven days in the workweek are worked. Most states only require overtime pay after 40 hours have been worked in a workweek. No other state requires double time pay for employees.

Other wage & hour issues
Meal and rest periods
Risk/Potential Impact: California provides multiple penalties for missed meal and rest periods.

Unlike federal law, California has required rest and meal periods for nonexempt employees. The timing and duration of these periods are very specific and must be strictly adhered to. If complete and timely meal and rest periods are not provided (outside of a few exceptions), the employer must self impose a penalty payable to the employee of one hour of pay at the “regular rate.” Such penalty payments constitute wages, and claimants may recover up to four years of these wage-penalties for an employer’s failure to provide meal and/or rest periods. If the employer fails to pay the penalty on the payday for the period in which the violation occurred, then affected employees can also seek additional penalties for each payday that there is an underpayment, as well as attorneys’ fees and costs.

Timely pay check rules
Risk/Potential Impact: Penalties can result in thirty days of penalty wages to an ex-employee.

Timely wage payment rules are quite strict in California. For each late paycheck, California’s Labor Code allows the recovery of up to $200, plus 25% of the amount unlawfully withheld, per employee, per payroll period.

In addition, employees who are involuntarily discharged must be paid all of their unpaid wages at the time they are let go. This rule applies to all employees, including those who are released after completing a specific job assignment, even if the assignment is as short as one day. Failure to meet these timely payment rules can result in a penalty as much as 30 days of pay at the employee’s daily rate.

Pay stub rules
Risk/Potential Impact: Penalties up to $4,000, per employee.

At the time wages are paid, an employer must provide each employee a written itemized statement (e.g., a pay stub) that contains the following: 1) gross wages earned; 2) total hours worked (except salaried exempt employees); 3) piece rate units and rate, if applicable; 4) all deductions; 5) net wages; 6) the inclusive dates of the pay period; 7) name of the employee and social security number (last four digits); 8) name and address of the employer; 9) all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee, and 10) piece rate units and applicable piece rate, if the employee is paid on a piece rate basis. Failure to include all required information can result in penalties of $100 per employee, per violation, up to a maximum of $4,000 per employee.

Employers in California can pay overtime earned in the last payroll period in the current payroll period, but many employers fail to list the related payroll period.

California law also requires employers to keep a copy of all payroll records showing the daily hours worked and the wages paid to its employees for at least three years, at the place of employment or at a central location within the State of California. The California Labor Commissioner is assessing a $250 penalty as an initial citation and $1000 penalty for each subsequent violation. The penalties multiply rapidly since they are assessed per employee, per pay period.

Minimum wages
Risk/Potential Impact: California has higher minimum wage requirements.

California’s minimum wage increased to $8.00 per hour on January 1, 2008. Increases in the minimum wage also result in an increase in the minimum weekly salary that must be paid for executive, administrative, and professional employees to be exempt to avoid misclassification problems.
Furthermore, employees must comply with different minimum wage and living wage requirements throughout the state. For example, the minimum wage for employees in the city of San Francisco increased to $9.36 per hour on January 1, 2008. In some other cities and counties, employers face various living wage ordinances that require wages above the minimum wage and/or additional contributions toward health benefits.

Deductions from pay
Risk/Potential Impact: Penalties can accumulate quickly for unlawful deductions.

California severely limits the circumstances in which an employer can make deductions from the employee’s wages. Some common payroll deductions often made by employers that are unlawful include deductions for gratuities, uniforms, and business losses resulting from the employee’s simple negligence. Unlawful deductions subject the employer to penalties up to $200, plus 25% of the amount unlawfully withheld, per employee, per payroll period.

Alternative workweek scheduling
Risk/Potential Impact: Missteps in implementing an alternative workweek schedule expose employers to back overtime pay and waiting time penalties.

Alternative workweek scheduling allows non-exempt employees to work more than eight hours per day without the payment of overtime. However, California’s requirements for enacting a valid alternative workweek schedule are rigid and require, among other things, a secret ballot vote passed by 2/3 of the unit that would be affected by the alternative workweek schedule. Following the correct procedures when adopting an alternative workweek is crucial because failure to comply could invalidate the alternative workweek schedule and result in awards of up to four years of unpaid overtime pay, interest, penalties and attorney fees.

Vacation & leaves
Vacation
Risk/Potential Impact: Once accrued, unpaid vacation is treated as unpaid wages, with all of the penalties for wage payment violations.

Vacation pay is considered “wages” under California law and accrued unpaid days must be paid out to the employee at termination. Furthermore, unlike other states, there is no “Use–It–Or–Lose–It” policy allowed in California, although an employer may employ a reasonable “cap” or “cash out” policy. Vacation plans covered by ERISA are exempted from state law.

Mandated leaves
Risk/Potential Impact: Brand new laws and potential problems for uninformed employers.

While most states have two or three required employee leaves of absence, California employees must provide 13 leaves of absence to employees. In some cases, California employers may be required to hire a temporary employee for an extended period of time while an employee is on a leave of absence.

On October 9, 2007, Governor Schwarzenegger signed yet another leave requirement into law. This law allows spouses of deployed military personnel who are granted leave from “combat zones” to take time off to be with their spouse.

In addition, a San Francisco ordinance requires employers to provide paid sick leave to full-time, part-time, and temporary employees working within the geographic boundaries of the County of San Francisco. One hour of paid sick leave must accrue for every 30 hours worked.

Pregnancy leave
Risk/Potential Impact: Extended absences for pregnancy related leaves.

California grants four months of pregnancy disability leave to women of employers with five or more employees and, unlike FMLA, there is no one year service requirement. Furthermore, under California law, pregnant women who are covered under FMLA could get additional and separate state-mandated leave for child bonding. The total pregnancy and family leave in California can be up to seven months.

Disability & workers’ compensation
Protected disability
Risk/Potential Impact: The California definition of a “disability” is broader than the definition under the federal Americans With Disabilities Act (“ADA”), and state law imposes greater obligations on employers to reasonably accommodate those disabilities.
Unlike the ADA, California’s law does not require that the employee be “substantially” limited in performing one or more “major life activities,” and the effects of mitigating measures, such as medications that can control a condition, are not taken into account. In addition, there are specific California state requirements that must be met when analyzing “reasonable accommodation.”

Workers’ compensation
Risk/Potential Impact: Despite recent California workers compensation reform, employer costs are still excessive.

An injury “arising out of employment” is broadly defined. Employers are required to distribute information on employees’ rights and to allow employees to pre-designate a personal doctor with whom they want to be treated from the onset of any work related injury. Where the employee has not pre-designated a personal doctor, the employer can designate the physician who provides treatment for the first 30 days after an injury. Recent California legislation also lifts the 24-visit cap on chiropractic, physical and occupational therapy following surgery resulting from work related injuries.

Disability & workers’ compensation
Sexual harassment training
Risk/Potential Impact: California requires mandatory training of supervisors on the prevention of sexual harassment.

For employers with 50 or more employees, California mandates two hours of sexual harassment training of supervisors every two years. If an employer has at least 50 employees, those supervisors working in California must be trained even if there are less than 50 employees in California. The definition of a supervisor is broad and includes anyone with the authority to direct the work of others. California has detailed rules regarding the content of the training and what constitutes a “trainer.”

Managers’ liability
Risk/Potential Impact: California managers have personal liability for unsafe workplaces.
California has a “Be a Manager, Go to Jail” law. Any employer or manager who has actual knowledge of a concealed danger and who fails to notify the affected employees and appropriate state agency can be fined or imprisoned or both.

Non-compete agreements
Risk/Potential Impact: California employers cannot prevent ex-employees from working for competitors, but company secrets can be protected.

In California, covenants not to compete are generally not valid. California courts view them as “against public policy” (against the public good). Most other states will enforce such covenants when they are reasonable as to duration and scope. However, under state law, employers may enforce reasonable confidentiality, intellectual property assignment, non-solicitation and non-disclosure agreements.

CA Rules on arbitration agreements
Risk/Potential Impact: California courts are generally hostile toward the enforcement of employment related arbitration agreements.

While California employers have the right to require employees to sign arbitration agreements as a condition of employment, employers must take care that the arbitration agreement is not “unconscionable,” which would render it unenforceable. Mandatory arbitration provisions covering wrongful termination or employment discrimination claims must satisfy certain requirements. Furthermore, class action arbitration waivers are likely unenforceable where class arbitration would be a significantly more effective way of vindicating employee rights than individual arbitration.

Layoffs and plant closings
Risk/Potential Impact: California penalties accrue quickly for not providing notice to employees.

The federal Worker Adjustment and Retraining Notification Act (WARN) requires companies employing a certain number of employees to provide written notice prior to any mass layoffs or plant closings to specified entities. California’s version of the WARN Act is broader in scope and affects more employers than the federal act. Employers can be liable for back pay, penalties up to $500 a day for each day of violation for a maximum of 60 days, and liability for the cost of any medical expenses incurred by employees that would have been covered under an employee benefit plan for the period of the violation.

Summary
Human Resources directors in other states who are responsible for California employees could be faced with any of these issues. The best defense is becoming knowledgeable about California’s employment laws and regulations, and keeping communication channels open with those employees working in California as a measure of prevention.

Employers Group helps companies from around the world maximize their human resources and business potential in California. We help you understand and mitigate the risks of operating in California and show you how to manage the compliance burden and minimize costs. Employers Group can help you define your priorities and arm you with solutions for greater productivity - creating real change for your success.

As a Senior Consultant for Employers Group, Matt Bartosiak provides consulting expertise to the association’s members in all areas of HR, including discrimination, workers’ compensation, health and safety and employee relations, and contributes his 26 years of knowledge in COBRA, benefits and wage and hour/exemption issues. Matt was appointed to California’s Wage Board in 1996 to review state wage and hour rules for several occupations and make recommendations for change. In 2002, he was appointed to California’s Minimum Wage Board to examine the adequacy of the minimum wage and make recommendations for change.

Lee Paterson and Amanda Sommerfeld are partners with the law firm of Winston & Strawn LLP in Los Angeles, where they concentrate exclusively on the representation of management in labor and employment relations matters. They have extensive experience in the defense of employment related disputes, including class actions, arbitrations and individual actions alleging breach of contract, wrongful termination, discrimination and other claims. Lee was recently honored in the peer rankings-based 2007 edition of The Best Lawyers in America for labor and employment law, and is a member of Employers Group’s Legal Committee. Amanda was recently honored by the California Daily Journal as one of the top “Twenty under Forty.

Can you Hear me Now?
Hands–free Cell Phone Law Kicks in July 1st!

On July 1, 2008, all California drivers will be prohibited from using cell phones in motor vehicles without a hands-free device. Another new law prohibits drivers under 18 years-old from any cell phone use in motor vehicles, even a hands-free device. Text messaging and emailing are also entirely prohibited for drivers under age 18.

The only exceptions to these laws are to make emergency calls to law enforcement agencies, medical providers, the fire department, or other emergency service agencies. The law also provides an exception for those operating a commercial motor truck or truck tractor (excluding pickups), farm vehicles, and tow trucks to use a two-way radio operated by a “push-to-talk” feature. Violators will be fined $20 for first infraction, and $50 for repeat offenses.

How do these laws affect employers?
Employers need to listen up. In California, employers are liable for their employees’ mistakes under the theory of “respondent superior.” The principle behind the law is to spread the risk to those who are best able to bear it. And who may that be? Yes, you the employer. The allocation of responsibility to the employer is termed “vicarious liability.” For an employer to be found vicariously liable, the employee’s mistake must occur during the scope of employment.

It is undeniable that cell phones, PDA’s and pagers have become a staple in our workplace. Employers have benefited in the billions by having employees work from anywhere at anytime. The problem now is that “anywhere” and “anytime” can come within the scope of employment. Across the nation we are seeing more and more employers on the hook for motor vehicle accidents that occur traditionally “off the clock” but deemed within the scope of employment.

If a motor vehicle accident results from employee cell phone use and that cell phone use is required by, billed to, paid for, provided by, reimbursed by and/or encouraged by the employer, be prepared to be named in the lawsuit. Cell phone use while driving is risk not only for your employees but also to you as an employer. Failure to address these issues may result in multi-million dollar lawsuits.

Employer liability
The following cases illustrate the need for employees to set policies, communicate the law, and monitor employees to assure they are abiding by it.

• In Georgia, an employer agreed to pay $5.2 million dollars to settle a personal injury lawsuit. In this case, the employee was using a company-issued cell phone when she rear-ended a vehicle driven by Debra Ford. The collision pushed Ford’s vehicle off the road into a ditch trapping Ford’s arm against the asphalt. Ford survived the accident, but medical complications resulted in the amputation of her arm.
  
  
• In Virginia, a personal injury lawsuit was filed against a law firm for $30 million dollars when one of its attorneys struck and killed a 15 year-old boy while conducting business on a cell phone. The court ordered the attorney to pay $2 million. The law firm settled out of court for an undisclosed amount.
  
  
• A Smith Barney stockbroker from Pennsylvania was using his cell phone on his way to a non-employment related dinner and hit a 24 year-old motorist. Evidence revealed that Smith Barney expected its employees to make cold calls on personal time. As a result, Smith Barney settled with the victim’s family for $500,000. The stock broker was using his personal cell phone.

How to protect employees and reduce the risk of liability
First and foremost, adopt a policy on cell phone use. The policy should be in writing and included in employee manuals, contracts, handbooks and/or personnel policies. You may also consider requiring employees to sign an “acknowledgement of receipt” and acceptance of said policies.
Second, draft the contents of your policy. Factors to be considered for a cell phone policy include:

• Entirely prohibiting work related cell phone use while driving.
  
  
• Mandating that employees use hands-free devices when driving. This may include providing cell phones with hands-free features or providing hand-free devices to existing phones.
  
  
• Requiring employees to pull over to take or make phone calls.
  
  
• Prohibiting cell phone use in adverse weather or traffic conditions.
  
  
• Prohibiting text messaging and emailing while driving.
  
  
• Requiring cell phones to be switched to voicemail only while driving.
  
  
• Instructing employees to avoid or terminate phones calls involving stressful or emotional conversations.
  
  
• Prohibiting personal phone calls on company cell phones.
  
  
• Prohibiting personal calls on personal cell phones while driving on company time.

• Posting warnings on company cells phones and company cars.
  
  
• Purchasing company cars with built-in hand-free features.
  
  
• Providing training on hands-free features.
  
  
• Regularly reviewing your cell phone policy as technology is constantly changing.
  
  
• Educating employees on the dangers of driving and talking on the cell phone.

Finally, consider the implications of your policy. Will it work in your type of business? Who will it affect? How will you enforce it? These questions must be thought out before a policy is set in place.
Most importantly, as with any workplace policy, if you have a policy in place, you must enforce it. There is no protection for an employer if it has a policy that it fails or is unable to enforce.

For more frequently asked questions regarding the new cell phone laws, refer to California Highway Patrol website: http://www.chp.ca.gov/pdf/media/cell_phone_faq.pdf

By Amy Lee,
Senior Consultant

Coach your Supervisors

Consider your frontline supervisors an extension of the Human Resources function – and a critical one, at that. The more effective your supervisors are at implementing your department’s policies, the less clean-up you’ll have to do later. Of course, your objective for training your supervisors should never be to merely reduce your own workload or to provide an additional mouthpiece to communicate HR policies. We want our supervisors to thrive so they, in turn, inspire their employees to excel.

Supervisors are critical to your company’s success
A frontline supervisor plays one of – if not the – most critical roles in your employee relations function. Statistically speaking, the Number One reason employees leave a company is not low wages (surprisingly enough), but rather a feeling of being underappreciated by the company. No one else, not even the HR department, is in as good a position as an employee’s immediate supervisor to instill in the employee a sense of value by the company. This consideration alone should be enough to ensure the company prioritizes supervisory skills training.

The relevance of a supervisor to the HR department does not stop there. Under the law of agency, a supervisor’s mistakes can attach to the company itself. As we all learned in mandatory sexual harassment training, if an employee complains to a supervisor that they’re the victim of unlawful harassment and the supervisor does nothing, that supervisor’s inaction is, in effect, the company’s and can leave the company exposed.

HR’s responsibility
That all said, what exactly is HR’s responsibility? Certainly, provide training to all supervisors on administering the policies in the handbook and compliance with leave laws, wage and hour, etc. But above and beyond that, HR should also consider itself ultimately responsible for ensuring all supervisors are adequately coached.

Coaching supervisors
Those mid-level managers who are natural leaders will most likely perform most of this function for you, leaving you with only oversight responsibilities. But not everyone who can manage a functional area of your company is also good at understanding what motivates people and responding to them on a personal level. Moreover, they are perhaps the last to know when employees are unhappy with their supervisor, since those employees may feel that if they approached their supervisor’s boss, the supervisor would retaliate when they found out. In those instances (and with buy-in from the manager), coaching the supervisor should, in the end, be your responsibility.

What to coach them on? Everything, really. Frontline supervisors are seldom seasoned professionals. More likely, they were recently promoted from the ranks. It may be difficult for the supervisor to grasp the concept of distancing himself or herself from friends to create adequate space to supervise them or, alternatively, understanding how necessary it is to read the subordinate’s personality type and customize your approach to counseling them accordingly. For those individuals for whom this is not an innate skill, you need to fill in the gaps.

Unemployment Insurance
Defining “Misconduct” for Discharge Purposes

Not long ago I was copied on an email addressed to our claims specialist. The employer was inquiring about a particular claim. The part of the message that caught my eye was the comment that the claim did not need to be protested because the termination was for ‘poor job performance’. Naturally, I did respond to explain that, depending on the circumstances, this type of separation is often misconduct.

What is misconduct?
As defined in the Unemployment Insurance Code it is:

• A material duty owed by the claimant to the employer under the contract of employment; and
  
  
• A substantial breach of that duty; and
  
  
• The breach is a willful or wanton disregard of the duty; and
  
  
• It evinces a “disregard of the employer’s interest” – tends to injure the employer in some way.

In simpler words, it is a significant breaking of the employment contract entered into between an employer and an employee. The defining characteristics are that the act is willful and wanton. In other words, the behavior is within the control of the individual. Isolated incidences of ordinary negligence or good faith errors in judgment are usually not considered misconduct.

Inability is not misconduct
Mere inability to do the job is not misconduct. A test is whether the person ever performed the duties of the job for which he/she was hired. If in doubt, provide additional training. After a sufficient period of time has passed, review the results. If there is no significant improvement it probably is inability. The best thing to do, for both the employer and the employee, is to sever the working relationship. For the employer this reduces the exposure to significant unemployment benefit charges. For the employee it gives the opportunity to pursue a position more suited to his/her talents and ability.

EDD criteria
The Employment Development Department (EDD) has certain criteria in place when deciding whether or not the claimant was discharged for misconduct. Obvious cases of misconduct include stealing from the employer, threatening or fighting someone at the workplace or other gross actions not requiring a warning.

While these may seem good reason to discharge immediately, it is recommended that an investigation be conducted when possible. A supervisor may see the employee hit a co-worker, but, unless questions are asked, may not learn the other person threw the first punch. Without proof a person stole, through video or the like, it may turn out many people had access to the stolen object.

Progressive discipline
Usually, though, discharges based on misconduct run to the more ordinary – no call/no show, tardiness/attendance issues, violation of company policy, or to comply with a reasonable request by the employer. In these circumstances, the employer is required to follow the basic tenets of progressive disciplinary actions.

One way to protect against an unfavorable decision being rendered by the EDD, or an Administrative Law Judge, is to document events as they occur. To invoke the old adage, “if it isn’t written down it didn’t happen.” At least one verbal and two written warnings need to be given to let the employee know the nature of the problem and to give sufficient time to correct the behavior. They need to be given within a reasonable proximity to the offense. They need to state what the employee did, what they should or should not have done, and how much time will be given to correct the situation.

The wording is extremely important. Once the words are on paper and given to the employee, you cannot take them back or give them new meaning. Giving too many warnings, however, will suggest the employer is discharging the employee at its convenience or give the employee reason to believe he/she will never be discharged.

In cases involving attendance issues, the employer is now expected to attempt to contact the employee to learn the reason for the absence prior to discharging the person. If there are extenuating circumstances, the employer may not want to terminate then, even if a final warning has already been issued. The same reasoning holds when a person is late. Ask why before summarily discharging him/her. The situation might have been outside of the person’s control.

Final incident
For unemployment purposes, the final incident carries the greatest weight. It should also be of the same, or very similar, nature for which prior warnings were given. And, it should occur within a reasonably close period of time to the final warning. Six months between the final warning and the final incident is usually considered too long to warrant such drastic action. Too often, this can be viewed that the person has taken the steps necessary to comply with the employer’s rules. Ask what happened. It may be best to start the disciplinary process again, rather than end it with a discharge.

Summer Internships

An internship is designed to provide students with closely supervised practical experience in the workplace, usually with the opportunity to earn academic credit. Interns acquire skills and experience they will use in a field of work.

Internships may be paid or not paid. Whether or not you pay interns depends on whether or not they are employees. Most interns are employees under federal and state laws, and as such must be paid at least minimum wage and applicable overtime.

Whether trainees are employees under the Fair Labor Standards Act (FLSA) will depend upon all the circumstances surrounding their activities on the premises of the employer. If all of the following six criteria are met, the trainees are not employees within the meaning of the FLSA.

1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
   
   
2. The training is for the benefit of the trainees or students.
   
   
3. The trainees or students do not displace regular employees, but work under their close observation.
   
   
4. The employer that provides the training derives no immediate advantage from the activities of the trainees or students, and on occasion his/her operations may actually be impeded.
   
   
5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period.
   
   
6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

California has six additional criteria

1. The clinical training should be part of an educational curriculum.
   
   
2. The students should not receive employee benefits.
   
   
3. The training should be general, so as to qualify the students for work in any similar business, rather than designed specifically for a job with the employer offering the program.
   
   
4. Upon completion of the program, the students should not be fully trained to work specifically for the employer offering the program, but should require further specific training for such employment.
   
   
5. The screening process for the program should not be the same as for employment and should not appear to be for that purpose; it should involve only criteria relevant for admission to an independent educational program.
   
   
6. Any advertisements for the program should be couched clearly in terms of education, rather than employment, although the employer may indicate that qualified graduates will be considered for employment.

Child labor laws
If the intern/trainee is under 18, child labor laws regulating hours of work and prohibiting certain hazardous tasks apply. A work permit obtained from the school is necessary unless the youth has already graduated from high school or received a GED. (See article in last month’s newsletter.)

Safety
OSHA regulations must not be ignored. An intern needs training in safety and emergency evacuation just as much as a regular employee.

Liability for injury
You need to determine who is responsible for injuries at the worksite and in transit if the intern is coming from school to the worksite as part of the internship program. If the intern is an employee, the company's workers' compensation policy will cover on-site injuries.

To learn more about internships, contact your local high school, community college or university. You may be able to participate in School-to-Work programs (STW), which are federally funded programs that assist students in the successful transition from school to work. The web site www.stw.ed.gov has extensive information on these programs.

Work Injury and Benefit Claims
What Constitutes Employers’ Knowledge?

John B.*, Human Resources Manager, opened the large envelope sent from a law firm. Inside was a Letter of Representation, an Employee’s Claim for Workers’ Compensation Benefits (DWC-1) and various legal forms pertaining to Joe S.* Joe S. was claiming a work related injury during his prior employment with ABC Company.*

Realizing that Joe S. had never reported an injury during the dates indicated on the DWC-1 form and had left ABC Company over six months prior to seek other employment, John B. simply filed the paperwork away in Joe’s old personnel file.

Error in judgment or omission
Two and a half months later, John B. received a call from ABC Company’s workers’ compensation carrier. The carrier had received numerous medical reports and bills pertaining to Joe S., but had no record of a claim being reported by ABC Company. John B. advised the caller that there was no injury, as Joe S. simply left the company several months ago for a better job. During his exit interview, Joe S. did not disclose any prior injuries or that he was suffering from the condition he was now alleging.

John B. was advised that although Joe S. had not reported a claim during his employment, ABC Company was subsequently provided notice that Joe S. was filing a claim for workers’ compensation benefits pursuant to the DWC-1 form. This triggered a responsibility to report the claim to the workers’ compensation carrier.

At this point, the 90 days to deny the claim under Labor Code §5402 (b) was approaching. Without having sufficient evidence to support a claim denial and in light of mounting medical evidence supporting an injury, the carrier entered into an agreement with Joe’s attorney to select a physician to evaluate him. This evaluation would determine if Joe sustained a work related injury, whether the injury resulted in temporary and or permanent disability, the need for medical treatment and whether Joe would be able to return to his usual and customary job duties. Following the evaluation, Joe was awarded temporary disability, medical treatment and permanent disability. The doctor’s opinion was that Joe had sustained a work related injury. Total cost of the claim was over $150,000.

How did this happen? What constitutes knowledge of a work related injury and claim for benefits under workers’ compensation requiring action from the employer? When does an employer receive “notice” that an employee is making a workers’ compensation injury claim?

Understanding notice of a claim for injury
Under Labor Code §5402(a), “Knowledge of an injury obtained from any source, on the part of an employer, his or her managing agent, superintendent, foreman or other person in authority, or knowledge of the assertion of a claim of injury sufficient to afford opportunity to the employer to make an investigation into the facts is equivalent to service under §5400.” While Labor Code §5400 requires written notice within 30 days of the occurrence of the injury which has caused disability or death, by the injured worker (or dependent), it is superseded by knowledge under LC §5402.

The claim for Joe S. vs. ABC Company was defendable, had the claim been reported as soon as the employer became aware of the alleged injury. John B. received sufficient information from the attorney to put the carrier on notice, dispute the claim and request further investigation into the allegations being made. In all likelihood, the alleged injury that Joe S. sustained occurred subsequent to his employment with ABC Company. In any event, the workers compensation carrier did not have enough time to complete a thorough investigation, obtain Joe’s deposition or prior medical history and records. This would have allowed the carrier to determine if ABC Company had any liability for Joe S’s injury.

When an employee reports to his or her employer that a work related injury or illness has occurred, the employer sends the employee to the clinic for medical treatment. If the employee loses time from work or requires medical treatment beyond first aid, an Employee’s Claim for Workers’ Compensation Benefits (DWC-1) is provided to the employee as required by LC §5401 (a). The claim is then reported to the workers’ compensation carrier. But what happens if the employer’s first notice is from an attorney, doctor, an employee’s spouse or child?

Notice from another person on the behalf of the employee represents “constructive” knowledge to the employer. If notice is not accompanied by a DWC-1 form, the employer should provide one either personally or by first class mail. Upon receipt of the claim form, the employer/carrier has 90 days deny liability for the claim. If liability is not denied within 90 days, the claim is presumed compensable.

In the case of Honeywell v WCAB (2005), the California Supreme Court held Labor Code §5402’s 90-day denial of liability begins to run from the date the employee files a claim form, not from the date the employer receives notice or knowledge of the injury being claimed. However, the employer will be prevented or estopped from denying the period began before filing of the claim form if:

1. The employer knew an employee had suffered or was asserting an industrial injury, refused to provide a claim form or misrepresented the availability or need for the employee to file a claims form;
   
   
2. The employee was misled into believing that no claim form was available or necessary and failed to file one for that reason, and
   
   
3. Because of this reliance, the employee suffered some loss of benefits or setback as to the claim.

The significance of the “Honeywell” case was whether the 90 days tolled from the date of the employer’s knowledge that a workers’ compensation claim (for job stress) was reported, being asserted, or from the actual filing of the claim form. While Honeywell was advised on two separate occasions, July 1998 and October 1998, that their employee’s hospitalization and disability was due to work related stress, no claim form was provided. A claim form was formally received by the carrier on January 15, 1999 and a denial was issued on March 31, 1999.

Reasonable certainty
Honeywell lost on appeal to the California Supreme Court as the judge opined that Honeywell became “reasonably certain” that an injury had been suffered, or was being claimed and breached its duty to provide a claim form.

Too often an employee’s report of injury or illness is dismissed as complaining or just lacking in credibility. As an employer, a report of a work related injury or illness should be investigated. An investigation into the facts will determine with “reasonable certainty” whether a claim for workers’ compensation benefit is being made. Provision of medical treatment a claim form and notice to the carrier, if applicable, should follow.

Once knowledge is received, action is required to ensure that the employee is provided his or her rights under workers’ compensation, and the employer’s requirements and responsibility under the Labor Code are fulfilled. Failure to do so may result in a claim that is costly and out of control.

* Names have been changed

Lorenda Edmundson, WCCP, is a Workers’ Compensation Claims Consultant with Bolton & Company, an Employers Group preferred partner for insurance brokerage services. As a specialist in Workers’ Compensation, Lorenda realizes the importance of reserves, claims and payroll in regard to experience mod calculation and ultimately the role of the client in controlling their premium for workers’ compensation. She is an advocate for employers/clients, scheduling claims reviews, auditing and reviewing reserves for possible reductions, assisting in disputes regarding claims management and encouraging adjusters to take a more proactive approach to handling claims.

Right To Sue Letter Not Required

The Ninth Circuit Court of Appeal recently found that an employee may bring a Title VII sexual harassment claim without first obtaining a right-to-sue letter from the Equal Employment Opportunity Commission (EEOC), where the federal and state agencies have work-sharing agreements, and the state agency has already given a right-to-sue letter to the employee. The issue arose in Surrell v. California Water Service Co. (2008) where the employee was permitted to proceed in court on several related claims against the company. On her actual claims, the court found that the employer’s actions were not false in order to hide a real reason for: requiring the minority employee to take a drug test, or for cross-training, and promoting a younger white co-employee over the minority employee. Additionally, the employee was reasonably accommodated for her disability, and the employer did not subject her to a hostile work environment.

Cal Water (company) is a privately owned provider of water services in California. Rosetta Surrell, an African-American female, went to work for Cal Water in the Stockton area in 1997 as a customer-service representative. During her entire employment with the company she was a member of the Utility Workers Union of America (UWUA). Under the UWUA collective bargaining agreement (CBA), if there is a vacant or newly created job available at the company, it is open for bid by current employees and is filled based on the bidder’s seniority with the company. Temporary jobs, lasting less than 120 days are filled at management's discretion, without regard to seniority. The CBA also allows the company to require an employee to submit to drug testing if he/she appears to be impaired.

Surrell was injured in a car accident in April 2001. The company granted her a leave of absence, which was extended until April 2002 when she returned to work without restrictions. She was still taking various prescription drugs for her injuries. While she was on leave an Office Manager position opened, and Surrell was permitted to apply for it. The company decided to hire a younger, white, female applicant. The company chose the applicant because she was a trained accountant with a B.S. in Business Administration and had five years of management and accounting experience.

Surrell was also passed over for training for a temporary Head Cashier position. The company trained a younger white co-worker, who had learned some of the job on her own, and would require less training.

Later in 2002, Surrell appeared to be impaired by supervision. According to the case, a drug test showed positive for marijuana, and prescribed medication for her back injuries. Under the terms of the CBA she was given two choices: either be fired or enter a drug-rehabilitation program. She chose to enter a program. She returned to work in October, 2002.

Tragically, her son was murdered in December 2002. She went on leave until the end of January 2003. Co-workers asked about her son, and she broke down and was crying and shaking. Her supervisor thought she was impaired and had her tested again. She showed positive for several prescribed substances. The company put her on paid administrative leave, which lasted for ten months.

In July 2003, she filed a discrimination charge against the company with the California Department of Fair Employment and Housing (DFEH), making various discrimination claims. The state DFEH gave her a right-to-sue letter and told her she could obtain a federal right-to-sue letter from the Equal Employment Opportunity Commission (EEOC). Instead she filed suit in California State Court against the company alleging numerous federal and state employment-discrimination claims based on race, sex, and age.

In December 2003, Surrell told the company she could not go back to work because of her medical condition. She said she was too emotionally scarred and would not have been able to function. She remained on an unpaid leave; but still received health benefits.

In October 2004, the company successfully had the case moved to a federal district court. In February 2006, the federal district court granted summary judgment in favor of the company on all of Surrell’s claims. She then appealed the case to the Ninth Circuit Court of Appeal. In her appeal she asserted: discrimination, retaliation, Title VII hostile-work-environment, and a FEHA physical-disability discrimination claims. The court ruled against her on all of her claims.

In order for a person to access a federal court on a Title VII discrimination claim the law ordinarily requires that they must first file a charge with the EEOC within 180 days of the alleged unlawful employment practice or, if the person initially filed with a state or local administrative agency within 300 days of the alleged unlawful employment practice. Then, if the EEOC does not bring suit based on the charge, the EEOC must “notify the person aggrieved” that he/she can file a lawsuit, by issuing a right-to-sue letter. Then, the employee has 90 days to file suit.

The court addressed the questions of whether the federal right-to-sue letter is an absolute jurisdictional prerequisite, or whether it is simply a general requirement for a Title VII claim that may be excused in particular cases. If it is simply a general requirement, should that requirement be excused in Surrell’s case?

The court noted that some courts have “…concluded that once a plaintiff is entitled to receive a right-to-sue letter (as Surrell was, once the EEOC did not timely act on her properly filed charge), it makes no difference whether the plaintiff actually obtained it. E.g., Moore v. City of Charlotte… (‘Entitlement to the letter, without actual receipt of it, is sufficient to support federal jurisdiction.’). Indeed, courts have reached that conclusion in this precise context where work-sharing agreements exist between the federal and state agencies. … (‘[A]s the purposes of the exhaustion requirement-to provide notice to parties charged with violations and to facilitate voluntary compliance should the investigating agency find merit in the complaint-have been served by the state proceeding, the Court does not view the omission of the actual right-to-sue letter as grounds for dismissal.’… This is a persuasive approach, which we now adopt. We hold that where, as here, a plaintiff is entitled to receive a right-to-sue letter from the EEOC, a plaintiff may proceed absent such a letter, provided she has received a right-to-sue letter from the appropriate state agency.”

On Executive Compensation
Auditing your Plan

The disclosure rules enacted by the Securities and Exchange Commission (SEC) in late 2006 were designed to increase the transparency relative to how executive compensation packages were determined. However, a recent review by the SEC on how companies are adhering to the rules reveal companies are having difficulties in interpreting and applying the disclosure guidelines. At best, the difficulties can be interpreted as a simple misunderstanding of the rules. At worst, the practices are characterized by the media as a deliberate attempt by some companies to obscure the relationship between pay and performance. In an article appearing in the New York Times on April 6th, 2008, companies’ practices on an existing disclosure were characterized as follows: “companies filled their proxies with a blizzard of words and numbers that did more to obscure their processes than to illuminate them. And most irksome of all, true links between pay and performance remained scarce.”

Disclosure rules are not limited to private and publicly traded companies - associations are also being asked to expand their reporting requirements. Recent media scrutiny and calls by federal officials and congress for direct “accountability” in compensation have resulted in greater IRS involvement and expanded reporting requirements. It is imperative that associations take steps and demonstrate how commensurate their CEO pay is with other associations in their particular category.

Background
Effective November 7th, 2006, the Securities and Exchange Commission’s new and revised rules relating to executive compensation disclosure became effective. The rules expanded required disclosure reports by public companies on how they compensate their most highly paid executive officers, including its principal executive officers, their principal financial officer, and their board of directors.

Shortly thereafter, on December 22, 2006, the Commission rules were amended to include disclosure requirements for executive and director compensation with respect to stock and option award compensation. The revised rules also updated and added clarity to other areas, including corporate governance disclosure requirements.

In a recently completed review on how companies are applying the rules enacted by the SEC, the Division of Corporation Finance cited two areas where companies can improve compliance.

First, within the Compensation Discussion and Analysis section, the review highlighted the need for companies to focus their discussion on how and why companies arrive at specific executive compensation decisions and policies. The observation was that too many times in trying to secure full disclosure, companies routinely expanded the explanation with the process and methods, the how, leaving out the reasoning behind the decision, or the why. Often time, lost is the focus to help the reader understand the basis and the context for granting different types and amounts of executive compensation. The recommendation was for companies to tighten their disclosures with less text and technical details and opt for shorter, crisper, and clearer explanations that can help readers understand the basis and the context for granting different types and amounts of executive compensation.
The second major area addressed by the review was the presentation of information — particularly as required by Item 402 of Regulation S-K. Here, the objective is to present “clear, concise, and understandable disclosure of all plan and non-plan compensation awarded to, earned by, or paid to the named executive officers... and directors... by any person for all services, rendered in all capacities...”

On this front, Division of Corporation Finance advocates disclosure practices favoring an investor’s need-to-know over less important information. To minimize the unnecessary length and scope of information while still complying with full disclosure rules, the agency recommended using techniques such as an executive summary, tables or charts based on the company’s particular executive compensation program, and displaying critical information more prominently. The agency hopes that by applying such techniques, companies can then better articulate the overall plan and the implementation details in ways that can be absorbed by the lay reader and the professional investment community.

On surveys & benchmarks
In cases where a company discloses using market benchmarks as part of their strategy in determining compensation levels, the information is treated as material to an individual company’s compensation policies and decisions. If a company uses benchmarking, and it is material to its compensation policies and decisions, it is then required “to identify the benchmark and, if applicable, its components (including component companies).”

When using such methods, the agency’s recommendation was for companies to detail how they interpreted the data and how evaluation and interpretation ultimately reflected on the compensation decision. Time and again companies stated using comparative market levels, but gave little discussion on how the data points were applied and if the companies’ ultimate practices and decisions exceeded or were below existing market levels. Additionally, where a company indicated that it benchmarked compensation to its peers, the agency recommended for the plan to identify the companies to which the company compared itself as well as the compensation components it used in that comparison.

Ultimately, the review and observations by the agency were meant to provide direction to companies on how best to enhance their disclosure practices relative to their executive pay decisions.

Strategic Partnering: Training is a Business Investment

From an HR perspective, training and developmental opportunities seem like logical activities that engage people and organizational resources. HR professionals understand that employees who are engaged will deliver expectations and execute at a level that is typically beyond expectation. Retaining these employees continues to build capacity and avoids the ever-increasing costs of replacement – time, money, lost productivity, and most importantly organizational and business knowledge. In today’s companies, workers have an expectation that they are bringing their set of skills to the company and it is the company’s responsibility to provide training and professional development opportunities that will allow them to elevate their position and salary.

As a human resources professional, you are a business advisor to your company. In this role, it is critical that you understand the value of developing and retaining your organization’s most valuable resource: Human Capital. HR professionals who are invited to participate in strategic and executive discussions are most likely able to articulate that talent gives an organization a competitive edge. Those who are not a part of executive discussions must try to understand that way of thinking – external success factors (competition, profitability, etc.) and meld those with internal success factors (employee satisfaction, retention, etc.). It is important for all HR professionals / business advisors to put the two worlds in perspective.

For executives, the explanation of value and meaning may surround a seemingly different discussion. They will likely see HR’s recommendation for a development strategy as a costly business expense rather than an investment in the business and its people. To counter this, the HR professional must clearly and concisely position training as a part of the overall organizational strategy, and project achievable and measurable results.

As guidance to training, begin your discussion with big picture statements about the organization’s strategic (long-term) business goals and how they are linked to the knowledge, skills, and abilities employees will need in the future. You will actually be positioning training in a way that points to the direct and important impact it will have on job performance. In essence, you will be creating a talent development plan. The plan should be tied to an evaluation tool so that the training goals can be measured or evaluated once the training initiative has been completed.

While this may sound like another dish on your already crowded dinner table, it may be relatively easy to do, just link sales performance, increased productivity or the volume of business received, to a training initiative. Position the new skills that employees will receive as the basis and cost justification to improve your business. Using this approach will allow you to provide a variety of foundation-level and skill-building training for many different levels of employees, from leadership to front-line employee.

It is critical that you do not ask your company’s executives to do your thinking for you. You need to be prepared to answer questions about both the positive impact you expect from the program and what obstacles may be encountered along the way. You also need to be realistic about costs; after all, this is what their eye will ultimately be on. Before planning your meeting, be sure your talent development plan is from a marketing perspective. You are selling this as a business advisor! Include your product, delivery mechanisms, costs, the bottom line, and the return on investment (ROI) to the organization.

In addition, you can include benchmarks in your plan that compare your company’s investment in training and development to industry standards. According to the American Society for Training and Development’s (ASTD), annual State of the Industry Report for 2007, the following were investments made by average companies in 2006 (the most recent year that data is available):

Based upon the information above, you can then include calculations and make sound recommendations:

• The amount of “actionable” information and the percentage acted upon.How much are we spending per employee? How much are we budgeting? What is realistic for my company?
  
  
• How many training hours have we provided to employees? What is realistic?
  What is our training investment compared to revenue, payroll and profitability?
  
  
• How much training do we provide? How much do we provide internally? How much is spent externally or outsourced?
  
  
• Has any training been subsidized by the state or other programs that may increase these figures?
  
  
• Are external training costs grossly over or under the average cost per learning hour?
  
  
• Do we need a dedicated staff member that should lead our training initiatives given our company size? Who is the appropriate person to champion our training efforts?
  

Given the State of the Industry Report, it is clear that many companies are investing in development of their employees. If your company is not, or has a training budget that is significantly below the average, it may be time for you to have these discussions with your executives and become the business advisor they need.

Editors Note: To receive a copy of the ASTD State of the Industry Report, please visit www.astd.org. To learn more about state-subsidized training programs, contact jhull@employersgroup.com or your client services manager.

Effective Background Screening
Starts with Past, Continues into Future

The advantages of pre-employment screening are well documented, and risk mitigation and return on investment are substantial. Data has shown that pre-employment screening can help reduce turnover, prevent theft, decrease workplace violence and reduce liability. Many companies, aware of these benefits and seeking to diminish risk, have incorporated a pre-employment background screening program into their hiring process. Employers should be aware, however, that not all pre-employment background screening programs are equal.

For example, while pre-employment screening is a very effective tool in looking into the past of potential hires, the screening process shouldn’t cease once they become an employee of your organization. Background screening is an ongoing process that, when used effectively, can further mitigate risk for the organization. There are many uses for ongoing background screening, but for the purpose of this article I will examine two key areas where a background check on current employees can be incorporated into a company’s risk mitigation program: 1) Instances of Promotion or Internal Advancement, and 2) Annual Reviews.

Promotion or internal advancement
In instances of promotion or internal advancement, why wouldn’t you conduct a background check? To maximize a program’s effectiveness, an organization should develop a screening process that investigates job related information, and one that is consistent for all applicants being considered for promotion. While the original background check is structured around different and perhaps more general criteria, the new position might carry with it responsibilities that require additional assurances that the internal applicant is well suited for the position. At a bare minimum, employers should conduct background checks on employees that are being considered for a promotion into a management position, or a position with access to financial data. This small measure goes a long way in helping to make informed promotion decisions, while also ensuring that your personnel maintain a level of conduct consistent with your organizational expectations.

Annual reviews
The second instance in which ongoing background screening should be utilized is the annual review. Many industries, such as transportation, are mandated to conduct annual screenings on all employees. As an organization, this can be a costly program to implement, so each company should evaluate the cost/benefit of such a policy.

To illustrate the benefits of an annual background check, I can draw from specific experience. Several years ago, I was working with an organization regarding their screening process. The evaluation had resulted from an instance with a current employee who was involved in a major drug ring in the local area. During the pre-employment background check, the applicant had a clear record. However, shortly after one year of employment, the employee went missing for several days. A few days later, the employer learned that the employee was part of a drug ring that was illegally trafficking and distributing Schedule II controlled substances across several states. This case soon reached national news as one of the largest drug busts in our country’s history. This situation was particularly concerning to the employer because the employee stated on the police report the name of his/her employer. Later it was determined that the organization had a much larger issue related to internal drug use and distribution by several employees. While this is an extreme example, it does highlight the importance of ensuring that employees maintain a level of conduct and professionalism consistent with when they were hired.

Employee release and authorization
If you decide to incorporate annual review or promotion/internal advancement background screening as part of your risk mitigation program, it is important that you first evaluate your release and authorization. It is important that your pre-employment background screening release and authorization is not only compliant with state and federal law, but also that you have incorporated language that permits future investigations into an applicant’s background. Make sure that your release and authorization form states that permission to perform a background check is “both during the period of application and during the course of employment.” By obtaining a signed release and authorization with this specific language, you eliminate the need to obtain a new release and authorization form from the employee to conduct a background check. As always, laws vary from state to state so you should always consult your legal counsel prior to implementing a hiring or retention policy.