Employment Law Watch : Employment & Labor Lawyer & Attorney : Reed Smith Law Firm

Last month, California Governor Jerry Brown approved a variety of state legislation affecting employers doing business in California. Discussed here is SB 459, which imposes strict penalties for employers found willfully (intentionally and voluntarily) to have misclassified workers as independent contractors. Known to some as the "Job Killer Act," SB 459 provides for stiff fines, joint and several liability for third parties advising as to intentional misclassification, and a "scarlet letter" provision requiring employers who are found willfully to have misclassified their workers to post public notice of the violation for a year. The Act adds new Labor Code sections 226.8 and 2753, effective January 1, 2012.

Inadvertently included in our summary last month of the Act's provisions was a burdensome recordkeeping and notice requirement that appeared in pre-signed versions of the Act. We are pleased to report, however, that this burdensome requirement did not survive and is not part of the new Act. Following are notable provisions of the signed Act, with the stricken provision deleted:

1. Fines of $5,000 - $10,000 for the first violation, and up to $25,000 for repeat violations;
2. Prohibition on charging workers a fee or deducting anything from workers' payments had the fee or deduction been prohibited to be taken from an employee's pay (such as for goods, materials, space rental, services, licenses, repairs and maintenance);
3. Notice and recordkeeping, using a state-created form, requiring the principal to factually justify independent contractor classification for each worker so classified, and advising the worker of the tax ramifications of the classification and of his/her rights to challenge the classification;
4. Joint and several liability for any person who knowingly advises an employer to misclassify a worker as an independent contractor (employer's agents and legal counsel are exempt); and
5. A "scarlet letter" provision requiring employers who are found willfully to have misclassified their workers to post public notice of the violation.

Because the new law provides no guidance on how to review worker classification to ensure compliance, employers will be required to apply the fact-intensive tests in California case law and announced by the Employment Development Department. Adding to the challenge, federal and California classification standards vary to some degree.

The new law continues the push begun by the federal Internal Revenue Service, the California Employment Development Department, and other states' taxing authorities to microscope worker classification and impose significant penalties for companies guilty of misclassifying at the federal and state level. Particularly in this era of cash-strapped governments seeking added revenue, companies using independent contractors in California need to make certain they pass all legal tests.

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The Government has today announced what it describes as “the most radical reform to the employment law system for decades”. In a speech to EEF, the UK manufacturers’ organisation, Vince Cable outlined the results of the Government’s recent consultation on Resolving Workplace Disputes and the recent Red Tape Challenge Review of employment law. 

The proposals announced by Vince Cable include the following:

• Merge, scrap or simplify 70 of the 159 employment regulations examined in the Red Tape Challenge (this includes consolidation of 17 national minimum wage regulations)
• Publish calls for evidence on proposals to simplify TUPE and to reduce the minimum consultation period for proposed collective redundancies involving 100 or more employees, from 90 days to 60, 45 or 30 days (see links below to these consultation papers which were issued today and which will close on 31 January 2012)
• Publish a call for evidence on simplifying dismissal processes, seeking views on two proposals: whether to introduce compensated no fault dismissals for micro firms with fewer than 10 employees; and how to simplify the existing dismissal process, potentially changing the Acas Code, or to provide supplementary guidance for small businesses.
• Remove protection for any whistleblower making a disclosure about the worker’s own contract (to counter the EAT’s decision in Parkins v Sodexho Ltd [2002] IRLR 109
• Create a universally portable CRB check that can be viewed by employers instantly online from early 2013
• Consult on the introduction of fees for bringing a claim in the Employment Tribunal, seeking views on two options: a system involving an initial fee to lodge a claim and a second fee to take that claim to hearing; or a system involving a £30,000 threshold whereby anyone seeking an award above that figure will pay more to bring a claim
• Consult on streamlining the current regulatory regime for the recruitment sector.

In addition, as part of the Government’s response to its consultation to the Resolving Workplace Disputes, the Government has said that it is committed to:

• Increasing the qualifying period for unfair dismissal from one to two years from April 2012
• Requiring all Employment Tribunal claims to be lodged with Acas and to be offered mediation before going to Tribunal
• Modifying the formulae for up-rating Tribunal awards and redundancy payments to save business an estimated £5.4 million (net) a year
• Giving Employment Judges discretion to levy a financial penalty, payable to the Exchequer, against employers for breach of employment rights
• Consulting on whether employers should be allowed to have “protected conversations” with staff without the existence of a formal dispute and without such conversations capable of being used in evidence in a future Tribunal claim
• Consulting on the simplification of compromise agreements, such as doing away with long lists of causes of action. Other proposals include introducing a standard text, amending s.146 Equality Act to provide reassurance that compromise agreements can safely be used to compromise discrimination claims, and renaming them “settlement agreements”
• Consulting on developing a “rapid resolution” scheme which will offer a quicker and cheaper alternative to determination of straightforward, low value claims at an Employment Tribunal
• Carrying out a review of Employment Tribunal rules, to be led by Mr Justice Underhill, who steps down at the end of this year from his Presidency of the Employment Appeal Tribunal.

Much of the detail of these proposals is yet to be revealed and we now have to wait for a number of consultations to be completed before we know more. It looks like 2012 will be an important year for employment law reform so watch this space!

Please click on the following links for more information:

Government Press Release:

http://nds.coi.gov.uk/content/detail.aspx?ReleaseID=422195&NewsAreaID=2&HUserID=895,779,885,848,782,879,710,705,765,674,677,767,684,762,718,674,708,683,706,718,674&ClientID=-1

Call for evidence on TUPE regulations (closing 31 January 2012)

http://www.bis.gov.uk/Consultations/call-for-evidence-effectiveness-of-current-tupe-regulations?cat=open

Call for evidence on collective redundancies (closing 31 January 2012)

http://www.bis.gov.uk/Consultations/call-for-evidence-collective-redundancy?cat=open

Government Response to Resolving Workplace Disputes

 http://www.bis.gov.uk/Consultations/resolving-workplace-disputes?cat=closedwithresponse 

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This post was written by Ruth Bonino and Danny Bloom. 

In Enterprise Managed Services Ltd v Dance and Others, a case concerning a TUPE transfer, the Employment Appeal Tribunal (EAT) held that a decision to ‘harmonise’ the incoming employees’ terms with existing employees could have been legitimately made to improve productivity, so that subsequent dismissals based upon the ‘harmonised’ terms may not have been for a reason connected with a transfer, and would therefore not be automatically unfair under TUPE. Although this case should be viewed with caution, it gives transferees some hope that where the reason for post-transfer harmonisation of terms and conditions takes place for a business decision such as to improve productivity, rather than for administrative tidiness, such changes may be lawful.

Regulation 7(1) of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) provides that any dismissal of an employee either before or after a relevant transfer will be automatically unfair where the sole or principal reason for the dismissal is either; (i) the transfer itself; or (ii) a reason connected with the transfer, that is not an economic, technical or organisational (‘ETO’) reason. Whether a dismissal is connected with the transfer is a question of fact and will be for the employer to prove that there is no causal link between the two events.

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This post was written by Joseph C. Rudolf, John A. DiNome and Valerie M. Eifert.

The General Assembly has passed three bills amending the civil service provisions of the First Class Township Code, Borough Code and Third Class City Code. Gov. Tom Corbett has signed into law the amendments to the First Class Township and Third Class City Codes, and is expected to sign the amendment to the Borough Code. Generally, these amendments mandate that municipalities conduct background investigations, which can be conducted after the list of applicants is certified. In addition, the amendments make the agility test, the psychological examination and the medical examination optional for promotions.

Amendments to the First Class Township Code & Borough Code

The changes to the Civil Service requirements within the First Class Township Code and Borough Code are identical. Both Acts require the municipal Civil Service Commission to conduct a background investigation on applicants for an appointment to an original position. The commission can limit the background investigations to the candidates placed on the eligibility list or to the candidates on the certified list. With the background investigation requirement, applicants for an original civil service position are now subject to each of the following:

• A physical fitness or agility examination that is job-related and consistent with business necessity
• A physical and psychological medical examination after a conditional offer of employment is made
• A background investigation (restricted to candidates included on the eligibility list or to those to be certified to borough council for appointment)

The amendments to the First Class Township Code and the Borough Code also amend the requirements for applicants seeking a promotion. Civil Service Commissions are no longer statutorily mandated to require applicants for promotion to undergo a physical fitness or agility examination when applying for a promotion. However, first class townships and boroughs may conduct physical fitness or agility examinations that are job-related and consistent with business necessity, and may also conduct physical and psychological medical examinations, but are not required to do so for promotions. 

Amendments to the Third Class City Code

The amendments to the Third Class City Code deal exclusively with civil service promotions. The amendments clarify that the mayor or another appointed city official has the authority to promote a civil service candidate, where such authority has been granted to the mayor or other appointed official pursuant to one of the following:

• A charter adopted under the Option Third Class City Law
• An optional plan of government pursuant to 53 Pa. Code § 3001, et seq. or 53 Pa. Code § 3101 et seq.
• Any other law authorizing or permitting the mayor or other elected or appointed official to promote a candidate

The language validates the promotion of a candidate by a mayor or other elected or appointed official despite the language of Act 77, which authorized city council to promote if an examination was conducted. The legislation is retroactive to October 19, 2010, which is the date of enactment of Act 77 of 2010. Act 77 brought the civil service procedures into compliance with the federal Americans with Disabilities Act of 1990 by amending provisions to expressly authorize the establishment of an eligibility list comprised of the top three scoring candidates of a promotional examination. For a more detailed analysis of the impact of Act 77 of 2010, you can refer to a previous Reed Smith Employment Law Watch post here: Pennsylvania Governor Signs Amendments to the Civil Service Laws. 

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This post was written by Don A. Innamorato and Sherri A. Affrunti.

The NJ DOL has published the new mandatory notice that, by December 7, 2011, must be posted in a conspicuous location and distributed to all existing employees who work in New Jersey. In addition, ALL new employees hired in New Jersey on November 7, 2011 or after must be immediately provided with a copy of this notice. Accordingly, it is recommended to include this notice immediately in all new hire packets, and to post it immediately on all bulletin boards or other locations where you, as an employer, post similar notices. If you have an internet or intranet site for exclusive use by employees and to which all employees have access, electronic posting of the notice on the site will satisfy the conspicuous posting requirement. Similarly, you may provide the notice to employees by email to satisfy the requirement to provide each employee with a copy of the notice. You may access a copy of the notice by clicking here.

The notice summarizes the record-keeping requirements under the following New Jersey statutes: the Wage Payment Law, the Wage and Hour Law, the Unemployment Compensation Law, the Temporary Disability Benefits and Family Leave Insurance Law, the Workers' Compensation law, the Prevailing Wage Act, and the Gross Income Tax Act. It also includes contact information for New Jersey State representatives who are available to provide employees with information or to facilitate their filing of complaints regarding an employer's alleged failure to meet the requirements of these statutes.

Employers risk fines up to $1,000 for failing to comply with the notice and posting requirements, in addition to potential criminal penalties.

This notice follows on the heels of last year's new legislation imposing stricter penalties - including the loss of operating licenses - for New Jersey employers who repeatedly fail to comply with the State's wage, benefit and tax laws. This new law was summarized in an Alert published in June 2010 and can be accessed by clicking here.

If you have any questions concerning the attached posting, the corresponding law, how it will impact your business, or the risks of non-compliance, please contact the authors of this Alert or the Reed Smith attorney with whom you regularly work.

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This post was written by Ruth Bonino and David Ashmore.

UK: The Employment Appeal Tribunal (EAT) has provided important clarification on the annual leave entitlement under the Working Time Regulations 1998 (WTR) of workers (including employees) who are off work on long-term sick leave.

In the case of Fraser v Southwest London St George’s Mental Health Trust, the EAT has decided that:

• a worker on long-term sick leave must request annual leave in line with the requirements of the WTR in order to be entitled to be paid for it;
• a worker is entitled to be paid in lieu of accrued but untaken holiday when employment terminates, but only in respect of leave accrued during the leave year in which employment terminates. Accrued but untaken annual leave from previous leave years does not carry forward for the purposes of the payment in lieu entitlement where no request to take such leave was made by the worker; and
• there is no duty on the employer to make a worker aware that the WTR rules operate in this way.

The decision provides welcome clarification to employers facing holiday-pay claims from workers on long-term sick leave on how to calculate annual leave. It is now clear that such workers are not entitled to be paid unless they requested annual leave during the relevant leave year. The EAT commented that it may seem artificial for an employee who is not at work to have to give notice in this way, but in the EAT’s view that “merely reflects the artificiality of a period of long term sickness counting as holiday at all”.

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Effective January 1, 2012, private California employers of non-exempt employees not subject to certain collective bargaining agreements will face new reporting and recordkeeping requirements and penalties for violations of California's aggressively-titled "Wage Theft Prevention Act" signed into law in October 2011. Similar to New York's law of the same name enacted last year, the Act includes:

• New Labor Code Section 2810.5 requires private employers of newly-hired, non-overtime-exempt employees to provide each new hire with:

(a) The job rate or rates of pay and whether it pays by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime.
(b) Any allowances claimed as part of the minimum wage, such as for uniforms, meals, and lodging.
(c) The employer's regular payday, subject to the Labor Code.
(d) The employer's name, including any “doing business as” names used.
(e) The address of the employer's main office or principal place of business, and its mailing address, if different.
(f) The employer's telephone number.
(g) The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
(h) Other information added by the Labor Commissioner as material and necessary.

Exempted from the Act and these requirements are public employees, employees exempt from California wage/hour laws requiring overtime pay and, under circumstances detailed in the Act, employees covered by collective bargaining agreements.

• Employers must also notify employees of any changes in this information within seven days of the change.
• Increases in civil and criminal penalties for wage-related violations, as well as an increase from 1 to 3 years for the Department of Labor Standards Enforcement to seek wage-violation-related penalties, but no change in the 1-year limit for seeking penalties in private enforcement actions.

In addition to increasing employers' administrative reporting and recordkeeping requirements and penalty risks, the Act adds pressure on employers to properly classify their employees as overtime exempt versus non-exempt. That is because employers who misclassify employees as exempt risk violating the Act and incurring incurring its increased penalties.

California employers need to work on prompt compliance strategies. Consider, for instance, periodic, attorney-led, privileged reviews of wage/hour practices to ensure compliance.

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The UK Court of Appeal has ruled, in the case of NHS Manchester v Fecitt & Others, that an employer cannot be vicariously liable for acts of victimisation by its employees against whistleblowers. The Court also clarified the correct test for determining whether a worker has suffered a detriment on the ground of making a protected disclosure (ie. whistleblowing). The Court decided that to avoid liability under the whistleblowing legislation, the employer must show that the employee’s protected disclosure did not materially influence (i.e. more than trivially influence) the employer’s treatment of that employee.

The whistleblowing legislation provides protection in two ways. First, dismissal of an employee is automatically unfair if the principal reason for dismissal is that they have made a protected disclosure. Second, workers have a right not to be subjected to a detriment by their employer on the ground that they have made a protected disclosure. This case concerned the second of these protections. 

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