Employers: What's New for 2012

1.         Prohibition on Credit Checks 


            There are new restrictions on employers using consumer credit reports, not only for prospective employees but current employees as well. Assembly Bill 22 prohibits employers — except for certain financial institutions — from obtaining or relying on a consumer credit report unless it relates to one of the following: (1) a position within the California Department of Justice; (2) a managerial position (which is defined as one that qualifies for the executive exemption for overtime); (3) a sworn peace officer or other law enforcement position; (4) a position for which credit information is required by law to be disclosed or obtained; (5) a position that involves regular access to specified personal information (other than the routine processing of credit card applications in a retail establishment), such as bank or credit card account information, social security numbers and dates of birth; (6) a position in which the employee or applicant would be a named signatory on the employer's bank or credit card account, authorized to transfer money on behalf of the employer, or enter into financial contracts on behalf of the employer; (7) a position that involves access to confidential or proprietary information (defined as a "trade secret" under Civil Code §3426.1(d)); or (8) a position that, during the workday, involves regular access to cash totaling $10,000 or more, which belongs to the employer, a customer, or a client. 

            Employers cannot seek a report, much less rely on it, without first giving written notice to the individual advising him of the reason for requesting the report and providing a check box for the individual to request a free copy of the report. If employment is denied because of information contained within the report, the employer must tell the individual and give him the name and address of the agency that provided the credit report. 


2.         Contracts for Commissions 

            AB 1396 amends the Labor Code to require that commission pay agreements be in writing and that all employers must comply by Jan. 1, 2013.  Specifically, AB 1396 states that when an employer enters into an employment contract with an employee for services to be performed in California, and the employee's compensation involves commissions, the employment contract must be in writing and set forth the method by which the commissions will be computed and paid.  A copy of the written contract must be given to the employee, and the employer retains the employee's signed receipt of the contract. If the contract expires by its own terms, but the employer and employee continue to operate as if it is in effect, the contract is deemed to remain in effect until it is superseded expressly by a new contract or the employment relationship ends. 

            AB 1396 uses the definition of "commission" found in labor code §204.1, which defines "commissions" as "compensation paid to any person for services rendered in the sale of such employer's property or services and based proportionately upon the amount or value thereof." The new law generally excludes short-term productivity bonuses and profit-sharing plans. Employers should review the commission agreements with their attorneys.


3.         Independent Contractor Misclassification

            Employers who hire or employ independent contractors need to take particular note of Senate Bill 459. This law prohibits the "willful misclassification" of employees as independent contractors. Under the new law, "willful" is defined as "voluntarily and knowingly misclassifying" an employee as an independent contractor. SB 459 also prohibits an employer from deducting fees or other charges from paychecks of misclassified employees — such as for licenses, space rental, or equipment — if the employer could not have deducted such fees or charges if the individual had been properly classified as an employee. Violations of the law could result in civil penalties of $5,000 to $15,000 for each violation, and from $10,000 to $25,000 for each violation if there has been a "repeated pattern or practice" of such violations. 

            SB 459 also imposes joint and several liability on anyone who, for money or other valuable consideration, knowingly advises an employer to treat an individual as an independent contractor to avoid employee status and that individual is later determined to be an employee. This provision does not apply, however, to licensed attorneys providing counsel to an employer, as well as people who are providing advice to their own employer.


4.         New Insurance Obligations


            Employers should also be aware of changes to insurance obligations during pregnancy leave, and new laws providing leave for organ and bone marrow donors. 

            SB 299 requires employers with five or more employees to continue group health coverage for eligible employees on pregnancy disability leave for up to four months. Under the new law, the coverage provided must be kept at the same level and conditions as it would have been had the employee continuously remained employed for the duration of the leave. In other words, if the employer pays the premium in full, it must do so for up to four months of pregnancy disability leave. Similarly, if the employee pays part of the premium, the employee can be required to continue to make those payments while on leave. While employers with five or more employees already had to allow employees up to four months for pregnancy disability leave, prior to SB 299, employees on such leave were only entitled to the same benefits that an employer gave to employees on other types of leave. 

            If the employee does not return from pregnancy disability leave, the employer can recoup any premiums it paid to continue the employee's coverage, unless the employee did not return due to a continuing disability or because the employee took separate FMLA/CFRA protected leave. Employers should review their policies and modify them as needed, carefully checking the interplay between pregnancy disability leave and FMLA or CFRA leave. 

            As of Jan. 1, 2011, employees were able to take paid leaves of absence for bone marrow and organ donation. The law allowing such leave applied to any employer with 15 or more employees. The new law, SB 272, clarifies that an employee can take up to 30 business days of leave for organ donation, and up to five business days for bone marrow donation, with the time measured from the date leave begins. 

            As an initial condition for granting leave, employers can require an employee to take up to five days of earned but unused paid days off for bone marrow donors, and up to two weeks of earned but unused paid days off for organ donors. Any leave for organ or bone marrow donation cannot be deemed a break in the employee's continuous service for purposes of any right to salary adjustments, sick leave, vacation, annual leave or seniority.


5.         Genes and Gender


            SB 559 adds "genetic information" to California's Fair Employment and Housing Act. "Genetic information" is defined as the genetic tests of an employee or the employee's family members, and the appearance of a disease or disorder among the family members. AB 887 amends FEHA to define the term "gender" to include gender identity and gender expression. Gender expression is an individual's "gender-related appearance and behavior," even if such appearance and behavior is not "stereotypically associated" with the gender given the person at the time of birth. 

            Under these two new laws, it is illegal to discriminate in hiring or employment based on genetic information and on the basis of gender identity or gender expression. AB 887 also permits an employee to dress in a manner consistent with the employee's gender identity and expression. 

            Employers should review and amend their policies and procedures to make certain they are in compliance with the new laws.


Wage Theft Protection Act

Please see Frequently Asked Questions for information and links to the necessary forms.


One-Sided Arbitration Provision Rejected

A clause in an application for employment with AccentCare, Inc. (AccentCare), requiring only the applicant agree that, if hired, all disputes that cannot be resolved informally will be submitted to binding arbitration is both procedurally and substantively unenforceable as unconscionable. 


A court can refuse to enforce an unconscionable provision in a contract.  (Civ. Code, § 1670.5.)  A provision is unenforceable if it is both procedurally and substantively unconscionable.  A contract can be procedurally unconscionable if it is oppressive due to the unequal bargaining power of the parties.  In this case, the preemployment arbitration agreement is procedurally unconscionable.  “[F]ew employees are in a position to refuse a job because of an arbitration requirement.”  (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 115.)  


The 3rd DCA added that in addition to the procedural unconscionability of the pre-employment agreement to give up the right to trial, the agreement at issue was procedurally unconscionable because its language implied there was no opportunity to negotiate, because the rules of any arbitration were not spelled out in the agreement or attached thereto, and because plaintiffs did not understand they were waiving their right to a trial, nor was that fact explained to them.  


The court further concluded that the agreement was substantively unconscionable because it lacked mutuality.  The lack of mutuality is made apparent by contrast to a different application form, also employed by AccentCare, which provided that “in exchange for my agreement to arbitrate, AccentCare, Inc. also agrees to submit all claims and disputes it may have with me to final and binding arbitration . . . .”  “[I]n the context of an arbitration agreement imposed by the employer on the employee, such a one-sided term is unconscionable.”  (Armendariz, supra, 24 Cal.4th at p. 118.) 

Wisdom v. Accent Care, January 3, 2012


Plaintiff's Damages Limited to Medical Expenses Actually Paid

In Howell v. Hamilton Meats and Provisions, Inc., the California Supreme Court held that the collateral source rule did not prevent the reduction of a plaintiff’s recoverable medical damages to the amount actually accepted by her providers as payment in full for their services pursuant to their prior agreement with the plaintiff’s insurer.

Rebecca Howell was injured in a car accident. Her medical providers initially billed Howell and her insurer $189,978.63 for her treatment. Pursuant to agreements with Howell’s insurer, however, the providers eventually accepted $59,691.73 as payment in full for Howell’s treatment.

Howell sued Hamilton Meats & Provisions, Inc., whose driver caused the accident. Hamilton conceded liability and the necessity of Howell’s medical treatment, contesting only the amount of damages.

Prior to trial, Hamilton moved to exclude evidence of the amounts billed, but never paid, for Howell’s treatment. Hamilton argued that the only relevant amount was the amount ultimately accepted by Howell’s care providers as payment in full for her treatment. Relying primarily on Haniff, Hamilton argued that because only the amounts paid by Howell and her insurer could be recovered, the larger amounts billed by the providers should be excluded.

The trial court denied the motion, ruling that Howell could present her full medical bills to the jury and any reduction to reflect payment of reduced amounts would be handled through a post-trial Hanif motion.

At trial, the jury awarded Howell the full amount billed by her medical providers.

The trial court granted Hamilton’s post-trial motion to reduce the judgment by $130,286.90 to reflect the actual amount paid by Howell and her insurer.

The court of appeal reversed, holding that the trial court’s reduction of the judgment violated the collateral source rule.

The California Supreme Court reversed, holding that the collateral source rule did not apply to these facts.

The court explained that the collateral source rule precludes deduction of compensation plaintiff has received from sources independent of the tortfeasor from damages the plaintiff would otherwise receive from the tortfeasor. This rule ensures that a plaintiff may recover amounts paid by his or her insurer and precludes a tortfeasor from avoiding the payment of damages merely because the injured party had the foresight to obtain insurance. The rule thus entitled Howell to recover from Hamilton as damages the amounts her insurer paid for her medical care.

The collateral source rule had no bearing, however, on Howell’s entitlement to recover amounts that were included in a provider’s bill but for which neither Howell nor her insurer incurred liability because the insurer, by prior agreement with Howell’s medical providers, accepted a lesser amount as full payment. The court found that such sums are not "damages" that a plaintiff is entitled to collect. These sums are neither paid to the providers on the plaintiff’s behalf nor paid to the plaintiff in indemnity of his or her expenses. Because they do not represent an economic loss for the plaintiff, they are not recoverable in the first instance.

Although the collateral source rule precludes certain deductions against otherwise recoverable damages, it does not expand the scope of economic damages to include expenses that a plaintiff never incurred. Because neither Howell nor her insurer incurred liability for the larger amount originally billed by the medical providers, Howell was not entitled to recover that amount as damages.


9th Circuit: Monell Claim May Be Inferred From Failure to Discipline

The court of appeals vacated a district court judgment and remanded the action for a new trial. The court held that the district court prejudicially erred in refusing to instruct the jury that, for purposes of proving aMonell claim, a custom or practice can be supported by evidence of repeated constitutional violations which went uninvestigated and for which the errant municipal officers went unpunished.

Robert Hunter and Howard Eley sued Sacramento County and others on causes of action arising out of the men’s alleged mistreatment while in custody at the Sacramento County Main Jail. The district court dismissed all of the claims except for a Monell claim against the County.

The Monell claim alleged by Hunter and Eley (Hunter) alleged that they were subjected to excessive force, in violation of their rights under 42 U.S.C. §1983, pursuant to the County’s longstanding practice or custom of subjecting inmates at the Main Jail to excessive force.

Before trial, the district court proffered a proposed Monell instruction that laid out the elements of a claim for the use of excessive force in violation of the Fourth Amendment. Both sides objected, and Hunter in pertinent part submitted proposed additional instructions addressing standards for liability under Monell. One of the instructions stated that a plaintiff could attempt to prove the existence of a custom or informal policy with evidence of repeated constitutional violations for which the errant municipal officials were not discharged or reprimanded.

The district court’s final set of jury instructions did not include any of the supplemental instructions proposed by Hunter. Following trial, the jury returned a verdict in favor of the County.

The court of appeals vacated the district court’s judgment, holding that the district court prejudicially erred in failing to use Hunter’s proposed instructions.

The court of appeals observed that in Monell, the Supreme Court held that municipalities may be held liable as “persons” under 42 U.S.C. §1983, but cautioned that a municipality may not be held liable for the unconstitutional acts of its employees solely on a respondeat superior theory. Instead, a plaintiff seeking to impose liability on a municipality under §1983 must identify a municipal “policy” or “custom” that caused the plaintiff’s injury.

At trial below, the district court’s jury instructions adopted the definition of “practice or custom” set out in Model Instruction 9.4, namely that “practice or custom” means any permanent, widespread, well-settled practice or custom that constitutes a standard operating procedure of the defendant.

That definition was consistent with Ninth Circuit case authority on Monell decisions, but it was not a complete statement of the circuit’s caselaw. For example, this circuit has long recognized that a custom or practice can be inferred from widespread practices or evidence of repeated constitutional violations for which the errant municipal officers were not discharged or reprimanded. Indeed, Hunter submitted a proposed instruction using such language.

Hunter had good reason to do so, as his theory, and his expert evidence, was that officials in the Main Jail repeatedly failed to investigate incidents of excessive force and to take disciplinary action against guards who used such force, despite the existence of an official policy prohibiting the use of excessive force. Thus his instructions were vital to his case. The legal principle that evidence of a recurring failure to investigate and discipline municipal officers for constitutional violations could help show the existence of an unconstitutional practice or custom simply was not inferable from the definition of “practice or custom” in Model Instruction 9.4.

This all meant that, in the context of this action, the definition of practice or custom in Model Instruction 9.4 was incomplete, and thus an incorrect, statement of the law. In addition, by stating that a practice or custom had to constitute a standard operating procedure of the defendant, the instruction could have encouraged the jury to disregard evidence that the County failed to investigate and punish the use of excessive force. Therefore, the court said, the district court’s decision not to use Hunter’s proposed instructions was in error.

The error was not harmless. Hunter intended to show a “practice or custom” that would support Monellliability even though the County had submitted evidence that the Main Jail had a formal written policy barring the use of excessive force. Hunter’s evidence would have established that there were repeated constitutional violations at the Main Jail for which the errant municipal officials were not discharged or reprimanded, which in turn would have supported an inference that an informal but widespread custom of using excessive force existed at the Main Jail.

That evidence could have swayed the jury to a different result, but without Hunter’s proposed instructions, the jurors would not have known whether to consider the evidence that numerous instances of excessive force weren’t investigated and that their perpetrators weren’t punished. Under Model Instruction 9.4, the jurors might have thought it improper to consider such evidence at all.


Hunter v. County of Sacramento