Effective July 1, 2008, the optional standard mileage rate will increase from 50.5 cents per mile to 58.5 cents per mile for determining the reimbursed amount of employee expenses in operating an automobile for business purposes.

The revised standard mileage rates apply to mileage allowances that are paid both (1) to an employee on or after July 1, 2008, or (2) with respect to transportation expenses paid or incurred by the employee on or after July 1, 2008.  The 50.5 mileage rate continues to apply (1) to mileage rates paid to employees prior to July 1, 2008, and (2) with respect to transportation expenses paid or incurred by the employee before July 1, 2008.

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On February 20, 2008, in an 8-1 decision, the United States Supreme Court decided the case of Preston v. Ferrer, holding that the Federal Arbitration Act (FAA) supersedes state laws that would make administrative agencies the first stop for determining issues arising under an FAA-governed contract. In other words, when parties agree to arbitrate disputes arising under an FAA-governed contract, no state can require them to submit their contract-based dispute to a government agency instead of arbitration.

The Preston case started as a dispute between Alex Ferrer (of Fox television’s "Judge Alex" fame) and Arnold Preston, an entertainment attorney who claimed that Ferrer owed him money for services performed under a contract. Because the agreement between Ferrer and Preston contained an arbitration provision, Preston brought a demand for arbitration to enforce his rights.

Ferrer resisted arbitrating the dispute. He claimed that the contract was invalid and unenforceable under the California Talent Agencies Act (TAA), because Preston had acted as a talent agent without the license required by the TAA. Since the TAA provides the California Labor Commissioner with exclusive jurisdiction to hear disputes arising under the TAA, Ferrer argued that the Labor Commissioner should be the one to decide whether the contract was valid, not an arbitrator. The Labor Commissioner and the California courts agreed. The arbitration was halted, and the Labor Commissioner was left to decide whether Preston violated the TAA, and therefore whether the contract was enforceable.

Preston appealed this result to the U.S. Supreme Court, which reversed the holding of the state court. The Court first noted that it was undisputed that Preston’s contract was governed by the FAA, which covers all arbitration agreements concerning a transaction involving interstate commerce. The Court went on to note that in prior decisions It held that attacks on the validity of an entire FAA-governed agreement must first be considered by an arbitrator, even if state law would normally require a court to decide the question. The Supreme Court applied this same reasoning in holding that the FAA required Ferrer’s attack on the valid of the contract under the TAA to be submitted first to an arbitrator, as provided by the contract itself. The Court invalidated the TAA to the extent that it gave the Labor Commissioner exclusive jurisdiction to decide that question

In effect, the Court stated the obvious: a contractual agreement to arbitrate all disputes under the contract requires just that, when the contract is governed by the FAA. The FAA supersedes state laws, such as TAA, which lodge primary jurisdiction in another forum, whether judicial or administrative, and mandates that the contract-based dispute be submitted to arbitration for resolution.

The Preston decision is an important affirmation of the federal preference for arbitrating disputes that arise under contracts containing arbitration agreements, notwithstanding some states’ preferences to the contrary when statutory claims are involved. Employers may want to consider again whether to place arbitration provisions into their employment agreements if they do not do so already, and to take a firmer position in opposing any attempts to allow contract-based disputed to be determined in other forums, whether before a court or an administrative agency.

Click here for full text of the Preston decision, along with the dissenting opinion from Justice Thomas, is available at:

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A decade ago, in Reno v. Baird, the California Supreme Court held that individual employees could not be held personally liable for discrimination under the California Fair Employment and Housing Act.  Until this past week, however, the law regarding whether individual employees could be held liable for retaliation was unsettled.  In Jones v. The Lodge at Torrey Pines Partnership, the Supreme Court of California clarified that, as in discrimination cases, only employers and not individual employees can be held liable for retaliation.

Torrey Pines, Scott Jones sued his employer, The Lodge at Torrey Pines Partnership and his supervisor for retaliation.  A jury awarded Jones damages of over a million dollars against his employer and $155,000 against his supervisor.  The Court of Appeals upheld the verdict and specifically held that the supervisor could be held individually liable for retaliation.  The Supreme Court disagreed.

The Supreme Court reviewed the legislative history of the Fair Employment and Housing Act and its amendments and found no convincing evidence supporting the Plaintiff’s contention that individual employees could be held personally liable.  Moreover, the Court cited several public policy considerations supporting its decision.  Specifically, the Court stated that individuals should not face potential liability for performing their job duties of hiring, firing, and disciplining.  The Court believed that individual liability would have a chilling effect on effective management because supervisors would be deterred from making tough decisions due to the possibility of being sued.  The Court also noted that corporate decisions are often collective and individuals should not be subjected to personal liability for a decision in which they only played a small role.  Finally, the court opinioned that it would be bad policy to subject supervisors to the threat of a lawsuit every time they make a personnel decision.

This decision is significant to all supervisors and employees who make employment decisions as they no longer face the threat of a potential liability for their personnel decisions.

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If your company has significant FMLA issues (such as a large percentage of employees certified for intermittent leave), you should be paying attention to the proposed changes to the FMLA regulations. One major change that should be supported is the right to require recertification every 30 days for long-term chronic conditions where there are reasonable safety concerns and intermittent leave has been used during the 30-day period. Comments on the proposed regulations are due by April 11.

If you are interested in learning more about the proposed changes and possibly commenting on them, Sheppard Mullin Partner Jennifer G. Redmond will be hosting a free LiveMeeting on Wednesday, March 26, 2008, from 10:00 a.m. to 11:30 a.m. PST. 

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For the last fifteen years, issues of hours worked for “resident employees” in California have been guided by the California Appellate Court’s findings in Brewer v. Patel.  In that case, involving a motel clerk required to live on the premises, “the appellate court affirmed…that [Brewer] was entitled to be paid only for the time he actually worked, not for all the time he spent at the motel.”  The trial court’s findings were supported by a “special rule” in the California Division of Labor Standards Enforcement (DLSE) Manual (§ 11050, subdivision (2)(K)) that allowed managers and clerks who were required to live on the work premises to count only the “time spent carrying out assigned duties…as hours worked.”

On March 18, 2008, in Isner v. Falkenberg/Gilliam & Assoc., Inc., the California Appellate Court once again ruled consistent with the findings in Brewer.  Like in Brewer, plaintiffs in Isner were “employed…in capacities that required [them] to live on the premises” and were seeking compensation for all on-call hours during which they were required to be on the premises.  The Isners, a married couple, sought to distinguish their case from Brewer by asserting, primarily, that because they were required to remain “within hearing distance of the telephone and alarm” that sounded only in the building office and the apartment provided them by Falkenberg, they were “more like…security guard[s]…who ha[ve] to remain at a duty station” than they were the motel clerk in Brewer, “who could at least enjoy the amenities of the motel.”  The Court, however, found the Isners’ and Brewer’s circumstances analogous, stating “the only reasonable inference…is that [Brewer],” much like the Isners, “had to be within sight and sound of the office” during the hours he was “required to keep the motel office open.”  As such, and finding no triable issues of fact, the Court affirmed the trial court’s ruling of summary judgment in favor of defendant.

While establishing no new law, by relying on Brewer and Section 11050, subdivision (2)(K) of the DLSE Manual (which itself now cites back to Brewer in support of its interpretation), the California Appellate Court in Isner has solidified the position of California law on what constitutes compensated hours worked by resident employees: they can only expect to be paid for time spent actually performing job duties, and not merely for time spent on-call at home.

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On April 1, 2008, in Metters v. Ralphs Grocery Co., the California Appellate Court provided guidance on what constitutes an enforceable arbitration agreement.  Samuel Metters was an employee alleging racial discrimination and harassment against his employer, Ralphs Grocery.  He claimed that a resolution dispute form with a binding arbitration clause was not an enforceable contract, despite his having signed it.  The Court agreed.

In response to Metters’s internal complaint of harassment and discrimination, Ralphs sent Metters a letter purportedly accompanied by the Company’s dispute resolution form and arbitration policy.  The letter advised Metters to complete, sign, and return the form to aid in an investigation.  It also stated that should Metters fail to do so within 15 days from the letter’s date, the Company would review his dispute using any information already provided.  While Metters neglected to sign and return the form, he later did so when it was sent to him again after he made further complaints.

Ralphs’ arbitration policy called for mandatory and binding arbitration of all disputes should informal procedures fail.  This policy was also incorporated by reference into the dispute form.  The form, titled "Notice of Dispute & Request for Resolution," was in part an arbitration agreement, including conditions above the signature block where the employee was to sign.  These conditions stated that by submitting the dispute form, the employee agreed to comply with Ralphs’ arbitration policy.  The conditions also included separate, express language consenting to binding arbitration, as well as that the employee was not required to complete, sign, or return the form in order for Ralphs to investigate a complaint.

In finding the form unenforceable, the Court determined that Metters had not been aware that he was agreeing to mandatory arbitration, and thus could not be bound by the dispute form. Some of the factors the Court considered were that the dispute form did not resemble a contract, noting that the form’s title did not alert Metters to the nature of the document.  The form did not clearly warn Metters to pay special attention to its arbitration provisions.  Metters was also not informed by Human Resources that if he used the form, he was agreeing to arbitration.  The Court found it telling that Metters had provided information regarding his complaint outside of the dispute form, without any apparent action by the Company.

The Court suggested that because the arbitration policy required an employee to submit the dispute form for the Company to respond, "an employee ha[d] no real choice to avoid arbitration if he want[ed] some action taken on his complaint."  Thus, the Court did not find it persuasive that Metters had signed the arbitration agreement, despite its language clearly stating that he was not required to do so in order for his complaint to be investigated.  The Appellate Court made it clear that the totality of the circumstances determined whether an arbitration agreement was binding.  Employers will want to review this case to evaluate whether their own arbitration agreements are enforceable.

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The Department of Labor has released a new required poster regarding two recently created types of military family leave.  On January 28, 2008, President Bush signed into law the National Defense Authorization Act for FY 2008 ("NDAA").  The NDAA amends the Family and Medical Leave Act (the "FMLA") by creating two new categories of military family leave.  Section 585(a) of the NDAA provides for a 12 week "qualifying exigency" leave and a 26 week military caregiver leave.

A "qualifying exigency" leave entitles an employee to take up to 12 weeks of leave for a "qualifying exigency."   This "qualifying exigency" must be due to a spouse, son, daughter, or parent being on active duty, or having been notified of an impending call to active duty, in support of a contingency operation.  A "contingency operation" is a military operation in which 1) " members of the armed forces are or may become involved in military actions, operations, or hostilities against an enemy of the United States or against an opposing military force," or that 2) "results in the call or order to, or retention on, active duty of members of the uniformed services."  The NDAA does not define what constitutes a "qualifying exigency," but does require the Secretary of Labor to issue regulations defining this term.  While there have not been any regulations issued as of yet, the Department of Labor encourages employers in the interim to provide "qualifying exigency" leave to all eligible employees.

The servicemember family leave amendment applies to an "eligible employee who is the spouse, son, daughter, parent, or next of kin of a covered servicemember who is recovering from a serious illness or injury sustained in the line of duty on active duty."  This military caregiver leave allows an employee to take up to 26 weeks of leave in a single 12-month period in order to care for the servicemember.

A "covered servicemember" is defined as a member of the Armed Forces, National Guard, or Reserves who is "undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness."  A "serious injury or illness" is defined as "an injury or illness incurred by the member in the line of duty while on active duty in the Armed Forces that may render the member medically unfit to perform the duties of the member’s office, grade, rank, or rating."  It is also worth noting that this amendment includes next of kin as a new category of covered employee.  "Next of kin" is defined as the "nearest blood relative" of the covered servicemember.  While there is still uncertainty concerning "qualifying exigency" leave, military caregiver leave has been defined and in place since the NDAA’s enactment.

The Department of Labor now requires covered employers to display a new poster insert addressing "qualifying exigency" and military caregiver leave, which can be found the Department of Labor’s FMLA poster website.  Also, interested employers can learn more about the recent NDAA amendments, as well as review text of the amended version of the FMLA, on the Department of Labor’s FMLA amendments website.

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On April 16, 2008, a California Appellate Court decided Bradstreet v. Wong, holding that the shareholders, officers, or managing agents of the Employers could not be held personally liable for violations of the Labor Code arising out of the Employers’ failure to pay wages.  The Court also held that individual defendants were not required to pay earned but unpaid wages as restitution under California’s Unfair Competition Law.

Defendants Toha Quan and Anna Wong owned the capital stock and served as corporate officers or directors of three garment manufacturing companies, collectively the Wins Corporations.  They were also the managers and operators of these factories.  Defendant Jenny Wong did bookkeeping and payroll work for the Corporations and served on the Board of Directors.  For many months, the Wins Corporations did not have sufficient cash to pay employees, suppliers, and other expenses.  Nonetheless, the Defendants encouraged employees to keep working without pay until the Wins Corporations collected accounts receivable and stabilized their finances.  When employees complained about not being paid their wages, the Division of Labor Standards Enforcement (DLSE) and the United States Department of Labor (DOL) stepped in.  The DOL sought injunctive relief, which caused the closing of the Wins Corporations, and the confiscation of assets and accounts receivable.

Thereafter, the Labor Commissioner filed this lawsuit, seeking to hold Defendants personally liable for unpaid wages and vacation pay owed to the Win Corporations’ employees.  The Commissioner claimed that Defendants employed or exercised control over the wages, hours, and working conditions of the Wins Corporations’ employees and therefore, were personally responsible for Labor Code violations arising out of the Corporations’ failure to pay wages.  The Commissioner further alleged that Defendants should be held personally liable because 1) they so abused the corporate entity that they should be deemed the alter egos of the Wins Corporations and 2) they were guarantors for the wages not paid by Wins Corporations.  Two former employees and the Chinese Progressive Association filed a complaint in intervention, alleging claims similar to the ones the Commissioner had alleged, as well as a cause of action pursuant to Business and Professions Code section 17200, also known as the Unfair Competition Law, seeking restitution.

The Appellate Court agreed with the trial court which had ruled in the Defendants’ favor.  In the Appellate Court’s opinion, under the common law definition, the employers were the Wins Corporations, not the Defendants and therefore, the Defendants were not personally liable for the unpaid wages and penalties.

Finally, the Court held that restitution was not an available remedy in a private action under the Unfair Competition Law because the Defendants had not personally acquired any money or property from the employees.  The labor was not performed for the Defendants personally, but was performed for the employers, the Wins Corporations, and the Defendants did not appropriate for themselves corporate funds that would otherwise have been used to pay unpaid wages.  Therefore, the Appellate Court concluded that an order requiring Defendants to pay the unpaid wages would not be "restitutionary because it would not replace any money or property that defendants took directly from the intervener."

This case confirms that in most cases, it is the Company, and not individuals who are part of the Company, that is responsible for paying wages to employees.

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Section 403(b) annuity plans have historically been governed by a hodgepodge of Internal Revenue Service ("IRS") rulings and regulations dating back to 1964.  In 2007, however, the IRS finalized new, comprehensive regulations that are generally effective January 1, 2009.  Schools and tax-exempt employers that maintain 403(b) plans and their advisors must thoroughly review and revise their plans to comply with the new regulations.  The consequences of not doing so are dreadful (i.e., the loss of tax-deferred status of employer and employee contributions to the annuity plan).

One significant change under the new regulations is the requirement that all employers maintaining a 403(b) plan must have a formal, written plan document.  This document must contain all the material terms and conditions for eligibility, benefits, applicable limitations, the contracts available under the plan, and the time and form under which benefit distributions will be made.  It also should include provisions concerning hardship distributions, loans, and rollovers.

Another critical feature will be the need to establish an appropriate information sharing and administrative services agreement between the employer and the annuity providers.  Finally, although not part of the IRS regulations, some employers may be subject to enhanced reporting (Form 5500) and audit requirements as well.

The time to start planning is now because the required documentation must be in place by December 31, 2008.  Preparing appropriate plan documents and other plan agreements must be a coordinated effort among the employer, its advisors, and the annuity providers. 

For further information, please contact David Paik at (213) 617-4196.

ANY TAX ADVICE HEREIN WAS NOT INTENDED OR WRITTEN BY THE AUTHOR TO BE USED, AND IT CANNOT BE USED BY ANY RECIPIENT, FOR THE PURPOSE OF AVOIDING ANY TAX PENALTIES THAT MAY BE IMPOSED ON ANY PERSON.  THERE IS NO LIMITATION IMPOSED ON A RECIPIENT HEREOF BY THE AUTHOR HEREOF ON DISCLOSURE OF THE TAX TREATMENT OR TAX STRUCTURE OF ANY TRANSACTION.  EXCEPT WITH PRIOR WRITTEN CONSENT OF THE AUTHOR, NOTHING HEREIN MAY BE USED OR REFERRED TO IN PROMOTING, MARKETING OR RECOMMENDING A PARTNERSHIP OR OTHER ENTITY, INVESTMENT PLAN OR ARRANGEMENT TO ANY PERSON.

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On May 15, 2008, the California Supreme Court held that California laws limiting marriage to opposite-sex couples violated same-sex couples’ rights under the California Constitution.  The Court explained that, "in view of the substance and significance of the fundamental right to form a family relationship, the California Constitution properly must be interpreted to guarantee this basic civil right to all Californians, whether gay or heterosexual, and to same-sex couples as well as to opposite-sex couples."  The Court also evaluated the challenged marriage statutes under the Equal Protection clause of the California Constitution, concluding that the laws discriminated on the basis of sexual orientation.  Significantly, the Court announced more generally that laws discriminating on this basis must survive "strict scrutiny," the most rigorous possible test, to pass constitutional muster, a standard the Court found the marriage statutes could not meet.  As a result, the Court directed that same-sex couples must be permitted to marry in California.  However, the Court’s decision did not, and, indeed, could not, alter federal law or the marriage laws of other states.

While certainly of great social significance, the Court’s ruling in this related group of highly publicized cases, jointly referred to as In re Marriage Cases, has few immediate and direct effects on California employers.  This is because same-sex couples in California were already able to register as "domestic partners" and thereby avail themselves of virtually all the same rights, responsibilities and protections available to opposite-sex, married couples under California law.  What has – and has not – changed for California employers as a result of this landmark decision is explored briefly below.

Discrimination

Before this decision was issued, employment discrimination on the basis of marital status and registered domestic partner status were both already prohibited to the same extent in California.  This decision does not change or expand the protections available to same-sex couples under these laws.  What is new is that same-sex couples can now claim protection via the same mechanism – marriage – as opposite-sex couples.

Similarly, employment discrimination on the basis of sexual orientation has long been prohibited under California’s Fair Employment and Housing Act.  However, in light of the public awareness this case is likely to trigger, now is a good time to ensure that training materials, employee policies, employee handbooks and the like are up-to-date in this regard.  Now is also probably a good time to ensure that required supervisor training on issues relating to harassment and discrimination has been provided timely.

Benefits

For the most part, California employers’ obligations to extend benefits to employees’ same-sex partners are largely unchanged by this decision as well.  This is primarily because already-existing California law provides that insurers may only offer for sale group health plans, health insurance and other forms of insurance which provide equal coverage to spouses and registered domestic partners.

Nevertheless, in the wake of this decision, employers should consider reviewing their benefits plans to ensure that the language makes sense for same-sex and opposite-sex couples, and that it otherwise comports with the law and their intent.  Employers who are self insured and self administered and who, by virtue of the somewhat complicated issues relating to the overlap of state and federal law, may not be obligated by law to provide equal benefits to domestic partners and spouses, will certainly want to consult with counsel to determine whether their particular plans’ language imposes new or additional obligations.

From a cost perspective, employers might expect a spurt of same-sex marriages in the near future and a sharp increase in benefits costs as a result.  While the marriages are likely, the overwhelming majority of them will likely be among couples who already are, or at some point would have been, registered as domestic partners.  Thus, the net cost to employers should be minimal.

Finally, employers should keep in mind that they should not impose greater burdens on same-sex couples with respect to proving claimed marital (or, for that matter, domestic partnership) status, than they do for opposite-sex couples.

Same-sex couples married in other jurisdictions

Finally, before this decision, same-sex couples who were married in other jurisdictions which recognize same-sex marriage (currently: Massachusetts, Canada, South Africa, the Netherlands, Belgium, and Spain) and then relocated to California were not considered "married" and, thus, were not entitled to the protections or benefits available to married persons.  To claim the benefits and protections available to domestic partners registering with the state was necessary.

However, as a result of this case, same-sex marriages validly entered in other jurisdictions are now recognized in California.  Thus, these relocating persons now qualify for the benefits and protections extended to domestic partners and spouses seemlessly, without having to register with, or get married again in, the State of California.

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