A former server filed an action under the California Labor Code Private Attorneys General Act of 2004 (PAGA), seeking civil penalties on behalf of herself and other “aggrieved employees” for California Labor Code violations, including the failure to reimburse the cost of slip-resistant shoes.  Plaintiff alleged a violation of Labor Code section 2802, which requires an employer to reimburse employees for all necessary expenditures incurred by the employee in direct consequence of the discharge of their duties.

Plaintiff argued that, because the restaurant required employees to wear slip-resistant, black, closed-toes shoes for safety reasons, such shoes should be provided free of cost or employees should be reimbursed for their cost.

The Court of Appeal, persuaded by the reasoning in an unpublished Ninth Circuit Court of Appeals decision, Lemus v. Denny’s, Inc., and guidance from the California’s Division of Labor Standards Enforcement (DLSE), held that section 2802 did not require the restaurant employer to reimburse its employees for the cost of slip-resistant shoes.  Specifically, the Court held that the cost of shoes does not qualify as a “necessary expenditure” under section 2802.

In reaching its decision, the Court followed the reasoning in Lemus, citing a DLSE opinion letter, “The definition and [DLSE] enforcement policy is sufficiently flexible to allow the employer to specify basic wardrobe items which are usual and generally usable in the occupation, such as white shirts, dark pants and black shoes and belts, all of unspecified design, without requiring the employer to furnish such items.  If a required black or white uniform or accessory does not meet the test of being generally usable in the occupation the [employee] may not be required to pay for it.”

Here, the plaintiff did not argue that the slip-resistant shoes were part of a “uniform” or were not usual and generally usable in the restaurant occupation.  The restaurant did not require employees to purchase a specific brand, style, or design of shoes and did not prohibit employees from wearing their shoes outside of work.

Under California law, a restaurant employer must pay for its employees’ work clothing if the clothing is a “uniform” or if the clothing qualifies as certain protective apparel regulated by OSHA or California’s Division of Occupational Safety and Health (Cal/OSHA).  Labor Code and Industrial Welfare Commission Wage Order No. 5-2001, governs the public housekeeping industry, including restaurants.  Under Wage Order No. 5, uniforms must be provided and maintained by the employer when the uniforms are required by the employer to be worn by the employee as a condition of employment.  “Uniform” includes “wearing apparel and accessories of distinctive design or color.”  This section of the wage order specifically does not apply to protective equipment and safety devices regulated by the Occupational Safety and Health Standards Board.

On appeal, the plaintiff abandoned her alternative theory of liability that reimbursement was owed under provisions of Cal/OSHA, Labor Code sections 6401 and 6403, which require employers to furnish and provide safety equipment to employees.

The trial court had held that OSHA and Cal/OSHA provide than an employer is not required to reimburse employees for the cost of non-specialty shoes that offer slip-resistant characteristics, but are otherwise ordinary clothing in nature.  However, the Court of Appeal ultimately did not decide the applicability of OSHA or Cal/OSHA.  Likewise, the Ninth Circuit in Lemus v. Denny’s, Inc. did not address whether Cal/OSHA requires reimbursement of slip-resistant footwear.

After the decision in Townley, there remains a question of whether reimbursement for the cost of slip-resistant shoes could be required under Cal/OSHA for safety reasons.  Under Federal OSHA regulations, employers must generally provide personal protective equipment at no cost to the employee.  The regulation specifically includes an exemption for non-specialty safety-toe protective footwear, which the employer permits to be worn off the job-site.  Employers are also not required to pay for everyday clothing, including street shoes and normal work boots.  Under California law, if protective equipment is required by Cal/OSHA, the employer is responsible for paying for the safety equipment.  There is no Cal/OSHA regulation equivalent to the Federal exemption for generic non-specialty shoes.  While California employers have argued (and the trial court in Townley concluded) that the Federal exemption should control in California, the California Court of Appeal and Ninth Circuit have so far left that question unanswered.

Takeaways

Although we now have clarity that California Labor Code section 2802 does not require reimbursement of the cost of slip-resistant footwear, there remains the question of whether such footwear could constitute reimbursable protective equipment under Cal/OSHA safety standards.  Although Townley and the Federal OSHA exemption provide some guidance for California employers, they are reminded that neither are necessarily binding or precedential.  As such, it will be important for employers to track California caselaw in this area, as well as look out for Cal/OSHA guidance.  In the meantime, employers are encouraged to periodically review their policies and practices for reimbursing employee business expenses to ensure compliance with California law, including Cal/OSHA regulations.

The increased costs of operating a restaurant can be attributed to minimum wage increases, healthcare, paid sick leave, restrictive scheduling, cost of food and supplies and increase pay equity between traditionally tipped employees and heart of the house employees.  As such, these surcharges need to be analyzed for taxation purposes and legality as to how they are implemented. 

A. Tax and Wage Implications

First let us think about how surcharges affect a company from a tax and reporting perspective. Starting in 1994, many restaurants have benefited from being allowed to apply a general business credit toward a portion of the employer’s Social Security and Medicare taxes paid with respect to their employees’ cash tip earnings (IRC 45 B). However, the policy set forth in Rev. Rule 2012-18 means that the credit would not apply with respect to surcharges, because these mandatory charges do not qualify as tips. 

Surcharges like a service charge are a taxable event. The sales tax is imposed upon the retailer for the privilege of selling tangible personal property. “Gross receipts” provides that the taxable gross receipts include all amounts received with respect to the sale, with no deduction for the cost of the property sold, materials used, labor or service cost, or any other expense of the retailer passed on to the customer. Any expense of a restaurant passed on to customers in the form of a surcharge must be included in taxable gross receipts. Since there are no specific sales and use tax exemptions for a surcharge imposed, retailers may not claim the cost of the surcharge as a deduction on their Sales and Use Tax return. Therefore, a separate surcharge on customer bills must include the surcharge amount in the calculation of tax.

To the extent, a company elects to distribute a surcharge to its employees, the surcharge will be treated and must be reported as Salaries and Wages on the business tax return. Another issue to consider is that an employer who pays out a portion of the surcharges to employees may have to recalculate its employees’ overtime rates (if the employees work more than 40 hours in a week or 8 hours a day for businesses in California). As any distributed surcharges are wages, that money would count toward an employee’s regular rate of pay and therefore must be factored into the overtime rate calculation.

B. Claims Asserted

Starting in 2017 comments by several City Attorneys, as well as some letters, have raised issues concerning surcharges. Specifically, some City Attorneys have raised the manner under which surcharges are communicated to customers. Also in 2017, there were 16 cases filed in San Diego, California asserting the illegality of the surcharges and the manner of disclosure generally. These lawsuits claimed these restaurants were in violation of consumer protection laws including false advertising, unfair competition and misrepresenting the prices on their menus. It was further claimed that a failure to clearly and conspicuously communicate a surcharge might render the stated price of a food item untrue and misleading under California law. The San Diego City Attorney has made some statements that such charges are being investigated and may result in prosecution under the guise of consumer protection for false advertising. These lawsuits sought restitution, injunctive relief, civil penalties, punitive damages and attorneys’ fees.

In a ruling on November 16, 2018, a San Diego Superior Court Judge ruled in granting judgment for the restaurant at issue that the “undisputed evidence establishes that the surcharge is not unlawful as a matter of law.” Further, the Court concluded the restaurant “made adequate and non-misleading disclosures about the surcharge.” Subsequent judgments were entered in favor of other restaurants by the same judge in December 2018 and January 2019 based on the November 2018 ruling; whereby the ruling of the Court was adopted as to the legality of the use of surcharges by restaurants. In February 2019, a federal judge also granted summary judgment concerning identical allegations concerning the use of a surcharge.

C. Prevention Tips

As a result, even though surcharges are a legal and allowable option to help defray the recent increases in costs, there are some approaches that should be considered to avoid potential litigation. There are no regulations or laws that state how a restaurant should specifically and clearly disclose the existence of a surcharge. However, to try and prevent the filing of an adverse claim, it would be prudent that a company discloses up front that the items for example a meal (food and drink item(s)) is subject to a surcharge and state the percentage of the surcharge on the menu, in a prominent sign or posting, on web pages, as well as on advertising materials either electronic or paper. Also even though not specifically required, it would be prudent that the disclosure stand alone and not be contained in a statement about other aspects of the business. Some companies have elected to highlight the disclosure in a different or larger font or color as a means to try and alleviate concerns raised by governmental entities. That said, there is no mandatory way that a surcharge should be disclosed to a customer. In summary, there is no legislative or statutory guidance as to how a surcharge should be disclosed.

There is no requirement that a sign be used to disclose a surcharge but having a surcharge disclosure sign is another means of avoiding a consumer claim. If a restaurant elects to use signage, there is also no requirement about the size of font on any sign posted in a restaurant about a surcharge. Hospitality companies who elect to use a sign should consider a sign about a surcharge and percentage where patrons are likely to see it as they enter the restaurant. A sign no smaller than 10 inches wide by 10 inches high or a horizontal strip marker no smaller than 10 ½ inches wide by 1 ¼ inches high bearing the surcharge information in at least a 36-point font would arguably comply with the “conspicuous” requirements. Also, if a fair amount of the business is take-out or occurs at a register, the placing of a disclosure sign at the register would likewise be another preventive step for notice purposes.

As to menus, any statement as to surcharges should be separate from other information. Some restaurants have elected to use bold font, a different color or italics. However, none of this is required. It is merely one option. In addition, the font as to the disclosure should not be smaller than other items printed on menus or electronic media and certainly at least the size of the menu items and the prices. These steps should help defray any claims that the restaurant did not clearly and conspicuously disclose the existence of a surcharge.

Many San Francisco restaurants implemented a surcharge (i.e., an extra fee or cost) on the goods or services they sell to customers to cover, in whole or in part, the expense of complying with the Health Care Security Ordinance passed in 2008. This surcharge was specifically designated to defray the costs of the local healthcare ordinance. Some restaurants faced litigation and penalties when these surcharges were not utilized to pay for the cost of health care. There is now a requirement in San Francisco that the business on an annual basis disclose: 1) the amount collected from the surcharge for covered employee health care and 2) the amount spent on covered employee health care. Therefore, based on these lessons learned, if a company elects to impose a surcharge, it should consider disclosing it in a broad manner rather than designating it for a particular cost item. A more specific designation could subject the retailer to show that the surcharge collected must be only used for that item e.g., the cost of health care to employees. As a result, a broad designation of the surcharge would be a good preventive measure. The broader the language, the more flexibility the company has in how to utilize the money collected from the surcharge.

D. Summary Recommendations

Overall, surcharges are legal as supported by the recent court ruling. However, hospitality should implement surcharges with an eye toward prevention of any claims for consumer fraud, false advertising, unfair business practices or improper utilization of the surcharge. A company has wide discretion as to how it discloses and communicates the use of a surcharge but the disclosure should be sufficiently conspicuous to a reasonable consumer.

If a company elects to implement a surcharge, at a minimum the fact that there is a surcharge must be disclosed on the receipt as “SURCHARGE” and sales tax must be charged on all service charges and any separate surcharge line item, regardless of any amount that might be paid to the employees.

Herein is a summary of steps that a company should consider implementing, even though not currently required or mandated, as a means to prevent a legal claim:

• If a sign is utilized, take steps to place the sign at an entrance and/or at a check out area, disclosing the surcharge
• The use of the words “mandate” or “mandatory” when describing the surcharge, while not illegal, has been misinterpreted and has been criticized by some customers and political officials.
• Disclose the surcharge on menus, on websites and in advertisements, both paper and electronic, when the prices are disclosed
• Make sure the disclosure on the menu is at least the same font and size as the menu items and prices
• Keep any rationale as to the reason for the surcharge as broad as possible, e.g., to defray the increased cost of operations

Also, it is important to consult with your tax advisor or tax attorney to determine the proper method of taxing surcharges and paying your employees if a portion of the surcharge is distributed to the employees. It is also highly recommended to consult with qualified legal counsel concerning any questions about surcharges and how to disclose them to customers.

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requirements on employers, in hopes of giving #MeToo a significant, lasting effect. So, what should employers in New York and California do now? And, given that these states are often at the forefront of labor and employment issues, how should employers outside New York and California prepare in case new laws are passed in their states?

New York’s New Anti-Sexual Harassment Laws

On April 12, 2018, New York Governor Andrew Cuomo signed into law the 2019 New York State Budget, updating the state’s sexual harassment laws. Among other changes, there are two key components under these laws. First, every employer in New York must establish a sexual harassment prevention policy. These policies should have already been adopted and provided to all employees by October 9, 2018. The New York Department of Labor and New York Division of Human Rights have established a model sexual harassment prevention policy for employers to adopt. But employers are not required to use this model, so long as their policy meets or exceeds the minimum standards of the model and set forth in the laws. Employers must distribute the policy to all employees in writing or electronically, and must ensure that all future employees receive the policy before they start work. Additionally, employers are encouraged to post a copy where employees can easily access it.

Second, every employer in New York is required to provide employees with sexual harassment prevention training. Again, the New York Department of Labor and New York Division of Human Rights have developed model training for employers to use. Though employers are not required to use the model, they must ensure that their training program meets or exceeds the minimum standards of the model, and includes the specific minimum requirements set forth in the laws. All employers are required to train current employees by October 9, 2019, and new employees should be trained as quickly as possible upon hire. In addition, all employees must complete the training at least once per year. There is no certification requirement for trainers, and employers may use third-party vendors to deliver the training.

Importantly, employers in New York should also be mindful of the mandatory arbitration and nondisclosure agreement prohibitions that went into effect this summer, on July 11, 2018. Under New York’s new anti-sexual harassment laws, a contract cannot contain any clause that requires mandatory arbitration to resolve sexual harassment claims. Unless one of the limited exceptions applies, such clauses will become null and void. Furthermore, with respect to nondisclosure agreements, the new laws have established a three-step process for memorializing the complainant’s preference for entering such an agreement. Under the new laws, a nondisclosure agreement is defined to include any resolution of any claim involving sexual harassment that would prevent the person who complained from disclosing the underlying facts and circumstances of the harassment. While the new laws generally ban such nondisclosure agreements, they are not prohibited where a complainant expresses a preference for entering into one.

Where the complainant asks for a nondisclosure agreement, the following process must be observed:

• The term or condition must be provided to all parties, and the complainant must be given 21 days to consider it.
• If, after 21 days, the term or condition is the preference of the complainant, the preference must be memorialized in an agreement signed by all parties.
• The complainant has seven days to revoke the agreement, and the agreement cannot become final until after the revocation period has ended.

Importantly, this process requires the execution of two documents: (1) the agreement memorializing the complainant’s preference; and (2) the document(s) incorporating the preferred term or condition agreed upon. Suffice it to say, through policies, training, and contract clauses, the legal landscape has changed for employers in New York, and the effect of #MeToo and increased awareness of this issue are apparent.

New Anti-Sexual Harassment Laws in California

Similarly, in California, employers are also adjusting to new sexual harassment laws. For example, by January 1, 2020, employers with at least five employees must provide: (1) at least two hours of sexual harassment prevention training to all supervisory employees; and (2) at least one hour of sexual harassment prevention training to all non-supervisory employees. Training must be conducted within six months of the employee starting the position, and must be provided once every two years thereafter. Additionally, California has enacted a law regulating provisions set forth in settlement agreements related to sexual harassment, including nondisclosure clauses. Among other things, the new law prohibits a provision that prevents the disclosure of factual information underlying the allegation of sexual harassment upon which a settlement agreement is based. Such provisions entered on or after January 1, 2019, will become void as a matter of law and as counter to public policy.

But perhaps the most significant change has had less to do directly with sexual misconduct and harassment, and more to do with empowering women in the workplace. California has become the first state to require publicly traded companies to include women on their boards of directors. Signed by California Governor Jerry Brown on September 30, 2018, California Senate Bill 826 requires there to be at least one female director on the board of each California-based public corporation by the end of 2019. Also, depending on the number of board seats, companies may be required to have up to three female directors by the end of 2021. Companies are required to report their board composition to the California Secretary of State, and may be fined $100,000 for a first violation, and $300,000 for subsequent violations. Though not as directly linked to sexual harassment as the other laws discussed above, it will be interesting to see how an increase in the number of women on boards of directors in California will change things – at the state and national levels.

Thus, a year after the #MeToo movement went viral, we are seeing the movement change from something that caused greater awareness of an issue, to something that is being acted upon by way of law. Legal obligations are changing, and employers must be extra diligent to ensure compliance. As such, employers are advised to keep a pulse on current or proposed anti-sexual harassment and related laws and the extent to which their current policies and practices may be affected. Legal changes in California and New York tend to create models for other states, some of which may already have their own anti-sexual harassment laws in the works. Furthermore, employers in New York and California should update their sexual harassment policies and training programs accordingly, and make sure to distribute the policies and implement the programs as required. They should also develop a strategy to incorporate any changes that may affect contract provisions, such as nondisclosure and mandatory arbitration clauses. And, at least in California, publicly traded companies should start thinking about who will fill those female board director seats. While there are numerous other requirements pertaining to sexual misconduct and harassment that employers must be mindful of, states like New York and California have certainly begun to give the #MeToo movement a more significant and sustained impact.

About Conn Maciel Carey
Conn Maciel Carey is a boutique law firm focused on Labor & Employment, Workplace Safety, and Litigation. The clients we serve — from multi-national organizations to individuals — seek us out for strategic guidance ranging from day-to-day employment counseling to managing government regulatory investigations to leading complex litigation. What sets us apart is our special emphasis on workplace challenges, our creativity in crafting positive solutions, and our passion for serving our clients’ interests.

In Rodriguez v. Taco Bell Corp., the United States Court of Appeals for the Ninth Circuit considered whether a restaurant violated California law by requiring employees purchasing meals from the restaurant at a discount to eat their meals on the premises.

In Rodriguez, a restaurant employee filed a class action lawsuit against Taco Bell claiming she was entitled to be paid a premium rate for the time she spent on the employer’s premises eating the discounted meal during her meal breaks. She argued that because the employer required the discounted meal to be eaten in the restaurant, that the employee was under sufficient employer control to render the time compensable.

At the time, the restaurant offered thirty-minute meal breaks that were fully compliant with California requirements, but with an offer that employees could purchase a meal from the restaurant at a discount. The catch? Employees were not required to purchase the discounted meal, but if they chose to they could only get the discount if they ate the meal in the restaurant. The policy was intended to prevent theft.

The court, applying the meal period standard set out by the California Supreme Court in Brinker Restaurant Corp. v. Superior Court, reasoned there was no violation of California law because the employer relieved employees of all duties during meal breaks and exercised no control over their activities. Employees were free to use the thirty minutes as they wanted, and the employer did not interfere with the employees’ use of the break time. Employees were not required to purchase any restaurant products.

The court in Rodriguez distinguished cases where employers exercised control over employees even though they were not performing work by, for example, requiring employees travel to work on employer provided transportation. Where employees were compelled to participate, compensation was required. On the other hand, where employers offered a benefit or service that employees could choose, compensation was not required. The court further distinguished cases where employers exercised control over employees during their breaks by, for example, subjecting them to “on-call” restrictions. In such cases employees were subject to performing duties for their employer during breaks and thus entitled to compensation for such time.

The court also rejected an additional claim by plaintiff that the discounted value of the meal should be added to her regular rate of pay for overtime purposes. Since the court held plaintiff was not entitled to be paid for her time eating the discounted meals, it likewise held she was not entitled to overtime pay for it either.

Background on Meal Periods

In general, non-exempt employees who work more than five hours in a day are entitled to an unpaid meal period of not less than 30 minutes. The meal period must begin no later than the fifth hour of work. Yet, if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee.

A second meal period of not less than 30 minutes is required if non-exempt employees work more than ten hours in a day. The meal period must begin no later than the end of the tenth hour of work. If the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and employee only if the first meal period was not waived.

Wage Order 5, which governs meal periods, rest periods and overtime in the restaurant industry, requires employees be relieved of “all duty” during the meal period. The failure to provide a required meal period can be a costly mistake for employers. Employees are entitled to premium wages of one additional hour of pay at the employee’s regular rate of pay for each workday that the meal period is not provided.

Prior to the decision in Brinker, there was uncertainty over what it meant for an employer to provide a meal period. Brinker clarified that an employer is obligated to relieve the employee of all duty for the designated period. Although employers are not required to police employees to ensure no work is performed, employers must relinquish control over employee’s activities, must permit them a reasonable opportunity to take an uninterrupted 30-minute break, and must not impede or discourage them from doing so. In discussing the history of meal periods, the Brinker Court agreed with the Division of Labor Standards Enforcement’s historic interpretation of the wage order that generally employees must be free to leave the premises during their meal period.

Takeaways for Businesses

Rodriguez sanctions a common practice in the restaurant and food service industries to offer employees free or discounted meals eaten on the premises. It remains true that employees not falling within this exception must be permitted to leave the work place for a proper off-duty meal period. The key will be, as it was in Rodriguez, that the employee voluntarily chooses to purchase a discounted meal and the employer does not interfere with the employee’s activities while on break.

This case is a good reminder for businesses to ensure their meal period policy is up to date and that managers are adequately trained to ensure compliance. Care should be taken so that employees are not discouraged from taking their uninterrupted, duty-free meal periods.

How We Got Here

California has a unique ballot initiative process that allows citizens to pass laws outside of the traditional legislative process. At a high level, if a citizen drafts an initiative and then secures enough signatures, s/he can put the initiative on the ballot and California citizens can vote it into law. If such an initiative becomes law, it is significantly more difficult to amend than a law passed through the legislative process.

Here, a real estate developer received over 600,000 signatures for a consumer privacy initiative. The developer vowed to put the initiative on the ballot in November unless the Legislature passed a similar law. With polls suggesting that the initiative would pass if put to a vote, the Legislature passed A.B. 375, the California Consumer Privacy Act of 2018.

Will the Act Apply to Your Company?

The Act provides sweeping protections to consumers and their personal information. It generally applies to any for-profit company, and any entity that controls or is controlled by such company, conducting business in California that collects consumers’ personal information and meets at least one of the following criteria:

1. Generates annual gross revenues over $25 million.
2. Alone or in combination, receives or shares the personal information of 50,000 or more consumers, households or devices.
3. Derives 50 percent or more of its annual revenues from selling consumers’ personal information.

The California Consumer Privacy Act – An Overview

The Act will not go into effect until 2020, and the Legislature may continue to make changes up until that point. In its current form, the main provisions of the Act include:

1. Sweeping Definition of Personal Information. The Act is much broader than other U.S. statutes that focus on specific sensitive data like Social Security numbers. The Act defines “personal information” as any “information that … could be reasonably linked, directly or indirectly, with a particular consumer or household.” An exclusion exists for publicly available information.
2. Broad Consumer Rights. The Act grants California residents a broad range of new rights with respect to their personal information. Companies are forced to accommodate these new consumer rights, including:
   1. Companies that collect personal information must disclose to consumers the categories of personal information to be collected and for what purpose they use it.
      If a consumer asks, companies must disclose exactly what personal information they collect on the consumer and for what purpose they use it.
   2. If a consumer asks, companies must deliver such personal information to the consumer in a readily useable format, free of charge.
   3. If a consumer asks, companies must delete any of the consumer’s personal information and direct service providers to do the same. Certain exceptions exist if the consumer’s personal information is necessary to provide the consumer a service.
   4. If a consumer opts out, companies are not allowed to sell that consumer’s personal information to third parties. (For consumers under the age of 16, companies can only sell personal information if such consumers affirmatively opt in to such use of their personal information.)
   5. If a consumer asks, companies must disclose the categories of any third parties to which personal information of the consumer was previously sold or disclosed.
   6. Consumers also maintain a private right of action if a company’s lack of reasonable security practices results in a data breach.
3. Extensive Authority of Attorney General. The California Attorney General has broad authority to promulgate regulations pursuant to the Act. Also, the Attorney General has the authority to prosecute an action against a company that violates the Act. Additionally, the Act prohibits companies from discriminating against consumers who exercise any of their rights under the Act. However, companies can offer consumers financial incentives to collect or sell their personal information.

The Act also establishes a Consumer Privacy Fund in the General Fund and allows any business to seek the Attorney General’s opinion on how to comply with the Act.

Comparisons to the EU’s GDPR

The Act is modeled after the European Union’s General Data Protection Regulation (GDPR) — but there are meaningful differences between the two. Generally, the Act puts more onus on the consumer. Although consumers are granted broad rights, for the most part, they must take affirmative action to seek the protection afforded under the Act. Under the GDPR, however, that burden is inverted; companies must disclose their legal basis and retention plans for specific data at the time of collection, cannot process certain sensitive information (e.g. health data) or automatically profile consumers without receiving explicit consent, and generally must document data activities internally, whether consumers ask about their information or not. Thus, the Act makes less rigorous demands of companies than the GDPR.

Another major difference? The GDPR took around four years to pass. The California Legislature passed the Act in about one week.

For more information on the GDPR, please visit our International Affairs: GDPR resource page.

Implications of the Act

Although the Act is not as expansive as the EU’s GDPR, it is viewed as the most comprehensive, aggressive privacy law in the United States. Reports estimate that the Act will apply to over half a million U.S. companies. To some extent, domestic U.S. companies have been able to isolate the impacts of the GDPR, but they will likely have less luck ducking the regulatory challenges of the Act. Businesses subject to the Act will be forced to reform their privacy data collection, dissemination, and disclosure practices — which will be an expensive and time-sensitive undertaking.

Some positive news for businesses: the version of the bill that was passed is not likely to be the law that ultimately takes effect. Because the Act was passed by the Legislature instead of by California voters, legislators can change the details up until the Act goes into effect, and they have indicated plans to do so.

More immediately, the Legislature has expressed that it may make technical changes to the bill from August 6 to August 31. Most expect these changes will be limited to small tweaks, including correcting typos or changing terminology. Some trade associations plan to advocate for easy changes to the Act this month and wait until 2019 to address bigger issues.

Certainly, over the next 17 months, we expect many changes to the language of the Act. We’ll be tracking to see whether these changes affect the practical implications of the Act on your business.

MEET THE AUTHORS

Paul H. Luehr, Partner
612.766.7195
paul.leuhr@faegrebd.com

Alison F. Watson, Partner
202.312.7454
alison.watson@faegrebd.com

Nicole L. Pelletier, Associate
317.237.1353
nicole.pelletier@faegrebd.com

Looking down the barrel of a class action with substantial exposure, Starbucks argued that the amount of time (totaling $102.67 over 17 months for the named plaintiff) was too small to consider. Rejecting this argument in a decision that could affect small amounts of unpaid time in a variety of circumstances, the Court held that “[t]he relevant statutes and wage order do not allow employers to require employees to routinely work for minutes off-the-clock without compensation.”

At issue was the so-called de minimis doctrine, which derives from the maxim de minimis curat lex, which means “the law does not concern itself with trifles.” This doctrine has been part of federal law, as specified by the U.S. Supreme Court under the Fair Labor Standards Act (“FLSA”), for over 70 years, and has been used to excuse the payment of wages for otherwise compensable time in circumstances where it is administratively difficult to capture such time through customary time recording methods. In determining whether otherwise compensable time is de minimis under the FLSA, consideration is given by the Ninth Circuit Court of Appeals to (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work.

As for California law in general, the Court recognized that the de minimis principle is a well-imbedded principle, and is even included as a “Maxim of Jurisprudence” in Section 3353 of the California Civil Code, which states that “[t]he law disregards trifles.” With respect to wage and hour issues in particular, the Court further recognized that the California Division of Labor Standards and Enforcement has included the de minimis doctrine in its Enforcement Policies and Interpretations Manual, as well as in its Opinion Letters, which virtually adopt the test used in the Ninth Circuit under the FLSA.

Given this long and extensive use of the de minimis doctrine, and the reliance on this doctrine by California employers in addressing wage payment issues, you might think that it would be a simple and logical matter for the California Supreme Court to recognize this doctrine. Nevertheless, the Court found that the protections afforded to employees under the wage orders compelled it to reject application of a de minimis doctrine to the off-the-clock work that was in issue in the case before it.

Specifically, plaintiff Douglas Troester filed a class action in the Los Angeles Superior Court on behalf of himself and all non-managerial California employees of defendant Starbucks Corporation who performed store closing tasks from mid-2009 to October 2010. Mr. Troester submitted evidence that Starbuck’s computer software required him to clock out on every closing shift before transmitting daily sales, profit and loss, and store inventory data to Starbuck’s corporate headquarters on a separate computer terminal in the back office. After Mr. Troester completed this report, he activated the alarm, exited the store, locked the front door, and walked his co-workers to their cars in compliance with Starbuck’s policy.

The undisputed evidence was that these closing tasks required Mr. Troester to work four to 10 additional minutes per day. Over the 17-month period of his employment, Mr. Troester’s unpaid time totaled approximately 12 hours and 50 minutes, which at the then-applicable minimum wage came to $102.67, exclusive of any penalties or other remedies.

As for these tasks, the Court assumed that they were compensable for purposes of its analysis. After considering the history of the de minimis doctrine, the Court held that (i) the California wage and hour statutes and regulations have not adopted the FLSA’s de minimis doctrine, since there is no indication in the text or history of the relevant statutes and wage orders of such adoption, and (ii) the relevant wage order and statutes do not permit application of the de minimis rule on the facts before it, where Starbucks required Mr. Troester to work “off the clock” for several minutes per shift. The Court noted that “a few extra minutes of work each day can add up,” and that the $102.67 earned by Mr. Troester over a 17-month period was enough to “pay a utility bill, buy a week of groceries, or cover a month of bus fares,” and that “[w]hat Starbucks calls de minimis is not de minimis at all to many ordinary people who work for hourly wages.”

In ruling against the de minimis doctrine in these circumstances, the Court emphasized the fact that the California Labor Code and the wage orders contemplate that employees will be paid for all work performed, in contrast with the less protective federal law that in some circumstances permits employers to require employees to work as much as 10 minutes a day without compensation. The Court’s conclusion was further reinforced by its beliefs that (i) the modern availability of class action lawsuits to some extent undermines the rationale behind a de minimis rule with respect to wage and hour actions, and (ii) many of the time recording problems that existed 70 years ago, when the U.S. Supreme Court first addressed the de minimis rule under the FLSA, no longer exist.

As for the practical administrative difficulty of recording small amounts of time for payroll purposes, which is one of the main impetuses behind the de minimis doctrine in wage cases, the Court concluded that “employers are in a better position than employees to devise alternatives that would permit the tracking of small amounts of regularly occurring work time.” The Court suggested a restructuring of the work so that employees would not have to work before or after clocking out. The Court further suggested taking advantage of technological advances in time-tracking products, or perhaps reasonably estimating work time through such things as time studies. In any event, the Court “declined to adopt a rule that would require the employee to bear the entire burden of any difficulty in recording regularly occurring work time.”

The bottom line is that the California Supreme Court believes that employees should be paid for all of their work, and that any difficulty in capturing this time for its non-exempt employees is the employer’s problem to resolve. As the Court stated, “An employer that requires its employees to work minutes off the clock on a regular basis or as a regular feature of the job may not evade the obligation to compensate the employee for that time by invoking the de minimis doctrine.”

There is some glimmer of comfort insofar as the Court expressly recognized that the de minimis rule might apply in other, appropriate circumstances, and that “a properly limited rule of reason does have a place in California labor law.” As the Court stated,

The overarching rule is, and must be, that employees are entitled to full compensation for time worked, and employers must make every reasonable effort to ensure they have adequately measured or estimated that time. But the law also recognizes that there may be some periods of time that are so brief, irregular of occurrence, or difficult to accurately measure or estimate, that it would neither be reasonable to require the employer to account for them nor sensible to devote judicial resources to litigating over them.

It remains to be seen how broad this exception will become. The plaintiffs’ bar naturally will argue that virtually any time that is capable of being recorded is required to be paid. The defense bar will understandably argue for a much broader exception. As usual, the courts will have to address this in the anticipated litigation.

In the meantime, employers should carefully review their timekeeping systems and policies to make sure that they capture all working time, and they should modify these systems and policies in accordance with the California Supreme Court’s pronouncement, beginning with placing all opening and closing duties after punching in and before punching out. Failing to do so could result in significant exposure.

Paul L. Bressan is a Shareholder and Chair of the Buchalter’s Labor & Employment Practice Group. He can be reached at 949.760.1121 or pbressan@buchalter.com

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Some may say the minimum wage raise is inevitable. Of course there are staunch opinions on both sides raising very challenging issues. “Gov. Jerry Brown [of California] announced a landmark deal between lawmakers and union leaders that would increase the state’s minimum wage to $15 an hour by2022 for employers.” California’s current $10 per hour would be gradually increased over the next six years. Brown comments ” This plan raises the minimum wage in a careful and responsible way and provides some flexibility if economic and budgetary conditions change.” It should be noted that “if the legislature does not adopt the plan as negotiated…the group may go forward with bringing the minimum wage hike directly to voters.”

Lisa Jennings reports on the details of this wage hike. Providing perspectives from all sides, she captures a more complete picture of those involved and their reactions.

Read the full article here.

In past years the Governor of California has enacted new laws related to employment that place additional burdens on employers, while granting additional rights to employees. This year is no exception. Although there is some minimal relief to employers, Governor Brown has enacted a number of employee-friendly laws, most of which go into effect on January 1, 2016. This is a brief synopsis of the new employment laws that we believe are the most likely to affect your businesses, California employers.

The Fair Pay Act

One of the most notable new laws is an amendment to Section 1197.5 of the California Labor Code by SB 358—the Fair Pay Act (“FPA”).  The FPA replaces the current “equal work” standard with a new “substantially similar” standard. Prior to the FPA, Section 1197.5 prohibited an employer from paying an employee of one sex less than an employee of the opposite sex for equal work on jobs requiring equal skill, effort and responsibility, and performed under similar working conditions. Under the FPA, Section 1197.5 now prohibits employers from paying an employee of one sex less than an employee of the opposite sex for “substantially similar work when viewed as a composite of skill, effort, and responsibility under similar working conditions.” Whereas courts have been able to at least look to the federal Equal Pay Act for assistance in interpreting Section 1197.5 due to the similarity of the language, courts and employers are now left on their own to guess as to what constitutes “substantially similar work when viewed as a composite of skill, effort, and responsibility.”

Moreover, prior to the FPA, employers were only prohibited from paying opposite sex employees differently when they did equal work at the same establishment. The FPA has deleted the “same establishment” requirement, and now prohibits wage differentials for opposite sex employees doing substantially similar work in any of the employer’s establishments.

The FPA did not amend away an employer’s affirmative defenses and ability to protect itself. Section 1197.5 still authorizes employers to pay employees of the opposite sex who do substantially similar work differently where the employer is able to demonstrate that the wage differential is based upon a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or upon a bona fide factor other than sex, such as education, training, or experience. However, the FPA specifically emphasizes that such a bona fide factor (1) may not be based on or derived from a sex-based differential in compensation, (2) must be job related with respect to the position in question, and (3) must be consistent with a “business necessity.” This defense will not apply if the employee is able to show that “an alternative business practice exists that would serve the same business purpose without producing the wage differential.”

The FPA also adds a retaliation provision, prohibiting employers from discharging, discriminating, or retaliating against any employee for bringing or assisting with a claim under Section 1197.5. Further, while employers are not required to disclose the wages of one employee to another employee, they may not prohibit employees from disclosing their own wages, discussing the wages of others, inquiring about another employee’s wages, or aiding or encouraging any other employee to exercise his or her rights under Section 1197.5.

Finally, prior to the FPA, employers were required to keep records of the wages and wage rates, job classifications, and other terms and conditions of employment of persons employed for a period of two years. Under the FPA, employers are now required to keep these records for three years.

Piece-Rate Compensation

Existing law prohibits an employer from requiring an employee to work during any meal, rest or recovery period, and requires these periods to be treated as hours worked. Existing law also requires employers to furnish accurate, itemized written pay statements that show specified information, such as gross and net wages earned, total hours worked, and all deductions. For employees paid on a piece-rate basis, the number of piece-rate units earned and any applicable piece rates also are required.

AB 1513, which adds Section 226.2 to the Labor Code, requires employers to compensate piece-rate employees for rest and recovery periods and “other nonproductive time” separately from any piece-rate compensation. It also requires employers to include additional items on pay statements for piece-rate employees.

Specifically, piece-rate employees must be compensated separately for rest and recovery periods at an hourly rate that is no less than the higher of (1) an average hourly rate determined by dividing the total compensation for the workweek, exclusive of compensation for rest and recovery periods and any premium compensation for overtime, by the total hours worked during the workweek, exclusive of rest and recovery periods, and (2) the applicable minimum wage.  (Special payment terms apply to employees who are paid on a semi-monthly basis.) Piece-rate employees must be compensated for other nonproductive time at an hourly rate that is no less than the applicable minimum wage.

With respect to itemized pay statements, Section 226.2 requires employers to state the following items separately: (1) the total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those rest and recovery periods during the pay period, and (2) the total hours of “other nonproductive time,” the rate of compensation, and the gross wages paid for “other nonproductive time” during the pay period.

An employer that pays an hourly rate of at least the applicable minimum wage for all hours worked, in addition to paying any piece-rate compensation, is not required to compensate employees separately for “other nonproductive time,” or to include these separate items for “other nonproductive time” on pay statements.

Moreover, Section 226.2 establishes an affirmative defense to certain claims for recovery of wages, damages, liquidated damages, statutory penalties, civil penalties or premium pay that are based solely on the employer’s failure to pay timely compensation due for rest and recovery periods and other nonproductive time for time periods prior to and including December 31, 2015, if the employer complies with all of the following:

• The employer makes payments to each of its employees (except where valid releases are in place prior to specified dates) for previously uncompensated or undercompensated rest and recovery periods and other nonproductive time from July 1, 2012 to December 31, 2015, inclusive, using one of two prescribed formulas.
• By no later than July 1, 2016, the employer provides a specified written notice to the Department of Industrial Relations of the employer’s election to make these payments to its current and former employees, which the Department will post on its website until March 31, 2017.
• The employer begins making the payments to the affected employees as soon as reasonably feasible after providing the notice to the Department, and completes the payments no later than December 15, 2016.
• The employer provides the affected employees with an accompanying statement regarding certain details of the payment.

Meal Periods for Health Care Employees

Section 512 of the Labor Code requires that employers provide two meal periods for work in excess of 10 hours, with employees being allowed to waive the second meal period if their total hours of work are no more than 12 hours. Despite this general rule, Section 11(D) of Wage Order 5 allows employees in the health care industry to waive one of their meal periods on shifts exceeding 8 hours.  Employers and employees in the health care industry relied on Section 11(D) to allow these employees to waive one of their two meal periods if their shift exceeded 12 hours.

An appellate court decision in 2015 held that Section 11(D) of Wage Order 5 is invalid because it conflicts with Labor Code Section 512.  SB 327, which amends Section 512, effective October 5, 2015, effectively overrules that appellate court decision retroactively and makes it clear that healthcare workers have been able, and continue to be able, to waive one of their meal periods if their shift exceeds 12 hours.

Maximum Wage Garnishments

Under SB 501, which amends Section 706.050 of the Code of Civil Procedure effective July 1, 2016, the maximum amount of disposable earnings of an individual judgment debtor for any workweek that is subject to levy under an earnings withholding order must not exceed the lesser of (1) 25% of the individual’s disposable earnings for that week, or (2) 50% of the amount by which the individual’s disposable earnings for that week exceed 40 times the state minimum hourly wage in effect at the time the earnings are payable.

Private Attorneys General Act: Additional Rights to Cure

The California Private Attorneys General Act (“PAGA”) authorizes an aggrieved employee to bring a civil action to recover specified civil penalties, which otherwise would be assessed and collected by the California Labor and Workforce Development Agency, on behalf of the employee and other current and former employees for the violation of certain provisions of the Labor Code.  PAGA currently provides the employer with the right to cure certain violations before the employee may bring a civil action. For other violations, PAGA does not provide the employer with a right to cure, but only requires the employee to follow specified procedures before bringing a civil action.

Section 226(a) of the Labor Code requires employers to provide certain specific information on the pay statements it provides to its employees with their wages, such as their gross and net wages, total hours worked and deductions. PAGA does not currently provide a cure period with respect to an employer’s failure to include any of this required information on the pay statements of its employees.

AB 1506 adds the following two required items of information specified in Section 226(a) to the list of violations that are subject to a cure period: (1) the inclusive dates of the period for which the employee is paid, and (2) the name and address of the legal entity that is the employer. A violation either of these sections is considered to be cured upon a showing that the employer has provided a fully compliant, itemized wage statement to each aggrieved employee.  Note that AB 2074 limits this right to cure to once in a 12-month period.

 E-Verify System

The federal E-Verify system enables participating employers to use the system, on a voluntary basis, to verify that the employees they hire are authorized to work in the United States. Existing law prohibits states and other government entities from requiring a private employer to use an electronic employment verification system (including E-Verify), except when required by federal law or as a condition of receiving federal funds. Existing law also prohibits an employer (or any other person or entity) from engaging in defined unfair immigration-related practices against any person for the purpose of retaliating against the person for exercising specified rights.

AB 622, which adds Labor Code Section 2814, expands the definition of an unlawful employment practice to prohibit an employer (or any other person or entity) from using the E-Verify system at a time or in a manner not required by a specified federal law or not authorized by a federal agency memorandum of understanding to check the employment authorization status of an existing employee or an applicant who has not received an offer of employment, except as required by federal law or as a condition of receiving federal funds.

AB 622 also requires an employer that uses the E-Verify system to provide the affected employee with any notification issued by the Social Security Administration or the United States Department of Homeland Security containing information specific to the employee’s E-Verify case or a tentative non-confirmation notice (i.e., a notice indicating that the information submitted into the E-Verify system did not match the information in the federal system). There is a civil penalty of $10,000 to an employer for each violation.

AB 622 does not affect an employer’s right to use E-Verify to verify that an applicant is authorized to work in the United States after the employer has made an offer of employment to the applicant.

Minimum Wage and Related Matters

The minimum wage in California will increase from $9.00 per hour to $10.00 per hour on January 1, 2016. In addition, the minimum wage in San Francisco will increase from $12.25 per hour to $13.00 per hour on July 1, 2016. This is important not only to companies that employ lower-wage workers, but also because it affects the standard for exempt status. For example, in order to be exempt from being paid overtime under the executive, administrative and professional exemptions, the employee must be paid at least twice the minimum wage per month. This means that in 2016 the minimum annual salary to be considered an exempt employee in California will rise to $41,600. With respect to certain computer software employees, their overtime exemption in Labor Code Section 515.5 will require them to receive a minimum of $41.85 per hour, or a salary of $87,185.14 per year, effective January 1, 2016.  Lastly, employers should take note that the U.S. Department of Labor is scheduled to release its proposed final rule regarding amendments to the federal Fair Labor Standards Act in 2016.  It is anticipated that, among other things, the DOL will raise the weekly salary required for exempt status from $455 to $970, which equates to an annual salary of $50,440. This would create the rare exception where federal law is less friendly to employers than California law.

Discrimination and Retaliation Protections Extended to Family Members

Currently, Labor Code Sections 98.6, 1102.5 and 6310 prohibit an employer from discharging, discriminating, retaliating, or taking any adverse action against any employee or applicant because the employee or applicant has engaged in protected conduct, such as filing a complaint with the Labor Commissioner regarding unpaid wages, or disclosing an employer’s violation of a statute or regulation to a government agency. Effective January 1, 2016, AB 1509 amends Sections 98.6, 1102.5 and 6310 to extend the protections of these provisions to an employee who is a family member of a person who is engaged in, or who is perceived to be engaged in, conduct protected by these provisions. Thus, both the employee who engaged in the protected category and the family member of the employee will be entitled to reinstatement and reimbursement for lost wages if they were improperly discharged or suffered an adverse action. Any employer who violates these provisions is subject to a civil penalty of up to $10,000 per violation and may be charged with a misdemeanor if the employer willfully refuses to reinstate or otherwise restore an employee or the employee’s family member.

Employee Time Off             

Labor Code Section 230.8 applies to employers with 25 or more employees. Existing law prohibits employers from discharging or discriminating against any employee who is a parent, guardian, or grandparent having custody of a child enrolled in a K-12 school or a “child day care facility” for taking up to 40 hours of unpaid time off each year for the purposes of participating in school activities, subject to specified conditions. SB 579 broadens Labor Code Section 230.8 by revising “child day care facility” to “child care provider,” and by defining “parent” to include the following: parents, guardians, stepparents, foster parents, grandparents, or persons standing in loco parentis to, a child. Under SB 579, employees who are “parents” may take unpaid time off to enroll or reenroll their children in a school or with a licensed child care provider.

SB 579 also amends Labor Code Section 233 (“Kin Care”) to align with the Healthy Workplaces, Healthy Families Act of 2014 (“HWHFA”) (Labor Code Section 245, et seq.). Section 233, which applies to all employers, will now provide that employees may use their paid sick leave for any of the purposes specified in HWHFA, which includes the following: for their own illness or injuries, for the diagnosis, care or treatment of an existing health condition of, or preventive care for, the employee or the employee’s family member, or if the employee is a victim of domestic violence, sexual assault, or stalking.  In addition, SB 579 redefines “family member” to have the same meaning as defined in HWHFA.

Labor Commissioner’s Power to Enforce Judgments and Individual Liability

SB 588 bestows on the Labor Commissioner the right to use any of the existing remedies available to a judgment creditor and to act as a levying officer when enforcing a judgment.  That is, effective January 1, 2016, a Labor Commissioner can place a lien or levy on an employer’s property, bank accounts and/or accounts receivable to collect on wages owed and attorneys’ fees. SB 588 also provides that a new business will be considered the “same employer” for purposes of liability if (1) the employees of the successor employer are engaged in “substantially the same work in substantially the same working conditions under substantially the same supervisors,” or (2) the new entity “has substantially the same production process or operations, produces substantially the same products or offers substantially the same services, and has substantially the same body of customers.”

Moreover, SB 588 adds Labor Code Section 558.1, which states that any “other person acting on behalf of an employer” (defined as a natural person who is an “owner, director, officer, or managing agent of the employer”) who “violates, or causes to be violated, any provision regulating minimum wages or hours and days of work in any order of the Industrial Welfare Commission, or violates [certain designated sections of the Labor Code], may be held liable as the employer for such violation.” This new section thus expands the potential liability of the specified individuals beyond the civil penalty described in Labor Code Section 588.

Accommodation Requests for Disability or Religious Purposes

AB 987 is in response to several recent California appellate court decisions holding that the act of requesting an accommodation is not considered to be a protected activity.  (See Nealy v. City of Santa Ana (2015) 234 Cal.App.4th 359; Rope v. Auto-Chlor Sys. Of Washington, Inc. (2013) 220 Cal.App.4th 645).  AB 987 is intended to overturn these court decisions by amending the Fair Employment and Housing Act to prohibit an employer or covered entity from retaliating or otherwise discriminating against a person for requesting accommodation for his or her disability or religious beliefs, regardless of whether the accommodation request was granted.

Disability Benefits Waiting Period

Under existing law, a disabled individual is eligible to receive state disability benefits only after a waiting period of seven consecutive days of being unemployed and disabled. If an employee returns to work after a period of temporary disability for more than two weeks before experiencing a reoccurrence of the same condition, the employee is required again to serve a seven consecutive day waiting period before being eligible for benefits. Effective July 1, 2016, SB 667 waives the seven day waiting period for an individual who has already served a seven day waiting period for the initial claim when that person files a subsequent claim for disability benefits for the same or related condition within 60 days after the initial disability benefit. SB 667 further provides that if an individual receives two consecutive periods of disability benefits due to the same or a related cause or condition, and if the periods are not separated by more than 60 days, they are considered as one disability benefit period.

Vetoed Bills

In addition to the above bills that were signed into law, there were a number of bills that were vetoed by Governor Brown, the most notable of which are as follows:

AB 465 would have made it unlawful for an employer to discharge, discriminate, or retaliate against an employee for refusing to sign an arbitration agreement as a condition of employment. Because AB 465 was vetoed, California law still permits an employer to mandate that its employees sign arbitration agreements as a condition of employment.

AB 676 is the California Legislature’s second attempt at making “unemployment status” a protected category. Had AB 676 been signed by Governor Brown, employers would have been prohibited from either (1) posting a job opening stating that unemployed persons are not eligible for the job, or (2) asking applicants to disclose their current employment status.  Like he did last year, Governor Brown vetoed the bill because “nothing has changed,” and the bill does “not provide a proper or even effective path to get unemployed people back to work.”

In AB 1017, the California Legislature tried to add a provision to the Labor Code that would prohibit an employer from seeking salary history information from an applicant for employment. Proponents of the bill stated that AB 1017 is meant to combat the effects of past discrimination due to gender or other immutable characteristics.  Although Governor Brown vetoed the bill, in so doing, he stated that AB 1017 may not be necessary due to the enactment of the Fair Pay Act, and that there is little evidence that AB 1017 would ensure more equitable wages.

SB 406 is the California Legislature’s attempt to broaden the scope of the California Family Rights Act of 1993 (“CFRA”). Currently, CFRA provides that a qualified employer must allow an eligible employee to take up to 12 weeks of unpaid protected leave to take care of the employee’s parent, spouse, or child who has a serious health condition. SB 406 would have expanded CFRA by also allowing eligible employees to take up to 12 weeks of unpaid leave to care for siblings, grandparents, grandchildren, domestic partners and parents-in-law with serious health conditions. Governor Brown vetoed SB 406 because the bill conflicted with the federal Family and Medical Leave Act and would in certain circumstances unfairly “require employers to provide employees up to 24 weeks of family leave in a 12 month period.”

Employers should audit their current policies and practices, and make any necessary changes to ensure that they are in compliance with these new laws.

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The recent decision by the California State Bar Board of Trustees to shorten the California bar exam from three days to two, has been met with mixed emotions: while lawyers already admitted to practice law in California reflect on the traumatizing three days and think “Why now?”, law students or other individuals thinking about taking the bar in 2017 or thereafter, are relieved. For a number of decades, the California bar exam was the longest and considered the hardest in the United States. However, the legal education in other countries is even longer and more difficult. As an attorney admitted to practice law in both Germany and California, I will describe a tough and very different approach of becoming a lawyer.

BECOMING AN ATTORNEY IN GERMANY

Education

In Germany, no undergraduate degree is necessary. A person that wants to study law can go to law school right after graduating from High School. This requires an application to the law school of the student’s desire. Most law schools restrict admission by requiring a specific passing score of the GED; this varies from school to school. Even if a person did not meet the passing score requirements, he or she can still be accepted if the school has the capacity available. The average time to study law is nine semesters. Tuition per semester ranges between €42 and €500 (equivalent to $47 and $550).

Once enrolled, each student is required to pass a number of tests to qualify to take the First State Bar Examination. The average student in Germany attends six or seven semesters of law school to gather the required certificates. Thereafter, the average student begins studying for the bar exam: either privately or (as the majority) by enrolling in a bar review course. Bar review courses generally last for one year.

First State Bar Examination

Once a student has met the requirements, he or she will apply to the Regional Court to apply to take the First State Bar Examination. It commences with five to eight written tests, depending on the region the exam is taken, one test per day. Each test is comparable to an essay of the California Bar Exam however, each “essay” is scheduled for the duration of five hours due to the length and volume of the facts presented in the case.

A few years back, an examinee received a four-week assignment a few days after the essays. This assignment contained lengthy and highly complicated facts that required extensive research and the preparation of a thesis. For a number of years now, this four-week assignment has been given throughout the eight or nine semesters of law school.

After completing these tasks, an examinee has to wait about three to four months for the results of the written exam. And it does not end there: once an examinee is informed that he or she achieved a certain amount of points in the written exam, he or she will be allowed to take the last step of the First State Bar Examination: THE ORAL EXAM!

This oral exam usually takes place six to eight weeks after receipt of the score of the written examination. It is a full day inquisition between five examinees and three examiners (usually a committee of judges and/or professors at law school). The examinees are questioned about the law and/or the solution of legal problems for a full day. The examinee must achieve a rating of 40 points or more in the written and oral exams to pass. If he/she does not achieve 40 points, the examinee has to repeat the entire exam (written and oral).

Legal Clerkship/Traineeship

Once an examinee has successfully completed the First State Bar Examination, he or she will have to enroll for a two-year legal clerkship/traineeship, which is one of the prerequisites for the admission to the bar. During the legal clerkship, trainees will work together with judges (six months), prosecutors (three months), civil servants (three months) and attorneys (nine months). The last three months of the program can be performed anywhere the trainee desires (in a law firm, government entity, insurance company, a bank, etc. and even in a foreign country). The clerkship is designed to gain an insight into the professional life and is accompanied by further theoretical preparation classes. Ultimately, the trainee is an official of the federal state and will receive a so-called living allowance amounting to a net average of €800 (The exact amount varies by region).

Second State Bar Examination

Assuming the candidate has stuck it out for the first 21 months into the internship, he/she has to take the written portion of the Second State Bar Examination.

The Second State Bar Examination is similar to the first: it consists of a written and an oral portion as well. However, there are between seven and eleven written tests, depending on the region. Each test is comparable to a performance test in California but German law is applied (unlike in California where the case setting is in a fictitious state with fictitious law).

The oral exam takes place approximately four months after the candidate has completed the last three months of the internship and if the examinee was successful on the written tests. The oral exam is similar to the oral exam of the First State Bar Examination however, it starts with a “solo” so to speak. The examinee will be given a small problem (this can be in Civil Law, Criminal Law, Administrative Law or Labor Law) for whose analysis the examinee has one hour to complete. Immediately thereafter, the examinee has exactly 12 minutes to orally present an analysis with a conclusion of the problem. Once all three to five examinees have presented their oral analysis individually, they will be quizzed together as a group for the remainder of the day. If an examinee reaches 40 points or above, he or she will have passed the exam and finally be considered a full-fledged lawyer. This entire process takes an average of seven years!

THE REAL CHALLENGE

If all of the above wasn’t enough, there are two factors that make the German State Bar Examinations even more challenging.

The Two-Strike Rule

First, an examinee has only two shots for each exam! Yes, that means that an examinee’s career as a lawyer is over if he/she does not pass either exam by the second attempt. (Please note: Many universities are now awarding a “Magister Juris” to those candidates who were successful in taking the First but not the Second State Bar Examination. This allows the candidates to work in the legal field, for example in an insurance company).

There is only one exception to the two-strike rule for candidates who take the First State Bar Examination immediately after the eighth semester; they are granted an additional attempt. Therefore, if the candidate does not pass the first attempt, it does not count and the candidate still has the two (regularly granted) attempts available. This exception is not available for examinees of the Second State Bar Examination.

Score high to win

The second challenge is the importance of the score. On a scale of 0 to 180 points, 40 are required to pass. 180 points cannot be achieved – nobody knows why, but the unofficial explanation is that the law always gives room for interpretation and argumentation and therefore no solution can be perfect. Most firms and government entities require at least one exam of 90 points or higher for job applicants. Sad but true, a few years back, some examinees who knew that they would barely pass the exam, would skip the oral exam and collect a “no pass” just to do it all over again to have a chance to pass with a higher score. Today, most regions in Germany allow a successful examinee to re-take the exam to improve his or her score. Because of the importance of the score to find a job, a lot of examinees make use of this option.

ADVANTAGES AND DISADVANTAGES OF THE SYSTEM

Aside from lengthy and very stressful process of becoming an attorney, the only real disadvantage is that the average newly-admitted attorney is between 27 and 28 years old. As a result, the new associates all look a little bit older than they do in California.

On the positive side, every new lawyer is well-equipped to start anywhere he or she desires. Therefore, a lawyer can immediately apply for a position as a judge. Furthermore, since the score matters for the job market, everybody has a fair chance for a legal career, not just students who were fortunate enough to attend a reputable law school.

CONCLUSION

By describing a much more intense program with very long and challenging exams, the California bar exam cannot and should not be taken lightly. Having had to sit for the bar more than once, I can honestly say that the California Bar Exam is not a piece of cake. The change from three days to two days is not going to change its difficulty and the stress that comes along with it. In contrast, the Bar Examiners know how to test and challenge future attorneys. And rightfully so: they are responsible to evaluate the future lawyers of the State of California. Beginning in 2017, the California State Bar will have to do this on the basis of less written exams. Therefore, be prepared that the exam is going to be even tougher than it used to be. However, it can be done. Good luck everyone!

References/further read