2003 LEGISLATIVE SUMMARY

Dear Clients and Friends of the Firm:

The new year brings a host of new and burdensome employment regulations for California employers. With one exception, these new laws further broaden the legal obligations of California employers and create new protections for employees. We have prepared this summary to assist you in your compliance efforts. Unless otherwise indicated, all of these laws took effect on January 1, 2003. Employers with specific questions about any of these laws should consult their contact at the Firm.

? New Federal "Whistleblower" Protections. The federal Sarbanes-Oxley Act of 2002 was passed by Congress in August in response to the recent financial scandals which have plagued Wall Street. As the media has widely reported, this act requires chief operating and financial officers of publicly-traded corporations to verify corporate financial statements. However, the act also contains significant new employment-related provisions, including expanded protections for corporate "whistleblowers." Under this new law, publicly-traded Corporations are now prohibited from retaliating against any employee who reports acts which the employee reasonably believes violates federal securities laws or regulations pertaining to fraud against shareholders, or who participate in investigations of such alleged violations. These "whistleblowers" have 90 days in which to file a complaint with the U.S. Department of Labor, which is given broad authority to award reinstatement of employment and seniority status, back pay with interest, and compensation for "special damages" such as litigation costs and fees for expert witnesses and attorneys. If the Labor Department does not wish to act on the complaint within 180 days, the employee may then file a private lawsuit in federal court.

In addition, the new corporate governance statute makes it a federal crime for any person to knowingly retaliate against a "whistleblower" who gives law enforcement truthful information relating to the commission or possible commission of any federal securities offense. The maximum punishment for so-called criminal retaliation is 10 years in federal prison.

? Workers' Compensation Overhaul. AB 749 (Calderon) drastically increases workers' compensation benefits and institutes numerous broad structural changes the California workers' compensation system. Among other things, effective January 1, 2003, the maximum weekly benefits available to an employee injured on the job have increased from $490 to $602. This amount will escalate to $728 per week on January 1, 2004, and to $840 per week on January 1, 2005. AB 749 also doubles the maximum death benefit for families of employees killed on the job to $320,000. The bill provides for fee schedules for pharmaceuticals and outpatient surgery facilities, increased penalties for illegally-uninsured employers, and creates a state-sponsored return-to-work program. AB 749 also limits the deference paid to the physician who treated an employee's work-related injury. In particular, the findings of the treating physician are no longer presumed to be correct, unless the employee's own personal physician or chiropractor was pre-designated prior to the date of injury.

? California Corporate Disclosure Act. AB 55 (Shelley) increases the burdens on all publicly-traded corporations in California to make required disclosures concerning corporate operations, executives and directors to the Secretary of State. These disclosure statements must now be filed annually, rather than once every two years, and must contain more information than under the former law. The additional required disclosures include identification of the company's independent auditor, the date of the auditor's last report and a copy of the report; the annual salaries for all members of the company's Board of Directors and its executive officers, including shares or options which are not available to other employees; and detailed descriptions of any preferential loans made by the corporation to any Board member within the previous 24 months. The statement also requires considerable information concerning the previous 10 years, including whether the company or any director or executive officer has filed for bankruptcy; whether any director or executive officer has been convicted of fraud within the previous 10 years; and whether the corporation has been found liable for violations of securities or banking laws where the judgment has exceeded $10,000. All of this disclosed information will be made available to the public and must be placed on the World-Wide Web by the Secretary of State no later than December 31, 2004. This information will be of particular importance to labor organizations, plaintiff's lawyers, and others who might have interests adverse to the Company.

? New Two-Year Limitations Period For Filing Personal Injury Lawsuits. SB 688 (Burton) creates several new significant obstacles for employers who must defend employee lawsuits. First, the bill makes it easier to sue by doubling the statute of limitations for personal injury claims (including wrongful termination claims) from one year to two years. As a result, employees will now have two years from the date of discharge in which to bring these types of claims. SB 688 also will make it more difficult for employers to get rid of a case early without a jury trial by filing a motion for summary judgment. The new law more than quadruples the time the employee has to fight off the motion (from 14 days to 61 days) and requires that these motions be filed much sooner in the case. As a practical matter, this expanded notice means employees will have more time to mount their defense against the summary judgment. In almost all employment lawsuits, summary judgment motions are filed by the employer and opposed by the plaintiff/employee. SB 688 represents yet another major victory for the powerful plaintiff's trial lawyer lobby in Sacramento.

? Age Discrimination. AB 1599 (Negrete McLeod) reverses a favorable California Supreme Court decision and closes a loophole in our state's law against age bias. In Esberg v. Union Oil Co. of California, the California Supreme Court narrowly interpreted the law to allow an employer to discriminate based on age in connection with employee benefits. The new statute now forbids age bias in connection with any term, condition or privilege of employment, including benefits. This makes the age bias law similar in scope to other job bias provisions of state law.

? Paid Family Leave. One of the most controversial new laws to be enacted in 2002 is SB 1661 (Kuehl), which makes California the first and only state in the nation to offer paid "family temporary disability leave." Notably, the new benefits under this bill only apply to leaves of absence which begin on or after July 1, 2004.

SB 1661 adds provisions to the state Unemployment Insurance Code which establish a new "family temporary disability insurance program." The law provides up to six weeks of wage replacement benefits (i.e., paid leave) within any 12-month period to employees who take time off for their own illness or injury, to care for a sick or injured child, spouse, parent or domestic partner, or to bond with a new, adopted, or foster child.

Unlike the federal and state family leave statutes, the new program applies to all employers covered by the State Disability Insurance Program and there is no one year eligibility required. Payments may be as much as 55 percent of the employee's wages, subject to an annually-adjusted maximum.

The paid leave will run concurrently with family leave taken under state and federal law. The law provides a seven-day "waiting period" before an employee can collect his or her wage replacement benefits. During that period, an employer can require that the eligible employee use accrued but unused vacation time (two weeks maximum) before beginning a family temporary disability leave. Employees must establish medical eligibility by filing a claim for benefits supported by a certificate from the treating medical practitioner that establishes the condition of the employee or his or her family member. Employees also must certify leave for the birth or adoption of a child or the commencement of foster care. SB 1661 further prohibits fraudulent acts with regard to the collection of these benefits.

The new paid family leave program does not require employer contributions. Employees will finance the benefit with a higher SDI tax beginning January 1, 2004. Reports estimate that most employees will see an SDI tax increase of $79.00 per year. Undoubtedly, one negative effect of the new law is that more employees are likely to use the leave benefit since they will be paid for the absence. Until 2004, all such leaves are still without pay, unless an employer policy grants a paid leave.

? Employer Sick Leave Policies. SB 1471 (Romero) is a follow-up to the "kin-care" law enacted in 1999. Under the "kin-care" statute, employers who chose to offer employees paid sick leave must allow employees to use their sick leave benefit to attend to the illness of a child, parent, spouse or domestic partner. SB 1471 now makes it "per se" illegal for any employer to have an absenteeism policy that counts protected kin-care leave as the basis for discipline, demotion, suspension or discharge. Employers should review absence/attendance policies to be sure that they are in compliance with this new law.

? Workplace Protections for Sexual Assault Victims. AB 2195 (Corbett) expands workplace protections for victims of domestic violence, and applies those same protections to all victims of sexual assault crimes. Employers are now prohibited from discrimination and retaliation against sexual assault victims who take time off to seek a temporary restraining order or injunction to protect their health and safety and/or the health and safety of the victim's child. In addition, larger employers with 25 or more employees cannot discriminate or retaliate against sexual assault victims who take time off to seek medical attention or psychological counseling related to the assault, or to obtain services from a domestic violence program or rape crisis center, or take other actions to increase safety from future sexual assault, including temporary or permanent relocation.

Employees who take these types of leave must give the employer reasonable advance notice whenever possible, or provide adequate certification of the need for the absence to the employer. The new law obligates employers to maintain the confidentiality of employees who request the newly created sexual assault or domestic violence leave. Employers who don't allow the time off or otherwise violate these leave provisions may be liable for back pay, benefits and reinstatement. Employers should consider adding information about this leave to their employee handbooks and educate managers and employers alike about the requirements of this new law.

? Employee Access to Payroll Records. AB 2412 (Diaz) gives employers a strict time limit of 21 calendar days in which to comply with an employee request to inspect or copy payroll records pertaining to that individual. Employers who violate this deadline may be liable to the individual or the Labor Commissioner for a $750 penalty, injunctive relief and attorneys' fees. These penalties are in addition to the existing penalties for failing to allow access to employee payroll records, which may total an aggregate of $4,000.

? Disclosure of Working Conditions. Many employers want employees to keep the details of their pay and compensation packages confidential. AB 2895 (Shelley) creates a new right for employees to disclose to others the details of their own "working conditions." Employers are specifically forbidden from telling employees to refrain from such disclosures or asking employees to sign a written waiver of this right. Nor may employers discriminate or retaliate against employees who choose to disclose their working conditions to others.

? Protections for Undocumented Employees. SB 1818 (Romero) creates new protections under employment laws for undocumented aliens. The new law declares that all protections, rights and remedies under state law - including those pertaining to labor and employment laws - are available to individuals regardless of their immigration status, except where prohibited by federal law. This bill was passed in response to the United States Supreme Court's recent decision in Hoffman Plastics Compounds v. NLRB, which prohibits undocumented employees from receiving back pay under federal labor law. It remains unclear whether states may actually allow undocumented immigrants to recover back pay or other benefits, or whether such recovery is prohibited by federal immigration statutes. The courts have not answered this question. However, SB 1818 ensures that these individuals will receive all remedies to the fullest extent permitted under federal law. This new law also prohibits litigants from inquiring into a person's immigration status, except to the extent necessary to comply with federal immigration laws.

? New California Version Of WARN Act. AB 2957 (Koretz) imposes new legal obligations on California employers who contemplate a mass layoff, business relocation or facility closing. The new law is a companion to the federal Worker Adjustment and Retraining Notification Act ("WARN Act"), but is even broader in scope. AB 2957 covers all facilities which have employed 75 or more persons within the previous 12 months, in contrast to the 100 employee minimum under the federal WARN Act. The new state requirements apply to any layoff of 50 or more employees within a 30-day period, as opposed to the federal threshold of 33 percent of the workforce and at least 50 laid off employees, or 500 or more terminations, within a 90-day period. In addition, the state law applies to "relocations" where business operations are moved 100 or more miles away. Like the WARN Act, AB 2957 requires covered employers to give at least 60 days' advance written notice to affected employees in advance of a mass layoff, termination or relocation. This written notice also must be given to the Employment Development Department, the local workforce investment board and the chief elected official of each city and county where the affected business is located. The exceptions to these state notification requirements are more narrow than the exceptions under the WARN Act. AB 2957 also contains stiffer penalty provisions than federal law. Employers who violate the new state notification requirements may be liable to affected employees for back pay, including benefits, for up to 60 days, and also may be required to pay a civil penalty of $500 for each day of the violation, up to a maximum of $30,000. A court also may award attorneys' fees to any prevailing plaintiff, but not to a prevailing employer, in lawsuits under the new California act.

A more detailed discussion of California's expanded layoff notification requirements is contained in an article by founding partner Richard S. Rosenberg and associate Eric C. Schwettmann, titled "State Law on Layoff Notification Similar to Federal WARN Act," which was published in the Los Angeles Daily Journal on December 26, 2002. Click here to read this article.

? Background and Reference Checks. Two of the rare employer-friendly bills signed in 2002 will actually make it easier for employers to conduct background checks of job applicants and employees. Under AB 1068 (Wright), employers who conduct "in-house" background checks are no longer required to provide employees with adverse information which the employer obtained from references. Instead, employers need only provide employees/applicants with copies of public records (such as criminal records, other court records, or records of tax liens) within seven days of the employer's receipt of such records. The new law clarifies that employers also must provide a space on a job application or other employment form to permit the individual to waive his or her right to receive public records received from an "in-house" background check. However, employers still must provide such public records to the employee or applicant before taking any adverse action based on the information, even where the individual has waived the right to receive the information.

AB 1068 also changes the required procedures for employers obtaining background checks from outside "investigative consumer reporting agencies," such as private investigators. An employer must provide "clear and conspicuous disclosure" - in writing - that it may obtain an investigative report. This disclosure must identify the purpose of the investigation, the nature and scope of the information sought, and the name, address and phone number of the investigative agency. The applicant or employee must authorize - in writing - the procurement of the investigative report. However, these requirements do not apply if the investigation is based on suspicion of wrongdoing or misconduct by the individual. AB 1068 eliminates the previous requirement that an employer provide a copy of an investigative report to the individual within seven days of receipt.

A companion bill, AB 2868 (Wright), confirms California court decisions which provide that an employer has the right to provide job references to prospective future employers. Under this conditional privilege, an employer cannot be held liable for defamation of character based on information given in response to a reference check, even if the information is false, unless it can be proven that the employer lacked credible evidence that the information was true and acted with malice when disclosing the information. AB 2868 also specifically authorizes an employer to reveal whether or not it would rehire an individual.

? Identity Theft. SB 1386 (Peace) requires all California businesses to disclose security breaches of "personal information" in computer databases. The bill was passed in the summer of 2002 in response to the rising epidemic of identity theft. SB 1386 defines "personal information" to include a person's last name and first name or initial, coupled with at least one other piece of private information, including the person's Social Security, drivers license or identification card number, or the person's bank account, credit card or debit card number plus any required password or code. If a business learns that an unauthorized person has acquired such personal information, the business must disclose the security breach to the affected individual as soon as reasonably possible. Ordinarily, the only permissible delay in notification would be where a law enforcement agency determines that notification would interfere with a criminal investigation. The required notification must be made in writing, electronically (with the person's consent), or by "substitute notice" consisting of e-mail notice and conspicuous posting on the business's Web site, if possible, and by notifying "major statewide media." If a business violates these notice requirements, the affected individual may bring a lawsuit for money damages, injunctive relief and other remedies.

? Cal-COBRA. AB 1401 (Thomson) doubles the maximum coverage period for individuals who continue their health insurance after termination of employment or other qualifying events. The federal Consolidated Omnibus Budget Reconciliation Act ("COBRA") requires all employers with 20 or more employees to offer 18 months of continuation coverage, while Cal-COBRA imposes the same requirement on employers with 2-19 employees. AB 1401 gives all California employees covered under these laws the right to an additional 18 months of continuation coverage, for a total of 36 months' maximum coverage. This new entitlement takes effect on September 1, 2003, and applies to all individuals who begin their continuation coverage on or after January 1, 2003. AB 1401 also increases the minimum basic coverage amounts which continuation and conversion plans must offer to individuals.

? Reports of Workplace Injuries and Deaths. AB 2837 (Koretz) imposes a new $5,000 civil penalty for employers who fail to immediately report a workplace death or serious injury or illness to the Division of Occupational Safety and Health. In addition, employers, officers, managers and supervisors who knowingly fail to report a workplace death may be found guilty of a misdemeanor. Individuals may be subjected to one year in jail and a $15,000 fine for violating this requirement, while corporations may be fined as much as $150,000.

? Cal-OSHA "Log 300" Regulations. Cal-OSHA has modified its "Log 300" regulations, which require employers to record all work-related injuries and illnesses occurring throughout the year. This information must be recorded on Cal-OSHA Form 300, which the employer must make available upon request to any employee, former employee or Cal-OSHA inspector. Employers also must provide an annual summary of work-related injuries and illnesses on Form 300A. The regulations now require the Form 300A summary of the previous year's work-related injuries and illnesses to be posted conspicuously in the workplace from February 1 to April 30. Previously, Form 300A only had to be posted during February. For every injury or illness which must be recorded on the Log 300 form, an Injury and Illness Incident Report must also be completed on Cal-OSHA Form 301. Examples of injuries which must be recorded include injuries from a needle or sharp object, tuberculosis infection, skin disorder, poisoning, respiratory conditions, cases of medical removal, musculoskeletal disorders and hearing loss. Businesses who employed 10 or fewer employees at all times during the prior calendar year may be exempted from these record-keeping requirements, unless Cal-OSHA or the Bureau of Labor Statistics request the records in writing. All Log 300 Forms, as well as guidelines on how to properly fill them out, are available on the Internet at www.californiaosha.info.

? Suppliers of Temporary Employment To Licensed Contractors. AB 2816 (Shelley) makes temporary employment agencies, employment referral services, labor contractors or similar entities solely responsible for workers' compensation premiums and benefits for employees, where the entity enters into an agreement with a licensed contractor to provide employees to perform work under the contractor's license. Temporary employment suppliers also must provide insurers with payroll information concerning the employees and information concerning the licensed contractor for whom the employees are working. Temporary employment suppliers may pass on the costs necessitated by this new law to the licensed contractors. In turn, contractors must notify temporary employment suppliers whenever an employee is being used on a public works project or is reassigned to a new position.