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Changes To DFEH Regulations Effective April 1, 2016 – Will You Be Out Of Compliance?

By Deborah Petito |

California’s Department of Fair Employment and Housing (“DFEH”) has finalized changes to regulations which will be effective April 1, 2016.  These regulations further define and revise provisions of the Fair Employment and Housing Act (the “FEHA”).  The FEHA prohibits discrimination, harassment and retaliation against California employees.  Many employers may not realize that regulations impose employer obligations in addition to those required by statute.

The final regulations reflect recent modifications in the law and court decisions including the following:

  1. Employers Must Count Out of State Employees to Determine If They Are Covered under the FEHA. The FEHA only applies to employers who “regularly employ” five or more employees.  The final regulations define “regularly employ” to include any employer who has five or more employees regardless of whether or not those employees all work in California.  For example, if an employer has 12 employees working out of state and two employees working in California, that employer will be covered by the FEHA.  However, only the two California employees who actually work in California can file complaints under the FEHA.
  1. Unpaid Interns Are Protected. Unpaid interns are now included as a protected class under the FEHA.  Therefore, employers hiring interns should make sure they receive the employer’s policies required under the FEHA.
  1. Requirements of Notice to Employees. The final regulations also modified the notice requirements to employees regarding discrimination, harassment and retaliation.  Employers will now be required to distribute California’s DFEH brochure on sexual harassment or have a written policy that provides the same information to employees AND have a discrimination, retaliation and harassment policy which:
  • is in writing;
  • lists all current protected categories covered under the FEHA;
  • indicates that discrimination, retaliation and harassment is prohibited;
  • has a complaint process which does not require the employee to report the complaint directly to his or her supervisor and includes:
  • an employer’s designation of confidentiality, to the extent possible,
  • a timely employer response to the complaint,
  • impartial and timely investigations by qualified personnel,
  • documentation and tracking for reasonable progress,
  • appropriate options for remedial action and resolution, and
  • timely closure.
  • instructs supervisors to report any complaints to a designated representative;
  • indicates the employer will conduct a fair, timely and thorough investigation;
  • states that confidentiality will be maintained to the extent possible;
  • indicates that if misconduct is found, appropriate measures or discipline will be taken; and
  • states there will be no retaliation against employees for complaining or participating in any workplace investigation.

The regulations also require that the employer’s policy be given or made available to employees and affords five methods for doing so, including providing a copy of the employee handbook which includes the  policy.

  1. Expanded Statement of the Purpose of Prohibiting Sex Discrimination and Harassment. The Statement of Purpose of prohibiting sex discrimination and harassment has been expanded to state:  “The purpose of the laws against discrimination and harassment in employment because of sex is to eliminate the means by which individuals, by virtue of their sex, gender identity, or gender expression, are treated differently, paid less, treated adversely based on stereotyping, subjected to conduct of a sexual nature, subjected to hostile work environments, or made to suffer other forms of adverse action, and to guarantee that in the future equal employment benefits will be afforded regardless of the individual’s sex.”   [Italicized bold words were added.]
  1. Inclusion of Transgender Individuals as Covered under Pregnancy Disability. The regulations were also revised to include protection for a transgender individual who is disabled by pregnancy and expanded the definition of harassment based upon childbirth, breastfeeding or any medical condition related to pregnancy.  California’s DFEH also revised the notice required to be given to employees regarding the rights and obligations of pregnant employees.
  1. Other Changes. The regulations include other changes to mirror new law or court decisions that revise or expand the FEHA.

As a result of the final regulations, effective immediately, employers should, at a minimum, do the following:

  1. Replace the Notice they provide to employees regarding pregnancy discrimination.
  2. Review their discrimination, harassment and retaliation policies to make sure they comply with the new regulations.  Failure to do so may leave the employer open to being sued for failing to prevent discrimination, harassment and/or retaliation.

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.  If you have any questions regarding the final changes to California’s DFEH regulations, or any other employment issue you should certainly consult legal counsel of your choice when considering this .  If you wish to consult with the author of this post or another attorney at Clark & Trevithick, please contact Debbie Petito dpetito@clarktrev.com or Leonard Brazil lbrazil@clarktrev.com by email at or telephonically by calling the author at (213) 629-5700.

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Employers Get Some Relief from Wage and Hour Penalties

By Deborah Petito |

Any employer who has been sued for wage and hour violations knows that the acronym “PAGA” stands for California’s Private Attorney General Act.  It allows employees to bring wage and hour claims against an employer on behalf of all employees and collect 25% of the penalties that would go to the State if the State had brought the claim.  While the State is supposed to get the remaining 75%, in my experience, such an allocation is rarely made.

Wage and Hour Penalties

There are endless penalties for various wage and hour violations including the following:

  1. $50 for the first pay period and $100 for every subsequent pay period up to $4,000 per employee where the employee either does not receive a wage statement with their pay checks (these may be made available electronically if the employee has access to a computer) or receives a wage statement that does not contain the required information.
  2. Up to thirty days of wages (that is 30 x 8 hours x the employee’s hourly rate) if the employee is not paid either on a given payroll date or when the employee resigns or is terminated. This penalty can run from the date of any inaccurate pay stub.

There are other penalties that are included in PAGA and not listed above.

Amendment to PAGA

PAGA claims were becoming extremely expensive for employers even when the violations were very minor.  Last year, the California State Legislature amended PAGA to provide limited relief for two very minor violations that can result in huge penalties.  Effective October 2, 2015, an employer has 33 days to correct the following two specific violations:

  1. Failure to provide employees with an itemized wage statement that includes the beginning and ending dates of the pay period; and
  2. Failure to provide employees with an itemized wage statement that includes the name and address of the legal entity which is the employer.

This change will not eliminate PAGA claims, but it can reduce the amount of penalties at issue, namely the potential for up to $4,000 in penalties per employee for a wage statement violation.  Employers need to keep their eyes open for letters that employees are required to send to the State and the employer before a PAGA claim is filed.  PAGA letters will contain a laundry list of wage and hour violations.  If the letter contains an allegation that the dates of the pay period and/or the employer’s legal name are not included on the wage statement, employers should immediately make those corrections and notify the State and the employee’s attorney that the corrections were made.  The employer must also provide a copy of the corrected wage statement to the employee(s).  This will, at a minimum, eliminate some of the penalties that an employee may claim as part of a larger wage and hour case and put the employee’s attorney on notice that the employer is attentive and responsive to wage and hour claims.

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.  You should certainly consult legal counsel of your choice when considering this or any other employment issue.  If you wish to consult with the author of this post or another attorney at Clark & Trevithick, please contact Debbie Petito dpetito@clarktrev.com or Leonard Brazil lbrazil@clarktrev.com by email at or telephonically by calling the author at (213) 629-5700.

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Considering Selling Your Business and Wondering Where to Begin? What Transpires After Signing the Letter of Intent!

By Rajnish Puri |

Part three of a four-part series.

In this four-part series on the subject of selling your business, I plan to share with you, based on my experiences, the various stages an owner of a privately-owned business can expect to go through when considering an exit strategy.

 After a willing seller of a business and an interested buyer have executed the Letter of Intent (LOI) (please see: part two of series here), the real work to complete the purchase and sale of the target business gets underway. Teams of advisors, for both sides, go to work simultaneously, on their way to accomplishing their respective goals tied to a common end-result.  In theory, transactions of this type can be signed first and closed at a later date after the completion or, in some cases, the waiver, of the requisite closing conditions.  Practically speaking, however, a significant number of transactions involving privately-owned businesses are completed adopting the simultaneous sign and close mechanism.  In other words, the parties sign the definitive agreement and close the transaction at the same time.  For purposes of this conversation, we assume a simultaneous sign and close scenario.  The time period between executing the LOI and closing a transaction involves the following primary activities, all taking place concurrently.                  

Preparing and Negotiating the Definitive Agreement.  With some of buyer’s investigation of the target business conducted prior to the LOI stage and the principal terms of the deal enumerated in the LOI, generally, soon after the signing of the LOI, buyer’s counsel commences preparation of the definitive asset purchase agreement or stock purchase agreement based on the agreed-upon structure of the transaction.  This is also the stage when representatives of buyer and seller are introduced to each other and establish the framework of communications, timing and expectations for completing the deal.  When working on preparing the initial draft, buyer’s counsel is in regular communication with its client and team of advisors to build the essential provisions of the definitive document.  Depending on the size and complexity of the transaction, this exercise usually takes a few weeks before buyer’s counsel presents the first draft of the definitive agreement to seller’s counsel. The negotiations begin soon thereafter, with seller’s counsel leading the effort on behalf of seller’s team.  Simultaneously, seller’s counsel actively engages seller personnel most familiar with the target business to begin preparing the disclosures and other schedules to the definitive agreement, a process that continues through the finalization of the transaction documents.  Although most of the attention is devoted to negotiating the definitive agreement, preparation of the ancillary documents also gets underway once both parties have reached a consensus on the primary structure of the former.

Due Diligence and Coordination with Third Parties.  Due diligence investigation of the target business is an exercise that rarely stops until the closing.  In fact, this aspect of the transaction only gains momentum with time, and justifiably so.  If not done during the pre-LOI phase, secure virtual data rooms are established at this stage where seller continues to add pertinent information about the business giving access to both buyer and seller teams of advisors.  While non-legal advisors pore over the analytics of the business data, counsel, specifically buyer’s, typically examines the information to formulate provisions in the definitive agreement.  Seller’s counsel utilizes the data room information and communications with seller principals to prepare the disclosure schedules and determine the third party approvals required as a condition to closing. As the parties are targeting a simultaneous sign and close, the task of communicating with third parties – most notably landlords (where real property leases are part of the business being sold) and parties to significant contracts in the business – becomes both critical and sensitive, requiring the parties to strike a delicate balance.  The transaction might not close – therefore, the need for obtaining contingent and confidential approvals from third parties.  The transaction needs to close  – therefore, the need for a timely approval.  Some of the other principal communications involve tracking down the selling shareholders (especially where the ownership is broadly held), arranging calls between buyer and key relationships of target business, and addressing human resource issues to ensure a smooth transition for employees (if applicable).

Continuity of Business Operations.  While all the activity surrounding the sale and purchase is ongoing, someone from seller’s team must continue to mind the store.  Readers may recall from an earlier discussion in this series that, but for a select few provisions, LOIs are mostly non-binding in nature.  As a result, there is no legally binding agreement between a buyer and seller to do the deal unless the parties execute a definitive agreement. Accordingly, the parties could spend an enormous amount of time and resources negotiating the transaction and yet end up walking away from the deal.  (Note: Discussing the consequences of walking away is outside the scope of this conversation.) Some of the reasons for terminating negotiations could be outside the control of the parties, such as a sudden shift in market conditions, failure to obtain adequate financing or the inability to overcome regulatory hurdles.  Many of the circumstances, however, can be managed, and ensuring that the target business remains strong or consistent with its past performance is a priority.  A typical transaction cycle may last three to six months from start to finish, which could be an eternity from seller’s vantage point given the distractions caused by the negotiation process.  Despite all precautionary measures, the word somehow gets out that the target business is in play leading to conversations among employees and others concerning their future, which, in turn, could impact performance.  Buyer bids for the target business based on certain assumptions that include attaining baseline financial metrics. If those assumptions fail to reach the expected levels or new conditions suggest their imminent decline, buyer might renegotiate the price or decide to take a pass.  Naturally, not a desirable outcome by either party and certainly not for seller who may watch its goal of selling the business drifting away – at least for some time.  Hence, the point person appointed by seller at the early stages of the process should ensure the preservation and consistent performance of the business.

Closing and Transition. Somewhere along the line in the negotiation process, and typically after the two sides believe they have a well developed draft of the definitive agreement (even if not final), a closing date is penciled in.  Even though it is a date that is only tentative at this point, in my experience, both seller and buyer take it very seriously and both teams work diligently toward meeting the target date.  It is not uncommon, especially in document-intensive transactions, for parties to stage a pre-closing, a day or two prior to the actual closing date, to ensure everyone is on the same page and that all pre-closing conditions have been, or will be by the closing date, completed.  Finally, following months of laboring through the process of conducting due diligence, negotiating deal documents, communications among seller, buyer and the employee contingent that remains with the target business, among other activities, the closing date arrives and the purchase and sale of the business is completed.  Interestingly, in contrast to the flurry of activity taking place leading up to the closing date, the actual closing process is relatively short and less intense (other than the typical anxiety associated with accomplishing a significant task).  The parties exchange signed pages of the transaction documents, buyer remits the purchase price and, occasionally, there is a press release or a limited announcement often conducted jointly by the parties.  At that moment, buyer officially takes over the ownership and operations of the target business and, sometimes by express agreement and occasionally without one, certain designated personnel from seller management assist buyer with the transition to ensure the transfer goes through with minimal interruption.

In Part One and Part Two of this series, I shared thoughts on First Steps and the Purpose of a Letter of Intent, respectively.  In Part Four of this series, I plan to give to our readers an overview of the primary components of a definitive agreement.  Stay tuned for another conversation on ClarkTalk!!

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.  You should certainly consult legal counsel of your choice when considering the sale or purchase of a business.  If you wish to consult with the author of this post or another attorney at Clark & Trevithick, please contact Raj Puri by email at rpuri@clarktrev.com or telephonically by calling the author at (213) 341-1322.

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Data Breach – It’s Not Just For Big Companies

By Stephen E. Hyam |

During the last several years, large businesses and government agencies have fallen victim to electronic data breaches.  The names are well-known:  Target, Home Depot, Anthem, and the Social Security Administration.  While data breaches in big businesses and government agencies garner headlines, small businesses also should determine if their data must be secured.  There are a number of different federal and state laws that apply to data privacy and security.  This article provides a general overview of one of the major California laws.

Your Business Must Protect Personal Information

Companies conducting business in California are required to disclose a breach to California residents whose unencrypted personal information has actually been or is reasonably believed to have been subject to unauthorized access.  Civil Code section 1798.82.  Personal information includes either an individual’s first name or first initial and last name in combination with any one or more of the following:

  1. a) Social security number;
  2. b) Driver’s license number or California identification card number;
  3. c) Account number; credit or debit card number in conjunction with any required security code, access code, or password that would permit access to an individual’s financial account;
  4. d) Medical information;
  5. e) Health insurance information;
  6. f) Information or data collected through the use or operation of an automated license plate recognition system; or
  7. g) A user name or email address, and a password or security question and answer that would permit access to an online account.

Civil Code section 1798.82(h).

This broad definition of “personal information” subjects many businesses to the reporting requirement in the event of a data breach.  If the breach affects more than 500 California residents, the reporting requirement includes not only notifying the affected (or believed to be affected) individuals, but also the California Attorney General.

Depending on the data that your business stores, there may be different requirements for privacy, security, reporting, and liability.  For example, businesses subject to the Health Insurance Portability and Availability Act of 1996 (HIPPA), have different requirements, which will be the subject of future articles.

Penalties for Data Breach Hit The Bottom Line

Companies that suffer a data breach can incur legal and non-legal damages.  On the legal side, the company is exposed to damages from a civil action as well as a potential court order requiring the company to take corrective action.  On the non-legal side, business affected by data breaches typically incur costs for investigation and forensic examination of their systems to identify the problem, consultants to help make recommendations to decrease the risk of future breaches, and data monitoring services for those affected.  Studies show that business also lose customers.

How To Strengthen Your Data Security

If your business stores protected personal information, there are steps you can take to decrease your risk of data breach:

  1. The data should be encrypted. Since the California statutory disclosure obligation relates to unencrypted personal information, encryption is an important step in strengthening data security and decreasing liability.  California law defines encryption as “rendering the data unusable, unreadable, or indecipherable” to anyone without authorization.  Encryption is achieved through security measures that are generally accepted by information security professionals.
  1. Access to the personal information should be restricted through, for example, company policy and isolating the electronic data. Limiting access to personal information helps lessen the potential for accidental or malicious breaches by employees.
  1. Implement a document retention policy – and follow it. Consider how long you keep personal information, review the legal standards for retaining that information, and the business reasons to retain records that contain personal information.  For example, California law requires that certain employment records be retained for three years, however, the statute of limitations for wage and hour violations can be four years.  As a result, we recommend employment records be maintained for at least five years.
  1. Consider cybersecurity insurance.

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.  You should certainly consult legal counsel of your choice if you have data breach issues.  If you wish to consult with the author of this post or another attorney at Clark & Trevithick, please contact Stephen E. Hyam by email at shyam@clarktrev.com or telephonically by calling the author at (213) 629-5700.

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Are Your Exempt Employees Still Exempt?

By Deborah Petito |

Just a reminder that the minimum wage in California increased to $10/hour on January 1, 2016.   Some cities and counties, including San Francisco and San Jose, have set higher minimum wage rates and employers should check their local jurisdiction.  The California Labor Commissioner has the authority to enforce the local minimum wage rates effective January 1st.  Also, keep in mind that exempt employees must make a minimum of two times the minimum wage.  Hence, exempt employees must make a minimum of $41,600 per year.  The minimum annual salary will be greater if the local minimum wage is higher.  If an exempt employee’s salary is less than $41,600, it does not matter what their job duties and responsibilities are, they will not be considered exempt in California and must be paid overtime and provided rest and meal breaks.

This is a good time to review your exempt positions to ensure that they meet the California and federal requirements for exemption, starting with the salaries.

Thank you for joining us on ClarkTalk!  We look forward to seeing you again on this forum.  Please note that the views expressed in the above blog post do not constitute legal advice and are not intended to substitute the need for an attorney to represent your interests relating to the subject matter covered by the blog.  You should certainly consult legal counsel of your choice when considering this or any other employment issue.  If you wish to consult with the author of this post or another attorney at Clark & Trevithick, please contact Debbie Petito dpetito@clarktrev.com or Leonard Brazil lbrazil@clarktrev.com by email at or telephonically by calling the author at (213) 629-5700.