2014 Labor & Employment Seminar

HANSON BRIDGETT PRESENTS:

2014 LABOR & EMPLOYMENT SEMINAR

SAN FRANCISCO I SACRAMENTO

Table of Contents

Agenda and Contact Sheet 1 Morning Presentation Slides 2 Afternoon Presentation Slides 3 New Labor Laws 4 San Francisco Family Friendly Ordinance 5 2014 Labor Seminar Update Newsletter 6 Minimum Wage Notices 7 Form LM-10: Employer Form for Section 203 Reporting 8 Form LM-20: Agreement and Activities Report 9 September 20, 2011 American Hospital Association Letter to the DOL 10 September 21, 2011 American Council on Education Letter to the DOL 11 NLRB Advice Memorandum – May 30, 2012 12 Revenue Ruling 2013-17 13 IRS Notice 2013-61 14 IRS Notice 2014-1 15 Recently Published FAQs – SF Health Care Security Ordinance 16 PEPRA Update 17 New California Privacy Laws 2014 18 FTC: COPPA Guidance 19 FTC: Disposal Rule 20 Protecting Personal Information 21 FTC: System Security 22

Agenda

8:00 – 8:25 am Registration, Breakfast and Networking

8:25 – 8:30 am Introduction and Welcome

8:30 – 9:45 am New Obligations for Employers

9:45 – 10:00 am Break

10:00 – 11:15 am Emerging Trends

11:15 – 11:45 am Employee Benefits Update

11:45 – 12:30 pm Lunch

12:30 – 1:45 pm In-Depth Subject: Privacy Concerns

Contact Information

Edward Bernard Dorothy Liu [email protected] [email protected] 415.995.5807 415.995.5046

Judy Boyette Ray Lynch Chair, Employee Benefits [email protected] [email protected] 415.995.5055 415.995.5115

Mike Moye Angela Clements Chair, Labor & Employment [email protected] [email protected] 415.995.5094 415.995.5092

Jahmal Davis Diane Marie O'Malley [email protected] [email protected] 415.995.5815 415.995.5045

Kurt Franklin Lisa Pooley [email protected] [email protected] 415.995.5086 415.995.5051

Pat Glenn Sandy Rappaport [email protected] [email protected] 415.995.5047 415.995.5053

Anne Hydorn Gilbert Tsai [email protected] [email protected] 415.995.5893 415.995.5874

Molly Kaban [email protected] 415.995.5090

Tab 1 New Wage Obligations

Presented By

Sandy Rappaport, Partner Hanson Bridgett LLP T: 415-995-5053

New Wage Obligations

• California’s minimum wage increase . $9/hour effective July 1, 2014 . $10/hour effective January 1, 2016

• Note impact on minimum salary for exempt employees . $37,440/year or $3,120/month effective July 1, 2014 . $41,600/year or $3,466.67/month effective January 1, 2016

• Check local ordinances . San Jose - $10.15/hour effective January 1, 2014 . San Francisco - $10.74/hour effective January 1, 2014

New Wage Obligations

• Domestic Worker Bill of Rights – In-home personal attendants - those who care for children, elderly, or people with disabilities – Will receive overtime pay at 1.5x pay after 9 hours in a day and after 45 hours a week – Excluded: • Those who provide services through IHSS and DDS • Casual babysitters • Close family members • Babysitters under 18 – Note: new DOL regulations that will be effective 1/1/15 will apply the FLSA’s minimum wage and overtime provisions to more domestic service workers, including some excluded by the new state law

1 New Wage Obligations

• Paid Family Leave wage-replacement benefits expanded

– Covers time off to care for seriously ill grandparent, grandchild, sibling or parent-in-law – Does not create the right to a leave of absence – Effective July 1, 2014 – Employers must provide claim forms to any employee leaving work to provide care for one of these family members or for reasons previously covered by PFL

Wage/Hour Review – Meal and Rest Break Claims Post- Brinker

• Class certification – need substantial evidence of company- wide policy or practice that violates law • Legally-compliant written policy hard to overcome • Lack of policy can result in certification – shows failure to authorize meal and rest breaks

• Bottom line: Have a legally-compliant written policy!

New Leave / Work Schedule Obligations

Presented By

Dorothy Liu, Partner Hanson Bridgett LLP T: 415-995-5046

2 Leave For Reserve Peace Officers & Emergency Rescue Personnel (AB 11)

• Requires employers to permit employees who are reserve peace officers and emergency rescue personal to take temporary leaves for training purposes. • Existing law already requires employers to permit such leaves for employees who are volunteer firefighters.

Leave For Victims Of Domestic Violence (SB 400)

• Extends certain existing employment protections for victims of domestic violence and sexual assault to victims of stalking. • Requires employers to provide stalking victims with time off to appear at legal proceedings and – for employers with 25 or more employees – to seek medical and psychological treatment. • Makes it unlawful to discriminate or retaliate against an employee because of his or her status as a victim of domestic violence, sexual assault or stalking. • Adds a new “reasonable accommodation” requirement for victims of domestic violence, sexual assault or stalking, which may include implementation of safety measures.

Premium Pay For Missed “Recovery Periods” Under Cal/OSHA Regs (SB 435)

• Amends California Labor Code section 226.7 to require an employer that does not provide an employee with a “recovery period” - defined as the “cool down period afforded an employee [under Cal/OSHA regulations] to prevent heat illness” - to pay one additional hour of pay for each workday that the recovery period is not provided. • Currently, section 226.7 requires employers to pay employees a penalty of one hour of pay for each workday that a meal or rest period is not provided. SB 435 expands this penalty to include “recovery periods.”

3 Paid Leave For Public Employee Union Reps (AB 1181)

• Requires public agencies to give paid leaves of absence to employee representatives of employee organizations when they are testifying or serving as the employee organization’s representative in a PERB proceeding, or before a personnel or merit commission.

San Francisco Family-Friendly Workplace Ordinance

• The San Francisco Board of Supervisors passed the Family Friendly Workplace Ordinance (“FFWO”), which will require employers with 20 or more employees (regardless of location) to consider requests from San Francisco employees for “flexible or predictable working arrangements to assist with care giving responsibilities.” • The FFWO also protects employees from adverse action based on “caregiver status.” • The FFWO requires employers to post a notice informing employees of their rights under the ordinance. • The San Francisco Office of Labor Standards Enforcement will have responsibility for enforcing the ordinance.

New FMLA Regs And Poster Requirements

• The “Employee Rights and Responsibilities Under the Family and Medical Leave Act” poster was revised in Feb. 2013. Covered employers must post the revised notice. • Military Family Leave: Regs make changes to military family leave, including new parental care leave, expanding exigency leave for rest and recuperation, and placing new limits on exigency leave for child care and school activities. • Intermittent Leave: New regs clarify that employers must track intermittent FMLA leave using the smallest increment of time that the employer uses for other types of leave, but in no case may the increments be greater than one hour. Further, an employer may only count time actually taken as FMLA leave against an employee's FMLA entitlement.

4 Sanchez v. Swissport

• Facts: Plaintiff was a female employee with a high-risk pregnancy who was terminated after exhausting the four months of leave entitlement under California’s Pregnancy Disability Leave (“PDL”) law. • Holding: Although she had exhausted her PDL, employee may still have viable discrimination claims under FEHA based on employer’s alleged failure to provide additional leave as a reasonable accommodation for her pregnancy- related disability. • Significance: FEHA allows a disabled employee to request additional leave as a reasonable accommodation so long as it poses no undue hardship on an employer.

New Anti- Discrimination/Retaliation Obligations

Presented By

Lisa Pooley, Partner Jahmal Davis, Partner Hanson Bridgett LLP Hanson Bridgett LLP T: 415-995-5051 T: 415-995-5815

Sexual Harassment Definition Clarified in FEHA (SB 292)

• Need NOT be motivated be sexual desire

• Actionable sexual harassment can be statements and gestures that are: – Sexually crude – Offensive – Demeaning

Example: same-sex harassment

 Anti-Harassment Training

5 New Protection for Military and Veterans in FEHA (AB 556)

• “Military and Veteran Status” added to list of categories protected from employment discrimination

• Covers member or veteran of: – U.S. Armed Forces; U.S. Armed Forces Reserve; U.S. National Guard; and California National Guard

Exemption: May still identify members of military for purposes of awarding a veteran’s preference as permitted by law – Veteran’s preference “permitted by law” tend to be found in government contracting statutes

New Protection for Military and Veterans in FEHA (AB 556)

Consider: EEOC Guidance questions disparate impact on women due to veteran’s preference

 Update Job Applications  Update Employment Policies and Handbooks

Prohibition on Agencies Asking About Criminal Convictions on Job Applications (AB 218) (“Ban the Box”)

• No request for disclosure of criminal convictions until after determination that applicant meets minimum qualifications • May conduct conviction history background check after determination of minimal qualifications has been made • Applies to State and Local Agencies – State Agency = any state office, officer, department, division, bureau, board, commission, or agency – Local Agency = any county, city, city and county, including a charter city or county, or any special district

6 Prohibition on Agencies Asking About Criminal Convictions on Job Applications

• Effective July 1, 2014 • Costs of adjusting hiring process may be reimbursable state mandate

Exceptions: – Employer otherwise required by law to conduct criminal background check – Positions within criminal justice agency

 Update Job Applications  Update Hiring Criteria and Practices

Prohibition on Asking About or Using Judicially Dismissed or Sealed Convictions (SB 530) • Cannot ask applicant to disclose convictions judicially dismissed or ordered sealed • Cannot use judicially dismissed or sealed convictions in determining any condition of employment • Applies to public and private employers • Exceptions: – Required by law – Possession or use of firearm – Employees prohibited from holding position – Employers prohibited from hiring convicts  Update Job Applications  Update Hiring Criteria and Practices

Expanded Whistleblower Protections under Labor Code sec.1102.5 (SB 496) • Statute previously protected employees who reported suspected violations of federal or state law to government or law enforcement agencies • New: applies to internal reports of suspected illegal behavior – Protections apply even if such disclosure is part of the employee’s job duties (Example: Compliance Officer) • New: includes suspected violations of local laws, rules or regulations • New: prohibits retaliation against employees where the employer believes the employee has disclosed or may disclose violations externally or internally

7 Expanded Whistleblower Protection under Labor Code sec. 1102.5

• New: imposes liability on any person acting on employer’s behalf

• Serious Consequences: civil penalties up to $10,000 per violation

 Provide Internal Reporting Mechanisms  Update Policies  Train Supervisors and Managers  Document  Investigate

Protections for Exercising Rights Under Labor Code (AB 263)

• Prohibits retaliation against employees who assert their rights under Labor Code

• Examples of asserting rights: – Complaining about unpaid wages – Filing a claim with Labor Commissioner – Participating in a Labor Commissioner proceeding

• Serious Consequences: civil penalties up to $10,000 per violation

Retaliation and Unfair Immigration Practices (AB 236) • Prohibits retaliation in form of “unfair immigration related practices” • Examples of prohibited employer conduct: – Requesting more or different documents than required under federal immigration law – Refusing to honor documents that appear to be genuine – Using federal E-verify system when not required to do so by federal law – Threatening to file or filing a false police report – Threatening to contact or contacting immigration authorities • Exclusion: – Any conduct undertaken at direct and specific direction of federal government

8 Retaliation and Unfair Immigration Practices (AB 236)

• Rebuttable Presumption: unfair immigration related practice within 90 days of exercising rights is retaliation

 Update Policies  Train  Document  Investigate

Significant Discrimination/Retaliation Cases

(1) Vance v. Ball State, 133 S.Ct. 2434 (2013)

(2) Harris v. City of Santa Monica, 56 Cal.4th 203 (2013)

(3) Rope v. Auto-Chlor System, 220 Cal.App.4th 635 (2013)

Vance v. Ball State

Narrows definition of supervisor under Title VII: employee who is empowered by the employer to take tangible employment actions against employees

Tangible Employment Actions: – Hiring – Firing – Failing to promote – Reassignment with significantly different responsibilities – Decision causing significant change in benefits

9 Vance v. Ball State

Significance: Lessens potential liability in Title VII discrimination cases

• “Supervisor’s” actions create automatic liability for an employer

• Not including employees with day-to-day supervisory responsibilities means fewer individuals whose harassing actions are imputed to the employer

Vance v. Ball State

• No change under California Law

• FEHA contains broad definition of “supervisor:” “any individual having the authority, in the interest of the employer, to hire, transfer, suspend, layoff, recall, promote, discharge, assign, reward, or discipline other employees, or the responsibility to direct them or to adjust their grievances, or effectively to recommend that action…”

 Train to recognize and prevent workplace harassment

Harris v. City of Santa Monica

(1) Raises bar for proving discrimination in mixed-motive cases

Employee must prove that discrimination was a “substantial” factor motivating the adverse employment action

– More than a motivating factor/reason

Higher standard should ensure employers not found liable for discrimination simply because of isolated remarks by employers.

10 Harris v. City of Santa Monica

(2) Permits a “Same-Decision” Defense

If an employee proves discrimination “substantially motivated” an employer’s action, the employer has the opportunity to prove that it would have made the same decision even without taking the unlawful factor into consideration.

* Non-discriminatory reasons must exist at time of termination.

Examples: unacceptable performance; company layoffs or reorganizations

Harris v. City of Santa Monica

(3) Limits Damages

Proving “same decision” defense means employee cannot recover damages, back pay or reinstatement

But, employees still may be awarded declaratory or injunctive relief, and attorneys’ fees

 Scrutinize employment terminations to ensure fair process and thorough documentation

Rope v. Auto-Chlor System

First reported California decision discussing FEHA prohibition on discrimination based on association with disabled person

Three general types: (1) Expense (2) Disability by Association (3) Distraction

Example of “expense” associational discrimination: – Discharging employee to avoid paying medical expenses of employee’s disabled spouse who is covered by employer’s health plan

11 Rope v. Auto-Chlor System

Examples of “disability by association” discrimination – Discharging employee because the employee’s spouse/partner is infected with HIV and fear employee may also become infected – Discharging employee because one of the employee’s blood relatives has a disability ailment that has a genetic component and the employee is likely to develop the disability as well

Example of “distraction” associational discrimination – Discharging employee who is somewhat inattentive at work because employee’s spouse or child has a disability that requires the employee’s attention, yet not so inattentive that the employee requires an accommodation

Rope v. Auto-Chlor System

 Specify reasons for any adverse action taken against employees associated with disabled person  Document all performance issues  Comply with all leave requirements (Reminder: Donation Protection Act in Labor Code permits 30 days paid leave for organ donation)

New Guidance for “Employers” of Unpaid Workers

Presented By

Sandy Rappaport, Partner Hanson Bridgett LLP T: 415-995-5053

12 Unpaid Workers (aka free labor)

. Interns . Volunteers

Mistake = liability for wages, penalties, fees, taxes and more

Unpaid Internships - General

•Trainees • Work-for-education exchange • Cannot displace regular employee • Essential part of valid educational program • Clear understanding that unpaid

Unpaid Internship - Test

• Must be enrolled in valid educational program • Professional level work • Primarily for benefit of trainee, not employer • No guarantee of job; no benefits • General enough that it trains for work in similar business • Clearly designated as unpaid and separately posted

13 Unpaid Internship - Considerations

• Is an internship the best use of your resources? – Valid internship usually impedes efficiency – Must relate to specific educational program(s) – Must provide general training – Not a vehicle for providing general workplace experience

Unpaid Internship - Guidelines

• Create written training program aligned with specific curriculae • Avoid and limit stipends • Execute written agreements • Monitor, train and supervise trainees •Not OJT • Not a “trial period”

Volunteers

• Must be for religious, charitable or similar non-profit organization • Must be performing work for humanitarian, public service or religious objectives • Usually on a part-time basis • Must be working without contemplation of payment (either cash wages or in-kind benefits) • Must not be displacing employees • Must be performing without pressure from an employer

14 Volunteers

Employees who volunteer

• Cannot be employee’s “regular work” • Must be off-duty hours • Not regularly scheduled • Not required • Done for the individual’s “personal purpose or pleasure” or solely for “humanitarian reasons”

Volunteers - Examples

• OK: Hospital using volunteers to read to patients • NOT OK: Hospital using volunteers to sell flowers for profit

• OK: Clerical employee of hospital volunteering to sit with sick child while off duty • NOT OK: Clerical employee of hospital volunteering to perform clerical work for a charity drive for the hospital while off duty

March 2014 – Department of Labor Proposed and Final Rules

DOL To Roll Out Its Proposed Rule Revising The FMLA’s “Spouse” Definition And Its Final Rule Regarding The “Advice Exemption” To Employer “Persuader” Reporting Requirements

Diane O'Malley, Partner Hanson Bridgett LLP T: 415.995.5045

15 March 2014 – Department of Labor Final Rules

• The U.S. Department of Labor (DOL) has announced the issuance, in March 2014, of regulations in two areas:

– DOL will issue a proposed rule revising the definition of spouse in the Family and Medical Leave Act; and

– DOL will issue its long awaited final rule expanding employer reporting requirements for labor relations consultants that an employer hires to oppose union organizing.

I. Changes to the Family Medical Leave Act’s Definition of Spouse

• The DOL will propose a rule in March revising the FMLA's definition of “spouse” to reflect the U.S. Supreme Court's decision in United States v. Windsor, which declared unconstitutional Section 3 of the Defense of Marriage Act (“DOMA”). • DOMA defined “marriage” as occurring only between a man and a woman, and “spouse” as only being from the opposite gender. • Presumably, the DOL’s proposed rule will make FMLA leave available to same-gender couples who reside in states that recognize same-gender marriages.

Changes to the Family Medical Leave Act’s Definition of Spouse

• What, if anything, does that mean for California employers?

– Mostly administrative – make sure you have:

– Updated poster

– Updated policy

16 II. The DOL’s New Interpretation, And Dilution, Of the "Advice Exemption"

• Almost three years ago, the U.S. Department of Labor (DOL) proposed regulations that would significantly narrow the DOL's interpretation of Section 203 of the Labor-Management Reporting and Disclosure Act (“LMRDA”). Familiarly known as the "persuader rules," the regulations require employers to file reports with the DOL when they hire third parties to persuade employees on the issue of unions.

Changes to Section 203 of the Labor- Management Reporting and Disclosure Act (LMRDA)

Why should you care about this development?

You should you care because the rule alters the regulations that implement the "advice exemption" in the LMRDA in a manner that is detrimental to any employer that seeks to communicate with its employees about unions.

The current "Advice Exemption" in the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA)

• Currently, many employers faced with union organizing activities use third-party consultants, including attorneys, for guidance concerning union avoidance strategies.

• If employers utilize such third-party consultants or attorneys to educate directly employees about unions, the LMRDA considers these consultants and advisors to be "labor persuaders."

• So what?

17 Labor Persuader Rules in the Labor- Management Reporting and Disclosure Act of 1959 (LMRDA)

• Sections 203(a) and (b) of the LMRDA require employers and their labor relations consultants to report any agreement or arrangement between them where the consultant will undertake activities, directly or indirectly, to persuade employees to, or not to, exercise their right to organize a union and bargain collectively.

Labor Persuader Rules in the Labor- Management Reporting and Disclosure Act of 1959 (LMRDA) • Employers must report all agreements or financial arrangements with "labor persuaders" to the DOL on Form LM-10. (See, Tab 8)

• Consultants and advisors must also report their "persuader" activities with employees on DOL Form LM-20 (See, Tab 9), but they do not have to report activities that constitute "advice" to employers about union activities.

Labor Persuader Rules – the "Advice Exemption" in the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA)

• Section 203(c) – the "advice exemption" – exempts from these reporting requirements "the services of such [consultant] by reason of his giving or agreeing to give advice to such employer…"

• Section 204 also exempts certain attorney-client communications from reporting, which is defined as, "information which was lawfully communicated to [an]… attorney by any of his clients in the course of a legitimate attorney-client relationship."

18 Labor Persuader Rules – the "Advice Exemption" in LMRDA, Section 203(c)

• DOL has interpreted Section 203(c)'s "advice exemption" to exclude an employer-consultant agreement where the consultant has no direct contact with employees and limits his/her activity to providing the employer and its management team with advice or materials for use in persuading employees.

Labor Persuader Rules – The Purpose

• The LMRDA grew from the U.S. Government’s concern over reports of union busting on the employer side and union corruption on the labor side.

19 James Riddle "Jimmy" Hoffa, born February 14, 1913; disappeared July 30, 1975; declared legally dead July 30, 1982. Built the biggest and most corrupt union in the United States, making deals with the Mafia. For a biography of his life: http://www.youtube.com/watch?v=8jRHhGhA EdM

Labor Persuader Rules – The Background and Purpose

• On January 30, 1957, the United States Senate created the United States Senate Select Committee on Improper Activities in Labor and Management (also known as the McClellan Committee) to study the extent of criminal or other improper practices in the field of labor-management relations or in groups of employees or employers, and to suggest changes in the law.

• One of the most notable members of the committee, along with his brother John, was Robert F. Kennedy, whose book The Enemy Within, chronicles his time on the committee and whom Hoffa referred to as a spoiled millionaire.

Labor Persuader Rules – The Change

• The Committee's work resulted in the LMRDA , enacted on September 14, 1959, which contained reporting requirements purportedly intended to safeguard workers by exposing the sources and any bias of the information they were receiving.

20 Labor Persuader Rules – The "Advice Exemption"

• EXEMPTION: third-party consultants who do not have direct contact with employees and who provide advice to employers (which includes management) or materials for use, which the employer has a may use or reject, these "advice" activities are protected from "persuader" reporting obligations.

Labor Persuader Rules – The Change

• Apparently, the DOL determined that this "Advice Exemption" has resulted in the underreporting of "persuader activities" to the detriment of unions. The DOL stated in its proposed rule: the following rule:

– “The Department proposes to revise its interpretation of the ‘advice’ exemption to such reporting , by limiting the definition of what activities constitute “advice” . . . And thus expanding those circumstances under which reporting is required . . .” (Fed. Reg., Vol. 76, at 36178)

Labor Persuader Rules – The Change

• The DOL’s new proposed rule, “rejects the current interpretation, which distinguishes between direct and indirect contact . . . [r]ather the revised interpretation focuses on the plain meaning of the term ‘advice’ . . . “ (Fed. Reg., Vol 76, at 36182)

21 Labor Persuader Rules – The Change

• “With respect to persuader agreements or arrangements, "advice" means an oral or written recommendation regarding a decision or a course of conduct. In contrast to advice, "persuader activity" refers to a consultant's providing material or communications to, or engaging in other actions, conduct, or communications on behalf of an employer that, in whole or in part, have the object directly or indirectly to persuade employees concerning their rights to organize or bargain collectively.” (Id.)

Labor Persuader Rules – The Impact

• Significantly, the DOL proposes that many activities that are not currently reportable will now trigger reporting obligations to the DOL: drafting or proposing employer policies aimed at protecting a union-free environment; educating supervisors about how to address employees during union organizing efforts; and providing employers with materials for distribution to employees; advice on union avoidance strategy regarding pre-election communications, speeches, communications about union negotiations and strike communications to unions or employees regarding grievances, information requests, and other contract issues. (Fed. Reg., Vol. 76, at 36391)

Labor Persuader Rules – The Impact

• The Final Rule, if issued in the form as the proposed rule, will have the effect of requiring most labor relations consultants and management labor attorneys/firms to report a wealth of financial data and information to the government.

• Will also create a considerable disincentive for employers to use outside consultants for union-avoidance strategies as they will not want to disclose the substance of otherwise private arrangements. See, for example, September 20, 2011 American Hospital Association and September 21, 2011 American Council on Education letters to the DOL. (Tab 10&11)

22 Federal and State Labor Developments

Presented By

Molly Kaban, Partner Hanson Bridgett LLP T: 415-995-5090

Labor Law Update

Noel Canning v. NLRB: The Scope of the President’s Power to Make Recess Appointments.

• Can the President’s power to make temporary appointments during Senate recess be curtailed by the use of pro-forma Senate session during which no business is conducted?

• Dispute stems from fight over Obama’s appointments to the NLRB – Senate Republicans tried to block appointments so that the Board did not have a quorum and could not act.

• Implicates separation of powers between Senate and President.

• What does this mean for you?

Labor Law Update Continued

County of Los Angeles v. Los Angeles County Employee Relations Commission: The Scope of Employees’ Privacy Interest In Their Contact Information.

• Public employers must disclose home contact information for all bargaining unit members to the representative of the unit, even if for those who are not members of the union. • Expectation of privacy diminished because disclosure is the “overwhelming norm” in labor relations; no serious invasion. • Consistent with federal law: names and addresses of bargaining unit employees are presumptively relevant to collective bargaining. • Can negotiate opt-out procedures with the union.

23 Labor Law Update Continued

Other Notable Issues:

• Appellate courts have enjoined the NLRB’s rule requiring the posting of employee rights under the NLRA. Employers are free to voluntarily post the notice.

• NLRB continues to enforce employee rights exercised via social media.

• NLRB continues to enforce NLRA in non-union setting (confidentiality policies, concerted employee activity).

Status of Employee Arbitration Agreements in California: The More Things Change, The More They Stay the Same

Presented By

Kurt Franklin, Partner Raymond Lynch, Partner Hanson Bridgett LLP Hanson Bridgett LLP T: 415-995-5086 T: 415-995-5055

Pre-Concepcion California Case Law

• Armendariz v. Foundation Health Psychcare Services, Inc. (Cal. S. Ct. 2000) – To ensure that employee arbitration agreements do not operate to waive unwaivable statutory rights, arbitrations addressing statutory rights are subject to minimal requirements, including the following:

– the arbitration agreement may not limit the damages normally available under the statute; – there must be discovery sufficient to adequately arbitrate the statutory claim; – there must be a written arbitration decision and judicial review; and – the employer must pay all types of costs that are unique to arbitration.

• Discover Bank v. Superior Court (Cal. S. Ct. 2005) – When disputes between parties to a consumer contract involve small amounts of damages, a class arbitration waiver in the contract may be unconscionable and unenforceable under California law.

• Gentry v. Superior Court (Cal. S. Ct. 2007) – Class action waivers in employee arbitration agreements are unenforceable if a court finds class arbitration would be a more effective way of vindicating employees’ rights after evaluating four factors:

– the size of potential recovery for each class member; – the potential for retaliation to members of the class; – whether or not absent members of the class may be ill-informed about their rights; and – any other obstacles to vindication of the class members’ rights through arbitration.

24 AT&T Mobility LLC v. Concepcion (U.S. S. Ct. 2011)

Held that the Federal Arbitration Act (“FAA”) preempted a California judicial rule that invalidated class action waivers in consumer arbitration agreements as unconscionable.

Given the FAA’s overarching purpose of “ensuring the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings,” the contract defense of unconscionability cannot be applied in a manner that disfavors arbitration.

Requiring the availability of class-wide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.

Class action waivers in arbitration agreements valid and enforceable, subject to narrow contract based defenses.

Post-Concepcion US Supreme Court Case Law

• American Express Co. v. Italian Colors Restaurant (S. Ct. 2013) – The FAA does not permit a court to invalidate a class action arbitration waiver even where the claim was based on a federal statute and where the plaintiff’s cost of individually arbitrating the claim exceeded the potential recovery.

• Oxford Health Plans LLC v. Sutter (S. Ct. 2013) – A court will defer to the judgment of an arbitrator on whether an agreement waives class action arbitration when such issue is committed to the arbitrator’s discretion, regardless of whether this ultimately favors or disfavors class actions.

Sonic-Calabasas A, Inc. v. Moreno (Sonic II) (Cal. S. Ct. 2013 – October 17, 2013)

• First post-Concepcion decision by the California Supreme Court

• Acknowledges that waivers in arbitration agreements of an employee’s right to pursue a wage claim before the Labor Commissioner (a “Berman hearing”) are not per se unconscionable, thus overruling the Sonic I decision

• Goes to great lengths to leave in place a California-specific general unconscionability analysis post-Concepcion; holds that such analysis is not preempted by the Federal Arbitration Act

• Does not actually provide guidance on the unconscionability analysis; after Sonic II, the best argument against the application of an onerous unconscionability analysis may be such analysis “interferes with the fundamental attributes of arbitration” and is thus preempted by the FAA

• “Fundamental attributes” of arbitration include:

– Informality – Lower costs – Greater efficiency

• Speedier resolution

25 Compton v. American Management Services, LLC, No. B236669 (Cal. Ct. App., March 19, 2013)

Refused to compel arbitration in an employment dispute where the agreement allowed the employer to take trade secret claims to court while requiring the employee to submit her employment-related claims to arbitration. Additionally, the arbitration agreement shortened to one year the time period for the employee to raise disputes and suggested, contrary to the statutory protections provided employees, that the employee would not be entitled to an award of attorneys’ fees even if she prevailed at the arbitration.

These provisions, the California Court of Appeals held, rendered the arbitration agreement unconscionably one-sided and thus not a valid, enforceable agreement to arbitrate.

Chavarria v. Ralphs Grocery (9th Cir., October 28, 2013)

Notwithstanding Concepcion, an unconscionable arbitration agreement in an employment contract is still unenforceable under California law (i.e., Armendariz and its progeny). The court specifically held that Concepcion and subsequent United States Supreme Court decisions do not affect the continued validity of state law unconscionability doctrine as a means for invalidating an arbitration agreement.

The court held that Ralphs’ arbitration agreement was procedurally unconscionable because it was presented to employees on a “take it or leave it” basis with no ability to negotiate, and the arbitration terms were not provided to employees until three weeks after they signed the agreement (i.e., the employment application). The court also agreed with the district court’s finding that the agreement was substantively unconscionable, meaning that it was unfairly one-sided so as to “shock the conscience.” The court focused on two provisions of the arbitration policy — the (1) arbitrator selection provision and (2) the costs provision. With respect to arbitrator selection, the court determined that the process would always result in the arbitrator being one proposed by Ralphs, which was unfairly one-sided. Notably, the Ralphs’ policy also specifically disallowed the use of AAA or JAMS arbitrators, which meant that those institutions’ rules for neutral arbitrator selection could not be used.

Ferguson v. Corinthian Colleges (9th Cir., October 28, 2013)

In a non-employment case, the court held arbitration would still be upheld if the cause of action seeks injunctive relief. The claims were arbitrable regardless of the fact that they sought public injunctive relief. (This is a reversal of the “Broughton-Cruz” or Davis v. O’Melveny & Myers rule.)

26 Iskanian v. CLS Transportation Los Angeles, 206 Cal. App. 4th 949 (2012), review granted

Court of Appeal held that the FAA, as interpreted Concepcion, does apply to representative PAGA claims and preempts any state law rule that would invalidate an otherwise valid arbitration agreement. Unfortunately for employers, the California Supreme Court has granted review in Iskanian.

Rigorously Analyze Reason for Arbitration Provisions

Consider goal of arbitration agreements, noting class action law for defendants has become more favorable. Also ask, is there cost savings?

Further, note, statistically, in the Northern District fewer than 1% of the cases filed in the Northern District go to trial. Statewide, statistically about 95% of the civil cases settle. In speaking with arbitrators, however, you increase the odds of going to trial by having an arbitration – anecdotally, 60%+ of the cases set for arbitration go to trial. Moreover, generally, if an arbitrator gets it wrong, generally there is no right to appeal, i.e., the arbitrator must have (a) exceeded his/her power, (b) evidence of corruption, fraud or undue means, (c) misconduct of a neutral arbitrator, or (d) failure to disclose grounds for disqualification.

If you believe arbitration agreements are worth pursuing, look at your arbitration agreement again, and consider this:

• Look for evenhandedness – California courts will not enforce agreements that are permeated by unconscionability

• Making the agreement stand alone, and removing them from applications and employee handbooks

• Make sure employee has access to the terms and conditions of the arbitration process before requiring the employee’s agreement to arbitrate

• Allow new employees a period of time to seek advice of counsel before requiring signing an arbitration agreement

• Permit discussion with the employee about the terms of the agreement – take-it-or- leave-it may void the agreement

• Consider using well known neutral panels (i.e., JAMS, AAA, etc.) with their updated CA employment arbitration rules

27 • NLRB Guidance on Social Media • Tips for Model Social Media Policy • Using Social Media for Background Checks

Presented By

Angela Clements, Associate Hanson Bridgett LLP T: 415-995-5094

What is Social Media?

• Web 2.0 • Facebook • Twitter • YouTube • Tumblr

Demographics are Changing

The average LinkedIn The average Facebook The average Twitter user is 44 years old user is 40 years old user is 37 years old

65% of Facebook’s 55% of Twitter’s users users are 35 or older are 35 or older

DoubleClick Ad Planner (Google). U.S. Demographics, June 2012.

28 Social Networking Site Use by Age Group, 2005-2012

Pew Research Center’s Internet & American Life Survey, November 14-December 9, 2012

NLRB Guidance on Social Media

• In a series of Acting General Counsel memorandums and NLRB Decisions, NLRB has indicated that the following restrictions on employees’ social media use may violate the NLRA: – Facebook employees who criticize a supervisor and complain about workload issues. – Social media policies that can be construed to “chill” employees in exercise of § 7 rights. • E.g. Policy prohibiting “making disparaging comments about the company through any media.”

NLRB Interpretations

• Not all comments about working conditions are protected as “concerted activity.” – Employee social media activity must be both protected and concerted: it must relate to terms and conditions of employment and seek to involve other employees in a discussion of these issues. • E.g. No protection for Facebook posting expressing frustration about personal dispute with manager, even where coworkers posted supportive comments in response. – In other words, to be protected, must be in relation to “group activity.”

29 Tips for Model Social Media Policy

• Social media policies that are narrowly tailored to proscribe conduct are less likely to interfere with protected rights.

• Social media policies "that clarify and restrict their scope by including examples of clearly illegal or unprotected conduct, such that they would not reasonably be construed to cover protected activity, are not unlawful.” NLRB Memorandum OM 12-59 (Acting General Counsel, May 30, 2012). – Approved Wal-Mart social media policy (Handout)

Tips for Model Social Media Policy: Do’s and Don’ts

• DO create a social media policy or review existing policy. • DO advise employees that social media activities can form basis of adverse employment action. • DO advise employees of prohibited conduct by way of specific examples so that employees could not reasonably interpret it to prohibit protected conduct under the NLRA. • DO advise employees that the company’s standards for employee conduct also apply to social media channels (e.g.'s restrictions against sexual harassment and discrimination; conduct unbecoming a police officer; threats of violence, malicious or obscene posts; disclosure of PHI).

Tips for Model Social Media Policy: Do’s and Don’ts, cont.

• DO include language designed to protect the employer’s trade secrets and confidential information by way of specific examples of prohibited disclosures. • DO train managers/supervisors about appropriate reactions to employee postings. • DON’T generally restrict communications on wages or working conditions. • DON'T take adverse employment actions in response to an employee's exercise of protected activity (for example, speech concerning whistleblowing and participating in union activities) via social media sites. • DON’T ask for employee usernames or passwords.

30 Issues Pending Before the NLRB

• Whether 'liking' a co-worker’s Facebook post counts as protected concerted activity under the National Labor Relations Act. Three D LLC d/b/a Triple Play Sports Bar and Grille v. Sanzone, NLRB case no. 34-CA-12915; and Three D LLC d/b/a Triple Play Sports Bar and Grille v. Spinella, NLRB case no. 34-CA-12926.

Using Social Media for Background Checks

An employer can find anything, but must take steps to avoid obtaining more information than required to make an employment decision. • Reveals protected data such as nationality, race, religion, age or medical issues. • Can reveal legal off-duty conduct. And in CA, it’s a problem to fire someone for legal off-duty conduct. • It may constitute an improper background check. Fair Credit Reporting Act – must disclose that background check will be obtained, in single stand-alone document, and obtain written authorization. Also, CA “investigative consumer report rules.” If agency is used, must provide a clear and conspicuous" notice in writing of the "nature and scope" of the report. (CA Civil Code §1786.16(2)(B)(v)). And employees have right to obtain a copy of public records an employer gathers in the process of checking background information.

Using Social Media for Background Checks, cont.

• Separate social media researcher from decision makers, with researcher “scrubbing” protected category information before it gets to decision-maker. • Conduct search in uniform manner for all. • Notify candidates of searching practices and verify identity of candidate in social media searches. • Wait until after initial interview to conduct search of social media content. • Base hiring decisions on usable information and document legitimate, nondiscriminatory reasons for hiring decision. • Train hiring managers and HR professionals about use of social media for background checks.

31 Dealing with Administrative Agencies

Presented By

Pat Glenn, Partner Hanson Bridgett LLP T: 415-995-5047

Employee Benefits Key Employer Issues 2014

Presented By

Judy Boyette, Partner Anne Hydorn, Partner Ed Bernard, Senior Counsel Hanson Bridgett LLP Hanson Bridgett LLP Hanson Bridgett LLP T: 415-995-5115 T: 415-995-5893 T: 415-995-5807

32 Agenda

Health Plans - Windsor Update HRA Guidance Released

Modification of Use-or-Lose Rule for Health FSAs

Employer Shared-Responsibility Rules In-Plan Roth Conversions Clarified

Mid-Year Changes to Safe Harbor 401(k) Plans

Plan-Imposed Limitations Period Upheld

Relief for Frozen Defined Benefit Plans

Pension Reform Update IRS Determination Letter Filings

Health Plans - Windsor Update

Windsor The Windsor Decision

• Supreme Court overturned Section 3 of the Defense of Marriage Act on June 26, 2013 • Legally married same-sex couples are now recognized as “spouses” for purposes of federal law • IRS and Department of Labor both adopted “place of celebration” rule (Revenue Ruling 2013-17 and Technical Release 2013-04) – Two individuals of the same sex who validly enter marriage in a state (or US territory or foreign jurisdiction) whose laws authorize same-sex marriage is recognized – State of residency irrelevant • Decision does not affect domestic and civil union partners who are not “denominated” as married under state law

33 Health Benefit Windsor and What it Means for Plans Health Benefit Plans • Employees can pay for same-sex spouse health plan coverage and their children on a pre-tax basis • Employers no longer need to impute income for the value of health benefits provided to same-sex spouses and their children • Employers can provide tax-free reimbursements for the eligible health expenses of an employee’s same-sex spouse (and their children) under its health flexible spending accounts (FSAs), health savings accounts (HSAs), and health reimbursement arrangements (HRAs) • Employers should review their health plan definitions of the term “spouse,” and employee communications regarding same-sex spouses, and amend as needed

100

Retroactivity Windsor, Taxes, and Retroactivity

• For federal tax purposes, Revenue Ruling 2013-17 confirms that Windsor generally applies prospectively as of September 16, 2013 • Exception: For years still open under the statute of limitations (generally 2010 and later), taxpayers (employers and employees) may rely on the ruling for purposes of filing original tax returns, amended tax returns, or claims for credit or refunds for any overpayment of tax resulting from Windsor • Subsequent Notice 2013-61 provides special procedures for employers and employees who wish to make a claim for refunds or adjustments of FICA and/or federal income taxes for open years – Claims for refunds/adjustments are not mandatory – Under current guidance, no requirement for employers to issue corrected Form W-2s for past open years unless they claim FICA refunds

101

Cafeteria Plans Post-Windsor Cafeteria Plan Guidance

• Until guidance was issued, employers were unsure of how to apply Windsor in the context of their cafeteria plans – some acted, some waited • IRS issued Notice 2014-1 on December 16, 2013, providing guidance relating to cafeteria plan issues following Windsor • Further tax clarification regarding retroactive application of Windsor for health benefit plans • New guidance contemplates lack of uncertainty and provides latitude for 2013

102

34 Cafeteria Plans Cafeteria Plan Guidance

• Mid-year election changes permitted for both pre-Windsor and post- Windsor marriages, provided plan allows for mid-year election changes on account of a change in marital legal status – Employers wishing to allow for such changes (if not already provided for in the plan document) can amend their plans by the last day of the first plan year beginning on or after December 16, 2013 (or December 31, 2014, for a calendar-year plan) – Related mid-year election changes can be made anytime during the cafeteria plan year that includes June 26, 2013, or December 16, 2013 (for calendar year plans, that’s all of 2013) – Change must be effective by the later of (1) the plan’s usual effective date for the change, or (2) a reasonable period of time after December 16, 2013

103

Cafeteria Plans Cafeteria Plan Guidance

• If an employee notifies an employer that he or she is legally married to a same-sex spouse before the end of the plan year that includes December 16, 2013, employer must begin to take the employee’s contributions for health care on a pre-tax basis by the later of: – (1) the first payroll ending on or after the 30th day from the receipt of a revised W-4, or (2) a reasonable period of time after December 16, 2013 • Cafeteria plans may allow employees with same-sex spouses to submit qualifying FSA expenses incurred by the spouse no earlier than the beginning of the cafeteria plan that includes June 26, 2013, or the marriage date, if later • Annual health savings account and dependent care expense limitations apply to same-sex spouses in the same way as any other spouse

104

HRA Guidance Released

105

35 Health Reimbursement Arrangements HRA Guidance

• IRS issued new guidance regarding health reimbursement arrangements in September 2013 (Notice 2013-54) • Stand-alone HRAs no longer viable under health care reform, because by design they do not comply with the health care reform’s market reforms (e.g., prohibition on annual and lifetime limits) – Exception: retiree-only HRAs and HRAs for excepted benefits – Possible $100 per day, per affected individual penalty for noncompliance • No further contributions after 2013 (special transition rule applies allowing for stand-alone run-out HRAs with pre-2014 credited amounts) • Beginning January 1, 2014, HRAs must be integrated with qualifying group health care coverage (integration with individual health plans does not work) – Different rules apply to integrate the HRA depending on whether the underlying group health care coverage is minimum value or non-minimum value – Participants must be permitted to opt out – enrollment affects eligibility for federal subsidies on the exchange

106

Health Reimbursement Special Considerations for San Arrangements Francisco Employers - SFHCSO • Employers with San Francisco workers who used a full- purpose stand-alone HRA to comply with the spending requirement under the San Francisco Health Care Security Ordinance will have to consider alternative methods of compliance beginning January 1, 2014 • Unused HRA funds credited before January 1, 2014, must still be made available for a minimum of 24 months from the date of contribution to satisfy the spending requirement using the HRA (i.e., run-out HRA) – Run-out HRA considered “minimum essential coverage” and will likely prevent enrolled employees from obtaining federal subsidies toward the cost of exchange coverage – If an employee is permitted to “opt out” and does, the forfeited HRA credit no longer qualifies as an SFHCSO expenditure

107

Health Reimbursement Special Considerations for San Arrangements Francisco Employers - SFHCSO • City of San Francisco recently issued FAQ guidance stating it will consider new contributions to an “excepted benefit” HRA to meet the spending requirements, but only up to 20 hours per week for a covered employee (provided all other special HRA requirements under the SFHCSO are satisfied) – Arrangement must be in place no later than April 1, 2014 – Requires a plan document – HRA must provide full reimbursement for all excepted benefits that also qualify as a “health care expenditure” – excepted benefits are defined under the Internal Revenue Code (e.g., limited scope dental and vision benefits) • HRA benefits in excess of 20 hours per week only meet spending requirement if actually spent – employer must request credit from the City each calendar year with supporting documentation of employee’s actual use of excess 108

36 Modification of Use-or- Lose Rule for Health FSAs

109

Modification of Use- or-Lose Rule for New $500 Carryover for Health Health FSAs FSAs • IRS Notice 2013-71 modifies the “use or lose” rule for health care flexible spending accounts and allows participants to carry over up to $500 of unused amounts into the next following plan year (plan can provide for less than $500 or no carryover at all) • Carry over does not affect the participant’s annual salary reduction limit of $2,500 • The carry over option is an alternative to the “grace period” some plans permit – cannot provide for both under the plan • Employers must amend their plan to provide the carry over provision – Amendment must be adopted on or before the last day of the plan year from which amounts can be carried over (e.g., by December 31, 2014 for a $500 carryover from 2014 into the 2015 plan year) – For 2013 plan year, must be amended by last day of the plan year that begins in 2014 • Must inform participants of the carryover provision

110

Employer-Shared Responsibility Rules

111

37 Pay or Play Reminder – Employer Shared Responsibility Rules • Reminder – employer shared responsibility rules go into effect January 1, 2015 • Certain large employers may be subject to penalty taxes for (1) failing to offer minimum essential health care coverage to all full-time employees (and their dependents), or (2) offering eligible employer- sponsored coverage that is not “affordable” (exceeds a specified percentage of the employee's household income) or does not offer “minimum value” (the plan's share of the total allowed cost of benefits is not at least 60%) • The penalty tax will be due if any full-time employee is certified to the employer as having purchased health insurance through an Exchange and is also eligible for a federal subsidy • IRS has announced that it plans to publish final regulations in the very near future – BE READY!

112

In-Plan Roth Conversions Clarified

113

In-Plan Roth Employers Unsure About IPRCs May Conversions Clarified Now Want to Add This Feature

• Notice 2013-74 resolves many uncertainties that have kept 401(k), 403(b) and 457(b) plan sponsors from adding IPRCs • To be eligible for IPRC, an amount must be vested • IPRCs of “nondistributable” amounts remain subject to the distribution restrictions applicable before conversion • Plans may generally restrict the type of contributions eligible for IPRC – e.g., to simplify recordkeeping • IPRCs are not protected benefits subject to the tax code’s anti-cutback rules • Employers who implemented IPRCs in 2013, have until December 31, 2014 to amend their plans

114

38 Mid-Year Changes to Safe Harbor 401(k) Plans

115

Final Rules Ease Some Limits on Mid-Year Changes to Safe Harbor 401(k) Plans Mid-Year Safe Harbor Contribution Changes

• Standard for reducing or suspending nonelective contributions mid- year liberalized from substantial business hardship to operating at an economic loss • Employers may, regardless of financial condition, reduce or suspend nonelective contributions mid-year if they notify employees before the beginning of the year of this possibility • Supplemental notice required at least 30 days before reduction or suspension • The same requirements apply to matching contributions effective the first day of the 2015 plan year • The preamble suggests future guidance may permit some mid-year changes – e.g., corporate transactions

116

Mid-Year Changes to Safe Harbor 401(k) Plans What Should Employers Do Now?

• Employers should consider modifying their safe harbor notices for 2015 to provide that safe harbor contributions may be reduced or suspended mid-year • If considering mid-year change, talk to employee benefits counsel about whether change is allowed

117

39 Relief for Frozen Defined Benefit Plans

118

Relief for Frozen Defined Temporary Nondiscrimination Relief Benefit Plans For Frozen Defined Benefit Plans • Many employers closing DB plans offer new or enhanced defined contribution plans to replace DB accruals • Often DB plan must be aggregated with DC plan to pass nondiscrimination based on equivalent-benefits because, over time, the proportion of DB plan participants who are HCEs increases, making passing on a standalone basis more difficult • The same demographic factors that make it more difficult to pass nondiscrimination on a standalone basis also make it more difficult to meet criteria for equivalent-benefits testing • Notice 2014-5 adds a temporary eligibility criterion for testing on equivalent-benefits basis for pre-2016 plan years

119

Relief for Frozen Defined Benefit Plans Who qualifies for this relief?

• Relief applies only to a DB plan that implemented a “soft freeze” before 12/13/13, and for the 2013 plan year either – – Met one of two existing eligibility criteria to test on an equivalent- benefits basis, OR – Wasn’t aggregated to pass nondiscrimination because it passed on its own • IRS has requested comments regarding long-term solution

120

40 Plan-Imposed Limitations Period Upheld

121

ERISA Plans that impose time limits Plan-Imposed Limitations Period Upheld on benefits suits can breathe a sigh of relief

• In December, the Supreme Court ruled in Heimeshoff that a plan- imposed three-year limitations period on benefits suits, even one that begins before final claim denial, is enforceable • ERISA doesn’t provide a limitations period for benefit claims • To fill this gap, plans often impose their own limitations period • Courts have consistently upheld plan-imposed limitations periods unless unreasonably short • But limitations periods usually begin when participant can file suit – under ERISA, not until claims are exhausted • Issue: whether the plan’s three-year limitations period could begin before exhausting the claims procedure when proof of loss was due

122

Plan-Imposed Limitations Period Upheld What should Employers do now?

• Employers should: – Review their plans in light of Heimeshoff – If a limitations period is provided, ensure it is reasonable – If no limitations period, consider adding one

123

41 Pension Reform Update

124

Pension Reform Update AB 1222 - Temporary PEPRA Exemption for Transit Employees • U.S. Department of Labor refused to certify grant funding, saying that PEPRA violates Section 13(c) of the Federal Transportation Act • Billions of dollars in federal transportation grants at stake. • AB 1222 became law effective October 4, 2013 (urgency legislation) • Exempts transit employees protected by Section 13(c) until the earlier of: – January 1, 2015, or – A federal court rules that PEPRA doesn’t violate that section. • Becomes permanent if court upholds the DOL’s determination • The Sacramento Regional Transit District (supported by the Governor’s office) sued the DOL on October 4, the same day AB 1222 became law

125

Pension Reform Update Vexing Questions Remain

• Does exemption apply to all transit employees, or only represented employees? – CalPERS Circular Letter 200-075-13, requires PERS-contacting transit agencies to certify exempted employees – The DOL has said it applies to all employees – Most agencies appear to be taking this position • When is exemption effective, January 1, 2013, or October 4, 2013? – Based on SB-13, reasonable to use 1/1/13 • Immediate action or wait-and-see?

126

42 Pension Reform Update Technical Clean-up Legislation

• SB-13 – mostly technical, but clarifies several key issues, including: – Pre-2013 employees who become members of a different retirement system of the same employer treated as legacy under new system – PEPRA doesn’t prohibit a defined contribution program after 2012, even if employer didn’t offer one before 2013 – System may cease collecting contributions when member contribution cap is exceeded. – Member contribution rate of greater than 50% must be agreed to through collective bargaining – Prohibition against more favorable retiree health benefit vesting schedule for management/non-represented doesn’t require change to pre-2013 vesting schedule – Clarifies existing law – generally effective January 1, 2013

127

Pension Reform Update Technical Clean-up Legislation

• AB 1380 – conforms ’37 Act to PEPRA • SB 220 – conforms PERL to PEPRA

128

Pension Reform Update The Pension Reform Act of 2014

• Statewide ballot initiative proposed by San Jose Mayor Chuck Reed and mayors of other California cities • Would put a constitutional amendment on the 2014 ballot that would limit vested rights to pensions and retiree healthcare benefits to those already earned • Similar to “ERISA rule” – only those rights earned through amendment protected • Would remove major obstacle to more significant pension and retiree healthcare cost savings

129

43 IRS Determination Letter Filings

130

IRS Determination Letter Filings What Should Employers Do Now?

• What is your Employer Tax ID Number (EIN)? If your EIN ends in 3 or 8, your 5-year cycle for filing for a new determination letter from the IRS (Cycle C) runs from 2/1/13-1/31/14. If your EIN ends in 4 or 9, your 5-year cycle (Cycle D) runs from 2/1/14-1/31/15. If you have individually-designed tax-qualified retirement plans – not on an IRS pre- approved volume submitter or prototype plan – you should seriously consider filing the plans with the IRS. The deadline is 1/31/14 if you are in Cycle C, 1/31/15 if you are in cycle D • Are you sponsoring a governmental retirement plan? The IRS is again allowing governmental plans to temporarily file in Cycle E, instead of Cycle C, which means governmental plans don’t have to file again until 2/1/15-1/31/16. We see no disadvantage to this. This is good because, in many cases, the IRS is only just now issuing determination letters for the last cycle, leaving little time to comply with any changes required for those letters

131

44 Tab 2 Privacy In the Workplace: What It Is and What You Need to Know/Do

Presented By

Mike Moye, Partner Hanson Bridgett LLP T: 415-995-5092

Program

• Evolution of Workplace Privacy Issues

• Overlap Between “Business” Privacy Issues and “Employer” Privacy Issues

• Management Strategies

Evolution of Workplace Privacy Issues

• Common Law/Constitutional – – “Can I search that locker/desk?” – “Can I listen to that voicemail?” – “Can I look at employee email?” – “Can I use that information (from outside the workplace) for workplace decisions?” • Privacy of Personal Information – “Protected Information” in the Employment Context – Protection of Social Security Numbers – Emergence of Electronically Stored/Accessible Information – Security of Employee Personal Information

1 Evolution of Workplace Privacy Issues

• Emergence of the Electronic Workplace – Emergence of Electronically Stored/Accessible Information – Emergence of Social Media – Expansion of Electronic Privacy Protections • How the law has expanded – Specific practices – Specific businesses – Business partners of specific business – Every business????

Overlap Between Business Privacy and Workplace Privacy Issues

• Business Privacy Obligations – Focused on protection of consumer personal information: who holds a lot of personal information? – Applicable to any business – Unfair business practices and consumer protection – Better-defined issues: • Collection methods • Storage/maintenance requirements • Disclosure standards • Destruction requirements

Overlap Between Business Privacy and Workplace Privacy Issues

• Statutory Evolution – HIPAA – Consumer Financial Data • Financial Institutions • Credit Card Companies • Online Privacy Protection – Consumer Personal Information – Security Breach Issues

2 Overlap Between Business Privacy and Workplace Privacy Issues

• Statutory Evolution – New for 2014 – AB 370: Online Tracking Transparency (disclosure of how business will respond to “Do Not Track” signals)

– AB 658: CMIA: Medical Apps (Applies CMIA requirements to any business that offers medical application software for individuals)

– AB1149: Data Breach Notification (imposes obligations on local government agencies)

Overlap Between Business Privacy and Workplace Privacy Issues

• Statutory Evolution – New for 2014 – SB 46: Data Breach Notification (notice requirements extended to unauthorized disclosure of user ID and password combination for online accounts)

– SB 568: Digital Privacy Rights for Minors (restriction on advertising/marketing products to minors that they are not permitted to by)

– AB1274: Privacy of Customer Electrical and Natural Gas Usage Data

Management Strategies • Privacy/Information Security vs. Restriction on Access – Employee “Zones of Privacy” – Employer Business Interests • Legal Framework • Workplace Issues/Conduct – Hiring – Management – Special Situations • Preventive Strategies – Policy – Self-Audit – Training

3 Background Privacy/Information Security

• Protection: Employee’s Right to Keep things to Themselves • “Expectation of Privacy” – Confidential/Non-Public – No Legitimate Reason for Disclosure – Examples: • Protected Characteristics/Activities • Consumer (credit, financial) • Employment • Medical/Health

Background Privacy/Information Security – Expectation of Privacy

• Creating – Per Se – De Facto • Limiting – Statutory/Regulatory – Policy/Procedure/Practice

Background Employer Business Interests

• Restriction – Limits on Use/Access to Information – Affirmative Obligations to Protect • Need to Know – Employment Decisions – Disclosure to Others – Monitoring Business Activity

4 Background Legal Framework - Direct

• Protections (Primarily) and Restrictions • Constitutional Privacy Protections – First Amendment, U. S. Constitution – Fourth Amendment, U.S. Constitution – Fourteenth Amendment, U.S. Constitution – Article 1, §1, California Constitution

Background Legal Framework - Direct

• Statutes - State – Various Employment Statutes – Civil Code • Employment Records • Consumer Records/Investigative Consumer Reporting Agencies Act • Confidentiality of Medical Information Act – Health & Safety Code §§120980 et seq.

Background Legal Framework - Direct

• Statutes - State – Labor Code • §96(k) • §432.2 • §432.7 • §1026 • §1051 – Criminal Code • Electronic Eavesdropping – Penal Code §§630-637.9

5 Background Legal Framework - Direct

• Statutes - State – Identity Protection • Social Security Number Protection – Civil Code §§1798.85-1798.86, 1785.11.1, and 1785.11.6 • “Consumer Information” Protection – Safeguard and Destruction of Customer Records • Security Breach Notice – Civil Code §§ 1798.29, 1798.82, and 1798.84 • Security of Personal Information – Civil Code §1798.81.5 • Common Law

Background Legal Framework - Direct • Statutes - Federal • Electronic Communications Privacy Act of 1986 – Stored Communications Act – Wiretap Act • Employee Polygraph Protection Act of 1988 • Federal Omnibus Crime Control and Safe Streets Act of 1968 •HIPAA • Computer Fraud and Abuse Act • National Labor Relations Act

Background Legal Framework - Indirect

• Primarily Restrictions • Statutes/Regulations • FTC Regulations/FCRA and CCRA • FMLA/ADA/FEHA [medical conditions/restrictions]

6 Workplace Situations Hiring/Application for Employment

• What can the Employer use? – Background Checks/Screening • Credit Reports • Criminal History/Driving Reports • Internet Searches (Google, blogs, social networking media, etc.) • Other reports – Testing • Medical • Drug/Alcohol • Polygraphs • Behavioral/Psychological

Workplace Situations Hiring/Application for Employment

• What must be disclosed? – Employment Application Inquiries – Interview Questions and Inquiries

Workplace Situations Management – Investigations and Monitoring

• Permissible Methods – Surveillance – Searches – Monitoring • Permissible Inquiries

7 Workplace Situations Management – Protection of Employee Personal Information

• Safeguard – Employment Information Generally • “Personnel File” • Other Employment Files • Employment files for Peace Officers – Medical Information – Social Security Number – Storage/Destruction • Segregation

Workplace Situations Management – Protection of Employee Personal Information • Disclosure – Access to Information – Authorized Disclosure • Subpoenas • Consent/Request/Release – Problem areas • Using Protected Information

Workplace Situations Management – Business Obligations

• Use of Social Media/Online Communication – Employment Restrictions – Business Restrictions • Data/Security Breach Obligations – Security Standards – Determining a “Breach” – Notification Obligations

8 Preventive Strategies

• Policy • Self-Audit • Training

Preventive Strategies Policies

• Individual or Comprehensive Privacy Policy? • Tailored to Practical Realities • Enforceable Standards

Preventive Strategies Policy Example – Electronic Media • Policy – Coverage: phones, hardware, software – Company property – Covered activities – Permitted uses – Prohibited Uses – No expectation of privacy • Implied consent • Passwords/codes – Monitoring and access by company – Post-employment obligations • Employee Acknowledgment

9 Preventive Strategies Policy Example – Social Networking Media

• Policy – Permitted use (time, place circumstances) – Prohibited practices (inappropriate behavior) – Prohibited practices (use of company name/image, confidential information) – No expectation of privacy – Company’s right to monitor/access – Sanctions for violations • Employee Acknowledgment

Preventive Strategies Policy Example – Security of Confidential Information

• Policy • Administrative Safeguards – Staff/Responsibilities – Training – Contingency Plan – Quality Control • Physical Safeguards – Workstation Security – Mobile Media/Device Control

Preventive Strategies Policy Example – Security of Confidential Information

• Policy (cont’d.) • Technical Safeguards – System Access Authentication – Transmission Security – Encryption • Employee Acknowledgment

10 Preventive Strategies

• Other Privacy-Related Policies – Drug/Alcohol Testing – Psychological Testing [for advancement] – Disclosure of Employment Files/Information – Destruction of Employment Files – Conflicts of Interest

11 Tab 3 Assembly Bill No. 11

CHAPTER 120

An act to amend Section 230.4 of the Labor Code, relating to employees.

[Approved by Governor August 19, 2013. Filed with Secretary of State August 19, 2013.]

legislative counsel’s digest AB 11, Logue. Employees: reserve peace of®cers and emergency rescue personnel. Existing law requires an employer employing 50 or more employees to permit an employee who is a volunteer ®re®ghter to take temporary leaves of absence, not to exceed an aggregate of 14 days per calendar year, for the purpose of engaging in ®re or law enforcement training. This bill would revise these provisions to require those employers to permit an employee who performs emergency duty as a volunteer ®re®ghter, reserve peace of®cer, or as emergency rescue personnel, as de®ned, to take the leave of absence described above for the purpose of engaging in ®re, law enforcement, or emergency rescue training.

The people of the State of California do enact as follows:

SECTION 1. Section 230.4 of the Labor Code is amended to read: 230.4. (a) An employee who performs duty as a volunteer ®re®ghter, a reserve peace of®cer, or as emergency rescue personnel, as de®ned in Section 230.3, and who works for an employer employing 50 or more employees, shall be permitted to take temporary leaves of absence, not to exceed an aggregate of 14 days per calendar year, for the purpose of engaging in ®re, law enforcement, or emergency rescue training. (b) An employee who works for an employer employing 50 or more employees who is discharged, threatened with discharge, demoted, suspended, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because the employee has taken time off to engage in ®re, law enforcement, or emergency rescue training as provided in subdivision (a), is entitled to reinstatement and reimbursement for lost wages and work bene®ts caused by the acts of the employer. (c) An employee seeking reinstatement and reimbursement pursuant to this section may ®le a complaint with the Division of Labor Standards Enforcement in accordance with Section 98.7, and upon receipt of this type

Ch. 120 Ð 2 Ð of complaint, the Labor Commissioner shall proceed as provided in that section.

Senate Bill No. 400

CHAPTER 759

An act to amend Sections 230 and 230.1 of the Labor Code, relating to employment.

[Approved by Governor October 11, 2013. Filed with Secretary of State October 11, 2013.]

legislative counsel’s digest SB 400, Jackson. Employment protections: victims of domestic violence, sexual assault, or stalking. (1) Existing law provides protections to victims of domestic violence or sexual assault. Existing law prohibits an employer from taking adverse employment action against a victim of domestic violence or sexual assault who takes time off from work to attend to issues arising as a result of the domestic violence or sexual assault, as long as the employee complies with certain conditions. Existing law entitles an employee who is discriminated or retaliated against in the terms and conditions of employment by his or her employer because the employee has taken time off for speci®ed purposes, to reinstatement and reimbursement for lost wages and work bene®ts caused by the acts of the employer. Under existing law, an employer who willfully refuses to rehire, promote, or otherwise restore an employee or former employee who has been determined to be eligible for rehiring or promotion by a grievance procedure or hearing authorized by law is guilty of a misdemeanor. Existing law authorizes an employee who is discharged, threatened with discharge, demoted, suspended, or otherwise discriminated or retaliated against by his or her employer in violation of these provisions to ®le a complaint with the Division of Labor Standards Enforcement of the Department of Industrial Relations, as speci®ed. This bill would extend these protections to victims of stalking. The bill would also prohibit an employer from discharging or in any manner discriminating or retaliating against an employee because of the employee's status as a victim of domestic violence, sexual assault, or stalking if the victim provides notice to the employer of the status or the employer has actual knowledge of the status. The bill would also require the employer to provide reasonable accommodations that may include the implementation of safety measures or procedures for a victim of domestic violence, sexual assault, or stalking, as speci®ed. Because a violation of the bill's requirements under certain circumstances would be a crime, the bill would impose a state-mandated local program. (2) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

Ch. 759 Ð 2 Ð

This bill would provide that no reimbursement is required by this act for a speci®ed reason.

The people of the State of California do enact as follows:

SECTION 1. Section 230 of the Labor Code is amended to read: 230. (a) An employer shall not discharge or in any manner discriminate against an employee for taking time off to serve as required by law on an inquest jury or trial jury, if the employee, prior to taking the time off, gives reasonable notice to the employer that the employee is required to serve. (b) An employer shall not discharge or in any manner discriminate or retaliate against an employee, including, but not limited to, an employee who is a victim of a crime, for taking time off to appear in court to comply with a subpoena or other court order as a witness in any judicial proceeding. (c) An employer shall not discharge or in any manner discriminate or retaliate against an employee who is a victim of domestic violence, sexual assault, or stalking for taking time off from work to obtain or attempt to obtain any relief, including, but not limited to, a temporary restraining order, restraining order, or other injunctive relief, to help ensure the health, safety, or welfare of the victim or his or her child. (d) (1) As a condition of taking time off for a purpose set forth in subdivision (c), the employee shall give the employer reasonable advance notice of the employee's intention to take time off, unless the advance notice is not feasible. (2) When an unscheduled absence occurs, the employer shall not take any action against the employee if the employee, within a reasonable time after the absence, provides a certi®cation to the employer. Certi®cation shall be suf®cient in the form of any of the following: (A) A police report indicating that the employee was a victim of domestic violence, sexual assault, or stalking. (B) A court order protecting or separating the employee from the perpetrator of an act of domestic violence, sexual assault, or stalking, or other evidence from the court or prosecuting attorney that the employee has appeared in court. (C) Documentation from a licensed medical professional, domestic violence counselor, as de®ned in Section 1037.1 of the Evidence Code, a sexual assault counselor, as de®ned in Section 1035.2 of the Evidence Code, licensed health care provider, or counselor that the employee was undergoing treatment for physical or mental injuries or abuse resulting in victimization from an act of domestic violence, sexual assault, or stalking. (3) To the extent allowed by law and consistent with subparagraph (D) of paragraph (7) of subdivision (f), the employer shall maintain the con®dentiality of any employee requesting leave under subdivision (c). (e) An employer shall not discharge or in any manner discriminate or retaliate against an employee because of the employee's status as a victim of domestic violence, sexual assault, or stalking, if the victim provides notice

Ð 3 Ð Ch. 759 to the employer of the status or the employer has actual knowledge of the status. (f) (1) An employer shall provide reasonable accommodations for a victim of domestic violence, sexual assault, or stalking who requests an accommodation for the safety of the victim while at work. (2) For purposes of this subdivision, reasonable accommodations may include the implementation of safety measures, including a transfer, reassignment, modi®ed schedule, changed work telephone, changed work station, installed lock, assistance in documenting domestic violence, sexual assault, or stalking that occurs in the workplace, an implemented safety procedure, or another adjustment to a job structure, workplace facility, or work requirement in response to domestic violence, sexual assault, or stalking, or referral to a victim assistance organization. (3) An employer is not required to provide a reasonable accommodation to an employee who has not disclosed his or her status as a victim of domestic violence, sexual assault, or stalking. (4) The employer shall engage in a timely, good faith, and interactive process with the employee to determine effective reasonable accommodations. (5) In determining whether the accommodation is reasonable, the employer shall consider an exigent circumstance or danger facing the employee. (6) This subdivision does not require the employer to undertake an action that constitutes an undue hardship on the employer's business operations, as de®ned by Section 12926 of the Government Code. For the purposes of this subdivision, an undue hardship also includes an action that would violate an employer's duty to furnish and maintain a place of employment that is safe and healthful for all employees as required by Section 6400 of the Labor Code. (7) (A) Upon the request of an employer, an employee requesting a reasonable accommodation pursuant to this subdivision shall provide the employer a written statement signed by the employee or an individual acting on the employee's behalf, certifying that the accommodation is for a purpose authorized under this subdivision. (B) The employer may also request certi®cation from an employee requesting an accommodation pursuant to this subdivision demonstrating the employee's status as a victim of domestic violence, sexual assault, or stalking. Certi®cation shall be suf®cient in the form of any of the categories described in paragraph (2) of subdivision (d). (C) An employer who requests certi®cation pursuant to subparagraph (B) may request recerti®cation of an employee's status as a victim of domestic violence, sexual assault, or stalking every six months after the date of the previous certi®cation. (D) Any verbal or written statement, police or court record, or other documentation provided to an employer identifying an employee as a victim of domestic violence, sexual assault, or stalking shall be maintained as con®dential by the employer and shall not be disclosed by the employer

Ch. 759 Ð 4 Ð except as required by federal or state law or as necessary to protect the employee's safety in the workplace. The employee shall be given notice before any authorized disclosure. (E) (i) If circumstances change and an employee needs a new accommodation, the employee shall request a new accommodation from the employer. (ii) Upon receiving the request, the employer shall engage in a timely, good faith, and interactive process with the employee to determine effective reasonable accommodations. (F) If an employee no longer needs an accommodation, the employee shall notify the employer that the accommodation is no longer needed. (8) An employer shall not retaliate against a victim of domestic violence, sexual assault, or stalking for requesting a reasonable accommodation, regardless of whether the request was granted. (g) (1) An employee who is discharged, threatened with discharge, demoted, suspended, or in any other manner discriminated or retaliated against in the terms and conditions of employment by his or her employer because the employee has taken time off for a purpose set forth in subdivision (a) or (b) shall be entitled to reinstatement and reimbursement for lost wages and work bene®ts caused by the acts of the employer. (2) An employee who is discharged, threatened with discharge, demoted, suspended, or in any other manner discriminated or retaliated against in the terms and conditions of employment by his or her employer for reasons prohibited in subdivision (c) or (e), or because the employee has requested or received a reasonable accommodation as set forth in subdivision (f), shall be entitled to reinstatement and reimbursement for lost wages and work bene®ts caused by the acts of the employer, as well as appropriate equitable relief. (3) An employer who willfully refuses to rehire, promote, or otherwise restore an employee or former employee who has been determined to be eligible for rehiring or promotion by a grievance procedure or hearing authorized by law is guilty of a misdemeanor. (h) (1) An employee who is discharged, threatened with discharge, demoted, suspended, or in any other manner discriminated or retaliated against in the terms and conditions of employment by his or her employer because the employee has exercised his or her rights as set forth in subdivision (a), (b), (c), (e), or (f) may ®le a complaint with the Division of Labor Standards Enforcement of the Department of Industrial Relations pursuant to Section 98.7. (2) Notwithstanding any time limitation in Section 98.7, an employee may ®le a complaint with the division based upon a violation of subdivision (c), (e), or (f) within one year from the date of occurrence of the violation. (i) An employee may use vacation, personal leave, or compensatory time off that is otherwise available to the employee under the applicable terms of employment, unless otherwise provided by a collective bargaining agreement, for time taken off for a purpose speci®ed in subdivision (a), (b),

Ð 5 Ð Ch. 759 or (c). The entitlement of any employee under this section shall not be diminished by any collective bargaining agreement term or condition. (j) For purposes of this section: (1) ªDomestic violenceº means any of the types of abuse set forth in Section 6211 of the Family Code, as amended. (2) ªSexual assaultº means any of the crimes set forth in Section 261, 261.5, 262, 265, 266, 266a, 266b, 266c, 266g, 266j, 267, 269, 273.4, 285, 286, 288, 288a, 288.5, 289, or 311.4 of the Penal Code, as amended. (3) ªStalkingº means a crime set forth in Section 646.9 of the Penal Code or Section 1708.7 of the Civil Code. SEC. 2. Section 230.1 of the Labor Code is amended to read: 230.1. (a) In addition to the requirements and prohibitions imposed on employees pursuant to Section 230, an employer with 25 or more employees shall not discharge or in any manner discriminate or retaliate against an employee who is a victim of domestic violence, sexual assault, or stalking for taking time off from work to attend to any of the following: (1) To seek medical attention for injuries caused by domestic violence, sexual assault, or stalking. (2) To obtain services from a domestic violence shelter, program, or rape crisis center as a result of domestic violence, sexual assault, or stalking. (3) To obtain psychological counseling related to an experience of domestic violence, sexual assault, or stalking. (4) To participate in safety planning and take other actions to increase safety from future domestic violence, sexual assault, or stalking, including temporary or permanent relocation. (b) (1) As a condition of taking time off for a purpose set forth in subdivision (a), the employee shall give the employer reasonable advance notice of the employee's intention to take time off, unless the advance notice is not feasible. (2) When an unscheduled absence occurs, the employer shall not take any action against the employee if the employee, within a reasonable time after the absence, provides a certi®cation to the employer. Certi®cation shall be suf®cient in the form of any of the categories described in paragraph (2) of subdivision (d) of Section 230. (3) To the extent allowed by law and consistent with subparagraph (D) of paragraph (7) of subdivision (f) of Section 230, employers shall maintain the con®dentiality of any employee requesting leave under subdivision (a). (c) An employee who is discharged, threatened with discharge, demoted, suspended, or in any other manner discriminated or retaliated against in the terms and conditions of employment by his or her employer because the employee has taken time off for a purpose set forth in subdivision (a) is entitled to reinstatement and reimbursement for lost wages and work bene®ts caused by the acts of the employer, as well as appropriate equitable relief. An employer who willfully refuses to rehire, promote, or otherwise restore an employee or former employee who has been determined to be eligible for rehiring or promotion by a grievance procedure or hearing authorized by law is guilty of a misdemeanor.

Ch. 759 Ð 6 Ð

(d) (1) An employee who is discharged, threatened with discharge, demoted, suspended, or in any other manner discriminated or retaliated against in the terms and conditions of employment by his or her employer because the employee has exercised his or her rights as set forth in subdivision (a) may ®le a complaint with the Division of Labor Standards Enforcement of the Department of Industrial Relations pursuant to Section 98.7. (2) Notwithstanding any time limitation in Section 98.7, an employee may ®le a complaint with the division based upon a violation of subdivision (a) within one year from the date of occurrence of the violation. (e) An employee may use vacation, personal leave, or compensatory time off that is otherwise available to the employee under the applicable terms of employment, unless otherwise provided by a collective bargaining agreement, for time taken off for a purpose speci®ed in subdivision (a). The entitlement of any employee under this section shall not be diminished by any collective bargaining agreement term or condition. (f) This section does not create a right for an employee to take unpaid leave that exceeds the unpaid leave time allowed under, or is in addition to the unpaid leave time permitted by, the federal Family and Medical Leave Act of 1993 (29 U.S.C. Sec. 2601 et seq.). (g) For purposes of this section: (1) ªDomestic violenceº means any of the types of abuse set forth in Section 6211 of the Family Code, as amended. (2) ªSexual assaultº means any of the crimes set forth in Section 261, 261.5, 262, 265, 266, 266a, 266b, 266c, 266g, 266j, 267, 269, 273.4, 285, 286, 288, 288a, 288.5, 289, or 311.4 of the Penal Code, as amended. (3) ªStalkingº means a crime set forth in Section 646.9 of the Penal Code or Section 1708.7 of the Civil Code. SEC. 3. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the de®nition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

Senate Bill No. 435

CHAPTER 719

An act to amend Section 226.7 of the Labor Code, relating to compensation.

[Approved by Governor October 10, 2013. Filed with Secretary of State October 10, 2013.]

legislative counsel’s digest SB 435, Padilla. Compensation: meal and rest or recovery periods. Existing law prohibits an employer from requiring an employee to work during any meal or rest period mandated by an order of the Industrial Welfare Commission (IWC) and establishes penalties for an employer's failure to provide a mandated meal or rest period. This bill would make that prohibition applicable to a meal or rest or recovery period mandated by applicable statute or applicable regulation, standard, or order of the IWC, the Occupational Safety and Health Standards Board, or the Division of Occupational Safety and Health. The bill would exempt speci®ed employees from the prohibition. The bill would require an employer to pay an employee, for any meal or rest or recovery period mandated by law, one additional hour of pay at the employee's regular rate of compensation for each workday that the meal or rest or recovery period is not provided. The bill would de®ne ªrecovery periodº for those purposes.

The people of the State of California do enact as follows:

SECTION 1. Section 226.7 of the Labor Code is amended to read: 226.7. (a) As used in this section, ªrecovery periodº means a cooldown period afforded an employee to prevent heat illness. (b) An employer shall not require an employee to work during a meal or rest or recovery period mandated pursuant to an applicable statute, or applicable regulation, standard, or order of the Industrial Welfare Commission, the Occupational Safety and Health Standards Board, or the Division of Occupational Safety and Health. (c) If an employer fails to provide an employee a meal or rest or recovery period in accordance with a state law, including, but not limited to, an applicable statute or applicable regulation, standard, or order of the Industrial Welfare Commission, the Occupational Safety and Health Standards Board, or the Division of Occupational Safety and Health, the employer shall pay the employee one additional hour of pay at the employee's regular rate of compensation for each workday that the meal or rest or recovery period is not provided.

Ch. 719 Ð 2 Ð

(d) This section shall not apply to an employee who is exempt from meal or rest or recovery period requirements pursuant to other state laws, including, but not limited to, a statute or regulation, standard, or order of the Industrial Welfare Commission.

Assembly Bill No. 1181

CHAPTER 305

An act to amend Section 3505.3 of the Government Code, relating to public employee organizations.

[Approved by Governor September 9, 2013. Filed with Secretary of State September 9, 2013.]

legislative counsel’s digest AB 1181, Gray. Public employee organizations: members: paid leaves of absence. The Meyers-Milias-Brown Act requires that local public agencies allow a reasonable number of local public agency employee representatives of recognized employee organizations reasonable time off without loss of compensation or other bene®ts when formally meeting and conferring with representatives of the public agency. This bill would additionally require the local public agency to give reasonable time off, without loss of compensation or other bene®ts, to public agency employee representatives when they are testifying or appearing as the designated representative, as de®ned, of the employee organization in proceedings before the Public Employment Relations Board in matters relating to a charge ®led by the employee organization against the public agency or by the public agency against the employee organization, or when they are testifying or appearing as the designated representative, as de®ned, of the employee organization in matters before a personnel or merit commission. The bill would require the employee organization being represented to provide reasonable noti®cation to the employer requesting a leave of absence without loss of compensation pursuant to these provisions.

The people of the State of California do enact as follows:

SECTION 1. Section 3505.3 of the Government Code is amended to read: 3505.3. (a) Public agencies shall allow a reasonable number of public agency employee representatives of recognized employee organizations reasonable time off without loss of compensation or other bene®ts when they are participating in any one of the following activities: (1) Formally meeting and conferring with representatives of the public agency on matters within the scope of representation. (2) Testifying or appearing as the designated representative of the employee organization in conferences, hearings, or other proceedings before the board, or an agent thereof, in matters relating to a charge ®led by the

Ch. 305 Ð 2 Ð employee organization against the public agency or by the public agency against the employee organization. (3) Testifying or appearing as the designated representative of the employee organization in matters before a personnel or merit commission. (b) The employee organization being represented shall provide reasonable noti®cation to the employer requesting a leave of absence without loss of compensation pursuant to subdivision (a). (c) For the purposes of this section, ªdesignated representativeº means an of®cer of the employee organization or a member serving in proxy of the employee organization.

Senate Bill No. 292

CHAPTER 88

An act to amend Section 12940 of the Government Code, relating to employment.

[Approved by Governor August 12, 2013. Filed with Secretary of State August 12, 2013.]

legislative counsel’s digest SB 292, Corbett. Employment: sexual harassment. Existing law, the California Fair Employment and Housing Act, protects and safeguards the right and opportunity of all persons to seek, obtain, and hold employment without discrimination, abridgment, or harassment on account of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, or sexual orientation. Existing law makes these provisions applicable to employers, labor organizations, employment agencies, and speci®ed training programs and also de®nes harassment because of sex for these purposes. This bill would specify, for purposes of the de®nition of harassment because of sex under these provisions, that sexually harassing conduct need not be motivated by sexual desire.

The people of the State of California do enact as follows:

SECTION 1. Section 12940 of the Government Code is amended to read: 12940. It is an unlawful employment practice, unless based upon a bona ®de occupational quali®cation, or, except where based upon applicable security regulations established by the United States or the State of California: (a) For an employer, because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, or sexual orientation of any person, to refuse to hire or employ the person or to refuse to select the person for a training program leading to employment, or to bar or to discharge the person from employment or from a training program leading to employment, or to discriminate against the person in compensation or in terms, conditions, or privileges of employment. (1) This part does not prohibit an employer from refusing to hire or discharging an employee with a physical or mental disability, or subject an

Ch. 88 Ð 2 Ð employer to any legal liability resulting from the refusal to employ or the discharge of an employee with a physical or mental disability, where the employee, because of his or her physical or mental disability, is unable to perform his or her essential duties even with reasonable accommodations, or cannot perform those duties in a manner that would not endanger his or her health or safety or the health or safety of others even with reasonable accommodations. (2) This part does not prohibit an employer from refusing to hire or discharging an employee who, because of the employee's medical condition, is unable to perform his or her essential duties even with reasonable accommodations, or cannot perform those duties in a manner that would not endanger the employee's health or safety or the health or safety of others even with reasonable accommodations. Nothing in this part shall subject an employer to any legal liability resulting from the refusal to employ or the discharge of an employee who, because of the employee's medical condition, is unable to perform his or her essential duties, or cannot perform those duties in a manner that would not endanger the employee's health or safety or the health or safety of others even with reasonable accommodations. (3) Nothing in this part relating to discrimination on account of marital status shall do either of the following: (A) Affect the right of an employer to reasonably regulate, for reasons of supervision, safety, security, or morale, the working of spouses in the same department, division, or facility, consistent with the rules and regulations adopted by the commission. (B) Prohibit bona ®de health plans from providing additional or greater bene®ts to employees with dependents than to those employees without or with fewer dependents. (4) Nothing in this part relating to discrimination on account of sex shall affect the right of an employer to use veteran status as a factor in employee selection or to give special consideration to Vietnam-era veterans. (5) (A) This part does not prohibit an employer from refusing to employ an individual because of his or her age if the law compels or provides for that refusal. Promotions within the existing staff, hiring or promotion on the basis of experience and training, rehiring on the basis of seniority and prior service with the employer, or hiring under an established recruiting program from high schools, colleges, universities, or trade schools do not, in and of themselves, constitute unlawful employment practices. (B) The provisions of this part relating to discrimination on the basis of age do not prohibit an employer from providing health bene®ts or health care reimbursement plans to retired persons that are altered, reduced, or eliminated when the person becomes eligible for Medicare health bene®ts. This subparagraph applies to all retiree health bene®t plans and contractual provisions or practices concerning retiree health bene®ts and health care reimbursement plans in effect on or after January 1, 2011. (b) For a labor organization, because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity,

Ð 3 Ð Ch. 88 gender expression, age, or sexual orientation of any person, to exclude, expel, or restrict from its membership the person, or to provide only second-class or segregated membership or to discriminate against any person because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, or sexual orientation of the person in the election of of®cers of the labor organization or in the selection of the labor organization's staff or to discriminate in any way against any of its members or against any employer or against any person employed by an employer. (c) For any person to discriminate against any person in the selection or training of that person in any apprenticeship training program or any other training program leading to employment because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, or sexual orientation of the person discriminated against. (d) For any employer or employment agency to print or circulate or cause to be printed or circulated any publication, or to make any nonjob-related inquiry of an employee or applicant, either verbal or through use of an application form, that expresses, directly or indirectly, any limitation, speci®cation, or discrimination as to race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, or sexual orientation, or any intent to make any such limitation, speci®cation, or discrimination. This part does not prohibit an employer or employment agency from inquiring into the age of an applicant, or from specifying age limitations, where the law compels or provides for that action. (e) (1) Except as provided in paragraph (2) or (3), for any employer or employment agency to require any medical or psychological examination of an applicant, to make any medical or psychological inquiry of an applicant, to make any inquiry whether an applicant has a mental disability or physical disability or medical condition, or to make any inquiry regarding the nature or severity of a physical disability, mental disability, or medical condition. (2) Notwithstanding paragraph (1), an employer or employment agency may inquire into the ability of an applicant to perform job-related functions and may respond to an applicant's request for reasonable accommodation. (3) Notwithstanding paragraph (1), an employer or employment agency may require a medical or psychological examination or make a medical or psychological inquiry of a job applicant after an employment offer has been made but prior to the commencement of employment duties, provided that the examination or inquiry is job related and consistent with business necessity and that all entering employees in the same job classi®cation are subject to the same examination or inquiry.

Ch. 88 Ð 4 Ð

(f) (1) Except as provided in paragraph (2), for any employer or employment agency to require any medical or psychological examination of an employee, to make any medical or psychological inquiry of an employee, to make any inquiry whether an employee has a mental disability, physical disability, or medical condition, or to make any inquiry regarding the nature or severity of a physical disability, mental disability, or medical condition. (2) Notwithstanding paragraph (1), an employer or employment agency may require any examinations or inquiries that it can show to be job related and consistent with business necessity. An employer or employment agency may conduct voluntary medical examinations, including voluntary medical histories, which are part of an employee health program available to employees at that worksite. (g) For any employer, labor organization, or employment agency to harass, discharge, expel, or otherwise discriminate against any person because the person has made a report pursuant to Section 11161.8 of the Penal Code that prohibits retaliation against hospital employees who report suspected patient abuse by health facilities or community care facilities. (h) For any employer, labor organization, employment agency, or person to discharge, expel, or otherwise discriminate against any person because the person has opposed any practices forbidden under this part or because the person has ®led a complaint, testi®ed, or assisted in any proceeding under this part. (i) For any person to aid, abet, incite, compel, or coerce the doing of any of the acts forbidden under this part, or to attempt to do so. (j) (1) For an employer, labor organization, employment agency, apprenticeship training program or any training program leading to employment, or any other person, because of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, or sexual orientation, to harass an employee, an applicant, or a person providing services pursuant to a contract. Harassment of an employee, an applicant, or a person providing services pursuant to a contract by an employee, other than an agent or supervisor, shall be unlawful if the entity, or its agents or supervisors, knows or should have known of this conduct and fails to take immediate and appropriate corrective action. An employer may also be responsible for the acts of nonemployees, with respect to sexual harassment of employees, applicants, or persons providing services pursuant to a contract in the workplace, where the employer, or its agents or supervisors, knows or should have known of the conduct and fails to take immediate and appropriate corrective action. In reviewing cases involving the acts of nonemployees, the extent of the employer's control and any other legal responsibility that the employer may have with respect to the conduct of those nonemployees shall be considered. An entity shall take all reasonable steps to prevent harassment from occurring. Loss of tangible job bene®ts shall not be necessary in order to establish harassment.

Ð 5 Ð Ch. 88

(2) The provisions of this subdivision are declaratory of existing law, except for the new duties imposed on employers with regard to harassment. (3) An employee of an entity subject to this subdivision is personally liable for any harassment prohibited by this section that is perpetrated by the employee, regardless of whether the employer or covered entity knows or should have known of the conduct and fails to take immediate and appropriate corrective action. (4) (A) For purposes of this subdivision only, ªemployerº means any person regularly employing one or more persons or regularly receiving the services of one or more persons providing services pursuant to a contract, or any person acting as an agent of an employer, directly or indirectly, the state, or any political or civil subdivision of the state, and cities. The de®nition of ªemployerº in subdivision (d) of Section 12926 applies to all provisions of this section other than this subdivision. (B) Notwithstanding subparagraph (A), for purposes of this subdivision, ªemployerº does not include a religious association or corporation not organized for private pro®t, except as provided in Section 12926.2. (C) For purposes of this subdivision, ªharassmentº because of sex includes sexual harassment, gender harassment, and harassment based on pregnancy, childbirth, or related medical conditions. Sexually harassing conduct need not be motivated by sexual desire. (5) For purposes of this subdivision, ªa person providing services pursuant to a contractº means a person who meets all of the following criteria: (A) The person has the right to control the performance of the contract for services and discretion as to the manner of performance. (B) The person is customarily engaged in an independently established business. (C) The person has control over the time and place the work is performed, supplies the tools and instruments used in the work, and performs work that requires a particular skill not ordinarily used in the course of the employer's work. (k) For an employer, labor organization, employment agency, apprenticeship training program, or any training program leading to employment, to fail to take all reasonable steps necessary to prevent discrimination and harassment from occurring. (l) (1) For an employer or other entity covered by this part to refuse to hire or employ a person or to refuse to select a person for a training program leading to employment or to bar or to discharge a person from employment or from a training program leading to employment, or to discriminate against a person in compensation or in terms, conditions, or privileges of employment because of a con¯ict between the person's religious belief or observance and any employment requirement, unless the employer or other entity covered by this part demonstrates that it has explored any available reasonable alternative means of accommodating the religious belief or observance, including the possibilities of excusing the person from those duties that con¯ict with his or her religious belief or observance or permitting those duties to be performed at another time or by another person, but is

Ch. 88 Ð 6 Ð unable to reasonably accommodate the religious belief or observance without undue hardship, as de®ned in subdivision (t) of Section 12926, on the conduct of the business of the employer or other entity covered by this part. Religious belief or observance, as used in this section, includes, but is not limited to, observance of a Sabbath or other religious holy day or days, reasonable time necessary for travel prior and subsequent to a religious observance, and religious dress practice and religious grooming practice as described in subdivision (p) of Section 12926. (2) An accommodation of an individual's religious dress practice or religious grooming practice is not reasonable if the accommodation requires segregation of the individual from other employees or the public. (3) An accommodation is not required under this subdivision if it would result in a violation of this part or any other law prohibiting discrimination or protecting civil rights, including subdivision (b) of Section 51 of the Civil Code and Section 11135 of this code. (m) For an employer or other entity covered by this part to fail to make reasonable accommodation for the known physical or mental disability of an applicant or employee. Nothing in this subdivision or in paragraph (1) or (2) of subdivision (a) shall be construed to require an accommodation that is demonstrated by the employer or other covered entity to produce undue hardship, as de®ned in subdivision (t) of Section 12926, to its operation. (n) For an employer or other entity covered by this part to fail to engage in a timely, good faith, interactive process with the employee or applicant to determine effective reasonable accommodations, if any, in response to a request for reasonable accommodation by an employee or applicant with a known physical or mental disability or known medical condition. (o) For an employer or other entity covered by this part, to subject, directly or indirectly, any employee, applicant, or other person to a test for the presence of a genetic characteristic.

Assembly Bill No. 556

CHAPTER 691

An act to amend Sections 12920, 12921, 12926, and 12940 of the Government Code, relating to employment.

[Approved by Governor October 10, 2013. Filed with Secretary of State October 10, 2013.]

legislative counsel’s digest AB 556, Salas. Fair Employment and Housing Act: military veterans. (1) Existing law, the California Fair Employment and Housing Act, protects and safeguards the right and opportunity of all persons to seek, obtain, and hold employment without discrimination or abridgment on account of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, or sexual orientation. This bill would add ªmilitary and veteran status,º as de®ned, to the list of categories protected from employment discrimination under the act. The bill would also provide an exemption for an inquiry by an employer regarding military or veteran status for the purpose of awarding a veteran's preference as permitted by law. (2) This bill would incorporate additional changes to Section 12940 of the Government Code made by SB 292 that would become operative if both bills are chaptered on or before January 1, 2014, and this bill is chaptered last.

The people of the State of California do enact as follows:

SECTION 1. Section 12920 of the Government Code is amended to read: 12920. It is hereby declared as the public policy of this state that it is necessary to protect and safeguard the right and opportunity of all persons to seek, obtain, and hold employment without discrimination or abridgment on account of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status. It is recognized that the practice of denying employment opportunity and discriminating in the terms of employment for these reasons foments domestic strife and unrest, deprives the state of the fullest utilization of its

Ch. 691 Ð 2 Ð capacities for development and advancement, and substantially and adversely affects the interests of employees, employers, and the public in general. Further, the practice of discrimination because of race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, familial status, source of income, disability, or genetic information in housing accommodations is declared to be against public policy. It is the purpose of this part to provide effective remedies that will eliminate these discriminatory practices. This part shall be deemed an exercise of the police power of the state for the protection of the welfare, health, and peace of the people of this state. SEC. 2. Section 12921 of the Government Code is amended to read: 12921. (a) The opportunity to seek, obtain, and hold employment without discrimination because of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status is hereby recognized as and declared to be a civil right. (b) The opportunity to seek, obtain, and hold housing without discrimination because of race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, familial status, source of income, disability, genetic information, or any other basis prohibited by Section 51 of the Civil Code is hereby recognized as and declared to be a civil right. SEC. 3. Section 12926 of the Government Code is amended to read: 12926. As used in this part in connection with unlawful practices, unless a different meaning clearly appears from the context: (a) ªAf®rmative reliefº or ªprospective reliefº includes the authority to order reinstatement of an employee, awards of backpay, reimbursement of out-of-pocket expenses, hiring, transfers, reassignments, grants of tenure, promotions, cease and desist orders, posting of notices, training of personnel, testing, expunging of records, reporting of records, and any other similar relief that is intended to correct unlawful practices under this part. (b) ªAgeº refers to the chronological age of any individual who has reached his or her 40th birthday. (c) ªEmployeeº does not include any individual employed by his or her parents, spouse, or child, or any individual employed under a special license in a nonpro®t sheltered workshop or rehabilitation facility. (d) ªEmployerº includes any person regularly employing ®ve or more persons, or any person acting as an agent of an employer, directly or indirectly, the state or any political or civil subdivision of the state, and cities, except as follows: ªEmployerº does not include a religious association or corporation not organized for private pro®t. (e) ªEmployment agencyº includes any person undertaking for compensation to procure employees or opportunities to work.

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(f) ªEssential functionsº means the fundamental job duties of the employment position the individual with a disability holds or desires. ªEssential functionsº does not include the marginal functions of the position. (1) A job function may be considered essential for any of several reasons, including, but not limited to, any one or more of the following: (A) The function may be essential because the reason the position exists is to perform that function. (B) The function may be essential because of the limited number of employees available among whom the performance of that job function can be distributed. (C) The function may be highly specialized, so that the incumbent in the position is hired for his or her expertise or ability to perform the particular function. (2) Evidence of whether a particular function is essential includes, but is not limited to, the following: (A) The employer's judgment as to which functions are essential. (B) Written job descriptions prepared before advertising or interviewing applicants for the job. (C) The amount of time spent on the job performing the function. (D) The consequences of not requiring the incumbent to perform the function. (E) The terms of a collective bargaining agreement. (F) The work experiences of past incumbents in the job. (G) The current work experience of incumbents in similar jobs. (g) (1) ªGenetic informationº means, with respect to any individual, information about any of the following: (A) The individual's genetic tests. (B) The genetic tests of family members of the individual. (C) The manifestation of a disease or disorder in family members of the individual. (2) ªGenetic informationº includes any request for, or receipt of, genetic services, or participation in clinical research that includes genetic services, by an individual or any family member of the individual. (3) ªGenetic informationº does not include information about the sex or age of any individual. (h) ªLabor organizationº includes any organization that exists and is constituted for the purpose, in whole or in part, of collective bargaining or of dealing with employers concerning grievances, terms or conditions of employment, or of other mutual aid or protection. (i) ªMedical conditionº means either of the following: (1) Any health impairment related to or associated with a diagnosis of cancer or a record or history of cancer. (2) Genetic characteristics. For purposes of this section, ªgenetic characteristicsº means either of the following: (A) Any scienti®cally or medically identi®able gene or chromosome, or combination or alteration thereof, that is known to be a cause of a disease or disorder in a person or his or her offspring, or that is determined to be

Ch. 691 Ð 4 Ð associated with a statistically increased risk of development of a disease or disorder, and that is presently not associated with any symptoms of any disease or disorder. (B) Inherited characteristics that may derive from the individual or family member, that are known to be a cause of a disease or disorder in a person or his or her offspring, or that are determined to be associated with a statistically increased risk of development of a disease or disorder, and that are presently not associated with any symptoms of any disease or disorder. (j) ªMental disabilityº includes, but is not limited to, all of the following: (1) Having any mental or psychological disorder or condition, such as intellectual disability, organic brain syndrome, emotional or mental illness, or speci®c learning disabilities, that limits a major life activity. For purposes of this section: (A) ªLimitsº shall be determined without regard to mitigating measures, such as medications, assistive devices, or reasonable accommodations, unless the mitigating measure itself limits a major life activity. (B) A mental or psychological disorder or condition limits a major life activity if it makes the achievement of the major life activity dif®cult. (C) ªMajor life activitiesº shall be broadly construed and shall include physical, mental, and social activities and working. (2) Any other mental or psychological disorder or condition not described in paragraph (1) that requires special education or related services. (3) Having a record or history of a mental or psychological disorder or condition described in paragraph (1) or (2), which is known to the employer or other entity covered by this part. (4) Being regarded or treated by the employer or other entity covered by this part as having, or having had, any mental condition that makes achievement of a major life activity dif®cult. (5) Being regarded or treated by the employer or other entity covered by this part as having, or having had, a mental or psychological disorder or condition that has no present disabling effect, but that may become a mental disability as described in paragraph (1) or (2). ªMental disabilityº does not include sexual behavior disorders, compulsive gambling, kleptomania, pyromania, or psychoactive substance use disorders resulting from the current unlawful use of controlled substances or other drugs. (k) ªMilitary and veteran statusº means a member or veteran of the United States Armed Forces, United States Armed Forces Reserve, the United States National Guard, and the California National Guard. (l) ªOn the bases enumerated in this partº means or refers to discrimination on the basis of one or more of the following: race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, age, sexual orientation, or military and veteran status. (m) ªPhysical disabilityº includes, but is not limited to, all of the following:

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(1) Having any physiological disease, disorder, condition, cosmetic dis®gurement, or anatomical loss that does both of the following: (A) Affects one or more of the following body systems: neurological, immunological, musculoskeletal, special sense organs, respiratory, including speech organs, cardiovascular, reproductive, digestive, genitourinary, hemic and lymphatic, skin, and endocrine. (B) Limits a major life activity. For purposes of this section: (i) ªLimitsº shall be determined without regard to mitigating measures such as medications, assistive devices, prosthetics, or reasonable accommodations, unless the mitigating measure itself limits a major life activity. (ii) A physiological disease, disorder, condition, cosmetic dis®gurement, or anatomical loss limits a major life activity if it makes the achievement of the major life activity dif®cult. (iii) ªMajor life activitiesº shall be broadly construed and includes physical, mental, and social activities and working. (2) Any other health impairment not described in paragraph (1) that requires special education or related services. (3) Having a record or history of a disease, disorder, condition, cosmetic dis®gurement, anatomical loss, or health impairment described in paragraph (1) or (2), which is known to the employer or other entity covered by this part. (4) Being regarded or treated by the employer or other entity covered by this part as having, or having had, any physical condition that makes achievement of a major life activity dif®cult. (5) Being regarded or treated by the employer or other entity covered by this part as having, or having had, a disease, disorder, condition, cosmetic dis®gurement, anatomical loss, or health impairment that has no present disabling effect but may become a physical disability as described in paragraph (1) or (2). (6) ªPhysical disabilityº does not include sexual behavior disorders, compulsive gambling, kleptomania, pyromania, or psychoactive substance use disorders resulting from the current unlawful use of controlled substances or other drugs. (n) Notwithstanding subdivisions (j) and (m), if the de®nition of ªdisabilityº used in the federal Americans with Disabilities Act of 1990 (Public Law 101-336) would result in broader protection of the civil rights of individuals with a mental disability or physical disability, as de®ned in subdivision (j) or (m), or would include any medical condition not included within those de®nitions, then that broader protection or coverage shall be deemed incorporated by reference into, and shall prevail over con¯icting provisions of, the de®nitions in subdivisions (j) and (m). (o) ªRace, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, age, sexual orientation, or military and veteran statusº includes a perception that the person has any of those characteristics or that the person

Ch. 691 Ð 6 Ð is associated with a person who has, or is perceived to have, any of those characteristics. (p) ªReasonable accommodationº may include either of the following: (1) Making existing facilities used by employees readily accessible to, and usable by, individuals with disabilities. (2) Job restructuring, part-time or modi®ed work schedules, reassignment to a vacant position, acquisition or modi®cation of equipment or devices, adjustment or modi®cations of examinations, training materials or policies, the provision of quali®ed readers or interpreters, and other similar accommodations for individuals with disabilities. (q) ªReligious creed,º ªreligion,º ªreligious observance,º ªreligious belief,º and ªcreedº include all aspects of religious belief, observance, and practice, including religious dress and grooming practices. ªReligious dress practiceº shall be construed broadly to include the wearing or carrying of religious clothing, head or face coverings, jewelry, artifacts, and any other item that is part of the observance by an individual of his or her religious creed. ªReligious grooming practiceº shall be construed broadly to include all forms of head, facial, and body hair that are part of the observance by an individual of his or her religious creed. (r) (1) ªSexº includes, but is not limited to, the following: (A) Pregnancy or medical conditions related to pregnancy. (B) Childbirth or medical conditions related to childbirth. (C) Breastfeeding or medical conditions related to breastfeeding. (2) ªSexº also includes, but is not limited to, a person's gender. ªGenderº means sex, and includes a person's gender identity and gender expression. ªGender expressionº means a person's gender-related appearance and behavior whether or not stereotypically associated with the person's assigned sex at birth. (s) ªSexual orientationº means heterosexuality, homosexuality, and bisexuality. (t) ªSupervisorº means any individual having the authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or the responsibility to direct them, or to adjust their grievances, or effectively to recommend that action, if, in connection with the foregoing, the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment. (u) ªUndue hardshipº means an action requiring signi®cant dif®culty or expense, when considered in light of the following factors: (1) The nature and cost of the accommodation needed. (2) The overall ®nancial resources of the facilities involved in the provision of the reasonable accommodations, the number of persons employed at the facility, and the effect on expenses and resources or the impact otherwise of these accommodations upon the operation of the facility. (3) The overall ®nancial resources of the covered entity, the overall size of the business of a covered entity with respect to the number of employees, and the number, type, and location of its facilities.

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(4) The type of operations, including the composition, structure, and functions of the workforce of the entity. (5) The geographic separateness or administrative or ®scal relationship of the facility or facilities. SEC. 4. Section 12940 of the Government Code is amended to read: 12940. It is an unlawful employment practice, unless based upon a bona ®de occupational quali®cation, or, except where based upon applicable security regulations established by the United States or the State of California: (a) For an employer, because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status of any person, to refuse to hire or employ the person or to refuse to select the person for a training program leading to employment, or to bar or to discharge the person from employment or from a training program leading to employment, or to discriminate against the person in compensation or in terms, conditions, or privileges of employment. (1) This part does not prohibit an employer from refusing to hire or discharging an employee with a physical or mental disability, or subject an employer to any legal liability resulting from the refusal to employ or the discharge of an employee with a physical or mental disability, where the employee, because of his or her physical or mental disability, is unable to perform his or her essential duties even with reasonable accommodations, or cannot perform those duties in a manner that would not endanger his or her health or safety or the health or safety of others even with reasonable accommodations. (2) This part does not prohibit an employer from refusing to hire or discharging an employee who, because of the employee's medical condition, is unable to perform his or her essential duties even with reasonable accommodations, or cannot perform those duties in a manner that would not endanger the employee's health or safety or the health or safety of others even with reasonable accommodations. Nothing in this part shall subject an employer to any legal liability resulting from the refusal to employ or the discharge of an employee who, because of the employee's medical condition, is unable to perform his or her essential duties, or cannot perform those duties in a manner that would not endanger the employee's health or safety or the health or safety of others even with reasonable accommodations. (3) Nothing in this part relating to discrimination on account of marital status shall do either of the following: (A) Affect the right of an employer to reasonably regulate, for reasons of supervision, safety, security, or morale, the working of spouses in the same department, division, or facility, consistent with the rules and regulations adopted by the commission. (B) Prohibit bona ®de health plans from providing additional or greater bene®ts to employees with dependents than to those employees without or with fewer dependents.

Ch. 691 Ð 8 Ð

(4) Nothing in this part relating to discrimination on account of sex shall affect the right of an employer to use veteran status as a factor in employee selection or to give special consideration to Vietnam-era veterans. (5) (A) This part does not prohibit an employer from refusing to employ an individual because of his or her age if the law compels or provides for that refusal. Promotions within the existing staff, hiring or promotion on the basis of experience and training, rehiring on the basis of seniority and prior service with the employer, or hiring under an established recruiting program from high schools, colleges, universities, or trade schools do not, in and of themselves, constitute unlawful employment practices. (B) The provisions of this part relating to discrimination on the basis of age do not prohibit an employer from providing health bene®ts or health care reimbursement plans to retired persons that are altered, reduced, or eliminated when the person becomes eligible for Medicare health bene®ts. This subparagraph applies to all retiree health bene®t plans and contractual provisions or practices concerning retiree health bene®ts and health care reimbursement plans in effect on or after January 1, 2011. (b) For a labor organization, because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status of any person, to exclude, expel, or restrict from its membership the person, or to provide only second-class or segregated membership or to discriminate against any person because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status of the person in the election of of®cers of the labor organization or in the selection of the labor organization's staff or to discriminate in any way against any of its members or against any employer or against any person employed by an employer. (c) For any person to discriminate against any person in the selection or training of that person in any apprenticeship training program or any other training program leading to employment because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status of the person discriminated against. (d) For any employer or employment agency to print or circulate or cause to be printed or circulated any publication, or to make any nonjob-related inquiry of an employee or applicant, either verbal or through use of an application form, that expresses, directly or indirectly, any limitation, speci®cation, or discrimination as to race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status, or any intent to make any such limitation, speci®cation, or discrimination. This part does not prohibit an employer or employment agency from inquiring

Ð 9 Ð Ch. 691 into the age of an applicant, or from specifying age limitations, where the law compels or provides for that action. (e) (1) Except as provided in paragraph (2) or (3), for any employer or employment agency to require any medical or psychological examination of an applicant, to make any medical or psychological inquiry of an applicant, to make any inquiry whether an applicant has a mental disability or physical disability or medical condition, or to make any inquiry regarding the nature or severity of a physical disability, mental disability, or medical condition. (2) Notwithstanding paragraph (1), an employer or employment agency may inquire into the ability of an applicant to perform job-related functions and may respond to an applicant's request for reasonable accommodation. (3) Notwithstanding paragraph (1), an employer or employment agency may require a medical or psychological examination or make a medical or psychological inquiry of a job applicant after an employment offer has been made but prior to the commencement of employment duties, provided that the examination or inquiry is job related and consistent with business necessity and that all entering employees in the same job classi®cation are subject to the same examination or inquiry. (f) (1) Except as provided in paragraph (2), for any employer or employment agency to require any medical or psychological examination of an employee, to make any medical or psychological inquiry of an employee, to make any inquiry whether an employee has a mental disability, physical disability, or medical condition, or to make any inquiry regarding the nature or severity of a physical disability, mental disability, or medical condition. (2) Notwithstanding paragraph (1), an employer or employment agency may require any examinations or inquiries that it can show to be job related and consistent with business necessity. An employer or employment agency may conduct voluntary medical examinations, including voluntary medical histories, which are part of an employee health program available to employees at that worksite. (g) For any employer, labor organization, or employment agency to harass, discharge, expel, or otherwise discriminate against any person because the person has made a report pursuant to Section 11161.8 of the Penal Code that prohibits retaliation against hospital employees who report suspected patient abuse by health facilities or community care facilities. (h) For any employer, labor organization, employment agency, or person to discharge, expel, or otherwise discriminate against any person because the person has opposed any practices forbidden under this part or because the person has ®led a complaint, testi®ed, or assisted in any proceeding under this part. (i) For any person to aid, abet, incite, compel, or coerce the doing of any of the acts forbidden under this part, or to attempt to do so. (j) (1) For an employer, labor organization, employment agency, apprenticeship training program or any training program leading to employment, or any other person, because of race, religious creed, color,

Ch. 691 Ð 10 Ð national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status, to harass an employee, an applicant, or a person providing services pursuant to a contract. Harassment of an employee, an applicant, or a person providing services pursuant to a contract by an employee, other than an agent or supervisor, shall be unlawful if the entity, or its agents or supervisors, knows or should have known of this conduct and fails to take immediate and appropriate corrective action. An employer may also be responsible for the acts of nonemployees, with respect to sexual harassment of employees, applicants, or persons providing services pursuant to a contract in the workplace, where the employer, or its agents or supervisors, knows or should have known of the conduct and fails to take immediate and appropriate corrective action. In reviewing cases involving the acts of nonemployees, the extent of the employer's control and any other legal responsibility that the employer may have with respect to the conduct of those nonemployees shall be considered. An entity shall take all reasonable steps to prevent harassment from occurring. Loss of tangible job bene®ts shall not be necessary in order to establish harassment. (2) The provisions of this subdivision are declaratory of existing law, except for the new duties imposed on employers with regard to harassment. (3) An employee of an entity subject to this subdivision is personally liable for any harassment prohibited by this section that is perpetrated by the employee, regardless of whether the employer or covered entity knows or should have known of the conduct and fails to take immediate and appropriate corrective action. (4) (A) For purposes of this subdivision only, ªemployerº means any person regularly employing one or more persons or regularly receiving the services of one or more persons providing services pursuant to a contract, or any person acting as an agent of an employer, directly or indirectly, the state, or any political or civil subdivision of the state, and cities. The de®nition of ªemployerº in subdivision (d) of Section 12926 applies to all provisions of this section other than this subdivision. (B) Notwithstanding subparagraph (A), for purposes of this subdivision, ªemployerº does not include a religious association or corporation not organized for private pro®t, except as provided in Section 12926.2. (C) For purposes of this subdivision, ªharassmentº because of sex includes sexual harassment, gender harassment, and harassment based on pregnancy, childbirth, or related medical conditions. (5) For purposes of this subdivision, ªa person providing services pursuant to a contractº means a person who meets all of the following criteria: (A) The person has the right to control the performance of the contract for services and discretion as to the manner of performance. (B) The person is customarily engaged in an independently established business. (C) The person has control over the time and place the work is performed, supplies the tools and instruments used in the work, and performs work that

Ð 11 Ð Ch. 691 requires a particular skill not ordinarily used in the course of the employer's work. (k) For an employer, labor organization, employment agency, apprenticeship training program, or any training program leading to employment, to fail to take all reasonable steps necessary to prevent discrimination and harassment from occurring. (l) (1) For an employer or other entity covered by this part to refuse to hire or employ a person or to refuse to select a person for a training program leading to employment or to bar or to discharge a person from employment or from a training program leading to employment, or to discriminate against a person in compensation or in terms, conditions, or privileges of employment because of a con¯ict between the person's religious belief or observance and any employment requirement, unless the employer or other entity covered by this part demonstrates that it has explored any available reasonable alternative means of accommodating the religious belief or observance, including the possibilities of excusing the person from those duties that con¯ict with his or her religious belief or observance or permitting those duties to be performed at another time or by another person, but is unable to reasonably accommodate the religious belief or observance without undue hardship, as de®ned in subdivision (u) of Section 12926, on the conduct of the business of the employer or other entity covered by this part. Religious belief or observance, as used in this section, includes, but is not limited to, observance of a Sabbath or other religious holy day or days, reasonable time necessary for travel prior and subsequent to a religious observance, and religious dress practice and religious grooming practice as described in subdivision (q) of Section 12926. (2) An accommodation of an individual's religious dress practice or religious grooming practice is not reasonable if the accommodation requires segregation of the individual from other employees or the public. (3) An accommodation is not required under this subdivision if it would result in a violation of this part or any other law prohibiting discrimination or protecting civil rights, including subdivision (b) of Section 51 of the Civil Code and Section 11135 of this code. (m) For an employer or other entity covered by this part to fail to make reasonable accommodation for the known physical or mental disability of an applicant or employee. Nothing in this subdivision or in paragraph (1) or (2) of subdivision (a) shall be construed to require an accommodation that is demonstrated by the employer or other covered entity to produce undue hardship, as de®ned in subdivision (u) of Section 12926, to its operation. (n) For an employer or other entity covered by this part to fail to engage in a timely, good faith, interactive process with the employee or applicant to determine effective reasonable accommodations, if any, in response to a request for reasonable accommodation by an employee or applicant with a known physical or mental disability or known medical condition.

Ch. 691 Ð 12 Ð

(o) For an employer or other entity covered by this part, to subject, directly or indirectly, any employee, applicant, or other person to a test for the presence of a genetic characteristic. (p) Nothing in this section shall be interpreted as preventing the ability of employers to identify members of the military or veterans for purposes of awarding a veteran's preference as permitted by law. SEC. 4.5. Section 12940 of the Government Code is amended to read: 12940. It is an unlawful employment practice, unless based upon a bona ®de occupational quali®cation, or, except where based upon applicable security regulations established by the United States or the State of California: (a) For an employer, because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status of any person, to refuse to hire or employ the person or to refuse to select the person for a training program leading to employment, or to bar or to discharge the person from employment or from a training program leading to employment, or to discriminate against the person in compensation or in terms, conditions, or privileges of employment. (1) This part does not prohibit an employer from refusing to hire or discharging an employee with a physical or mental disability, or subject an employer to any legal liability resulting from the refusal to employ or the discharge of an employee with a physical or mental disability, where the employee, because of his or her physical or mental disability, is unable to perform his or her essential duties even with reasonable accommodations, or cannot perform those duties in a manner that would not endanger his or her health or safety or the health or safety of others even with reasonable accommodations. (2) This part does not prohibit an employer from refusing to hire or discharging an employee who, because of the employee's medical condition, is unable to perform his or her essential duties even with reasonable accommodations, or cannot perform those duties in a manner that would not endanger the employee's health or safety or the health or safety of others even with reasonable accommodations. Nothing in this part shall subject an employer to any legal liability resulting from the refusal to employ or the discharge of an employee who, because of the employee's medical condition, is unable to perform his or her essential duties, or cannot perform those duties in a manner that would not endanger the employee's health or safety or the health or safety of others even with reasonable accommodations. (3) Nothing in this part relating to discrimination on account of marital status shall do either of the following: (A) Affect the right of an employer to reasonably regulate, for reasons of supervision, safety, security, or morale, the working of spouses in the same department, division, or facility, consistent with the rules and regulations adopted by the commission.

Ð 13 Ð Ch. 691

(B) Prohibit bona ®de health plans from providing additional or greater bene®ts to employees with dependents than to those employees without or with fewer dependents. (4) Nothing in this part relating to discrimination on account of sex shall affect the right of an employer to use veteran status as a factor in employee selection or to give special consideration to Vietnam-era veterans. (5) (A) This part does not prohibit an employer from refusing to employ an individual because of his or her age if the law compels or provides for that refusal. Promotions within the existing staff, hiring or promotion on the basis of experience and training, rehiring on the basis of seniority and prior service with the employer, or hiring under an established recruiting program from high schools, colleges, universities, or trade schools do not, in and of themselves, constitute unlawful employment practices. (B) The provisions of this part relating to discrimination on the basis of age do not prohibit an employer from providing health bene®ts or health care reimbursement plans to retired persons that are altered, reduced, or eliminated when the person becomes eligible for Medicare health bene®ts. This subparagraph applies to all retiree health bene®t plans and contractual provisions or practices concerning retiree health bene®ts and health care reimbursement plans in effect on or after January 1, 2011. (b) For a labor organization, because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status of any person, to exclude, expel, or restrict from its membership the person, or to provide only second-class or segregated membership or to discriminate against any person because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status of the person in the election of of®cers of the labor organization or in the selection of the labor organization's staff or to discriminate in any way against any of its members or against any employer or against any person employed by an employer. (c) For any person to discriminate against any person in the selection or training of that person in any apprenticeship training program or any other training program leading to employment because of the race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status of the person discriminated against. (d) For any employer or employment agency to print or circulate or cause to be printed or circulated any publication, or to make any nonjob-related inquiry of an employee or applicant, either verbal or through use of an application form, that expresses, directly or indirectly, any limitation, speci®cation, or discrimination as to race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender

Ch. 691 Ð 14 Ð expression, age, sexual orientation, or military and veteran status, or any intent to make any such limitation, speci®cation, or discrimination. This part does not prohibit an employer or employment agency from inquiring into the age of an applicant, or from specifying age limitations, where the law compels or provides for that action. (e) (1) Except as provided in paragraph (2) or (3), for any employer or employment agency to require any medical or psychological examination of an applicant, to make any medical or psychological inquiry of an applicant, to make any inquiry whether an applicant has a mental disability or physical disability or medical condition, or to make any inquiry regarding the nature or severity of a physical disability, mental disability, or medical condition. (2) Notwithstanding paragraph (1), an employer or employment agency may inquire into the ability of an applicant to perform job-related functions and may respond to an applicant's request for reasonable accommodation. (3) Notwithstanding paragraph (1), an employer or employment agency may require a medical or psychological examination or make a medical or psychological inquiry of a job applicant after an employment offer has been made but prior to the commencement of employment duties, provided that the examination or inquiry is job related and consistent with business necessity and that all entering employees in the same job classi®cation are subject to the same examination or inquiry. (f) (1) Except as provided in paragraph (2), for any employer or employment agency to require any medical or psychological examination of an employee, to make any medical or psychological inquiry of an employee, to make any inquiry whether an employee has a mental disability, physical disability, or medical condition, or to make any inquiry regarding the nature or severity of a physical disability, mental disability, or medical condition. (2) Notwithstanding paragraph (1), an employer or employment agency may require any examinations or inquiries that it can show to be job related and consistent with business necessity. An employer or employment agency may conduct voluntary medical examinations, including voluntary medical histories, which are part of an employee health program available to employees at that worksite. (g) For any employer, labor organization, or employment agency to harass, discharge, expel, or otherwise discriminate against any person because the person has made a report pursuant to Section 11161.8 of the Penal Code that prohibits retaliation against hospital employees who report suspected patient abuse by health facilities or community care facilities. (h) For any employer, labor organization, employment agency, or person to discharge, expel, or otherwise discriminate against any person because the person has opposed any practices forbidden under this part or because the person has ®led a complaint, testi®ed, or assisted in any proceeding under this part. (i) For any person to aid, abet, incite, compel, or coerce the doing of any of the acts forbidden under this part, or to attempt to do so.

Ð 15 Ð Ch. 691

(j) (1) For an employer, labor organization, employment agency, apprenticeship training program or any training program leading to employment, or any other person, because of race, religious creed, color, national origin, ancestry, physical disability, mental disability, medical condition, genetic information, marital status, sex, gender, gender identity, gender expression, age, sexual orientation, or military and veteran status, to harass an employee, an applicant, or a person providing services pursuant to a contract. Harassment of an employee, an applicant, or a person providing services pursuant to a contract by an employee, other than an agent or supervisor, shall be unlawful if the entity, or its agents or supervisors, knows or should have known of this conduct and fails to take immediate and appropriate corrective action. An employer may also be responsible for the acts of nonemployees, with respect to sexual harassment of employees, applicants, or persons providing services pursuant to a contract in the workplace, where the employer, or its agents or supervisors, knows or should have known of the conduct and fails to take immediate and appropriate corrective action. In reviewing cases involving the acts of nonemployees, the extent of the employer's control and any other legal responsibility that the employer may have with respect to the conduct of those nonemployees shall be considered. An entity shall take all reasonable steps to prevent harassment from occurring. Loss of tangible job bene®ts shall not be necessary in order to establish harassment. (2) The provisions of this subdivision are declaratory of existing law, except for the new duties imposed on employers with regard to harassment. (3) An employee of an entity subject to this subdivision is personally liable for any harassment prohibited by this section that is perpetrated by the employee, regardless of whether the employer or covered entity knows or should have known of the conduct and fails to take immediate and appropriate corrective action. (4) (A) For purposes of this subdivision only, ªemployerº means any person regularly employing one or more persons or regularly receiving the services of one or more persons providing services pursuant to a contract, or any person acting as an agent of an employer, directly or indirectly, the state, or any political or civil subdivision of the state, and cities. The de®nition of ªemployerº in subdivision (d) of Section 12926 applies to all provisions of this section other than this subdivision. (B) Notwithstanding subparagraph (A), for purposes of this subdivision, ªemployerº does not include a religious association or corporation not organized for private pro®t, except as provided in Section 12926.2. (C) For purposes of this subdivision, ªharassmentº because of sex includes sexual harassment, gender harassment, and harassment based on pregnancy, childbirth, or related medical conditions. Sexually harassing conduct need not be motivated by sexual desire. (5) For purposes of this subdivision, ªa person providing services pursuant to a contractº means a person who meets all of the following criteria: (A) The person has the right to control the performance of the contract for services and discretion as to the manner of performance.

Ch. 691 Ð 16 Ð

(B) The person is customarily engaged in an independently established business. (C) The person has control over the time and place the work is performed, supplies the tools and instruments used in the work, and performs work that requires a particular skill not ordinarily used in the course of the employer's work. (k) For an employer, labor organization, employment agency, apprenticeship training program, or any training program leading to employment, to fail to take all reasonable steps necessary to prevent discrimination and harassment from occurring. (l) (1) For an employer or other entity covered by this part to refuse to hire or employ a person or to refuse to select a person for a training program leading to employment or to bar or to discharge a person from employment or from a training program leading to employment, or to discriminate against a person in compensation or in terms, conditions, or privileges of employment because of a con¯ict between the person's religious belief or observance and any employment requirement, unless the employer or other entity covered by this part demonstrates that it has explored any available reasonable alternative means of accommodating the religious belief or observance, including the possibilities of excusing the person from those duties that con¯ict with his or her religious belief or observance or permitting those duties to be performed at another time or by another person, but is unable to reasonably accommodate the religious belief or observance without undue hardship, as de®ned in subdivision (u) of Section 12926, on the conduct of the business of the employer or other entity covered by this part. Religious belief or observance, as used in this section, includes, but is not limited to, observance of a Sabbath or other religious holy day or days, reasonable time necessary for travel prior and subsequent to a religious observance, and religious dress practice and religious grooming practice as described in subdivision (q) of Section 12926. (2) An accommodation of an individual's religious dress practice or religious grooming practice is not reasonable if the accommodation requires segregation of the individual from other employees or the public. (3) An accommodation is not required under this subdivision if it would result in a violation of this part or any other law prohibiting discrimination or protecting civil rights, including subdivision (b) of Section 51 of the Civil Code and Section 11135 of this code. (m) For an employer or other entity covered by this part to fail to make reasonable accommodation for the known physical or mental disability of an applicant or employee. Nothing in this subdivision or in paragraph (1) or (2) of subdivision (a) shall be construed to require an accommodation that is demonstrated by the employer or other covered entity to produce undue hardship, as de®ned in subdivision (u) of Section 12926, to its operation. (n) For an employer or other entity covered by this part to fail to engage in a timely, good faith, interactive process with the employee or applicant to determine effective reasonable accommodations, if any, in response to a

Ð 17 Ð Ch. 691 request for reasonable accommodation by an employee or applicant with a known physical or mental disability or known medical condition. (o) For an employer or other entity covered by this part, to subject, directly or indirectly, any employee, applicant, or other person to a test for the presence of a genetic characteristic. (p) Nothing in this section shall be interpreted as preventing the ability of employers to identify members of the military or veterans for purposes of awarding a veteran's preference as permitted by law. SEC. 5. Section 4.5 of this bill incorporates amendments to Section 12940 of the Government Code proposed by both this bill and Senate Bill 292. It shall only become operative if (1) both bills are enacted and become effective on or before January 1, 2014, (2) each bill amends Section 12940 of the Government Code, and (3) this bill is enacted after Senate Bill 292, in which case Section 4 of this bill shall not become operative.

Assembly Bill No. 218

CHAPTER 699

An act to add Section 432.9 to the Labor Code, relating to employment.

[Approved by Governor October 10, 2013. Filed with Secretary of State October 10, 2013.]

legislative counsel’s digest AB 218, Dickinson. Employment applications: criminal history. Existing law prohibits both public and private employers from asking an applicant for employment to disclose, either in writing or verbally, any information concerning an arrest or detention that did not result in a conviction. This bill, commencing July 1, 2014, would prohibit a state or local agency from asking an applicant to disclose information regarding a criminal conviction, except as speci®ed, until the agency has determined the applicant meets the minimum employment quali®cations for the position. The bill would include speci®ed ®ndings and declarations of the Legislature in support of this policy. Because this bill would impose new requirements on local agencies relative to employment application procedures, it would impose a state-mandated local program. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions.

The people of the State of California do enact as follows:

SECTION 1. The Legislature ®nds and declares that reducing barriers to employment for people who have previously offended, and decreasing unemployment in communities with concentrated numbers of people who have previously offended, are matters of statewide concern. Therefore, this act shall apply to state agencies, all cities and counties, including charter cities and charter counties, and special districts. The Legislature further ®nds and declares that, consistent with the 2011 Realignment Legislation addressing public safety, increasing employment opportunities for people who have previously offended will reduce recidivism and improve economic stability in our communities. SEC. 2. Section 432.9 is added to the Labor Code, to read:

Ch. 699 Ð 2 Ð

432.9. (a) A state or local agency shall not ask an applicant for employment to disclose, orally or in writing, information concerning the conviction history of the applicant, including any inquiry about conviction history on any employment application, until the agency has determined the applicant meets the minimum employment quali®cations, as stated in any notice issued for the position. (b) This section shall not apply to a position for which a state or local agency is otherwise required by law to conduct a conviction history background check, to any position within a criminal justice agency, as that term is de®ned in Section 13101 of the Penal Code, or to any individual working on a temporary or permanent basis for a criminal justice agency on a contract basis or on loan from another governmental entity. (c) This section shall not be construed to prevent a state or local agency from conducting a conviction history background check after complying with all of the provisions of subdivision (a). (d) As used in this section, ªstate agencyº means any state of®ce, of®cer, department, division, bureau, board, commission, or agency. (e) As used in this section, ªlocal agencyº means any county, city, city and county, including a charter city or county, or any special district. (f) Section 433 does not apply to this section. (g) This section shall become operative on July 1, 2014. SEC. 3. If the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.

Senate Bill No. 530

CHAPTER 721

An act to amend Section 432.7 of the Labor Code, and to add Section 4852.22 to the Penal Code, relating to criminal offenders.

[Approved by Governor October 10, 2013. Filed with Secretary of State October 10, 2013.]

legislative counsel’s digest SB 530, Wright. Criminal offenders: rehabilitation. Existing law prohibits an employer, whether a public agency or private individual or corporation, from asking an applicant for employment to disclose, or from utilizing as a factor in determining any condition of employment, information concerning an arrest or detention that did not result in a conviction, or information concerning a referral or participation in, any pretrial or posttrial diversion program, except as specified. Existing law makes it a crime to intentionally violate these provisions. This bill would additionally prohibit an employer, as specified, from asking an applicant to disclose, or from utilizing as a factor in determining any condition of employment, information concerning a conviction that has been judicially dismissed or ordered sealed, as provided, unless the employer is required by law to obtain that information, the applicant would be required to possess or use a firearm in the course of his or her employment, an individual who has been convicted of a crime is prohibited by law from holding the position sought by the applicant, regardless of whether that conviction has been expunged, judicially ordered sealed, statutorily eradicated, or judicially dismissed following probation, or if the employer is prohibited by law from hiring an applicant who has been convicted of a crime. Because this bill would expand the definition of a crime, it would impose a state-mandated local program. Existing law authorizes an individual convicted of a felony or convicted of a misdemeanor violation of a sex offense, as specified, to file a petition for a certificate of rehabilitation and a pardon provided that certain conditions have been satisfied. Existing law authorizes, after the minimum period of rehabilitation has expired, an individual, as specified, to file a petition for ascertainment and declaration of rehabilitation. Existing law authorizes a court to grant an order known as a certificate of rehabilitation and recommend that the Governor grant a full pardon to certain individuals. This bill would authorize a trial court hearing an application for a certificate of rehabilitation before the applicable period of rehabilitation has elapsed to grant the application if the court, in its discretion, believes relief serves the interests of justice.

92 Ch. 721 — 2 —

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a speciﬁed reason.

The people of the State of California do enact as follows:

SECTION 1. Section 432.7 of the Labor Code is amended to read: 432.7. (a) No employer, whether a public agency or private individual or corporation, shall ask an applicant for employment to disclose, through any written form or verbally, information concerning an arrest or detention that did not result in conviction, or information concerning a referral to, and participation in, any pretrial or posttrial diversion program, or concerning a conviction that has been judicially dismissed or ordered sealed pursuant to law, including, but not limited to, Sections 1203.4, 1203.4a, 1203.45, and 1210.1 of the Penal Code, nor shall any employer seek from any source whatsoever, or utilize, as a factor in determining any condition of employment including hiring, promotion, termination, or any apprenticeship training program or any other training program leading to employment, any record of arrest or detention that did not result in conviction, or any record regarding a referral to, and participation in, any pretrial or posttrial diversion program, or concerning a conviction that has been judicially dismissed or ordered sealed pursuant to law, including, but not limited to, Sections 1203.4, 1203.4a, 1203.45, and 1210.1 of the Penal Code. As used in this section, a conviction shall include a plea, verdict, or finding of guilt regardless of whether sentence is imposed by the court. Nothing in this section shall prevent an employer from asking an employee or applicant for employment about an arrest for which the employee or applicant is out on bail or on his or her own recognizance pending trial. (b) Nothing in this section shall prohibit the disclosure of the information authorized for release under Sections 13203 and 13300 of the Penal Code, to a government agency employing a peace officer. However, the employer shall not determine any condition of employment other than paid administrative leave based solely on an arrest report. The information contained in an arrest report may be used as the starting point for an independent, internal investigation of a peace officer in accordance with Chapter 9.7 (commencing with Section 3300) of Division 4 of Title 1 of the Government Code. (c) In any case where a person violates this section, or Article 6 (commencing with Section 11140) of Chapter 1 of Title 1 of Part 4 of the Penal Code, the applicant may bring an action to recover from that person actual damages or two hundred dollars ($200), whichever is greater, plus costs, and reasonable attorney’s fees. An intentional violation of this section shall entitle the applicant to treble actual damages, or five hundred dollars ($500), whichever is greater, plus costs, and reasonable attorney’s fees. An

92 — 3 — Ch. 721 intentional violation of this section is a misdemeanor punishable by a fine not to exceed five hundred dollars ($500). (d) The remedies under this section shall be in addition to and not in derogation of all other rights and remedies that an applicant may have under any other law. (e) Persons seeking employment or persons already employed as peace officers or persons seeking employment for positions in the Department of Justice or other criminal justice agencies as defined in Section 13101 of the Penal Code are not covered by this section. (f) Nothing in this section shall prohibit an employer at a health facility, as defined in Section 1250 of the Health and Safety Code, from asking an applicant for employment either of the following: (1) With regard to an applicant for a position with regular access to patients, to disclose an arrest under any section specified in Section 290 of the Penal Code. (2) With regard to an applicant for a position with access to drugs and medication, to disclose an arrest under any section specified in Section 11590 of the Health and Safety Code. (g) (1) No peace officer or employee of a law enforcement agency with access to criminal offender record information maintained by a local law enforcement criminal justice agency shall knowingly disclose, with intent to affect a person’s employment, any information contained therein pertaining to an arrest or detention or proceeding that did not result in a conviction, including information pertaining to a referral to, and participation in, any pretrial or posttrial diversion program, to any person not authorized by law to receive that information. (2) No other person authorized by law to receive criminal offender record information maintained by a local law enforcement criminal justice agency shall knowingly disclose any information received therefrom pertaining to an arrest or detention or proceeding that did not result in a conviction, including information pertaining to a referral to, and participation in, any pretrial or posttrial diversion program, to any person not authorized by law to receive that information. (3) No person, except those specifically referred to in Section 1070 of the Evidence Code, who knowing he or she is not authorized by law to receive or possess criminal justice records information maintained by a local law enforcement criminal justice agency, pertaining to an arrest or other proceeding that did not result in a conviction, including information pertaining to a referral to, and participation in, any pretrial or posttrial diversion program, shall receive or possess that information. (h) “A person authorized by law to receive that information,” for purposes of this section, means any person or public agency authorized by a court, statute, or decisional law to receive information contained in criminal offender records maintained by a local law enforcement criminal justice agency, and includes, but is not limited to, those persons set forth in Section 11105 of the Penal Code, and any person employed by a law enforcement

92 Ch. 721 — 4 — criminal justice agency who is required by that employment to receive, analyze, or process criminal offender record information. (i) Nothing in this section shall require the Department of Justice to remove entries relating to an arrest or detention not resulting in conviction from summary criminal history records forwarded to an employer pursuant to law. (j) As used in this section, “pretrial or posttrial diversion program” means any program under Chapter 2.5 (commencing with Section 1000) or Chapter 2.7 (commencing with Section 1001) of Title 6 of Part 2 of the Penal Code, Section 13201 or 13352.5 of the Vehicle Code, or any other program expressly authorized and described by statute as a diversion program. (k) (1) Subdivision (a) shall not apply to any city, city and county, county, or district, or any officer or official thereof, in screening a prospective concessionaire, or the affiliates and associates of a prospective concessionaire for purposes of consenting to, or approving of, the prospective concessionaire’s application for, or acquisition of, any beneficial interest in a concession, lease, or other property interest. (2) For purposes of this subdivision the following terms have the following meanings: (A) “Screening” means a written request for criminal history information made to a local law enforcement agency. (B) “Prospective concessionaire” means any individual, general or limited partnership, corporation, trust, association, or other entity that is applying for, or seeking to obtain, a public agency’s consent to, or approval of, the acquisition by that individual or entity of any beneficial ownership interest in any public agency’s concession, lease, or other property right whether directly or indirectly held. However, “prospective concessionaire” does not include any of the following: (i) A lender acquiring an interest solely as security for a bona fide loan made in the ordinary course of the lender’s business and not made for the purpose of acquisition. (ii) A lender upon foreclosure or assignment in lieu of foreclosure of the lender’s security. (C) “Affiliate” means any individual or entity that controls, or is controlled by, the prospective concessionaire, or who is under common control with the prospective concessionaire. (D) “Associate” means any individual or entity that shares a common business purpose with the prospective concessionaire with respect to the beneficial ownership interest that is subject to the consent or approval of the city, county, city and county, or district. (E) “Control” means the possession, direct or indirect, of the power to direct, or cause the direction of, the management or policies of the controlled individual or entity. (l) (1) Nothing in subdivision (a) shall prohibit a public agency, or any officer or official thereof, from denying consent to, or approval of, a prospective concessionaire’s application for, or acquisition of, any beneficial interest in a concession, lease, or other property interest based on the criminal

92 — 5 — Ch. 721 history information of the prospective concessionaire or the affiliates or associates of the prospective concessionaire that show any criminal conviction for offenses involving moral turpitude. Criminal history information for purposes of this subdivision includes any criminal history information obtained pursuant to Section 11105 or 13300 of the Penal Code. (2) In considering criminal history information, a public agency shall consider the crime for which the prospective concessionaire or the affiliates or associates of the prospective concessionaire was convicted only if that crime relates to the specific business that is proposed to be conducted by the prospective concessionaire. (3) Any prospective concessionaire whose application for consent or approval to acquire a beneficial interest in a concession, lease, or other property interest is denied based on criminal history information shall be provided a written statement of the reason for the denial. (4) (A) If the prospective concessionaire submits a written request to the public agency within 10 days of the date of the notice of denial, the public agency shall review its decision with regard to any corrected record or other evidence presented by the prospective concessionaire as to the accuracy or incompleteness of the criminal history information utilized by the public agency in making its original decision. (B) The prospective concessionaire shall submit the copy or the corrected record of any other evidence to the public agency within 90 days of a request for review. The public agency shall render its decision within 20 days of the submission of evidence by the prospective concessionaire. (m) Subdivision (a) does not prohibit an employer from asking an applicant about a criminal conviction of, seeking from any source information regarding a criminal conviction of, utilizing as a factor in determining any condition of employment of, or entry into a pretrial diversion or similar program by, the applicant if, pursuant to Section 1829 of Title 12 of the United States Code or any other state or federal law, any of the following apply: (1) The employer is required by law to obtain information regarding a conviction of an applicant. (2) The applicant would be required to possess or use a firearm in the course of his or her employment. (3) An individual who has been convicted of a crime is prohibited by law from holding the position sought by the applicant, regardless of whether that conviction has been expunged, judicially ordered sealed, statutorily eradicated, or judicially dismissed following probation. (4) The employer is prohibited by law from hiring an applicant who has been convicted of a crime. SEC. 2. Section 4852.22 is added to the Penal Code, to read: 4852.22. Except in a case requiring registration pursuant to Section 290, a trial court hearing an application for a certificate of rehabilitation before the applicable period of rehabilitation has elapsed may grant the application if the court, in its discretion, believes relief serves the interests of justice.

92 Ch. 721 — 6 —

SEC. 3. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the deﬁnition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

92 Senate Bill No. 496

CHAPTER 781

An act to amend Sections 905.2 and 19683 of, and to add Section 8547.15 to, the Government Code, and to amend Section 1102.5 of the Labor Code, relating to employment.

[Approved by Governor October 12, 2013. Filed with Secretary of State October 12, 2013.]

legislative counsel’s digest SB 496, Wright. Improper governmental activity: disclosure: protection. (1) The Government Claims Act sets forth the general procedure for the presentation of a claim for money or damages against the state. This bill would create an exception to the general procedure for a claim alleging a violation of the California Whistleblower Protection Act. (2) The California Whistleblower Protection Act prohibits acts of reprisal, retaliation, coercion, or similar acts against a state employee or an applicant for state employment who made a protected disclosure relating to an improper governmental activity, as de®ned. The State Civil Service Act requires the State Personnel Board to initiate a hearing or investigation of a complaint of reprisal or retaliation in violation of the California Whistleblower Protection Act within 10 working days and the executive of®cer of the board to complete the ®ndings of the hearing or investigation within 60 working days. The State Civil Service Act authorizes the executive of®cer to consolidate a case with the same or similar allegations to those contained in an appeal and exempts consolidated cases from the time limits for hearings, investigations, and ®ndings. This bill would modify these requirements to instead require the board to render its decision on the consolidated matter within 6 months of the date of the order of consolidation, as speci®ed. The bill would also make other technical changes. The act further authorizes the State Auditor to investigate and report whether it ®nds that a state agency or employee may have engaged or participated in an improper governmental activity. Under the act, any person who intentionally engages in acts of reprisal, retaliation, threats, coercion, or similar acts against a state employee or applicant for state employment for having made a disclosure that may evidence an improper governmental activity or dangerous condition is subject to, among other things, liability in an action for damages brought against him or her by the injured party. Existing law, the Government Claims Act, sets forth the general procedure for the presentation of claims as a prerequisite to commencement of actions for money or damages against the State of California, counties, cities, cities

Ch. 781 Ð 2 Ð and counties, districts, local authorities, and other political subdivisions of the state, and against the of®cers, employees, and servants of those entities. This bill would establish an exception for an action for damages pursuant to the California Whistleblower Protection Act from the claims presentation requirements of the Government Claims Act. (3) Existing law prohibits an employer from making, adopting, or enforcing any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a state or federal rule or regulation. Existing law prohibits any employer from retaliating against an employee for disclosing information to a government or law enforcement agency pursuant to these provisions or for refusing to participate in an activity that would result in a violation of a state or federal statute or noncompliance with a state or federal rule or regulation. Under existing law, an employer who violates these provisions is guilty of a crime. This bill would expand these provisions to prohibit an employer from making, adopting, or enforcing any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, if the employee has reasonable cause to believe that the information discloses a violation of or noncompliance with a local rule or regulation. The bill would prohibit an employer from retaliating against an employee because the employer believes that the employee disclosed or may disclose information to a government or law enforcement agency, or to a person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation. The bill would also prohibit an employer from retaliating against an employee for disclosing, or refusing to participate in an activity that would result in, a violation of or noncompliance with a local rule or regulation. (4) This bill would incorporate additional changes to Section 1102.5 of the Labor Code proposed by SB 666 and AB 263 that would become operative if this bill and either SB 666 or AB 263, or both, are enacted and this bill is enacted last. (5) Because this bill would change the de®nition of a crime, this bill would impose a state-mandated local program. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a speci®ed reason.

Ð 3 Ð Ch. 781

The people of the State of California do enact as follows:

SECTION 1. Section 905.2 of the Government Code is amended to read: 905.2. (a) This section shall apply to claims against the state ®led with the California Victim Compensation and Government Claims Board. (b) There shall be presented in accordance with Chapter 1 (commencing with Section 900) and Chapter 2 (commencing with Section 910) all claims for money or damages against the state: (1) For which no appropriation has been made or for which no fund is available but the settlement of which has been provided for by statute or constitutional provision. (2) For which the appropriation made or fund designated is exhausted. (3) For money or damages on express contract, or for an injury for which the state is liable. (4) For which settlement is not otherwise provided for by statute or constitutional provision. (c) Claimants shall pay a ®ling fee of twenty-®ve dollars ($25) for ®ling a claim described in subdivision (b). This fee shall be deposited into the General Fund and may be appropriated in support of the board as reimbursements to Item 1870-001-0001 of Section 2.00 of the annual Budget Act. (1) The fee shall not apply to the following persons: (A) Persons who are receiving bene®ts pursuant to the Supplemental Security Income (SSI) and State Supplemental Payments (SSP) programs (Section 12200 to 12205, inclusive, of the Welfare and Institutions Code), the California Work Opportunity and Responsibility to Kids Act (CalWORKs) program (Chapter 2 (commencing with Section 11200) of Part 3 of Division 9 of the Welfare and Institutions Code), the Food Stamp Program (7 U.S.C. Sec. 2011 et seq.), or Section 17000 of the Welfare and Institutions Code. (B) Persons whose monthly income is 125 percent or less of the current monthly poverty line annually established by the Secretary of California Health and Human Services pursuant to the federal Omnibus Budget Reconciliation Act of 1981 (Public Law 97-35), as amended. (C) Persons who are sentenced to imprisonment in a state prison or con®ned in a county jail, or who are residents in a state institution and, within 90 days prior to the date the claim is ®led, have a balance of one hundred dollars ($100) or less credited to the inmate's or resident's trust account. A certi®ed copy of the statement of the account shall be submitted. (2) Any claimant who requests a fee waiver shall attach to the application a signed af®davit requesting the waiver and veri®cation of bene®ts or income and any other required ®nancial information in support of the request for the waiver. (3) Notwithstanding any other provision of law, an applicant shall not be entitled to a hearing regarding the denial of a request for a fee waiver. (d) The time for the board to determine the suf®ciency, timeliness, or any other aspect of the claim shall begin when any of the following occur:

Ch. 781 Ð 4 Ð

(1) The claim is submitted with the ®ling fee. (2) The fee waiver is granted. (3) The ®ling fee is paid to the board upon the board's denial of the fee waiver request, so long as payment is received within 10 calendar days of the mailing of the notice of the denial. (e) Upon approval of the claim by the board, the fee shall be reimbursed to the claimant, except that no fee shall be reimbursed if the approved claim was for the payment of an expired warrant. Reimbursement of the ®ling fee shall be paid by the state entity against which the approved claim was ®led. If the claimant was granted a fee waiver pursuant to this section, the amount of the fee shall be paid by the state entity to the board. The reimbursement to the claimant or the payment to the board shall be made at the time the claim is paid by the state entity, or shall be added to the amount appropriated for the claim in an equity claims bill. (f) The board may assess a surcharge to the state entity against which the approved claim was ®led in an amount not to exceed 15 percent of the total approved claim. The board shall not include the refunded ®ling fee in the surcharge calculation. This surcharge shall be deposited into the General Fund and may be appropriated in support of the board as reimbursements to Item 1870-001-0001 of Section 2.00 of the annual Budget Act. (1) The surcharge shall not apply to approved claims to reissue expired warrants. (2) Upon the request of the board in a form prescribed by the Controller, the Controller shall transfer the surcharges and fees from the state entity's appropriation to the appropriation for the support of the board. However, the board shall not request an amount that shall be submitted for legislative approval pursuant to Section 13928. (g) The ®ling fee required by subdivision (c) shall apply to all claims ®led after June 30, 2004, or the effective date of this statute. The surcharge authorized by subdivision (f) may be calculated and included in claims paid after June 30, 2004, or the effective date of the statute adding this subdivision. (h) This section shall not apply to claims made for a violation of the California Whistleblower Protection Act (Article 3 (commencing with Section 8547) of Chapter 6.5 of Division 1 of Title 2). SEC. 2. Section 8547.15 is added to the Government Code, to read: 8547.15. An action for damages pursuant to this article shall not be subject to the claims presentation requirements of the Government Claims Act (Division 3.6 (commencing with Section 810) of Title 1). SEC. 3. Section 19683 of the Government Code is amended to read: 19683. (a) The State Personnel Board shall initiate a hearing or investigation of a written complaint of conduct prohibited by Section 8547.3 within 10 working days of its submission. The executive of®cer shall complete ®ndings of the hearing or investigation within 60 working days thereafter, and shall provide a copy of the ®ndings to the complaining state employee or applicant for state employment and to the appropriate supervisor, manager, employee, or appointing authority. When the allegations

Ð 5 Ð Ch. 781 contained in a complaint of reprisal or retaliation are the same as, or similar to, those contained in another appeal, the executive of®cer may consolidate the appeals into the most appropriate format. In these cases, the time limits described in this subdivision shall not apply. The board shall render its decision on the consolidated matter within a reasonable time after the conclusion of the hearing or investigation, except that the period shall not exceed six months from the date of the order of consolidation unless extended by the board for a period of not more than 45 additional days from the expiration of the six-month period. (b) If the executive of®cer ®nds that the supervisor, manager, employee, or appointing power retaliated against the complainant for engaging in protected whistleblower activities, the supervisor, manager, employee, or appointing power may request a hearing before the State Personnel Board regarding the ®ndings of the executive of®cer. The request for hearing and any subsequent determination by the board shall be made in accordance with the board's normal rules governing appeals, hearings, investigations, and disciplinary proceedings. (c) If, after the hearing, the State Personnel Board determines that a violation of Section 8547.3 occurred, or if no hearing is requested and the ®ndings of the executive of®cer conclude that improper activity has occurred, the board may order any appropriate relief, including, but not limited to, reinstatement, backpay, restoration of lost service credit, if appropriate, compensatory damages, and the expungement of any adverse records of the state employee or applicant for state employment who was the subject of the alleged acts of misconduct prohibited by Section 8547.3. (d) Whenever the board determines that a manager, supervisor, or employee, who is named a party to the retaliation complaint, has violated Section 8547.3 and that violation constitutes legal cause for discipline under one or more subdivisions of Section 19572, it shall impose a just and proper penalty and cause an entry to that effect to be made in the manager's, supervisor's, or employee's of®cial personnel records. (e) Whenever the board determines that a manager, supervisor, or employee, who is not named a party to the retaliation complaint, may have engaged in or participated in any act prohibited by Section 8547.3, the board shall notify the manager's, supervisor's, or employee's appointing power of that fact in writing. Within 60 days after receiving the noti®cation, the appointing power shall either serve a notice of adverse action on the manager, supervisor, or employee, or set forth in writing its reasons for not taking adverse action against the manager, supervisor, or employee. The appointing power shall ®le a copy of the notice of adverse action with the board in accordance with Section 19574. If the appointing power declines to take adverse action against the manager, supervisor, or employee, it shall submit its written reasons for not doing so to the board, which may take adverse action against the manager, supervisor, or employee as provided in Section 19583.5. A manager, supervisor, or employee who is served with a notice of adverse action pursuant to this section may ®le an appeal with the board in accordance with Section 19575.

Ch. 781 Ð 6 Ð

(f) In order for the Governor and the Legislature to determine the need to continue or modify state personnel procedures as they relate to the investigations of reprisals or retaliation for the disclosure of information by public employees, the State Personnel Board, by June 30 of each year, shall submit a report to the Governor and the Legislature regarding complaints ®led, hearings held, and legal actions taken pursuant to this section. SEC. 4. Section 1102.5 of the Labor Code is amended to read: 1102.5. (a) An employer shall not make, adopt, or enforce any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, or to a person with authority over the employee or to another employee who has authority to investigate, discover, or correct the violation or noncompliance, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation, regardless of whether disclosing the information is part of the employee's job duties. (b) An employer shall not retaliate against an employee for disclosing information, or because the employer believes that the employee disclosed or may disclose information, to a government or law enforcement agency, or to a person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation or noncompliance, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation, regardless of whether disclosing the information is part of the employee's job duties. (c) An employer shall not retaliate against an employee for refusing to participate in an activity that would result in a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation. (d) An employer shall not retaliate against an employee for having exercised his or her rights under subdivision (a), (b), or (c) in any former employment. (e) A report made by an employee of a government agency to his or her employer is a disclosure of information to a government or law enforcement agency pursuant to subdivisions (a) and (b). (f) In addition to other penalties, an employer that is a corporation or limited liability company is liable for a civil penalty not exceeding ten thousand dollars ($10,000) for each violation of this section. (g) This section does not apply to rules, regulations, or policies that implement, or to actions by employers against employees who violate, the con®dentiality of the lawyer-client privilege of Article 3 (commencing with Section 950), the physician-patient privilege of Article 6 (commencing with Section 990) of Chapter 4 of Division 8 of the Evidence Code, or trade secret information. SEC. 4.1. Section 1102.5 of the Labor Code is amended to read:

Ð 7 Ð Ch. 781

1102.5. (a) An employer, or any person acting on behalf of the employer, shall not make, adopt, or enforce any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, to a person with authority over the employee, or to another employee who has authority to investigate, discover, or correct the violation or noncompliance, or from providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation, regardless of whether disclosing the information is part of the employee's job duties. (b) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for disclosing information, or because the employer believes that the employee disclosed or may disclose information, to a government or law enforcement agency, to a person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation or noncompliance, or for providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation, regardless of whether disclosing the information is part of the employee's job duties. (c) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for refusing to participate in an activity that would result in a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation. (d) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for having exercised his or her rights under subdivision (a), (b), or (c) in any former employment. (e) A report made by an employee of a government agency to his or her employer is a disclosure of information to a government or law enforcement agency pursuant to subdivisions (a) and (b). (f) In addition to other penalties, an employer that is a corporation or limited liability company is liable for a civil penalty not exceeding ten thousand dollars ($10,000) for each violation of this section. (g) This section does not apply to rules, regulations, or policies that implement, or to actions by employers against employees who violate, the con®dentiality of the lawyer-client privilege of Article 3 (commencing with Section 950) of, or the physician-patient privilege of Article 6 (commencing with Section 990) of, Chapter 4 of Division 8 of the Evidence Code, or trade secret information. SEC. 5. Section 4.1 of this bill incorporates amendments to Section 1102.5 of the Labor Code proposed by this bill, Senate Bill 666, and Assembly Bill 263. It shall only become operative if (1) both this bill and either Senate Bill 666 or Assembly Bill 263 are enacted and become effective on or before January 1, 2014, (2) this bill and either Senate Bill 666 or

Ch. 781 Ð 8 Ð

Assembly Bill 263, or both, are enacted to amend Section 1102.5 of the Labor Code, and (3) this bill is enacted after Senate Bill 666 or Assembly Bill 263, or both, in which case Section 4 of this bill shall not become operative. SEC. 6. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the de®nition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

Assembly Bill No. 263

CHAPTER 732

An act to amend Sections 98.6, 98.7, 1102.5, and 1103 of, to add Section 1024.6 to, and to add Chapter 3.1 (commencing with Section 1019) to Part 3 of Division 2 of, the Labor Code, relating to employment.

[Approved by Governor October 11, 2013. Filed with Secretary of State October 11, 2013.]

legislative counsel’s digest AB 263, Roger Hernández. Employment: retaliation: immigration-related practices. Existing law prohibits an employer from discharging an employee or in any manner discriminating against any employee or applicant for employment because the employee or applicant has engaged in prescribed protected conduct relating to the enforcement of the employee's or applicant's rights. Existing law provides that an employee who made a bona ®de complaint, and was consequently discharged or otherwise suffered an adverse action, is entitled to reinstatement and reimbursement for lost wages. Existing law makes it a misdemeanor for an employer to willfully refuse to reinstate or otherwise restore an employee who is determined by a speci®ed procedure to be eligible for reinstatement. This bill would also prohibit an employer from retaliating or taking adverse action against any employee or applicant for employment because the employee or applicant has engaged in protected conduct. The bill would expand the protected conduct to include a written or oral complaint by an employee that he or she is owed unpaid wages. The bill would provide that an employee who was retaliated against or otherwise was subjected to an adverse action is entitled to reinstatement and reimbursement for lost wages. The bill would subject a person who violates these provisions to a civil penalty of up to $10,000 per violation. The bill would also provide that it is not necessary to exhaust administrative remedies or procedures in the enforcement of speci®ed provisions. Because the willful refusal by an employer to reinstate or reimburse an employee who suffered a retaliatory action under these provisions would be a misdemeanor, the bill would expand the scope of a crime and impose a state-mandated local program. Existing law declares that an individual who has applied for employment, or who is or has been employed in this state, is entitled to the protections, rights, and remedies available under state law, regardless of his or her immigration status. Existing law declares that an inquiry into a person's immigration status for purposes of enforcing state labor and employment laws shall not be permitted, unless a showing is made, by clear and

Ch. 732 Ð 2 Ð convincing evidence, that the inquiry is necessary in order to comply with federal immigration law. This bill would make it unlawful for an employer or any other person to engage in, or direct another person to engage in, an unfair immigration-related practice, as de®ned, against a person for the purpose of, or with the intent of, retaliating against any person for exercising a right protected under state labor and employment laws or under a local ordinance applicable to employees, as speci®ed. The bill would also create a rebuttable presumption that an adverse action taken within 90 days of the exercising of a protected right is committed for the purpose of, or with the intent of, retaliation. The bill would authorize a civil action by an employee or other person who is the subject of an unfair immigration-related practice. The bill would authorize a court to order the appropriate government agencies to suspend certain business licenses held by the violating party for prescribed periods based on the number of violations. The bill would require the court to consider prescribed circumstances in determining whether a suspension of all licenses is appropriate. Existing law prohibits an employer from making, adopting, or enforcing any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, where the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation or noncompliance with a state or federal rule or regulation. Existing law further prohibits an employer from retaliating against an employee for that disclosure. Under existing law, a violation of these provisions by the employer is a misdemeanor. Existing law additionally subjects an employer that is a corporation or a limited liability company to a civil penalty not exceeding $10,000 for each violation of these provisions. This bill would additionally prohibit any person acting on behalf of the employer from making, adopting, or enforcing any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, as provided, and from retaliating against an employee for such a disclosure. The bill would also expand the prohibited actions to include preventing an employee from, or retaliating against an employee for, providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry. The bill would provide that any person or entity that violates these provisions is guilty of a misdemeanor, and would further subject an entity that violates these provisions that is a corporation or limited liability company to a civil penalty not exceeding $10,000 for each violation of these provisions. By expanding the scope of a crime, this bill would impose a state-mandated local program. Existing law prohibits an employer or prospective employer, with the exception of certain ®nancial institutions, from obtaining a consumer credit report, as de®ned, for employment purposes unless it is for a speci®ed position, including, among others, a position in the state Department of

Ð 3 Ð Ch. 732

Justice, a managerial position, as de®ned, or a position that involves regular access to $10,000 or more of cash, as speci®ed. This bill would prohibit an employer from discharging an employee or in any manner discriminating, retaliating, or taking any adverse action against an employee because the employee updates or attempts to update his or her personal information, unless the changes are directly related to the skill set, quali®cations, or knowledge required for the job. This bill would incorporate additional changes to Section 1102.5 of the Labor Code proposed by SB 496 that would become operative if this bill and SB 496 are enacted and this bill is enacted last. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a speci®ed reason.

The people of the State of California do enact as follows:

SECTION 1. The Legislature ®nds and declares all of the following: (a) Wage theft is a serious and widespread problem that causes severe hardship to low-wage workers, their families, and their communities. (b) When a worker is denied wages or forced to work ªoff the clock,º there is an immediate and irreparable harm to the worker and his or her family. (c) Low-wage, often immigrant, workers are the most frequent victims of wage theft and are also exposed to the greatest hazards at work. (d) Immigrant workers have the greatest number of work-related injuries and fatalities. (e) Far too often, when workers come forward to expose unfair, unsafe, or illegal conditions, they face retaliation from the employer. (f) Where there are immigrant workers involved, employer retaliation often involves threats to contact law enforcement agencies, including immigration enforcement agencies, if a worker engages in protected conduct. (g) No employee should have to fear adverse action, whether it involves threats to cut hours, move a worker to night shift, or contact law enforcement agencies, simply for engaging in rights the State of California has deemed so important that they are protected by law. (h) It is in the public policy interest of the State of California that workers be able to report concerns to their employers without fear of retaliation or discrimination. (i) It is in the public policy interest of the State of California for workers to be willing to come forward to expose hazardous, unsafe, and unfair conditions at their worksites so that local, state, and federal agencies can effectively enforce the laws. (j) It is essential to the enforcement of this state's labor laws that we have broad, clear, and effective protections for workers engaging in conduct

Ch. 732 Ð 4 Ð protected by law from all forms of employer retaliation, including prohibiting immigration-related threats. SEC. 2. Section 98.6 of the Labor Code is amended to read: 98.6. (a) A person shall not discharge an employee or in any manner discriminate, retaliate, or take any adverse action against any employee or applicant for employment because the employee or applicant engaged in any conduct delineated in this chapter, including the conduct described in subdivision (k) of Section 96, and Chapter 5 (commencing with Section 1101) of Part 3 of Division 2, or because the employee or applicant for employment has ®led a bona ®de complaint or claim or instituted or caused to be instituted any proceeding under or relating to his or her rights that are under the jurisdiction of the Labor Commissioner, made a written or oral complaint that he or she is owed unpaid wages, or because the employee has initiated any action or notice pursuant to Section 2699, or has testi®ed or is about to testify in a proceeding pursuant to that section, or because of the exercise by the employee or applicant for employment on behalf of himself, herself, or others of any rights afforded him or her. (b) (1) Any employee who is discharged, threatened with discharge, demoted, suspended, retaliated against, subjected to an adverse action, or in any other manner discriminated against in the terms and conditions of his or her employment because the employee engaged in any conduct delineated in this chapter, including the conduct described in subdivision (k) of Section 96, and Chapter 5 (commencing with Section 1101) of Part 3 of Division 2, or because the employee has made a bona ®de complaint or claim to the division pursuant to this part, or because the employee has initiated any action or notice pursuant to Section 2699 shall be entitled to reinstatement and reimbursement for lost wages and work bene®ts caused by those acts of the employer. (2) An employer who willfully refuses to hire, promote, or otherwise restore an employee or former employee who has been determined to be eligible for rehiring or promotion by a grievance procedure, arbitration, or hearing authorized by law, is guilty of a misdemeanor. (3) In addition to other remedies available, an employer who violates this section is liable for a civil penalty not exceeding ten thousand dollars ($10,000) per employee for each violation of this section. (c) (1) Any applicant for employment who is refused employment, who is not selected for a training program leading to employment, or who in any other manner is discriminated against in the terms and conditions of any offer of employment because the applicant engaged in any conduct delineated in this chapter, including the conduct described in subdivision (k) of Section 96, and Chapter 5 (commencing with Section 1101) of Part 3 of Division 2, or because the applicant has made a bona ®de complaint or claim to the division pursuant to this part, or because the employee has initiated any action or notice pursuant to Section 2699 shall be entitled to employment and reimbursement for lost wages and work bene®ts caused by the acts of the prospective employer.

Ð 5 Ð Ch. 732

(2) This subdivision shall not be construed to invalidate any collective bargaining agreement that requires an applicant for a position that is subject to the collective bargaining agreement to sign a contract that protects either or both of the following as speci®ed in subparagraphs (A) and (B), nor shall this subdivision be construed to invalidate any employer requirement of an applicant for a position that is not subject to a collective bargaining agreement to sign an employment contract that protects either or both of the following: (A) An employer against any conduct that is actually in direct con¯ict with the essential enterprise-related interests of the employer and where breach of that contract would actually constitute a material and substantial disruption of the employer's operation. (B) A ®re®ghter against any disease that is presumed to arise in the course and scope of employment, by limiting his or her consumption of tobacco products on and off the job. (d) The provisions of this section creating new actions or remedies that are effective on January 1, 2002, to employees or applicants for employment do not apply to any state or local law enforcement agency, any religious association or corporation speci®ed in subdivision (d) of Section 12926 of the Government Code, except as provided in Section 12926.2 of the Government Code, or any person described in Section 1070 of the Evidence Code. SEC. 3. Section 98.7 of the Labor Code is amended to read: 98.7. (a) Any person who believes that he or she has been discharged or otherwise discriminated against in violation of any law under the jurisdiction of the Labor Commissioner may ®le a complaint with the division within six months after the occurrence of the violation. The six-month period may be extended for good cause. The complaint shall be investigated by a discrimination complaint investigator in accordance with this section. The Labor Commissioner shall establish procedures for the investigation of discrimination complaints. A summary of the procedures shall be provided to each complainant and respondent at the time of initial contact. The Labor Commissioner shall inform complainants charging a violation of Section 6310 or 6311, at the time of initial contact, of his or her right to ®le a separate, concurrent complaint with the United States Department of Labor within 30 days after the occurrence of the violation. (b) Each complaint of unlawful discharge or discrimination shall be assigned to a discrimination complaint investigator who shall prepare and submit a report to the Labor Commissioner based on an investigation of the complaint. The Labor Commissioner may designate the chief deputy or assistant Labor Commissioner or the chief counsel to receive and review the reports. The investigation shall include, where appropriate, interviews with the complainant, respondent, and any witnesses who may have information concerning the alleged violation, and a review of any documents that may be relevant to the disposition of the complaint. The identity of a witness shall remain con®dential unless the identi®cation of the witness becomes necessary to proceed with the investigation or to prosecute an

Ch. 732 Ð 6 Ð action to enforce a determination. The investigation report submitted to the Labor Commissioner or designee shall include the statements and documents obtained in the investigation, and the ®ndings of the investigator concerning whether a violation occurred. The Labor Commissioner may hold an investigative hearing whenever the Labor Commissioner determines, after review of the investigation report, that a hearing is necessary to fully establish the facts. In the hearing the investigation report shall be made a part of the record and the complainant and respondent shall have the opportunity to present further evidence. The Labor Commissioner shall issue, serve, and enforce any necessary subpoenas. (c) If the Labor Commissioner determines a violation has occurred, he or she shall notify the complainant and respondent and direct the respondent to cease and desist from the violation and take any action deemed necessary to remedy the violation, including, where appropriate, rehiring or reinstatement, reimbursement of lost wages and interest thereon, payment of reasonable attorney's fees associated with any hearing held by the Labor Commissioner in investigating the complaint, and the posting of notices to employees. If the respondent does not comply with the order within 10 working days following noti®cation of the Labor Commissioner's determination, the Labor Commissioner shall bring an action promptly in an appropriate court against the respondent. If the Labor Commissioner fails to bring an action in court promptly, the complainant may bring an action against the Labor Commissioner in any appropriate court for a writ of mandate to compel the Labor Commissioner to bring an action in court against the respondent. If the complainant prevails in his or her action for a writ, the court shall award the complainant court costs and reasonable attorney's fees, notwithstanding any other law. Regardless of any delay in bringing an action in court, the Labor Commissioner shall not be divested of jurisdiction. In any action, the court may permit the claimant to intervene as a party plaintiff to the action and shall have jurisdiction, for cause shown, to restrain the violation and to order all appropriate relief. Appropriate relief includes, but is not limited to, rehiring or reinstatement of the complainant, reimbursement of lost wages and interest thereon, and any other compensation or equitable relief as is appropriate under the circumstances of the case. The Labor Commissioner shall petition the court for appropriate temporary relief or restraining order unless he or she determines good cause exists for not doing so. (d) (1) If the Labor Commissioner determines no violation has occurred, he or she shall notify the complainant and respondent and shall dismiss the complaint. The Labor Commissioner may direct the complainant to pay reasonable attorney's fees associated with any hearing held by the Labor Commissioner if the Labor Commissioner ®nds the complaint was frivolous, unreasonable, groundless, and was brought in bad faith. The complainant may, after noti®cation of the Labor Commissioner's determination to dismiss a complaint, bring an action in an appropriate court, which shall have jurisdiction to determine whether a violation occurred, and if so, to restrain the violation and order all appropriate relief to remedy the violation.

Ð 7 Ð Ch. 732

Appropriate relief includes, but is not limited to, rehiring or reinstatement of the complainant, reimbursement of lost wages and interest thereon, and other compensation or equitable relief as is appropriate under the circumstances of the case. When dismissing a complaint, the Labor Commissioner shall advise the complainant of his or her right to bring an action in an appropriate court if he or she disagrees with the determination of the Labor Commissioner, and in the case of an alleged violation of Section 6310 or 6311, to ®le a complaint against the state program with the United States Department of Labor. (2) The ®ling of a timely complaint against the state program with the United States Department of Labor shall stay the Labor Commissioner's dismissal of the division complaint until the United States Secretary of Labor makes a determination regarding the alleged violation. Within 15 days of receipt of that determination, the Labor Commissioner shall notify the parties whether he or she will reopen the complaint ®led with the division or whether he or she will reaf®rm the dismissal. (e) The Labor Commissioner shall notify the complainant and respondent of his or her determination under subdivision (c) or paragraph (1) of subdivision (d), not later than 60 days after the ®ling of the complaint. Determinations by the Labor Commissioner under subdivision (c) or (d) may be appealed by the complainant or respondent to the Director of Industrial Relations within 10 days following noti®cation of the Labor Commissioner's determination. The appeal shall set forth speci®cally and in full detail the grounds upon which the appealing party considers the Labor Commissioner's determination to be unjust or unlawful, and every issue to be considered by the director. The director may consider any issue relating to the initial determination and may modify, af®rm, or reverse the Labor Commissioner's determination. The director's determination shall be the determination of the Labor Commissioner. The director shall notify the complainant and respondent of his or her determination within 10 days of receipt of the appeal. (f) The rights and remedies provided by this section do not preclude an employee from pursuing any other rights and remedies under any other law. (g) In the enforcement of this section, there is no requirement that an individual exhaust administrative remedies or procedures. SEC. 4. Chapter 3.1 (commencing with Section 1019) is added to Part 3 of Division 2 of the Labor Code, to read:

Chapter 3.1. Unfair Immigration-Related Practices

1019. (a) It shall be unlawful for an employer or any other person or entity to engage in, or to direct another person or entity to engage in, unfair immigration-related practices against any person for the purpose of, or with the intent of, retaliating against any person for exercising any right protected under this code or by any local ordinance applicable to employees.

Ch. 732 Ð 8 Ð

Exercising a right protected by this code or local ordinance includes, but is not limited to, the following: (1) Filing a complaint or informing any person of an employer's or other party's alleged violation of this code or local ordinance, so long as the complaint or disclosure is made in good faith. (2) Seeking information regarding whether an employer or other party is in compliance with this code or local ordinance. (3) Informing a person of his or her potential rights and remedies under this code or local ordinance, and assisting him or her in asserting those rights. (b) (1) As used in this chapter, ªunfair immigration-related practiceº means any of the following practices, when undertaken for the retaliatory purposes prohibited by subdivision (a): (A) Requesting more or different documents than are required under Section 1324a(b) of Title 8 of the United States Code, or a refusal to honor documents tendered pursuant to that section that on their face reasonably appear to be genuine. (B) Using the federal E-Verify system to check the employment authorization status of a person at a time or in a manner not required under Section 1324a(b) of Title 8 of the United States Code, or not authorized under any memorandum of understanding governing the use of the federal E-Verify system. (C) Threatening to ®le or the ®ling of a false police report. (D) Threatening to contact or contacting immigration authorities. (2) ªUnfair immigration-related practiceº does not include conduct undertaken at the express and speci®c direction or request of the federal government. (c) Engaging in an unfair immigration-related practice against a person within 90 days of the person's exercise of rights protected under this code or local ordinance applicable to employees shall raise a rebuttable presumption of having done so in retaliation for the exercise of those rights. (d) (1) An employee or other person who is the subject of an unfair immigration-related practice prohibited by this section, or a representative of that employee or person, may bring a civil action for equitable relief and any damages or penalties, in accordance with this section. (2) Upon a ®nding by a court of applicable jurisdiction of a violation this section: (A) For a ®rst violation, the court in its discretion, may order the appropriate government agencies to suspend all licenses subject to this chapter that are held by the violating party for a period of up to 14 days. For the purposes of this paragraph, the licenses that are subject to suspension are all licenses held by the violating party speci®c to the business location or locations where the unfair immigration-related practice occurred. In determining whether a suspension of all licenses is appropriate, the court shall consider whether the employer knowingly committed an unfair immigration practice, the good faith efforts of the employer to resolve any alleged unfair immigration related practice after receiving notice of the

Ð 9 Ð Ch. 732 violations, as well as the harm other employees of the employer, or employees of other employers on a multiemployer jobsite, will suffer as a result of the suspension of all licenses. On receipt of the court's order and notwithstanding any other law, the appropriate agencies shall suspend the licenses according to the court's order. (B) For a second violation, the court, in its discretion, may order the appropriate government agencies to suspend all licenses that are held by the violating party speci®c to the business location or locations where the unfair immigration-related practice occurred, for a period of up to 30 days. In determining whether a suspension of all licenses is appropriate, the court shall consider whether the employer knowingly committed an unfair immigration practice, the good faith efforts of the employer to resolve any alleged unfair immigration related practice after receiving notice of the violations, as well as the harm other employees of the employer, or employees of other employers on a multiemployer jobsite, will suffer as a result of the suspension of all licenses. On receipt of the court's order and notwithstanding any other law, the appropriate agencies shall immediately suspend the licenses. (C) For a third violation, or any violation thereafter, the court, in its discretion, may order the appropriate government agencies to suspend for a period of up to 90 days all licenses that are held by the violating party speci®c to the business location or locations where the unfair immigration-related practice occurred. In determining whether a suspension of all licenses is appropriate, the court shall consider whether the employer knowingly committed an unfair immigration practice, the good faith efforts of the employer to resolve any alleged unfair immigration related practice after receiving notice of the violations, as well as the harm other employees of the employer, or employees of other employers on a multiemployer jobsite, will suffer as a result of the suspension of all licenses. On receipt of the court's order and notwithstanding any other law, the appropriate agencies shall immediately suspend the licenses. (3) An employee or other person who is the subject of an unfair immigration-document practice prohibited by this section, and who prevails in an action authorized by this section, shall recover its reasonable attorney's fees and costs, including any expert witness costs. (e) As used in this chapter: (1) ªLicenseº means any agency permit, certi®cate, approval, registration, or charter that is required by law and that is issued by any agency for the purposes of operating a business in this state. ªLicenseº does not include a professional license. (2) ªViolationº means each incident when an unfair immigration practice was committed, without reference to the number of employees involved in the incident. SEC. 5. Section 1024.6 is added to the Labor Code, to read: 1024.6. An employer may not discharge an employee or in any manner discriminate, retaliate, or take any adverse action against an employee because the employee updates or attempts to update his or her personal

Ch. 732 Ð 10 Ð information, unless the changes are directly related to the skill set, quali®cations, or knowledge required for the job. SEC. 6. Section 1102.5 of the Labor Code is amended to read: 1102.5. (a) An employer, or any person acting on behalf of the employer, shall not make, adopt, or enforce any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, or from providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, where the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a state or federal rule or regulation. (b) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for disclosing information to a government or law enforcement agency, or for providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, where the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a state or federal rule or regulation. (c) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for refusing to participate in an activity that would result in a violation of state or federal statute, or a violation of or noncompliance with a state or federal rule or regulation. (d) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for having exercised his or her rights under subdivision (a), (b), or (c) in any former employment. (e) A report made by an employee of a government agency to his or her employer is a disclosure of information to a government or law enforcement agency pursuant to subdivisions (a) and (b). (f) In addition to other penalties, an employer that is a corporation or limited liability company is liable for a civil penalty not exceeding ten thousand dollars ($10,000) for each violation of this section. (g) This section does not apply to rules, regulations, or policies that implement, or to actions by employers against employees who violate, the con®dentiality of the lawyer-client privilege of Article 3 (commencing with Section 950) of, or the physician-patient privilege of Article 6 (commencing with Section 990) of, Chapter 4 of Division 8 of the Evidence Code, or trade secret information. SEC. 6.5. Section 1102.5 of the Labor Code is amended to read: 1102.5. (a) An employer, or any person acting on behalf of the employer, shall not make, adopt, or enforce any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, or to a person with authority over the employee or to another employee who has authority to investigate, discover, or correct the violation or noncompliance, or from providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance

Ð 11 Ð Ch. 732 with a local, state, or federal rule or regulation, regardless of whether disclosing the information is part of the employee's job duties. (b) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for disclosing information, or because the employer believes that the employee disclosed or may disclose information, to a government or law enforcement agency, or to a person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation or noncompliance, or for providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation, regardless of whether disclosing the information is part of the employee's job duties. (c) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for refusing to participate in an activity that would result in a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation. (d) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for having exercised his or her rights under subdivision (a), (b), or (c) in any former employment. (e) A report made by an employee of a government agency to his or her employer is a disclosure of information to a government or law enforcement agency pursuant to subdivisions (a) and (b). (f) In addition to other penalties, an employer that is a corporation or limited liability company is liable for a civil penalty not exceeding ten thousand dollars ($10,000) for each violation of this section. (g) This section does not apply to rules, regulations, or policies that implement, or to actions by employers against employees who violate, the con®dentiality of the lawyer-client privilege of Article 3 (commencing with Section 950) of, the physician-patient privilege of Article 6 (commencing with Section 990) of, Chapter 4 of Division 8 of the Evidence Code, or trade secret information. SEC. 7. Section 1103 of the Labor Code is amended to read: 1103. An employer or any other person or entity that violates this chapter is guilty of a misdemeanor punishable, in the case of an individual, by imprisonment in the county jail not to exceed one year or a ®ne not to exceed one thousand dollars ($1,000) or both that ®ne and imprisonment, or, in the case of a corporation, by a ®ne not to exceed ®ve thousand dollars ($5,000). SEC. 8. The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application. SEC. 9. Section 6.5 of this bill incorporates amendments to Section 1102.5 of the Labor Code proposed by both this bill and Senate Bill 496. It shall only become operative if (1) both bills are enacted and become effective on or before January 1, 2014, (2) each bill amends Section 1102.5 of the

Ch. 732 Ð 12 Ð

Labor Code, and (3) this bill is enacted after Senate Bill 496, in which case Section 6 of this bill shall not become operative. SEC. 10. No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the de®nition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

california legislature—2013–14 regular session

ASSEMBLY BILL No. 236

Introduced by Assembly Member Rendon

February 5, 2013

An act relating to state employees, and declaring the urgency thereof, to take effect immediately.

legislative counsel’s digest AB 236, as introduced, Rendon. State employees: memorandum of understanding. Existing law provides that a provision of a memorandum of understanding reached between the state employer and a recognized employee organization representing state civil service employees that requires the expenditure of funds does not become effective unless approved by the Legislature in the annual Budget Act. This bill would approve provisions of a memorandum of understanding entered into between the state employer and State Bargaining Unit 7, the California Statewide Law Enforcement Association, that require the expenditure of funds, and would provide that these provisions will become effective even if these provisions are approved by the Legislature in legislation other than the annual Budget Act. The bill would provide that provisions of the memorandum of understanding approved by this bill that require the expenditure of funds will not take effect unless funds for those provisions are speciﬁcally appropriated by the Legislature, and would require the state employer and the affected employee organization to meet and confer to renegotiate the affected provisions if funds for those provisions are not speciﬁcally appropriated by the Legislature.

99 AB 236 — 2 —

This bill would declare that it is to take effect immediately as an urgency statute. 2 Vote: ⁄3. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

line 1 SECTION 1. The Legislature finds and declares that the line 2 purpose of this act is to approve an agreement pursuant to Section line 3 3517.5 of the Government Code entered into by the state employer line 4 and a recognized employee organization. line 5 SEC. 2. The provisions of the memorandum of understanding line 6 prepared pursuant to Section 3517.5 of the Government Code and line 7 entered into by the state employer and State Bargaining Unit 7, line 8 and that require the expenditure of funds, are hereby approved for line 9 the purposes of subdivision (b) of Section 3517.6 of the line 10 Government Code. line 11 SEC. 3. The provisions of the memorandum of understanding line 12 approved by Section 2 of this act that require the expenditure of line 13 funds shall not take effect unless funds for these provisions are line 14 specifically appropriated by the Legislature. If funds for these line 15 provisions are not specifically appropriated by the Legislature, the line 16 state employer and the affected employee organization shall meet line 17 and confer to renegotiate the affected provisions. line 18 SEC. 4. Notwithstanding Section 3517.6 of the Government line 19 Code, the provisions of the memorandum of understanding line 20 included in Section 2 that require the expenditure of funds shall line 21 become effective even if the provisions of the memorandum of line 22 understanding are approved by the Legislature in legislation other line 23 than the annual Budget Act. line 24 SEC. 5. This act is an urgency statute necessary for the line 25 immediate preservation of the public peace, health, or safety within line 26 the meaning of Article IV of the Constitution and shall go into line 27 immediate effect. The facts constituting the necessity are: line 28 In order for the provisions of this act to be applicable as soon as line 29 possible in the 2012–13 fiscal year and thereby facilitate the orderly line 30 administration of state government at the earliest possible time, it line 31 is necessary that this act take effect immediately.

99 Assembly Bill No. 10

CHAPTER 351

An act to amend Section 1182.12 of the Labor Code, relating to wages.

[Approved by Governor September 25, 2013. Filed with Secretary of State September 25, 2013.]

legislative counsel’s digest AB 10, Alejo. Minimum wage: annual adjustment. Existing law requires that, on and after January 1, 2008, the minimum wage for all industries be not less than $8.00 per hour. This bill would increase the minimum wage, on and after July 1, 2014, to not less than $9 per hour. The bill would further increase the minimum wage, on and after January 1, 2016, to not less than $10 per hour.

The people of the State of California do enact as follows:

SECTION 1. Section 1182.12 of the Labor Code is amended to read: 1182.12. Notwithstanding any other provision of this part, on and after July 1, 2014, the minimum wage for all industries shall be not less than nine dollars ($9) per hour, and on and after January 1, 2016, the minimum wage for all industries shall be not less than ten dollars ($10) per hour.

Assembly Bill No. 241

CHAPTER 374

An act to add Part 4.5 (commencing with Section 1450) to Division 2 of, and to repeal Section 1454 of, the Labor Code, relating to domestic work employees.

[Approved by Governor September 26, 2013. Filed with Secretary of State September 26, 2013.]

legislative counsel’s digest AB 241, Ammiano. Domestic work employees: labor standards. (1) Existing law regulates the wages, hours, and working conditions of any man, woman, and minor employed in any occupation, trade, or industry, whether compensation is measured by time, piece, or otherwise, except as speci®ed. Existing law creates the Industrial Welfare Commission and authorizes it to adopt rules, regulations, and orders to ensure that employers comply with those provisions. Wage Order No. 15-2001 of the commission regulates wages, hours, and working conditions for household occupations. Existing law makes violations of certain of these provisions a misdemeanor. This bill would enact the Domestic Worker Bill of Rights to, until January 1, 2017, regulate the hours of work of certain domestic work employees and provide an overtime compensation rate for those employees. The bill would de®ne various terms for the purposes of the act, including de®ning domestic work to mean services related to the care of persons in private households or maintenance of private households or their premises, which would include childcare providers, caregivers of people with disabilities, sick, convalescing, or elderly persons, house cleaners, housekeepers, maids, and other household occupations. The bill would, until January 1, 2017, require the Governor to convene a committee to study and report to the Governor on the effects of this act. By expanding the de®nition of a crime, this bill would impose a state-mandated local program. (2) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a speci®ed reason.

The people of the State of California do enact as follows:

SECTION 1. Part 4.5 (commencing with Section 1450) is added to Division 2 of the Labor Code, to read:

Ch. 374 Ð 2 Ð

PART 4.5. DOMESTIC WORK EMPLOYEES

Chapter 1. General Provisions and Definitions

1450. This part shall be known and may be cited as the Domestic Worker Bill of Rights. 1451. As used in this part, the following de®nitions apply: (a) (1) ªDomestic workº means services related to the care of persons in private households or maintenance of private households or their premises. Domestic work occupations include childcare providers, caregivers of people with disabilities, sick, convalescing, or elderly persons, house cleaners, housekeepers, maids, and other household occupations. (2) ªDomestic workº does not include care of persons in facilities providing board or lodging in addition to medical, nursing, convalescent, aged, or child care, including, but not limited to, residential care facilities for the elderly. (b) (1) ªDomestic work employeeº means an individual who performs domestic work and includes live-in domestic work employees and personal attendants. (2) ªDomestic work employeeº does not include any of the following: (A) Any person who performs services through the In-Home Supportive Services program under Article 7 (commencing with Section 12300) of Chapter 3 of Part 3 of Division 9 of, or Sections 14132.95, 14132.952, and 14132.956 of, the Welfare and Institutions Code. (B) Any person who is the parent, grandparent, spouse, sibling, child, or legally adopted child of the domestic work employer. (C) Any person under 18 years of age who is employed as a babysitter for a minor child of the domestic work employer in the employer's home. (D) Any person employed as a casual babysitter for a minor child in the domestic employer's home. A casual babysitter is a person whose employment is irregular or intermittent and is not performed by an individual whose vocation is babysitting. If a person who performs babysitting services on an irregular and intermittent basis does a signi®cant amount of work other than supervising, feeding, and dressing a child, this exemption shall not apply and the person shall be considered a domestic work employee. A person who is a casual babysitter who is over 18 years of age retains the right to payment of minimum wage for all hours worked, pursuant to Wage Order No. 15-2001 of the Industrial Welfare Commission. (E) Any person employed by a licensed health facility, as de®ned in Section 1250 of the Health and Safety Code. (F) Any person who is employed pursuant to a voucher issued through a regional center or who is employed by, or contracts with, an organization vendored or contracted through a regional center or the State Department of Developmental Services pursuant to the Lanterman Developmental Disabilities Services Act (Division 4.5 (commencing with Section 4500) of the Welfare and Institutions Code) or the California Early Intervention

Ð 3 Ð Ch. 374

Services Act (Title 14 (commencing with Section 95000) of the Government Code) to provide services and support for persons with developmental disabilities, as de®ned in Section 4512 of the Welfare and Institutions Code, when any funding for those services is provided through the State Department of Developmental Services. (G) Any person who provides child care and who, pursuant to subdivision (d) or (f) of Section 1596.792 of the Health and Safety Code, is exempt from the licensing requirements of Chapters 3.4 (commencing with Section 1596.70), 3.5 (commencing with Section 1596.90), and 3.6 (commencing with Section 1597.30) of Division 2 of the Health and Safety Code, if the parent or guardian of the child to whom child care is provided receives child care and development services pursuant to any program authorized under the Child Care and Development Services Act (Chapter 2 (commencing with Section 8200) of Part 6 of Division 1 of Title 1 of the Education Code) or the California Work Opportunity and Responsibility to Kids Act (Chapter 2 (commencing with Section 11200) of Part 3 of Division 9 of the Welfare and Institutions Code). (c) (1) ªDomestic work employerº means a person, including corporate of®cers or executives, who directly or indirectly, or through an agent or any other person, including through the services of a third-party employer, temporary service, or staf®ng agency or similar entity, employs or exercises control over the wages, hours, or working conditions of a domestic work employee. (2) ªDomestic work employerº does not include any of the following: (A) Any person or entity that employs or exercises control over the wages, hours, or working conditions of an individual who performs domestic work services through the In-Home Supportive Services program under Article 7 (commencing with Section 12300) of Chapter 3 of Part 3 of Division 9 of, or Sections 14132.95, 14132.952, and 14132.956 of, the Welfare and Institutions Code or who is eligible for that program. (B) An employment agency that complies with Section 1812.5095 of the Civil Code and that operates solely to procure, offer, refer, provide, or attempt to provide work to domestic workers if the relationship between the employment agency and the domestic workers for whom the agency procures, offers, refers, provides, or attempts to provide domestic work is characterized by all of the factors listed in subdivision (b) of Section 1812.5095 of the Civil Code and Section 687.2 of the Unemployment Insurance Code. (C) A licensed health facility, as de®ned in Section 1250 of the Health and Safety Code. (d) ªPersonal attendantº means any person employed by a private householder or by any third-party employer recognized in the health care industry to work in a private household, to supervise, feed, or dress a child, or a person who by reason of advanced age, physical disability, or mental de®ciency needs supervision. The status of personal attendant shall apply when no signi®cant amount of work other than the foregoing is required. For purposes of this subdivision, ªno signi®cant amount of workº means

Ch. 374 Ð 4 Ð work other than the foregoing did not exceed 20 percent of the total weekly hours worked. 1452. The Governor shall convene a committee composed of personal attendants or their representatives and the employers of personal attendants or their representatives. The committee shall study and report to the Governor on the effects this part has on personal attendants and their employers. 1453. This part shall remain in effect only until January 1, 2017, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2017, deletes or extends that date.

Chapter 2. Domestic Work Employee Rights

1454. A domestic work employee who is a personal attendant shall not be employed more than nine hours in any workday or more than 45 hours in any workweek unless the employee receives one and one-half times the employee's regular rate of pay for all hours worked over nine hours in any workday and for all hours worked more than 45 hours in the workweek. SEC. 2. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the de®nition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

Assembly Bill No. 524

CHAPTER 572

An act to amend Section 519 of the Penal Code, relating to immigrants.

[Approved by Governor October 5, 2013. Filed with Secretary of State October 5, 2013.]

legislative counsel’s digest AB 524, Mullin. Immigrants: extortion. Existing law de®nes extortion as the obtaining of property from another, with consent, or the obtaining of an of®cial act of a public of®cer, induced by a wrongful use of force or fear, or under color of of®cial right. Existing law further provides that fear suf®cient to constitute extortion may be induced by certain threats, including a threat to accuse the threatened individual, or his or her relative or family, of a crime. This bill would provide that a threat to report the immigration status or suspected immigration status of the threatened individual, or his or her relative or a member of his or her family, may also induce fear suf®cient to constitute extortion. The bill would also specify that its provisions are intended to clarify existing law. By broadening the acts that constitute a crime, this bill would impose a state-mandated local program. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a speci®ed reason.

The people of the State of California do enact as follows:

SECTION 1. Section 519 of the Penal Code is amended to read: 519. Fear, such as will constitute extortion, may be induced by a threat, either: 1. To do an unlawful injury to the person or property of the individual threatened or of a third person; or, 2. To accuse the individual threatened, or a relative of his or her, or member of his or her family, of a crime; or, 3. To expose, or to impute to him, her, or them a deformity, disgrace, or crime; or, 4. To expose a secret affecting him, her, or them; or, 5. To report his, her, or their immigration status or suspected immigration status.

Ch. 572 Ð 2 Ð

SEC. 2. The Legislature ®nds and declares that the amendments to Section 519 of the Penal Code made by this act are intended to clarify existing law. SEC. 3. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the de®nition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

Senate Bill No. 462

CHAPTER 142

An act to amend Section 218.5 of the Labor Code, relating to employment.

[Approved by Governor August 26, 2013. Filed with Secretary of State August 26, 2013.]

legislative counsel’s digest SB 462, Monning. Employment: compensation. Existing law, except as speci®ed, requires a court in any action brought for the nonpayment of wages, fringe bene®ts, or health and welfare or pension fund contributions, to award reasonable attorney's fees and costs to the prevailing party if any party to the action requests attorney's fees and costs upon the initiation of the action. This bill would make the award of attorney's fees and costs where the prevailing party is not an employee contingent on a ®nding by the court that the employee brought the court action in bad faith.

The people of the State of California do enact as follows:

SECTION 1. Section 218.5 of the Labor Code, as amended by Section 42 of Chapter 697 of the Statutes of 2010, is amended to read: 218.5. (a) In any action brought for the nonpayment of wages, fringe bene®ts, or health and welfare or pension fund contributions, the court shall award reasonable attorney's fees and costs to the prevailing party if any party to the action requests attorney's fees and costs upon the initiation of the action. However, if the prevailing party in the court action is not an employee, attorney's fees and costs shall be awarded pursuant to this section only if the court ®nds that the employee brought the court action in bad faith. This section shall not apply to an action brought by the Labor Commissioner. This section shall not apply to a surety issuing a bond pursuant to Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code or to an action to enforce a mechanics lien brought under Chapter 4 (commencing with Section 8400) of Title 2 of Part 6 of Division 4 of the Civil Code. (b) This section does not apply to any cause of action for which attorney's fees are recoverable under Section 1194.

Bill Text - SB-666 Employment: retaliation. Page 1 of 5

SB-666 Employment: retaliation. (2013-2014)

Senate Bill No. 666

CHAPTER 577

An act to add Sections 494.6 and 6103.7 to the Business and Professions Code, and to amend Sections 98.6 and 1102.5 of, and to add Section 244 to, the Labor Code, relating to employment.

[ Approved by Governor October 05, 2013. Filed with Secretary of State October 05, 2013. ]

LEGISLATIVE COUNSEL'S DIGEST

SB 666, Steinberg. Employment: retaliation.

Existing law establishes grounds for suspension or revocation of certain business and professional licenses.

This bill would subject those business licenses to suspension or revocation, with a specified exception, if the licensee has been determined by the Labor Commissioner or the court to have violated specified law and the court or Labor Commissioner has taken into consideration any harm such a suspension or revocation would cause to employees of the licensee, as well as the good faith efforts of the licensee to resolve any alleged violations after receiving notice. The bill would subject a licensee of an agency within the Department of Consumer Affairs who has been found by the Labor Commissioner or the court to have violated specified law to disciplinary action by his or her respective licensing agency.

The State Bar Act establishes specific causes for the disbarment or suspension of a member of the State Bar.

This bill would make it a cause for suspension, disbarment, or other discipline for any member of the State Bar to report suspected immigration status or threaten to report suspected immigration status of a witness or party to a civil or administrative action or his or her family member, as defined, to a federal, state, or local agency because the witness or party exercises or has exercised a right related to his or her employment.

Existing law establishes various rights and protections relating to employment and civil rights that may be enforced by civil action.

This bill would provide that it is not necessary to exhaust administrative remedies or procedures in order to bring a civil action enforcing designated rights. Under the bill, reporting or threatening to report an employee’s, former employee’s, or prospective employee’s suspected citizenship or immigration status, or the suspected citizenship or immigration status of the employee’s or former employee’s family member, as defined, to a federal, state, or local agency because the employee, former employee, or prospective employee exercises a designated right would constitute an adverse action for purposes of establishing a violation of the designated right. Because a violation of certain of those designated rights is a misdemeanor, this bill would impose a state-mandated local program by changing the definition of a crime.

Existing law prohibits an employer from discharging an employee or in any manner discriminating against any employee or applicant for employment because the employee or applicant has engaged in prescribed protected conduct relating to the enforcement of the employee’s or applicant’s rights. Existing law makes it a misdemeanor for an employer to take adverse employment action against employees who file bona fide complaints.

http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201320140SB666 1/22/2014 Bill Text - SB-666 Employment: retaliation. Page 2 of 5

This bill would also prohibit an employer from retaliating or taking any adverse action against any employee or applicant for employment because the employee or applicant has engaged in protected conduct. The bill would expand the protected conduct to include a written or oral complaint by an employee that he or she is owed unpaid wages. The bill would subject an employer to a civil penalty of up to $10,000 per violation of these provisions.

Existing law entitles an employee to reinstatement and reimbursement for lost wages and benefits if the employee has been discharged, demoted, suspended, or in any way discriminated against because the employee engaged in protected conduct or because the employee made a bona fide complaint or claim or initiated any action or notice, as prescribed.

This bill would similarly grant these entitlements to an employee who is retaliated against or subjected to an adverse action.

Existing law prohibits an employer from making, adopting, or enforcing any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, where the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation or noncompliance with a state or federal rule or regulation. Existing law further prohibits an employer from retaliating against an employee for such a disclosure. Under existing law, a violation of these provisions by an employer is a crime.

This bill would additionally prohibit any person acting on behalf of the employer from making, adopting, or enforcing any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, as provided, and would extend those prohibitions to preventing an employee from, or retaliating against an employee for, providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry. Because a violation of these provisions by an employer would be a crime, this bill would impose a state-mandated local program.

This bill would incorporate additional changes to Section 1102.5 of the Labor Code proposed by SB 496 that would become operative if this bill and SB 496 are enacted and this bill is enacted last.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority Appropriation: no Fiscal Committee: yes Local Program: yes

THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

SECTION 1. Section 494.6 is added to the Business and Professions Code, to read:

494.6. (a) A business license regulated by this code may be subject to suspension or revocation if the licensee has been determined by the Labor Commissioner or the court to have violated subdivision (b) of Section 244 of the Labor Code and the court or Labor Commissioner has taken into consideration any harm such suspension or revocation would cause to employees of the licensee, as well as the good faith efforts of the licensee to resolve any alleged violations after receiving notice.

(b) Notwithstanding subdivision (a), a licensee of an agency within the Department of Consumer Affairs who has been found by the Labor Commissioner or the court to have violated subdivision (b) of Section 244 of the Labor Code may be subject to disciplinary action by his or her respective licensing agency.

(c) An employer shall not be subject to suspension or revocation under this section for requiring a prospective or current employee to submit, within three business days of the first day of work for pay, an I-9 Employment Eligibility Verification form.

SEC. 2. Section 6103.7 is added to the Business and Professions Code, to read:

6103.7. It is cause for suspension, disbarment, or other discipline for any member of the State Bar to report suspected immigration status or threaten to report suspected immigration status of a witness or party to a civil or administrative action or his or her family member to a federal, state, or local agency because the witness or party exercises or has exercised a right related to his or her employment, broadly interpreted. As used in this section, “family member” means a spouse, parent, sibling, child, uncle, aunt, niece, nephew, cousin, grandparent, or grandchild related by blood, adoption, marriage, or domestic partnership.

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SEC. 3. Section 98.6 of the Labor Code is amended to read:

98.6. (a) A person shall not discharge an employee or in any manner discriminate, retaliate, or take any adverse action against any employee or applicant for employment because the employee or applicant engaged in any conduct delineated in this chapter, including the conduct described in subdivision (k) of Section 96, and Chapter 5 (commencing with Section 1101) of Part 3 of Division 2, or because the employee or applicant for employment has filed a bona fide complaint or claim or instituted or caused to be instituted any proceeding under or relating to his or her rights that are under the jurisdiction of the Labor Commissioner, made a written or oral complaint that he or she is owed unpaid wages, or because the employee has initiated any action or notice pursuant to Section 2699, or has testified or is about to testify in a proceeding pursuant to that section, or because of the exercise by the employee or applicant for employment on behalf of himself, herself, or others of any rights afforded him or her.

(b) (1) Any employee who is discharged, threatened with discharge, demoted, suspended, retaliated against, subjected to an adverse action, or in any other manner discriminated against in the terms and conditions of his or her employment because the employee engaged in any conduct delineated in this chapter, including the conduct described in subdivision (k) of Section 96, and Chapter 5 (commencing with Section 1101) of Part 3 of Division 2, or because the employee has made a bona fide complaint or claim to the division pursuant to this part, or because the employee has initiated any action or notice pursuant to Section 2699 shall be entitled to reinstatement and reimbursement for lost wages and work benefits caused by those acts of the employer.

(2) Any employer who willfully refuses to hire, promote, or otherwise restore an employee or former employee who has been determined to be eligible for rehiring or promotion by a grievance procedure, arbitration, or hearing authorized by law, is guilty of a misdemeanor.

(3) In addition to any other remedies available, an employer who violates this section is liable for a civil penalty not exceeding ten thousand dollars ($10,000) per employee for each violation of this section.

(c) (1) Any applicant for employment who is refused employment, who is not selected for a training program leading to employment, or who in any other manner is discriminated against in the terms and conditions of any offer of employment because the applicant engaged in any conduct delineated in this chapter, including the conduct described in subdivision (k) of Section 96, and Chapter 5 (commencing with Section 1101) of Part 3 of Division 2, or because the applicant has made a bona fide complaint or claim to the division pursuant to this part, or because the employee has initiated any action or notice pursuant to Section 2699 shall be entitled to employment and reimbursement for lost wages and work benefits caused by the acts of the prospective employer.

(A) An employer against any conduct that is actually in direct conflict with the essential enterprise-related interests of the employer and where breach of that contract would actually constitute a material and substantial disruption of the employer’s operation.

(B) A firefighter against any disease that is presumed to arise in the course and scope of employment, by limiting his or her consumption of tobacco products on and off the job.

(d) The provisions of this section creating new actions or remedies that are effective on January 1, 2002, to employees or applicants for employment do not apply to any state or local law enforcement agency, any religious association or corporation specified in subdivision (d) of Section 12926 of the Government Code, except as provided in Section 12926.2 of the Government Code, or any person described in Section 1070 of the Evidence Code.

SEC. 4. Section 244 is added to the Labor Code, to read:

244. (a) An individual is not required to exhaust administrative remedies or procedures in order to bring a civil action under any provision of this code, unless that section under which the action is brought expressly

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requires exhaustion of an administrative remedy. This subdivision shall not be construed to affect the requirements of Section 2699.3.

(b) Reporting or threatening to report an employee’s, former employee’s, or prospective employee’s suspected citizenship or immigration status, or the suspected citizenship or immigration status of a family member of the employee, former employee, or prospective employee, to a federal, state, or local agency because the employee, former employee, or prospective employee exercises a right under the provisions of this code, the Government Code, or the Civil Code constitutes an adverse action for purposes of establishing a violation of an employee’s, former employee’s, or prospective employee’s rights. As used in this subdivision, “family member” means a spouse, parent, sibling, child, uncle, aunt, niece, nephew, cousin, grandparent, or grandchild related by blood, adoption, marriage, or domestic partnership.

SEC. 5. Section 1102.5 of the Labor Code is amended to read:

1102.5. (a) An employer, or any person acting on behalf of the employer, shall not make, adopt, or enforce any rule, regulation, or policy preventing an employee from disclosing information to a government or law enforcement agency, or from providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, where the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a state or federal rule or regulation.

(b) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for disclosing information to a government or law enforcement agency, or for providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, where the employee has reasonable cause to believe that the information discloses a violation of state or federal statute, or a violation of or noncompliance with a state or federal rule or regulation.

(c) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for refusing to participate in an activity that would result in a violation of state or federal statute, or a violation of or noncompliance with a state or federal rule or regulation.

(d) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for having exercised his or her rights under subdivision (a), (b), or (c) in any former employment.

(e) A report made by an employee of a government agency to his or her employer is a disclosure of information to a government or law enforcement agency pursuant to subdivisions (a) and (b).

(f) In addition to other penalties, an employer that is a corporation or limited liability company is liable for a civil penalty not exceeding ten thousand dollars ($10,000) for each violation of this section.

(g) This section does not apply to rules, regulations, or policies that implement, or to actions by employers against employees who violate, the confidentiality of the lawyer-client privilege of Article 3 (commencing with Section 950) of, or the physician-patient privilege of Article 6 (commencing with Section 990) of, Chapter 4 of Division 8 of the Evidence Code, or trade secret information.

SEC. 5.5. Section 1102.5 of the Labor Code is amended to read:

(b) An employer, or any person acting on behalf of the employer, shall not retaliate against an employee for disclosing information, or because the employer believes that the employee disclosed or may disclose information, to a government or law enforcement agency, or to a person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation or noncompliance, or for providing information to, or testifying before, any public body conducting an investigation, hearing, or inquiry, if the employee has reasonable cause to believe that the information discloses a violation of state or

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federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation, regardless of whether disclosing the information is part of the employee’s job duties.

(e) A report made by an employee of a government agency to his or her employer is a disclosure of information to a government or law enforcement agency pursuant to subdivisions (a) and (b).

(g) This section does not apply to rules, regulations, or policies that implement, or to actions by employers against employees who violate, the confidentiality of the lawyer-client privilege of Article 3 (commencing with Section 950) of, the physician-patient privilege of Article 6 (commencing with Section 990) of, Chapter 4 of Division 8 of the Evidence Code, or trade secret information.

SEC. 6. The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

SEC. 7. Section 5.5 of this bill incorporates amendments to Section 1102.5 of the Labor Code proposed by both this bill and Senate Bill 496. It shall only become operative if (1) both bills are enacted and become effective on or before January 1, 2014, (2) each bill amends Section 1102.5 of the Labor Code, and (3) this bill is enacted after Senate Bill 496, in which case Section 5 of this bill shall not become operative.

SEC. 8. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

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CHAPTER 350

An act to amend Section 3300 of, and to amend, repeal, and add Sections 2708, 3301, 3302, and 3303 of, the Unemployment Insurance Code, relating to unemployment insurance, and making an appropriation therefor.

[Approved by Governor September 24, 2013. Filed with Secretary of State September 24, 2013.]

legislative counsel’s digest SB 770, Jackson. Unemployment compensation: disability bene®ts: paid family leave. Under existing law, the family temporary disability insurance program provides up to 6 weeks of wage replacement bene®ts to workers who take time off work to care for a seriously ill child, spouse, parent, domestic partner, or to bond with a minor child within one year of the birth or placement of the child in connection with foster care or adoption. These bene®ts are payable for family temporary disability leaves that begin on and after July 1, 2004. This bill would, beginning on July 1, 2014, expand the scope of the family temporary disability program to include time off to care for a seriously ill grandparent, grandchild, sibling, or parent-in-law, as de®ned. The bill would also make conforming and clarifying changes in provisions relating to family temporary disability compensation. Under existing law, workers are required to pay contributions to the Unemployment Compensation Disability Fund, a special fund in the State Treasury, and those funds are continuously appropriated for the purpose of providing disability bene®ts and making payment of expenses in administering those provisions. This bill, by authorizing expenditure of money in the Unemployment Compensation Disability Fund for a new purpose, would make an appropriation. Appropriation: yes.

The people of the State of California do enact as follows:

SECTION 1. Section 2708 of the Unemployment Insurance Code is amended to read: 2708. (a) (1) In accordance with the director's authorized regulations, and except as provided in subdivision (c) and Sections 2708.1 and 2709, a claimant shall establish medical eligibility for each uninterrupted period of disability by ®ling a ®rst claim for disability bene®ts supported by the

Ch. 350 Ð 2 Ð certi®cate of a treating physician or practitioner that establishes the sickness, injury, or pregnancy of the employee, or the condition of the family member that warrants the care of the employee. For subsequent periods of uninterrupted disability after the period covered by the initial certi®cate or any preceding continued claim, a claimant shall ®le a continued claim for those bene®ts supported by the certi®cate of a treating physician or practitioner. A certi®cate ®led to establish medical eligibility for the employee's own sickness, injury, or pregnancy shall contain a diagnosis and diagnostic code prescribed in the International Classi®cation of Diseases, or, where no diagnosis has yet been obtained, a detailed statement of symptoms. (2) A certi®cate ®led to establish medical eligibility of the employee's own sickness, injury, or pregnancy shall also contain a statement of medical facts including secondary diagnoses when applicable, within the physician's or practitioner's knowledge, based on a physical examination and a documented medical history of the claimant by the physician or practitioner, indicating the physician's or practitioner's conclusion as to the claimant's disability, and a statement of the physician's or practitioner's opinion as to the expected duration of the disability. (b) An employee shall be required to ®le a certi®cate to establish eligibility when taking leave to care for a family member with a serious health condition. The certi®cate shall be developed by the department. In order to establish medical eligibility of the serious health condition of the family member that warrants the care of the employee, the information shall be within the physician's or practitioner's knowledge and shall be based on a physical examination and documented medical history of the family member and shall contain all of the following: (1) A diagnosis and diagnostic code prescribed in the International Classi®cation of Diseases, or, where no diagnosis has yet been obtained, a detailed statement of symptoms. (2) The date, if known, on which the condition commenced. (3) The probable duration of the condition. (4) An estimate of the amount of time that the physician or practitioner believes the employee is needed to care for the child, parent, spouse, or domestic partner. (5) (A) A statement that the serious health condition warrants the participation of the employee to provide care for his or her child, parent, spouse, or domestic partner. (B) ªWarrants the participation of the employeeº includes, but is not limited to, providing psychological comfort, and arranging ªthird partyº care for the child, parent, spouse, or domestic partner, as well as directly providing, or participating in, the medical care. (c) The department shall develop a certi®cation form for bonding that is separate and distinct from the certi®cate required in subdivision (a) for an employee taking leave to bond with a minor child within the ®rst year of the child's birth or placement in connection with foster care or adoption.

Ð 3 Ð Ch. 350

(d) The ®rst and any continuing claim of an individual who obtains care and treatment outside this state shall be supported by a certi®cate of a treating physician or practitioner duly licensed or certi®ed by the state or foreign country in which the claimant is receiving the care and treatment. If a physician or practitioner licensed by and practicing in a foreign country is under investigation by the department for ®ling false claims and the department does not have legal remedies to conduct a criminal investigation or prosecution in that country, the department may suspend the processing of all further certi®cations until the physician or practitioner fully cooperates, and continues to cooperate with the investigation. A physician or practitioner licensed by and practicing in a foreign country who has been convicted of ®ling false claims with the department may not ®le a certi®cate in support of a claim for disability bene®ts for a period of ®ve years. (e) For purposes of this part: (1) ªPhysicianº has the same meaning as de®ned in Section 3209.3 of the Labor Code. (2) ªPractitionerº means a person duly licensed or certi®ed in California acting within the scope of his or her license or certi®cation who is a dentist, podiatrist, or a nurse practitioner, and in the case of a nurse practitioner, after performance of a physical examination by a nurse practitioner and collaboration with a physician and surgeon, or as to normal pregnancy or childbirth, a midwife or nurse midwife, or nurse practitioner. (f) For a claimant who is hospitalized in or under the authority of a county hospital in this state, a certi®cate of initial and continuing medical disability, if any, shall satisfy the requirements of this section if the disability is shown by the claimant's hospital chart, and the certi®cate is signed by the hospital's registrar. For a claimant hospitalized in or under the care of a medical facility of the United States government, a certi®cate of initial and continuing medical disability, if any, shall satisfy the requirements of this section if the disability is shown by the claimant's hospital chart, and the certi®cate is signed by a medical of®cer of the facility duly authorized to do so. (g) Nothing in this section shall be construed to preclude the department from requesting additional medical evidence to supplement the ®rst or any continued claim if the additional evidence can be procured without additional cost to the claimant. The department may require that the additional evidence include any or all of the following: (1) Identi®cation of diagnoses. (2) Identi®cation of symptoms. (3) A statement setting forth the facts of the claimant's disability. The statement shall be completed by any of the following individuals: (A) The physician or practitioner treating the claimant. (B) The registrar, authorized medical of®cer, or other duly authorized of®cial of the hospital or health facility treating the claimant. (C) An examining physician or other representative of the department. (h) This section shall become inoperative on July 1, 2014, and shall be repealed on January 1, 2015.

Ch. 350 Ð 4 Ð

SEC. 2. Section 2708 is added to the Unemployment Insurance Code, to read: 2708. (a) (1) In accordance with the director's authorized regulations, and except as provided in subdivision (c) and Sections 2708.1 and 2709, a claimant shall establish medical eligibility for each uninterrupted period of disability by ®ling a ®rst claim for disability bene®ts supported by the certi®cate of a treating physician or practitioner that establishes the sickness, injury, or pregnancy of the employee, or the condition of the family member that warrants the care of the employee. For subsequent periods of uninterrupted disability after the period covered by the initial certi®cate or any preceding continued claim, a claimant shall ®le a continued claim for those bene®ts supported by the certi®cate of a treating physician or practitioner. A certi®cate ®led to establish medical eligibility for the employee's own sickness, injury, or pregnancy shall contain a diagnosis and diagnostic code prescribed in the International Classi®cation of Diseases, or, if no diagnosis has yet been obtained, a detailed statement of symptoms. (2) A certi®cate ®led to establish medical eligibility of the employee's own sickness, injury, or pregnancy shall also contain a statement of medical facts, including secondary diagnoses when applicable, within the physician's or practitioner's knowledge, based on a physical examination and a documented medical history of the claimant by the physician or practitioner, indicating the physician's or practitioner's conclusion as to the claimant's disability, and a statement of the physician's or practitioner's opinion as to the expected duration of the disability. (b) An employee shall be required to ®le a certi®cate to establish eligibility when taking leave to care for a family member with a serious health condition. The certi®cate shall be developed by the department. In order to establish medical eligibility of the serious health condition of the family member that warrants the care of the employee, the information shall be within the physician's or practitioner's knowledge and shall be based on a physical examination and documented medical history of the family member and shall contain all of the following: (1) A diagnosis and diagnostic code prescribed in the International Classi®cation of Diseases, or, if no diagnosis has yet been obtained, a detailed statement of symptoms. (2) The date, if known, on which the condition commenced. (3) The probable duration of the condition. (4) An estimate of the amount of time that the physician or practitioner believes the employee needs to care for the child, parent, grandparent, grandchild, sibling, spouse, or domestic partner. (5) (A) A statement that the serious health condition warrants the participation of the employee to provide care for his or her child, parent, grandparent, grandchild, sibling, spouse, or domestic partner. (B) ªWarrants the participation of the employeeº includes, but is not limited to, providing psychological comfort, and arranging ªthird partyº care for the child, parent, grandparent, grandchild, sibling, spouse, or

Ð 5 Ð Ch. 350 domestic partner, as well as directly providing, or participating in, the medical care. (c) The department shall develop a certi®cation form for bonding that is separate and distinct from the certi®cate required in subdivision (a) for an employee taking leave to bond with a minor child within the ®rst year of the child's birth or placement in connection with foster care or adoption. (d) The ®rst and any continuing claim of an individual who obtains care and treatment outside this state shall be supported by a certi®cate of a treating physician or practitioner duly licensed or certi®ed by the state or foreign country in which the claimant is receiving the care and treatment. If a physician or practitioner licensed by and practicing in a foreign country is under investigation by the department for ®ling false claims and the department does not have legal remedies to conduct a criminal investigation or prosecution in that country, the department may suspend the processing of all further certi®cations until the physician or practitioner fully cooperates, and continues to cooperate, with the investigation. A physician or practitioner licensed by, and practicing in, a foreign country who has been convicted of ®ling false claims with the department may not ®le a certi®cate in support of a claim for disability bene®ts for a period of ®ve years. (e) For purposes of this part: (1) ªPhysicianº has the same meaning as de®ned in Section 3209.3 of the Labor Code. (2) ªPractitionerº means a person duly licensed or certi®ed in California acting within the scope of his or her license or certi®cation who is a dentist, podiatrist, or a nurse practitioner, and in the case of a nurse practitioner, after performance of a physical examination by a nurse practitioner and collaboration with a physician and surgeon, or as to normal pregnancy or childbirth, a midwife or nurse midwife, or nurse practitioner. (f) For a claimant who is hospitalized in or under the authority of a county hospital in this state, a certi®cate of initial and continuing medical disability, if any, shall satisfy the requirements of this section if the disability is shown by the claimant's hospital chart, and the certi®cate is signed by the hospital's registrar. For a claimant hospitalized in or under the care of a medical facility of the United States government, a certi®cate of initial and continuing medical disability, if any, shall satisfy the requirements of this section if the disability is shown by the claimant's hospital chart, and the certi®cate is signed by a medical of®cer of the facility duly authorized to do so. (g) Nothing in this section shall be construed to preclude the department from requesting additional medical evidence to supplement the ®rst or any continued claim if the additional evidence can be procured without additional cost to the claimant. The department may require that the additional evidence include any or all of the following: (1) Identi®cation of diagnoses. (2) Identi®cation of symptoms. (3) A statement setting forth the facts of the claimant's disability. The statement shall be completed by any of the following individuals: (A) The physician or practitioner treating the claimant.

Ch. 350 Ð 6 Ð

(B) The registrar, authorized medical of®cer, or other duly authorized of®cial of the hospital or health facility treating the claimant. (C) An examining physician or other representative of the department. (h) This section shall become operative on July 1, 2014. SEC. 3. Section 3300 of the Unemployment Insurance Code is amended to read: 3300. The Legislature ®nds and declares all of the following: (a) It is in the public bene®t to provide family temporary disability insurance bene®ts to workers to care for their family members. The need for family temporary disability insurance bene®ts has intensi®ed as the participation of both parents in the workforce has increased, and the number of single parents in the workforce has grown. The need for partial wage replacement for workers taking family care leave will be exacerbated as the population of those needing care, both children and parents of workers, increases in relation to the number of working age adults. (b) Family Temporary Disability Insurance shall be known as Paid Family Leave. (c) Developing systems that help families adapt to the competing interests of work and home not only bene®ts workers, but also bene®ts employers by increasing worker productivity and reducing employee turnover. (d) The federal Family and Medical Leave Act (FMLA) and California's Family Rights Act (CFRA) entitle eligible employees working for covered employers to take unpaid, job-protected leave for up to 12 workweeks in a 12-month period. Under the FMLA and the CFRA, unpaid leave may be taken for the birth, adoption, or foster placement of a new child; to care for a seriously ill child, parent, or spouse; or for the employee's own serious health condition. (e) State disability insurance bene®ts currently provide wage replacement for workers who need time off due to their own nonwork-related injuries, illnesses, or conditions, including pregnancy, that prevent them from working, but do not cover leave to care for a sick or injured child, spouse, parent, grandparent, grandchild, sibling, or domestic partner, or leave to bond with a new child. (f) The majority of workers in this state are unable to take family care leave because they are unable to afford leave without pay. When workers do not receive some form of wage replacement during family care leave, families suffer from the worker's loss of income, increasing the demand on the state unemployment insurance system and dependence on the state's welfare system. (g) It is the intent of the Legislature to create a family temporary disability insurance program to help reconcile the demands of work and family. The family temporary disability insurance program shall be a component of the state's unemployment compensation disability insurance program, shall be funded through employee contributions, and shall be administered in accordance with the policies of the state disability insurance program created pursuant to this part. Initial and ongoing administrative costs associated

Ð 7 Ð Ch. 350 with the family temporary disability insurance program shall be payable from the Disability Fund. SEC. 4. Section 3301 of the Unemployment Insurance Code is amended to read: 3301. (a) (1) The purpose of this chapter is to establish, within the state disability insurance program, a family temporary disability insurance program. Family temporary disability insurance shall provide up to six weeks of wage replacement bene®ts to workers who take time off work to care for a seriously ill child, spouse, parent, domestic partner, or to bond with a minor child within one year of the birth or placement of the child in connection with foster care or adoption. (2) Nothing in this chapter shall be construed to abridge the rights and responsibilities conveyed under the CFRA or pregnancy disability leave. (b) An individual's ªweekly bene®t amountº shall be the amount provided in Section 2655. An individual is eligible to receive family temporary disability insurance bene®ts equal to one-seventh of his or her weekly bene®t amount for each full day during which he or she is unable to work due to caring for a seriously ill or injured family member or bonding with a minor child within one year of the birth or placement of the child in connection with foster care or adoption. (c) The maximum amount payable to an individual during any disability bene®t period for family temporary disability insurance shall be six times his or her ªweekly bene®t amount,º but in no case shall the total amount of bene®ts payable be more than the total wages paid to the individual during his or her disability base period. If the bene®t is not a multiple of one dollar ($1), it shall be computed to the next higher multiple of one dollar ($1). (d) No more than six weeks of family temporary disability insurance bene®ts shall be paid within any 12-month period. (e) An individual shall ®le a claim for family temporary disability insurance bene®ts not later than the 41st consecutive day following the ®rst compensable day with respect to which the claim is made for bene®ts, which time shall be extended by the department upon a showing of good cause. If a ®rst claim is not complete, the claim form shall be returned to the claimant for completion and it shall be completed and returned not later than the 10th consecutive day after the date it was mailed by the department to the claimant, except that such time shall be extended by the department upon a showing of good cause. (f) This section shall become inoperative on July 1, 2014, and shall be repealed on January 1, 2015. SEC. 5. Section 3301 is added to the Unemployment Insurance Code, to read: 3301. (a) (1) The purpose of this chapter is to establish, within the state disability insurance program, a family temporary disability insurance program. Family temporary disability insurance shall provide up to six weeks of wage replacement bene®ts to workers who take time off work to care for a seriously ill child, spouse, parent, grandparent, grandchild, sibling,

Ch. 350 Ð 8 Ð or domestic partner, or to bond with a minor child within one year of the birth or placement of the child in connection with foster care or adoption. (2) Nothing in this chapter shall be construed to abridge the rights and responsibilities conveyed under the CFRA or pregnancy disability leave. (b) An individual's ªweekly bene®t amountº shall be the amount provided in Section 2655. An individual is eligible to receive family temporary disability insurance bene®ts equal to one-seventh of his or her weekly bene®t amount for each full day during which he or she is unable to work due to caring for a seriously ill or injured family member or bonding with a minor child within one year of the birth or placement of the child in connection with foster care or adoption. (c) The maximum amount payable to an individual during any disability bene®t period for family temporary disability insurance shall be six times his or her ªweekly bene®t amount,º but in no case shall the total amount of bene®ts payable be more than the total wages paid to the individual during his or her disability base period. If the bene®t is not a multiple of one dollar ($1), it shall be computed to the next higher multiple of one dollar ($1). (d) No more than six weeks of family temporary disability insurance bene®ts shall be paid within any 12-month period. (e) An individual shall ®le a claim for family temporary disability insurance bene®ts not later than the 41st consecutive day following the ®rst compensable day with respect to which the claim is made for bene®ts, which time shall be extended by the department upon a showing of good cause. If a ®rst claim is not complete, the claim form shall be returned to the claimant for completion and it shall be completed and returned not later than the 10th consecutive day after the date it was mailed by the department to the claimant, except that such time shall be extended by the department upon a showing of good cause. (f) This section shall become operative on July 1, 2014. SEC. 6. Section 3302 of the Unemployment Insurance Code is amended to read: 3302. Before July 1, 2014, for purposes of this part: (a) ªCare recipientº means the family member who is receiving care for a serious health condition or the new child with whom the care provider is bonding. (b) ªCare providerº means the family member who is providing the required care for a serious health condition or the family member who is bonding with the new child. (c) ªChildº means a biological, adopted, or foster son or daughter, a stepson or stepdaughter, a legal ward, a son or daughter of a domestic partner, or the person to whom the employee stands in loco parentis. (d) ªDomestic partnerº has the same meaning as de®ned in Section 297 of the Family Code. (e) ªFamily care leaveº means any of the following: (1) Leave to bond with a minor child within the ®rst year of the child's birth or placement in connection with foster care or adoption.

Ð 9 Ð Ch. 350

(2) Leave to care for a child, parent, spouse, or domestic partner who has a serious health condition. (f) ªFamily memberº means child, parent, spouse, or domestic partner as de®ned in this section. (g) ªParentº means a biological, foster, or adoptive parent, a stepparent, a legal guardian, or other person who stood in loco parentis to the employee when the employee was a child. (h) ªSerious health conditionº means an illness, injury, impairment, or physical or mental condition that involves inpatient care in a hospital, hospice, or residential health care facility, or continuing treatment or continuing supervision by a health care provider, as de®ned in Section 12945.2 of the Government Code. (i) ªSpouseº means a partner to a lawful marriage. (j) ªValid claimº means any claim for family temporary disability insurance bene®ts made in accordance with the provisions of this code, and any rules and regulations adopted thereunder, if the individual claiming bene®ts is unemployed and has been paid the necessary wages in employment for employers to qualify for bene®ts under Section 2652 and is caring for a seriously ill family member, or bonding with a minor child during the ®rst year after the birth or placement of the child in connection with foster care or adoption. (k) ªTwelve-month period,º with respect to any individual, means the 365 consecutive days that begin with the ®rst day the individual ®rst establishes a valid claim for family temporary disability bene®ts. This section shall be repealed on January 1, 2015. SEC. 7. Section 3302 is added to the Unemployment Insurance Code, to read: 3302. On and after July 1, 2014, for purposes of this part: (a) ªCare recipientº means the family member who is receiving care for a serious health condition or the new child with whom the care provider is bonding. (b) ªCare providerº means the family member who is providing the required care for a serious health condition or the family member who is bonding with the new child. (c) ªChildº means a biological, adopted, or foster son or daughter, a stepson or stepdaughter, a legal ward, a son or daughter of a domestic partner, or the person to whom the employee stands in loco parentis. (d) ªDomestic partnerº has the same meaning as de®ned in Section 297 of the Family Code. (e) ªFamily care leaveº means any of the following: (1) Leave to bond with a minor child within the ®rst year of the child's birth or placement in connection with foster care or adoption. (2) Leave to care for a child, parent, grandparent, grandchild, sibling, spouse, or domestic partner who has a serious health condition. (f) ªFamily memberº means child, parent, grandparent, grandchild, sibling, spouse, or domestic partner as de®ned in this section. (g) ªGrandchildº means a child of the employee's child.

Ch. 350 Ð 10 Ð

(h) ªGrandparentº means a parent of the employee's parent. (i) ªParentº means a biological, foster, or adoptive parent, a parent-in-law, a stepparent, a legal guardian, or other person who stood in loco parentis to the employee when the employee was a child. (j) ªParent-in-lawº means the parent of a spouse or a domestic partner. (k) ªSerious health conditionº means an illness, injury, impairment, or physical or mental condition that involves inpatient care in a hospital, hospice, or residential health care facility, or continuing treatment or continuing supervision by a health care provider, as de®ned in Section 12945.2 of the Government Code. (l) ªSiblingº means a person related to another person by blood, adoption, or af®nity through a common legal or biological parent. (m) ªSpouseº means a partner to a lawful marriage. (n) ªValid claimº means any claim for family temporary disability insurance bene®ts made in accordance with the provisions of this code, and any rules and regulations adopted thereunder, if the individual claiming bene®ts is unemployed and has been paid the necessary wages in employment for employers to qualify for bene®ts under Section 2652 and is caring for a seriously ill family member, or bonding with a minor child during the ®rst year after the birth or placement of the child in connection with foster care or adoption. (o) ªTwelve-month period,º with respect to any individual, means the 365 consecutive days that begin with the ®rst day the individual ®rst establishes a valid claim for family temporary disability bene®ts. SEC. 8. Section 3303 of the Unemployment Insurance Code is amended to read: 3303. Before July 1, 2014, individual shall be deemed eligible for family temporary disability insurance bene®ts equal to one-seventh of his or her weekly bene®t amount on any day in which he or she is unable to perform his or her regular or customary work because he or she is bonding with a minor child during the ®rst year after the birth or placement of the child in connection with foster care or adoption or caring for a seriously ill child, parent, spouse, or domestic partner, only if the director ®nds all of the following: (a) The individual has made a claim for temporary disability bene®ts as required by authorized regulations. (b) The individual has been unable to perform his or her regular or customary work for a seven-day waiting period during each disability bene®t period, with respect to which waiting period no family temporary disability insurance bene®ts are payable. (c) The individual has ®led a certi®cate, as required by Sections 2708 and 2709. This section shall be repealed on January 1, 2015. SEC. 9. Section 3303 is added to the Unemployment Insurance Code, to read: 3303. On and after July 1, 2014, an individual shall be deemed eligible for family temporary disability insurance bene®ts equal to one-seventh of

Ð 11 Ð Ch. 350 his or her weekly bene®t amount on any day in which he or she is unable to perform his or her regular or customary work because he or she is bonding with a minor child during the ®rst year after the birth or placement of the child in connection with foster care or adoption or caring for a seriously ill child, parent, grandparent, grandchild, sibling, spouse, or domestic partner, only if the director ®nds all of the following: (a) The individual has made a claim for temporary disability bene®ts as required by authorized regulations. (b) The individual has been unable to perform his or her regular or customary work for a seven-day waiting period during each disability bene®t period, with respect to which waiting period no family temporary disability insurance bene®ts are payable. (c) The individual has ®led a certi®cate, as required by Sections 2708 and 2709.

Tab 4 FILE NO.131191 ORDINANCE NO.

1 [Administrative Code - Clarifying Employer Definition for Family Friendly Workplace]

2 3 Ordinance amending the Administrative Code to clarify the group of employers 4 required to comply with the Family Friendly Workplace Ordinance.

5 NOTE: Unchanged Code text and uncodified text are in plain Arial font. Additions to Codes are in single-underline italics Times New Roman font. 6 Deletions to Codes are in strikethrough italics Times New Roman font. Board amendment additions are in double-underlined Arial font. 7 Board amendment deletions are in strikethrough Arial font. Asterisks (* * * *) indicate the omission of unchanged Code 8 subsections or parts of tables.

9 10 Be it ordained by the People of the City and County of San Francisco: 11 12 Section 1. The Administrative Code is hereby amended by amending Section 12Z.3, to 13 read as follows: 14 SEC. 12Z.3. DEFINITIONS.

15 For purposes of this Chapter, the following definitions apply. 16 * * * * 17 "Employee" means any person who is employed within the geographic boundaries of 18 the City by an Employer, including part-time employees. "Employee" includes a participant in 19 a Welfare-to-Work Program when the participant is engaged in work activity that would be 20 considered "employment" under the federal Fair Labor Standards Act, 29 U.S.C. § 201 et 21 seq., and any applicable U.S. Department of Labor Guidelines. "Welfare-to-Work Program"

22 shall include any public assistance program administered by the Human Services Agency, 23 including but not limited to CalWORKS, and any successor programs that are substantially 24 similar, that require a public assistance applicant or recipient to work in exchange for their 25 grant.

Supervisor Chiu BOARD OF SUPERVISORS Page 1

1 "Employer" means the City, or any person as defined in Section 18 of the California 2 Labor Code who regularly employs 20 or more employeesEmployees, regardless of location, 3 including an agent of that Employer and corporate officers or executives who directly or 4 indirectly or through an agent or any other person, including through the services of a 5 temporary services or staffing agency or similar entity, employ or exercise control over the 6 wages, hours, or working conditions of an Employee. The term "Employer" shall also include

7 any successor in interest of an Employer. The term "Employer" shall not include the state or 8 federal government or any local government entity other than the City. 9 * * * * 10 Section 2. Effective Date. This ordinance shall become effective 30 days after 11 enactment. Enactment occurs when the Mayor signs the ordinance, the Mayor returns the 12 ordinance unsigned or does not sign the ordinance within ten days of receiving it, or the Board 13 of Supervisors overrides the Mayor’s veto of the ordinance.

14 15 Section 3. Scope of Ordinance. In enacting this ordinance, the Board of Supervisors 16 intends to amend only those words, phrases, paragraphs, subsections, sections, articles, 17 numbers, punctuation marks, charts, diagrams, or any other constituent parts of the Municipal 18 Code that are explicitly shown in this ordinance as additions, deletions, Board amendment 19 additions, and Board amendment deletions in accordance with the “Note” that appears under 20 the official title of the ordinance.

21 APPROVED AS TO FORM: DENNIS J. HERRERA, City Attorney 22

23 By: CECILIA T. MANGOBA 24 Deputy City Attorney

25 n:\legana\as2013\1300455\00890076.doc

Supervisor Chiu BOARD OF SUPERVISORS Page 2

Tab 5 AMENDED IN COMMITTEE FILE NO. 130785 9/23/2013 ORDINANCE NO. l 0~ -\~

1 [Administrative Code - Family Friendly Workplace Ordinance]

2 3 Ordinance amending the Administrative Code to allow San Francisco-based employees

4 to request flexible or predictable working arrangements to assist with care giving

5 responsibilities, subject to the employer's right to deny a request based on business

6 reasons; prohibit adverse employment actions based on caregiver status; prohibit

7 interference with rights or retaliation against employees for exercising rights under the

8 Ordinance; require employers to post a notice informing employees of their rights

9 under the Ordinance; require employers to maintain records regarding compliance with

1O the Ordinance; authorize enforcement by the Office of Labor Standards Enforcement,

11 including the imposition of remedies and penalties for a violation and an appeal

12 process for an employer to an independent hearing officer; authorize waiver of the

13 provisions of the Ordinance in a collective bargaining agreement; and making

14 environmental findings.

15 NOTE: Unchanged Code text and uncodified text are in plain Arial font. Additions to Codes are in single-underline italics Times New Roman font. 16 Deletions to Codes are in strikethrough, ittllics Times }lert' Romtlnfont. Board amendment additions are in double-underlined Arial font. 17 Board amendment deletions are in strikethrough Arial font. Asterisks (* * * *) indicate the omission of unchanged Code 18 subsections or parts of tables. 19 20 Be it ordained by the People of the City and County of San Francisco:

21 Section 1. Environmental Findings. The Planning Department has determined that the

22 actions contemplated in this ordinance comply with the California Environmental Quality Act

23 (California Public Resources Code Sections 21000 et seq.). Said determination is on file with

24 the Clerk of the Board of Supervisors in File No. 130785 and is incorporated herein by

25 reference.

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 1 9/23/2013 1 2 Section 2. The Administrative Code is hereby amended by adding Chapter 12Z, to

3 read as follows:

4 CHAPTER 12Z. SAN FRANCISCO FAMILY FRIENDLY WORKPLACE ORDINANCE

5 Sec. 12Z.1 Title. 6 Sec. 12Z.2 Findings. 7 Sec. 12Z.3 Definitions. 8 Sec. 12Z.4 Right to Request Flexible or Predictable Working Arrangement. 9 Sec. 12Z.5 Response to Request for Flexible or Predictable Working

10 Arrangement. 11 Sec. 12Z.6 Request for Reconsideration by Employee from the Denial ofRequest

12 for Flexible or Predictable WorkingArrangement. 13 Sec. 12Z. 7 Exercise o(Rights and Caregiver Status Protected: Retaliation 14 Prohibited.

15 Sec. 12Z.8 Notice and Posting Requirements for Employers. 16 Sec. 12Z.9 Employer Records. 17 Sec. 12Z.10 Implementation and Enforcement. 18 Sec. 12Z.11 Exemption ofCertain Job Classifications Pertaining to Public Health 19 and Public Safety. 20 Sec. 12Z.12 Waiver through Collective Bargaining.

21 Sec. 12Z.13 Other Legal Requirements. 22 Sec. 12Z.14 Rulemaking Authority. 23 Sec. 12Z.15 Outreach.

24 Sec. 12Z. 4-§=1=6~---~P-'-r=ee"""m'""'p""'t=io=n=.

25 Sec. l 2Z. 4-6=1==7~ ___....:::C=ity'-"--U"'"'n=d=e::..:..r=ta=k=in-"g>-'L=im:..::..:1=·te=d"--'t=o-"P'-'r--"o:..:..:m=o""'t=io:..:...n::....:o~f-'G==-e=n=e'-'--r=a"-l :...:..Wi....:::e.:;.1.lfl=a'-'re=.

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 2 9/23/2013 1 Sec. l 2Z. 4-7==1 ~8 ___------=S=e:....:.v-=-er:....::a=b'-'-'il=ity:,.L..!-. 2 3 SEC.12Z.1. TITLE. 4 This Chapter shall be known as the "San Francisco Family Friendly Workplace Ordinance. " 5

6 SEC.12Z.~ FINDING&

7 1. Over the last few decades. the demographics of the nation's workforce and the structures of

8 the nation's families have undergone significant changes. As detailed below. these changes include an

9 increased number ofwomen in the workforce; [ewer households with children that have at least one

1 O parent staying at home full-time; and more single-parent households. As a result o(these and other

11 changes, the demands placed on workers with family responsibilities are greater and more complex

12 today than they were in an earlier era. As in every American city. San Francisco's workforce and

13 families have experienced these changes.

14 2. A marked change in the workforce. and consequently in families. is the large increase in

15 numbers ofwomen who now work outside the home. In 1960. the wife was employed in approximately

16 26 percent o[families. In April 2013. in approximately 68 percent o[families. married mothers worked

17 outside the home.

18 3. Another marked change from an earlier era is that now far [ewer households have a parent

19 who does not work outside the home. Nationally. more than seventy percent ofchildren are raised in

20 households that are headed by either a working single parent or two working parents. In 1975. a little

21 more than a third ofhouseholds with married parents and children had both parents in the workforce.

22 Now. the figure is approximately two-thirds. In San Francisco in 2010. approximately eighty percent

23 ofparents living with at least one child under the age o[five were in the workforce. 24 25

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page3 9/23/2013 1 4. The number ofsingle-parent households has increased substantiallv. more than doubling

2 over the last fifty years. Today, at least 15-20 percent ofhouseholds are single-parent. Approximately

3 halfof all births to women under age 30 are to single mothers.

4 5. Americans are living longer than they ever did. and many families have direct caregiving

5 responsibilities for elderlyparents or other older relatives. Family members serving this caregiving

6 role face the same work/family pressures as parents with minor children. and when they also have

7 caregiving responsibilities [or minor children. their family burdens in effect are compounded.

8 Nationally. more than halfofpersons who provide unpaid care to an adult or to a child with special

9 needs are employed outside the home. with the large majority ofthose employees working full time.

1 O Approximately 32. 000 San Franciscans who work outside the home live with family members 65 years

11 and older.

12 6. Many employees who live outside city centers have lengthy commutes to their jobs. Traffic

13 patterns during rush hour elongate those commutes. At the same time. some employees. especially

14 those in low-wage jobs. have difficulty reaching their workplaces through public transportation during

15 off-peak shifts that start in the evening or early morning. Commutes of!ong duration leave less time

16 .for employees to balance work and caregiving responsibilities. Further. to the extent rigid employment

17 schedules and the absence o[telecommute options [or employees contribute to delays attendant to rush-

18 hour traffic. they heighten the tension between work and family responsibilities that so many workers

19 face. Moreover. to the extent flexible working hours and telecommuting options will reduce demands

20 on streets and highways and mass transportation svstems during rush hour. San Francisco and the Bay

21 Area will likely benefit from both an environmental and economic standpoint.

22 7. An employee's actual or perceived status as a caregiver can create workplace and pay

23 inequities. which often operate to the detriment ofwomen and their families because o(the continuing

24 primary role ofwomen as caregivers in the United States. These problems are most obvious when an

25 employer refuses to hire an employee because ofthat person's family or other caregiving

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page4 9/23/2013 1 responsibilities. Legal protection ofcaregivers against such arbitrary acts does not currently exist.

2 But pay inequity may arise even ifan employer does not consciously intend to place workers at a

3 disadvantage because oftheir actual or perceived status as caregivers. For example, employees with

4 care giving responsibilities may be channeled into or may themselves gravitate toward lower-paying

5 assignments or career paths that they or their employer view as more compatible with family needs.

6 Employees may temporarily drop out o[the workforce because there is insufficient workplace

7 flexibility, and when they return to the workforce they may be unable to catch up to the pay rates of

8 employees per{Orming the same or similar work who did not leave.

9 8. The current cultural climate within many businesses idealizes the employee who works full-

10 time and long hours. is available {Or extra work hours on short notice. and has few ifany commitments

11 outside ofwork that would take precedence over work responsibilities. These values are based in large

12 part on a traditional. gendered division o(labor. Historically. men could comply with these idealized

13 worker norms because women per{Ormed full-time childcare and domestic duties. Yet. while women's

14 participation in the paid labor market is now widespread, women continue to take on childcare and

15 household duties. do the lion's share ofhousework. provide the majority ofphysical and emotional care

16 for children, and take time offto care for sick family members and to attend to other family needs.

17 9. Many employers expect that employees will outsource childcare and other caregiving

18 responsibilities, without considering that such costs may constitute an unsustainable proportion of

19 family income relative to other expenses. Other employers expect family members o[the employee to

20 assume childcare and other caregiving responsibilities, without considering that such family members

21 may not exist. or may themselves have work responsibilities that {Oreclose their assuming these

22 functions.

23 10. In response to the needs ofthe modern workforce. some employers have instituted flexible

24 work arrangements that alter the time or place at which work is conducted, or the amount ofwork that

25 is conducted. to allow employees to more easily meet the needs ofboth work and family life. But even

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 5 9/23/2013 1 when employers offer flexible workplace arrangements. employees may not avail themselves ofsuch

2 arrangements for reasons such as stigma and lack ofconsistent consideration ofsuch requests.

3 Employees who seek flexible work arrangements may endure a "flexibility bias" or "flexibility stigma"

4 in which they are discredited and devalued in the workplace. Aware ofthis problem, some employees

5 forego flexible work opportunities. And many employees do not have such opportunities, because many

6 employers do not systematically offer or consider requests for flexible working arrangements but

7 instead leave requests from employees to the discretion ofan individual manager, or do not even allow

8 consideration ofsuch requests. This voluntary patchwork system ofaccommodating employees' needs

9 for flexible working arrangements falls far short of meeting those needs.

10 11. While a broad range ofemployees are adversely affected by rigid work and schedule

11 arrangements. some categories ofworkers are hit harder than others. Workers who lack access to

12 flexible work schedules are disproportionately low-wage workers, female workers, and workers of

13 color. Employees with a college degree are nearly twice as likely to be able to change their schedules

14 than those with less than a high school degree.

15 12. Experience with laws in other countries to increase workplace flexibility has been

16 overwhelmingly positive. Workplace flexibility has been shown to benefit employers and employees. as

17 well as the environment. In recent years. the United Kingdom. Australia, Northern Ireland. and New

18 Zealand have pioneered model workplace laws that grant parent and caregiver workers the right to

19 request flexible working arrangements. In Great Britain. in the first year after implementing the right

20 to request, a million parents came forward, and nearly all requests were granted with little opposition

21 on the part ofemployers. The experiences o[these countries have been so successful that some

22 countries are expanding their laws from parents and caregivers to all employees. Already in Belgium.

23 France and the Netherlands, flexible workplace arrangements are open to all employees and are not

24 targeted to employees with childcare or care giving responsibilities. 25

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page6 9/23/2013 1 13. Perhaps in part because ofthese progressive laws in other countries. and in part due to a

2 shortage or lack o(familv-friendlv employment policies in the United States, the percentage ofworking-

3 age American women in the workforce has been on the decline relative to other developed countries.

4 For American women, the tension between workplace demands and caregiving responsibilities cuts in

5 both directions. Many women who work are stretched thin on both fronts. And some women forego

6 work. or work only intermittently, to make it possible (or them to serve as family caregivers. but they

7 and their families suffer economic harm as a result.

8 14. Similar "right to request" legislation at the Federal level was introduced in 2007 by then-

9 US. Senators Edward M Kennedy, Hillary Clinton and Barack Obama: the same bill has been

10 introduced three times since 2007. most recently in June 2013. Despite a 2010 White House summit on

11 this topic. these Congressional attempts have not been successful. Recently, the State of Vermont was

12 the first jurisdiction in the United States to pass a "right to request" law modeled after the

13 Congressional bill. A growing number ofstate and local governments have also passed laws explicitly

14 prohibiting discrimination based on caregiver status.

15 15. Studies indicate that providing employees with access to flexible work arrangements

16 reduces the conflicts many (ace between their work responsibilities and their family obligations. with

17 the effect o(enhancing employee satisfaction and morale and overall well-being, possibly even to the

18 point o(reducing mental health problems among employees.

19 16. Flexible work arrangements also benefit businesses at minimal cost. Implementing

20 workplace flexibility helps businesses attract and retain key talent. increase employee retention and

21 reduce turnover. reduce overtime needs. reduce absenteeism. and enhance employee productivity.

22 effectiveness. and engagement. Further. according to the President's Council o(Economic Advisors.

23 as more businesses adopt flexibility practices, the benefits to society, in the form ofreduced traffic,

24 improved employment outcomes, and more efficient allocation ofemployees to employers. may even be

25 greater than the gains to individual businesses and employees.

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 7 9/23/2013 1 2 SEC.12Z.3. DEFINITIONS. 3 For purposes ofthis Chapter. the following definitions apply.

4 "Agency" means the Office ofLabor Standards Enforcement or any successor department or

6 "Caregiver" means an Employee who is a primary contributor to the ongoing care ofany of

7 the fOllowing:

8 (1) A Child or Children [or whom the Employee has assumed parental responsibility.

9 (2) A person or persons with a Serious Health Condition in a Family Relationship with

10 the Caregiver.

11 (3) A parent age 65 or over ofthe Caregiver.

12 "Child" and "Children" mean a biological. adopted. or foster child, a stepchild, a legal ward.

13 or a child of a person standing in loco parentis to that child. who is under 18 years ofage.

14 "City" means the City and County ofSan Francisco.

15 "Director" means the Director ofthe Office ofLabor Standards Enforcement or his or her

16 designee.

17 "Employee" means any person who is employed within the geographic boundaries ofthe City

18 by an Employer. including part-time employees. "Employee" includes a participant in a Welfare-to-

19 Work Program when the participant is engaged in work activity that would be considered

20 "employment" under the federal Fair Labor Standards Act. 29 USC §201 et seq .. and any applicable

21 US. Department ofLabor Guidelines. "Welfare-to-Work Program" shall include any public assistance

22 program administered by the Human Services Agency, including but not limited to CalWORKS. and

23 any successor programs that are substantially similar. that require a public assistance applicant or

24 recipient to work in exchange [or their grant. 25

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 8 9/23/2013 1 "Employer" means the City. or any person as defined in Section 18 ofthe California Labor

2 Code who regularly employs 20 or more Employees. including an agent ofthat Employer and

3 corporate officers or executives who directly or indirectly or through an agent or any other person,

4 including through the services ofa temporary services or staffing agency or similar entity, employ or

5 exercise control over the wages, hours, or working conditions ofan~Employee. The term "Employer"

6 shall also include any successor in interest ofan Employer. The term "Employer" shall not include the

7 state or federal government or any local government entity other than the City.

8 "Family Relationship" means a relationship in which a Caregiver is related by blood, legal

9 custody, marriage, or domestic partnerships, as defined in San Francisco Administrative Code Chapter

10 62 or California Family Code Section 297, to another person as a spouse, domestic partner, child

11 parent, sibling. grandchild or grandparent.

12 "Flexible Working Arrangement" means a change in an Employee's terms and conditions of

13 employment that provides flexibility to assist an Employee with caregiving responsibilities. A Flexible

14 Working Arrangement may include but is not limited to a modified work schedule, changes in start

15 and/or end times for work, part-time employment, job sharing arrangements, working from home,

16 telecommuting. reduction or change in work duties, or part-year employment.

17 "Major Life Event" means the birth ofan Employee's child, the placement with an Employee of

18 a child through adoption or foster care, or an increase in an Employee's care giving duties for a person

19 with a Serious Health Condition who is in a Family Relationship with the Employee.

20 "Predictable Working Arrangement" means a change in an Employee's terms and conditions of

21 employment that provides scheduling predictability to assist that Employee with caregiving

22 responsibilities.

23 "Serious Health Condition" means an illness. injury, impairment, or physical or mental

24 condition that involves either ofthe following:

25 (1) Inpatient care in a hospital, hospice, or residential health care facility.

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 9 9/23/2013 1 (2) Continuing treatment or continuing supervision by a health care provider. 2 "Work Schedule" means those days and times within a work period that an Employee is

3 required by an Employer to perform the duties ofhis or her employment for which he or she will

4 receive compensation. 5 6 SEC. 12Z.4. RIGHT TO REQUEST FLEXIBLE OR PREDICTABLE WORKING 7 ARRANGEMENT. 8 (a) An Employee who has been employed with an Employer for six months or more and 9 works at least eight hours per week on a regular basis may request a Flexible or Predictable Working

10 Arrangement to assist with caregiving responsibilities (or 1) a Child or Children (or whom the

11 Employee has assumed parental responsibility, 2) a person or persons with a Serious Health Condition

12 in a Family Relationship with the Employee. or 3) a parent age 65 or older ofthe Employee. That

13 request may include. but is not limited to. a change in the Employee's terms and conditions of

14 employment as they relate to:

15 (1) The number of hours the Employee is required to work:

16 (2) The times when the Employee is required to work:

17 (3) Where the Employee is required to work;

18 (4) Work assignments or other factors: or

19 (5) Predictability in a Work Schedule. 20 (Q) Any request submitted to the Employer under this Section shall be in writing and 21 specifY the arrangement applied (or. the date on which the Employee requests that the arrangement

22 becomes effective. and the duration of the arrangement. and explain how the request is related to

23 care giving.

24 (c) An Employer may require verification ofcare giving responsibilities as part o[the 25 request.

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 10 9/23/2013 1 (d) An Employee may make the initial request verbally, afier which the Employer shall.

2 either in writing or verbally, refer the Employee to the posting required by Section 12Z. 8 and instruct

3 the Employee to prepare a written request under subsection (b).

4 (e) A request made under this Section may be made twice every twelve months. unless the

5 Employee experiences a Major Life Event. in which case the Employee may make. and the Employer

6 must consider. an additional request.

7 8 SEC. 12Z.5. RESPONSE TO REQUEST FOR FLEXIBLE OR PREDICTABLE WORKING

9 ARRANGEMENT.

10 (a) An Employer to whom an Employee submits a request under Section 12Z. 4 must meet

11 with an Employee requesting a Flexible or Predictable Working Arrangement within 21 days ofthe

12 request.

13 An Employer must consider and respond to an Employee's request for a Flexible or

14 Predictable Working Arrangement in writing within 21 days ofthe meeting required in subsection (a).

15 The deadline in this Section may be extended by agreement with the Employee confirmed in writing.

16 (c) An Employer may grant or deny a request for Flexible or Predictable Working

17 Arrangement. An Employer who grants the request shall confirm the arrangement in writing to the

18 Employee. An Employer who denies a request must explain the denial in a written response that sets

19 out a bona fide business reason for the denial, notifies the Employee o[the right to request

20 reconsideration by the Employer under Section 12Z. 6, and includes a copy o[the text ofthat Section.

21 Bona fide business reasons may include but are not limited to, the following:

22 (1) The identifiable cost o[the change in a term or condition ofemployment requested

23 in the application. including but not limited to the cost ofproductivity loss, retraining or hiring

24 Employees. or transferring Employees from one facility to another facility.

25 (2) Detrimental effect on ability to meet customer or client demands.

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 11 9/23/2013 1 (3) Inability to organize work among other Employees.

2 (4) Jnsu"(ficiency ofwork to be performed during the time the Employee proposes to

4 (d) Either an Employer or an Employee may revoke an applicable Flexible or Predictable 5 Working Arrangement with 14 days written notice to the other party; if either party so revokes, the

6 Employee may submit a request for a different Flexible or Predictable Working Arrangement and the

7 Employer must respond to that request as set forth in Sections 12Z 5 and 12Z 6. Each time an

8 Employer revokes a Flexible or Predictable Working Arrangement, an Employee may make an

9 additional request than the allowable number per year under Section 12Z4(e).

10 (e) For an Employer who grants a Predictable Working Arrangement. ifthe Employer has 11 insu"(ficient work for the Employee during the period ofthe Predictable Working Arrangement, nothing

12 in this Ordinance requires the Employer to compensate the Employee during such period ofinsu(ficient

13 work.

14 15 SEC. 12Z.6. REQUEST FOR RECONSIDERATION BY EMPLOYEE FROM THE

16 DENIAL OF REQUEST FOR FLEXIBLE OR PREDICTABLE WORKING ARRANGEMENT.

17 (a) An Employee whose request for Flexible or Predictable Working Arrangement has been

18 denied may submit a request for reconsideration to the Employer in writing within 30 days ofthe

19 decision. 20 If an Employee submits a request for reconsideration under this Section. the Employer

21 must arrange a meeting to discuss this request to take place within 21 days after receiving the notice of

22 the request.

23 (c) The Employer must inform the Employee o[the Employer's final decision in writing 24 within 21 days after the meeting to discuss the request for reconsideration. !(the request for 25

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 12 9/23/2013 1 reconsideration is denied. this notice must explain the Employer's bona fide business reasons (or the

2 denial. 3 4 SEC. 12Z. 7. EXERCISE OF RIGHTS AND CAREGIVER STATUS PROTECTED;

5 RETALIATION PROHIBITED.

6 (a) It shall be unlawful (or an Employer or any other person to interfere with. restrain. or 7 deny the exercise ot: or the attempt to exercise. any right protected under this Chapter.

8 It shall be unlawful (or an Employer to discharge. threaten to discharge, demote, 9 suspend, or otherwise take adverse employment action against anyperson on the basis of Caregiver

10 status or in retaliation (or exercising rights protected under this Chapter. Such rights include but are

11 not limited to:

12 (1) the right to request a Flexible or Predictable Working Arrangement under this

13 Chapter:

14 (2) the right to request reconsideration ofthe denial ofa request (or a Flexible or

15 Predictable Working Arrangement under this Chapter;

16 (3) the right to file a complaint with the Agency alleging a violation of any provision of

17 this Chapter;

18 (4) the right to inform any person about an Employer's alleged violation ofthis

19 Chapter.·

20 (5) the right to cooperate with the Agency or other persons in the investigation or

21 prosecution of any alleged violation o[this Chapter:

22 (6) the right to oppose any policy, practice, or act that is unlawful under this Chapter;

23 or

24 (7) the right to inform any person ofhis or her rights under this Chapter. 25

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 13 9/23/2013 1 SEC. 12Z.8. NOTICE AND POSTING REQUIREMENTS FOR EMPLOYERS.

2 (a) The Agency shall. by the operative date ofthis Chapter. publish and make available to

3 Employers. in all languages spoken by more than 5% ofthe San Francisco workforce. a notice suitable

4 for posting by Employers in the workplace informing Employees o[their rights under this Chapter. The

5 Agency shall update this notice on December 1 of any year in which there is a change in the languages

6 spoken by more than 5% ofthe San Francisco workforce. In its discretion, the Agency may combine the

7 notice required herein with the notice required by Section 12R. 5 (a) and/or 12W 5 (a) ofthe

8 Administrative Code or any other Agency notice that Employers are required to post in the workplace.

9 (b) Every Employer shall post in a conspicuous place at any workplace or job site where any

10 Employee works the notice required by subsection (a). Every Employer shall post this notice in English,

11 Spanish. Chinese. and any language spoken by at least 5% ofthe Employees at the workplace or job

12 site. 13 14 SEC. 12Z.9. EMPLOYER RECORDS.

15 Employers shall retain documentation required under this Chapter for a period o[three years

16 tram the date ofthe request for a Flexible or Predictable WorkingArrangement. and shall allow the

17 Agency access to such records. with appropriate notice and at a mutually agreeable time, to monitor

18 compliance with the requirements o[this Chapter. When an issue arises as to an alleged violation ofan

19 Employee's rights under this Chapter, ifthe Employer has failed to maintain or retain documentation

20 required under this Chapter. or does not allow the Agency reasonable access to such records. it shall

21 be presumed that the Employer has violated this Chapter, absent clear and convincing evidence

22 otherwise. 23 24 SEC. 12Z.10. IMPLEMENTATION AND ENFORCEMENT. 25 (a) Administrative Enforcement.

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 14 9/23/2013 1 (1) The Agency is authorized to take appropriate steps to en{Orce this Chapter and 2 coordinate en{Orcement o[this Chapter. The Agency may investigate possible violations ofthis

3 Chapter. Where the Agency has reason to believe that a violation has occurred, it may order any

4 appropriate temporary or interim reliefto mitigate the violation or maintain the status quo pending

5 completion ofa full investigation or hearing. The Agency's finding ofa violation may not be based on

6 the validity ofthe Employer's bona fide business reason {Or denying an Employee's request (or a

7 Flexible or Predictable Working Arrangement. Instead, the Agency's review shall be limited to an

8 Employer's adherence to procedural. posting and documentation requirements, set forth in this

9 Chapter. as well as the validity ofany claims under Section 12Z. 7.

10 (2) Where the Agency determines that a violation has occurred. it may issue a

11 determination and order any appropriate relief: provided, however. that during the first twelve months

12 (allowing the operative date o[this Chapter, the Agency must issue warnings and notices to correct.

13 Thereafter. the Agency may impose an administrative penalty up to $50. 00 requiring the Employer to

14 pay to each Employee or person whose rights under this Chapter were violated (or each day or portion

15 thereof that the violation occurred or continued.

16 (3) Where prompt compliance is not forthcoming, the Agency may take any

17 appropriate enforcement action to secure compliance. including initiating a civil action pursuant to

18 Section 12Z.1 O(b). In order to compensate the City (or the costs ofinvestigating and remedying the

19 violation, the Agency may also order the violating Employer or person to pay to the City a sum of not

20 more than $50.00 (or each day or portion thereof and (or each Employee or person as to whom the

21 violation occurred or continued. Such funds shall be allocated to the Agency and used to o[(set the

22 costs o(implementing and enforcing this Chapter.

23 (4) An Employee or other person may report to the Agency any suspected violation

24 ofthis Chapter. but ifan Employee is reporting a violation pertaining to that Employee's own request

25 (or Flexible or Predictable Working Arrangement, that Employee must first have submitted a request

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 15 9/23/2013 1 for reconsideration to the Employer under Section 12Z. 6. The Agency shall encourage reporting

2 pursuant to this subsection by keeping confidential, to the maximum extent permitted by applicable

3 laws, the name and other identib;ing information o[the Employee or person reporting the violation;

4 provided however, that with the authorization ofsuch person. the Agency may disclose his or her name

5 and identib;ing information as necessary to enforce this Chapter or for other appropriate purposes.

6 The tiling ofa report ofa suspected violation by an Employee does not create any right ofappeal to the

7 Agency by the Employee; based on its sole discretion, the Agency may decide whether to investigate or

8 pursue a violation ofthis Chapter.

9 (5) In accordance with the procedures described in Section l 2Z. l 4, the Director

10 shall establish rules governing the administrative process for determining and appealing violations of

11 this Chapter. The rules shall include procedures [or:

12 (A) providing the Employer with notice that it may have violated this Chapter;

13 (B) providing the Employer with a right to respond to the notice;

14 (C) providing the Employer with notice ofthe Agency's determination ofa

15 violation; and

16 (D) providing the Employer with an opportunity to appeal the Agency's

17 determination to a hearing otficer, not employed by the Agency, who is appointed by the City

18 Controller or his or her designee.

19 (6) ![there is no appeal ofthe Agency's determination ofa violation, that determination

20 shall constitute the City's final decision. An Employer's failure to appeal the Agency's determination

21 ofa violation shall constitute a failure to exhaust administrative remedies. which shall serve as a

22 complete defense to any petition or claim brought by the Employer against the City regarding the

23 Agency's determination ofa violation.

24 (7) !(there is an appeal ofthe Agency's determination ofa violation. the hearing before

25 the hearing officer shall be conducted in a manner that satisfies the requirements of due process. In any

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 16 9/23/2013 1 such hearing. the Agency's determination ofa violation shall be considered prima facie evidence ofa

2 violation, and the Employer shall have the burden ofproving. by a preponderance ofthe evidence, that

3 the Agency's determination ofa violation is incorrect. The hearing officer's decision ofthe appeal

4 shall constitute the City's final decision. The sole means ofreview ofthe City's final decision. rendered

5 by the hearing officer. shall be by filing in the San Francisco Superior Court a petition for writ of

6 mandate under Section 1094. 5 o(the California Code of Civil Procedure. The Agency shall notifY the

7 Employer ofthis right o(review after issuance ofthe City's final decision by the hearing o(ficer.

8 (b) Civil Enforcement. The City may bring a civil action in a court ofcompetent jurisdiction 9 against the Employer or other person violating this Chapter and upon prevailing. shall be entitled to

10 such legal or equitable relief as may be appropriate to remedy the violation including. but not limited

11 to: reinstatement,· back pay; the payment ofbenefits or pay unlawfully withheld; the payment of an

12 additional sum as liquidated damages in the amount of$50. 00 to each Employee or person whose

13 rights under this Chapter were violated for each day such violation continued or was permitted to

14 continue,· appropriate injunctive relief: and. further. shall be awarded reasonable attorneys' fees and

15 costs.

16 (c) Interest. In any administrative or civil action brought under this Chapter. the Agency or

17 court, as the case may be, shall award interest on all amounts due and unpaid at the rate ofinterest

18 specified in subdivision (b) ofSection 3289 ofthe California Civil Code.

19 (d) Remedies Cumulative. The remedies, penalties, and procedures provided under this

20 Chapter are cumulative.

21 22 SEC. 12Z.11. EXEMPTION OF CERTAIN JOB CLASSIFICATIONS PERTAINING TO

23 PUBLIC HEALTH AND PUBLIC SAFETY.

24 (a) An appointing officer may request an exemption from this Chapter from the Director of 25 Human Resources for certain classifications ofCity employees working in public health or public

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 17 9/23/2013 1 safety functions. based upon operational requirements according to criteria developed by the Director

2 ofHuman Resources. Such criteria shall promote efficiency and advance public safety or public

3 health.

4 The Agency, in consultation with the Director ofHuman Resources. may exempt non- 5 City Employees working in public safety or public health functions. upon request o[those non-City

6 Employers, based upon operational requirements according to criteria developed by the Agency and

7 the Director ofHuman Resources. Such criteria shall promote efficiency and advance public safety or

8 public health.

10 SEC.12Z.12. WAIVER THROUGH COLLECTIVE BARGAINING.

11 All and anv portions o[the applicable requirements ofthis Chapter shall not apply to

12 Employees covered by a bona fide collective bargaining agreement to the extent that such requirements

13 are expressly waived in the collective bargaining agreement in clear and unambiguous terms.

15 SEC. 12Z.13. OTHER LEGAL REQUIREMENTS.

16 This Chapter provides minimum employment requirements pertaining to Caregivers and

17 Employees and shall not be construed to preempt, limit, or otherwise a((ect the applicability ofany

18 other law, regulation. requirement. policy, or standard, or provision ofa collective bargaining

19 agreement, that provides for greater or other rights ofor protections for Caregivers or Employees. or

20 that extends other rights or protections to Employees.

22 SEC. 12Z.14. RULEMAKING AUTHORITY.

23 The Director shall have authority to issue regulations or develop guidelines that implement

24 provisions ofthis Chapter. Notwithstanding the definition of "Director" in this Chapter. a designee of

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 18 9/23/2013 1 the Director shall not have authority under the foregoing sentence ofthis Section; but a designee ofthe

2 Director shall have authority to conduct hearings leading to the adoption ofregulations or guidelines.

4 SEC. 12Z.15. OUTREACH.

5 The Department on the Status of Women and the Office of Labor Standards

6 Enforcement shall jointly create an outreach and community engagement program to educate

7 Employees and Employers about their rights and obligations under this Chapter. This

8 outreach program shall include media. trainings and materials accessible to the diversity of

9 Employees and Employers in San Francisco.

11 SEC. 12Z.15 12Z.16. PREEMPTION.

12 Nothing in this Chapter shall be interpreted or applied so as to create any requirement. power,

13 or duty in conflict with federal or state law.

15 SEC.12Z.1612Z.17. CITY UNDERTAKING LIMITED TO PROMOTION OF GENERAL

16 WELFARE.

17 In enacting and implementing this Chapter, the City is assuming an undertaking only to

18 promote the general welfare. The City is not assuming, nor is it imposing on its officers and employees.

19 an obligation for breach ofwhich it is liable in money damages to any person who claims that such

20 breach proximately caused injury. This Chapter does not create a legally enforceable right against the

21 City. 22

23 SEC. 12Z.17 12Z.18. SEVERABILITY.

24 If any ofthe parts or provisions ofthis Chapter Oncluding sections. subsections. sentences,

25 clauses. phrases, words. numbers) or the application thereofto anyperson or circumstance is held

Supervisors Chiu, Cohen, Mar, Campos, Yee, Breed, Avalos, Kim BOARD OF SUPERVISORS Page 19 9/23/2013 1 invalid or unconstitutional by a decision ofa court of competent jurisdiction, the remainder of this

2 Chapter, including the application of such part or provisions to persons or circumstances other than

3 those to which it is held invalid, shall not be affected thereby and shall continue in -full force and effect.

4 To this end, the provisions of this Chapter are severable.

5 6 Section 3. Effective and Operative Dates.

7 (a) Effective Date. This ordinance shall become effective 30 days after enactment.

8 Enactment occurs when the Mayor signs the ordinance, the Mayor returns the ordinance

9 unsigned or does not sign the ordinance within ten days of receiving it, or the Board of 1o Supervisors overrides the Mayor's veto of the ordinance. 11 (b) Operative Date. This ordinance shall become operative on January 1, 2014 and

12 shall have prospective effect only.

14 APPROVED AS TO FORM: DENNIS J. HERRERA, City Attorney 15 16 By: Qp~ ~ GIVNER 17 Deputy City Attorney

18 n:\legana\as2013\ 1300455\00874780.doc 19

21 22 23 24 25

Supervisors Chiu, Cohen, Mar, Campos, Yee, and Breed BOARD OF SUPERVISORS Page 20 9/23/2013 Tab 6 City and County of San Francisco City Hall I Dr. Carlton B. Goodlett Place Tails San Francisco, CA 94102-4689 Ordinance

File Number: 130785 Date Passed: October 08, 2013

Ordinance amending the Administrative Code to allow San Francisco-based employees to request flexible or predictable working arrangements to assist with care giving responsibilities, subject to the employer's right to deny a request based on business reasons; prohibit adverse employment actions based on caregiver status; prohibit interference with rights or retaliation against employees for exercising rights under the Ordinance; require employers to post a notice informing employees of their rights under the Ordinance; require employers to maintain records regarding compliance with the Ordinance; authorize enforcement by the Office of Labor Standards Enforcement, including the imposition of remedies and penalties for a violation and an appeal process for an employer to an independent hearing officer; authorize waiver of the provisions of the Ordinance in a collective bargaining agreement; and making environmental findings.

September 23, 2013 Land Use and Economic Development Committee - AMENDED

September 23, 2013 Land Use and Economic Development Committee - RECOMMENDED AS AMENDED

October 01, 2013 Board of Supervisors - PASSED, ON FIRST READING Ayes: 11 - Avalos, Breed, Campos, Chiu, Cohen, Farrell, Kim, Mar, Tang, Wiener and Yee

October 08, 2013 Board of Supervisors - Fl NALLY PASSED Ayes: 11 - Avalos, Breed, Campos, Chiu, Cohen, Farrell, Kim, Mar, Tang, Wiener and Yee

City and County ofSan Francisco Pagel Printed at 8:32 am on 1019113 File No. 130785 I hereby certify that the foregoing Ordinance was Fl NALLY PASSED on 10/8/2013 by the Board of Supervisors of the City and County of San Francisco.

Angela Calvillo Clerk of the Board

Mayor Date Approved

City and County ofSan Francisco Pagel Printed at 8:32 am on 1019113 Tab 7 Employers with 20+ Employees Must Post This Notice. OFFICIAL NOTICE San Francisco Family Friendly Workplace Ordinance

Employers with 20 or more employees must allow any employee who is employed within the geographic boundaries of the City, regularly works at least 8 hours per week, and has been employed by an employer for 6 months or more, to request a flexible or predictable working arrangement to assist with caregiving responsibilities for 1) a child or children under the age of 18, 2) a person or persons with a serious health condition in a family relationship with the employee, or 3) a parent of the employee, age 65 or older. An employee’s request shall be in writing. Within 21 days of an employee’s request, an employer must meet with the employee regarding the request. The employer must respond to an employee’s request within 21 days of that meeting. An employer who grants the request shall confirm in writing. An employer who denies a request must provide a written response that includes a bona fide business reason for denial and notices the employee of the right to request reconsideration. An employer’s failure to follow the procedural, posting or documentation requirements or an employer’s denial of an employee rights under the law shall constitute a violation. It is unlawful for an employer to discharge, threaten to discharge, demote, suspend, or otherwise take adverse employment action against any person on the basis of Caregiver status, in retaliation for exercising rights protected under the Ordinance, or for cooperating with the City in enforcement. The City may investigate possible violations of the Ordinance, and order violators to pay penalties. If you have any questions or require additional information, please contact your employer or the City’s Office of Labor Standards Enforcement (OLSE) at (415) 554-6424 or [email protected], or visit the OLSE’s website at www.sfgov.org/olse.

Los empleadores con 20 empleados o más deben publicar este aviso. AVISO OFICIAL Ordenanza de San Francisco de Lugar de Trabajo Enfocado en la Familia

Los empleadores con 20 o más empleados deben permitir que cualquier empleado dentro de los límites geográficos de la Ciudad, que trabaje de forma regular al menos durante 8 horas por semana, y que haya sido empleado de un empleador durante 6 meses o más, solicite un horario de trabajo flexible o predecible para ayudar con las responsabilidades del cuidado de 1) un niño o niños menores de 18 años de edad, 2) una persona o varias personas que tengan una relación de parentesco con el empleado y que tengan una afección grave de salud, o 3) uno de los padres del empleado, que además tenga 65 años o más. La solicitud de un empleado debe estar por escrito. En un plazo no mayor a 21 días desde la solicitud de un empleado, un empleador debe reunirse con el empleado para hablar sobre la solicitud. El empleador debe responder a la solicitud de un empleado en un plazo de 21 días desde la reunión. Un empleador que conceda la solicitud debe confirmarla por escrito. Un empleador que rechace una solicitud debe proporcionar una respuesta por escrito que incluya una razón comercial auténtica para la negación y que avise al empleado sobre su derecho de solicitar una reconsideración. La falla por parte del empleador al no apegarse a los requisitos de procedimiento, publicación o documentación, o la negación por parte de un empleador de los derechos de un empleado conforme a la ley, constituirán una infracción. Es ilegal que un empleador despida, amenace con despedir, baje de nivel, suspenda o emprenda cualquier otra acción adversa contra cualquier persona con base en su estado de Cuidador, en represalia por ejercer sus derechos protegidos conforme a la Ordenanza, o por cooperar con la Ciudad en la aplicación de la Ordenanza. La Ciudad puede investigar cualquier posible infracción a la Ordenanza, y ordenar que los infractores paguen sanciones. Si usted tiene alguna pregunta o si requiere información adicional, por favor comuníquese con su empleador o a la Oficina de Normas Laborales (OLSE, por sus siglas en inglés) de la Ciudad al (415) 554-6424 o a [email protected], o visite el sitio web de OLSE en www.sfgov.org/olse.

有20+員工的僱主必須張貼本通知。正式通知三藩市家庭友善職場條例

任何有20名或以上員工的僱主必須允許在三藩市工作的員工，每星期工作至少8小時以及被僱用了6個月或以上，員工可以要求一個靈活或可預料的工作安排，以協助照顧以下人士1) 一個或多個18歲以下的孩子，2) 一個或多個與該員工有家庭關係的患有嚴重疾病的人，或3) 該員工的父母，65歲或以上。

員工的請求應採用書面形式。在員工提出請求的21天內，僱主必須就此請求面見員工。僱主必須在那次會面後的21天內回覆員工的請求。批准請求的僱主必須以書面形式確認。如拒絕請求，僱主也必須提供書面回覆包括一個真實的業務上的拒絕理由，並通知員工有權要求重新考慮。

根據法律，僱主沒有遵循程序﹑張貼或文件記錄要求或僱主拒絕員工的權利將構成違規。僱主用解僱﹑威脅解僱﹑降級﹑停職或採取其他不利於就業的行動來報復行使條例權利或配合市府執法的員工將構成違規。市府會調查此條例的違規行為並命令違規者支付罰款。

如果您有任何疑問或需要額外資訊，請聯繫您的僱主或該市府勞工標準執行辦公室(OLSE)，電話(415)554-6424 或 [email protected]，或瀏覽OLSE的網站 www.sfgov.org/olse。 Ang mga Employer na may 20+ Empleyado ay Dapat Ipaskil ang Pasabing Ito. OPISYAL NA PASABI Ordinansa ng San Francisco sa Maka-pamilyang Lugar ng Trabaho (San Francisco Family Friendly Workplace Ordinance) Ang mga employer na may 20 o higit pang empleyado ay dapat pahintulutan ang sinumang empleyado na nagtatrabaho sa mga lugar na sakop ng Lungsod, regular na nagtatrabaho ng kahit na 8 oras kada linggo, at nagtrabaho sa employer ng 6 buwan o higit pa, na humiling ng isang madaling mabago o mahuhulaang oras ng pagtatrabaho (flexible o predictable working arrangement) upang tumulong sa responsibilidad ng pangangalaga para sa 1) isang anak o mga anak na may edad na mas mababa sa 18 taong gulang, 2) isang tao o mga tao na may malubhang kalagayan sa kalusugan na may relasyon sa pamilya ng empleyado, o 3) magulang ng empleyado, na may edad na 65 taong gulang o mas matanda. Ang kahilingan ng empleyado ay dapat nakasulat. Sa loob ng 21 araw ng kahilingan ng empleyado, ang employer ay dapat makipag-pulong sa empleyado tungkol sa kahilingan. Dapat sumagot ang employer sa kahilingan ng empleyado sa loob ng 21 araw ng pulong na iyon. Ang employer na nag-aproba ng kahilingan ay dapat pagtibayin ito sa pamamagitan ng sulat. Ang employer na tumanggi sa kahilingan ay dapat magbigay ng nakasulat na tugon na nakalagay ang tunay na dahilan ng negosyo para sa pagtanggi at pasabi sa empleyado ng karapatang humiling ng muling pagsasaalang-alang. Ang kabiguan ng employer na sumunod sa pamamaraan, pagpaskil o mga kinakailangang dokumento o ang pagtanggi ng employer sa mga karapatan ng empleyado sa ilalim ng batas ay bumubuo ng paglabag. Labag sa batas para sa employer na magsisante, magbanta ng pagsisante, magbaba ng tungkulin, magsuspindi, o kung hindi man magsagawa ng nakakasamang aksiyon sa trabaho laban sa sinumang tao batay sa kalagayan ng pagiging Tagapag-alaga (Caregiver), bilang ganti para sa pagganap sa mga karapatang protektado sa ilalim ng Ordinansa, o para sa pakikipag-tulungan sa pagpapatupad ng Lungsod. Maaaring magsagawa ng imbestigasyon ang Lungsod para sa posibleng mga paglabag ng Ordinansa, at mag-utos sa mga lumabag na magbayad ng parusang multa. Kung mayroon kayong anumang katanungan o kailangan ng karagdagang impormasyon, mangyari lamang na kontakin ang inyong employer o ang Office of Labor Standards Enforcement (OLSE) ng Lungsod sa (415) 554-6424 o [email protected], o bisitahin ang website ng OLSE sa www.sfgov.org/olse. Это извещение должно быть вывешено в компаниях с персоналом в количестве 20+. ОФИЦИАЛЬНОЕ УВЕДОМЛЕНИЕ Постановление Сан-Франциско о создании благоприятных условий для семей Работодатели с 20 или большим количеством сотрудников должны предоставлять любому сотруднику, работающему в географических пределах города минимум 8 часов в неделю и проработавшему 6 месяцев или дольше, право на гибкий или предсказуемый рабочий график, чтобы помочь ему выполнять обязанности по уходу за 1) ребенком или детьми, не достигшими 18 лет, 2) серьезно больными родственниками, или 3) пожилыми родителями, достигшими возраста 65 лет. Работник обязан подать письменное заявление. Работодатель должен встретиться с работником относительно запроса в течение 21 дня с момента подачи. Работодатель должен ответить на заявление работника в срок, не превышающий 21 день с момента этой встречи. Работодатель, удовлетворяющий требование, обязан предоставить об этом письменное извещение. Работодатель, отказывающий в удовлетворении запроса, должен предоставить письменный ответ, который содержит истинную причину отказа, и известить работника о его праве на пересмотр этого решения. Отказ работодателя следовать процедурным нормативам и требованиям вывешивать уведомление или документацию, или удовлетворить требования законных прав сотрудника, являются нарушением закона. Работодатель не имеет права уволить, угрожать увольнением, понижать в должности, отстранять, или принимать какие-либо неблагоприятные действия против кого-либо, в связи с необходимостью выполнять обязанности по уходу, в ответ на пользование правами, защищенными данным постановлением, или за сотрудничество с муниципальными властями, требующими исполнения нормативно- правовых документов. Муниципалитет может расследовать возможные нарушения данного постановления и назначить штраф работодателям, нарушающим данное постановление. С вопросами и за дополнительной информацией обращайтесь к вашему работодателю или в Управление по контролю за соблюдением трудового законодательства г. Сан-Франциско (OLSE) по телефону: (415) 554-6424 или электронной почте: ffwo@ sfgov. или посетите наш веб-сайт по адресу www.sfgov.org/olse.

Chủ nhân Có trên 20 Nhân viên Phải Niêm Yết (Dán) Thông Cáo này. THÔNG CÁO CHÍNH THỨC Sắc Luật Gia đình Thân thiện ở Sở Làm của San Francisco Chủ nhân có từ 20 nhân viên trở lên phải cho phép bất kỳ nhân viên nào được mướn và làm việc trong phạm vi của thành phố San Francisco, và thường xuyên làm việc ít nhất 8 tiếng mỗi tuần, và đã được chủ mướn từ 6 tháng trở lên, có quyền yêu cầu làm việc với giờ giấc uyển chuyển hoặc một thời khóa biểu được biết trước để họ có thể chăm sóc cho 1) một đứa bé hoặc trẻ em dưới 18 tuổi, 2) một người hoặc những người có tình trạng sức khỏe nghiêm trọng có quan hệ gia đình với nhân viên, hoặc 3) cha hoặc mẹ của nhân viên, 65 tuổi trở lên. Yêu cầu của nhân viên phải được viết thành văn bản. Trong vòng 21 ngày, kể từ ngày yêu cầu của nhân viên, chủ nhân phải gặp và nói chuyện với nhân viên về yêu cầu này. Chủ phải trả lời yêu cầu của nhân viên trong vòng 21 ngày kể từ ngày họp đó. Nếu chấp nhận yêu cầu, chủ nhân phải xác nhận trên giấy tờ. Nếu từ chối yêu cầu chủ nhân phải cung cấp một văn bản trả lời cho biết lý do kinh doanh chân chính để từ chối và cho nhân viên biết quyền yêu cầu được cứu xét lại. Nếu chủ nhân không tuân theo thể lệ này, (dán) yết thị hoặc đòi hỏi bằng chứng về văn bản hay tài liệu hoặc từ chối quyền lợi của nhân viên, chủ nhân sẽ có hành vi phạm luật. Nó là bất hợp pháp cho Nếu chủ nhân đuổi, đe dọa sa thải, giáng chức, đình chỉ, hoặc có hành vi bất lợi trong việc làm đối với bất kỳ người nào vì tình trạng phải chăm sóc cho thân nhân, hoặc trả đũa vì thực hiện các quyền được bảo vệ dưới Sắc lệnh này, hoặc hợp tác với Thành phố trong thực thi pháp lệnh. Thành phố San Francisco có thể điều tra hành vi phạm sắc luật của người vi phạm, nếu có, để buộc họ phải trả tiền phạt. Nếu bạn có bất kỳ câu hỏi hoặc cần yêu cầu thêm thông tin, xin vui lòng liên lạc với chủ nhân của bạn, hoặc Văn phòng Thực thi Tiêu chuẩn Lao động (OLSE) của San Franciscoa tại số (415) 554-6424 hoặc [email protected] , hoặc truy cập vào trang web của OLSE tại www.sfgov.org/ols. Tab 8 Significant Cases and Laws for California Employers in 2014

Hanson Bridgett LLP

As in years past, 2013 saw the passage of several laws which present new legal obligations for California employers. The California legislature enacted several bills spanning a variety of topics that will impact California employers, from increasing the minimum wage, to expanding leave protections for employees, to adding protected categories to the Fair Employment and Housing Act. On the federal labor side, the National Labor Relations Board finally has a full roster, bringing some stability to subsequent decisions. However, the status of the Board’s decisions from January 2012 to July 2013 continues to be in question. Moreover, given that Democrats still occupy a majority on the Board, we predict little relief for employers in the form of more favorable Board rulings. This newsletter briefly reports several of these developments. Many of these cases and laws – as well as other significant developments – will be analyzed in greater detail during the firm's 2014 Labor & Employment Seminar. I. New California Laws This year, Governor Jerry Brown signed numerous bills that will impact California employers beginning in 2014. The most notable new laws, including one new San Francisco City Ordinance, and one change to federal wage laws, are summarized below. These laws are effective January 1, 2014, unless otherwise noted.

New Wage Obligations (or Obligations Related to Wage Claims) for Employers

AB 10 increases California’s current minimum wage of $8.00 per hour by two, one-dollar increments: to $9.00 per hour effective July 1, 2014, and to $10.00 per hour effective January 1, 2016. The increase in the minimum wage will also impacts the salaries required to maintain the administrative, executive and professional exemptions, as exempt employees must receive a monthly salary of at least twice the minimum wage for full-time employment. The new minimum wage increases will increase the minimum salary for exempt status to $3,120 per month ($37,440 annually) on July 1, 2014, and to $3,466.67 per month ($41,600 annually) on January 1, 2016.

AB 241 adds California Labor Code sections 1450 through 1454, known as the Domestic Workers Bill of Rights. The bill requires “domestic work employees” to be paid overtime wages if they work more than nine hours in a day or 45 hours in a week. The bill defines “domestic work” to mean services related to the care of persons in private households or maintenance of private households or their premises. Notably, under the bill, “domestic work” does not include “care of persons in facilities providing board or lodging in addition to medical, nursing, convalescent, aged, or child care, including, but not limited to, residential care facilities for the elderly individuals who work in residential care facilities.” The bill is effective from January 1, 2014, through January 1, 2017. The governor is required to convene a committee to study and report on the effects of the act through that time period.

SB 770 expands California's Paid Family Leave partial wage replacement program, which the Employment Development Department (EDD) administers. Existing law allows wage

replacement benefits for time off to care for a child, spouse, parent, domestic partner, or for baby bonding. The new law expands state benefits to include wage replacement during an employee’s time off to care for a seriously ill grandparent, grandchild, sibling, or parent-in-law. This law does not create the right to a leave of absence, but provides California workers with wage replacement benefits during a qualifying absence. This law is effective July 1, 2014.

SB 462 amends California Labor Code section 218.5 to provide that a prevailing employer in a wage claim lawsuit can only recover attorney's fees if the employee brings the action in bad faith.

New Leave Obligations for Employers

AB 11 requires employers to permit employees who are reserve peace officers and emergency rescue personal to take temporary leaves for training purposes. Existing law already requires employers to permit such leaves for employees who are volunteer firefighters.

SB 400 extends certain existing employment protections for victims of domestic violence and sexual assault to victims of stalking. SB 400 requires employers to provide stalking victims with time off to appear at legal proceedings and – for employers with 25 or more employees – to seek medical and psychological treatment. SB 400 also makes it unlawful to discriminate or retaliate against an employee because of his or her status as a victim of domestic violence, sexual assault or stalking. SB 400 also adds a new “reasonable accommodation” requirement for victims of domestic violence, sexual assault or stalking, which may include implementation of safety measures.

AB 1181 requires public agencies to give paid leaves of absence to employee representatives of employee organizations when they are testifying or serving as the employee organization’s representative in a PERB proceeding, or before a personnel or merit commission.

Narrowed federal overtime exemptions for "domestic service employment" and "companionship services." Currently, the federal Fair Labor Standards Act exempts from federal minimum wage and overtime requirements certain workers who perform "companionship services" for elderly people or others requiring assistance in daily living. In addition, the FLSA does not require overtime payment for "live-in" domestic workers. Staffing agencies that provide home care aides currently can avail themselves of these FLSA exemptions. Effective January 1, 2015, the Department of Labor's revised regulations make clear that the "companionship" and "live-in" exemptions are not available to third parties such as home care staffing agencies, and that all employees providing domestic services through these third parties are entitled to federal minimum wage and overtime. The regulations further clarify that the "companionship services" exemption is available only if "fellowship, care, and protection" is provided exclusively to the elderly, disabled or ill person. For example, if a household hires an individual to provide care for an elderly family member, but the individual spends 20 percent or more time per week cleaning the family's common living area, the exemption is lost. The regulations also exclude from the definition of "companionship services" the provision of "medically related services" typically performed by trained personnel. An employer may not claim the companionship services exemption for any employee who provides such services.

New Anti-Discrimination and Anti-Retaliation Obligations for Employers

SB 292 amends the California Fair Employment and Housing Act (“FEHA”) to clarify that "sexual harassment" need not be motivated by sexual desire. In other words, hostile treatment can amount to unlawful sexual harassment regardless of whether the treatment was motivated by any sexual desire.

AB 556 also amends the FEHA to include “military and veteran status” to the list of categories protected from employment discrimination.

AB 218 prohibits state or local agencies from asking applicants to disclose criminal convictions until after the agency determines the applicant meets minimum employment qualifications. There are some statutory exceptions, such as where a criminal history background check is otherwise required by law for the position. This law is effective July 1, 2014.

AB 263 expands the protections of California Labor Code Section 98.6, which protects employees who assert their Labor Code rights (for example, by complaining about unpaid wages). Existing law prohibits employers from discharging or discriminating against employees who assert their rights under the labor code. AB 263 expands this prohibition to include retaliation or adverse action against such employees. Importantly, AB 263 also adds a civil penalty of up to $10,000 per employee per violation. AB 263 also bars employers from engaging in an “unfair immigration-related practice” (for example, threatening to file a false police report or contact immigration authorities) in retaliation against employees for exercising their statutory rights.

SB 496 expands the definition of protected conduct under “whistleblower” statutes to include reports alleging a violation of a local rule or regulation. SB 496 also protects employees who disclose alleged violations “to a person with authority over the employee or another employee who has authority to investigate, discover or correct the violation.” Finally, SB 496 also prohibits retaliation against an employee because the employer “believes the employee disclosed or may disclose information” regarding an alleged violation.

Other New Laws

San Francisco Family-Friendly Workplace Ordinance

The San Francisco Board of Supervisors passed the Family Friendly Workplace Ordinance (“FFWO”), which will require employers (defined as 20 or more employees, regardless of location) to consider requests from San Francisco employees for “flexible or predictable working arrangements to assist with care giving responsibilities.” The FFWO also protects employees from adverse action based on “caregiver status.” The FFWO requires employers to post a notice informing employees of their rights under the ordinance, available here: www.sfgov.org/olse/ffwo. The San Francisco Office of Labor Standards Enforcement will have responsibility for enforcing the ordinance.

SB 435 amends California Labor Code section 226.7 to require an employer that does not provide an employee with a “recovery period” - defined as the “cool down period afforded an

employee [under Cal/OSHA regulations] to prevent heat illness” - to pay one additional hour of pay for each workday that the recovery period is not provided. Currently, section 226.7 requires employers to pay employees a penalty of one hour of pay for each workday that a meal or rest period is not provided. SB 435 expands this penalty to include “recovery periods.”

AB 524 amends Section 519 of California’s Penal Code by providing that a threat to report the immigration status or suspected immigration status of the threatened individual, or his or her relative or a member of his or her family, “may also induce fear sufficient to constitute extortion.” AB 524 clarifies that threats to report the immigration status – or suspected immigration status – of an individual or members of the individual’s family may constitute criminal extortion. Similarly, SB 666 also includes provisions aimed at protected immigrants workers. Under this law, a California attorney may be disciplined for reporting or threatening to report the immigration status of a witness, party, or their family members for exercising an employment- related right. II. Significant California and Federal Cases in 2013 California and federal courts issued a variety of decisions in 2013 which may impact the duties and obligations of California employers. Sanchez v. Swissport, Inc., 213 Cal. App. 4th 1331 (2013)

The plaintiff in this case was a female employee with a high-risk pregnancy who was terminated after exhausting the four months of leave entitlement under California’s Pregnancy Disability Leave (“PDL”) law. The California Court of Appeal determined that although she had exhausted her PDL, she may still have viable discrimination claims under the California Fair Employment and Housing Act (“FEHA”) based on the employer’s alleged failure to provide additional leave as a reasonable accommodation for her pregnancy-related disability. The Court noted that the FEHA allows a disabled employee to request additional leave as a reasonable accommodation so long as it poses no undue hardship on an employer. Harris v. City of Santa Monica, 56 Cal.4th 203 (2013)

The plaintiff was a former Santa Monica bus driver who alleged that the city had discharged her after learning she was pregnant. The City argued that it discharged the plaintiff for poor performance, and asked the court for a jury instruction that if the jury found a mix of discriminatory and legitimate motives, the City could avoid liability by proving that a legitimate motive alone would have led it to make the same decision to fire her. The California Supreme Court held that to establish liability in a “mixed-motive” discrimination case under the FEHA, a plaintiff must show that discrimination was a “substantial factor” motivating the adverse employment action. Once made, the employer can limit its exposure by demonstrating it would have made the same decision for legitimate, nondiscriminatory reasons. If the employer meets this burden, the plaintiff cannot be awarded compensatory damages, backpay, or reinstatement. However, since discrimination has occurred, the plaintiff may still seek other declaratory or injunctive relief. Wang v. Chinese Daily News, Inc., 709 F.3d 829 (9th Cir. 2013)

Plaintiffs were newspaper employees who alleged they were entitled to overtime pay under the Fair Labor Standards Act (FLSA) and California state law. The district court initially certified the FLSA claim as a collective action and certified the state-law claims as a class action, and the Ninth Circuit originally affirmed. However, following the United States Supreme Court’s decision in Wal-Mart Stores v. Dukes, 131 S. Ct. 2541 (2011), the Supreme Court vacated and

remanded. On remand, the Ninth Circuit held that in light of the commonality requirement discussed in Dukes, the class action could not be certified. The Ninth Circuit emphasized that, although a single common question could satisfy the requirement for commonality, the common contention must be one that will resolve an issue central to the validity of the plaintiffs' claims in "one stroke." Moreover, the Ninth Circuit instructed the district court that in order to certify a class, the plaintiffs "must show significant proof" that the company operated under a general policy that violated California labor laws. Courts continue to set a high bar for commonality in class actions in light of Dukes and Brinker v. Superior Court, 53 Cal.4th 1004 (2012).

Vance v. Ball State Univ., 133 S.Ct. 2434 (2013)

Recently, the United States Supreme Court answered the question: who qualifies as a “supervisor” in a case in which an employee asserts a Title VII claim for workplace harassment? The court held that an employee is a "supervisor" for purposes of vicarious liability under Title VII of the Civil Rights Act of 1964 only if the person is “empowered by the employer to take tangible employment actions against the alleged victim of workplace harassment.” The Court found that a Title VII “supervisor” must have the power to make a “significant change” in another worker's employment status, such as through hiring, firing, failing to promote, reassigning with “significantly different responsibilities,” or causing a “significant change in benefits.” Vance is helpful authority in Title VII claims. However, California law has its own, broad definition of “supervisor.” Under California law an employee who is responsible for directing another employee’s day-to-day duties – such as a lead – may be a “supervisor” for purposes of employer liability for harassment even if that employee lacks any authority to hire, fire, promote or transfer other employees. County of Los Angeles v. L.A. County Employee Rel. Comm. (SEIU Local 71), 56 Cal.4th 905 (2013)

L.A. County employees have the option of not joining the union, but are required to either pay a fair share fee, an agency shop fee, or pay the agency shop fee equivalent to a charitable fund under a religious exemption. In this case, the Union sought the home address and phone numbers of the non-union members in relation to sending them notices about these fees. The California Supreme Court held that although the non-member employees have a cognizable privacy interest in their phone numbers and addresses, public policy favoring collective bargaining outweighed the privacy interest of the employees. Therefore, the County was required to provide the Union with the contact information for the non-member employees. MacDonald v. State of California et. al., Third Appellate District (August 27, 2013)

The district office of a State Assembly member employed plaintiff. The plaintiff complained to his supervisor that several of his co-workers were smoking too close to the door of the office. Less than two weeks after his last complaint, the State fired him. The plaintiff sued, asserting whistleblower claims under California Labor Code sections 1102.5 and 6310. A California court of appeals held that a plaintiff must exhaust the California Labor Commissioner's administrative remedies before filing whistleblower retaliation civil claims under Labor Code sections 1102.5 and 6310. Because this plaintiff did not file a claim with the Labor Commissioner prior to filing his lawsuit, the trial court properly dismissed his complaint. Moradi v. Marsh United States, Second Appellate District (Sept. 17, 2013)

This case arose from a car accident in which the plaintiff sued the other driver and also the other driver’s employer. The other driver (the defendant) had been driving to a yogurt shop in her personal vehicle on the way home from work; she was a salesperson whose primary responsibility was developing new business. Her employer required the employee to use her personal vehicle to meet with existing and prospective clients. The Court of Appeal determined that the employee’s planned stop for frozen yogurt did not change the “incidental benefit” to the employer of having the employee use her personal vehicle to travel to and from the office and other destinations. The “going and coming” rule, which generally exempts employers from liability for tortious acts committed by employees while on their way to and from work, did not apply because of the "incidental benefit" the employer enjoyed by requiring the employee to use her personal vehicle for company business. The Court held that because the employer required the employee to use her personal vehicle to travel to and from the office and make other work-related trips during the day, the employee acted within the scope of her employment when she was commuting to and from work. This decision creates uncertainty for employers regarding the extent of their liability for their employees' off-duty conduct. It also appears to be part of an unsettling trend of courts finding liability for such conduct. For example, this past July, the Fourth District Court of Appeal found an employer liable for the death of an employee who was killed in a car accident following a holiday party where alcohol was served. See Purton v. Marriott International, Inc., 218 Cal. App. 4th 499 (2013). Rope v. Auto-Chlor System of Washington, Inc., Second Appellate District (Oct. 16, 2013) The plaintiff in this case informed his employer that he was scheduled to donate a kidney to his sister, who had suffered kidney failure and required a kidney transplant. He informed his employer's human resources department that he would need to take leave to recover after he donated the kidney. His employer subsequently terminated him for poor performance. Alleging, in part, claims under the Fair Employment and Housing Act for retaliation and "associational" disability discrimination, the plaintiff claimed that the real reason his employer terminated him was to avoid providing him paid leave or to accommodate his anticipated work restrictions. The Rope Court held that requesting accommodation does not constitute “protected activity” under the FEHA for purposes of a retaliation claim. In addition, the Court found that the plaintiff had sufficiently stated a prima facie "expense" association claim under the FEHA. Specifically, the timing of his termination created a reasonable inference that his employer had acted preemptively to avoid an expense stemming from the employee's association with his physically disabled sister. III. National Labor Relations Board Continues to Issue Employee Friendly Decisions The D.C. Circuit Court of Appeals ruled earlier in 2013 in its Noel Canning decision that President Obama's January 2012 Board appointments were unconstitutional, leaving the Board without a proper quorum necessary to issue valid decisions. The Noel Canning decision is currently pending before the United States Supreme Court. Oral argument is scheduled for January 2014. If the Supreme Court rules that the January 2012 appointments were unconstitutional, hundreds of Board decisions from January 2012 to July 2013 would be invalid for lack of a proper quorum. As of July 2013, all five Board positions have been filled. This is the first time that the Board has been fully functioning with all its members since August 2003. It remains to be seen whether the current Board could simply revisit and affirm the Board’s prior decisions.

Social Media Policy Guidance

The Board continues to issue guidance on social media policies and maintains its “employee activist” bent. On July 11, 2013, the Board released a copy of an Advice Memorandum issued for Giant Food LLC in 2012, which concluded that portions of Giant Food LLC’s social media policy violated the National Labor Relations Act. Not surprisingly, the Democratic-majority Board found that the portion of the policy which prohibited employees from “photographing or videotaping the Employer’s premises” was “unlawful as such a prohibition would reasonably be interpreted to prevent employees from using social media to communicate and share information regarding their Section 7 activities through pictures or videos, such as of employees engaged in picketing or other concerted activities.” See Giant Food, LLC, Case No. 05-CA- 064793 (Advice Memorandum released in July 2013). The Board also found that the provision of the social media policy prohibiting employees from posting “confidential” or “non-public” information is unlawful under the National Labor Relations Act because employees could reasonably construe the term “non-public” to include information about working conditions and the term “confidential” to include information about the terms and conditions of employment. Finally, the Giant Foods LLC policy included the following "savings" clause: “Please note that the company will not construe or apply these guidelines in a manner that improperly interferes with or limits employees’ rights under any state or federal laws, including the National Labor Relations Act.” The Board's Advice Memorandum stated that savings clauses such as these do not cure otherwise unlawful policy provisions. The Board continues to attempt to narrow the scope of employers’ social media policies so as not to potentially impact employees’ Section 7 rights.

California employers should update their employee handbooks, policies and/or procedures to reflect the new laws and NLRB decisions. Employers should also train supervisors and advise them of their responsibilities.

Tab 9 Amends General Minimum Wage Order Please Post Next to Your IWC Industry or Occupation Order and IWC Industry and Occupation Orders OFFICIAL NOTICE

California Minimum Wage MW-2014 Minimum Wage - Every employer shall pay to each employee wages not less than the following: $8.00 $9.00 $10.00 per hour beginning January 1, 2008 per hour beginning July 1, 2014 per hour beginning January 1, 2016

To employers and representatives of persons working in industries and occupations in the State of California:

SUMMARY OF ACTIONS TAKE NOTICE that on September 25, 2013, the California Legislature enacted legislation signed by the Governor of California, raising the minimum wage for all industries. (AB10, Stats of 2013, amending section 1182.12 of the California Labor Code.) Pursuant to its authority under Labor Code section 1182.13, the Department of Industrial Relations amends and republishes Sections 2, 3, and 5 of the General Minimum Wage Order, MW-2007. Section 1, Applicability, and Section 4, Separability, have not been changed. Consistent with this enactment, amendments are made to the minimum wage, and the meals and lodging credits sections of all of the IWC’s industry and occupation orders. This summary must be made available to employees in accordance with the IWC’s wage orders. Copies of the full text of the amended wage orders may be obtained by ordering on-line at www.dir.ca.gov/WP.asp, or by contacting your local Division of Labor Standards Enforcement office.

1. APPLICABILITY The provisions of this Order shall not apply to outside salespersons and individuals who are the parent, spouse, or children of the employer previously contained in this Order and the IWC’s industry and occupation orders. Exceptions and modifications provided by statute or in Section 1, Applicability, and in other sections of the IWC’s industry and occupation orders may be used where any such provisions are enforceable and applicable to the employer.

2. MINIMUM WAGES Every employer shall pay to each employee wages not less than eight dollars ($8.00) per hour for all hours worked, effective January 1, 2008, not less than nine dollars ($9.00) per hour for all hours worked, effective July 1, 2014, and not less than ten dollars ($10.00) per hour for all hours worked, effective January 1, 2016.

3. MEALS AND LODGING Meals or lodging may not be credited against the minimum wage without a voluntary written agreement between the employer and the employee. When credit for meals or lodging is used to meet part of the employer’s minimum wage obligation, the amounts so credited may not be more than the following:

Effective Effective Effective LODGING January 1, 2008 July 1, 2014 January 1, 2016

Room occupied alone………………………………...... $37.63 per week $42.33 per week $47.03 per week Room shared…………………………………………………………….. $31.06 per week $34.94 per week $38.82 per week Apartment – two thirds (2/3) of the ordinary rental value, and in no event more than:………………………………………………………… $451.89 per month $508.38 per month $564.81 per month Where a couple are both employed by the employer, two thirds (2/3) of the ordinary rental value, and in no event more than:..……. $668.46 per month $752.02 per month $835.49 per month

MEALS Breakfast…………………………………………………………………. $2.90 $3.26 $3.62 Lunch……………………………………………………………………... $3.97 $4.47 $4.97 Dinner……………………………………………………………………... $5.34 $6.01 $6.68

4. SEPARABILITY If the application of any provision of this Order, or any section, subsection, subdivision, sentence, clause, phrase, word or portion of this Order should be held invalid, unconstitutional, unauthorized, or prohibited by statute, the remaining provisions thereof shall not be affected thereby, but shall continue to be given full force and effect as if the part so held invalid or unconstitutional had not been included herein.

5. AMENDED PROVISIONS This Order amends the minimum wage and meals and lodging credits in MW-2007, as well as in the IWC’s industry and occupation orders. (See Orders 1-15, Secs. 4 and 10; and Order 16, Secs. 4 and 9.) This Order makes no other changes to the IWC’s industry and occupation orders.

These Amendments to the Wage Orders shall be in effect as of July 1, 2014.

Questions about enforcement should be directed to the Division of Labor Standards Enforcement. Consult the white pages of your telephone directory under CALIFORNIA, State of, Industrial Relations for the address and telephone number of the office nearest you. The Division has offices in the following cities: Bakersfield, El Centro, Fresno, Long Beach, Los Angeles, Oakland, Redding, Sacramento, Salinas, San Bernardino, San Diego, San Francisco, San Jose, Santa Ana, Santa Barbara, Santa Rosa, Stockton, and Van Nuys.

Tab 10 Post Where Employees Can Read Easily. Violators Shall be Subject to Penalties. OFFICIAL NOTICE San Francisco Minimum Wage Rate Effective January 1, 2014 Minimum Wage Rate

per hour $10.74 Beginning January 1, 2014, all employers must pay to each employee who performs work in San Francisco (including temporary and part-time employees) wages not less than $10.74 per hour. The minimum wage requirement, set forth in the San Francisco Minimum Wage Ordinance, Chapter 12R of the San Francisco Administrative Code, applies to adult and minor employees who work two (2) or more hours per week. Each year, the City will adjust the amount of the minimum wage based on increases in the regional consumer price index. Under the Ordinance, employees who assert their rights to receive the City’s minimum wage are protected from retaliation. Employees may file a civil lawsuit against their employers for any violation of the Ordinance. The City can investigate possible violations, shall have access to payroll records, and can enforce the minimum wage requirements by ordering reinstatement of employees, payment of back wages unlawfully withheld, and penalties. If you should have any questions or require additional information, please contact your employer or the Office Labor Standards Enforcement (OLSE) at (415) 554-6292 or Email [email protected].

Favor de publicar este aviso donde los empleados lo puedan leer fácilmente Los Infractores Podrán ser Sujetos a Multas AVISO OFICIAL

A partir del 1 de Enero de 2014, todos los empleadores deben pagar a cada empleado que trabaja en San Francisco (incluyendo trabajadores temporales y de tiempo parcial) no menos de $10.74 por hora. El requisito de salario mínimo, establecido en la Ordenanza del Salario Mínimo de San Francisco, Capítulo 12R del Código Administrativo de San Francisco, es para trabajadores adultos y menores que trabajan dos (2) o más horas por semana. Cada año la Ciudad ajustará la cantidad del salario mínimo basado en aumentos en el índice de precios al consumo regional. Bajo la Ordenanza, los empleados que hacen valer sus derechos de recibir el salario mínimo de la Ciudad están protegidos contra represalia. Los empleados pueden entablar una demanda contra sus empleadores en caso de cualquier violación de la Ordenanza. La Ciudad podrá investigar las violaciónes posibles, tendrá acceso a registros de nómina, y podrá imponer los requisitos del salario mínimo por medio de ordenar el restablecimiento de empleados y el pago de sueldos atrasados retenidos ilegalmente, y podrá aplicar sanciones. Si tiene alguna pregunta o si desea más información, contacte a su empleador o a la Oficina de Ejecución de las Normas Laborales (Office of Labor Standards Enforcement: OLSE) llamando al (415) 554-6292 o por correo electrónico a [email protected]

請張貼在僱員容易看到的地方。違例者將受到懲罰正式通告

自2014年1月1日開始﹐所有僱主必須支付在三藩市市內工作的每位僱員(包括臨時僱員及兼職僱員)工資不低於每小時$10.74美元。根據三藩市的最低工資法令及三藩市行政令第12R章﹐這最低工資規定適用於成人和青少年僱員在每星期工作兩 (2) 小時或以上者﹐每年市府會跟據地區性消費物價指數的增加而對最低工資作出調整。

依照本條例﹐僱員要求獲得本市最低工資的權利受法律保護不會受到報復﹐僱員有權以任何違反條例的理由控告僱主。市政府有權調查可能的違法行為﹐有權取得員工薪水記錄﹐透過安排僱員復職﹐補償未付薪資及罰款﹐強制執行最低工資規定。

若有任何疑問或需要其他資訊﹐請與你的僱主聯絡﹔亦可致電 (415)554-6292﹐或電郵至[email protected]與勞工標準執行署(OLSE) 聯絡。

Tignan ang likod ng pahina para sa Tagalog $10.74

Bắt đầu từ ngày 1 tháng Giêng, 2014, tất cả chủ nhân phải trả cho mỗi nhân viên làm việc tại San Francisco (kể cả nhân viên tạm thời và bán thời gian) lương không ít hơn $10.74 một giờ.

. Hарушители будут оштрафованны.

Начиная с января 2014 г., все работодатели должны

$10.74

Paki Lathala Kung Saan Madaling Mabasa Ng Mga Empleyado. Ang Mga Lumalabag ay Kailangan na Dapat Maparusahan. PANG-UNAWANG OPISYAL

Simula sa Enero 1, 2014, sa lahat ng mga maypagawa ay kailangang bayaran ang bawat sinumang empleyado sa San Francisco na gumagawa ng trabaho (kasama na ang mga empleyadong pansamantala at pangpirasohang-oras) sa sahod na hindi bababa sa $10.74 bawat oras.

Ang pinakamababang sahod na kinakailangan, na nakatakdang pasulong sa Ordinansa sa Pinakamababang Sahod ng San Francisco, Kapitulo 12R ng Kodikong Administratibo ng San Francisco, ay nalalapat sa sinumang mga matatanda at mga menor na empleyado na nagtratrabaho ng dalawang oras (2) o higit pa sa loob ng isang linggo. Bawat taon, ang Siyudad ay nagnanais na iayon ang pinakamababang sahod base sa dagdag sa mamimiling taluntunan ng presyong kapurukan.

Sa ilalim ng Ordinansa, sinumang empleyado na pinapanindigan ang kanilang mga karapatan na tumanggap ng pinakamababang sahod ng Siyudad ay protektado labas sa retalyasyon. Ang mga empleyado ay maaaring maghain ng litigasyong sibil laban sa kanilang maypagawa para sa anumang paglabag ng Ordinansa. Ang Siyudad ay maaaring mag-imbistiga sa posibilidad na paglabag, mayroon din silang daan sa mga talaan ng suweldo, at maaaring ipasunod ang mga kinakailangan sa pinakamababang sahod sa pamamagitan ng pag-uutos ng pagkakabalik sa dati ng mga empleyado, kabayaran sa sahod sa nakaraan na nakakalabag sa batas na, at ang mga multa.

Kung ikaw ay mayroong mga katanungan o pangailanganan na karagdagan na impormasyon, paki-kontak ang iyong maygawa o sa Opisina ng Gawaing PamantayanTagapagtupad (OGPT) sa (415) 554-6292 o E-mail kami sa [email protected] Tab 11 - POST WHERE EMPLOYEES CAN READ EASILY - - VIOLATORS SUBJECT TO PENALTIES - OFFICIAL NOTICE

Minimum Wage Rate $10.15 Per Hour

SAN JOSE MINIMUM WAGE Effective Date: January 1, 2014

Beginning January 1 , 2014 , employers who are subject to the San Jose Business License Tax or who maintain a facility in San Jose must pay to each employee who performs at least two (2) hours of work per week in San Jose wages of not less than $10.15 per hour. The minimum wage requirement set forth in the San Jose Minimum Wage Ordinance applies to adult and minor employees who work two (2) or more hours per week (tips not included). Each year, the City will adjust the minimum wage based on the US Department of Labor’s Regional Consumer Price Index. Under the Ordinance, employees who assert their rights to receive the City’s minimum wage are protected from retaliation. Employees may file a civil lawsuit against their employers for any violation of the Ordinance or may file a complaint with the City’s Office of Equality Assurance. The City will investigate possible violations, will have access to payroll records, and will enforce violations of the minimum wage requirements by ordering reinstatement of employees, payment of back wages unlawfully withheld, and penalties. If you have questions, need additional information, or believe you are not being paid correctly, please contact your employer or the City of San Jose’s Office of Equality Assurance at: Office of Equality Assurance 200 East Santa Clara Street, Fifth Floor San Jose CA 95113 Telephone: 408-535-8430 E-Mail: [email protected] Tab 12 86'HSDUWPHQWRI/DERU )RUPDSSURYHG 2IILFHRI/DERU0DQDJHPHQW FORM LM-10 2IILFHRI0DQDJHPHQW 6WDQGDUGV DQG%XGJHW :DVKLQJWRQ'& EMPLOYER REPORT 1R ([SLUHV 7KLVUHSRUWLVPDQGDWRU\XQGHU3/DVDPHQGHG)DLOXUHWRFRPSO\PD\UHVXOWLQFULPLQDOSURVHFXWLRQ )RU2IILFLDO8VH2QO\ ILQHVRUFLYLOSHQDOWLHVDVSURYLGHGE\86&RU

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)RUP/0 Page 2 of 2 Tab 14 September 20, 2011

Submitted Electronically

The Hon. Hilda L. Solis Secretary U.S. Department of Labor Office of Labor-Management Standards Division of Interpretations and Standards 200 Constitution Avenue, N.W. Room N-5609 Washington, D.C. 20210

Re: RIN 1215-AB79 and 1245-AA03; Labor-Management Reporting and Disclosure Act; Interpretation of the “Advice” Exemption; Notice of Proposed Rulemaking, 76 Fed. Reg. 36,178 (June 21, 2011).

Dear Secretary Solis:

The American Hospital Association (AHA), on behalf of its 5,000 hospitals, health systems and other health care organizations, as well as its 42,000 individual members, joins the American Society for Healthcare Human Resources Administration (ASHHRA) on behalf of its 3,400 human resource managers in hospitals and other health care facilities nationwide, to submit these comments in response to the Notice of Proposed Rulemaking (NPRM) issued by the Office of Labor-Management Standards (OLMS) of the Department of Labor (DoL or the Department) in the June 21 Federal Register. In the NPRM, OLMS proposes to revise its interpretation of the “advice” exemption to persuader reporting under Section 203 of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA), 29 U.S.C. § 433, by narrowing the definition of “advice” and thus expanding the circumstances under which reporting is required of employer-consultant persuader agreements. The AHA and ASHHRA oppose the revised interpretation of the advice exemption and request that the Department decline to adopt the NPRM.

The AHA, ASHHRA and their members have substantial interests in this rulemaking. AHA members range from large hospitals and health care systems to small rural hospitals. More than 40 percent of the nation’s hospitals are stand-alone hospitals, often the sole health care provider Hilda L. Solis, Secretary September 20, 2011 Page 2 of 15 in their communities. The overwhelming majority of the AHA’s members are covered by the National Labor Relations Act (29 U.S.C. § 151 et seq., NLRA) and a substantial number of ASHHRA’s members work at hospitals and other health care employers covered by the NLRA. These hospitals are focused on their patient care mission and often unfamiliar with the specific and complex rules regarding the NLRA, collective bargaining and union organizing. Accordingly, when such issues arise, AHA member hospitals frequently seek labor relations advice from outside counsel and, on occasion, the AHA and ASHHRA.

The Department’s revised interpretation of the advice exemption would interfere with hospitals’ ability to receive labor relations advice that is needed to ensure proper compliance with all applicable laws. The NPRM would have a disproportionate impact on health care employers given that a large percentage of union-organizing drives involve health care employers. A sampling of National Labor Relations Board (NLRB) election reports since November 2010 reveals that between 20 percent and 25 percent of election petitions in a given month involve health care employers; in February 2011, 51.6 percent of closed election cases were in the health care field. For these reasons, the AHA, ASHHRA and their members have a particular interest in having the Department address our concerns about this proposed rulemaking.

As explained in attached detailed comments, there are numerous reasons why the proposed reinterpretation of the advice exemption should be discarded, each providing sufficient reason for the Department to abandon the NPRM.

x The Department’s proposed standard for distinguishing between “advice” and “persuader activity” is simply unworkable and would bring hopeless ambiguity to this area of law.

x The Department’s proposed reinterpretation of the advice exemption would invade the attorney-client privilege and violate attorney-client confidences.

x The Department’s proposed reinterpretation of the advice exemption is not supported by the text or legislative history of Section 203 of the LMRDA.

x The Department’s proposed reinterpretation of the advice exemption advances an employer neutrality policy that conflicts with the statutory policy of robust debate expressed in the NLRA.

x The Department’s proposed reinterpretation of the advice exemption is an unconstitutionally vague content-based regulation.

x The “significant underreporting problem” identified in the NPRM is a direct result of the Department’s new view that it is a reportable event for consultants to engage in indirect “persuader activity” by directing their activities to the employer’s supervisors. If there is underreporting of activity Congress wanted reported communications from consultants acting as clandestine “agents of management” or undercover “middlemen” between Hilda L. Solis, Secretary September 20, 2011 Page 3 of 15

management and employees the appropriate agency response should be increased enforcement of the existing law and regulations.

Thank you for your consideration of our views on this important matter. If you have questions about our recommendations, please contact Lawrence Hughes, assistant general counsel, at [email protected] or (202) 626-2346.

Sincerely,

/s/ Rick Pollack Executive Vice President American Hospital Association

/s/ Stephanie Drake Executive Director American Society for Healthcare Human Resources Administration cc: Andrew R. Davis Chief of the Division of Interpretations and Standards Office of Labor-Management Standards

Attachment Hilda L. Solis, Secretary September 20, 2011 Page 4 of 15

AHA, ASHHRA Detailed Comments on the Department’s NPRM

I. THE DEPARTMENT’S PROPOSED REINTERPRETATION OF THE “ADVICE” EXEMPTION WOULD CREATE UNCERTAINTY AS TO MANY LEGITIMATE AND APPROPRIATE COMMUNICATIONS

The Department’s proposed standard for distinguishing between “advice” and “persuader activity” is simply unworkable and would bring hopeless ambiguity to this whole area of law. The current standard, which has been settled for decades, draws a clear and content-neutral demarcation between “advice” and “persuader activity.” By contrast, the proposed new standard – whether, “a particular consultant activity has among its purposes an object, direct or indirect, to persuade employees” (76 Fed. Reg. at 36,191) – is an entirely subjective question over which reasonable people can and will disagree. The AHA and ASHHRA submit that it is bad public policy to base a rule of law on such a subjective standard that necessarily will result in inconsistent and arbitrary outcomes.

The NPRM states that communications are “persuasive” if they, “explicitly or implicitly encourage employees to vote for or against union representation, to take a certain position with respect to collective bargaining proposals, or refrain from concerted activity (such as a strike) in the workplace” (Id. at 36,191). Examples of such “persuader activity” include, “[t]raining or directing supervisors and other management representatives to engage in persuader activity;” “creating employer policies and practices designed to prevent organizing;” and, holding “seminars, webinars, or conferences” at which, “guidance is offered to attendees who represent multiple employers on labor-management relations matters, including how to persuade employees concerning their organizing and bargaining rights” (Id.). However, supplying employers with training, guidance and/or policies about the obligations of the NLRA and other labor-relations issues is a legitimate and appropriate activity routinely offered by consultants and lawyers. Such activities are not the type of “persuader activity” that Congress intended to regulate.

The Department’s proposed reinterpretation of the advice exemption results in an overly broad definition of “persuader activity” that would create uncertainty regarding many legitimate and appropriate communications. For example, if a consultant or lawyer supplies a client with a sample personnel policy that lawfully restricts employee solicitation and distribution, has it engaged in reportable “persuader activity”? What if the consultant or lawyer supplies a client with a sample access policy that lawfully restricts off-duty employee and/or union organizer access to property? Under the NPRM, those activities might be reportable because the policies are designed, at least in part, to affect the location or manner of union organizing. But creating, revising and updating employer personnel and access policies is an important component to ensuring compliance with sometimes rapidly evolving legal standards (see, e.g., New York New York Hotel & Casino, 356 NLRB No. 119 (Mar. 25, 2011)). Moreover, hospital settings have special rules developed through numerous NLRB and court decisions that affect labor relations activities in hospital settings (see, e.g., Stanford Hosp. & Clinics v. NLRB, 325 F.3d 334 (D.C. Hilda L. Solis, Secretary September 20, 2011 Page 5 of 15

Cir. 2003)). Hospitals, focused on their patient care mission, cannot reasonably be expected to draft such policies themselves.

The NPRM also fails to provide adequate guidance as to when particular communications might be categorized as reportable “persuader activity.” In particular, it is not clear whether there is an obligation to report after the union has been certified or in the absence of any union organizing. For example, would a consultant or lawyer be required to report guidance to a client on how to operate during a strike with replacement workers where the use of replacements might have an effect on the employees’ decision to participate in a strike? Would a consultant or lawyer be required to report guidance to a client on how to communicate with employees about collective bargaining negotiations in response to a certified union’s collective bargaining proposals? Would a consultant or lawyer be required to report guidance to a client on the process of decertification of a union or in response to a rumored employee decertification petition? These are just a few examples of how the NPRM would inject uncertainty and ambiguity into this settled area of law. This unnecessary ambiguity leads to a host of legal concerns, as explained further in these comments.

II. THE DEPARTMENT’S PROPOSED REINTERPRETATION OF THE “ADVICE” EXEMPTION WOULD INVADE THE ATTORNEY-CLIENT PRIVILEGE AND VIOLATE ATTORNEY-CLIENT CONFIDENCES

The proposed new definition of “advice” rejects the decades-old, bright line rule that has been easy to apply in practice: Lawyers need not report labor relations advice where the lawyer did not have direct contact with any of the rank-and-file employees and where the employer was free to reject the lawyer’s advice (as is the case with virtually any type of advice). Instead, the proposed new definition of “advice” unnecessarily injects a subjective intent element into the analysis that necessitates the Department undertake a case-by-case fact-finding mission of the lawyer’s mindset when communicating with a client. The Department’s new standard will create uncertainty and is likely to inhibit candid and confidential attorney-client communications. If enacted, the NPRM ultimately may impair many hospitals from getting the expert legal representation that they need, thereby effectively denying the fundamental right to counsel.

In order to determine whether a communication is simply “advice” or instead reportable “persuader activity,” the Department would have to review the lawyer’s communication itself to discern whether the communication “in whole or in part” has a “direct or indirect” purpose to persuade employees. Because the applicability of the advice exemption turns on the object of the communication, it is impossible to categorize the communication as “advice” or “persuader activity” without revealing the lawyer’s communication to the Department for review, thereby invading the attorney-client privilege and violating attorney-client confidences.

For example, a union in a labor dispute with a hospital could file a complaint against the hospital alleging that it failed to report the “persuader activity” of its outside labor counsel. The Department then would have to investigate the complaint to determine whether an object of any communication between the hospital and its outside labor counsel was to persuade employees. Hilda L. Solis, Secretary September 20, 2011 Page 6 of 15

To do so, the Department would need to access confidential and privileged communications between the hospital and outside labor counsel. To respond to such an investigation, the hospital or outside labor counsel would be compelled to disclose the content of attorney-client communications to establish the absence of reportable “persuader activity.” And, if the outside labor counsel had the misfortune to be prosecuted criminally for alleged failure to report or filing inaccurate reports, counsel would be required to seek the hospital’s permission to waive attorney-client privilege to disclose the content of otherwise privileged communications. This scenario is not a realistic possibility under the Department’s existing standard because the object of the advice is irrelevant, as it should be under any ordinary and common meaning of the word “advice.”

While the Department recognizes that an attorney who engages in “persuader activity” is shielded by Section 204 of the LMRDA (29 U.S.C. § 434) from disclosing the content of communications protected by the attorney-client privilege (see 76 Fed. Reg. at 36,192), the NPRM nonetheless requires the filing of Form LM-20, “which may require information about the fact of the agreement with an employer involving persuader activity, the client’s identity, the fees involved and the scope and nature of the employment” (Id.). The Department reasons that, “the fact of legal consultation, clients’ identities, attorney’s fees and the scope and nature of the employment are not deemed privileged” (Id.).

There is no statutory basis to support the wholesale invasion of client confidences that the NPRM would require. On its face Section 204 of the LMRDA exempts, “any information which was lawfully communicated to such attorney by any of his clients in the course of a legitimate attorney-client relationship,” (29 U.S.C. § 434 (emphasis added)) which plainly includes the client’s identity and terms and scope of engagement. There is no textual basis to narrowly limit “any information” to only those “communications made in confidence” that are protected by attorney-client privilege as the Department proposes (76 Fed. Reg. at 36,192). Had Congress intended a narrower exemption, it would have said “confidential communications” or “communications protected by the attorney-client privilege” and not used the broad words “any information.” The Sixth Circuit’s decision to the contrary in Humphreys, Hutcheson and Moseley v. Donovan (755 F.2d 1211 (6th Cir. 1985)), cited in the NPRM, failed to give effect to the plain language of the statute and erroneously relied on inconclusive excerpts from the legislative history in limiting the exemption to only confidential communications (see id. at 1216-19; cf. INS v. Cardoza-Fonseca, 480 U.S. 421, 452-53 (1987) (Scalia, J., concurring) (“Judges interpret laws rather than reconstruct legislators’ intentions. Where the language of those laws is clear, we are not free to replace it with an unenacted legislative intent.”)).

The Department also overlooks that ABA Model Rule of Professional Conduct 1.6 – titled “Confidentiality of Information” – and the overwhelming number of state bar ethical rules that closely track the ABA model rule generally forbid lawyers from disclosing non-privileged “client secrets,” including the identity of the client, the nature of the representation and the amount of legal fees paid by the client to the lawyer (see Model Rules of Prof’l Conduct R. 1.6 cmt. 3 (“The confidentiality rule . . . applies not only to matters communicated in confidence by the client but also to all information relating to the representation, whatever its source.”) Hilda L. Solis, Secretary September 20, 2011 Page 7 of 15

(emphasis added)). While the ABA model rule allows a lawyer to disclose confidential client information “to comply with other law or a court order,” (id. at R. 1.6(b)(6)), Section 204’s broad exemption of, “any information which was lawfully communicated to such attorney by any of his clients in the course of a legitimate attorney-client relationship” is more closely analogous to the confidentiality rule’s protection of “all information relating to the representation” than it is to the attorney-client privilege’s narrower protection of “confidential communications.” This strongly suggests that in Section 204 Congress intended to shield more information than just confidential communications protected by the attorney-client privilege. Thus, the NPRM could require attorneys to violate their ethical duties in many jurisdictions including Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.1

III. THE DEPARTMENT’S PROPOSED REINTERPRETATION OF THE ADVICE EXEMPTION IS NOT SUPPORTED BY THE TEXT OR LEGISLATIVE HISTORY OF SECTION 203 OF THE LMRDA

Section 203(c) of the LMRDA – titled “Advisory or representative services exempt from filing requirements” – provides in relevant part that, “Nothing in this section shall be construed to require any employer or other person to file a report covering the services of such person by reason of his giving or agreeing to give advice to such employer” (29 U.S.C. § 433(c)). The plain language of the so-called “advice exemption” covers all “advisory or representative

1 See Ala. Rules of Prof’l Conduct R. 1.6 (no exception for compliance with other law); Alaska Rules of Prof’l Conduct R. 1.6; Ariz. Rules of Prof’l Conduct R. 1.6; Ark. Rules of Prof’l Conduct R. 1.6; Cal. Bus. & Prof. Code § 6068(e); Colo. Rules of Prof’l Conduct R. 1.6; Conn. Rules of Prof’l Conduct R. 1.6; Del. Lawyers’ Rules of Prof’l Conduct R. 1.6; D.C. Rules of Prof’l Conduct R. 1.6; Fla. Rules of Prof’l Conduct R. 4-1.6 (no exception for compliance with other law); Ga. Rules of Prof’l Conduct R. 1.6; Haw. Rules of Prof’l Conduct R. 1.6; Idaho Rules of Prof’l Conduct R. 1.6; Ill. Rules of Prof’l Conduct R. 1.6; Ind. Rules of Prof’l Conduct R. 1.6; Iowa Rules of Prof’l Conduct R. 32:1.6; Kan. Rules of Prof’l Conduct R. 1.6; Ky. Rules of Prof’l Conduct R. 1.6; La. Rules of Prof’l Conduct R. 1.6; Me. Rules of Prof’l Conduct R. 1.6; Md. Lawyer’s Rules of PRof’l Conduct R. 1.6; Mass. Rules of Prof’l Conduct R. 1.6; Mich. Rules of Prof’l Conduct R. 1.6; Minn. Rules of Prof’l Conduct R. 1.6; Miss. Rules of Prof’l Conduct R. 1.6; Mo. Rules of Prof’l Conduct R. 4-1.6; Mont. Rules of Prof’l conduct R. 1.6; Neb. Rules of Prof’l Conduct R. 3-501.6; Nev. Rules of Prof’l Conduct R. 1.6; N.H. Rules of Prof’l Conduct R. 1.6; N.J. Rules of Prof’l Conduct R. 1.6; N.M. Rules of Prof’l Conduct R. 16-106; N.Y. Rules of Prof’l Conduct R. 1.6; N.C. Rules of Prof’l Conduct R. 1.6; N.D. Rules of Prof’l Conduct R. 1.6; Ohio Rules of Prof’l Conduct R. 1.6; Okla. Rules of Prof’l Conduct R. 1.6; Or. Rules of Prof’l Conduct R. 1.6; Pa. Rules of Prof’l Conduct R. 1.6 (no exception for compliance with other law); R.I. Rules of Prof’l Conduct R. 1.6; S.C. Rules of Prof’l Conduct R. 1.6; S.D. Rules of Prof’l Conduct R. 1.6; Tenn. Rules of Prof’l Conduct R. 1.6; Tex. Disciplinary Rules of Prof’l Conduct R. 1.05; Utah Rules of Prof’l Conduct R. 1.6; Vt. Rules of Prof’l Conduct R. 1.6; Va. Rules of Prof’l Conduct R. 1.6; Wash. Rules of Prof’l Conduct R. 1.6 (no exception for compliance with other law); W.V. Rules of Prof’l Conduct R. 1.6 (no exception for compliance with other law); Wis. Rules of Prof’l Conduct SCR. 20:1.6; Wyo. Rules of Prof’l Conduct R. 1.6. Hilda L. Solis, Secretary September 20, 2011 Page 8 of 15 services” including “giving or agreeing to give advice” without limitation, and nowhere qualifies the word “advice” with the word “legal.” However, the Department proposes in the NPRM to rewrite the advice exemption by inserting the word “legal” before the word “advice” (see 76 Fed. Reg. at 36,191 (“A lawyer or other consultant who exclusively counsels employer representatives on what they may lawfully say to employees, ensures a client’s compliance with the law, or provides guidance on NLRB practice or precedent, is providing ‘advice’.”) (emphasis added)). To the contrary, the statute on its face exempts “advice,” and there is no basis for limiting the exemption only to the narrow definition of legal advice as the Department now proposes.

In UAW v. Dole (869 F.2d 616 (D.C. Cir. 1989)), Justice Ginsburg, writing for a unanimous panel of the D.C. Circuit, rejected an analogous cramped construction of the exemption found in Section 203(e) of the LMRDA. That exemption provides in relevant part that no employer, “shall be required to file a report covering expenses made to any regular officer, supervisor, or employee of an employer as compensation for service as a regular officer, supervisor, or employee of such employer” (29 U.S.C. § 433(e)). Like the Department’s reinterpretation in the NPRM here, the district court in that case had narrowly construed the exemption to have no application to persuader activities (see 869 F.2d at 620 (“In the district court’s view, all persuader activities in which supervisors engage, even entirely lawful activities, must be reported, because section 203(e) ‘exempts from the reporting requirement only compensation for regular services, not for persuader activities’.”)). In rejecting that analogous construction of the Section 203(e) exemption, the D.C. Circuit held, “The exemption, under this reading, appears to have no office. The LMRDA’s domain is persuader activities. No exemption is needed for activities that fall outside the Act’s domain” (Id. (Ginsburg, J.)).

Like the district court’s erroneous interpretation of Section 203(e), the Department’s reinterpretation of Section 203(c) “appears to have no office” inasmuch as “[t]he LMRDA’s domain is persuader activities” and “[n]o exemption is needed for activities that fall outside the Act’s domain” (Id.). No exemption is needed for counseling employers “on what they may lawfully say to employees,” ensuring “a client’s compliance with the law” or providing “guidance on NLRB practice or precedent” because those activities are not persuader activities and thus fall outside the LMRDA’s domain. By definition the advice exemption must remove from the statute’s coverage “certain activity that otherwise would have been reportable” persuader activity (Id. at 618). Accordingly, in the so-called “overlap area” where the activity “might be characterized both as advice to an employer and as persuasion of employees” (id.), the exemption must control. Were it otherwise, the advice exemption effectively would be read out of the statute and, as applied to lawyers, would be superfluous because a lawyer’s legal advice is exempt under a different provision of the LMRDA (see 29 U.S.C. § 434). Therefore, non-legal advice, even if such advice has a direct or indirect object of employee persuasion, necessarily must come within the exemption.

The driving force behind the Department’s reinterpretation appears to be its dissatisfaction with the fact that a consultant’s, “supply of material or communications that have an object to persuade employees” is not reportable under existing law (76 Fed. Reg. at 36,183). That result is Hilda L. Solis, Secretary September 20, 2011 Page 9 of 15 a function of the provisions of Section 203(b) itself, not an overly broad interpretation of the advice exemption. In Section 203(b)(2), Congress demonstrated that it knew how to make a consultant’s “supplying activities” to an employer reportable (see 29 U.S.C. § 433(b)(2) (reportable activity “to supply an employer with information concerning the activities of employees or a labor organization in connection with a labor dispute involving such employer”)). By distinguishing between activities that have an object to persuade in Section 203(b)(1) and activities that have an object to supply in Section 203(b)(2), Congress further demonstrated that it did not intend for “persuader activities” to include “supplying activities.” Indeed, if Section 203(b)(1) were broad enough to include supplying information to an employer for the employer to use in persuading employees, then there would be no need for a separate disclosure provision for the supplying activities referenced in Section 203(b)(2).

Nor has the Department explained how, “the preparation of persuasive material for dissemination or distribution to employees . . . is itself more than a recommendation regarding a course of conduct in the ordinary sense” (76 Fed. Reg. at 36,183). In UAW v. Dole, the D.C. Circuit cast doubt on the argument that “advice” does not “comprehend scripting an employer’s anti-union campaign” (869 F.2d at 619, n.4). The court noted that, “the term ‘advice,’ in lawyer’s parlance, may encompass, e.g., the preparation of a client’s answers to interrogatories, the scripting of a closing or an annual meeting” (Id.). Redefining “advice” to mean a “recommendation” does not narrow the exemption because preparing persuasive materials for an employer’s recommended use still remains a mere recommendation that the employer is free to accept or reject. It is only by subtracting recommendations with an object of persuading employees from the ordinary definition of “advice” that the Department is able to transform an otherwise exempt recommendation into reportable “persuader activity.”

The Department’s proposed reinterpretation of the advice exemption also is contrary to its legislative history, which the D.C. Circuit found expresses an intent, “to grant a broad scope to the term ‘advice’” (Id. 618. See also H.R. Conf. Rep. No. 86-1147, at 33 (1959) (“Subsection (c) of section 203 of the conference substitute grants a broad exemption from the requirements of the section with respect to the giving of advice.”) (emphasis added)). As the D.C. Circuit correctly recounted in UAW v. Dole, the legislative history of Section 203, “confirms a prime congressional concern to uncover employer-expenditures for anti-union persuasion carried out, often surreptitiously, not by employers or supervisors, but by consultants or middlemen” (Id. at 619, n.5, (emphasis added)). The evil that the statute is designed to combat is employee deception (see 76 Fed. Reg. at 36,184 (acknowledging Congress’s concern about “deceptive consultant activity” including inducing employees, “to form or join company unions through such deceptive devices as ‘spontaneous’ employee committees, essentially fronts for the employer’s anti-union activity”)). Thus, the Senate report accompanying the bill that became the LMRDA explains that the statute was aimed at exposing consultants acting as clandestine “agents of management” or undercover “middlemen” between management and employees (S. Rep. No. 86-187, at 10 (1959)). In other words, Congress wanted to expose “middlemen masquerading as legitimate labor relations consultants” (Id. at 39). Hilda L. Solis, Secretary September 20, 2011 Page 10 of 15

In circumstances where an employer is communicating through a middleman, reporting is required so that employees are not tricked into believing that the message is coming from a source other than “agents of management” (Id. at 10). However, where the message is coming directly from an employer through its supervisors or employee agents and not via an intermediary, no reporting should be required because there is no risk that employees will be deceived into believing that the employer is not the messenger (compare 29 U.S.C. § 433(a)(2), (no requirement to report payments made to employees to persuade other employees if the payments were disclosed to the other employees); id. § 433(e) (no requirement to report, “expenditures made to any regular officer, supervisor, or employee of an employer as compensation for service as a regular officer, supervisor, or employee of such employer”)). Accordingly, the LMRDA does not require reporting in circumstances where a labor relations consultant is not interacting directly with employees as a middleman for the employer.

The NPRM has distorted the intent of Section 203 to require reporting where an employer acts as a “middleman” between a consultant and its own employees. Under that logic, reporting is required because the employer is acting as an agent of the consultant in delivering the consultant’s message. That is a warped interpretation of Section 203, and one not contemplated by Congress (see S. Rep. No. 86-187, at 10 (reporting required where “middlemen have acted . . . as agents of management,” not the other way around)). Contrary to the Department’s assertion, Congress did not go so far as to give employees a general right, “to know whether employers are using consultants to run anti-union campaigns” or to know, “the underlying source of the information directed at them” (76 Fed. Reg. at 36,190). The legislative history confirms that Congress was concerned with employee deception and thus wanted employees to know whether a middleman was acting on behalf of their employer, not whether their employer had consulted with a labor relations consultant or lawyer.

The Department reasons that the proposed reinterpretation of the advice exemption would provide information that enables employees to make a more informed choice. It is difficult to comprehend how employees’ Section 7 right is aided by knowing that their employer consulted with a labor relations consultant or lawyer. In any event, that is a legislative judgment to be made by Congress, not the Department. The Department is not free to rewrite the reporting obligations in Section 203(b) under the guise of narrowing its own decades-old reading of the exemption in Section 203(c).

IV. THE DEPARTMENT’S PROPOSED REINTERPRETATION OF THE “ADVICE” EXEMPTION ADVANCES AN EMPLOYER NEUTRALITY POLICY THAT CONFLICTS WITH THE CONGRESSIONAL POLICY OF ROBUST DEBATE EXPRESSED IN THE NLRA

The apparent purpose of the NPRM is to remedy what the Department views as, “[t]he deleterious effect of labor consultant activity on industrial relations” (Id.). The NPRM is aimed at “consultant-led anti-union campaigns,” which the Department asserts have imported “the ‘worst features’ of political campaigns . . . into union election campaigns, resulting in confrontation and conflict that unnecessarily colors labor-management relations” (Id.). But what Hilda L. Solis, Secretary September 20, 2011 Page 11 of 15 the Department views as “confrontation and conflict” is affirmatively encouraged by federal labor policy. Therefore, the very purpose of the NPRM is impermissible (see Chamber of Commerce v. Brown, 554 U.S. 60, 73-74 (2008) (“it is not ‘permissible’ . . . to advance an interest that . . . frustrates the comprehensive federal scheme established by the Act”)), and if adopted, the NPRM would stand, “as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress” (Nash v. Florida Indus. Comm’n, 389 U.S. 235, 240 (1967)).

The Department’s employer neutrality objective runs headlong into federal labor policy, expressed in Section 8(c) of the NLRA (29 U.S.C. § 158(c)), which the Supreme Court has held “suffuses the NLRA as whole” in “manifest[ing] a ‘congressional intent to encourage free debate on issues dividing labor and management’” and “‘favoring uninhibited, robust, and wide-open debate in labor disputes’” (Chamber of Commerce, 554 U.S. at 68 (quoting Linn v. Plant Guard Workers, 383 U.S. 53 (1966) & Letter Carriers v. Austin, 418 U.S. 264 (1974))). The Court stressed that the “‘freewheeling use of the written and spoken word has been expressly fostered by Congress and approved by the NLRB’” (Id. (quoting Letter Carriers, 418 U.S. 264)). By seeking to handicap one party to the debate, the NPRM goes beyond what Congress intended to accomplish in Section 203 of the LMRDA – lifting the veil on middlemen who, unbeknownst to employees, are acting on behalf of the employer in their dealings with employees – and conflicts with federal labor policy.

Under the originally enacted NLRA, usually referred to as the Wagner Act, the NLRB took the position that the statute, “demanded complete employer neutrality during organizing campaigns, reasoning that any partisan employer speech about unions would interfere with the § 7 rights of employees” (Id. at 66; see, e.g., Letz Mfg. Co., 32 NLRB 563 (1941)). The Supreme Court rejected that position in NLRB v. Virginia Electric & Power Co. (314 U.S. 469 (1941)), holding that the NLRA does not prohibit an employer “from expressing its views on labor policies or problems” unless the speech amounts “to coercion within the meaning of the Act” (Id. at 477). Thereafter, in Thomas v. Collins (323 U.S. 516 (1945)), the Supreme Court characterized Virginia Electric as “recognizing the First Amendment right of employers to engage in noncoercive speech about unionization” (Chamber of Commerce, 554 U.S. at 67). “Notwithstanding these decisions, the NLRB continued to regulate employer speech too restrictively in the eyes of Congress” (Id.).

In response, Congress enacted the Taft-Hartley Act out of a, “[c]oncern[] that the Wagner Act had pushed the labor relations balance too far in favor of unions” (Id.). In particular, Congress added Section 8(c) to the NLRA for the purpose of ensuring that employers have, “full freedom to express their views to employees on labor matters” (S. Rep. No. 80-105, at 23-24 (1947) (emphasis added)). “It is indicative of how important Congress deemed such ‘free debate’ that Congress amended the NLRA rather than leaving to the courts the task of correcting the NLRB’s decisions on a case-by-case basis” (Chamber of Commerce, 554 U.S. at 67-68). Accordingly, Section 8(c) constitutes an, “explicit direction from Congress to leave noncoercive speech unregulated” in order to effectuate employees’ Section 7 right, “to receive information opposing Hilda L. Solis, Secretary September 20, 2011 Page 12 of 15 unionization” (Id. at 68). In the LMRDA, Congress expressed its intent to protect an employer’s NLRA speech rights (29 U.S.C. § 433(f)).

No consideration appears to have been given to the chilling effect that the NPRM would likely have on employer free speech or the resulting effect on employees’ Section 7 right. The implications of the NPRM, if adopted, are uncertain. It seems probable that some consultants or lawyers will decline to give advice out of fear of triggering a reporting obligation, especially given the Department’s position that the scope of the reporting obligation extends to all labor relations advice or services, not just persuader activities (see LMRDA Interpretive Manual § 260.300). Accordingly, the NPRM advances, “the same policy judgment that the NLRB advanced under the Wagner Act, and that Congress renounced in the Taft-Hartley Act” (Chamber of Commerce, 554 U.S. at 69).

All hospitals strive to maintain a tranquil patient care environment. Many may choose not to oppose union organizing. However, those hospitals that do wish to exercise their right to speak to employees may feel compelled to refrain, resulting in their employees being less informed about the important choice they face. To be sure, the NPRM nominally allows for employer counseling on what they may lawfully say to employees (see 76 Fed. Reg. at 36,182). However, hospitals cannot reasonably be expected to know how to lawfully respond to all labor relations matters, including a union organizing campaign. Hospitals are focused on their patient care mission not labor law, and many need training and guidance on how to effectively communicate their views about unionization. The practical effect of the NPRM’s overreaching is that some, perhaps many, consultants and lawyers will likely cease to provide any labor relations policies, training or guidance to their clients. As a result, in an effort to honor the law, hospitals and other employers may skew toward neutrality, thereby frustrating federal labor policy and denying their employees a range of views about unionization.

V. THE DEPARTMENT’S PROPOSED REINTERPRETATION OF THE “ADVICE” EXEMPTION IS AN UNCONSTITUTIONALLY VAGUE CONTENT-BASED REGULATION

The First Amendment, “includes the right to attempt to persuade others to change their views” (Hill v. Colorado, 530 U.S. 703, 716 (2000)), and protects the right, “to discuss, and inform people concerning, the advantages and disadvantages of unions and joining them” (Thomas v. Collins, 323 U.S. 516, 532 (1945)). The Department’s proposed reinterpretation of the “advice” exemption unconstitutionally tramples on these First Amendment freedoms.

“It is a basic principle of due process that an enactment is void for vagueness if its prohibitions are not clearly defined” (Grayned v. City of Rockford, 408 U.S. 104, 108 (1972)). Because it is, “assume[d] that man is free to steer between lawful and unlawful conduct,” the Constitution demands that, “laws give the person of ordinary intelligence a reasonable opportunity to know what is prohibited, so that he may act accordingly” (Id.). “Vague laws may trap the innocent by not providing fair warning” (Id.). Where First Amendment freedoms are implicated, vague regulations, “inevitably lead citizens to steer far wider of the unlawful zone than if the Hilda L. Solis, Secretary September 20, 2011 Page 13 of 15 boundaries of the forbidden areas were clearly marked” (Id. at 109). Problems of vagueness are, “particularly treacherous where, as here, the violation . . . carries criminal penalties and fear of incurring these sanctions may deter those who seek to exercise protected First Amendment rights” (Buckley v. Valeo, 424 U.S. 1, 76-77 (1976); see 29 U.S.C. § 439 (providing for criminal penalties for willful violations of Section 203)). Accordingly, in such circumstances, “an even greater degree of specificity is required” (Buckley, 424 U.S. at 77).

The Department’s proposed definition of “persuader activity” (76 Fed. Reg. at 36,192) – communications that, “in whole or in part, have the object directly or indirectly to persuade employees concerning their rights to organize or bargain collectively” – is unconstitutionally vague. That conclusion necessarily follows from the Supreme Court’s decision in Buckley, in which the Court, in order to save the statute from being void for vagueness, narrowly construed an analogous disclosure law applicable to expenditures spent “for the purpose of influencing” an election (see id. at 76-82.). The critical phrase, “have the object directly or indirectly to persuade” in the NPRM is at least as vague as the critical phrase “for the purpose of influencing” in Buckley.

The Supreme Court’s decision in Thomas v. Collins (323 U.S. 516 (1945)) is instructive. At issue was a Texas law that required labor organizers to apply for an organizer’s card, “before soliciting any members for his organization” (Id. at 519 n.1). In striking down the Texas law as unconstitutional, the Court reasoned:

[W]hether words intended and designed to fall short of invitation would miss that mark is a question both of intent and of effect. No speaker, in such circumstances, safely could assume that anything he might say upon the general subject would not be understood by some as an invitation. In short, the supposedly clear-cut distinction between discussion, laudation, general advocacy, and solicitation puts the speaker in these circumstances wholly at the mercy of the varied understanding of his hearers and consequently of whatever inference may be drawn as to his intent and meaning. Such a distinction offers no security for free discussion. In these conditions it blankets with uncertainty whatever may be said. It compels the speaker to hedge and trim. He must take care in every word to create no impression that he means, in advocating unionism’s most central principle, namely, that workingmen should unite for collective bargaining, to urge those present to do so. The vice is not merely that invitation, in the circumstances shown here, is speech. It is also that its prohibition forbids or restrains discussion which is not or may not be invitation. The sharp line cannot be drawn surely or securely (Id. at 535).

As in Thomas, no sharp line can securely be drawn between those communications that have an object (direct or indirect) to persuade employees and those that do not. Because the distinction between such communications puts the speaker, “wholly at the mercy of the varied understanding of his hearers and consequently of whatever inference may be drawn as to his intent and meaning,” no speaker, “safely could assume that anything he might say upon the general subject would not be understood by some as” persuasion (Id.). Accordingly, the Hilda L. Solis, Secretary September 20, 2011 Page 14 of 15

distinction the Department draws here between persuasion and non-persuasion, “blankets with uncertainty whatever may be said” and, “compels the speaker to hedge and trim” in violation of the Constitution (Id.). The vagueness problem is “particularly treacherous” here because the LMRDA, “carries criminal penalties and fear of incurring these sanctions may deter those who seek to exercise protected First Amendment rights” (Buckley, 424 U.S. at 76-77; see 29 U.S.C. § 439, providing for criminal penalties for willful violations of Section 203). Given the potential for criminal prosecution, the Constitution requires the Department to draw a sharper distinction than the one proposed (Buckley, 424 U.S. at 77).

The Department’s proposed reinterpretation of the “advice” exemption also is contrary to black- letter law that the government, consistent with the First Amendment, may not draw a distinction between what is permissible and what is impermissible based on the message, content or subject matter of protected speech (see Simon & Schuster, Inc. v. Members of the New York State Crime Victims Bd., 502 U.S. 105, 115-16 (1991)). Because, “the government’s ability to place content- based burdens on speech raises the specter that the government may effectively drive certain ideas or viewpoints from the marketplace[,] . . . [t]he First Amendment presumptively places this sort of discrimination beyond the power of the government” (Id. at 116.).

For example, in Police Department of the City of Chicago v. Mosley (408 U.S. 92 (1972)), the Supreme Court struck down an ordinance prohibiting only non-labor picketing within 150 feet of a school. The Court found that, “[t]he central problem with Chicago’s ordinance is that it describes permissible picketing in terms of its subject matter” and, “[t]he operative distinction is the message on a picket sign” (Id. at 95). The Court explained that, “[a]ny restriction on expressive activity because of its content would completely undercut the profound national commitment to the principle that debate on public issues should be uninhibited, robust, and wide- open” (Id. at 96). Accordingly, “above all else, the First Amendment means that the government has no power to restrict expression because of its message, its ideas, its subject matter, or its content” (Id. at 95. See also Carey v. Brown, 447 U.S. 455, (1980) (unconstitutional for government to use “the content of the speech” to determine “whether it is within or without” government regulation); Regan v. Time, Inc., 468 U.S. 641, 648-49 (1984) (“Regulations which permit the Government to discriminate on the basis of the content of the message cannot be tolerated under the First Amendment.”)).

The proposed new instructions to Form LM-20 provide that “advice,” “means an oral or written recommendation regarding a decision or course of conduct” unless the recommendation “in whole or in part” has, “the object directly or indirectly to persuade employees concerning their rights to organize or bargain collectively,” in which case the recommendation somehow ceases to be a “recommendation” and morphs into “persuader activity” (76 Fed. Reg. at 36,182). By carving-out recommendations with an object of persuading employees from the definition of “advice,” the NPRM unconstitutionally draws a distinction based on the recommendation’s message, content and/or subject matter, and singles out recommendations with an object of persuading employees for unfavorable treatment. Such content-based discrimination against one subject of protected speech is prohibited by the Constitution. Hilda L. Solis, Secretary September 20, 2011 Page 15 of 15

VI. THE DEPARTMENT HAS NOT SHOWN THAT THERE IS UNDERREPORTING OR THAT IT IS NECESSARY TO NARROW THE “ADVICE” EXEMPTION

The Department contends that there is underreporting because it received an average of 192.4 LM-20’s annually when it expected 2,601, only 7.4% of those expected (Id. at 36,186). It therefore concludes that, “only a small fraction of the organizing campaigns in which consultants were utilized resulted in the filing of a Form LM-20” (Id.). However, the “significant underreporting problem” is a direct result of the Department’s new view that it is a reportable event for consultants to engage in, “indirect persuader activity by directing their activities to the employer’s supervisors” (Id. at 36,187). As already explained in these comments, that is not the type of activity that Congress intended to be regulated.

If there is underreporting of the type of activity that Congress wanted reported, the appropriate agency response should be increased enforcement of the existing law and regulations. The Department has not identified any initiatives it has undertaken to improve reporting under current law, including increased enforcement actions against employers and consultants, to address its perceived “significant underreporting problem.” The AHA and ASHHRA submit that it is better policy to attempt to cure a problem under current law before seeking a change in a decades-old, content-neutral standard that gives clear guidance to consultants and employers. If such attempts failed to correct the problem, then the Department could insist that a change in law is necessary. Without attempting to utilize the tools it already has, the Department’s issuance of this NPRM is premature. It is not necessary to narrow the advice exemption in order to fix the alleged underreporting problem.

* * *

For all of the foregoing reasons, the AHA and ASHHRA request that the Department decline to adopt the NPRM. Tab 15 OFFICE OF GENERAL COUNSEL

September 21, 2011

Submitted Electronically

Re: RIN 1215-AB79 and 1245-AA03; Labor-Management Reporting and Disclosure Act; Interpretation of the “Advice” Exemption; Notice of Proposed Rulemaking, 76 Fed. Reg. 36178 (June 21, 2011).

Dear Secretary Solis:

On behalf of the American Council on Education (ACE) and the other higher education associations identified below, I submit the following comments in response to the Notice of Proposed Rulemaking (NPRM) issued by the Office of Labor-Management Standards (OLMS) of the Department of Labor (DoL or the Department) in the June 21 Federal Register. In the NPRM, OLMS proposes to revise its interpretation of the “advice” exemption to persuader reporting under section 203 of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA), 29 U.S.C. § 433, by narrowing the definition of “advice” and thus expanding the circumstances under which reporting is required of employer-consultant persuader agreements. ACE opposes the revised interpretation of the advice exemption and requests that the Department decline to adopt the NPRM.

I. STATEMENT OF INTEREST

A. Overview

Founded in 1918, ACE is the major coordinating body for all the nation's higher education institutions, representing more than 1,600 college and university presidents, and more than 200 related associations, nationwide. It provides leadership on key higher education issues and influences public policy through advocacy.

B. Higher Education’s Interests in Commenting on the NPRM

ACE and its members have substantial interests in this rulemaking. ACE members range from large universities to small community colleges. Many of ACE’s members are covered by the National Labor Relations Act, 29 U.S.C. § 151 et seq. (NLRA). ACE’s member institutions are

1 Dupont Circle NW Washington, DC 20036-1193 P 202 939 9300 F 202 833 4762 www.acenet.edu Comments Re: RIN 1215-AB79 and 1245-AA03 Page 2 September 21, 2011 focused on educating students and creating a positive and peaceful learning environment and often are unfamiliar with the specific and complex rules regarding the NLRA, collective bargaining and union organizing. Accordingly, when such issues arise, ACE members frequently seek labor relations advice from outside labor counsel and, on occasion, ACE itself. The Department’s revised interpretation of the advice exemption would interfere with the ability of educational institutions to receive labor relations advice needed to ensure proper compliance with all applicable laws, resulting in a potential increase in unfair labor charges and a contentiousness disruptive to academic institutions due to the unique intermingling of college and university “customers” and employees that occurs on campuses. For these reasons, ACE and its members have a particular interest in having the Department address their concerns about this proposed rulemaking.

II. COMMENTS ON THE PROPOSED REGULATION

There are several, independent grounds for the Department to decline adoption of the proposed reinterpretation of the advice exemption. First, the proposed standard fails to distinguish between “advice” and “persuader activity” and creates an impracticable standard that would result in ambiguity and uncertainty with regard to whether many lawful and appropriate activities must be reported. Second, the proposed reinterpretation of the advice exemption would impinge upon the attorney-client privilege and disclose attorney-client confidences. Third, there is no basis for the Department’s reinterpretation of the advice exemption in either the text or legislative history of Section 203 of the LMRDA. Fourth, the proposed interpretation’s underlying policy of employer neutrality conflicts with statutory policy of robust debate expressed in the NLRA. Fifth, the Department’s proposed reinterpretation of the advice exemption is an unconstitutionally vague content-based regulation. Sixth, the frequency of reporting “persuader activity” should be evaluated not under the proposed, overly broad definition, but rather consistently with the current view of what is reportable “persuader activity,” that reflects more accurately the type of activity Congress had intended to regulate. To the extent the Department is concerned about underreporting of the types of activities Congress did intend to regulate, primarily middlemen surreptitiously acting as agents of the employer, the appropriate response is increased enforcement of the current regulation.

Each of these reasons independently constitutes a sufficient ground for the Department to decline adoption of the NPRM; each will be discussed in turn.

1. The Proposed Standard Fails to Distinguish Between “Advice” and “Persuader Activity” and Creates an Unworkable Standard That Would Result in Ambiguity and Uncertainty with Regard to Whether Many Lawful Legitimate and Appropriate Activities Must Be Reported.

The Department’s proposed standard for distinguishing between “advice” and “persuader activity” is impractical and would necessarily create uncertainty as to what is reportable activity. The current, long-established standard draws a clear, content-neutral distinction between “advice” and reportable “persuader activity.” However, the proposed new standard—whether “a particular consultant activity has among its purposes an object, direct or indirect, to persuade Comments Re: RIN 1215-AB79 and 1245-AA03 Page 3 September 21, 2011 employees” (76 Fed. Reg. at 36,191)—infuses subjectivity into the analysis, which would necessarily result in inconsistent and arbitrary outcomes.

Pursuant to the NPRM, communications are “persuasive” if they “explicitly or implicitly encourage employees to vote for or against union representation, to take a certain position with respect to collective bargaining proposals, or to refrain from concerted activity (such as a strike) in the workplace” (id. at 36,191). “Persuader activity” includes, for example, “[t]raining or directing supervisors and other management representatives to engage in persuader activity;” “creating employer policies and practices designed to prevent organizing;” and holding “seminars, webinars, or conferences” at which “guidance is offered to attendees, who represent multiple employers on labor-management relations matters, including how to persuade employees concerning their organizing and bargaining rights” (id.). However, supplying employers with training, guidance, and/or policies about the obligations of the NLRA and other labor relations issues is a legitimate and appropriate activity routinely offered by consultants and lawyers. Such activities are not the type of persuader activity Congress intended to regulate.

Under the Department’s new, proposed definition of “persuader activity,” many legitimate and appropriate activities by a lawyer or consultant—none of which are reportable under the current requirements—may constitute reportable activity. For example, are revising a client’s solicitation and distribution policy and supplying a client with a draft policy that restricts off-duty employee and/or union organizer access to property now reportable as they are, by definition, restrictions upon where, when and how a union may organize? Creating, revising and updating employer personnel and access policies are important to ensuring compliance with sometimes rapidly evolving legal standards applicable not only to the NLRA but to a host of other employment laws (see, e.g., New York New York Hotel & Casino, 356 NLRB No. 119 (Mar. 25, 2011)).

Colleges and universities are primarily concerned with educating students. Smaller institutions in particular cannot reasonably be expected to continuously monitor legal standards and draft policies compliant with NLRA regulations, as well as anti-discrimination, wage and hour, and other relevant regulations. Institutions of all sizes, therefore, routinely turn to lawyers and consultants for assistance. However, the NPRM’s sweeping definition of “persuader activity” may prevent these institutions from seeking and obtaining the guidance they need and give a lawyer pause before providing lawful and important advice to the client on significant issues. For example, in reviewing a client’s employee handbook to ensure policies are in compliance with anti-discrimination laws and regulations, a lawyer may notice the provisions that prohibit solicitation and distribution under certain circumstances are outdated and no longer comply with current law. The NPRM puts that lawyer in the untenable position of having to choose between turning a blind eye to the issue, which is clearly not in the client’s best interest, or running the risk of providing advice that may be reportable and creating myriad reporting obligations for the client, as well as the attorney.

These obligations include not only reporting the agreement or arrangement between the employer and lawyer or consultant, and the fees involved, but also an attorney’s obligation to report all fees charged to all labor relations clients. If a reportable incident has indeed occurred, and the attorney is required to file a Form LM-20, the Department and several courts have held Comments Re: RIN 1215-AB79 and 1245-AA03 Page 4 September 21, 2011 that the annual Form LM-21 filed by the attorney must include all receipts and disbursements from all of the consultant’s clients for whom he has rendered labor relations services and advice during the fiscal year. See LMRDA Interpretive Manual § 260.300; Douglas v. Wirtz, 353 F.2d 30 (4th Cir. 1965) (holding same); Price v. Wirtz, 412 F.2d 647 (5th Cir. 1969); Humphreys, Hutcheson and Moseley v. Donovan, 755 F.2d 1211(6th Cir 1985); Donovan v. Master Printer’s Ass’n, 532 F. Supp. 1140 (N.D. Ill. 1981), aff’d 69 F.2d 370 (7th Cir. 1983); but see also Donovan v. Rose Law Firm, 768 F.2d 964 (8th Cir. 1985) (holding that receipts or disbursements for otherwise exempt labor relations services and advice rendered do not need to be disclosed on the annual report). This includes providing receipts for activities which were otherwise exempt from reporting on an Form LM-20. (Id.)

The disclosure of fees paid by clients who are in no way involved with the reported “persuader activity” is a serious intrusion into the private and confidential affairs of “innocent persons who chanced to receive advice or services in the area of ‘labor relations', whatever that is, during the ‘fiscal year’, whenever that is, from an attorney who happened extracurricularly to engage in ‘persuader activities', whatever they are.” (Price, 412 F.2d at 652 (J. Dyer, dissenting).) Furthermore, although the Department asserts that the reporting and recordkeeping burden for each Form LM-20 will be 60 minutes (increased from 22 minutes under the current reporting requirements) (76 Fed. Reg. 36,200-36,201), the actual time incurred to complete a Form LM-20 would likely be significantly higher were the NPRM implemented, especially in light of the vagueness and uncertainty of the proposed standard (discussed infra in this section and in section 5 of these comments). Moreover, even if the Department’s time estimates with regard to the Form LM-20 are correct, the reporting burden on attorneys would increase substantially, as once a Form LM-20 is filed, an attorney must (as discussed supra) report on a Form LM-21 all receipts and disbursements from all other labor relations clients, potentially a massive undertaking depending on the size of the involved law firm or attorney practice. Under the proposed regime, not only would colleges and universities likely be reluctant to seek the advice they need, but lawyers and consultants would likely be reluctant to provide it.

The NPRM also fails to provide adequate guidance as to (a) when particular communications might be deemed “persuader activity;” (b) whether activities that may not be reportable during one phase of the union/employer relationship may be reportable during a different phase; and (c) the extent to which activities that implicitly or indirectly influence employees are reportable “persuader activities.” Specifically, it is not clear whether activities may be “persuasive” after the union has been certified or in the absence of any union organizing. For example, although clearly far beyond what Congress intended in the LMRDA, could a lawyer’s providing advice regarding the use of replacement workers during a strike constitute reportable “persuader activity” because the use of replacements may affect the employees’ decision to participate in the strike? Could it be reportable for a consultant or lawyer to advise its client on the process of decertification of a union or in response to a rumored employee decertification petition? Although there is, at best, a tenuous connection between such activities and the possibility of employee persuasion, these activities may, under the proposed reinterpretation, be considered indirect attempts to persuade. Comments Re: RIN 1215-AB79 and 1245-AA03 Page 5 September 21, 2011

Furthermore, the Department provides little guidance regarding the type of advice that falls within the collective bargaining exclusion set forth on the Form LM-20. For example, is it reportable for a consultant or lawyer to advise to its client as to how to communicate with employees about collective bargaining negotiations in response to a union’s collective bargaining proposals? If a lawyer provides advice in connection with negotiating a collective bargaining agreement that may directly or indirectly affect the ability of employees at another employer facility to organize, is that reportable? These few examples—while clearly not “persuader activity” within the meaning of the statute—illustrate how adoption of the NPRM would result in ambiguity, uncertainty, and arbitrary outcomes.

2. The Proposed Reinterpretation of the Advice Exemption and Standard for “Persuader Activity” Would Invade the Attorney-Client Privilege and Disclose Attorney-Client Confidences.

The proposed new definition of “advice” would supplant the well-established, bright-line rule that a lawyer who has no direct contact with any of the client’s rank-and-file employees need not report labor relations advice where the employer was free to accept or reject that advice. If under the proposed standard, a complaint is filed against an employer for failing to report “persuader activity” conducted by a lawyer, any ensuing Department investigation would undoubtedly lead to violations of the attorney-client privilege and confidences. In order to determine whether “a particular consultant activity has among its purposes an object, direct or indirect, to persuade employees” (76 Fed. Reg. at 36,191), thereby rendering it reportable, the Department would be required to thoroughly investigate not only the relationship between the lawyer and the client, but also the lawyer’s communications with the client. The client or its lawyer would likely be compelled to disclose the content of these privileged and confidential communications both to prove the nature and object of the communications and possibly defend themselves against any criminal prosecution brought pursuant to 29 U.S.C. § 439. From this fact-specific, case-by-case inquiry, the Department would be required to draw inferences as to the lawyer’s intent in providing the advice at issue. The possibility of such investigation and analysis is likely to inhibit free and candid communications between a client and attorney, and may impair many colleges and universities from obtaining the legal advice and representation that they need, effectively denying them their fundamental right to counsel.

Even in the absence of a complaint and investigation, the reporting requirements of section 203 would, under the proposed advice exemption, require attorneys to reveal attorney-client confidences. Pursuant to the NPRM, an attorney engaged in “persuader activity” must file a Form LM-20 “which may require information about the fact of the agreement with an employer involving persuader activity, the client’s identity, the fees involved and the scope and nature of the employment” (id.). According to the Department, although Section 204 of the LMRDA (29 U.S.C. § 434) exempts such an attorney from disclosing the content of communications protected by the attorney-client privilege (see 76 Fed. Reg. at 36,192), “the fact of legal consultation, clients’ identities, attorney’s fees and the scope and nature of the employment are not deemed privileged” (id.). Comments Re: RIN 1215-AB79 and 1245-AA03 Page 6 September 21, 2011

This reasoning is inconsistent with section 204 of the LMRDA, which exempts “any information which was lawfully communicated to such attorney by any of his clients in the course of a legitimate attorney-client relationship,” (29 U.S.C. § 434 (emphasis added)). There is no statutory basis for the Department’s proposed limitation of the phrase “any information” to only those communications protected by the attorney-client privilege, or, those “communications made in confidence between a client seeking legal counsel and an attorney.” (76 Fed. Reg. 36,192.) Although in Humphreys, Hutcheson and Moseley v. Donovan (755 F.2d 1211 (6th Cir. 1985)), cited in the NPRM, the Sixth Circuit found section 204 and the attorney-client privilege to be coextensive, the Court failed to give effect to the plain language of the statute, relying instead on inconclusive excerpts from the legislative history in reaching its holding. (See id. at 1216-19; cf. Connecticut Nat. Bank v. Germain, 503 U.S. 249, 254 (1992) (“When the words of a statute are unambiguous, then, this first canon [of construction] is also the last: ‘judicial inquiry is complete.’”)). The plain language of section 204 unambiguously exempts from reporting requirements “any information” communicated by the client during the representation, including the client’s identity, the terms and scope of engagement, and fees. Had Congress intended a narrower exemption, it would have exempted “confidential communications” or “communications protected by the attorney-client privilege” and not used the broad phrase “any information.” (See id. at 253-54 (reaffirming the well-established principle that “courts must presume that a legislature says in a statute what it means and means in a statute what it says there”).)

Furthermore, as previously discussed in section 1, an attorney involved in “persuader activity” on behalf of a client must not only report on the Form LM-21 all receipts and disbursements from that client (including for non-persuader advice and activity), but also all receipts and disbursements from all labor relations clients, thereby violating the confidences of innocent clients who are in no way involved with any persuader activity. Where an attorney reports one instance of persuader activity, a sort of “automatic discovery” is triggered, and he must reveal the identities and fees of other uninvolved clients. (Price, 412 F.2d at 654 (J. Dyer, dissenting).) It is difficult to see what interests are served by such disclosures, especially with respect to employers who have engaged attorneys or consultants for labor law advice that has nothing to do with persuader activity, or what might justify the government’s violation of the confidences of these “innocent” employers. (See Donovan, 768 F.2d at 975 (“In particular, we have difficulty perceiving the compelling governmental interest to be served by the reporting of all receipts and disbursements related to any labor relations advice given to or services performed for clients for whom a consultant has not performed any persuader activity.”).)

The NPRM also conflicts with the ABA Model Rule of Professional Conduct 1.6, titled “Confidentiality of Information,” a version of which can be found in virtually all state bar ethics rules.1 In the NPRM, the Department makes no mention of the rule, which prohibits lawyers

1 All 50 states and the District of Columbia have in force an ethical rule that tracks Model Rule 1.6. See Ala. Rules of Prof’l Conduct R. 1.6 (no exception for compliance with other law); Alaska Rules of Prof’l Conduct R. 1.6; Ariz. Rules of Prof’l Conduct R. 1.6; Ark. Rules of Prof’l Conduct R. 1.6; Cal. Bus. & Prof. Code § 6068(e); Colo. Rules of Prof’l Conduct R. 1.6; Conn. Rules of Prof’l Conduct R. 1.6; Del. Lawyers’ Rules of Prof’l Conduct R. 1.6; D.C. Rules of Prof’l Conduct R. 1.6; Fla. Rules of Prof’l Conduct R. 4-1.6 (no exception for compliance with Comments Re: RIN 1215-AB79 and 1245-AA03 Page 7 September 21, 2011 from “reveal[ing] information relating to the representation of a client,” including non-privileged information such as the identity of the client, the nature of the representation, and the amount of legal fees paid by the client to the lawyer (see Model Rules of Prof’l Conduct R. 1.6 cmt. 3 (“The confidentiality rule . . . applies not only to matters communicated in confidence by the client but also to all information relating to the representation, whatever its source.”) (emphasis added)). The import of this rule is made clear in the ABA’s comment: The requirement that a “lawyer must not reveal information relating to the representation … contributes to the trust that is the hallmark of the client-lawyer relationship.” (Id. at cmt. 2.)

The ABA model rule allows for disclosure of confidential client information “to comply with other law or a court order,” (id. at R. 1.6(b)(6)). However, the plain language of Section 204’s broad exemption of “any information which was lawfully communicated to such attorney by any of his clients in the course of a legitimate attorney-client relationship” suggests that Congress did not intend for the LMRDA to supersede the model rule, thereby requiring disclosure of non- privileged yet confidential client information. To the contrary, the plain language of section 204 more closely resembles the confidentiality rule’s protection of “all information relating to the representation” than the attorney-client privilege’s narrower protection of “confidential communications.” Thus, the NPRM could require attorneys to violate their state ethical duties.

3. There Is No Basis for the Department’s Reinterpretation of the Advice Exemption in Either the Text or Legislative History of Section 203 of the LMRDA.

Section 203(c) of the LMRDA, titled “Advisory or representative services exempt from filing requirements,” provides that:

Nothing in this section shall be construed to require any employer or other person to file a report covering the services of such person by reason of his giving or agreeing to give advice to such employer or agreeing to represent such employer[.]

(continued…) other law); Ga. Rules of Prof’l Conduct R. 1.6 (no exception for compliance with other law); Haw. Rules of Prof’l Conduct R. 1.6; Idaho Rules of Prof’l Conduct R. 1.6; Ill. Rules of Prof’l Conduct R. 1.6; Ind. Rules of Prof’l Conduct R. 1.6; Iowa Rules of Prof’l Conduct R. 32:1.6; Kan. Rules of Prof’l Conduct R. 1.6; Ky. Rules of Prof’l Conduct R. 1.6; La. Rules of Prof’l Conduct R. 1.6; Me. Rules of Prof’l Conduct R. 1.6; Md. Lawyer’s Rules of Prof’l Conduct R. 1.6; Mass. Rules of Prof’l Conduct R. 1.6; Mich. Rules of Prof’l Conduct R. 1.6; Minn. Rules of Prof’l Conduct R. 1.6; Miss. Rules of Prof’l Conduct R. 1.6; Mo. Rules of Prof’l Conduct R. 4-1.6; Mont. Rules of Prof’l conduct R. 1.6; Neb. Rules of Prof’l Conduct R. 3-501.6; Nev. Rules of Prof’l Conduct R. 1.6; N.H. Rules of Prof’l Conduct R. 1.6; N.J. Rules of Prof’l Conduct R. 1.6; N.M. Rules of Prof’l Conduct R. 16-106; N.Y. Rules of Prof’l Conduct R. 1.6; N.C. Rules of Prof’l Conduct R. 1.6; N.D. Rules of Prof’l Conduct R. 1.6; Ohio Rules of Prof’l Conduct R. 1.6; Okla. Rules of Prof’l Conduct R. 1.6; Or. Rules of Prof’l Conduct R. 1.6; Pa. Rules of Prof’l Conduct R. 1.6 (no exception for compliance with other law); R.I. Rules of Prof’l Conduct R. 1.6; S.C. Rules of Prof’l Conduct R. 1.6; S.D. Rules of Prof’l Conduct R. 1.6; Tenn. Rules of Prof’l Conduct R. 1.6; Tex. Disciplinary Rules of Prof’l Conduct R. 1.05; Utah Rules of Prof’l Conduct R. 1.6; Vt. Rules of Prof’l Conduct R. 1.6; Va. Rules of Prof’l Conduct R. 1.6; Wash. Rules of Prof’l Conduct R. 1.6 (no exception for compliance with other law); W.V. Rules of Prof’l Conduct R. 1.6 (no exception for compliance with other law); Wis. Rules of Prof’l Conduct SCR. 20:1.6; Wyo. Rules of Prof’l Conduct R. 1.6. Comments Re: RIN 1215-AB79 and 1245-AA03 Page 8 September 21, 2011

29 U.S.C. § 433(c).

This exemption, on its face, covers, without limitation, all “advisory or representative services,” including “giving or agreeing to give advice.” The term “advice” is no way qualified, however the proposed standard set forth in the NPRM rewrites the advice exemption by limiting the types of advice that are unreportable (see 76 Fed. Reg. at 36,191 (“A lawyer or other consultant who exclusively counsels employer representatives on what they may lawfully say to employees, ensures a client’s compliance with the law, or provides guidance on NLRB practice or precedent, is providing ‘advice.’”) (emphasis added)). There is no textual basis for such a limitation.

As the Department acknowledges, “‘[a]dvice’ ordinarily is understood to mean a recommendation regarding a decision or a course of conduct.” (76 Fed. Reg. at 36,183 (citations omitted).) The Department suggests that its current interpretation of ‘advice’ “does not provide the best analytical framework for ensuring necessary disclosure” because the “common construction of advice does not rely on the advisee’s acceptance or rejection of the guidance obtained from the advisor.” (Id.) However, the current interpretation relies not on whether an employer ultimately accepts or rejects the advice, but rather on whether the employer is free to accept or reject the advice. (UAW v. Dole (869 F.2d 616, 620 (D.C. Cir. 1989)), LMRDA Interpretative Manual § 265.005.) This freedom is inherent in the terms “advice” and “recommend,” defined “to present as worthy of acceptance” (Merriam-Webster’s Dictionary (online)). Any “advice” may be accepted or rejected by the recipient. The current interpretation of the term advice—which includes oral or written submissions to the employer that the employer is free to accept or reject, (LMRDA Interpretative Manual § 265.005)—is consistent with the plain text of the statute. As previously discussed, there is a well-established presumption “that a legislature says in a statute what it means and means in a statute what it says there[.]” (Connecticut Nat. Bank, 503 U.S. 253-54.)

By proposing a narrowed advice exemption, the Department necessarily proposes a broad, all- inclusive interpretation of “persuader activity” which essentially eviscerates the advice exemption. In UAW v. Dole (869 F.2d 616 (D.C. Cir. 1989)), the Court rejected a similarly broad interpretation of an analogous exemption found in Section 203(e) of the LMRDA, which provides that no employer shall “be required to file a report covering expenses made to any regular officer, supervisor, or employee of an employer as compensation for service as a regular officer, supervisor, or employee of such employer” (29 U.S.C. § 433(e)). Writing for the panel, Justice Ginsburg rejected the district court’s view that “all persuader activities in which supervisors engage, even entirely lawful activities, must be reported, because section 203(e) ‘exempts from the reporting requirement only compensation for regular services, not for persuader activities.’” Such an interpretation, the Court opined, “appears to have no office. The LMRDA’s domain is persuader activities. No exemption is needed for activities that fall outside the Act’s domain.” (Id.)

The Department’s reinterpretation of Section 203(c) is equally unavailing. According to the Department, the proposed reinterpretation of the advice exemption encompasses counseling “employer representatives on what they may lawfully say to employees, ensur[ing] a client’s compliance with the law, … provid[ing] guidance on NLRB practice or precedent[,]” “representing the layers before any court, administrative agency, or tribunal of arbitration” and Comments Re: RIN 1215-AB79 and 1245-AA03 Page 9 September 21, 2011

“engaging in collective bargaining on the employer’s behalf[.]” (76 Fed. Reg. at 36,191, 36,192). However, because these activities are not “persuader activities,” they fall outside the LMRDA’s domain; no exemption is necessary as they are already excluded from the LMRDA’s reporting requirements. But, by definition, the advice exemption must exclude from the statute’s reporting requirements “certain activity that otherwise would have been reportable” persuader activity (Dole, 869 F.2d at 618). In particular, where the activity “might be characterized both as advice to an employer and as persuasion of employees” (id.), the exemption must control. Were this not the case, the advice exemption would, in effect, be a nullity. It cannot be read to apply solely to a lawyer’s provision of advice to the client, as such a reading would render the exemption duplicative of and encompassed by section 204 of the LMRDA which, according to the Department, “exempts attorney-client communications from reporting[.]” (76 Fed. Reg. 36,179; see 29 U.S.C. § 434.)

In the Department’s view, “a lawyer or consultant’s preparation of persuasive material to be disseminated or distributed to employees” is an example of “quintessential persuader activity” which, the Department maintains, is the kind of “advice” that should be reportable. (Id. at 36,183). But the Department fails to explain how the preparation of such material “is itself more than a recommendation regarding a course of conduct in the ordinary sense” (76 Fed. Reg. 36,183), particularly where an employer is free to accept or reject the advice by, for example, adopting and distributing the materials on its own behalf or discarding the materials. (See Dole, 869 F.2d at 619, n.4, suggesting that “scripting an employer’s anti-union campaign could constitute “advice,” and noting that “the term ‘advice,’ in lawyer’s parlance, may encompass, e.g., the preparation of a client’s answers to interrogatories, the scripting of a closing or an annual meeting[.]”) Only by imposing a content-specific limitation that has no basis in the text of section 204 is the Department able to transform previously exempt “advice” into “persuader activity” that must be reported.

The Department’s proposed reinterpretation of the advice exemption is also contrary to its legislative history, which the D.C. Circuit found expresses an intent “to grant a broad scope to the term ‘advice’” (id. 618, see also H.R. Conf. Rep. No. 86-1147, at 33 (1959), reprinted in 1 NATIONAL LABOR RELATIONS BOARD,LEGISLATIVE HISTORY OF THE LABOR-MANAGEMENT REPORTING AND DISCLOSURE ACT 937 (“Subsection (c) of section 203 of the conference substitute grants a broad exemption from the requirements of the section with respect to the giving of advice.”) (emphasis added)). As recognized by the Department, section 203 of the LMRDA is aimed at preventing employee deception,2 and exposing consultants acting as clandestine “agents of management” or undercover “middlemen” between management and employees (S. Rep. No. 86-187, at 10 (1959) reprinted in 1 NATIONAL LABOR RELATIONS BOARD,LEGISLATIVE HISTORY OF THE LABOR-MANAGEMENT REPORTING AND DISCLOSURE ACT 406)).

2 In the NPRM, the Department recognizes Congress’s concern about “deceptive consultant activity” including inducing employees “to form or join company unions through such deceptive devices as ‘spontaneous’ employee committees, essentially fronts for the employer’s anti-union activity.” (see 76 Fed. Reg. at 36,184.) Comments Re: RIN 1215-AB79 and 1245-AA03 Page 10 September 21, 2011

The current interpretation of the “advice” exemption, which includes oral or written submissions to the employer that the employer is free to accept or reject, (LMRDA Interpretative Manual § 265.005), is consistent with the history and purpose of the reporting requirement. Where the employer accepts advice and applies it on its own behalf, it adopts that advice as its own and itself delivers the message recommended by or embodied in the advice. This is not the type of conduct that Congress intended to regulate. Rather, “a prime congressional concern to uncover employer-expenditures for anti-union persuasion carried out, often surreptitiously, not by employers or supervisors, but by consultants or middlemen.” Dole, 869 F.2d at n.5 (citing e.g., S. Rep. No. 86-187, at 10 (1959), reprinted in 1 NATIONAL LABOR RELATIONS BOARD, LEGISLATIVE HISTORY OF THE LABOR-MANAGEMENT REPORTING AND DISCLOSURE ACT 406-07.) Where a consultant or middleman undertakes activities meant to directly or indirectly persuade employees through direct contact with rank-and-file employees, those employees may not be aware that the source of the message being delivered to them is their employer. It is these middlemen acting, unbeknownst to employees, “as agents of management” with whom Congress was concerned when it enacted section 203. (S. Rep. No. 86-187, at 10, reprinted in 1 NATIONAL LABOR RELATIONS BOARD,LEGISLATIVE HISTORY OF THE LABOR-MANAGEMENT REPORTING AND DISCLOSURE ACT 406.) (Compare 29 U.S.C. § 433(a)(2) (no requirement to report payments made to employees to persuade other employees if the payments were disclosed to the other employees); id. § 433(e) (no requirement to report “expenditures made to any regular officer, supervisor, or employee of an employer as compensation for service as a regular officer, supervisor, or employee of such employer”).) The purpose of the LMRDA makes clear reporting is not required in instances where a labor relations consultant is not interacting directly with employees as a middleman for the employer.

The NPRM goes beyond the intended purpose of section 203’s reporting requirement by asserting employees have a general right “to know whether employers are using consultants to run anti-union campaigns” or to know “the underlying source of the information directed at them” (76 Fed. Reg. at 36,190). The legislative history confirms that Congress was concerned with employee deception, not whether their employer had consulted with a labor relations consultant or lawyer. The Department reasons that the disclosure of an employer’s arrangement with a consultant or lawyer would help employees “better evaluate the merits of the employer’s views,” and better position them to “make choices regarding their protected rights.” (76 Fed. Reg. 36,187.) However difficult it is to see how knowledge that their employer consulted with a labor relations consultant or lawyer affects employees’ section 7 rights,3 such a legislative judgment is in the province of Congress and not the Department.

3 The Department’s comparison of the LMRDA’s disclosure provisions to disclosure provisions under Federal election campaign law, as discussed in Buckley v. Valeo, 424 U.S. 1, 66-67 (1976), is weakened by the proposed narrowing of the advice exemption. The purpose of Federal campaign disclosure is “to provide the electorate with information as to where political campaign money comes from and how it is spent by the candidates” as well as to “alert the voter to the interests to which a candidate is most likely to be responsive and thus facilitate predictions of future performance in office.” (Id. (citation and quotations omitted).) Similarly, where a middleman acting as agent of the employer has direct contact with employees, requiring disclosure of “persuader activities” will ensure that employees understand on whose behalf the middleman is acting and the true source of the message being relayed. However, the analogy is strained as to disclosure of instances where the labor consultant or attorney does not interact with employees. When the message being delivered is delivered by the employer on its own behalf, Comments Re: RIN 1215-AB79 and 1245-AA03 Page 11 September 21, 2011

4. The Proposed Interpretation’s Underlying Policy of Employer Neutrality Conflicts With Statutory Policy of Robust Debate Expressed in the NLRA.

In the NPRM, the Department explains that communications are “persuasive” if they explicitly or implicitly encourage employees to vote for or against union representation, to take a certain position with respect to collective bargaining proposals, or refrain from concerted activity (such as a strike) in the workplace.” (76 Fed. Reg. 36,191). By requiring disclosure of such activities, the Department intends to eliminate the supposed “deleterious effect of labor consultant activity on industrial relations” (76 Fed. Reg. 36,190). But the speech the Department proposes to regulate is affirmatively encouraged by federal labor policy and expressly protected by section 8(c) of the NLRA, 29 U.S.C. § 158(c). The enactment of this section “manifested a ‘congressional intent to encourage free debate on issues dividing labor and management.’” (Chamber of Commerce, 554 U.S. at 67 (quoting Linn v. Plant Guard Workers, 383 U.S. 53, 62 (1966).) The policy expressed in section 8(c) “suffuses the NLRA as a whole,” and favors “uninhibited, robust, and wide-open debate in labor disputes[.]” (Id. at 68 (quoting Letter Carriers v. Austin, 418 U.S. 264, 273-274 (1974).) Section 203(f) of the LMRDA expressly preserves this policy, providing that “[n]othing contained in this section shall be construed as an amendment to or modification of the rights protected by section 8(c) of the [NLRA.]” 29 U.S.C. § 433(f). If adopted, the NPRM would impermissibly stand “as an obstacle to the accomplishment and execution of the full purposes and objectives of the NLRA.” (Chamber of Commerce v. Brown, 554 U.S. 60, 73 (2008) (citations and quotations omitted).)

As originally enacted, the NLRA, or Wagner Act, did not include a provision addressing employer speech rights. (See Chamber of Commerce, 554 U.S. at 66.) In litigating allegations that an employer’s persuasive activities constituted unfair labor practices under the NLRA, the NLRB took the position that the statute “demanded complete employer neutrality during organizing campaigns, reasoning that any partisan employer speech about unions would interfere with the § 7 rights of employees” (id. at 66; see, e.g., Letz Mfg. Co., 32 NLRB 563 (1941)). In NLRB v. Virginia Electric & Power Co. (314 U.S. 469 (1941)), the Supreme Court rejected that position, holding that the NLRA does not prohibit an employer “from expressing its views on labor policies or problems” unless the speech amounts “to coercion within the meaning of the Act” (id. at 477). There, the Court recognized “the First Amendment right of employers to engage in noncoercive speech about unionization” (Chamber of Commerce, 554 U.S. at 67). Notwithstanding Virginia Electric and its progeny, “the NLRB continued to regulate employer speech too restrictively in the eyes of Congress” (id.).

In order to ensure “free debate,” “Congress amended the NLRA rather than leaving to the courts the task of correcting the NLRB’s decisions on a case-by-case basis” (id. at 67-68). Congress

(continued…) there is no danger that the employees are being deceived with regard to the interests of the messenger or the risk that the messenger is somehow beholden to an undisclosed interest. The interests of the labor consultant or attorney in this latter scenario are irrelevant since they exercise no power over the employee. Comments Re: RIN 1215-AB79 and 1245-AA03 Page 12 September 21, 2011 enacted the Taft-Hartley Act out of a “[c]oncern[] that the Wagner Act had pushed the labor relations balance too far in favor of unions” (id.). In particular, Congress added Section 8(c) to the NLRA for the purpose of ensuring that employers have “full freedom to express their views to employees on labor matters” (S. Rep. No. 80-105, at 23-24 (1947) (emphasis added)). Specifically, under section 8(c), an employer is free to express non-coercively its views of a particular union or the merits of a particular union’s organizing campaign or bargaining objectives. NLRB v. Gissel Packing Co., 395 U.S. 575, 617 (1969)). Accordingly, Section 8(c) constitutes an “explicit direction from Congress to leave noncoercive speech unregulated” in order to effectuate employees’ Section 7 right “to receive information opposing unionization” (Chamber of Commerce, 554 U.S. at 68.). By attempting to regulate non-coercive employer speech, the NPRM advances “the same policy judgment that the NLRB advanced under the Wagner Act, and that Congress renounced in the Taft-Hartley Act” (Chamber of Commerce, 554 U.S. at 69).

Little, if any, consideration appears to have been given to the chilling effect the NPRM would likely have on employer free speech or the resulting effect on employees’ section 7 rights. The Department infers, then emphasizes, a congressional intent that “employees be permitted to know whether employers are using consultants to run anti-union campaigns or otherwise engage in persuader activities.” (76 Fed. Reg. 36,190.) According to the Department, such information assists employees “in developing independent and well-informed conclusions regarding union representation.” (Id.) However, the NPRM does not address its affect on an employee’s “right to receive information opposing unionization.” (Chamber of Commerce, 554 U.S. at 68.) If the NPRM is adopted, it seems likely that some consultants or lawyers will decline to give advice out of fear of triggering a reporting obligation, especially given the Department’s position that the scope of the reporting obligation extends to all labor relations advice or services, not just persuader activities (see LMRDA Interpretative Manual § 260.300). Such decisions may result in significantly fewer employers choosing to take part in the “free debate” that Congress and the Supreme Court have found to be crucial to ensuring a well-informed union electorate.

Colleges and universities strive to preserve peace on campus and maintain a positive learning environment for students. In furtherance of such efforts, many educational institutions may choose not to oppose union organizing. However, those who may wish to exercise their statutorily protected right to speak to employees may feel compelled to refrain from doing so, resulting in employees being less informed about the important choice they face. Although the NPRM does allow for minimal, unregulated employer counseling regarding what they may lawfully say to employees (see 76 Fed. Reg. at 36,182), it is unreasonable to expect employers such as colleges and universities will be able to translate such advice into lawful action in response to labor relations matters, including a union organizing campaign. Colleges and universities are focused on educating students, and many need training and guidance on how to effectively communicate their views about unionization. If the NPRM is adopted, consultants and lawyers may be reluctant to provide clients with guidance regarding policies or training, and, as a result, colleges and universities may be reluctant to communicate any views or information in response to an organizing campaign. Not only would their neutrality frustrate federal labor policy, but it would deprive employees of their only opportunity to discover their employer’s views on unionization generally, the particular union or unions involved in organizing, and the Comments Re: RIN 1215-AB79 and 1245-AA03 Page 13 September 21, 2011 reasons for these views. Colleges and universities, as marketplaces of ideas, are particularly sensitive to such inhibition of expression.

5. The Department’s Proposed Reinterpretation of the Advice Exemption Is an Unconstitutionally Vague Content-Based Regulation.

The First Amendment protects the right “to discuss, and inform people concerning, the advantages and disadvantages of unions and joining them” (Thomas v. Collins, 323 U.S. 516, 532 (1945)). Indeed, “employers’ attempts to persuade to action with respect to joining or not joining unions are within the First Amendment’s guaranty.” (Id. at 537.) The Department’s proposed reinterpretations of the advice exemption and persuader activity infringe these First Amendment freedoms because they are unconstitutionally vague.

“It is a basic principle of due process that an enactment is void for vagueness if its prohibitions are not clearly defined.” (Grayned v. City of Rockford, 408 U.S. 104, 108 (1972).) In Grayned, the Supreme Court articulated the several vices of vague laws, including their failure to provide fair warning to the public with regard to what is prohibited and guidance to those who enforce the laws, posing a risk of arbitrary outcomes. (Id.) Relatedly, “where a vague statute abut(s) upon sensitive areas of basic First Amendment freedoms, it operates to inhibit the exercise of (those) freedoms. Uncertain meanings inevitably lead citizens to steer far wider of the unlawful zone … than if the boundaries of the forbidden areas were clearly marked.” (Id. (footnotes and quotations omitted).) Problems of vagueness are “particularly treacherous where, as here, the violation . . . carries criminal penalties and fear of incurring these sanctions may deter those who seek to exercise protected First Amendment rights” (Buckley v. Valeo, 424 U.S. 1, 76-77 (1976); see 29 U.S.C. § 439 (providing for criminal penalties for willful violations of Section 203)). Accordingly, in such circumstances “an even greater degree of specificity is required” (Buckley, 424 U.S. at 77).

The Department’s proposed definition of “persuader activity” (76 Fed. Reg. at 36,192) as communications that “in whole or in part, have the object directly or indirectly to persuade employees concerning their rights to organize or bargain collectively,” is, we believe, unconstitutionally vague. See Buckley, 424 U.S. 76-82 (narrowly construing an analogous disclosure law applicable to expenditures spent “for the purpose of influencing” an election in order to avoid unconstitutional vagueness). In Thomas v. Collins (323 U.S. 516 (1945)), the Supreme Court elaborated on the practical effect of an unconstitutionally vague statute restricting speech. There, the Court struck down a Texas law that required labor organizers to apply for an organizer’s card “before soliciting any members for his organization” (id. at 519 n.1). The Court found that there was “no doubt” that the statute restricted free speech and addressed the statute’s vague use of the term “solicit”:

understanding of his hearers and consequently of whatever inference may be drawn as to his intent and meaning. Such a distinction offers no security for free discussion. In these conditions it blankets with uncertainty whatever may be said. It compels the speaker to hedge and trim. He must take care in every word to create no impression that he means, in advocating unionism’s most central principle, namely, that workingmen should unite for collective bargaining, to urge those present to do so. The vice is not merely that invitation, in the circumstances shown here, is speech. It is also that its prohibition forbids or restrains discussion which is not or may not be invitation. The sharp line cannot be drawn surely or securely.

(Id. at 535.)

Here, as in Thomas, there is no meaningful distinction between those communications that have a direct or indirect objective to persuade employees and those that do not. Under the NPRM’s reinterpretation of “persuader activity,” the speaker is “wholly at the mercy of the varied understanding of his hearers and consequently of whatever inference may be drawn as to his intent and meaning;” no speaker “safely could assume that anything he might say upon the general subject would not be understood by some as” persuasion (id.). As a result, the speaker must unconstitutionally “hedge and trim” his speech. (Id.). And because the LMRDA “carries criminal penalties and fear of incurring these sanctions may deter those who seek to exercise protected First Amendment rights[,]” the vagueness of the distinction at issue is of significant consequence, and the Department is required to draw a sharper distinction than the one proposed (Buckley, 424 U.S. at 76-77; see 29 U.S.C. § 439 (providing for criminal penalties for willful violations of Section 203)). In order “to avoid the shoals of vagueness” “where the constitutional requirement of definitiveness is at stake,” a statute must be interpreted consistently with the legislature’s purpose in enacting the statute. (Buckley, 424 U.S. at 78.) As previously discussed, the Department’s overly broad definition of persuader activity is inconsistent with legislative purpose in enacting section 203 of the LMRDA.

In addition to being unconstitutionally vague, the Department’s proposed reinterpretation of the advice exemption is contrary to well-settled law that under the First Amendment, the government is prohibited from drawing a distinction between permissible and impermissible protected speech based on its message, content or subject matter. (See Simon & Schuster, Inc. v. Members of the New York State Crime Victims Bd., 502 U.S. 105, 115-16 (1991).) Because “the government’s ability to place content-based burdens on speech raises the specter that the government may effectively drive certain ideas or viewpoints from the marketplace[,] … [t]he First Amendment presumptively places this sort of discrimination beyond the power of the government” (id. at 116.). (See, e.g., Police Department of the City of Chicago v. Mosley 408 U.S. 92, 95 (1972) (striking down ordinance restricting picketing “based on the message on a picket sign”); Carey v. Brown, 447 U.S. 455, (1980) (unconstitutional for government to use “the content of the speech” to determine “whether it is within or without” government regulation); Regan v. Time, Inc., 468 U.S. 641, 648-49 (1984) (“Regulations which permit the Government to discriminate on the basis of the content of the message cannot be tolerated under the First Amendment.”).) “Any restriction on expressive activity because of its content would completely undercut the profound Comments Re: RIN 1215-AB79 and 1245-AA03 Page 15 September 21, 2011 national commitment to the principle that debate on public issues should be uninhibited, robust, and wide-open” (Mosley, 408 U.S. at 96).

The policy that underlies section 8(c) of the NLRA encourages the type of “uninhibited, robust, and wide-open” debate that is protected from unconstitutional content-based restriction by the government, and the Department’s reinterpretation of the advice exemption impermissibly encroaches upon the freedom of that debate. The proposed new instructions to Form LM-20 provide that “advice” “means an oral or written recommendation regarding a decision or course of conduct” unless the recommendation “in whole or in part” has “the object directly or indirectly to persuade employees concerning their rights to organize or bargain collectively,” in which case the recommendation somehow ceases to be a “recommendation” and becomes “persuader activity” (76 Fed. Reg. at 36,182). This instruction imposes a content or subject matter distinction on protected speech, singling out certain types of advice for unfavorable treatment based solely on the message contained therein. Such content-based discrimination is prohibited by the Constitution.

Institutions of higher education are especially sensitive to the strictures that would be imposed by the NPRM. As noted above, not only is non-coercive communication between employers and employees precisely the type of free speech encouraged by section 8(c) of the NLRA, but colleges and universities have a particular obligation to ensure that academic freedom as well as freedom of expression are protected for all members of the campus community. As the Supreme Court has long recognized, “[t]he vigilant protection of constitutional freedoms is nowhere more vital than in the community of American schools.” Shelton v. Tucker, 364 U.S. 479, 487 (1960). To impose vague, content-based regulation on such communication necessarily would chill employers’ right to free speech, thereby limiting the information available to employees. This is contrary to what should happen—indeed, contrary to what should be encouraged—on college and university campuses. They are after all, a “market place of ideas,” Healy v. James, 408 U.S. 169, 180 (1972).

6. The Department Has Not Demonstrated Underreporting or any Other Justification for Narrowing the Advice Exemption.

In the NPRM, the Department asserts that “the clarification of the distinction between advice and persuader activity is intended to correct” an underreporting problem with regard to persuader activity. From 2005 to 2009, the Department expected that 2,601 Form LM-20s would be filed; however it received an average of 192.4 LM-20s annually, only 7.4 percent of those expected (id. at 36,186). Based on these statistics, the Department concludes that “only a small fraction of the organizing campaigns in which consultants were utilized resulted in the filing of a Form LM-20” (id.). This conclusion assumes that “only a small proportion of persuader consulting activity is reported[.]” (Id.). However, this assumption is inconsistent with the plain meaning of the statute, and is instead based on the Department’s proposed sweeping reinterpretation of “advice.” As previously stated, the purpose of section 203’s disclosure requirements is to reveal the middlemen acting surreptitiously on behalf of employers, not to create a general rule that requires reporting each time a consultant or lawyer is retained to engage in “indirect persuader Comments Re: RIN 1215-AB79 and 1245-AA03 Page 16 September 21, 2011 activity by directing their activities to the employer’s supervisors” (id. at 36,187). That is not the type of activity Congress intended to be regulated.

If the Department is concerned about underreporting of the types of activities Congress did intend to regulate—primarily middlemen surreptitiously acting as agents of the employer—the appropriate response is increased enforcement of the current regulation. Rather than imposing wholesale changes to the well-established, content-neutral interpretation of the advice exemption, which is consistent with the plain meaning and legislative purpose of the statute as well as the protections afforded to confidential client information, the Department should increase enforcement efforts under existing law and regulations. ACE submits that until the Department attempts to use the enforcement tools at its disposal, and those tools prove to be insufficient to increase the incidence of reporting, there is little justification to narrow the advice exemption to remedy the alleged underreporting problem.

For all of the foregoing reasons, ACE requests that the Department decline to adopt the NPRM.

Sincerely,

Ada Meloy General Counsel

AM/mjm

On behalf of:

American Council on Education Association of American Universities College and University Professional Association for Human Resources National Association of Independent Colleges and Universities Tab 16 OFFICE OF THE GENERAL COUNSEL Division of Operations-Management

MEMORANDUM OM 12-59 May 30, 2012

TO: All Regional Directors, Officers-in-Charge and Resident Officers

FROM: Anne Purcell, Associate General Counsel

SUBJECT: Report of the Acting General Counsel Concerning Social Media Cases

Attached is an updated report from the Acting General Counsel concerning recent social media cases.

/s/ A. P.

Attachment cc: NLRBU Release to the Public

MEMORANDUM OM 12-59

REPORT OF THE GENERAL COUNSEL In August 2011 and in January 2012, I issued reports presenting case developments arising in the context of today’s social media. Employee use of social media as it relates to the workplace continues to increase, raising various concerns by employers, and in turn, resulting in employers’ drafting new and/or revising existing policies and rules to address these concerns. These policies and rules cover such topics as the use of social media and electronic technologies, confidentiality, privacy, protection of employer information, intellectual property, and contact with the media and government agencies. My previous reports touched on some of these policies and rules, and they are the sole focus of this report, which discusses seven recent cases. In the first six cases, I have concluded that at least some of the provisions in the employers’ policies and rules are overbroad and thus unlawful under the National Labor Relations Act. In the last case, I have concluded that the entire social media policy, as revised, is lawful under the Act, and I have attached this complete policy. I hope that this report, with its specific examples of various employer policies and rules, will provide additional guidance in this area.

______/s/______Lafe E. Solomon Acting General Counsel

Rules on Using Social Media Technology and on Communicating Confidential Information Are Overbroad

In this case, we addressed the Employer’s rules governing the use of social media and the communication of confidential information. We found these rules unlawful as they would reasonably be construed to chill the exercise of Section 7 rights in violation of the Act.

As explained in my previous reports, an employer violates Section 8(a)(1) of the Act through the maintenance of a work rule if that rule “would reasonably tend to chill employees in the exercise of their Section 7 rights.” Lafayette Park Hotel, 326 NLRB 824, 825 (1998), enfd. 203 F.3d 52 (D.C. Cir. 1999). The Board uses a two-step inquiry to determine if a work rule would have such an effect. Lutheran Heritage Village–Livonia, 343 NLRB 646, 647 (2004). First, a rule is clearly unlawful if it explicitly restricts Section 7 protected activities. If the rule does not explicitly restrict protected activities, it will only violate Section 8(a)(1) upon a showing that:(1) employees would reasonably construe the language to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of Section 7 rights.

Rules that are ambiguous as to their application to Section 7 activity, and contain no limiting language or context that would clarify to employees that the rule does not restrict Section 7 rights, are unlawful. See University Medical Center, 335 NLRB 1318, 1320-1322 (2001), enf. denied in pertinent part 335 F.3d 1079 (D.C. Cir. 2003). In contrast, rules that clarify and restrict their scope by including examples of clearly illegal or unprotected conduct, such that they would not reasonably be construed to cover protected activity, are not unlawful. See Tradesmen International, 338 NLRB 460, 460-462 (2002).

The Employer in this case operates retail stores nationwide. Its social media policy, set forth in a section of its handbook titled “Information Security,” provides in relevant part:

Use technology appropriately * * * * * If you enjoy blogging or using online social networking sites such as Facebook and YouTube, (otherwise known as Consumer Generated Media, or CGM) please note that there are guidelines to follow if you plan to mention [Employer] or your employment with [Employer] in these online vehicles. . .

3 x Don’t release confidential guest, team member or company information. . . .

We found this section of the handbook to be unlawful. Its instruction that employees not “release confidential guest, team member or company information” would reasonably be interpreted as prohibiting employees from discussing and disclosing information regarding their own conditions of employment, as well as the conditions of employment of employees other than themselves--activities that are clearly protected by Section 7. The Board has long recognized that employees have a right to discuss wages and conditions of employment with third parties as well as each other and that rules prohibiting the communication of confidential information without exempting Section 7 activity inhibit this right because employees would reasonably interpret such prohibitions to include information concerning terms and conditions of employment. See, e.g., Cintas Corp., 344 NLRB 943, 943 (2005), enfd. 482 F.3d 463 (D.C. Cir. 2007).

The next section of the handbook we addressed provides as follows:

Communicating confidential information

You also need to protect confidential information when you communicate it. Here are some examples of rules that you need to follow:

x Make sure someone needs to know. You should never share confidential information with another team member unless they have a need to know the information to do their job. If you need to share confidential information with someone outside the company, confirm there is proper authorization to do so. If you are unsure, talk to your supervisor. x Develop a healthy suspicion. Don’t let anyone trick you into disclosing confidential information. Be suspicious if asked to ignore identification procedures. x Watch what you say. Don’t have conversations regarding confidential information in the Breakroom or in any other open area. Never discuss confidential information at home or in public areas.

Unauthorized access to confidential information: If you believe there may have been unauthorized access to confidential information or that confidential information may have been misused, it is your responsibility to report that information. . . .

We’re serious about the appropriate use, storage and communication of confidential information. A violation of [Employer] policies regarding confidential

4 information will result in corrective action, up to and including termination. You also may be subject to legal action, including criminal prosecution. The company also reserves the right to take any other action it believes is appropriate.

We found some of this section to be unlawful. Initially, we decided that the provisions instructing employees not to share confidential information with co- workers unless they need the information to do their job, and not to have discussions regarding confidential information in the breakroom, at home, or in open areas and public places are overbroad. Employees would construe these provisions as prohibiting them from discussing information regarding their terms and conditions of employment. Indeed, the rules explicitly prohibit employees from having such discussions in the breakroom, at home, or in public places-- virtually everywhere such discussions are most likely to occur.

We also found unlawful the provisions that threaten employees with discharge or criminal prosecution for failing to report unauthorized access to or misuse of confidential information. Those provisions would be construed as requiring employees to report a breach of the rules governing the communication of confidential information set forth above. Since we found those rules unlawful, the reporting requirement is likewise unlawful.

We did not, however, find unlawful that portion of the handbook section that admonishes employees to “[d]evelop a healthy suspicion[,]” cautions against being tricked into disclosing confidential information, and urges employees to “[b]e suspicious if asked to ignore identification procedures.” Although this section also refers to confidential information, it merely advises employees to be cautious about unwittingly divulging such information and does not proscribe any particular communications. Further, when the Employer rescinds the offending “confidentiality” provisions, this section would not reasonably be construed to apply to Section 7 activities, particularly since it specifically ties confidential information to “identification procedures.” [Target Corp., Case 29-CA- 030713]

Several Policy Provisions Are Overbroad, Including Those on ‘Non-Public Information’ and ‘Friending Co-Workers’

In this case, we again found that certain portions of the Employer’s policy governing the use of social media would reasonably be construed to chill the exercise of Section 7 rights in violation of the Act.

5 The Employer--a motor vehicle manufacturer--maintains a social media policy that includes the following:

USE GOOD JUDGMENT ABOUT WHAT YOU SHARE AND HOW YOU SHARE If you engage in a discussion related to [Employer], in addition to disclosing that you work for [Employer] and that your views are personal, you must also be sure that your posts are completely accurate and not misleading and that they do not reveal non-public company information on any public site. If you are in doubt, review the [Employer’s media] site. If you are still in doubt, don’t post. Non-public information includes: x Any topic related to the financial performance of the company; x Information directly or indirectly related to the safety performance of [Employer] systems or components for vehicles; x [Employer] Secret, Confidential or Attorney-Client Privileged information; x Information that has not already been disclosed by authorized persons in a public forum; and x Personal information about another [Employer] employee, such as his or her medical condition, performance, compensation or status in the company. When in doubt about whether the information you are considering sharing falls into one of the above categories, DO NOT POST. Check with [Employer] Communications or [Employer] Legal to see if it’s a good idea. Failure to stay within these guidelines may lead to disciplinary action. x Respect proprietary information and content, confidentiality, and the brand, trademark and copyright rights of others. Always cite, and obtain permission, when quoting someone else. Make sure that any photos, music, video or other content you are sharing is legally sharable or that you have the owner’s permission. If you are unsure, you should not use. x Get permission before posting photos, video, quotes or personal information of anyone other than you online. x Do not incorporate [Employer] logos, trademarks or other assets in your posts.

We found various provisions in the above section to be unlawful. Initially, employees are instructed to be sure that their posts are “completely accurate and not misleading and that they do not reveal non-public information on any public site.” The term “completely accurate and not misleading” is overbroad because it would reasonably be interpreted to apply to discussions about, or criticism of,

6 the Employer’s labor policies and its treatment of employees that would be protected by the Act so long as they are not maliciously false. Moreover, the policy does not provide any guidance as to the meaning of this term by specific examples or limit the term in any way that would exclude Section 7 activity.

We further found unlawful the portion of this provision that instructs employees not to “reveal non- public company information on any public site” and then explains that non- public information encompasses “[a]ny topic related to the financial performance of the company”; “[i]nformation that has not already been disclosed by authorized persons in a public forum”; and “[p]ersonal information about another [Employer] employee, such as . . . performance, compensation or status in the company.” Because this explanation specifically encompasses topics related to Section 7 activities, employees would reasonably construe the policy as precluding them from discussing terms and conditions of employment among themselves or with non-employees.

The section of the policy that cautions employees that “[w]hen in doubt about whether the information you are considering sharing falls into one of the [prohibited] categories, DO NOT POST. Check with [Employer] Communications or [Employer] Legal to see if it’s a good idea[,]” is also unlawful. The Board has long held that any rule that requires employees to secure permission from an employer as a precondition to engaging in Section 7 activities violates the Act. See Brunswick Corp.,282 NLRB 794, 794-795 (1987).

The Employer’s policy also unlawfully prohibits employees from posting photos, music, videos, and the quotes and personal information of others without obtaining the owner’s permission and ensuring that the content can be legally shared, and from using the Employer’s logos and trademarks. Thus, in the absence of any further explanation, employees would reasonably interpret these provisions as proscribing the use of photos and videos of employees engaging in Section 7 activities, including photos of picket signs containing the Employer’s logo. Although the Employer has a proprietary interest in its trademarks, including its logo if trademarked, we found that employees’ non-commercial use of the Employer’s logo or trademarks while engaging in Section 7 activities would not infringe on that interest.

We found lawful, however, this section’s bulleted prohibitions on discussing information related to the “safety performance of [Employer] systems or components for vehicles” and “Secret, Confidential or Attorney-Client Privileged information.” Neither of these provisions refers to employees, and employees would reasonably read the safety

7 provision as applying to the safety performance of the Employer’s automobile systems and components, not to the safety of the workplace. The provision addressing secret, confidential, or attorney-client privileged information is clearly intended to protect the Employer’s legitimate interest in safeguarding its confidential proprietary and privileged information.

We also looked at the following provisions:

TREAT EVERYONE WITH RESPECT Offensive, demeaning, abusive or inappropriate remarks are as out of place online as they are offline, even if they are unintentional. We expect you to abide by the same standards of behavior both in the workplace and in your social media communications.

OTHER [EMPLOYER] POLICIES THAT APPLY Think carefully about ‘friending’ co-workers . . . on external social media sites. Communications with co- workers on such sites that would be inappropriate in the workplace are also inappropriate online, and what you say in your personal social media channels could become a concern in the workplace.

[Employer], like other employers, is making internal social media tools available to share workplace information within [Employer]. All employees and representatives who use these social media tools must also adhere to the following:

x Report any unusual or inappropriate internal social media activity to the system administrator.

[Employer’s] Social Media Policy will be administered in compliance with applicable laws and regulations (including Section 7 of the National Labor Relations Act).

As to these provisions, we found unlawful the instruction that “[o]ffensive, demeaning, abusive or inappropriate remarks are as out of place online as they are offline.” Like the provisions discussed above, this provision proscribes a broad spectrum of communications that would include protected criticisms of the Employer’s labor policies or treatment of employees. Similarly, the instruction to be aware that “[c]ommunications with co- workers . . . that would be inappropriate in the workplace are also inappropriate online” does not specify which communications the Employer would deem inappropriate at work and, thus, is ambiguous as to its application to Section 7.

The provision of the Employer’s social media policy instructing employees to “[t]hink carefully about

8 ‘friending’ co-workers” is unlawfully overbroad because it would discourage communications among co-workers, and thus it necessarily interferes with Section 7 activity. Moreover, there is no limiting language clarifying for employees that it does not restrict Section 7 activity.

We also found unlawful the policy’s instruction that employees “[r]eport any unusual or inappropriate internal social media activity.” An employer violates the Act by encouraging employees to report to management the union activities of other employees. See generally Greenfield Die & Mfg. Corp., 327 NLRB 237, 238 (1998) and cases cited at n.6. Such statements are unlawful because they have the potential to discourage employees from engaging in protected activities. Here, the Employer’s instruction would reasonably be construed by employees as applying to its social media policy. Because certain provisions of that policy are unlawful, as set forth above, the reporting requirement is also unlawful.

Finally, we concluded that the policy’s “savings clause,” under which the Employer’s “Social Media Policy will be administered in compliance with applicable laws and regulations (including Section 7 of the National Labor Relations Act),” does not cure the ambiguities in the policy’s overbroad rules. [General Motors, Case 07-CA- 053570]

Guidelines on Privacy, Legal Matters, Online Tone, Prior Permission, and Resolving Concerns Are Overbroad

In this case, we again found that some of the Employer’s social media guidelines were overly broad in violation of Section 8(a)(1)of the Act.

The Employer is an international health care services company that manages billing and other services for health care institutions. We addressed challenges to various provisions in its social media policy, as set out below.

Respect Privacy. If during the course of your work you create, receive or become aware of personal information about [Employer’s] employees, contingent workers, customers, customers’ patients, providers, business partners or third parties, don’t disclose that information in any way via social media or other online activities. You may disclose personal information only to those authorized to receive it in accordance with [Employer’s] Privacy policies.

We found that the portion of the rule prohibiting disclosure of personal information about the Employer’s employees and contingent workers is unlawful because, in the

9 absence of clarification, employees would reasonably construe it to include information about employee wages and their working conditions. We found, however, that the portion of the rule prohibiting employees from disclosing personal information only to those authorized to receive it is not, in these circumstances, unlawful. Although an employer cannot require employees to obtain supervisory approval prior to engaging in activity that is protected under the Act, the Employer’s rule here would not prohibit protected disclosures once the Employer removes the unlawful restriction regarding personal information about employees and contingent workers.

Legal matters. Don’t comment on any legal matters, including pending litigation or disputes.

We found that the prohibition on employees’ commenting on any legal matters is unlawful because it specifically restricts employees from discussing the protected subject of potential claims against the Employer.

Adopt a friendly tone when engaging online. Don’t pick fights. Social media is about conversations. When engaging with others online, adopt a warm and friendly tone that will encourage others to respond to your postings and join your conversation. Remember to communicate in a professional tone. . . . This includes not only the obvious (no ethnic slurs, personal insults, obscenity, etc.) but also proper consideration of privacy and topics that may be considered objectionable or inflammatory—such as politics and religion. Don’t make any comments about [Employer’s] customers, suppliers or competitors that might be considered defamatory.

We found this rule unlawful for several reasons. First, in warning employees not to “pick fights” and to avoid topics that might be considered objectionable or inflammatory--such as politics and religion, and reminding employees to communicate in a “professional tone,” the overall thrust of this rule is to caution employees against online discussions that could become heated or controversial. Discussions about working conditions or unionism have the potential to become just as heated or controversial as discussions about politics and religion. Without further clarification of what is “objectionable or inflammatory,” employees would reasonably construe this rule to prohibit robust but protected discussions about working conditions or unionism.

Respect all copyright and other intellectual property laws. For [Employer’s] protection as well as your own, it is critical that you show proper respect for the laws governing copyright, fair use of copyrighted

10 material owned by others, trademarks and other intellectual property, including [Employer’s] own copyrights, trademarks and brands. Get permission before reusing others’ content or images.

We found that most of this rule is not unlawful since it does not prohibit employees from using copyrighted material in their online communications, but merely urges employees to respect copyright and other intellectual property laws. However, the portion of the rule that requires employees to “[g]et permission before reusing others’ content or images” is unlawful, as it would interfere with employees’ protected right to take and post photos of, for instance, employees on a picket line, or employees working in unsafe conditions.

You are encouraged to resolve concerns about work by speaking with co-workers, supervisors, or managers. [Employer] believes that individuals are more likely to resolve concerns about work by speaking directly with co-workers, supervisors or other management-level personnel than by posting complaints on the Internet. [Employer] encourages employees and other contingent resources to consider using available internal resources, rather than social media or other online forums, to resolve these types of concerns.

We found that this rule encouraging employees “to resolve concerns about work by speaking with co-workers, supervisors, or managers” is unlawful. An employer may reasonably suggest that employees try to work out concerns over working conditions through internal procedures. However, by telling employees that they should use internal resources rather than airing their grievances online, we found that this rule would have the probable effect of precluding or inhibiting employees from the protected activity of seeking redress through alternative forums.

Use your best judgment and exercise personal responsibility. Take your responsibility as stewards of personal information to heart. Integrity, Accountability and Respect are core [Employer] values. As a company, [Employer] trusts—and expects—you to exercise personal responsibility whenever you participate in social media or other online activities. Remember that there can be consequences to your actions in the social media world—both internally, if your comments violate [Employer] policies, and with outside individuals and/or entities. If you’re about to publish, respond or engage in something that makes you even the slightest bit uncomfortable, don’t do it.

We concluded that this rule was not unlawful. We noted that this section is potentially problematic because its

11 reference to “consequences to your actions in the social media world” could be interpreted as a veiled threat to discourage online postings, which includes protected activities. However, this phrase is unlawful only insofar as it is an outgrowth of the unlawful rules themselves, i.e., the Employer is stating the potential consequences to employees of violating the unlawful rules. Thus, rescission of the offending rules discussed above will effectively remedy the coercive effect of the potentially threatening statement here.

Finally, we looked at the Employer’s “savings clause”:

National Labor Relations Act. This Policy will not be construed or applied in a manner that improperly interferes with employees’ rights under the National Labor Relations Act.

We found that this clause does not cure the otherwise unlawful provisions of the Employer’s social media policy because employees would not understand from this disclaimer that protected activities are in fact permitted. [McKesson Corp., Case 06-CA-066504]

Provisions on Protecting Information and Expressing Opinions Are Too Broad, But Bullying Provision Is Lawful

In another case, we concluded that several portions of the Employer’s social media policy are unlawfully overbroad, but that a prohibition on online harassment and bullying is lawful.

We first looked at the portion of the Employer’s policy dealing with protection of company information:

Employees are prohibited from posting information regarding [Employer] on any social networking sites (including, but not limited to, Yahoo finance, Google finance, Facebook, Twitter, LinkedIn, MySpace, LifeJournal and YouTube), in any personal or group blog, or in any online bulletin boards, chat rooms, forum, or blogs (collectively, ‘Personal Electronic Communications’), that could be deemed material non- public information or any information that is considered confidential or proprietary. Such information includes, but is not limited to, company performance, contracts, customer wins or losses, customer plans, maintenance, shutdowns, work stoppages, cost increases, customer news or business related travel plans or schedules. Employees should avoid harming the image and integrity of the company and any harassment, bullying, discrimination, or retaliation that would not be permissible in the workplace is not

12 permissible between co-workers online, even if it is done after hours, from home and on home computers. . . .

We concluded that the rule prohibiting employees from posting information regarding the Employer that could be deemed “material non-public information” or “confidential or proprietary” is unlawful. The term “material non-public information,” in the absence of clarification, is so vague that employees would reasonably construe it to include subjects that involve their working conditions. The terms “confidential or proprietary” are also overbroad. The Board has long recognized that the term “confidential information,” without narrowing its scope so as to exclude Section 7 activity, would reasonably be interpreted to include information concerning terms and conditions of employment. See, e.g., University Medical Center, 335 NLRB at 1320, 1322. Here, moreover, the list of examples provided for “material non-public” and “confidential or proprietary” information confirms that they are to be interpreted in a manner that restricts employees’ discussion about terms and conditions of employment. Thus, information about company performance, cost increases, and customer wins or losses has potential relevance in collective-bargaining negotiations regarding employees’ wages and other benefits. Information about contracts, absent clarification, could include collective-bargaining agreements between the Union and the Employer. Information about shutdowns and work stoppages clearly involves employees’ terms and conditions of employment.

We also found that the provision warning employees to “avoid harming the image and integrity of the company” is unlawfully overbroad because employees would reasonably construe it to prohibit protected criticism of the Employer’s labor policies or treatment of employees.

We found lawful, however, the provision under which “harassment, bullying, discrimination, or retaliation that would not be permissible in the workplace is not permissible between co-workers online, even if it is done after hours, from home and on home computers.” The Board has indicated that a rule’s context provides the key to the “reasonableness” of a particular construction. For example, a rule proscribing “negative conversations” about managers that was contained in a list of policies regarding working conditions, with no further clarification or examples, was unlawful because of its potential chilling effect on protected activity. Claremont Resort and Spa, 344 NLRB 832, 836 (2005). On the other hand, a rule forbidding “statements which are slanderous or detrimental to the company” that appeared on a list of prohibited conduct including “sexual or racial harassment” and “sabotage” would not be reasonably understood to restrict Section 7 activity.

13 Tradesmen International, 338 NLRB at 462. Applying that reasoning here, we found that this provision would not reasonably be construed to apply to Section 7 activity because the rule contains a list of plainly egregious conduct, such as bullying and discrimination.

Next, we considered the portion of the Employer’s policy governing employee workplace discussions through electronic communications:

Employees are permitted to express personal opinions regarding the workplace, work satisfaction or dissatisfaction, wages hours or work conditions with other [Employer] employees through Personal Electronic Communications, provided that access to such discussions is restricted to other [Employer] employees and not generally accessible to the public. . . .

This policy is for the mutual protection of the company and our employees, and we respect an individual’s rights to self-expression and concerted activity. This policy will not be interpreted or applied in a way that would interfere with the rights of employees to self organize, form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, or to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection or to refrain from engaging in such activities.

We found that the provision prohibiting employees from expressing their personal opinions to the public regarding “the workplace, work satisfaction or dissatisfaction, wages hours or work conditions” is unlawful because it precludes employees from discussing and sharing terms and conditions of employment with non-employees. The Board has long recognized that “Section 7 protects employee communications to the public that are part of and related to an ongoing labor dispute.” Valley Hospital Medical Center, 351 NLRB 1250, 1252 (2007), enfd. sub nom. Nevada Service Employees Union, Local 1107 v. NLRB, 358 F. App’x 783 (9th Cir. 2009).

We concluded that the Employer’s “savings clause” does not cure the otherwise unlawful provisions. The Employer’s policy specifically prohibits employees from posting information regarding Employer shutdowns and work stoppages, and from speaking publicly about “the workplace, work satisfaction or dissatisfaction, wages hours or work conditions.” Thus, employees would reasonably conclude that the savings clause does not permit those activities. Moreover, the clause does not explain to a layperson what the right to engage in “concerted activity” entails. [Clearwater Paper Corp., Case 19-CA-064418]

Duty to Report ‘Unsolicited’ Electronic Communications Is Overbroad, But ‘Unauthorized Postings’ Provision Is Lawful

In this case, we found that the Employer unlawfully maintains an overly broad rule requiring employees who receive “unsolicited or inappropriate electronic communications” to report them. We found, however, that a prohibition on “unauthorized postings” is lawful.

The Employer is a nonprofit organization that provides HIV risk reduction and support services. The Employer’s employee handbook contains an “Electronic Communications” policy, providing as follows:

Improper Use: Employees must use sound judgment in using [Employer’s] electronic technologies. All use of electronic technologies must be consistent with all other [Employer] policies, including [Employer’s] Professional Conduct policy. [Employer] management reserves the right to exercise its discretion in investigating and/or addressing potential, actual, or questionable abuse of its electronic technologies. Employees, who receive unsolicited or inappropriate electronic communications from persons within or outside [Employer], should contact the President or the President’s designated agent.

We concluded that the provision that requires employees to report any “unsolicited or inappropriate electronic communications” is overly broad under the second portion of the Lutheran Heritage test discussed above. We found that employees would reasonably interpret the rule to restrain the exercise of their Section 7 right to communicate with their fellow employees and third parties, such as a union, regarding terms and conditions of employment.

The policy also sets forth the following restriction on Internet postings:

No unauthorized postings: Users may not post anything on the Internet in the name of [Employer] or in a manner that could reasonably be attributed to [Employer] without prior written authorization from the President or the President’s designated agent.

We found that this provision is lawful. A rule that requires an employee to receive prior authorization before posting a message that is either in the Employer’s name or could reasonably be attributed to the Employer cannot reasonably be construed to restrict employees’ exercise of their Section 7 right to communicate about working conditions among themselves and with third parties. [Us Helping Us, Case 05-CA-036595]

Portions of Rules on Using Social Media and Contact with Media and Government Are Unlawful

In this case, we considered the Employer’s rules governing employee use of social media, contact with the media, and contact with government agencies. We concluded that certain portions of these rules were unlawful as they would reasonably be interpreted to prohibit Section 7 activity.

Relevant portions of the Employer’s rules are as follows:

[Employer] regards Social Media---blogs, forums, wikis, social and professional networks, virtual worlds, user-generated video or audio---as a form of communication and relationship among individuals. When the company wishes to communicate publicly---whether to the marketplace or to the general public---it has a well-established means to do so. Only those officially designated by [Employer] have the authorization to speak on behalf of the company through such media. We recognize the increasing prevalence of Social Media in everyone’s daily lives. Whether or not you choose to create or participate in them is your decision. You are accountable for any publication or posting if you identify yourself, or you are easily identifiable, as working for or representing [Employer]. You need to be familiar with all [Employer] policies involving confidential or proprietary information or information found in this Employee Handbook and others available on Starbase. Any comments directly or indirectly relating to [Employer] must include the following disclaimer: ‘The postings on this site are my own and do not represent [Employer’s] positions, strategies or opinions.’ You may not make disparaging or defamatory comments about [Employer], its employees, officers, directors, vendors, customers, partners, affiliates, or our, or their, products/services. Remember to use good judgment. Unless you are specifically authorized to do so, you may not: - Participate in these activities with [Employer] resources and/or on Company time; or - Represent any opinion or statement as the policy or view of the [Employer] or of any individual in their capacity as an employee or otherwise on behalf of [Employer].

16 Should you have questions regarding what is appropriate conduct under this policy or other related policies, contact your Human Resources representative or the [Employer]Corporate Communications Department. . . .

We concluded that several aspects of this social media policy are unlawful. First, the prohibition on making “disparaging or defamatory” comments is unlawful. Employees would reasonably construe this prohibition to apply to protected criticism of the Employer’s labor policies or treatment of employees. Second, we concluded that the prohibition on participating in these activities on Company time is unlawfully overbroad because employees have the right to engage in Section 7 activities on the Employer’s premises during non-work time and in non-work areas. See Republic Aviation Corp. v. NLRB, 324 U.S. 793, 803 n.10 (1945).

We did not find unlawful, however, the prohibition on representing “any opinion or statement as the policy or view of the [Employer] or of any individual in their capacity as an employee or otherwise on behalf of [Employer].” Employees would not reasonably construe this rule to prohibit them from speaking about their terms and conditions of employment. Instead, this rule is more reasonably construed to prohibit comments that are represented to be made by or on behalf of the Employer. Thus, an employee could not criticize the Employer or comment about his or her terms and conditions of employment while falsely representing that the Employer has made or is responsible for making the comments. Similarly, we concluded that the requirement that employees must expressly state that their postings are “my own and do not represent [Employer’s] positions, strategies or opinions” is not unlawful. An employer has a legitimate need for a disclaimer to protect itself from unauthorized postings made to promote its product or services, and this requirement would not unduly burden employees in the exercise of their Section 7 right to discuss working conditions.

We also considered the Contact with Media portion of the Employer’s rules, which provides:

The Corporate Communications Department is responsible for any disclosure of information to the media regarding [Employer] and its activities so that accurate, timely and consistent information is released after proper approval. Unless you receive prior authorization from the Corporate Communications Department to correspond with members of the media or press regarding [Employer] or its business activities, you must direct inquiries to the Corporate Communications Department. Similarly, you have the

17 obligation to obtain the written authorization of the Corporate Communications Department before engaging in public communications regarding [Employer] of its business activities. You may not engage in any of the following activities unless you have prior authorization from the Corporate Communications Department: - All public communication including, but not limited to, any contact with media and members of the press: print (for example newspapers or magazines), broadcast (for example television or radio) and their respective electronic versions and associated web sites. Certain blogs, forums and message boards are also considered media. If you have any questions about what is considered media, please contact the Corporate Communications Department. - Any presentations, speeches or appearances, whether at conferences, seminars, panels or any public or private forums; company publications, advertising, video releases, photo releases, news releases, opinion articles and technical articles; any advertisements or any type of public communication regarding [Employer] by the Company’s business partners or any third parties including consultants. If you have any questions about the Contact with Media Policy, please contact the [Employer] Corporate Communications Department . . . .

We concluded that this entire section is unlawfully overbroad. While an employer has a legitimate need to control the release of certain information regarding its business, this rule goes too far. Employees have a protected right to seek help from third parties regarding their working conditions. This would include going to the press, blogging, speaking at a union rally, etc. As noted above, Section 7 protects employee communications to the public that are part of and related to an ongoing labor dispute. An employer rule that prohibits any employee communications to the media or, like the policy at issue here, requires prior authorization for such communications, is therefore unlawfully overbroad.

Finally, we looked at the rules’ provisions on contact with government agencies:

Phone calls or letters from government agencies may occasionally be received. The identity of the individual contacting you should be verified. Additionally, the communication may concern matters involving the corporate office. The General Counsel

18 must be notified immediately of any communication involving federal, state or local agencies that contact any employee concerning the Company and/or relating to matters outside the scope of normal job responsibilities. If written correspondence is received, notify your manager immediately and forward the correspondence to the General Counsel by PDF or facsimile and promptly forward any original documents. The General Counsel, if deemed necessary, may investigate and respond accordingly. The correspondence should not be responded to unless directed by an officer of the Company or the General Counsel. If phone contact is made: - Take the individual’s name and telephone number, the name of the agency involved, as well as any other identifying information offered; - Explain that all communications of this type are forwarded to the Company’s General Counsel for a response; - Provide the individual with the General Counsel’s name and number . . . if requested, but do not engage in any further discussion. An employee cannot be required to provide information, and any response may be forthcoming after the General Counsel has reviewed the situation; and - Immediately following the conversation, notify a supervisor who should promptly contact the General Counsel.

We concluded that this rule is an unlawful prohibition on talking to government agencies, particularly the NLRB. The Employer could have a legitimate desire to control the message it communicates to government agencies and regulators. However, it may not do so to the extent that it restricts employees from their protected right to converse with Board agents or otherwise concertedly seek the help of government agencies regarding working conditions, or respond to inquiries from government agencies regarding the same. [DISH Network, Case 16-CA-066142]

Employer’s Entire Revised Social Media Policy--With Examples of Prohibited Conduct--Is Lawful

In this case, we concluded that the Employer’s entire revised social media policy, as attached in full, is lawful. We thus found it unnecessary to rule on the Employer’s social media policy that was initially alleged to be unlawful.

19 As explained above, rules that are ambiguous as to their application to Section 7 activity and that contain no limiting language or context to clarify that the rules do not restrict Section 7 rights are unlawful. In contrast, rules that clarify and restrict their scope by including examples of clearly illegal or unprotected conduct, such that they could not reasonably be construed to cover protected activity, are not unlawful.

Applying these principles, we concluded that the Employer’s revised social media policy is not ambiguous because it provides sufficient examples of prohibited conduct so that, in context, employees would not reasonably read the rules to prohibit Section 7 activity. For instance, the Employer’s rule prohibits “inappropriate postings that may include discriminatory remarks, harassment and threats of violence or similar inappropriate or unlawful conduct.” We found this rule lawful since it prohibits plainly egregious conduct, such as discrimination and threats of violence, and there is no evidence that the Employer has used the rule to discipline Section 7 activity.

Similarly, we found lawful the portion of the Employer’s social media policy entitled “Be Respectful.” In certain contexts, the rule’s exhortation to be respectful and “fair and courteous” in the posting of comments, complaints, photographs, or videos, could be overly broad. The rule, however, provides sufficient examples of plainly egregious conduct so that employees would not reasonably construe the rule to prohibit Section 7 conduct. For instance, the rule counsels employees to avoid posts that “could be viewed as malicious, obscene, threatening or intimidating.” It further explains that prohibited “harassment or bullying” would include “offensive posts meant to intentionally harm someone’s reputation” or “posts that could contribute to a hostile work environment on the basis of race, sex, disability, religion or any other status protected by law or company policy.” The Employer has a legitimate basis to prohibit such workplace communications, and has done so without burdening protected communications about terms and conditions of employment.

We also found that the Employer’s rule requiring employees to maintain the confidentiality of the Employer’s trade secrets and private and confidential information is not unlawful. Employees have no protected right to disclose trade secrets. Moreover, the Employer’s rule provides sufficient examples of prohibited disclosures (i.e., information regarding the development of systems, processes, products, know-how, technology, internal reports, procedures, or other internal business-related communications) for employees to understand that it does not reach protected communications about working conditions. [Walmart, Case 11-CA-067171]

20 21 Tab 17 Social Media Policy

Updated: May 4, 2012

At [Employer], we understand that social media can be a fun and rewarding way to share your life and opinions with family, friends and co-workers around the world. However, use of social media also presents certain risks and carries with it certain responsibilities. To assist you in making responsible decisions about your use of social media, we have established these guidelines for appropriate use of social media.

This policy applies to all associates who work for [Employer], or one of its subsidiary companies in the United States ([Employer]).

Managers and supervisors should use the supplemental Social Media Management Guidelines for additional guidance in administering the policy.

GUIDELINES

In the rapidly expanding world of electronic communication, social media can mean many things. Social media includes all means of communicating or posting information or content of any sort on the Internet, including to your own or someone else’s web log or blog, journal or diary, personal web site, social networking or affinity web site, web bulletin board or a chat room, whether or not associated or affiliated with [Employer], as well as any other form of electronic communication.

The same principles and guidelines found in [Employer] policies and three basic beliefs apply to your activities online. Ultimately, you are solely responsible for what you post online. Before creating online content, consider some of the risks and rewards that are involved. Keep in mind that any of your conduct that adversely affects your job performance, the performance of fellow associates or otherwise adversely affects members, customers, suppliers, people who work on behalf of [Employer] or [Employer’s] legitimate business interests may result in disciplinary action up to and including termination.

Know and follow the rules

Carefully read these guidelines, the [Employer] Statement of Ethics Policy, the [Employer] Information Policy and the Discrimination & Harassment Prevention Policy, and ensure your postings are consistent with these policies. Inappropriate postings that may include discriminatory remarks, harassment, and threats of violence or similar inappropriate or unlawful conduct will not be tolerated and may subject you to disciplinary action up to and including termination.

Be respectful

Always be fair and courteous to fellow associates, customers, members, suppliers or people who work on behalf of [Employer]. Also, keep in mind that you are more likely to resolved work- related complaints by speaking directly with your co-workers or by utilizing our Open Door Policy than by posting complaints to a social media outlet. Nevertheless, if you decide to post complaints or criticism, avoid using statements, photographs, video or audio that reasonably

22 could be viewed as malicious, obscene, threatening or intimidating, that disparage customers, members, associates or suppliers, or that might constitute harassment or bullying. Examples of such conduct might include offensive posts meant to intentionally harm someone’s reputation or posts that could contribute to a hostile work environment on the basis of race, sex, disability, religion or any other status protected by law or company policy.

Be honest and accurate

Make sure you are always honest and accurate when posting information or news, and if you make a mistake, correct it quickly. Be open about any previous posts you have altered. Remember that the Internet archives almost everything; therefore, even deleted postings can be searched. Never post any information or rumors that you know to be false about [Employer], fellow associates, members, customers, suppliers, people working on behalf of [Employer] or competitors.

Post only appropriate and respectful content

x Maintain the confidentiality of [Employer] trade secrets and private or confidential information. Trades secrets may include information regarding the development of systems, processes, products, know-how and technology. Do not post internal reports, policies, procedures or other internal business-related confidential communications. x Respect financial disclosure laws. It is illegal to communicate or give a “tip” on inside information to others so that they may buy or sell stocks or securities. Such online conduct may also violate the Insider Trading Policy. x Do not create a link from your blog, website or other social networking site to a [Employer] website without identifying yourself as a [Employer] associate. x Express only your personal opinions. Never represent yourself as a spokesperson for [Employer]. If [Employer] is a subject of the content you are creating, be clear and open about the fact that you are an associate and make it clear that your views do not represent those of [Employer], fellow associates, members, customers, suppliers or people working on behalf of [Employer]. If you do publish a blog or post online related to the work you do or subjects associated with [Employer], make it clear that you are not speaking on behalf of [Employer]. It is best to include a disclaimer such as “The postings on this site are my own and do not necessarily reflect the views of [Employer].”

Using social media at work

Refrain from using social media while on work time or on equipment we provide, unless it is work-related as authorized by your manager or consistent with the Company Equipment Policy. Do not use [Employer] email addresses to register on social networks, blogs or other online tools utilized for personal use.

Retaliation is prohibited

[Employer] prohibits taking negative action against any associate for reporting a possible deviation from this policy or for cooperating in an investigation. Any associate who retaliates against another associate for reporting a possible deviation from this policy or for cooperating in an investigation will be subject to disciplinary action, up to and including termination.

23 Media contacts

Associates should not speak to the media on [Employer’s] behalf without contacting the Corporate Affairs Department. All media inquiries should be directed to them.

For more information

If you have questions or need further guidance, please contact your HR representative.

24 Tab 18

Rev. Rul. 2013-17

ISSUES

1. Whether, for Federal tax purposes, the terms “spouse,” “husband and wife,”

“husband,” and “wife” include an individual married to a person of the same sex, if the

individuals are lawfully married under state1 law, and whether, for those same purposes, the term “marriage” includes such a marriage between individuals of the same sex.

2. Whether, for Federal tax purposes, the Internal Revenue Service (Service)

recognizes a marriage of same-sex individuals validly entered into in a state whose laws

authorize the marriage of two individuals of the same sex even if the state in which they are domiciled does not recognize the validity of same-sex marriages.

3. Whether, for Federal tax purposes, the terms “spouse,” “husband and wife,”

“husband,” and “wife” include individuals (whether of the opposite sex or same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the

1 For purposes of this ruling, the term “state” means any domestic or foreign jurisdiction having the legal authority to sanction marriages.

laws of that state, and whether, for those same purposes, the term “marriage” includes

such relationships.

LAW AND ANALYSIS

1. Background

In Revenue Ruling 58-66, 1958-1 C.B. 60, the Service determined the marital

status for Federal income tax purposes of individuals who have entered into a common-

law marriage in a state that recognizes common-law marriages.2 The Service

acknowledged that it recognizes the marital status of individuals as determined under state law in the administration of the Federal income tax laws. In Revenue Ruling 58-

66, the Service stated that a couple would be treated as married for purposes of Federal income tax filing status and personal exemptions if the couple entered into a common-

law marriage in a state that recognizes that relationship as a valid marriage.

The Service further concluded in Revenue Ruling 58-66 that its position with

respect to a common-law marriage also applies to a couple who entered into a

common-law marriage in a state that recognized such relationships and who later

moved to a state in which a ceremony is required to establish the marital relationship.

The Service therefore held that a taxpayer who enters into a common-law marriage in a

state that recognizes such marriages shall, for purposes of Federal income tax filing

status and personal exemptions, be considered married notwithstanding that the

2 A common-law marriage is a union of two people created by agreement followed by cohabitation that is legally recognized by a state. Common-law marriages have three basic features: (1) A present agreement to be married, (2) cohabitation, and (3) public representations of marriage.

2 taxpayer and the taxpayer’s spouse are currently domiciled in a state that requires a

ceremony to establish the marital relationship. Accordingly, the Service held in

Revenue Ruling 58-66 that such individuals can file joint income tax returns under

section 6013 of the Internal Revenue Code (Code).

The Service has applied this rule with respect to common-law marriages for over

50 years, despite the refusal of some states to give full faith and credit to common-law

marriages established in other states. Although states have different rules of marriage

recognition, uniform nationwide rules are essential for efficient and fair tax

administration. A rule under which a couple’s marital status could change simply by

moving from one state to another state would be prohibitively difficult and costly for the

Service to administer, and for many taxpayers to apply.

Many provisions of the Code make reference to the marital status of taxpayers.

Until the recent decision of the Supreme Court in United States v. Windsor, 570 U.S.

___, 133 S. Ct. 2675 (2013), the Service interpreted section 3 of the Defense of

Marriage Act (DOMA) as prohibiting it from recognizing same-sex marriages for purposes of these provisions. Section 3 of DOMA provided that:

In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.

1 U.S.C. § 7.

3 In Windsor, the Supreme Court held that section 3 of DOMA is unconstitutional because it violates the principles of equal protection. It concluded that this section

“undermines both the public and private significance of state-sanctioned same-sex marriages” and found that “no legitimate purpose” overcomes section 3’s “purpose and effect to disparage and to injure those whom the State, by its marriage laws, sought to protect[.]” Windsor, 133 S. Ct. at 2694-95. This ruling provides guidance on the effect of the Windsor decision on the Service’s interpretation of the sections of the Code that refer to taxpayers’ marital status.

2. Recognition of Same-Sex Marriages

There are more than two hundred Code provisions and Treasury regulations relating to the internal revenue laws that include the terms “spouse,” “marriage” (and derivatives thereof, such as “marries” and “married”), “husband and wife,” “husband,” and “wife.” The Service concludes that gender-neutral terms in the Code that refer to marital status, such as “spouse” and “marriage,” include, respectively, (1) an individual married to a person of the same sex if the couple is lawfully married under state law, and (2) such a marriage between individuals of the same sex. This is the most natural reading of those terms; it is consistent with Windsor, in which the plaintiff was seeking tax benefits under a statute that used the term “spouse,” 133 S. Ct. at 2683; and a narrower interpretation would not further the purposes of efficient tax administration.

In light of the Windsor decision and for the reasons discussed below, the Service also concludes that the terms “husband and wife,” “husband,” and “wife” should be interpreted to include same-sex spouses. This interpretation is consistent with the 4 Supreme Court’s statements about the Code in Windsor, avoids the serious

constitutional questions that an alternate reading would create, and is permitted by the

text and purposes of the Code.

First, the Supreme Court’s opinion in Windsor suggests that it understood that its

decision striking down section 3 of DOMA would affect tax administration in ways that

extended beyond the estate tax refund at issue. See 133 S. Ct. at 2694 (“The particular case at hand concerns the estate tax, but DOMA is more than simply a determination of

what should or should not be allowed as an estate tax refund. Among the over 1,000

statutes and numerous Federal regulations that DOMA controls are laws pertaining to

. . . taxes.”). The Court observed in particular that section 3 burdened same-sex

couples by forcing “them to follow a complicated procedure to file their Federal and

state taxes jointly” and that section 3 “raise[d] the cost of health care for families by

taxing health benefits provided by employers to their workers’ same-sex spouses.” Id. at 2694-2695.

Second, an interpretation of the gender-specific terms in the Code to exclude

same-sex spouses would raise serious constitutional questions. A well-established

principle of statutory interpretation holds that, “where an otherwise acceptable

construction of a statute would raise serious constitutional problems,” a court should

“construe the statute to avoid such problems unless such construction is plainly contrary

to the intent of Congress.” Edward J. DeBartolo Corp. v. Fla. Gulf Coast Bldg. & Constr.

Trades Council, 485 U.S. 568, 575 (1988). “This canon is followed out of respect for

Congress, which [presumably] legislates in light of constitutional limitations,” Rust v. 5 Sullivan, 500 U.S. 173, 191 (1991), and instructs courts, where possible, to avoid

interpretations that “would raise serious constitutional doubts,” United States v. X-

Citement Video, Inc., 513 U.S. 64, 78 (1994).

The Fifth Amendment analysis in Windsor raises serious doubts about the

constitutionality of Federal laws that confer marriage benefits and burdens only on

opposite-sex married couples. In Windsor, the Court stated that, “[b]y creating two

contradictory marriage regimes within the same State, DOMA forces same-sex couples

to live as married for the purpose of state law but unmarried for the purpose of Federal

law, thus diminishing the stability and predictability of basic personal relations the State

has found it proper to acknowledge and protect.” 133 S. Ct. at 2694. Interpreting the

gender-specific terms in the Code to categorically exclude same-sex couples arguably

would have the same effect of diminishing the stability and predictability of legally

recognized same-sex marriages. Thus, the canon of constitutional avoidance counsels

in favor of interpreting the gender-specific terms in the Code to refer to same-sex

spouses and couples.

Third, the text of the Code permits a gender-neutral construction of the gender-

specific terms. Section 7701 of the Code provides definitions of certain terms generally

applicable for purposes of the Code when the terms are not defined otherwise in a

specific Code provision and the definition in section 7701 is not manifestly incompatible

with the intent of the specific Code provision. The terms “husband and wife,” “husband,” and “wife” are not specifically defined other than in section 7701(a)(17), which provides, for purposes of sections 682 and 2516, that the terms “husband” and “wife” shall be 6 read to include a former husband or a former wife, respectively, and that “husband”

shall be read as “wife” and “wife” as “husband” in certain circumstances. Although

Congress’s specific instruction to read “husband” and “wife” interchangeably in those

specific provisions could be taken as an indication that Congress did not intend the

terms to be read interchangeably in other provisions, the Service believes that the better

understanding is that the interpretive rule set forth in section 7701(a)(17) makes it

reasonable to adopt, in the circumstances presented here and in light of Windsor and the principle of constitutional avoidance, a more general rule that does not foreclose a gender-neutral reading of gender-specific terms elsewhere in the Code.

Section 7701(p) provides a specific cross-reference to the Dictionary Act, 1

U.S.C. § 1, which provides, in part, that when “determining the meaning of any Act of

Congress, unless the context indicates otherwise, . . . words importing the masculine gender include the feminine as well.” The purpose of this provision was to avoid having to “specify males and females by using a great deal of unnecessary language when one word would express the whole.” Cong. Globe, 41st Cong., 3d Sess. 777 (1871)

(statement of Sen. Trumbull, sponsor of Dictionary Act). This provision has been read

to require construction of the phrase “husband and wife” to include same-sex married

couples. See Pedersen v. Office of Personnel Mgmt., 881 F. Supp. 2d 294, 306-07 (D.

Conn. 2012) (construing section 6013 of the Code). The Dictionary Act thus supports

interpreting the gender-specific terms in the Code in a gender-neutral manner “unless

the context indicates otherwise.” 1 U.S.C. § 1. “‘Context’” for purposes of the

Dictionary Act “means the text of the Act of Congress surrounding the word at issue, or 7 the texts of other related congressional Acts.” Rowland v. Cal. Men’s Colony, Unit II

Men’s Advisory Council, 506 U.S. 194, 199 (1993). Here, nothing in the surrounding

text forecloses a gender-neutral reading of the gender-specific terms. Rather, the

provisions of the Code that use the terms “husband and wife,” “husband,” and “wife” are

inextricably interwoven with provisions that use gender-neutral terms like “spouse” and

“marriage,” indicating that Congress viewed them to be equivalent. For example,

section 1(a) sets forth the tax imposed on "every married individual (as defined in

section 7703) who makes a single return jointly with his spouse under section 6013,”

even though section 6013 provides that a "husband and wife” make a single return

jointly of income. Similarly, section 2513 of the Code is entitled “Gifts by Husband or

Wife to Third Party,” but uses no gender-specific terms in its text. See also, e.g., §§

62(b)(3), 1361(c)(1).

This interpretation is also consistent with the legislative history. The legislative history of section 6013, for example, uses the term “married taxpayers” interchangeably with the terms “husband” and “wife” to describe those individuals who may elect to file a joint return, and there is no indication that Congress intended those terms to refer only to a subset of individuals who are legally married. See, e.g., S. Rep. No. 82-781,

Finance, Part 1, p. 48 (Sept. 18, 1951). Accordingly, the most logical reading is that the terms “husband and wife” were used because they were viewed, at the time of enactment, as equivalent to the term “persons married to each other.” There is nothing in the Code to suggest that Congress intended to exclude from the meaning of these terms any couple otherwise legally married under state law. 8 Fourth, other considerations also strongly support this interpretation. A gender-

neutral reading of the Code fosters fairness by ensuring that the Service treats same-

sex couples in the same manner as similarly situated opposite-sex couples. A gender-

neutral reading of the Code also fosters administrative efficiency because the Service

does not collect or maintain information on the gender of taxpayers and would have great difficulty administering a scheme that differentiated between same-sex and opposite-sex married couples.

Therefore, consistent with the statutory context, the Supreme Court’s decision in

Windsor, Revenue Ruling 58-66, and effective tax administration generally, the Service

concludes that, for Federal tax purposes, the terms “husband and wife,” “husband,” and

“wife” include an individual married to a person of the same sex if they were lawfully

married in a state whose laws authorize the marriage of two individuals of the same sex,

and the term “marriage” includes such marriages of individuals of the same sex.

3. Marital Status Based on the Laws of the State Where a Marriage Is Initially Established

Consistent with the longstanding position expressed in Revenue Ruling 58-66,

the Service has determined to interpret the Code as incorporating a general rule, for

Federal tax purposes, that recognizes the validity of a same-sex marriage that was valid

in the state where it was entered into, regardless of the married couple’s place of domicile. The Service may provide additional guidance on this subject and on the

application of Windsor with respect to Federal tax administration. Other agencies may

9 provide guidance on other Federal programs that they administer that are affected by

the Code.

Under this rule, individuals of the same sex will be considered to be lawfully

married under the Code as long as they were married in a state whose laws authorize

the marriage of two individuals of the same sex, even if they are domiciled in a state

that does not recognize the validity of same-sex marriages. For over half a century, for

Federal income tax purposes, the Service has recognized marriages based on the laws

of the state in which they were entered into, without regard to subsequent changes in domicile, to achieve uniformity, stability, and efficiency in the application and

administration of the Code. Given our increasingly mobile society, it is important to

have a uniform rule of recognition that can be applied with certainty by the Service and

taxpayers alike for all Federal tax purposes. Those overriding tax administration policy

goals generally apply with equal force in the context of same-sex marriages.

In most Federal tax contexts, a state-of-domicile rule would present serious

administrative concerns. For example, spouses are generally treated as related parties

for Federal tax purposes, and one spouse’s ownership interest in property may be

attributed to the other spouse for purposes of numerous Code provisions. If the Service

did not adopt a uniform rule of recognition, the attribution of property interests could

change when a same-sex couple moves from one state to another with different

marriage recognition rules. The potential adverse consequences could impact not only

the married couple but also others involved in a transaction, entity, or arrangement.

This would lead to uncertainty for both taxpayers and the Service. 10 A rule of recognition based on the state of a taxpayer’s current domicile would

also raise significant challenges for employers that operate in more than one state, or

that have employees (or former employees) who live in more than one state, or move

between states with different marriage recognition rules. Substantial financial and

administrative burdens would be placed on those employers, as well as the

administrators of employee benefit plans. For example, the need for and validity of

spousal elections, consents, and notices could change each time an employee, former

employee, or spouse moved to a state with different marriage recognition rules. To

administer employee benefit plans, employers (or plan administrators) would need to

inquire whether each employee receiving plan benefits was married and, if so, whether

the employee’s spouse was the same sex or opposite sex from the employee. In

addition, the employers or plan administrators would need to continually track the state

of domicile of all same-sex married employees and former employees and their

spouses. Rules would also need to be developed by the Service and administered by

employers and plan administrators to address the treatment of same-sex married couples comprised of individuals who reside in different states (a situation that is not

relevant with respect to opposite-sex couples). For all of these reasons, plan

administration would grow increasingly complex and certain rules, such as those

governing required distributions under section 401(a)(9), would become especially challenging. Administrators of employee benefit plans would have to be retrained, and systems reworked, to comply with an unprecedented and complex system that divides married employees according to their sexual orientation. In many cases, the tracking of 11 employee and spouse domiciles would be less than perfectly accurate or timely and

would result in errors or delays. These errors and delays would be costly to employers,

and could require some plans to enter the Service’s voluntary compliance programs or

put benefits of all employees at risk. All of these problems are avoided by the adoption of the rule set forth herein, and the Service therefore has chosen to avoid the imposition of the additional burdens on itself, employers, plan administrators, and individual taxpayers. Accordingly, Revenue Ruling 58-66 is amplified to adopt a general rule, for

Federal tax purposes, that recognizes the validity of a same-sex marriage that was valid in the state where it was entered into, regardless of the married couple’s place of domicile.

4. Registered Domestic Partnerships, Civil Unions, or Other Similar Formal Relationships Not Denominated as Marriage

For Federal tax purposes, the term “marriage” does not include registered

domestic partnerships, civil unions, or other similar formal relationships recognized under state law that are not denominated as a marriage under that state’s law, and the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals who have entered into such a formal relationship. This conclusion applies regardless of whether individuals who have entered into such relationships are of the opposite sex or the same sex.

HOLDINGS

1. For Federal tax purposes, the terms “spouse,” “husband and wife,”

“husband,” and “wife” include an individual married to a person of the same sex if the

12 individuals are lawfully married under state law, and the term “marriage” includes such a marriage between individuals of the same sex.

2. For Federal tax purposes, the Service adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages.

3. For Federal tax purposes, the terms “spouse,” “husband and wife,”

“husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 58-66 is amplified and clarified.

PROSPECTIVE APPLICATION

The holdings of this ruling will be applied prospectively as of September 16,

2013.

Except as provided below, affected taxpayers also may rely on this revenue ruling for the purpose of filing original returns, amended returns, adjusted returns, or claims for credit or refund for any overpayment of tax resulting from these holdings, provided the applicable limitations period for filing such claim under section 6511 has not expired. If an affected taxpayer files an original return, amended return, adjusted 13 return, or claim for credit or refund in reliance on this revenue ruling, all items required to be reported on the return or claim that are affected by the marital status of the taxpayer must be adjusted to be consistent with the marital status reported on the return or claim.

Taxpayers may rely (subject to the conditions in the preceding paragraph regarding the applicable limitations period and consistency within the return or claim) on this revenue ruling retroactively with respect to any employee benefit plan or arrangement or any benefit provided thereunder only for purposes of filing original returns, amended returns, adjusted returns, or claims for credit or refund of an overpayment of tax concerning employment tax and income tax with respect to employer-provided health coverage benefits or fringe benefits that were provided by the employer and are excludable from income under sections 106, 117(d), 119, 129, or 132 based on an individual’s marital status. For purposes of the preceding sentence, if an employee made a pre-tax salary-reduction election for health coverage under a section

125 cafeteria plan sponsored by an employer and also elected to provide health coverage for a same-sex spouse on an after-tax basis under a group health plan sponsored by that employer, an affected taxpayer may treat the amounts that were paid by the employee for the coverage of the same-sex spouse on an after-tax basis as pre- tax salary reduction amounts.

The Service intends to issue further guidance on the retroactive application of the

Supreme Court’s opinion in Windsor to other employee benefits and employee benefit plans and arrangements. Such guidance will take into account the potential 14 consequences of retroactive application to all taxpayers involved, including the plan sponsor, the plan or arrangement, employers, affected employees and beneficiaries.

The Service anticipates that the future guidance will provide sufficient time for plan amendments and any necessary corrections so that the plan and benefits will retain favorable tax treatment for which they otherwise qualify.

DRAFTING INFORMATION

The principal authors of this revenue ruling are Richard S. Goldstein and

Matthew S. Cooper of the Office of Associate Chief Counsel (Procedure &

Administration). For further information regarding this revenue ruling, contact Mr.

Goldstein and Mr. Cooper at 202-622-3400 (not a toll-free call).

15 Tab 19

Part III - Administrative, Procedural, and Miscellaneous

Application of Windsor Decision and Rev. Rul. 2013-17 to Employment Taxes and

Special Administrative Procedures for Employers to Make Adjustments or Claims for

Refund or Credit

Notice 2013-61

PURPOSE

This notice provides guidance for employers and employees to make claims for refund or adjustments (referred to in this notice as corrections) of overpayments of

Federal Insurance Contributions Act (FICA) taxes and Federal income tax withholding

(employment taxes) with respect to certain benefits provided to same-sex spouses and remuneration paid to same-sex spouses resulting from the United States Supreme

Court decision in United States v. Windsor, 570 U.S. ___, 133 S.Ct. 2675 (2013) and the holdings of Rev. Rul. 2013-17, 2013-38 I.R.B. 201.

To reduce filing and reporting burdens associated with the optional retroactive application of the holdings of Rev. Rul. 2013-17, the Internal Revenue Service (IRS) is providing special administrative procedures for employers to correct overpayments of employment taxes for 2013 and prior years with respect to certain same-sex spouse

benefits and certain remuneration paid to same-sex spouses, including overpayments 2 that result from a taxpayer’s retroactive application of the holdings of Rev. Rul. 2013-17.

With respect to these overpayments for 2013, this notice provides two alternative special administrative procedures. Under the first alternative, employers may use the fourth quarter 2013 Form 941, Employer’s QUARTERLY Federal Tax Return, to correct these overpayments of employment taxes for the first three quarters of 2013. Under the second alternative, employers may file one Form 941-X, Adjusted Employer's

QUARTERLY Federal Tax Return or Claim for Refund, for the fourth quarter of 2013 to correct these overpayments of FICA taxes for all quarters of 2013.

With respect to these overpayments of FICA taxes for years before 2013, employers can make a claim or adjustment for all four calendar quarters of a calendar year on one Form 941-X filed for the fourth quarter of such year if the period of limitations on refunds under section 6511 of the Internal Revenue Code (Code) has not expired and, in the case of adjustments, the period of limitations will not expire within 90 days of filing the adjusted return. Under normal procedures, employers are required to file a Form 941-X for each calendar quarter for which a refund claim or adjustment is made.

The special administrative procedures provided in this notice are optional.

Employers that prefer to use the regular procedures for correcting employment tax overpayments related to same-sex spouse benefits and remuneration paid to same-sex spouses, instead of the special administrative procedures, may do so.

BACKGROUND

Effect of Windsor and Revenue Ruling 2013-17 3

A number of income tax and employment tax provisions provide for exclusions

from gross income and wages, respectively, for certain benefits provided to the spouse

of an employee. In addition, services performed by an individual in the employ of the

individual’s spouse that are not in the course of the employer’s trade or business or that

are domestic services in the employer’s private home are excepted from FICA tax under

section 3121(b)(3)(B).1 Until the recent decision of the Supreme Court in Windsor, the

IRS interpreted section 3 of the Defense of Marriage Act (DOMA) as prohibiting it from recognizing same-sex marriages for purposes of these provisions. Section 3 of DOMA provided that:

In determining the meaning of any Act of Congress, or of any ruling, regulation or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.

1 U.S.C. § 7.

As a result, employers withheld and paid employment taxes with respect to certain benefits provided to the same-sex spouse of an employee because the marriage was not recognized for purposes of the Code, and the benefits were not treated as excludable from gross income or wages for Federal income or employment tax purposes, respectively. Employers may also have withheld and paid employment taxes

1 The Railroad Retirement Tax Act (RRTA) and the Federal Unemployment Tax Act (FUTA) also provide exceptions that can apply for same-sex spouse benefits and remuneration paid to same-sex spouses. RRTA taxes are generally paid on Form CT-1, Employer’s Annual Railroad Retirement Tax Act Return, and FUTA taxes are paid on Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, which are both annual returns. No special administrative procedures are needed to correct overpayments of taxes on same-sex spouse benefits and remuneration paid to same-sex spouses reported on those returns. However, some RRTA taxes are paid on Form CT-2, Employee Representative’s Quarterly Railroad Tax Return, which is a quarterly return, and the special administrative procedures in this notice can be used with respect to overpayments of RRTA tax on same-sex spouse benefits reported on Form CT-2. 4

on amounts paid for services performed by an individual in the employ of the individual’s

same-sex spouse without applying the employment tax exceptions for certain

remuneration paid to spouses.

In Windsor, the Court held that section 3 of DOMA is unconstitutional because it

violates the principles of equal protection, and on August 29, 2013, the IRS announced

the publication of Rev. Rul. 2013-17, which held:

1. for Federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes such a marriage between individuals of the same sex;

2. for Federal tax purposes, the IRS adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages; and

3. for Federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.

Rev. Rul. 2013-17 provides that its holdings will be applied prospectively as of

September 16, 2013, which is the date of publication of the ruling in the Internal

Revenue Bulletin. Except as otherwise provided in Rev. Rul. 2013-17, taxpayers also may rely on Rev. Rul. 2013-17 for the purpose of filing original returns, amended 5 returns, adjusted returns, or claims for credit or refund for any overpayment of tax resulting from these holdings, provided the applicable limitations period for filing such claim under section 6511 has not expired. Rev. Rul. 2013-17 also provides that if an affected taxpayer files an original return, amended return, adjusted return, or claim for credit or refund in reliance on Rev. Rul. 2013-17, all items required to be reported on the return or claim that are affected by the marital status of the taxpayer must be adjusted to be consistent with the marital status reported on the return or claim.

Rev. Rul. 2013-17 also provides that taxpayers may rely (subject to the conditions in the preceding paragraph regarding the applicable limitations period and consistency within the return or claim) on Rev. Rul. 2013-17 retroactively with respect to any employee benefit plan or arrangement or any benefit provided thereunder only for purposes of filing original returns, amended returns, adjusted returns, or claims for credit or refund of an overpayment of tax concerning employment tax and income tax with respect to employer-provided health coverage benefits or fringe benefits that were provided by the employer and are excludable from income under sections 106, 117(d),

119, 129, or 132 based on an individual’s marital status. For purposes of the preceding sentence, if an employee made a pre-tax salary-reduction election for health coverage under a section 125 cafeteria plan sponsored by an employer and also elected to provide health coverage for a same-sex spouse on an after-tax basis under a group health plan sponsored by that employer, an affected taxpayer may treat the amounts that were paid by the employee for the coverage of the same-sex spouse on an after- tax basis as pre-tax salary reduction amounts. 6

Employers may also rely (subject to the previously noted conditions regarding the

applicable limitations period and the consistency requirement) on the holdings in Rev.

Rul. 2013-17 for purposes of recognizing same-sex spouses as spouses in applying

exceptions from the definition of “employment” for employment tax purposes.

General Procedures for Corrections of Overpayments of Employment Taxes

Generally, corrections of overpayments of FICA tax are made after an error has

been ascertained using the adjustment process under section 6413 or using the refund

claim process under section 6402. An error is ascertained when the employer has

sufficient knowledge of the error to be able to correct it.

Under section 31.6413(a)-1(a) and section 31.6413(a)-2(b) of the Employment

Tax Regulations, before making an adjustment of an overpayment of FICA tax with

respect to an employee, an employer generally must repay or reimburse the employee

in the amount of the overcollection prior to the expiration of the period of limitations on

credit or refund, and, for FICA tax overcollected in a prior year, must also secure the

employee’s written statement confirming that the employee has not made any previous claims (or the claims were rejected) and will not make any future claims for refund or credit of the amount of the overcollected FICA tax. An employer repays the employee by direct payment to the employee; an employer reimburses an employee by applying the amount of the overcollection against the employee FICA tax which attaches to wages paid by the employer to the employee. Section 31.6413(a)-2(c)(2) provides that employers cannot adjust overpayments of withheld income tax after the end of the calendar year, except in the case of administrative errors. (An administrative error occurs if the amount the employer entered on Form 941 is not the amount the employer 7

actually withheld.) Section 31.6413(a)-2(d)(2) provides that no adjustment in respect of

an overpayment may be made if the overpayment relates to a return period for which

the period of limitations on credit or refund of such overpayment will expire within 90

days of filing the adjusted return.

Section 31.6402(a)-2 provides rules under which a refund claim for an

overpayment of FICA tax may be made. Pursuant to § 31.6402(a)-2(a), no refund or

credit for FICA employer tax will be allowed unless the employer has first repaid or reimbursed its employee for the employee FICA tax or has secured the employee’s consent to the allowance of the claim for refund and includes a claim for the refund of such employee tax. However, this requirement does not apply to the extent that the employee FICA taxes were not withheld from the employee or, after the employer makes reasonable efforts to repay or reimburse the employee or secure the employee’s consent, the employer cannot locate the employee or the employee will not provide consent. Under section 6414 and § 31.6414-1, no refund to the employer is allowed for the overpayment of withheld income tax which the employer deducted or withheld from an employee.

To make employment tax corrections for overpayments (that is, to make adjustments or to claim refunds), an employer uses the “X” form that corresponds to the return being corrected. Thus, an employer corrects overreported taxes on a previously filed Form 941 by filing Form 941-X. Generally, a separate X form must be filed for each taxable period.

In determining whether there has been an overpayment of employment taxes and the amount of any refund, credit, or adjustment, employers are required to take into 8

account the applicable wage base under the social security tax portion of the FICA tax,

and the tax rates in effect for the particular year.

Section 31.6051-1(c) requires an employer adjusting a return filed for a prior

year, or claiming a refund or credit of FICA taxes for a prior year, to file Forms W-2c,

Corrected Wage and Tax Statement, for such year. Section 31.6051-1(c) provides that the employer must file Forms W-2c correcting Forms W-2, Wage and Tax Statement, if an amount of employee social security or Medicare tax shown on the Form W-2 is incorrect and is adjusted or refunded; the amount of social security wages or Medicare wages shown on the Form W-2 is incorrect; the amount shown in Box 1, Wages, tips, other compensation, is incorrect; or the amount of income tax actually withheld from the employee is incorrectly reported in Box 2, Federal income tax withheld.

SPECIAL ADMINISTRATIVE PROCEDURES FOR EMPLOYMENT TAX

ADJUSTMENTS AND CLAIMS FOR REFUND

To reduce administrative burden, this notice provides special administrative procedures for adjustments and claims for refunds or credits for overpayments of employment taxes attributable to same-sex spouse benefits, including overpayments that result from a taxpayer’s retroactive application of the holdings in Rev. Rul. 2013-17.

For purposes of this notice, “same-sex spouse benefits” refers to the benefits specified in Rev. Rul. 2013-17 for which amended income tax returns and adjusted employment tax returns or claims for refund or credit may be filed. These benefits are same-sex spouse employer-provided health coverage and fringe benefits that were provided by an employer to a same-sex spouse and are excludable from income under section 106,

117(d), 119, 129, or 132 based on an individual’s marital status. For purposes of the 9 preceding sentence, if an employee made a pre-tax salary-reduction election for health coverage under a section 125 cafeteria plan sponsored by an employer and also elected to provide health coverage for a same-sex spouse on an after-tax basis under a group health plan sponsored by that employer, an affected taxpayer may treat the amounts that were paid by the employee for the coverage of the same-sex spouse on an after-tax basis as pre-tax salary reductions amounts. Thus, for purposes of this notice, employment taxes paid on after-tax amounts that were used to purchase health coverage for an employee’s same-sex spouse under the circumstances described in the preceding sentence are treated as overpayments of employment taxes.

In addition, for purposes of this notice, “same-sex spouse benefits” includes remuneration for services that is excepted from the definition of employment for FICA purposes under the holdings in Rev. Rul. 2013-17 because the services are within the exception of section 3121(b)(3)(B).

Employment Tax Returns for Third Quarter 2013 (July, August, September)

If an employer withholds employment taxes with respect to same-sex spouse benefits paid to or on behalf of an employee in the third quarter of 2013, ascertains the amount withheld on such benefits, and repays or reimburses the employee for the amount of such taxes before filing the third quarter 2013 Form 941, the employer will not report the wages and withholding on the third quarter 2013 Form 941. If the employer does not repay or reimburse the employee for the amount of the overcollection before filing the third quarter 2013 Form 941, the employer must report the amount of the overcollection on that return and can use one of the special 10

administrative procedures for 2013 described below to make an adjustment or claim a

refund for the overpayment.

Special Administrative Procedures for Adjustments for 2013 on Fourth Quarter 2013

Form 941 or Fourth Quarter 2013 Form 941-X

The IRS is providing two alternative special administrative procedures for

employers that treated the value of same-sex spouse benefits as wages on Forms 941 for the first three quarters of 2013 and that seek to correct overpayments of employment taxes attributable to the benefits.2

(1) Under the first alternative, an employer must repay or reimburse its employees for the amount of the overcollected FICA tax and the overcollected income

tax withholding with respect to the same-sex spouse benefits for the first three quarters

of 2013 on or before December 31, 2013. After repaying or reimbursing the employees, the employer, in reporting amounts on its fourth quarter 2013 Form 941, may reduce the

fourth quarter wages, tips, and other compensation reported on line 2, taxable social

security wages reported on line 5a (subject to the wage base limitation discussed below), and taxable Medicare wages and tips reported on line 5c, by the amount of the same-sex spouse benefits treated as wages for the first three quarters of 2013. Also, the income tax withheld from wages, tips, and other compensation reported on line 3 of

Form 941 should be reduced by the amount of income tax withholding with respect to

2 The same procedures are available to filers of Form 941-SS, Employer’s QUARTERLY Federal Tax Return (American Samoa, Guam, the Commonwealth of Northern Mariana Islands, and the U.S. Virgin Islands), Form 941-PR, Planilla para la Declaración Federal TRIMESTRAL del Patrono, and Form CT-2, Employee Representative’s Quarterly Railroad Tax Return (different lines are applicable on Form CT-2). The special procedures are not needed for filers of Form CT-1, Employer’s Annual Railroad Retirement Tax Return, and Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, which are annual returns. 11

the same-sex spouse benefits that has been repaid or reimbursed to the employees by

the end of the calendar year. In addition, if the value of any same-sex spouse benefits

were included in taxable wages subject to Additional Medicare Tax withholding on line

5d, the amount of taxable wages subject to Additional Medicare Tax withholding on the fourth quarter 2013 Form 941 should be reduced. By taking advantage of this special administrative procedure, the employer will not have to file separate Forms 941-X to correct each of the first three quarters of 2013.

Under this special administrative procedure, the employer may only correct the

employer share of FICA tax that corresponds to the employee share of FICA tax that

has been repaid or reimbursed to the employees on or before December 31, 2013.

For the repayment or reimbursement of overwithheld social security tax and the corresponding reduction for taxable social security wages reported on Form 941, line

5a, the employer must take into account that adjustments of social security tax are limited to the tax paid on that portion of the value of the same-sex spouse benefits that, when added to other social security wages and tips for the year, does not exceed the social security wage base for 2013 ($113,700). Accordingly, if for a particular employee the value of same-sex spouse benefits was included in social security wages and, after the exclusion of the value of the same-sex spouse benefits from wages for 2013, the remaining social security wages of the employee are equal to or greater than $113,700, then no refund, credit, or adjustment of social security tax can be made for 2013 for that employee.

To ensure that use of this special administrative procedure for the 2013 fourth quarter Form 941 does not result in a mismatch between total taxes reported on line 10 12

(total taxes after adjustments) and total liability for the quarter reported on line 16 for a monthly schedule depositor or on Schedule B (Form 941) for a semiweekly schedule depositor, the employer should use the following procedures.

If the employer repays or reimburses the employee share of FICA taxes or income tax withholding to employees before the fourth quarter (i.e., before October 1,

2013), the repayment or reimbursement and the corresponding reduction of the employer portion of FICA tax should be reflected by reductions in the amount reported by a monthly schedule depositor on line 16 (Tax liability: Month 1 (October)) or by a semiweekly schedule depositor on Schedule B (Form 941), Day 1 (October 1) of the

Tax liability for Month 1. Negative numbers must not be entered on Line 16 or Schedule

B (Form 941). If the amount of the adjustment for repayments and reimbursements exceeds the liability of the quarter reported for Month 1 or Day 1, the employer should apply the amount of the remaining adjustment to reduce liabilities in calendar order until the amount of the remaining adjustment is completely used. For example, if the employer’s tax liability for October on line 16 would be negative (due to the adjustment for repayments and reimbursements made before or during the fourth quarter), the employer should not enter a negative amount for the month. Instead, the employer should enter zero for October and subtract the negative amount from the tax liability for

November.

If the employer repays or reimburses the employee share of FICA taxes or income tax withholding to employees during the fourth quarter (i.e., after September 30,

2013 and on or before December 31, 2013), the repayment or reimbursement and the corresponding reduction of the employer portion of FICA tax should be reflected by 13

reductions in the amount reported on line 16 of the fourth quarter Form 941 or Schedule

B (Form 941) on the date of the repayment or reimbursement or on the next date after the date of the repayment or reimbursement such that it will not reduce any amount on line 16 or Schedule B (Form 941) below zero.

(2) Under the second alternative, an employer that does not repay or reimburse employees for the amount of withheld FICA and income taxes with respect to same-sex spouse benefits provided in 2013 on or before December 31, 2013, and thus, files the

2013 fourth quarter Form 941 without making the adjustment, may correct overpayments of FICA taxes with respect to same-sex spouse benefits paid in 2013 using Form 941-X. Under this option, an employer may file one Form 941-X for the fourth quarter of 2013 to make adjustments or claim refunds or credits of overpayments of FICA taxes with respect to same-sex spouse benefits paid in all quarters of 2013, provided the employer has satisfied the usual requirements for filing Form 941-X, including repaying or reimbursing the overcollected employee FICA tax to employees

(or, for refund claims, securing consents from employees), and obtaining the required

written statements from employees. The employer should write “WINDSOR” in dark,

bold letters across the top margin of page 1 of Form 941-X. Only corrections made

under this special administrative procedure may be shown on this Form 941-X.

An employer may not make an adjustment for an overpayment of income tax

withholding for a prior calendar year unless the overpayment is attributable to an

administrative error. An employer may not claim a refund or credit for an overpayment

of income tax withholding if the tax was deducted and withheld from the employee.

Accordingly, this second special administrative procedure for 2013 cannot be used with 14

regard to income tax withheld from employees with respect to same-sex spouse

benefits in 2013 because an employer can use this Form 941-X procedure only if the

employer did not repay or reimburse employees for the amount of withheld taxes with

respect to same-sex spouse benefits provided in 2013 on or before December 31, 2013.

In such case, employees will receive credit for the income tax withheld for purposes of

determining any entitlement to a refund of income tax paid with respect to same-sex

spouse benefits provided in 2013 when they file Form 1040, U.S. Individual Income Tax

Return.

Special Administrative Procedure for Adjustments or Claims for Refund for Years Before

2013

The IRS is also providing a special administrative procedure for employers to

make adjustments or claims for refund or credit of overpayments of FICA taxes paid

with respect to same-sex spouse benefits for any year before 2013 for which the

applicable period of limitations on credit or refund has not expired. Under this procedure, the employer must take into account the applicable social security wage

base in determining the overpayment of FICA taxes for the prior year being corrected.

Under this procedure, the employer may file one Form 941-X for the fourth quarter of the prior year. This fourth quarter Form 941-X would include the adjustments or refunds for all overpayments of employment taxes with respect to same-sex spouse benefits provided during such prior year, including overpayments reflected in the Forms 941 for the first three quarters of the year. The employer should write “WINDSOR” in dark, bold letters across the top margin of page 1 of Form 941-X. Only corrections made under

this special administrative procedure may be shown on this Form 941-X. 15

Although the employer may file for all four quarters of a prior year on the fourth quarter Form 941-X, this special administrative procedure is subject to the usual requirements that apply in the case of corrections of overpayments for prior years, including the filing of Forms W-2c, repaying or reimbursing employees for the overwithheld taxes, and obtaining the required written statements (and consents if applicable) from employees.

An employer may not make an adjustment for an overpayment of income tax withholding for a prior calendar year unless the overpayment is attributable to an administrative error. An employer may not claim a refund or credit for an overpayment of income tax withholding if the tax was deducted and withheld from the employee.

Accordingly, this special administrative procedure for prior years cannot be used with regard to income tax withheld from employees with respect to same-sex spouse benefits in prior years. Employees may receive refunds of income tax paid with respect to same-sex spouse benefits in prior years by filing Form 1040X, Amended U.S.

Individual Income Tax Return. As indicated above, an employer filing a claim for refund or credit or making adjustments for prior years must file Forms W-2c for the prior years.

Forms W-2c will assist employees in claiming a refund of income tax.

DRAFTING INFORMATION

The principal author of this notice is Alfred G. Kelley of the Office of Division

Counsel/Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this notice, contact Mr. Kelley at (202) 622-6040 (not a toll-free call). Tab 20

Sections 125 and 223 – Cafeteria Plans, Flexible Spending Arrangements, and Health Savings Accounts – Elections and Reimbursements for Same-Sex Spouses Following the Windsor Supreme Court Decision

Notice 2014-1

I. PURPOSE

This notice provides guidance on the application of the rules under section 125 of the Internal Revenue Code (Code) (relating to cafeteria plans, including health and dependent care flexible spending arrangements (FSAs)), and section 223 of the Code (relating to health savings accounts (HSAs)), as those two provisions relate to the participation by same-sex spouses in certain employee benefit plans following the Supreme Court decision in United States v. Windsor, 570 U.S. ___, 133 S. Ct. 2675 (2013), and the issuance of Rev. Rul. 2013-17, 2013-38 I.R.B. 201. This notice amplifies the previous guidance provided in Rev. Rul. 2013-17.

II. BACKGROUND

A. Cafeteria Plans, Health and Dependent Care FSAs, and HSAs

Section 125(d)(1) defines a cafeteria plan as a written plan under which all participants are employees and the participants may choose among two or more benefits consisting of cash and qualified benefits. Section 125(f) defines a qualified benefit as any benefit which, with the application of section 125(a), is not includable in the gross income of the employee by reason of an express provision of Chapter I of the Code (with certain exceptions). Qualified benefits include contributions to an employer-provided accident and health plan that are excludable from gross income under section 106.

Under Treas. Reg. § 1.106-1, the gross income of an employee does not include contributions that his employer makes to an accident or health plan for compensation (through insurance or otherwise) to the employee for personal injuries or sickness incurred by the employee, the employee’s spouse and dependents, and certain other individuals.

Treas. Reg. § 1.125-4 provides that a cafeteria plan may permit an employee to revoke an election during a period of coverage and make a new election under certain circumstances. One circumstance under which a cafeteria plan may permit an employee to make a new election is a change in status event under Treas. Reg. § 1.125-4(c), including a change in legal marital status. Another circumstance under which a cafeteria plan may permit an employee to make a new election is a significant change in the cost of coverage under Treas. Reg. § 1.125-4(f).

Prop. Treas. Reg. § 1.125-5 defines a FSA as a benefit program that provides

employees with coverage that reimburses specified incurred expenses (subject to reimbursement maximums and any other reasonable conditions). Prop. Treas. Reg. § 1.125-5(h) provides that the benefits that may be offered through FSAs include dependent care assistance programs under section 129 and medical reimbursement arrangements under section 105.

Section 129 provides that the maximum exclusion from gross income under a dependent care assistance program is $5,000 for an individual or a married couple filing jointly or $2,500 for a married individual filing separately.

Section 223(d) defines a HSA as a trust created or organized in the United States as a health savings account exclusively for the purpose of paying the qualified medical expenses of the account beneficiary and that satisfies other delineated requirements. The term “qualified medical expenses” is defined in section 223(d)(2) to include amounts paid by a beneficiary for medical care for that individual and the spouse of that individual. Section 223(a) allows a deduction for an eligible individual in an amount equal to the aggregate amount paid in cash during a taxable year by or on behalf of the individual to a HSA. The maximum deduction for the 2013 taxable year is limited to $6,450 (as adjusted for cost-of-living increases) in the case of an eligible individual who has family coverage under a high-deductible health plan (HDHP); see Rev. Proc. 2012- 26, 2012-20 I.R.B. 933. In the case of married individuals either one of whom has family coverage under a HDHP, the HSA deduction limitation is divided equally among the spouses unless they agree on a different division.

B. Defense of Marriage Act

Until the recent decision of the Supreme Court in Windsor found it unconstitutional, section 3 of the Defense of Marriage Act (DOMA) prohibited the recognition of same- sex marriages for purposes of federal tax law. Specifically, section 3 of DOMA (1 U.S.C. § 7) provided that:

As a result, employers could not permit employees to elect coverage of same-sex spouses on a pre-tax basis under a cafeteria plan unless the spouse otherwise qualified as a tax dependent of the employee.

C. Effect of the Windsor decision and Rev. Rul. 2013-17

In Windsor, the Supreme Court held on June 26, 2013 that section 3 of DOMA is unconstitutional because it violates Fifth Amendment principles. Rev. Rul. 2013-17, interpreting the Windsor decision, held the following:

1. For Federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes such a marriage between individuals of the same sex;

2. For Federal tax purposes, the IRS adopts a general rule recognizing a marriage of same-sex individuals that was validly entered into in a state whose laws authorize the marriage of two individuals of the same sex even if the married couple is domiciled in a state that does not recognize the validity of same-sex marriages; and

3. For Federal tax purposes, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.

Rev. Rul. 2013-17 provides that taxpayers may rely on its holdings retroactively with respect to any employee benefit plan or arrangement or any benefit provided thereunder only for purposes of filing original returns, amended returns, adjusted returns, or claims for credit or refund of an overpayment of tax concerning employment tax and income tax with respect to employer-provided health coverage benefits or fringe benefits that were provided by the employer and are excludable from income under sections 106, 117(d), 119, 129, or 132 based on an individual’s marital status. The ruling further provides that, for purposes of the preceding sentence, if an employee made a pre-tax salary-reduction election for health coverage under a section 125 cafeteria plan sponsored by an employer and also elected to provide health coverage for a same-sex spouse on an after-tax basis under a group health plan sponsored by that employer, an affected taxpayer may treat the amounts that were paid by the employee for the coverage of the same-sex spouse on an after-tax basis as pre-tax salary reduction amounts.

Notice 2013-61, 44 I.R.B. 432, contains special administrative procedures for employers who want to make adjustments or claims for refund or credit of employment taxes paid with respect to the value of same-sex spousal benefits that are excludable from the income and wages of an employee under the Windsor decision, as interpreted by Rev. Rul. 2013-17.

The following questions and answers provide further guidance on the application of the Windsor decision with respect to certain rules governing the federal tax treatment of certain types of employee benefit arrangements.

III. QUESTIONS AND ANSWERS

With respect to the following guidance, references to “marriage” or “spouse” refer to individuals who at the relevant date or for the relevant period of time would be treated as married or as spouses under the holdings in Rev. Rul. 2013-17.

Mid-Year Election Changes

Q-1: If a cafeteria plan participant was lawfully married to a same-sex spouse as of the date of the Windsor decision, may the plan permit the participant to make a mid-year election change on the basis that the participant has experienced a change in legal marital status?

A-1: Yes. A cafeteria plan may treat a participant who was married to a same-sex spouse as of the date of the Windsor decision (June 26, 2013) as if the participant experienced a change in legal marital status for purposes of Treas. Reg. § 1.125-4(c). Accordingly, a cafeteria plan may permit such a participant to revoke an existing election and make a new election in a manner consistent with the change in legal marital status. For purposes of election changes due to the Windsor decision, an election may be accepted by the cafeteria plan if filed at any time during the cafeteria plan year that includes June 26, 2013, or the cafeteria plan year that includes December 16, 2013.

A cafeteria plan may also permit a participant who marries a same-sex spouse after June 26, 2013, to make a mid-year election change due to a change in legal marital status.

Any election made with respect to a same-sex spouse (and/or the spouse’s dependents) must satisfy the requirements of the regulations concerning election changes generally, including the consistency rule under Treas. Reg. § 1.125-4(c)(3).

Q-2: May a cafeteria plan permit a participant with a same-sex spouse to make a mid- year election change under Treas. Reg. § 1.125-4(f) on the basis that the change in tax treatment of health coverage for a same-sex spouse resulted in a significant change in the cost of coverage?

A-2: A change in the tax treatment of a benefit offered under a cafeteria plan generally does not constitute a significant change in the cost of coverage for purposes of Treas. Reg. § 1.125-4(f). Given the legal uncertainty created by the Windsor decision, however, cafeteria plans may have permitted mid-year election changes under Treas. Reg. § 1.125-4(f) prior to the publication of this notice.

As noted in Q&A-1 above, such an election change would have been permitted on the basis that the participant experienced a change in legal marital status. Accordingly, for periods between June 26 and December 31, 2013, a cafeteria plan will not be treated as having failed to meet the requirements of section 125 or Treas. Reg. § 1.125-4 solely

because the plan permitted a participant with a same-sex spouse to make a mid-year election change under Treas. Reg. § 1.125-4(f) as a result of the plan administrator’s interpretation that the change in tax treatment of spousal health coverage arising from the Windsor decision resulted in a significant change in the cost of health coverage.

Q-3: When does an election made by a participant in connection with the Windsor decision take effect?

A-3: An election made under a cafeteria plan with respect to a same-sex spouse as a result of the Windsor decision generally takes effect as of the date that any other change in coverage becomes effective for a qualifying benefit that is offered through the cafeteria plan.

With respect to a change in status election that was made by a participant in connection with the Windsor decision between June 26, 2013 and December 16, 2013, the cafeteria plan will not be treated as having failed to meet the requirements of section 125 or Treas. Reg. § 1.125-4 to the extent that coverage under the cafeteria plan becomes effective no later than the later of (a) the date that coverage under the cafeteria plan would be added under the cafeteria plan’s usual procedures for change in status elections, or (b) a reasonable period of time after December 16, 2013.

The rules set forth in Q&A-1 through Q&A-3 are illustrated by the following examples:

Example 1. Employer sponsors a cafeteria plan with a calendar year plan year. Employee A married same-sex Spouse B in October 2012 in a state that recognized same-sex marriages. During open enrollment for the 2013 plan year, Employee A elected to pay for the employee portion of the cost of self-only health coverage through salary reduction under the cafeteria plan.

Employer permits same-sex spouses to participate in its health plan. On October 5, 2013, Employee A elected to add health coverage for Spouse B under Employer’s health plan, and made a new salary reduction election under the cafeteria plan to pay for the employee portion of the cost of Spouse B’s health coverage. Employer was not certain whether such an election change was permissible, and accordingly declined to implement the election change until the publication of this notice.

After publication of this notice, Employer determines that Employee A’s revised election is permissible as a change in status election in accordance with this notice. Employer enrolls Spouse B in the health plan as of December 20, 2013, and begins making appropriate salary reductions from the compensation of Employee A for Spouse B’s coverage beginning with the pay period starting December 20, 2013. The cafeteria plan is administered in accordance with this notice.

Example 2. Same facts as Example 1, except that Employee A submitted the

election to add health coverage for Spouse B under Employer’s cafeteria plan on September 1, 2013. Prior to publication of this notice, Employer implemented the election change and enrolled Spouse B in the health plan as of October 1, 2013, and began making appropriate salary reductions from the compensation of Employee A for Spouse B’s coverage beginning with the pay period starting October 1, 2013. The cafeteria plan was administered in accordance with this notice.

Q-4: If a cafeteria plan participant has elected to pay for the employee cost of health coverage for the employee on a pre-tax basis through salary reduction under a cafeteria plan, and is also paying the employee cost of health coverage for a same-sex spouse under a health plan of the employer on an after-tax basis, when, and under what circumstances, must an employer begin to treat the amount that the employee pays for spousal coverage as a pre-tax salary reduction?

A-4 An employer that, before the end of the cafeteria plan year including December 16, 2013, receives notice that such a participant is married to the individual receiving health coverage must begin treating the amount that the employee pays for the spousal coverage as a pre-tax salary reduction under the plan no later than the later of (a) the date that a change in legal marital status would be required to be reflected for income tax withholding purposes under section 3402, or (b) a reasonable period of time after December 16, 2013.

For this purpose, a participant may provide notice of the participant’s marriage to the individual receiving health coverage by making an election under the employer’s cafeteria plan to pay for the employee cost of spousal coverage through salary reduction (as permitted under Q&A-1) or by filing a revised Form W-4 representing that the participant is married.

Q-5: How does the Windsor decision affect the tax treatment of health coverage for a same-sex spouse in the case of a cafeteria plan participant who had been paying for the cost of same-sex spouse coverage on an after-tax basis?

A-5: In the case of a cafeteria plan participant who elected to pay for the employee cost of health coverage for the employee on a pre-tax basis through salary reduction under a cafeteria plan and also paid for the employee cost of health coverage for a same-sex spouse under the employer’s health plan on an after-tax basis, the participant’s salary reduction election under the cafeteria plan is deemed to include the employee cost of spousal coverage, even if the employer reports the amounts as taxable income and wages to the participant. Accordingly, the amount that the participant pays for spousal coverage is excluded from the gross income of the participant and is not subject to federal income or federal employment taxes. This rule applies to the cafeteria plan year including December 16, 2013 and any prior years for which the applicable limitations period under section 6511 has not expired.

In general, Q&A-4 and Q&A-5 provide that a cafeteria plan participant may choose to

pay for the employee cost of same-sex spouse coverage on a pre-tax basis through the remaining pay periods in the current cafeteria plan year by providing notice of the participant’s marital status to the employer or the cafeteria plan, or to continue paying for these benefits on an after-tax basis. In either case, the participant may seek a refund of federal income or federal employment taxes paid on any amounts representing the employee cost of spousal health coverage that were treated as after-tax and may exclude these amounts from gross income when filing an income tax return for the year.

The rules set forth in Q&A-4 and Q&A-5 are illustrated by the following example:

Example 3. Same facts as Example 1, except that starting January 1, 2013, Employee A paid for the employee portion of health coverage for Spouse B under Employer’s group health plan on an after-tax basis. The value of Spouse B’s health coverage was $500 per month, and this amount was included as taxable income and wages to Employee A for payroll purposes with respect to all pay periods starting January 1, 2013.

On October 5, 2013, Employee A made a change in status election under the cafeteria plan electing to pay for the employee cost of Spouse B’s health coverage on a pre-tax basis through salary reduction. Employer implemented the change in status election on November 1, 2013, and excluded the cost of Spouse B’s coverage from Employee A’s gross income and wages with respect to all remaining pay periods in 2013 starting November 1, 2013.

Employee A and Spouse B file a joint federal income tax return for 2013. The value of Spouse B’s health coverage for the full 2013 taxable year (including the $5,000 of coverage ($500 per month for 10 months) that was initially reported by Employer as includable in gross income with respect to all pay periods from January through October) may be excluded from gross income on the couple’s joint return for 2013. Employee A may also request a refund of any federal employment taxes paid on account of such coverage.

FSA Reimbursements

Q-6: May a cafeteria plan permit a participant’s FSA to reimburse covered expenses incurred by the participant’s same-sex spouse during a period beginning on a date that is no earlier than (a) the beginning of the cafeteria plan year including the date of the Windsor decision or (b) the date of marriage, if later?

A-6: Yes. A cafeteria plan may permit a participant’s FSA, including a health, dependent care, or adoption assistance FSA, to reimburse covered expenses of the participant’s same-sex spouse or the same-sex spouse’s dependent that were incurred during a period beginning on a date that is no earlier than (a) the beginning of the cafeteria plan year that includes the date of the Windsor decision or (b) the date of marriage, if later. For this purpose, the same-sex spouse may be treated as covered by the FSA (even if the participant had initially elected coverage under a self-only FSA)

during that period. For example, a cafeteria plan with a calendar year plan year may permit a participant’s FSA to reimburse covered expenses of the participant’s same-sex spouse or the same-sex spouse’s dependent that were incurred during a period beginning on any date that is on or after January 1, 2013 (or the participant’s date of marriage if later).

The rules set forth in Q&A-6 are illustrated by the following examples:

Example 4. Same facts as Example 1, except that Employer’s cafeteria plan included a health FSA. For the plan year beginning January 1, 2013, Employee A elected $2,500 in coverage under the health FSA.

On October 5, 2013, Employee A elected to add health coverage for Spouse B under Employer’s group health plan, and made a new salary reduction election under the cafeteria plan to pay for the employee cost of Spouse B’s health coverage. On October 15, 2013, Employee A submitted a reimbursement request under the health FSA including a properly substantiated health care expense incurred by Spouse B on July 15, 2013.

Employee A’s FSA may reimburse the covered expense.

Example 5. Same facts as Example 4, except that Employee A did not elect to add health coverage for Spouse B under Employer’s group health plan. On October 15, 2013, Employee A submitted a reimbursement request under the health FSA including a properly substantiated health care expense incurred by Spouse B on July 15, 2013. The reimbursement request included a representation that Employee A was legally married to Spouse B on the date that the health care expense was incurred.

Employee A’s FSA may reimburse the covered expense.

Contribution Limits for HSAs and Dependent Care Assistance Programs

Q-7: Is a same-sex married couple subject to the joint deduction limit for contributions to a HSA?

A-7: Yes. The maximum annual deductible contribution to one or more HSAs for a married couple either of whom elects family coverage under a HDHP is $6,450 for the 2013 taxable year (as adjusted for cost of living increases). This deduction limit applies to same-sex married couples who are treated as married for federal tax purposes with respect to a taxable year (that is, couples who remain married as of the last day of the taxable year), including the 2013 taxable year.

Q-8: If each of the spouses in a same-sex married couple elected to make contributions to separate HSAs that, when combined, exceed the applicable HSA contribution limit for a married couple, how can the excess contribution be corrected?

A-8: If the combined HSA contributions elected by two same-sex spouses exceed the applicable HSA contribution limit for a married couple, contributions for one or both of the spouses may be reduced for the remaining portion of the tax year in order to avoid exceeding the applicable contribution limit. To the extent that the combined contributions to the HSAs of the married couple exceed the applicable contribution limit, any excess may be distributed from the HSAs of one or both spouses no later than the tax return due date for the spouses, as permitted under section 223(f)(3). Any such excess contributions that remain undistributed as of the due date for the filing of the spouse’s tax return (including extensions) will be subject to excise taxes under section 4973.

The rules set forth in Q&A-7 and Q&A-8 are illustrated by the following example:

Example 6. Same-sex spouses C and D were married in a state recognizing same-sex marriages in December 2012. For the period beginning January 1, 2013, Spouse C elected family coverage under a HDHP and elected to make $6,000 in contributions to a HSA. For the same period, Spouse D separately elected family coverage under a HDHP and elected to make $4,000 in contributions to a HSA.

As a result of the Windsor decision and Rev. Rul. 2013-17, Spouses C and D became recognized as legal spouses for federal tax purposes. The spouses remained married for the remainder of the 2013 taxable year.

Under section 223(b) (as adjusted for increases in the cost of living), the maximum deductible contribution to a HSA for 2013 for a married couple either of whom elects family coverage under a HDHP is $6,450. The combined HSA contributions made by Spouses C and D for the 2013 taxable year totaled $10,000, which exceeded the allowable deduction limit by $3,550.

On February 15, 2014, Spouse C receives a HSA distribution of $3,550, plus an additional $150 in income attributable to the $3,550 excess contribution. The $150 in income on the excess contributions is includable in Spouse C’s gross income for 2014, as provided in section 223(f)(3)(A). Because the distribution was made prior to the due date for Spouse C’s federal tax return, the $3,550 in excess contributions is not subject to excise taxes under section 4973.

Q-9: Is a same-sex married couple subject to the exclusion limit for contributions to a dependent care FSA?

A-9: Yes. The maximum annual contribution to one or more dependent care FSAs for a married couple is $5,000. This limit applies to same-sex married couples who are treated as married for federal tax purposes with respect to a taxable year (that is, couples who remain married as of the last day of the taxable year), including the 2013 taxable year.

Q-10: If each of the spouses in a same-sex married couple elected to make dependent care FSA contributions that, when combined, exceed the applicable exclusion limit for a married couple, how can the excess contribution be corrected?

A-10: If the combined dependent care FSA contributions elected by the same-sex spouses exceed the applicable contribution limit for a married couple, contributions for one or both of the spouses may be reduced for the remaining portion of the tax year in order to avoid exceeding the applicable contribution limit. To the extent that the combined contributions to the dependent care FSAs of the married couple exceed the applicable contribution limit, the amount of excess contributions will be includable in the spouses’ gross income as provided in section 129(a)(2)(B).

The rules set forth in Q&A-9 and Q&A-10 are illustrated by the following example:

Example 7. Same-sex spouses E and F were married throughout 2013. For the period beginning January 1, 2013, Spouse E elected to make contributions to a dependent care FSA in the amount of $5,000. For the same period, Spouse F separately elected to make contributions to a dependent care FSA in the amount of $2,500.

As a result of the Windsor decision and Rev. Rul. 2013-17, Spouses E and F became recognized as legal spouses for federal tax purposes.

On November 1, 2013, Spouse E made a change in status election under the cafeteria plan electing to cease all dependent care FSA contributions for the remainder of the year. By December 31, 2013, the total amount of dependent care FSA contributions made by Spouse E was $4,000.

Spouses E and F filed separate returns for the 2013 taxable year. Under section 129(b)(2)(A), the maximum exclusion relating to a dependent care assistance program is $2,500 in the case of a separate return by a married individual. Spouse F is permitted to claim the full $2,500 exclusion for contributions to Spouse F’s dependent care FSA.

Spouse E made contributions to a dependent care FSA in the amount of $4,000, which exceeds the applicable exclusion limit by $1,500. Spouse E must include this $1,500 excess contribution in gross income. The amount of the excess contribution will remain credited to the FSA to reimburse allowable claims in accordance with plan terms (or be forfeited to the extent that allowable claims are not submitted).

IV. WRITTEN PLAN AMENDMENT

A cafeteria plan containing written terms permitting a change in election upon a change in legal marital status generally is not required to be amended to permit a change in

status election with regard to a same-sex spouse in connection with the Windsor decision. To the extent that the cafeteria plan sponsor chooses to permit election changes that were not previously provided for in the written plan document, the cafeteria plan must be amended to permit such election changes on or before the last day of the first plan year beginning on or after December 16, 2013. Such an amendment may be effective retroactively to the first day of the plan year including December 16, 2013, provided that the cafeteria plan operates in accordance with the guidance under this notice.

V. EFFECTIVE DATE

This notice is effective as of December 16, 2013.

VI. EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2013-17 is amplified by extending the relief available to employees who have purchased health coverage for a same-sex spouse by permitting a mid-year cafeteria plan election change.

VII. DRAFTING INFORMATION

The principal author of this notice is Shad C. Fagerland of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice contact Mr. Fagerland at (202) 317-5500 (not a toll-free call).

11 Tab 21 Frequently Asked Questions San Francisco Health Care Security Ordinance and the Affordable Care Act First Posted 10/21/2013 Most Recently Updated 12/20/2013

These answers are subject to change as new information or regulatory guidance becomes available.

The Patient Protection and Affordable Care Act (PPACA), commonly called the Affordable Care Act (ACA) or “Obamacare,” is a federal statute signed into law by President Obama on March 23, 2010. Many provisions of the ACA are scheduled to go into effect on January 1, 2014. The OLSE is publishing this set of FAQs to address some of the most common questions we are receiving from San Francisco employers and employees regarding the ACA’s impact on the San Francisco Health Care Security Ordinance.

1. QUESTIONS FROM EMPLOYERS a) Is the HCSO Employer Spending Requirement scheduled to expire or go away when the ACA takes effect in 2014?

No, the HCSO Employer Spending Requirement is not scheduled to expire or go away when federal health reform takes effect in 2014. The ACA does not preempt or regulate the HCSO, and Covered Employers will be required to continue meeting the HCSO Employer Spending Requirement for their Covered Employees in 2014.

b) Has the Affordable Care Act changed federal rules and requirements regarding the use of stand-alone Health Reimbursement Accounts (HRAs)?

Yes, the Affordable Care Act has made significant changes to federal regulation and guidance regarding Health Reimbursement Accounts that may impact the permissibility of such contributions under federal law. Consult these federal resources and proper counsel when deciding whether such contributions comply with the ACA:

Preamble to the Interim Final Rules Implementing PHS Act Section 2711 (75 FR 37188, at 37191) (June 28, 2010) https://webapps.dol.gov/federalregister/PdfDisplay.aspx?DocId=23983

FAQs about Affordable Care Act Implementation Part XI (January 24, 2013) http://www.dol.gov/ebsa/faqs/faq-aca11.html

IRS Notice 2013-54 (September 14, 2013) http://www.irs.gov/pub/irs-drop/n-13-54.pdf

The HCSO has not changed, and contributions to reimbursement programs, including HRAs, will continue to be valid health care expenditures for the purpose of meeting the HCSO’s Employer Spending Requirement. Section 14.1(b)(7)(A) of the HCSO establishes that contributions to a health savings account “or to any other account having substantially the same purpose or effect” are among the list of valid health care expenditures. c) If my business elects to no longer allocates funds to HRAs, what are my options to satisfy the HCSO's Employer Spending Requirement in 2014?

The options available to your business for satisfying the HCSO’s Employer Spending Requirement in 2014 and beyond remain the same.

The HCSO requires Covered Employers to make Health Care Expenditures to or on behalf of their covered employees each quarter. A Health Care Expenditure is any amount paid by a Covered Employer to its Covered Employees or to a third party on behalf of its Covered Employees for the purpose of providing health care services for Covered Employees or reimbursing the cost of such services for its Covered Employees.

Some examples of Health Care Expenditures that meet the requirements of the HCSO include:

• Payments to a third party to provide health care services for the Covered Employee, such as payments for health insurance or payments to a health care provider; • Payments on behalf of the Covered Employee to the City Option ; • Contributions on behalf of the Covered Employee to a reimbursement program; • Payments to the Covered Employee to reimburse the employee for costs incurred in the purchase of health care services; and, • Costs incurred by the employer in the direct delivery of health care services for the Covered Employee. d) If my business elects not to make HRA contributions commencing in 2014, what happens to existing HRA balances at the end of 2013?

Q10: A: Please see FAQ Section O(3) below for more information on HRA balances remaining after December 31, 2013. (Updated December 20, 2013)

e) Will my business still be able to contribute to the “City Option” as a means of complying with the Employer Spending Requirement in 2014?

Yes, your business will be able to contribute to the “City Option” as a means of complying with the Employer Spending Requirement in 2014. f) How can I find out what new mandates the ACA places on my business?

The IRS website provides an overview of the tax provisions of the ACA that affect employers: http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions-for-Employers

Note that he ACA was scheduled to impose new requirements on employers effective January 1, 2014. These were to include new reporting requirements and "shared responsibility payments" for certain employers who failed to provide affordable health insurance to full-time employees.

However, on July 2, 2013, the U.S. Department of Treasury announced that employers will not be subject to these requirements until 2015 .

For more information, see the Department's announcement .

g) What processes are under way to review the implementation of the ACA in San Francisco and examine how the ACA integrates with local policy?

Mayor Ed Lee recently reconstituted the Universal Healthcare Council to "examine San Francisco's implementation of the Federal Affordable Care Act (ACA) and engage stakeholders in identifying necessary local policies to support the implementation process." Changes to the HCSO could occur in the future if the Board of Supervisors takes legislative action or the OLSE adopts new regulations.

2. QUESTIONS FROM EMPLOYEES

a) What is the Individual Mandate of the Affordable Care Act?

Under The Affordable Care Act (ACA), starting in 2014, everyone must: 1) have minimum essential health coverage, 2) qualify for an exemption, or 3) pay a federal tax penalty.

Please note that receiving a health benefit from your employer does not necessarily meet the condition of having minimum essential health coverage. Please consult the following resources for more information:

• the Questions and Answers on the Individual Shared Responsibility Provision page maintained by the IRS, and

• the "Requirement to Buy Coverage under the ACA" flowchart from the Kaiser Family Foundation.

b) Where can I get more information about obtaining affordable health insurance for myself and/or my family?

The ACA provides new opportunities to get high-quality, affordable health insurance.

For more information, please check the following resources:

• Covered California , the website for California's new health insurance exchange; and

• the Health Care Reform page maintained by the Healthy San Francisco program.

c) My employer currently offers an HRA. Will I be able to seek reimbursements through the HRA for my out-of-pocket health care expenses in 2014?

A: Please see FAQ Section O(3) below for more information on HRA balances remaining after December 31, 2013. (Updated December 20, 2013)

3. QUESTIONS FROM EMPLOYEES

a) Under the Health Care Security Ordinance (HCSO), what are an employer’s obligations with respect to unused funds credited to stand-alone HRA accounts before January 1, 2014?

To constitute a Health Care Expenditure on behalf of a Covered Employee, the HCSO requires that a contribution designated or paid to a reimbursement program, which is not irrevocably paid to a third party, remain available to the Covered Employee for a minimum of 24 months from the date of contribution. b) Given that most stand-alone HRAs will not comply with the requirements of the Affordable Care Act (ACA) that go into effect on January 1, 2014, will an employer face a federal tax penalty for continuing to administer its HRA (ie: without making new deposits) until the 24-month availability requirement is satisfied?

Probably not. Unused HRA funds credited before January 1, 2014, may still be used after December 31, 2013, in accordance with the terms of the HRA as they existed on January 1, 2013, without subjecting the employer to a penalty. However, the employer may not make any new contributions to non-ACA-compliant HRAs on or after January, 1, 2014, and some contributions made in 2013 may be subject to a ceiling.

d) Can employees use remaining HRA funds to purchase health insurance through Covered California?

Possibly. If an employer’s HRA plan permits employees to seek reimbursement for health insurance premiums, employees may use HRA funds to reimburse the cost of health insurance premiums purchased through health care exchanges such as Covered California the same as any other health insurance coverage.

Please note, however, that employees with health reimbursement accounts will be ineligible for federal premium assistance tax credits (subsidies) when purchasing insurance through Covered California for any month in which HRA funds remain available to the employee. This is true regardless of whether the employee uses the HRA funds to buy insurance through the exchange, uses them for other reimbursable expenses, or does not use the funds at all.

e) Are there any federal tax consequences for employees who have access to funds remaining in an employer’s Health Reimbursement Arrangement (HRA) after December 31, 2013?

Yes. The Internal Revenue Service considers an employee with a HRA to be enrolled in an employer-sponsored group health plan that constitutes “Minimum Essential Coverage.” Beginning January 1, 2014, the Affordable Care Act requires each individual taxpayer to have Minimum Essential Coverage or pay a tax penalty. Employees with HRAs will not be subject to this penalty. However, as noted in question 3, employees with HRAs will also be ineligible for federal premium assistance tax credits for any month in which the HRA funds remain available to the employee. f) Can employees opt out of HRAs and become eligible for federal premium assistance tax credits to assist with purchasing health insurance through Covered California?

Yes. Employees may forfeit the available funds. If they do so, those employees who meet certain residency, citizenship and income requirements and who do not have another source of Minimum Essential Coverage become eligible for federal premium assistance tax credits in the following month. g) If an employee opts out of an HRA and forfeits funds before the funds have been available for 24 months from the date of contribution, what are the employer’s responsibilities under the HCSO?

If an employee opts out of an HRA and forfeits available funds before those funds have been available for a minimum of 24 months from the date of contribution, the forfeited funds do not constitute Health Care Expenditures and do not satisfy the employer’s obligations under the Employer Spending Requirement of the HCSO. A contribution designated or paid to a reimbursement program, which is not irrevocably paid to a third party, constitutes a health care expenditure only if that contribution remains available to the employee for a minimum of 24 months from the date of contribution and meets other conditions described in Section 14.1(b)(7)(B) of the Ordinance. If the forfeited funds were not available for a minimum of 24 months, the employer will be required to make a valid Health Care Expenditure of an equivalent amount through another HCSO compliance strategy. See Question 3 above for more information.

4. HCSO FAQS SECTION: HCSO AND EXCEPTED BENEFITS a) What are “excepted benefits”?

“Excepted benefits” is a term used in the Affordable Care Act to describe certain kinds of health benefits that are “excepted” from some of the market reform requirements that the ACA requires other group health plans to meet. Excepted benefits are not “minimum essential coverage” and do not affect an employee’s eligibility to receive a premium assistance tax credit when buying insurance on Covered California. Employers can provide excepted benefits whether or not they also provide health insurance.

Section 9832(c) of the Internal Revenue Code and its accompanying regulations contain the full list of excepted benefits and place some limits on how they can be offered. But only some of those excepted benefits also qualify as “health care services” under the HCSO. Those benefits are: • dental benefits limited to treatment of the mouth; • vision benefits limited to treatment of the eye; • medical indemnity insurance; • long-term, nursing home, home health, or community-based care; and • coverage limited to a specific disease or illness.

Employers can provide excepted benefits to employees directly, through insurance, or by providing health reimbursement arrangements (HRAs).

b) Do employer payments for excepted benefits insurance premiums count as Health Care Expenditures under the HCSO?

Yes. Insurance premiums paid irrevocably to a third party for excepted benefits insurance plans that provide health care services constitute valid health care expenditures. Irrevocable payments to a third-party vendor for premiums for dental insurance, vision insurance, medical indemnity insurance, long-term, nursing home, home health, or community-based care insurance, and insurance limited to a specific disease or illness all count towards an employer’s minimum required expenditures under the HCSO.

c) Does an employer’s spending on a self-funded/self-insured excepted benefits plan qualify as a health care expenditure under the HCSO?

Yes. Expenditures for self-insured health plans, including self-insured plans that only provide Excepted Benefits, qualify as health care expenditures under the HCSO.

d) How does an employer that uses a self-funded/self-insured excepted benefits plan determine whether it has satisfied the Employer Spending Requirement of the HCSO?

HCSO Regulation 6.2(B)(2) provides that “[a] covered employer that provides health coverage to some or all of its covered employees through a self-funded/self-insured plan shall, with respect to those employees, be deemed to comply with the spending requirement of this Ordinance if the preceding year’s average expenditure rate per employee meets or exceeds the applicable expenditure rate (outlined in Regulation 5 ) for that employer.”

Accordingly, after the first year that the employer uses the self-insured/self-funded plan, the employer will receive credit for health care expenditures based on the previous year’s average actual expenditures per employee.

For the first plan year, the employer shall receive credit toward the employer spending requirement in the amount of the average actual expenditures per covered employee during the initial plan year. In order to receive credit for expenditures on self-insured/self-funded excepted benefits plans, the employer must request credit at the end of the calendar year and provide supporting documentation of actual expenditures on covered employees.

e) Do employer contributions to Excepted Benefit HRAs count as health care expenditures that satisfy the employer spending requirement under the HCSO?

Yes, provided they satisfy the HCSO’s additional requirements for contributions to HRAs. If the unused portions of contributions to a HRA will revert to the employer, then the contributions only qualify as “health care expenditures” if: 1) they are reasonably calculated to benefit the employee; 2) the funds remain available to the employee for 24 months after the date of the contribution; 3) the employer provides the employee with written notice of the contribution within 15 days; and 4) the employer meets additional requirements regarding separated employees. See FAQ F14 for additional information about separated employees. f) How will OLSE determine whether a contribution to an Excepted Benefits HRA is “reasonably calculated to benefit the employee”?

OLSE considers an employer’s contributions to an excepted benefits HRA that do not exceed the employer’s spending requirement for an employee who works an average of 20 hours per week to be reasonably calculated to benefit the employee, provided that the contributions meet all of the following criteria:

(1) The contribution may be used without restriction for full reimbursement of all excepted benefits that are also qualifying “health care expenditures” under the HCSO (see FAQ O(4)(a) for a list of those excepted benefits);

(2) The employee has at least a 90-day grace period after the contribution expires to submit claims for reimbursable expenses that the employee incurred before the contribution expired; and

(3) The criteria listed in (1) and (2) are in place at the beginning of the initial plan year or on April 1, 2014, whichever is later. g) What if my company’s Excepted Benefits HRA plan does not meet the criteria in FAQ O(4)(f) or I make contributions in excess of my employer spending requirement for a 20- hour-per-week employee? Will OLSE still count my contributions toward satisfying my employer spending requirement?

Possibly. The HCSO does not control the terms and conditions the employer places on an excepted benefits HRA, nor does it place any limit on the dollar amount of contributions an employer can make on behalf of its employees. Employers retain complete discretion over those decisions regardless of the HCSO. Accordingly, OLSE anticipates that some employers will choose to make contributions to excepted benefits HRAs under different terms or in greater amounts than those described in FAQ O(2)(f). OLSE will credit such contributions toward the employer spending requirement as follows:

A) Employer contributions to an excepted benefits HRA that does not meet one or more of the criteria in FAQ O(4)(f) .

To receive credit for contributions to an excepted benefits HRA that does not meet the criteria in FAQ O(4)(f), the employer must request credit at the end of the calendar year and provide supporting documentation showing that its contributions were reasonably calculated to benefit the employee. OLSE will presume that the contributions were reasonably calculated to benefit the employee if the reimbursement rate for the plan meets or exceeds the average reimbursement rate for excepted benefits HRAs that do comply with the criteria in FAQ O(4)(f). That presumption is rebuttable, and OLSE retains discretion to consider other factors, such as employee complaints, employer restrictions on reimbursable expenses, the employer’s compliance with employee notification and reporting requirements, and other indicators of the employer’s good faith. Reliance on advice from trade associations, brokers, or other private market actors will not be considered in determining employer good faith. If OLSE determines that the employer has not made the minimum required health care expenditures, the agency will require the employer to make remedy payments in the amount of the unmade health care expenditures and will assess penalties for noncompliance.

B) Employer contributions to an excepted benefits HRA that meets the criteria in FAQ O(2)(f) but exceed the employer spending requirement for an employee working an average of 20 hours per week.

Excess contributions will be credited toward the employer spending requirement in the amount that the employee actually uses the excess contributions. To receive credit for excess contributions, the employer must request credit at the end of the calendar year and provide supporting documentation of the employee’s actual use.

Tab 22 PENSION REFORM UPDATE – JUST THE TIP OF THE ICEBERG?

Effective January 1, 2013, the California Public Employees' Pension Reform Act of 2013 ("PEPRA") made sweeping changes to public pensions in California. But even as public employers and retirement systems have begun grappling with these numerous and complex changes, several recent legislative developments suggest that California pension reform may only be in its early stages. First, PEPRA, like any comprehensive legislation, had a few technical glitches that needed correction. At the end of last year, several clean up bills passed through the California legislature. Although the changes were primarily technical, one of these bills in particular, AB 1222, temporarily exempts certain transit workers from PEPRA. Second, mayors of several cities have proposed a statewide ballot initiative to amend the California Constitution to limit vested rights – perhaps the biggest obstacles to more extensive pension reform – to already-accrued benefits.

CLEAN-UP LEGISLATION

SB-13

Governor Brown signed SB-13, the much anticipated California Public Employees' Pension Reform of 2013 ("PEPRA") technical clean-up legislation, into law on October 4, 2013. Although mostly technical clean-up, SB-13 resolves several key questions about PEPRA's application that have perplexed public retirement systems since the law became effective last year. Most notably, SB-13:

Provides that it clarifies existing law, meaning that it is generally effective January 1, 2013, PEPRA's original effective date.

Clarifies that federally-regulated Taft-Hartley multiemployer union plans are exempt from PEPRA.

Incorporates AB 1222's temporary exemption from PEPRA of certain employees of transit agencies that receive federal grant funds as described more fully below in the discussion of AB 1222.

Clarifies that legacy or classic employees – those first hired before January 1, 2013 – who, without terminating employment, become members of a different defined benefit retirement system of the same employer will be treated as a legacy or classic employee under the new system. This is helpful clarification for those employers whose employees may participate in more than one retirement system.

Confirms that PEPRA doesn't prohibit an employer from offering a defined contribution plan or even a defined-contribution-only program on or after January 1, 2013, even if the employer didn't offer a defined contribution plan before that date. Employers may now consider providing a PEPRA-compliant defined contribution plan instead of the PEPRA-mandated defined benefit plan to new members.

Clarifies that, for purposes of determining normal cost, the retirement system's actuary may use either (1) a single contribution rate – like has been used by PERS or STRS, or (2) an age-based contribution rate – like generally has been used by the '37 Act systems.

More precisely prescribes the method for adjusting the PEPRA-mandated cap on pensionable compensation for inflation, and the Consumer Price Index to be used for this purpose.

Clarifies that the rate of employer contributions to a defined contribution plan based on compensation above PEPRA pensionable compensation is limited to the defined benefit plan employer contribution rate. For example, an employer who contributes 10% of payroll to its defined benefit plan may not contribute more than 10% of compensation above the pensionable compensation cap to a defined contribution plan for a new member.

Confirms that a retirement system must limit the pensionable compensation used to calculate the PEPRA-mandated new member contributions to the same cap used to calculate benefits. This may require changes for retirement systems that may have interpreted PEPRA differently.

Clarifies that the normal cost rate used to calculate the PEPRA-mandated employer and new member contributions is determined using all of the factors, including benefit formula, eligibility, vesting, ancillary benefits, and COLAs, normally used by the actuary in determining the normal cost, giving system actuaries more guidance on how to calculate normal cost for this purpose.

Clarifies that the contribution rate for new members may be more than 50% of normal cost only if agreed to through collective bargaining, eliminating the confusing requirement that it equal the rate of similarly situated members if higher.

Permits the exclusion from represented employees' pensionable compensation any items that are, in addition to those already excluded by PEPRA, agreed in an MOU to be non-pensionable, if the employer provides a copy of the MOU to the retirement system; and, permits the employer to apply this exclusion to non-represented employees who are "aligned with" the represented employees, if it provides a copy of the publicly-available pay schedule detailing the exclusion to the retirement system.

Confirms that PEPRA's prohibition against providing a more favorable retiree health benefit vesting schedule to certain management or non-represented employees than that provided to other public employees who are in related retirement membership classifications doesn't require an employer to change the vesting schedule of any employee who was subject to a specific vesting schedule pursuant to a statute, a resolution, or an employment contract before January 1, 2013. This provides reassurance to employers that they may continue to provide more favorable health benefit vesting schedules negotiated or agreed to before January 1, 2013, for certain management employees.

Clarifies that a retired annuitant who is a public safety officer or a firefighter must be hired to perform a function or functions regularly performed by a safety officer or firefighter in order to qualify for the public safety exception to the 180-day "sit-out" requirement for rehiring retired annuitants without reinstatement.

Repeals the PEPRA-enacted rule authorizing a safety member of a public retirement system who retires for industrial disability to, until January 1, 2018, receive a disability retirement equal to the greater of specified benefit amounts.

AB 1222

In early September of last year, the U.S. Department of Labor refused to certify transit grants to certain California transit agencies indicating that the application of PEPRA to affected public transit employees violates section 13(c) of the Federal Transportation Act by interfering with their collective bargaining rights to negotiate over pensions. Since the DOL's position could lead to the loss of billions of dollars in federal transit fund grants, Governor Brown responded by signing AB 1222 into law on October 4, 2013, which, as urgency legislation, became effective immediately. AB 1222 temporarily exempts from PEPRA public employees whose collective bargaining rights are protected by section 13(c) until January 1, 2015, or when a federal district court rules that PEPRA doesn't violate that section's requirements, whichever is earlier. If, on the other hand, the court upholds the DOL's ruling, the bill permanently excepts these employees from PEPRA.

AB 1222 raises several questions for California public transit agencies. First, does the PEPRA exemption apply to all transit employees or only represented employees or only to transit employees actually affected by grant funds? Recently CalPERS sent information to employers that did not answer this question. Instead, it issued Circular Letter 200-075-13, requiring participating transit agencies to certify, individual-by-individual, whether an employee is impacted by AB 1222. While the AB 1222 language is not clear, since section 13(c) protects unrepresented as well as represented employees, many agencies are interpreting the exemption to apply to all California public transit employees whose employers receive federal transit grants. We understand that the Office of Labor Management Standards and the DOL have indicated that given the reference in AB 1222 to any “public employee whose interests are protected under subsection (b) of Section 5333 of Title 49 of the United States Code,” then the employees covered by the AB 1222 exemption would be, except under unusual circumstances, all employees of any transit authority or agency that has ever received funds certified under section 13(c).

Second, when is AB 1222 effective: January 1, 2013, or October 4, 2013? Since SB-13, which was amended to include the same provisions as AB 1222, provides that it clarifies existing law, we believe it is reasonable to interpret the provisions as taking effect January 1, 2013.

Transit districts, particularly those that have stand-alone retirement plans, and have already implemented PEPRA, even if only for non-represented employees, may want to carefully review options. For example, is it possible to collectively bargain no-longer-legally-mandated changes? Should the retirement plan be amended (and administrative changes made) to implement AB 1222 retroactively immediately, or should the employer (and the retirement plan administrator) wait until a court decides this issue before making final changes to documents and processes? Litigation has already been filed – the Sacramento Regional Transit District (working with the Governor's Office) sued the DOL, challenging its position that PEPRA violate section 13(c) on October 4, the same day AB 1222 became law.

AB 1380

Besides generally clarifying that PEPRA supersedes any inconsistent provisions in the County Employees' Retirement Law of 1937 ("CERL"), AB 1380 clarifies that:

The inclusion of overtime premium pay for hours worked in a normal work week that exceeds a statutory maximum workweek in compensation earnable doesn't apply to members subject to PEPRA.

The 36-month final compensation averaging period for new members must be consecutive, not any 36 months.

Members who are subject to PEPRA are not eligible for the one-year final compensation averaging period.

Final compensation for a member who has less than three years of service will be determined by averaging the member's pay over his or her actual service.

Airtime purchases – purchases of service credit not related to any actual public service – apply only to applications received before January 1, 2013.

The provision applicable in some CERL systems permitting members to discontinue making member contributions after 30 years of service doesn't apply to members subject to PEPRA.

Existing provisions for employer-paid member contributions (EPMCs) don't apply to members subject to PEPRA.

Existing provisions in the CERL that allow a member to retire at a specified age or a specified age and years of service don't apply to members subject to PEPRA.

Service credit for elected officials' uncompensated service doesn't apply to elected officials who are subject to PEPRA.

Supplemental and replacement benefit plans otherwise permitted under CERL may not, to the extent prohibited by PEPRA, be provided to any member subject to PEPRA.

The existing provision permitting elective officers with two consecutive terms in office to retire at the minimum retirement age doesn't apply to elected officials subject to PEPRA.

Existing provisions permitting retroactive benefit enhancements – those applicable to service before the enhancement was adopted – don't apply effective January 1, 2013.

Member contributions may be based on either the member's age at entry or a single rate.

The PEPRA pensionable compensation cap – the Social Security wage base for employees subject to Social Security or 120% of that amount for those not subject to Social Security – will, in addition to the tax code's annual compensation limit, apply to a member who is subject to PEPRA.

If any provision permitting reemployment of retired annuitants – other than the more restrictive 720 hour or 90-day post-retirement employment limit for reemployment in positions requiring special skills or knowledge – conflicts with PEPRA, PEPRA controls.

New members must pay one-half of the cost of any cost-of-living adjustments, and employers may not pay any portion of the member's share of that cost.

SB 220

Besides generally clarifying that PEPRA supersedes any inconsistent provisions in the Public Employees' Retirement Law ("PERL"), SB 220 clarifies that:

The CalPERS Board of Administration has the authority to administer the PEPRA- required changes.

The PERL's existing definitions of compensation earnable and payrate don't apply to new members.

The contribution rate for state employees who have elected Second Tier benefits – originally created to be a non-contributory formula – will increase by 1.5% annually until they equal at least 50% of the normal cost (AB 220 also adds other references to Second Tier benefits to the PERL).

Existing provisions for employer-paid member contributions are prohibited for new members, except to the extent that this prohibition would impair an MOU in effect on January 1, 2013.

Airtime purchases – purchases of service credit not related to any actual public service – apply only to applications received before January 1, 2013.

If a member who has accrued a benefit under both the PEPRA-mandated 2 @ 62 formula and a pre-PEPRA formula with a minimum retirement age of less than age 52 retires when he or she is younger than age 52, his or her benefit under the PEPRA- mandated formula will be actuarially reduced for retirement at the younger age.

A member who (1) retired from a public retirement system other than CalPERS, (2) was appointed to a state board or commission, and (3) elected, pursuant to PEPRA, to reinstate as a new member of PERS qualifies, upon his or her subsequent retirement, as an annuitant under the Public Employees' Medical and Hospital Care Act ("PEMHCA"), eligible to resume his or her suspended retiree medical benefits.

THE PENSION REFORM ACT OF 2014

In October of last year, San Jose Mayor Chuck Reed, joined by the mayors of several other California cities, proposed a statewide ballot initiative for the November 2014 ballot entitled The Pension Reform Act of 2014 ("PRA"). The initiative – now in the signature-gathering phase – would require 807,615 signatures – 8% of the total votes cast in the gubernatorial election – in order to qualify for the November ballot. The PRA, if approved by voters, would, among other things:

Similar to rules applicable to private pensions under the Employee Retirement Income Security Act of 1974 ("ERISA"), limit vested rights to pensions and retiree medical benefits to those that are earned and vested incrementally, as the employee actually performs work, allowing government employers to change future, as yet unearned, benefits for current employees.

Provide clear authority to governmental employers to negotiate changes in future pension and retiree medical benefits.

Except the provisions of any existing labor agreement in effect as of the effective date from its provisions until the agreement's expiration, renewal or extension after that date, but require specific language in a resolution, MOU or voter initiative enacted or adopted before the PRA's effective date to establish a vested contractual right to future pension or retiree medical benefits.

Specifically permit government employers whose pension or retiree medical plans are substantially underfunded to reduce the rate of accrual for future benefits, reduce cost of living adjustments, increase the retirement age for future benefits, require employees to pay a larger share of the cost of benefits, and make other bargained changes.

Require pension and retiree medical plans that are less than 80% funded to adopt a stabilization plan, requiring actions designed to achieve 100% funding within 15 years while preserving basic government services.

Tab 23 CALIFORNIA PRIVACY LEGISLATION ENACTED FOR ZO14

AB 370: Online tracking transparency This law requires the operator of a commercial web site or online service to disclose in its privacy policy how it responds to a web browser Do Not Track signal or similar mechanism providing consumers with the ability to exercise choice about online tracking (the collection of personal information across sites or services and over time). It also requires the operator to disclose whether third parties are or may be conducting such tracking on the operator's site or service. Business and Professions Code § 22575

• AB 658: Confidentiality of Medical Information Act: Medical Apps This law applies the prohibitions of the Confidentiality of Medical Information Act to any business that offers medical application software that is designed to allow individuals to manage their health information, as defined, or care. The Act's requirements include keeping medical information confidential when creating, maintaining or disposing of it. Civil Code § 56.06

• AB 1149: Data breach notification: local agencies This law imposes the requirements of the data breach notification law, including those in SB 46(below), on local government agencies. Civil Code § 1798.29

• SB 46: Data breach notification This law amends the breach notice law to require notification of breaches of user ID and password permitting access to online accounts. Civil Code §§ 1798.29 & 1798.82

• SB 568: Digital Privacy Rights for Minors This law will prohibit an operator of a Web site or online service directed to minors (California resident under 18) from marketing or advertising to minors specified products or services that minors are legally prohibited from buying. The law will prohibit an operator with actual knowledge that a minor is using it from marketing or advertising such products based on information specific to that minor and knowingly using, disclosing, compiling, or allowing a third party to do so, the personal information of a minor for the purpose of marketing or advertising such products or services. The law will apply this prohibition to an advertising service that is notified by an operator that the site or service is directed to a minor. The law will also require the operator to permit a minor, who is a registered user of the operator's site or service, to request and obtain removal of content or information posted on the operator's site or service by the minor, with exceptions. Business and Professions Code §§ 22580- 22582 [Effective January 1, 2015]

AB 1274: Privacy of Customer Electrical and Natural Gas Usage Data This law extends many of the consumer privacy protections that apply to customer usage data maintained by electric and gas utilities to other third-party business that may handle the data. It prohibits such businesses from sharing, disclosing or otherwise making customer usage data accessible to any third party without the customer's express content. It requires conspicuous disclosure of with whom such data will be shared and how it will be used, and requires businesses to implement and maintain reasonable security to protect the data from unauthorized .disclosure. It also prohibits a business form offering incentives or discounts for accessing the data and provides a private right of action for damages for willful violation. Civil Code §§ 1798.98-1798.99 Tab 24 Page 1 of 3

Federal Trade Commission BCP Business Center

Children's Online Privacy Protection Rule: Not Just for Kids' Sites

The Children's Online Privacy Protection Rule seeks to put parents in control of what information commercial websites collect from their children online. Most companies that run websites directed to children under 13 are'aware of their responsibilities under the COPPA Rule. But if you run a site directed to a general audience or operate an ad network, plug-in, or other third-party service used by kid-directed sites, you may have COPPA compliance obligations, too.

For detailed compliance resources, visit the FTC's COPPA page. But here is some general information to help you determine if COPPA applies to you.

What is COPPA? Congress passed the Children's Online Privacy Protection Act (COPPA) to put parents in the driver's seat when it comes to information websites collect about their kids under 13. Congress directed the Federal- Trade Commission (FTC), the nation's consumer protection agency, to issue the Children's Online Privacy Protection Rule. The Rule has been in place since 2000 and the FTC revised it. effective July 1, 2013.

What does the Rule require? Websites and online services covered by COPPA must post privacy policies, provide parents with direct notice of their information practices, and get verifiable consent from a parent or guardian before collecting personal information from children. Visit the FTC's COPPA page for compliance resources.

Who's covered by COPPA? The Rule applies to operators of commercial websites and online services directed to children under the age of 13 that collect personal information. In addition, it applies to operators of sites and online services geared toward general audiences when they have "actual knowledge" they are collecting information from children under 13. Under the 2013 revisions, COPPA also applies to operators when they have "actual knowledge" they are collecting personal information Page 2 of 3

from users of another site or online service directed to kids under 13. That means that in certain circumstances, COPPA applies to advertising networks, plug-ins, and other third parties.

The Rule doesn't require operators of sites or services directed to general audiences to investigate the ages of its users. However, asking for or otherwise collecting information that establishes that a visitor is under 13 triggers COPPA compliance.

So here's the answer in a nutshell. You're covered'by COPPA if:

1. Your website or online service is directed to children under 13 and collects personal information from them;

2. Your website or online service is directed to a general audience, but you have "actual knowledge" you're collecting personal information from a child under 13; or

3. You run athird-party service like an ad network or plug-in and you're collecting information from users of a site or service directed to children under 13.

When does the operator of a website or online service have "actual knowledge" of someone's age? Although the Rule doesn't define the term, the FTC has said that an operator has actual knowledge of a user's age if the site or service asks for —and receives —information from the user that allows it to determine the person's age. For example, an operator who asks for a date of birth on a site's registration page has actual knowledge as defined by COPPA if a user responds with a year that suggests they're under 13. An operator also may have actual knowledge based on answers to "age identifying" questions like "What grade are you in?" or "What type of school do you go to? (a) elementary; (b) middle; (c) high school; (d) college."

Third-party sites or services may have actual knowledge under COPPA, too. For example, if the operator of achild-directed site directly communicates to an ad network or plug-in about the nature of its site, the ad network or plug-in will have actual knowledge under COPPA. The same holds true if a representative of the ad network or plug-in recognizes the child-directed nature of the site's content. Another way an ad network or plug-in may have actual knowledge: If a concerned parent or someone else informs a representative of the ad network or plug-in that it's collecting information from children or users of achild-directed site or service. Page 3 of 3

For more about complying with the COPPA Rule, visit the FTC's COPPA page. For answers to particular questions, call the COPPA Compliance Hotline at 202-326-3140 or email coppahotline(a~ftc.gov.

For More Information

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair practices in the marketplace and to provide information to businesses to help them comply with the law. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. Watch a new video, How to File a Complaint, at ftc.gov/video to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Your Opportunity to Comment

The National Small Business Ombudsman and 10 Regional Fairness Boards collect comments from small businesses about federal compliance and enforcement activities. Each year, the Ombudsman evaluates the conduct of these activities and rates each agency's responsiveness to small businesses. Small businesses can comment to the Ombudsman without fear of reprisal. To comment, call toll-free 1-888-REGFAIR (1-888- 734-3247) or go to www.sba.gov/ombudsman.

April 2013 Tab 25 Page 1 of 4

i Federal Trade Commission BCP Business Center

Disposing of Consumer Report Information? Rule Tells How

In an effort to protect the privacy of consumer information and reduce the risk of fraud and identity theft, a federal rule is requires businesses to take appropriate measures to dispose of sensitive information derived from consumer reports.

Any business or individual who uses a consumer report for a business purpose is subject to the requirements of the Disposal Rule. The Rule requires the proper disposal of information in consumer reports and records to protect against "unauthorized access to or use of the information." The Federal Trade Commission, the nation's consumer protection agency, enforces the Disposal Rule.

According to the FTC, the standard for the proper disposal of information derived from a consumer report is flexible, and allows the organizations and individuals covered by the Rule to determine what measures are reasonable based on the sensitivity of the information, the costs and benefits of different disposal methods, and changes in technology.

Although the Disposal Rule applies to consumer reports and the information derived from consumer reports, the FTC encourages those who dispose of any records containing a consumer's personal or financial information to take similar protective measures.

Who must comply?

The Disposal Rule applies to people and both large and small organizations that use consumer reports. Among those who must comply with the Rule are:

• Consumer reporting companies Page 2 of 4

• Lenders • Insurers • Employers • Landlords • Government agencies • Mortgage brokers • Automobile dealers • Attorneys or private investigators • Debt collectors • Individuals who obtain a credit report on prospective nannies, contractors, or tenants • Entities that maintain information in consumer reports as part of their role as service providers to other organizations covered by the Rule

What information does the Disposal Rule cover?

The Disposal Rule applies to consumer reports or information derived from consumer reports. The Fair Credit Reporting Act defines the term consumer report to include information obtained from a consumer reporting company that is used — or expected to be used — in establishing a consumer's eligibility for credit, employment, or insurance, among other purposes. Credit reports and credit scores are consumer reports. So are reports businesses or individuals receive with information relating to employment background, check writing history, insurance claims, residential or tenant history, or medical history.

What is "'proper" disposal?

The Disposal Rule requires disposal practices that are reasonable and appropriate to prevent the unauthorized access to — or use of —information in a consumer report. For example, reasonable measures for disposing of consumer report information could include establishing and complying with policies to: Page 3 of 4

• burn, pulverize, or shred papers containing consumer report information so that the information cannot be read or reconstructed; • destroy or erase electronic files or media containing consumer report information so that the information cannot be read or reconstructed; • conduct due diligence and hire a document destruction contractor to dispose of material specifically identified as consumer report information consistent with the Rule. Due diligence could include: reviewing an independent audit of a disposal company's operations and/or its compliance with fihe Rule; obtaining information about the disposal company from several references; requiring that the disposal company be certified by a recognized _trade association; reviewing and evaluating the disposal company's information security policies or procedures.

The FTC says that financial institutions that are subject to both the Disposal Rule and the Gramm-Leach-Bliley (GLB) Safeguards Rule should incorporate practices dealing with the proper disposal of consumer information into the information security program that the Safeguards Rule requires (ftc.gov/privacy/privacyinitiatives/safequards.html).

The Fair and Accurate Credit Transactions Act, which was enacted in 2003, directed the FTC, the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, and the Securities and Exchange Commission to adopt comparable and consistent rules regarding the disposal of sensitive consumer report information. The FTC's Disposal Rule became effective June 1, 2005. It was published in the Federal Register on November 24, 2004 [69 Fed. Reg. 68,690], and is available at ftc.gov/os/2004/11/041118disposalfrn.pdf.

Your Opportunity to Comment

Ombudsman without fear of reprisal. To comment, call toll-free 1-888-REGFAIR (1-888- 734-3247) or go to www.sba.gov/ombudsman.

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

June 2005 Tab 26 PERSONAL I~

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~`= FEDERAL TRADE COMMISSION Most companies keep sensitive personal information in their files—names,Social Security numbers, credit card, or other account data—that identifies customers or employees. This information often is necessary to fill orders, meet payroll, or perform other necessary business functions. However, if sensitive data falls into the wrong hands, it can lead to fraud, identity theft, or similar harms. Given the cost of a security breach—losing your customers' trust and perhaps even defending yourself against a lawsuit—safeguarding personal information is just plain good business. Some businesses may have the expertise in-house to implement an appropriate plan. Others may find it helpful to hire a contractor. Regardless of the size—or FEDERAL TRADE COMMISSION nature—of your business,the principles 600 Pennsylvania Avenue, NW in this brochure will go a long way Washington, DC 205$0 toward helping you keep data secure. 1-877-FTC-HELP (1-877-382-4357) busin ess.ftc.gov/privary-and-security } ~: ,.

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A sound data security plan is built on 5 key principles:

~. Take stock. Know what personal information you have in your files and on your computers.

2. Scale down. Keep only what you need for your business.

,' t 3. Lock it. Protect the information that you keep. _~.. ---,~~;,y~

4. Pitch it. Properly dispose of what you no longer need.

5. Plan ahead. Create a plan to respond to security incidents.

Use the checklists on the following pages to see how your :,; company's practices measure up—and where changes are necessary. You also can take an interactive tutorial at business. ftc.gov/privacy-and-security. Who sends sensitive personal information Question: to your business. Are there laws that require my company to keep Do you get it from sensitive data secure? customers? Credit Answer. card companies? Yes. While you're taking stock of the data in your Banks or other fi- files, take stock of the law, too. Statutes like the nancial institutions? Gramm-Leach-Bliley Act, the Fair Credit Reporting Act, C Credit bureaus? Job and the Federal Trade Commission Act may require you applicants? Other to provide reasonable security for sensitive information. businesses? To find out more, visit How your business business.ftc.gov/privacy-and-security. receives personal information. Does it come to your business through a website? Know what personal information you By email? Through the mail? Is it transmitted through cash have in your files and an your computers. registers in stores? What kind ofinformation you collect at each entry ~Li point. Do you get credit card information online? Does ~f , Effective data security starts with assessing what information you have and your accounting department keep information about identifying who has access to it. Understanding how personal information customers' checking accounts? moves into, through, and out of your business and who has—or could have— Where you keep the information you collect at each access to it is essential to assessing security vulnerabilities. You can determine entry point. Is it in a central computer database? On individual the best ways to secure the information only after you've traced how it flows. laptops? On employees' smartphones, tablets, or other mobile devices? On disks or tapes? In file cabinets? In branch offices? Do Inventory all computers, laptops, mobile devices, flash drives, disks, home employees have files at home? computers, digital copiers, and other equipment to find out where your company stores sensitive data. Also inventory the information you have by ► Who leas—or could have—access to the information. Which of type and location. Your file cabinets and computer systems are a start, but your employees has permission to access the information? Do remember: your business receives personal information in a number of they need access? Could anyone else get a hold of it? What about ways—through websites, from contractors, from call centers, and the like. vendors who supply and update software you use to process What about information saved on laptops, employees' home computers, credit card transactions? Contractors operating your call center? flash drives, digital copiers, and mobile devices? No inventory is complete Different types of information present varying risks. Pay particular until you check everywhere sensitive data might be stored. attention to how you keep personally identifying information: Social Track personal information through your business by talking with your Security numbers, credit card or financial information, and other sales department, information technology staff, human resources office, sensitive data. That's what thieves use most often to commit fraud or accounting personnel, and outside service providers. Get a complete picture of identity theft. 5 Question: We like to have accurate information about our customers, so we usually create a permanent file about all aspects of their transactions, including the information we collect from the magnetic stripe on their credit cards. Could this put their information at risk? Answer: Yes. Keep sensitive data in your system only as long as you have a business reason to have it. Once that business need is over, properly dispose of it. If it's not in your system, it can't be stolen by hackers.

The law requires you to shorten—or truncate—the electronically printed credit and debit card receipts you give your customers. You may include no more than the last five digits of the card number, and you must delete the expiration date. Don't keep customer credit card information unless you have a business need for it. For example, don't retain the account number and expiration date unless you have an essential business need to do so. Keeping this information—or keeping it longer than necessary—raises the risk that the information

could be used to commit fraud or identity theft. _ Check the default settings on your software that reads cus- for Keep only what you need your tomers' credit card numbers and processes the transactions. business. Sometimes it's preset to keep information permanently. Change the default setting to make sure you're not keeping information you don't need. If you don't have a legitimate business need for sensitive personally identifying information, don't keep it. In fact, don't even collect it. If you have a legitimate If you must keep information for business reasons or to comply retention policy to iden- business need for the information, keep it only as long as it's necessary. with the law, develop a written records tify what information must be kept, how to secure it, how long Use Social Security numbers only for required and lawful purposes— to keep it, and how to dispose of it securely when you no longer like reporting employee taxes. Dorit use Social Security numbers need it. unnecessarily—for example, as an employee or customer identification number, or because you've always done it. 7 Require that files containing personally identifiable information be kept in locked file cabinets except when an employee is working on the file. Remind employees not to leave sensitive papers out on their desks when they are away from their workstations. Require employees to put files away, log off their computers, and lock their file cabinets and office doors at the end of the day. Implement appropriate access controls for your building. Tell employees what to do and whom to call if they see an unfamiliar person on the premises. If you maintain offsite storage facilities, limit employee access to those with a legitimate business need. Know if and when someone accesses the storage site. If you ship sensitive information using outside carriers or contractors, encrypt the information and keep an inventory of the information being shipped. Also use an overnight shipping service that will allow you to track the delivery of your information. If you have devices that collect sensitive information, like PIN pads, secure them so that identity thieves can't tamper with them. Protect the information that you keep. Also inventory those items to ensure that they have not been switched.

ELECTRONIC SECURITY the best way to protect the sensitive personally identifying information What's Computer security isn't just the realm of your IT staff. Make it need keep? It depends on the kind of information and how it's stored. you to your business to understand the vulnerabilities of your computer data security plans deal with four key elements: physical The most effective system, and follow the advice of experts in the field. security, electronic security, employee training, and the security practices of contractors and service providers. ~u~i~~ral f~et;~rork Secur~~~ Identify the computers or servers where sensitive PHYSICAL SECURITY personal information is stored. Many data compromises happen the old-fashioned way—through lost or stolen Identify all connections to the computers where you store paper documents. Often, the best defense is a locked door or an alert employee. sensitive information. These may include the Internet, Store paper documents or files, as well as CDs,floppy disks, zip drives, electronic cash registers, computers at your branch offices, tapes, and backups containing personally identifiable information in a computers used by service providers to support your network, locked room or in a locked file cabinet. Limit access to employees with a digital copiers, and wireless devices like smartphones, tablets, legitimate business need. Control who has a key, and the number of keys. or inventory scanners. Assess the vulnerability of each connection to commonly known or reasonably foreseeable attacks. Depending on your circumstances, appropriate assessments may range from having a knowledgeable employee run off-the-shelf security software to having an independent professional conduct afull-scale security audit. Don't store sensitive consumer data on any computer with an Internet Question: connection unless it's essential for conducting your business. We encrypt financial data customers submit on our website. But once we receive it, we decrypt it and email it over the Internet t Encrypt sensitive information that you send to third parties over to our branch offices in regular text. Is there a safer practice? public networks (like the Internet), and consider encrypting sensitive information that is stored on your computer network or on disks Answer. or portable storage devices used by your employees. Consider also Yes. Regular email is not a secure method for sending sensitive data. The encrypting email transmissions within your business if they contain better practice is to encrypt any transmission that contains information that personally identifying information. could be used by fraudsters or identity thieves.

► Regularly run up-to-date anti-virus and anti-spyware programs on individual computers and on servers on your network. t Check expert websites (such as www sans.org) and your software vendors' websites regularly for alerts about new vulnerabilities, and implement policies for installing vendor-approved patches to correct problems.

Consider restricting employees' ability to download unauthorized ► Pay particular attention to the security of your web software. Software downloaded to devices that connect to your net- applications—the software used to give information to work (computers, smartphones, and tablets) could be used to distribute visitors to your website and to retrieve information from malware. them. Web applications maybe particularly vulnerable to a variety of hack attacks. In one variation called an Scan computers on your network to identify and profile the operating "injection attack;' a hacker inserts malicious commands system and open network services. If you find services that you into what looks like a legitimate request for information. don't need, disable them to prevent hacks or other potential security Once in your system, hackers transfer sensitive problems. For example, if email service or an Internet connection is information from your network their not necessary on a certain computer, consider closing the ports to to computers. Relatively simple against these are those services on that computer to prevent unauthorized access to that defenses attacks machine. available from a variety of sources. When you receive or transmit credit card information or other sensitive financial data, use Secure Sockets Layer (SSL) or another secure connection that protects the information in transit.

11 When installing new software, immediately change vendor- Control access to sensitive information by requiring that employees use supplied default passwords to a more secure strong password. "strong" passwords. Tech security experts say the longer the password, Caution employees against transmitting sensitive personally the better. Because simple passwords—like common dictionary identifying data—Social Security numbers, passwords, account words—can be guessed easily, insist that employees choose passwords information—via email. Unencrypted email is not a secure way with a mix of letters, numbers, and characters. Require an employee's to transmit any information. user name and password to be different, and require frequent changes in passwords. Restrict the use of laptops to those employees who need them 1 Explain to employees why it's against company policy to share their to perform their jobs. passwords or post them near their workstations. C Assess whether sensitive information really needs to be stored t Use password-activated screen savers to lock employee computers on a laptop. If not, delete it with a "wiping" program that over- after a period of inactivity. writes data on the laptop. Deleting files using standard key- Lock out users who don't enter the correct password within a board commands isn't sufficient because data may remain on designated number of log-on attempts. the laptop's hard drive. Wiping programs are available at most i Warn employees about possible calls from identity thieves attempting office supply stores. to deceive them into giving out their passwords by impersonating Require employees to store laptops in a secure place. Even members of your IT staff. Let employees know that calls like this are when laptops are in use, consider using cords and locks to always fraudulent, and that no one should be asking them to reveal secure laptops to employees' desks. their passwords. Consider allowing laptop users only to access sensitive information, but not to store the information on their laptops. Under this approach, the information is stored on a secure central computer and the laptops function as terminals that display information from the central computer, but do not store it. The information could be further protected Question: by requiring the use of a token,"smart card;' thumb Our account staff needs access to our database of customer financial print, or other biometric—as well as a password—to information. To make it easier to remember, we just use our company name as computer. the password. Coultl that create a security problem? access the central If a laptop contains sensitive data, encrypt it and con- Answer: Yes. Hackers will first try words like "password," your company name, the figure it so users can't download any software or change the software's default password, and other easy-to-guess choices. They'll also use security settings without approval from your IT specialists. programs that run through common English words and dates. To make it harder Consider adding an "auto-destroy" function so that data on a for them to rrack your system, select strong passwords—the longer, the computer that is reported stolen will be destroyed when the better—that use a combination of letters, symbols, and numbers. And change thief uses it to try to get on the Internet. passwords open.

13 Train employees to be mindful of security when they're on the road. Better still, consider encryption to make it more difficult for They should never leave a laptop visible in a car, at a hotel luggage an intruder to read the content. Encrypting transmissions stand, or packed in checked luggage unless directed to by airport from wireless devices to your computer network may prevent security. If someone must leave a laptop in a car, it should be locked in a an intruder from gaining access through a process called trunk. Everyone who goes through airport security should keep an eye "spoofing"—impersonating one of your computers to get access on their laptop as it goes on the belt. to your network. Firewa~l~ t Consider using encryption if you allow remote access to your computer network by employees or by service providers, such Use a firewall to protect your computer from hacker attacks while it is as companies that troubleshoot and update software you use to connected to the Internet. A firewall is software or hardware designed process credit card purchases. to block hackers from accessing your computer. A properly configured firewall makes it tougher for hackers to locate your computer and get Di~~ta4 ~~paers into your programs and files. Your information security plan should cover the digital copiers your Determine whether you should install a "border" firewall where company uses. The hard drive in a digital copier stores data about the your network connects to the Internet. A border firewall separates documents it copies, prints, scans, fames, or emails. If you don't take your network from the Internet and may prevent an attacker from steps to protect that data, it can be stolen from the hard drive, either by gaining access to a computer on the network where you store sensitive remote access or by extraction once the drive has been removed. information. Set "access controls"—settings that determine who gets Here are some tips about safeguards for sensitive data stored on the through the firewall and what they will be allowed to see—to allow hard drives of digital copiers: only trusted employees with a legitimate business need to access the network. Since the protection a firewall provides is only as effective as Get your IT staff involved when you're thinking about getting a its access controls, review them periodically. copier. Employees responsible for securing your computers also If some computers on your network store sensitive information should be responsible for securing data on digital copiers. while others do not, consider using additional firewalls to protect the When you're buying or leasing a copier, consider data computers with sensitive information. security features offered, either as standard equipment or

r`~'~GC.,. i,~ViY^~ CL` !C ~'S 2A 9'~Y !`C1 '~ as optional add-on kits. Typically, these features involve Determine if you use wireless devices like smartphones, tablets, or encryption and overwriting. Encryption scrambles the inventory scanners or cell phones to connect to your computer network data on the hard drive so it can be read only by particu- or to transmit sensitive information. lar software. Overwriting—also known as file wiping or shredding—replaces the existing data with random If you do, consider limiting who can use a wireless connection to access ► characters, making it harder for someone to reconstruct a file. your computer network. You can make it harder for an intruder to access the network by limiting the wireless devices that can connect to t Once you choose a copier, take advantage of all its security your network features. You maybe able to set the number of times data is overwritten—generally, the more times the data is overwritten, the safer it is from being retrieved. In addition, make it an office practice to securely overwrite the entire hard drive at least once a month. 15 ► When you return or dispose of a copier, find out whether you can have the hard drive removed and destroyed, or overwrite the data on the hard drive. Have a skilled technician remove the hard drive to avoid the risk of breaking the machine. Question: I'm not really a "tech" type. Are there steps our computer people can take to To find out more, read Copier Data Security: A Guidefor Businesses. protect our system from common hack attacks?

Answer. consider using an To detect network breaches when they occur, Yes. There are simple fixes to protect your computers from some of the intrusion detection system. To be effective, it must be updated most common vulnerabilities. For example, a threat called an "SQL injection frequently to address new types of hacking. attack" can give fraudsters access to sensitive data on your system. Maintain central log files ofsecurity-related information to monitor Protect your systems by keeping software updated and conducting periodic activity on your network so that you can spot and respond to attacks. If sercurity reviews for your network. Bookmark the websites of groups like Security Project, www.owasp.org, or SANS there is an attack on your network, the log will provide information that the Open Web Application (SysAdmin, Audit, Network, Security) Institute's The Top Cyber Security disks, can identify the computers that have been compromised. www.sans.org/top-cyber-security-risks, for up-to-date information on the Monitor incoming traffic for signs that someone is trying to hack in. latest threats—and fixes. And check with your software vendors for patches Keep an eye out for activity from new users, multiple log-in attempts that address new vulnerabilities. from unknown users or computers, and higher-than-average traffic at unusual times of the day.

Monitor outgoing traffic for signs of a data breach. Watch for Ask every new employee to sign an agreement to follow your unexpectedly large amounts of data being transmitted from your company's confidentiality and security standards for handling system to an unknown user. If large amounts of information are sensitive data. Make sure they understand that abiding by your being transmitted from your network, investigate to make sure the company's data security plan is an essential part of their duties. transmission is authorized. Regularly remind employees of your company's policy—and any legal requirement—to keep customer information secure Have in place and implement a breach response plan. See pages 22-23 ► and confidential. for more information. Know which employees have access to consumers' sensitive 2 personally identifying information. Pay particular attention J EMPLOYEE TRAINING to data like Social Security numbers and account numbers. Your data security plan may look great on paper, but it's only as strong as the Limit access to personal information to employees with a employees who implement it. Take time to explain the rules to your staff, and "need to know" train them to spot security vulnerabilities. Periodic training emphasizes the importance you place on meaningful data security practices. Awell-trained Have a procedure in place for making sure that workers who workforce is the best defense against identity theft and data breaches. leave your employ or transfer to another part of the company no longer have access to sensitive information. Terminate their Check references or do background checks before hiring employees who passwords, and collect keys and identification cards as part of will have access to sensitive data. the check-out routine.

17 Create a "culture of security" by implementing a regular schedule of - —-- ~~~''`~~ employee training. Update employees as you find out about new risks and OnGuardOnline.c~oJ c~

vulnerabilities_ Make sure training includes employees at satellite offices, .:.;o .,; g~,~~~.;,Y~~ r Ffc;eG !c;as Be Smnu v~de~ a-c OnGuartl ~~...... , u... :'1r,l~ne Onlina IJuc•~'r Qn~:ne Bloc temporary help, and seasonal workers. If employees don't attend, consider blocking their access to the network. 1 GiFl-Gicrr~ Gnidr In Shopping • TK:~~>s Underxtanding _~~., Mobile Apps Train employees to recognize security threats. Tell them how to report ~.~..,,...w..,,..,...., ~ =a,~,:~ suspicious activity and publicly reward employees who alert you to vulner- :~~..o...... i~.~ •R,s abilities.

Consider asking your employees to take the FTC's plain-language, interactive ~i~re~t ~anu Protect F:i<1s C~nLnr ~~ . ry.,~,. ~ ...,..-. tutorial at businessftc.gov/privacy-and-security. • OrrwUmv fe.ux 0 nr 1 ~ Y... ••

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secure and confidential. Post reminders in areas where sensitive ESr gw.ui(hdme Sr.~mr Your C,auµ~utrr ~. are. • rw.n.uw ~'~::'.';;~..... information is used or stored, as well as where employees congregate. Make n.rrro sure your policies cover employees who telecommute or access sensitive data from home or an offsite location. .. - -UCJ3 Teach employees about the dangers of spear phishing—emails containing OnGuard - :e ~ o~ ~ w~;~~ information that makes the emails look legitimate. These emails may appear Online :~ :::.'N " to come from someone within your company, generally someone in a position of authority. Make it office policy to independently verify any emails requesting sensitive information. When verifying, do not reply to the email SECURITY PRACTICES OF CONTRACTORS AND and do not use links, phone numbers, or websites contained in the email. SERVICE PROVIDERS Warn employees about phone phishing. Train them to be suspicious of Your company's security practices depend on the people who imple- unknown callers claiming to need account numbers to process an order or ment them, including contractors and service providers. asking for customer or employee contact information. Make it office policy Before you outsource any of your business functions— to double-check by contacting the company using a phone number you payroll, web hosting, customer call center operations, data know is genuine. processing, or the like—investigate the company's data Require employees to notify you immediately if there is a potential security security practices and compare their standards to yours. If breach, such as a lost or stolen laptop. possible, visit their facilities. Impose disciplinary measures for security policy violations. Address security issues for the type of data your service For computer security tips, tutorials, and quizzes for everyone on your staff, providers handle in your contract with them. visit www.OnGuardOnline.gov. Insist that your service providers notify you of any security incidents they experience, even if the incidents may not have led to an actual compromise of your data.

19 Question: My company collects credit applications from customers. The form requires them to give us lots of financial information. Once we're finished with the applications, we're careful to throw them away. Is that su~cient? Answer. No. Have a policy in place to ensure that sensitive paperwork is unreadable before you throw it away. Burn it, shred it, or pulverize it to make sure identity ~` thieves can't steal it from your trash.

Effectively dispose of paper records by shredding, burning, or pulverizing them before discarding. Make shredders available throughout the workplace, including next to the photocopier. When disposing of old computers and portable storage devices, use software for securely erasing data, usually called wipe utility programs. They're inexpensive and can provide better results ":~.,~r.:> . by overwriting the entire hard drive so that the files are no longer recoverable. Deleting files using the keyboard or mouse Properly dispose of what you no commands usually isn't sufficient because the files may continue longer need. to exist on the computer's hard drive and could be retrieved easily. Make sure employees who work from home follow the same What looks like a sack of trash to you can be a gold mine for an identity thief. procedures for disposing of sensitive documents and old Leaving credit card receipts or papers or CDs with personally identifying computers and portable storage devices. information in a dumpster facilitates fraud and exposes consumers to the risk of If you use consumer credit reports for a business purpose, . ,` identity theft. By properly disposing of sensitive information, you ensure that it you maybe subject to the FTC's Disposal Rule. For more cannot be read or reconstructed. information, see Disposing of Consumer Report Information? ~ ,. ~-? Implement information disposal practices that are reasonable and New Rule Tells How. ~ ` ~ .~ appropriate to prevent unauthorized access to—or use of—personally identifying information. Reasonable measures for your operation are based on the sensitivity of the information, the costs and benefits of different disposal methods, and changes in technology.

21 Question: own a small business. Aren't these precautions going to cost me a mint to implement?

Answer: No. There's noone-size-fits-all approach to data security, and ti~hat's right for you depends on the nature of your business and the kind of information you collect from your customers. Some of the most effective security measures—using strong passwords, locking up sensitive paperwork, training your staff, etc —will cost you next to nothing and you'll find free or low-cost security tools atnon-profit websites dedicated to data security. Furthermore, it's cheaper in the long run to invest in better data security than to lose the goodtivill of your customers, defend yourself in legal actions, and face other possible consequences of a data breach.

If a computer is compromised, disconnect it immediately from your network. Investigate security incidents immediately and take steps to close off existing vulnerabilities or threats to personal information. Consider whom to notify in the event of an incident, both inside and outside your organization. You may need to notify consumers, law enforcement, customers, credit bureaus, and other businesses that maybe affected by the breach. In addition, many states and Taking steps to protect data in your possession can go a long way toward the federal bank regulatory agencies have laws or guidelines preventing a security breach. Nevertheless, breaches can happen. Here's addressing data breaches. Consult your attorney, how you can reduce the impact on your business, your employees, and your customers:

Have a plan in place to respond to security incidents. Designate a senior member of your staff to coordinate and implement the response plan. ADDITIONAL RESOURCES These websites and publications have more information on securing sensitive data: National Institute of Standards and Technology(NIST) Computer Security Resource Center www.csrc. nist.gov

~ SANS(SysAdmin, Audit, Network, Security) Institute The Top Cyber Security Risks www.sans. org/top-cyber-security-risks

United States Computer Emergency Readiness Team (US-CERT) www.t~s-cert.gov

OnGuard Online www.OnGuardOnline.gov ,~,~~; Tab 27 Security Check: Reducing Risks to Your Computer Systems ~ BCP Business Center Page 1 of 4

Federal Trade Commission BCP Business Center

Security Check: Reducing Risks to Your Computer Systems

When consumers open an account, register to receive information or purchase a product from your business, it's very likely that they entrust their personal information to you as part of the process. If their information is compromised, the consequences can be far —reaching: consumers can be at risk of identity theft, or they can become less willing — or even unwilling — to continue to do business with you.

These days, it's just common sense that any business that collects personal information from consumers also would have a security plan to protect the confidentiality and integrity of the information. For financial institutions, it's an imperative: The Gramm-Leach-Bliley Act and the Safeguards Rule, enforced by the Federal Trade Commission, require financial institutions to have a security plan for just that purpose.

The threats to the security of your information are varied —from computer hackers to disgruntled employees to simple carelessness. While protecting computer systems is an important aspect of information security, it is only part of the process. Here are some points to consider —and resources to help — as you design and implement your information security plan.

Starting Out

Sound security for businesses means regular risk assessment, effective coordination and oversight, and prompt response to new developments. Basic steps in information security planning include:

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• identifying internal and external risks to the security, confidentiality and integrity of your customers' personal information;

• designing and implementing safeguards to control the risks;

• periodically monitoring and testing the safeguards to be sure they are working effectively;

• adjusting your security plan according to the results of testing, changes in operations or other circumstances that might impact information security; and

• overseeing the information handling practices of service providers and business partners who have access to the personal information. If you give another organization access to your records or computer network, you should make sure they have good security programs too.

When setting up a security program, your business should consider all the relevant areas of its operations, including employee management and training; information systems, including network and software design, and information processing, storage, transmission and disposal, and contingencies, including preventing, detecting and responding to a system failure. Although the security planning process is universal, there's no "one size fits all" security plan. Every business faces its own special risks. The administrative, technical, and physical safeguards that are appropriate really depend on the size and complexity of the business, the nature and scope of the business and the sensitivity of the consumer information it keeps.

Determining Priorities Among Risks: Computer Systems

Although computer systems aren't your only responsibility related to information security, they are an important one. With new vulnerabilities announced almost weekly, many businesses may feel overwhelmed trying to keep current. Guidance is available from leading security professionals who put together consensus lists of vulnerabilities and defenses so that every organization, regardless of its resources or expertise in information security, can take basic steps to reduce its risks. The lists identify the commonly exploited vulnerabilities that pose the greatest risk of harm to your

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information systems. Use these lists to help prioritize your efforts so you can tackle the most serious threats first.

• The 20 Most Critical Internet Security Vulnerabilities (www.sans.org/top20) was produced by the SANS Institute and the FBI. It describes the 20 most commonly exploited vulnerabilities in Windows and UNIX. Although thousands of security incidents affect these operating systems each year, the majority of successful attacks target one or more of the vulnerabilities on this list. This site also has links to scanning tools and services to help you monitor your own network vulnerabilities at www.sans.orq/top20/tools.pdf.

• The 10 Most Critical Web Application Security Vulnerabilities (www.owasp.org) was produced by the Open Web Application Security Project (OWASP). It describes common vulnerabilities for web applications and databases and the most effective ways to address them. Attacks on web applications often pass undetected through firewalls and other network defense systems, putting at risk the sensitive information that these applications access. Application vulnerabilities are often neglected, but they are as important to deal with as network issues.

While you are designing and implementing your own safeguards program, don't forget that you should oversee service providers and business partners that have access to your computer network or consumers' personal information. Check periodically whether they monitor and defend against common vulnerabilities as part of their regular safeguards program.

For More Information

For more information on privacy, information security, and the Gramm-Leach-Bliley Safeguards Rule, visit www.ftc.gov/privacy.

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