Expansion of San Francisco's Paid Parental Leave
The new year brought to San Francisco the most comprehensive parental leave law offered anywhere in the country. Under the San Francisco Paid Parental Leave Ordinance (PPLO), when covered employees use California paid family leave (PFL) benefits for new child bonding - bonding with a child during the first year after birth or placement through foster care or adoption - covered employers must pay supplemental compensation.
The PPLO became effective on January 1, 2017, for employers with 50 or more employees. San Francisco employers with a smaller headcount will soon follow suit: effective July 1, 2017, the PPLO will apply to employers with 35 or more employees, and on January 1, 2018, to employers with 20 or more employees.
While the California PFL program currently pays employees 55 percent of their wages, up to a maximum weekly benefit of $1,173, for a six-week period, PPLO requires employers to pay supplemental compensation up to a maximum of $980 per week.
Who is eligible?
The employee must work at the employer for at least 180 days. The employee can be full-time, part-time, or temporary, but not an independent contractor. The employee has to work a minimum of 8 hours per week in San Francisco, with 40 percent of his or her total work hours in San Francisco. All new parents who meet these conditions are eligible for PPLO benefits.
Can employers require employees to use paid time off?
The PPLO allows employers to require employees to use up to two weeks of accrued paid time off to help satisfy the employers' obligation to pay supplemental compensation during the leave period. This would be counted toward the employers' total six-week obligation to provide supplemental compensation.
What if the employer already has a paid parental leave policy?
PPLO specifies that an employer is not required to pay supplemental compensation if it has an existing policy that provides employees with at least six weeks of fully paid parental leave for new child bonding within any 12-month period.
Is there any required paperwork for the employee to submit?
To receive San Francisco supplemental compensation, an employee must sign a form created by San Francisco's Office of Labor Standards Enforcement (OLSE).
The form requires the employee to agree to reimburse supplemental compensation received, in full, if he or she voluntarily terminates employment within 90 days of the end of his or her leave period, if the employer makes a written reimbursement request. The form can be found here.
Does the six weeks paid leave have to be taken at once?
No. The employee can opt to take the six weeks all at once or intermittently over 12 months.
Is there a cap on how much supplemental compensation employees can receive?
Yes. The total amount of money an employee can receive from the state plus the employer is $2,133 per week. That means employees who earn 110,916 or less a year will receive full paid leave during those six weeks, but those who earn more than that will receive less than full paid leave.
Who may enforce the ordinance?
The OLSE may investigate any possible violations of the ordinance by an employer and bring an administrative enforcement or civil action against an employer. The City may bring a civil action in court against an employer for violations of the ordinance. A person or entity may also bring a civil action against an employer after he/she/it provides the OLSE and the City Attorney with written notice and more than 90 days have passed without the City Attorney filing suit or the OLSE providing notice of its intent to bring an administrative enforcement action or a determination that no violation has occurred.
To Boycott, or Not? How Business Owners Should React
From Fox News to United Airlines to the “Trump Effect,” consumer boycotts are trending. But when do boycotts actually work, and how should business owners react?
The rise of instant media consumption certainly parallels the rise in instant outrage over large corporations’ actions (read: anything from controversial deals to actions or comments by executives) that bleed into the social or political realm. But boycotting businesses even predates Facebook. Take Shell, for example. In 1995, Germany’s arm of Greenpeace boycotted the fuel icon after an out of commission petroleum platform made moves toward deep water disposal. The aggressive public campaign against Shell resulted in (1) Shell changing the disposal plan completely, and (2) a reduction of fuel sales in Germany by nearly 40%.
In sharp contrast, and more recently, Chik-fil-A CEO Dan Cathy’s public comments opposing same-sex marriage—and the online outcry that followed—drove the company to cease funding organizations which had previously been criticized for similarly “discriminating.” The result? Sales increased by 12%.
Considering the disparity in economic effect on large companies, what is the likely risk to small business owners confronting consumer boycotts? The reality is that even small-scale efforts to ostracize local businesses can have detrimental results on owners’ financial stability. As mentioned, social media helps spread news – reliable or not – at a lightning fast pace. Opinions that have been branded “unpopular” by a majority of Twitter users could be the kiss of death for a small supplier relying heavily both on new and varied customers or long-term clients.
Conversely, businesses may want to participate in boycotts – a la advertisers from Mercedes-Benz, Constant Contact, and others versus Bill O’Reilly and Fox News. Small companies may be in a position to voice concern by withdrawing their own business from media outlets or otherwise.
The considerations for both being boycotted or choosing to boycott are similar:
Beyond that, companies may need to decide whether to fight back, especially in situations where customers are not always right. Information travels at the speed of light, whether or not it is verified. Companies falling victim to “fake news” about their business practices could face boycotts, protests, or worse based on someone’s published false or defamatory statements.
Generally speaking, a company is not considered to have a reputation in the sense that an individual does. But statements that would impact a company’s financial soundness are typically considered defamatory under the law, and a company could potentially sue if statements would have the effect of deterring customers. (Note: this is not necessarily true if defamatory statements are directed only against an individual within the business.)
So, what steps can a business take when circuited or published information is entirely false and directly affects its ability to operate?
Key California Employment Law Cases: March 2017
This month’s key California employment law cases involve arbitration and PAGA issues.
Arbitration - Farrar v. Direct Commerce, Inc., 9 Cal. App. 5th 1257, 215 Cal. Rptr. 3d 785 (2017)
Arbitration/PAGA - Betancourt v. Prudential Overall Supply, 9 Cal. App. 5th 439 (2017)
Update: Los Angeles "Ban-the-Box" Legislation
In January, we issued an Employment Alert regarding Los Angeles's new "Ban-the-Box" law, known as the Los Angeles Fair Chance Initiative for Hiring, which went into effect on January 22, 2017. The law restricts inquiry into the criminal background of applicants until after a conditional offer of employment is made.
An employer seeking to disqualify an applicant based on criminal history must follow specific procedures. These include a written assessment showing a link between specific aspects of the applicant's criminal history with risks inherent in the duties of the employment position applied for, as well as a written "reassessment" if an applicant presents information or documentation for an employer to consider. Failure to comply may subject an employer to administrative remedies and a civil action. The law also contains notice and posting requirements.
Guidance, Forms and Notices:
The Los Angeles Bureau of Contract Administration recently published guidance, forms and notices relating to the new law, including:
We encourage all Los Angeles employers to download and review these documents, as they will help ensure compliance with the new law. These and additional resources are available on the Bureau's website at: City of Los Angeles Bureau of Contract Administration.
Arizona Legislature Approves Disability Lawsuits Bill
On Monday, Arizona state senators approved legislation that, if signed into law, will give businesses at least thirty days to cure violations of the Arizonans with Disabilities Act before they can be sued.
Time Frame to Rectify ADA Violations
The legislation, SB 1406, provides:
Importantly, there are many instances in which a business may get more than thirty days to correct a violation. For instance, if a business must obtain government approval to make the changes required to comply with the Arizonans with Disabilities Act, then the business will have thirty days to provide the complainant with a corrective action plan and another sixty days to implement the changes before the complainant can file suit. The time period needed for the government to make a decision is not counted in the sixty days.
By giving Arizona businesses an opportunity to cure violations before being sued, this bill will almost certainly cut down on the amount of vexatious litigation they may face.
SB 1406 has already passed the House and is now going to Governor Doug Ducey for signature.
Payne & Fears has decades of experience assisting businesses in their efforts to comply with disability statutes, including providing employees with reasonable accommodations. Should you need assistance in this regard, or if you would like more information about this topic, please contact:
Matthew L. Durham
Rhianna S. Hughes
Utah 2017 Legislative Update – Employment Law Issues
The 2017 session of the Utah Legislature produced few bills affecting employment law; but two bills recently signed by the Governor and one bill that was not passed this year may have an impact on Utah businesses.
Summary of Bills and Suggested Action
1. HB0238S01 Payment of Wages Act Amendment
2. SB0170 Workers' Compensation Workgroup
3. SB210 Equal Pay Amendments
The 7th Circuit's Landmark Anti-Gay Discrimination Ruling
On April 4, 2017, an en banc decision in Hively v. Ivy Tech Community College, the Seventh Circuit became the first federal Court of Appeals to hold that Title VII of the Civil Rights Act of 1964 prohibits discrimination on the basis of sexual orientation.
Title VII prohibits employment discrimination "based on race, color, religion, sex and national origin." The U.S. Equal Employment Opportunity Commission had previously held in Baldwin v. Foxx, 2015 WL 4397641 (July 15, 2015) that the statute barred discrimination on the basis of sexual orientation, and some U.S. District Courts had agreed, but no Court of Appeals had previously done so.
Other Circuits, applying the Supreme Court's 1989 decision in Price Waterhouse v. Hopkins, have held that discriminating against gay employees was a form of gender stereotyping that fell within Title VII's gender bias prohibition.But the Seventh Circuit’s analysis went beyond this indirect approach, finding that "[t]he logic of the Supreme Court's decisions, as well as the common-sense reality that it is actually impossible to discriminate on the basis of sexual orientation without discriminating on the basis of sex, persuade us that the time has come to overrule our previous cases." The majority opinion acknowledged that its interpretation exceed the intent of the drafters of Title VII, and Judge Posner in a concurring opinion explicitly supported modernizing the statute.
The Hively decision opens a split with other Circuits and raises the possibility of Supreme Court intervention following the Senate's confirmation this week of Justice Neil Gorsuch to replace Justice Antonin Scalia.
The Eleventh Circuit held in March of 2017 that sexual orientation discrimination is not prohibited by Title VII, and the Second Circuit rejected a similar claim in March, although it accepted the employee's "gender stereotype" theory. The plaintiffs in those cases might now seek en banc review.
District Courts in circuits that had previously accepted only the "gender stereotype" theory might be emboldened to apply the Seventh Circuit's reasoning. Given the general trend toward recognizing and protecting LGBT rights, including the Supreme Court's landmark gay marriage ruling in Obergefell v. Hodges, employers would be wise to closely follow the reaction to the Hively decision.
Employers in states that do not explicitly prohibit discrimination based on sexual orientation should be aware that such discrimination will likely be found unlawful under Title VII, either through the "gender stereotype" theory or potentially as a direct violation of Title VII.
Selecting a Board of Directors for Your Startup? Don’t Believe the Common Wisdom
Everything you've read about selecting a startup board of directors is wrong.
Okay, that may be an exaggeration. But a casual internet search regarding the selection of a board of directors for a startup corporation produces hundreds of well-intentioned articles about the characteristics to look for in director candidates. These articles urge a balanced, qualified and engaged board of directors. They rightly point out that board members provide strategic advice, lend credibility, provide oversight and expertise. A large, diverse board will expand access to sources of funding and employee recruitment. The articles recommend that you select board members to offset your weaknesses and challenge your assumptions.
In short, the common wisdom is that an entrepreneur should select qualified, intelligent, experienced individuals who have the breadth and depth of experience that he may lack, as well as an objective outlook. An ideal board, they argue, consists of a mix of company executives, shareholders, and unaffiliated individuals who bring unique talents and perspectives. For purposes of this article, I will call this the “Dream Board”.
Who can argue with this idealized business school view of the world?
A Dream Board sounds like a perfect idea. However, these experts are wrong. The concept of a startup corporation having a Dream Board completely ignores stark legal realities.
No one wants to be on your board
First, except in the rarest of circumstances, an entrepreneurial startup cannot attract such a board of directors. For liability reasons, qualified, intelligent, experienced and valuable board members do not want to be on a startup’s board. Board members can be targets of litigation. Startups can rarely afford meaningful Directors and Officers insurance. The startup cannot offer compensation or benefits that justify any reasonably intelligent and qualified individual to join the board. Indeed, the only way to lure these individuals in is to give up a stake in the new company, which may interfere with needed future financing in the future, as well as deprive the entrepreneur of control of the business. To paraphrase Groucho Marx, you do not want on your board any director who would agree to be on your board.
The board controls rather than advises
Second, while a dream board might provide great advice and guidance, the primary duty of a startup’s board of directors is to protect the interests of the shareholders. Because a startup typically has at most a handful of shareholders, the persons most capable of protecting the interests of the shareholders are the shareholders themselves. Therefore the founders of the corporation should be on the board.
Indeed, while it is nice to discuss “selecting” an ideal board, the startup board is selected by the owners, and they may have conflicting views on who should be on the board. But typically they will agree that each of them should be on the board.
The shareholders who have invested in a startup should not give up the control of the corporation to third parties who do not have the same substantial investment that the founders do. The board of directors votes on critical issues such as raising capital, selecting officers, approving mergers, acquisitions, dissolutions, and the like. While founders getting advice on those issues is great, actually making the decisions about the company’s future should stay in the hands of the founders. Even adding one outside director can shift control so that a minority owner can join forces with the outside director and wield control.
In short, the board of directors should represent the interests of the owners, because the board makes critical decisions that may significantly impact the owners.
One important issue often overlooked by the experts who recommend the Dream Board is that directors have the unfettered right to inspect the books, records and properties of the corporation. This right can be used as a weapon if there is a disagreement on the board. A dissident director can wreak havoc, asserting legal rights and disclosing information about the company that the company might not want public.
My recommendations for the composition of a startup board of directors are as follows:
If the startup thrives, new investors and adequate finances may allow the corporation to select and recruit its Dream Board. Until that happens, striving to build such a board will be a waste of time and energy, likely be fruitless, and even if successful, create as many issues as it solves. Keep the board size small and closely related to the corporation’s owners, and the corporation will be more likely to function properly and set itself up to grow.
7 Insurance Questions Every Startup Founder Should Ask Themselves
So you founded a startup. Money is tight and challenges abound. Among the many issues you must address is a business plan that protects you, your investment and your company. This means thinking about insurance.
Purchasing insurance is a difficult proposition for any startup. To founders, insurance is an immediate cost that presents only attenuated benefits. Most startups struggle with capitalization and may view insurance as a luxury purchase they simply cannot afford. Many startups will either forego or postpone buying insurance. But this is usually a mistake. Insurance is the most cost-effective way for a startup to transfer risk away from the company and its founders. Furthermore, potential clients and investors may require that a startup carry insurance or at least may view an insured company as a safer partner.
Once a startup begins thinking about insurance, the question becomes what type(s) of insurance should it purchase? To answer, one must understand the risks that the company and its founders realistically face. Based on my experience as an insurance attorney dealing with claims that have become contentious, it is common for a startup to buy insurance that is ultimately valueless, since the coverage—while broad—does not apply to the company’s actual risks.
For example, one of my clients bought a significant amount of property and liability insurance. Yet the biggest risk the company faced was employment claims by the workers it employed. This would have made employment practices liability insurance (“EPLI”) a wise investment. Unfortunately, the company did not carry this kind of insurance, and its premiums guarded against risks that were either non-existent or too remote to justify the investment. Meanwhile, the company was exposed to a risk that, in retrospect, was fairly obvious and could have been avoided. This was an expensive mistake.
Founders themselves must decide whether the investment in specific insurance makes sense given the company’s budget and risk-management goals. In making this decision, it is important to work with an experienced insurance broker. But I should emphasize the word “with”—insurance decisions should not be left to a broker. Making insurance decisions requires that founders carefully evaluate their company’s risk profile and whether it makes sense to allocate scarce resources to protect against those risks.
What follows are some basic questions that founders should ask themselves when thinking about their company’s insurance needs. While this list is not exhaustive, it can serve as a useful starting point.
1. Does your startup have personal or real property, or does it take possession of significant client property?
If the answer is yes, it is worth thinking about buying first party property insurance. While there are several kinds of property insurance policies, these policies most typically protect against the risk of physical damage to property you possess, along with the risk that your business operations will be interrupted after property is damaged. Risk profile is key. If your startup involves people working remotely on a laptop, and the company owns or rents minimal personal or real property, there may be little reason to buy first party property insurance.
2. Is there a chance your startup injures someone or damages their property?
If yes, you should consider purchasing commercial general liability (“CGL”) insurance. This is the basic coverage carried by most companies, and it protects against three categories of risks. One of these categories—“personal and advertising injury”—I discuss in the following section. The other two are liability for “bodily injury” or “property damage.”
If your company is placing products into the stream of commerce or engaging in conduct that presents a risk of physical injury to third parties, you probably need CGL coverage. Likewise, if your startup has operations that could damage another’s property, CGL coverage will be a good idea. Again, your risk profile is key. If your startup is internet based and you sell no products, then carefully consider whether a claim for “bodily injury” or “property damage” justifies investing resources into a CGL policy.
3. Does your startup face soft intellectual-property claims?
If yes, it is worth exploring both CGL coverage and a specific media-liability policy. As mentioned above, the third category of risk that CGL policies protect against is called “personal and advertising injury.” Without getting into the weeds, “personal and advertising injury” under a CGL policy traditionally includes, among other things, coverage for soft IP claims. These include claims for things like trade disparagement, along with trade dress, slogan or other forms of advertising appropriation. However, many insurers now use exclusions to eliminate coverage for soft IP claims. For this reason, it is also worth exploring coverage under a media-liability policy or its equivalent. Media-liability policies typically cover the kinds of soft IP risks that used to be covered by a CGL policy. They also cover risks that were never traditionally covered by a CGL policy but which many companies facing soft IP claims want to guard against. When thinking about soft IP coverage, it is important to work with an experienced broker who can sort through CGL and media-liability policies to ensure they are tailored to your company’s needs.
4. Does your start-up face hard intellectual-property claims?
If yes, it is worth thinking about an intellectual property liability policy. These policies typically cover hard IP claims, like patent, trademark, or copyright infringement. There can be significant overlap between coverage under an intellectual property policy and a media-liability policy. So you should work with a broker who understands these nuances.
5. Does your startup face cyber risks?
If yes, it is also worth considering a cyber policy. These are new insurance forms that have become widely available only recently. Cyber policies typically protect against claims by third parties for data loss, breach or theft, and liability claims that are related to computer or internet use. They also cover claims by your own company for software damage, data loss or other computer-related losses. For startups working in the tech space, cyber policies may be the single most important piece of insurance. Interestingly, cyber policies tend to be quite affordable. And they usually provide broad coverage. Because these are new products, quality can vary among insurers. Your broker should understand the differences between various cyber policies and should help you purchase the one that is best suited for your company’s needs.
6. Does your start-up hire employees or independent contractors?
If yes, it might be necessary, depending on the number of workers you hire, to consider EPLI coverage. Because many EPLI policies exclude coverage for violating state and federal wage laws—which is one of the most significant risks an employer faces, particularly in a state like California—you should look at EPLI policies that include coverage for these claims.
7. Do the founders need to protect themselves personally?
If yes, you should consider Director’s and Officer’s (“D&O”) liability insurance. D&O policies typically protect founders against claims for any “breach of duty” allegedly committed while running the business. Coverage under a D&O policy is typically quite broad. If the founders are worried about being exposed to personal liability for acting in their corporate role, purchasing D&O insurance presents a great way to protect founders individually. D&O policies have an added benefit: Most extend coverage to the company itself. This is an often overlooked aspect of D&O insurance that may add significant value to the company’s overall risk-management strategy.
Before investing your startup’s limited resources into insurance, think carefully about the realistic risks your company faces. This will provide greater peace of mind, a better return on your purchase, and it will help avoid the kinds of insurance mishaps that are far too common among startups.
Relocation of Las Vegas Office
Payne & Fears LLP is pleased to announce it has relocated its Las Vegas office to the following address effective April 3, 2017:
6385 S Rainbow Blvd