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The Schwarzenegger regime has promised a business-friendly climate for California. But with the new year, some defense-side employment lawyers say, businesses are being hit with some of the most onerous workplace regulations enacted in years. A slew of new employment laws took effect on Jan. 1, covering everything from paid family leave to gender-identity discrimination. While many of these are in line with the typical legislative tweaks and amendments that mark the beginning of each calendar year, the defense bar says a handful of new statutes unfairly penalizes employers. A new law that “deputizes” private individuals to sue employers on behalf of other workers has raised the most hackles. “You’re not dealing with fundamental rights so much as creating more penalties,” says Michael Loeb, a partner at Bingham McCutchen in San Francisco. Besides burdening employers with more costs and liabilities, Loeb says, the new laws will trigger more lawsuits, particularly in the burning-hot wage-and-hour sector. “Instead of dropping water on the fire, this is dropping gasoline on it,” Loeb says. Plaintiffs attorneys say their colleagues on the defense side are crying wolf and that some of the new measures will simply help enforce existing law. “At its most basic level you could ask the question, ‘Is it a good thing that these laws and penalties are enforced, or would you rather have them not enforced?’ ” says Matthew Righetti, of San Francisco plaintiffs firm Righetti Wynne. The cause of this legislation is no mystery, say many management-side attorneys. As former Gov. Gray Davis scrambled to shore up his base of support in the face of the recall, he signed a number of plaintiff-friendly bills. Some of the most significant bills were signed in the weeks and days before the election. “It’s an unfortunate byproduct of the recall,” says Robert Carrol, a San Francisco partner at Nixon Peabody. “Signatures were put on bills that if [Davis] had remained in power, he might not have felt had a lot of use.” Firms like Nixon Peabody, Bingham McCutchen, and Seyfarth Shaw have all drafted client advisories alerting their clients to the new laws. Many firms have also hosted full-day seminars to brief company managers on the changes. At the center of the storm is the Labor Code Private Attorneys General Act of 2004, which some attorneys have dubbed the “bounty hunter’s act.” The law allows workers to seek labor code violation penalties from an employer on behalf of themselves and current and former employees, a privilege previously reserved for the Division of Labor Standards Enforcement’s labor commissioner. The penalties are set at $100 per employee per pay period for all labor code violations that don’t already carry specific penalties, and $200 for each subsequent violation. And the aggrieved employees are entitled to 25 percent of the recoveries, with the balance going to the state. The idea, according to the statute’s language, is to deputize private attorneys to enforce the labor code, since the state division of labor lacks sufficient staff or resources to do the job on its own. The result, some warn, will be open season on employers. “It’s like a statutory hunting license,” says Seyfarth Shaw partner Brian Ashe. “These people are allowed to go as individuals and find the smallest defect and get a 25 percent finder’s fee.” The labor code is loaded with technical provisions regulating everything from the posting of safety and informational signs to various record-keeping requirements, which have the potential to become the basis of a new wave of class actions. Worker advocates maintain that the act simply puts teeth into regulations that businesses previously ignored. And they note that frivolous suits involving “hyper-technical” violations of the code are likely to get weeded out. But there’s no question that the statute will have an immediate impact on the wage-and-hour class actions that have proliferated in recent years. Plaintiffs attorneys have already begun to amend their pending suits, tacking private attorney general claims on to the list of claims. “It’s going to be added to every complaint that’s filed in the wage-and-hour field from here on in,” says David Borgen, a name partner at Goldstein, Demchak, Baller, Borgen & Dardarian, an Oakland-based plaintiffs firm. Before the law, suits alleging that workers were improperly denied overtime pay as a result of job title misclassification sought compensatory damages. Under the new act, plaintiffs will also be able to recover a penalty for each misclassified worker, creating a larger overall recovery. Moreover, the fact that someone was misclassified as overtime exempt could mean they were also denied meal and rest breaks, violations that carry additional penalties that could previously be recovered only by the labor commissioner. It triggers a number of other violations, says Righetti, who has already taken steps to append a private attorney general act claim to several of his pending wage-and-hour class actions, including one that seeks to certify a class of some 1,500 Staples employees. While the potential damages of a wage-and-hour case will increase, some businesses predict that the new law will generally drive up costs. “You’re increasing costs to California businesses by substituting a litigation-based remedy for an administrative remedy,” says Mary Doyle, the general counsel of Milpitas-based PalmOne Inc. “I question whether that’s appropriate in this particular environment.” Another new wage-and-hour law raises the stakes for businesses appealing adverse decisions in administrative proceedings before the labor commissioner. Previously, if the party seeking review lost the resulting de novo case, it was responsible for the other side’s attorney fees. The new law deems an employee successful on appeal so long as “the court awards an amount greater than zero.” According to defense attorneys, this means that an employer’s right to appeal essentially comes with a penalty unless the employer can “run the table,” and prevail on every single issue. Another law that kicked in on Jan. 1 is a whistleblower statute that requires businesses to post a hot line telephone number whereby workers can report any violations of state or federal law to the state attorney general’s office. Critics complain that the measure works against a constructive worker-employer relationship, since it encourages anonymous complaints to outside agencies rather than giving an employer the opportunity to resolve or mitigate misdeeds on its own. The act also raises the burden of proof for employers accused of retaliating against a whistleblower. Employers will now have to demonstrate by “clear and convincing” evidence that there was a legitimate reason for taking an action against a worker, as opposed to the preponderance of evidence standard currently in use. “This is the first employment legislation I know that creates a super burden of proof,” says Bingham McCutchen’s Loeb. Beginning in 2004, California businesses will also be liable when one of their employees is harassed by a third party, such as a customer at a restaurant or a delivery person at an office. The new act isn’t a huge change for businesses, since third-party harassment protection already exists under federal law. California’s new version applies to all companies, rather than just businesses of 15 people or more, and it codifies an affirmative obligation that employers take steps to prevent the objectionable behavior. Also less controversial is a law adding gender identity to the list of categories protected from discrimination under the Fair Employment and Housing Act, as well as the new Paid Family Leave Act, which was actually signed in 2002 but takes effect in 2004. Few employment lawyers expect Gov. Arnold Schwarzenegger’s administration to attempt to reverse even the most controversial of the new employment laws. The governor, who can repeal a law through the legislature or through a ballot initiative, seems likely to conserve his political capital for bigger causes, such as overhauling workers’ compensation, predict many attorneys. A spokesperson for the governor’s office says Schwarzenegger has not taken an official position on the Labor Code Private Attorneys General Act, but has said he will review all laws that have a negative impact on the state’s ability to create jobs. In the meantime, employment lawyers representing management gripe that the new batch of laws will burden California businesses just as they’re starting to recover from the economic downturn. “It gives a very anti-business feeling,” says Nixon Peabody’s Caroll, “for these many laws to be passed at this time in the recovery.” Alexei Oreskovic is a reporter at The Recorder, the American Lawyer Media daily newspaper in San Francisco, where this article first appeared.

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