Ninth Circuit Ruling Regarding Overtime Payments and the Fair Labor Standards Act May Have a Significant Impact on Employers

July 2016
Number 47

Striking a major blow to the practice of providing employees with cash payments in lieu of benefits (or “opt-out payments”), the Ninth Circuit Court of Appeals issued a ruling on June 2, 2016, holding that employers, including public agency employers, must include these cash payments in the regular rate of pay when calculating the overtime rate for employees under the Fair Labor Standards Act (FLSA). (Flores v. City of San Gabriel (9th Cir., June 2, 2016, No. 14-56421) __ F.3d __ [2016 U.S. App. LEXIS 10008].)

This ruling, coupled with the Internal Revenue Service’s (IRS) recent treatment of these same arrangements in the context of the Affordable Care Act (ACA), shows a trend discouraging the use of cash-in-lieu payments related to health care coverage.

In Flores, the city provided a flexible benefits plan to its employees under which each employee was furnished a designated monetary amount for the purchase of medical, vision and dental benefits. All employees were required to use a portion of the amount to purchase vision and dental benefits, but could opt out of purchasing medical benefits with proof of alternate coverage. If an employee opted out of medical benefits, the city paid the employee the unused portion of the benefits allotment as a cash payment added to the employee’s regular paycheck. For payroll purposes, the city has historically designated these cash-in-lieu payments as “benefits” and excluded them from its calculation of employees’ regular rate of pay. Non-exempt police officers sued the City of San Gabriel for underpayment of overtime compensation, challenging the city’s treatment of cash-in-lieu payments.

Under the FLSA, employers must pay their employees premium overtime compensation of one and one half times the regular rate of pay. The “regular rate” of pay includes “all remuneration for employment paid to, or on behalf of, the employee,” subject to a number of exclusions set forth in § 207(e) of the FLSA.

In Flores, the city argued that it properly excluded cash-in-lieu payments from employees’ regular rate of pay because the payments were not compensation for hours worked or otherwise tied to the amount of service provided by employees, citing statutory language that excludes payments made for such purposes as vacation, holidays, travel expenses and “other similar payments to an employee which are not made as compensation for his hours of employment.” The court rejected this argument, explaining that the question of whether a particular payment falls within the “other similar payments” clause turns on whether the payment is a form of compensation for performing work – not on whether the payment is tied to an hourly wage.

The city also attempted to argue that the cash-in-lieu payments were properly excluded because the FLSA excludes contributions made by an employer to a trustee or third person pursuant to a “bona fide” benefits plan from the regular rate of pay. The court also rejected this argument, explaining that the city’s payments are not made to a trustee or third party and therefore do not meet the requirements of the benefits exclusion.

Taking it one step further, the court also found that the city’s flexible benefits plan as a whole failed to meet the requirements of a “bona fide plan” because the city’s cash payments to its employees constituted more than 40% of the total plan contributions and thus were not incidental. As a result, even the city’s payments to trustees or third parties under its plan were not properly excluded under the benefits exclusion.

An employer who violates the FLSA’s overtime provisions is liable for the amount of unpaid overtime compensation and an equal amount of liquidated damages which results in an employer having to pay double the amount of the underpayment. Employers that can show that they acted in good faith and had reasonable grounds to believe their actions did not violate the FLSA may avoid the otherwise mandatory award of liquidated damages.

In an attempt to show the city’s good faith, an employee in the payroll department testified that the payroll and human resources departments work together to determine whether to include a particular type of payment in the regular rate of pay when the payment is first provided, conducting further review of the designation if new authority surfaces. The city also included other types of payments in the regular rate of pay and provided overtime payments that were more generous than what the FLSA requires.

The court described the city’s evidence of its good faith as “paltry,” explaining that employers need to be able to show they have taken concrete steps to ensure compliance with the FLSA. Further, the city’s generosity in some areas failed to mitigate its inability to show how it properly determined to exclude the payment at issue. For similar reasons, the court also found that the city’s violation was “willful,” and therefore extended the statute of limitations from two years to three years, an action permitted under the FLSA for willful violations.

This is the first time that the Ninth Circuit has considered the treatment of cash-in-lieu payments in the context of FLSA overtime. The Court of Appeals preceded its analysis with the requirement that the FLSA be construed liberally in favor of employees, explaining that it would not find an exemption applicable except in contexts “plainly and unmistakably” within the given exemption’s “terms and spirit.” While this case involved treatment of a very specific type of payment to employees, it serves as an important message to all employers that determinations related to the regular rate of pay for employees must be made carefully and with an understanding that, if ever challenged, the employer must show the concrete steps it took to confirm that its designation was in compliance with the FLSA.

In light of this ruling, employers would be wise to immediately review their regular rate of pay for non-exempt employees and work with counsel to consider whether there are any issues with current designations and exclusions of compensation. Immediate action to add cash-in-lieu payments to the regular rate of pay for purposes of overtime may be necessary to mitigate damages in case of future challenge.

We will update you if this case is appealed. For further information regarding calculation of the regular rate of pay for non-exempt employees or regarding the treatment of specific type of payments for purposes of the FLSA, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

 

Written by:

Dulcinea Grantham

Partner

Niki Nabavi Nouri

Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

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California Supreme Court Upholds Superintendent’s Criminal Conviction for Misappropriating Funds

July 2016
Number 46

The Supreme Court of California in People v. Hubbard (2016) 63 Cal. 4th 378 recently upheld the criminal conviction of the former superintendent of the Beverly Hills Unified School District for improperly paying a district employee without board approval.

Jeffrey Hubbard served as superintendent of the Beverly Hills Unified School District from 2003 to 2006. During his tenure, he directed the district’s payroll department to increase the compensation of Karen Christiansen, the district’s director of planning and facilities, including increasing her auto allowance by $350 per month and issuing her a one-time stipend of $20,000. Hubbard testified this was compensation for additional work Christiansen performed for the district after the termination of its construction management team. Hubbard did not submit the auto allowance increase or the stipend to the district’s governing board for approval.

Hubbard was convicted of violating Penal Code section 424, which states that “each officer of this state, or of any county, city, town, or district of this state, and every other person charged with the receipt, safekeeping, transfer, or disbursement of public moneys” who appropriates money without authorization for the use of another may be punished with imprisonment. Hubbard appealed his conviction, arguing that he was not an “officer” under Penal Code section 424 because only the board had the authority to approve the payments to Christiansen. The Court of Appeal agreed and overturned the conviction.

The Supreme Court of California reinstated Hubbard’s criminal conviction, holding that it did not matter whether Hubbard had exclusive control over the funds. As Hubbard had “some degree of material control over the funds’ disposition,” this was sufficient to establish criminal liability. The court found that as superintendent, Hubbard had a duty to safeguard school district funds and, as a public officer, he should face criminal liability for misappropriating those funds.

This case is an important reminder of the role of a superintendent and other public officers responsible for safekeeping public funds. It also cautions public administrators to obtain the approval of the governing board, city council or other governing body for salary increases. Superintendents and other public officers of cities, counties, school and other districts entrusted to safeguard public funds could be held criminally or civilly liable if they knowingly misappropriate public funds that they are responsible for protecting.

If you have any questions regarding the Hubbard decision or public officers’ responsibilities with respect to public funds, please contact the author of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:

Dulcinea Grantham

Partner

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Governor Signs Bill Raising Legal Age to Buy Tobacco Products to 21

July 2016
Number 45

Governor Jerry Brown recently approved Senate Bill 7 (SB 7), increasing the age to buy tobacco for smoking, dipping, chewing and “vaping” from age 18 to age 21. The law became effective June 4, 2016.

The new law makes California the second state, besides Hawaii, to increase the age to buy tobacco from 18 to 21.

SB 7 amends provisions of the Business and Professions Code and the Penal Code that govern the sale, possession and use of tobacco products. The bill prohibits persons under the age of 21 from buying tobacco for smoking, dipping, chewing and vaping but offers an exemption for active duty military personnel. Notably, the law also eliminates previously existing criminal penalties for underage persons found in possession of tobacco products.

While SB 7 does not make changes to the Education Code, K-12 school districts and community college districts should be aware of the new law from a policy development and implementation perspective and for its broad application to not only cigarettes, but also to devices used for vaping such as e-cigarettes. School and community college districts may wish to consider updating policies, rules, regulations and handbooks regarding use of tobacco products by students under 21 years of age, as well disciplinary and other consequences for possession and/or use of tobacco products on school grounds.

Education Code sections 48900, subdivision (h), and 48901, respectively, permit K-12 school districts to regulate and impose discipline for possession or use of tobacco products on school grounds. While section 48901 explicitly prohibits “smoking,” it does not expressly prohibit the possession or use of vaping products like e-cigarettes. However, section 48901 cites Business and Professions Code section 22950.5, subdivision (c), for the definition of “smoking.” Section 22950.5’s definition includes “the use of an electronic smoking device that creates an aerosol or vapor, in any manner or in any form, or the use of any oral smoking device for the purpose of circumventing the prohibition of smoking.” Thus, consistent with existing law and the intent of SB 7, school districts may bar students from the use or possession of all tobacco products on school grounds, including vaping products like e-cigarettes.

A related bill, Assembly Bill 1594 (AB 1594), is pending before the Legislature. If signed into law, AB 1594 would provide community college districts with direct authority to prohibit smoking, including vaping, on community college campuses.

If you have any questions about SB 7 or would like assistance updating tobacco use policies, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:

Sloan Simmons

Partner

Aimee Perry

Associate

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Requirement to Offer Surplus Property to Interested Charter Schools Prior to Sale or Lease No Longer in Effect

July 2016
Number 44

School districts selling or leasing surplus property are no longer required to first offer that property to interested charter schools. The requirement has expired and is no longer effective as of July 1, 2016.

Surplus property is real property belonging to a school district that is not needed for school classroom buildings. Before a school district can dispose of surplus property, it must generally take certain steps, which include making written offers or solicitations to sell or lease the property to various statutorily designated agencies. (Ed. Code, §§ 17455, et seq.) If the property remains unsold or unleased after this process, it can be put out to bid to the general public.

Education Code section 17457.5, which became effective on June 27, 2012, required school districts seeking to sell or lease surplus property to first offer that property to any charter school that had submitted a written request to be notified of surplus property offered for sale or lease. Such offers were required for any property designed to provide instruction or instructional support, and interested charter schools received priority over other entities.

Section 17457.5 was originally set to become inoperative on June 30, 2013, and to be repealed on January 1, 2014. However, as part of the trailer bills adopted to implement the 2013-2014 state budget, these deadlines were extended to July 1, 2016. That date has now passed without further legislative action. As a result, the charter school requirements of section 17457.5 are no longer in effect.

We will continue to monitor and provide updates regarding any future legislation related to surplus property. The sunsetting of section 17457.5 does not impact any other school district obligations to charter schools under Proposition 39 or otherwise.

If you have any questions regarding this Client News Brief, or surplus property issues in general, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook orTwitter, or download our Client News Brief App.

School districts are also invited to review our Checklist for Sale or Lease of School District Surplus Property, which describes the requirements and other rules applicable to the lease or sale of surplus school property in detail. To access a copy of the most recent edition of the Checklist, click here.

Written by:

Harold Freiman

Partner

Kelly Rem

Senior Counsel

 

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

Federal Agencies Issue Joint Guidance for Implementing ESSA’s New Provisions Regarding Foster Youth

July 2016
Number 43

The U.S. Department of Education and the U.S. Department of Health and Services recently issued non-regulatory guidance for implementing provisions of the Every Student Succeeds Act of 2015 (ESSA), successor to the No Child Left Behind Act, which enhance school enrollment protections for students in foster care.

On June 23, 2016, the departments released their 28-page guidance, along with two “Dear Colleague” letters summarizing the provisions and timeline for implementation. The provisions, which apply to state and local education agencies (SEAs and LEAs) receiving Title I funds, become effective on December 10, 2016. The guidance is not binding and does not add any new legal requirements for school districts not already included in ESSA. But it is a useful reference, particularly for creating programs serving foster children as part of California’s requirement that school districts develop Local Control and Accountability Plans.

ESSA’s new provisions regarding foster youth, which largely mirror existing California law, mandate that students entering foster care be permitted to remain enrolled in their school of origin unless it is in their best interest to move to a new school, and that transportation be provided to support those students. The new provisions also require immediate enrollment of foster youth who change schools; new schools must immediately request enrolling students’ records from the school they are transferring from. ESSA also requires LEAs to annually report academic achievement and graduation rate data for foster youth.

While ESSA leaves development of specific guidelines, policies and procedures to state and local agencies, the guidance provides direction in this regard as follows:

Educational stability. The guidance clarifies that ESSA’s provisions apply to all students in foster care – including preschoolers, if the LEA offers a public preschool program – regardless of their residential placement or what agency pays for their care. It defines foster care as “24-hour substitute care for children placed away from their parents or guardians and for whom the child welfare agency (CWA) has placement and care responsibility” and includes children who are awaiting a residential placement who, as of December 10, 2016 will no longer be classified as “homeless” under the McKinney-Vento Homeless Assistance Act.

School of origin. The guidance defines “school of origin” as the school where the student is enrolled when placed in foster care, or where the student is enrolled when their placement changes. While the law does not apply to students who have exited foster care, LEAs are encouraged to “prioritize” these students’ stability. For example, it says LEAs should consider allowing these students to remain in their school of origin through the end of the school year, if appropriate.

“Best interest” determination. The guidance provides that LEAs making a best interest determination have flexibility regarding the factors considered, though ESSA requires LEAs to consider the appropriateness of the current educational setting and the youth’s proximity to the school. The guidance indicates that if a student is disabled or an English language learner, their existing rights to appropriate services should be considered. One factor prohibited from consideration, however, is transportation costs.

ESSA does not prescribe a specific process or timeline for making a best interest determination, though according to the guidance, LEAs should establish a clear policy or protocol for making determinations. Meaningful input should be gathered from all relevant parties. Decisions should be made as quickly as possible, and the student should remain in their school of origin while a determination is being made.

Dispute resolution. The guidance suggests that in a dispute over a best interest determination, the child welfare agency has the final word on placement, unless state law or policy dictates otherwise. It encourages LEAs and CWAs to develop a dispute resolution process that is fair, reaches results in an expeditious manner and provides a written explanation of the decision to all involved parties. To minimize disruption, students should be allowed to remain in their school of origin while disputes are being resolved, to the extent feasible and appropriate.

Transportation. The new law requires LEAs to collaborate with CWAs to develop transportation procedures that: (1) ensure foster children who need transportation to their school of origin receive it promptly and in a cost-effective manner in accordance with section 475(4)(A) of the Social Security Act and (2) specify who will pay for the transportation. Local procedures should address issues that may arise if a student needs to cross district or state lines to get to school.

The new ESSA provisions say that LEAs must provide foster children transportation to their school of origin, even if they do not provide transportation to students who are not in foster care; the guidance also encourages LEAs to provide transportation to students who exit foster care, through the end of the school year. The guidance says that charter school LEAs must also provide transportation to foster children.

In determining whether transportation is “cost effective,” the guidance says, an LEA must consider cost, distance, length of travel and whether the mode of travel is developmentally appropriate. LEAs are responsible for providing transportation while disputes are being addressed.

Immediate enrollment and records transfer. The guidance defines “immediate” enrollment in a new school as follows: “as soon as possible in order to prevent educational discontinuity.” Moreover, LEAs cannot deny or delay enrollment because enrollment documents were not provided. LEAs must also ensure that foster children regularly attend and fully participate in school and that their educational needs are being met. The guidance encourages LEAs to revise policies that act as barriers to enrollment and attendance.

State and local points of contact. The guidance spells out potential roles and duties for points of contact and says it is essential that they have sufficient capacity and the necessary resources to fulfill their duties.

Student data and privacy. Agencies choosing to develop a Comprehensive Child Welfare Information System are required, to the extent practicable, to include data exchanges with educational agencies. The guidance also “strongly encourage(s)” CWAs to notify LEAs when a child enters foster care or changes foster care placements. It also calls on LEAs and their child welfare counterparts to establish formal mechanisms for sharing data.

Collaboration. The guidance urges education and child welfare agencies to consider opportunities to cross-train on the issues governed by ESSA’s new foster care provisions, and to collaborate to raise awareness of the provisions and other state and federal child welfare laws. It also recommends that educational and child welfare agencies that haven’t done so already establish a structure for facilitating collaboration, like a task force or work group, and that they establish regional, inter-district and interstate collaborations before the provisions go into effect. It lists potential partners and recommends that collaborative efforts continue after the new foster care provisions are implemented.

If you have any questions about the implementation of ESSA’s new provisions relating to foster youth or California’s requirements relative to foster youth under the Education Code, please contact the author of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:
Claudia Weaver
Senior Counsel
©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

OCR Issues Guidance to Ensure Gender Equality in Career and Technical Education Programs

July 2016
Number 42

The U.S. Department of Education’s Office for Civil Rights (OCR) and Office of Career, Technical and Adult Education (OCTAE) issued a joint “Dear Colleague” letter on June 15, 2016 providing “significant guidance” on how to ensure gender equality in Career and Technical Education (CTE) programs.

The guidance was prompted by data indicating persistent underrepresentation of men and women in fields considered “non-traditional” for their gender (i.e., underrepresentation of women in plumbing and electrician courses and underrepresentation of men in nursing and education) and recognition of the need for gender advancement in underrepresented fields.

The Department of Education says that the purpose of the letter, which does not create any new law or requirements, is to provide information and specific examples of how CTE programs will promote and be evaluated on gender equality. Generally, CTE programs have an obligation to prevent and remedy gender discrimination by doing the following:

  • Recruitment activities: CTE programs should not engage in recruitment activities that may create or perpetuate gender-based stereotypes.
  •  Admissions: The programs should not develop, impose, maintain, approve or implement admission criteria that may unlawfully discriminate on the basis of sex and should not give preference to applicants or exclude any person from a CTE program or class on the basis of sex. For example, CTE programs may not offer single-sex classes.
  •  Counseling and appraisal materials: Materials should not urge, direct, encourage or predict a student’s occupational prospects based on sex. CTE programs should develop procedures to ensure materials are not discriminatory and should not use different materials for students of different genders.

Additionally, Title IX of the Education Amendments of 1972 (Title IX) prohibits discrimination on the basis of sex in all federally funded education programs, including CTE programs. CTE is required to follow Title IX requirements, which include publishing a notice of nondiscrimination, designating a Title IX coordinator to monitor compliance and adopting and publishing grievance procedures to address sex discrimination complaints. Care must also be taken to ensure that no other discrimination as defined by Title IX occurs, including discrimination based on marital or parental status discrimination and sex-based harassment.

Recommendations for ensuring gender equity include:

  • Portray people of different sexes in recruitment materials for a broad range of occupational opportunities, including “non-traditional” fields.
  •  If the gender mix of students in a course is substantially disproportionate, review counseling and appraisal materials. For example, interview counseling staff to determine how students are counseled to take classes, observe counseling sessions, review materials, and offer training regarding bias and sex-stereotyping.
  •  Take immediate steps to investigate allegations of sex-based discrimination.

The “Dear Colleague” letter also provides seven hypothetical situations involving sex-based discrimination issues and illustrates how OCR would investigate each, in an effort to take the guesswork out of addressing particular situations that may arise in CTE programs.

Additional resources will also be released by OCTAE in the coming months; updates will be published online at cte.ed.gov.

If you have any questions regarding this OCR guidance or about how federal and state laws impact CTE programs, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:
Edward Sklar
Partner

Colleen Villarreal
Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

California Decides Not to Require Public School Choice Transfers Under ESSA

July 2016
Number 41

Under Title I the Elementary and Secondary Education Act (ESEA) of 1965, as reauthorized by the No Child Left Behind Act (NCLB) in 2001, schools that failed to demonstrate sufficient annual progress toward established academic proficiency goals fell into program improvement (PI) status and were required to offer students transfers to other non-PI schools in or outside of the district. Such NCLB-driven transfers are commonly referred to as “public school choice” transfers. Occasionally, such transfers were accompanied by transportation.

The Every Student Succeeds Act (ESSA), however, which is the NCLB’s successor signed into law in December 2015, allows states to exercise flexibility in granting NCLB transfers for students enrolled in schools in PI status. Two guidance letters sent out by the U.S. Department of Education, in January and February 2016, respectively, explain states’ new flexibility under ESSA, under which states can determine not to require local educational agencies (LEAs) to offer public school choice transfers. The guidance provided that states choosing not to require LEAs to offer public school choice transfers must send an assurance letter to the U.S. Department of Education by March 1, 2016. The required assurances in the letter include timely and meaningful consultation with relevant stakeholders; publicly posting a transition plan no later than May 6, 2016; explaining in the transition plan how the state will ensure local educational agencies provide eligible students with alternative support to improve student outcomes; and the requirement that LEAs permit a student who previously transferred to another public school under NCLB to remain there until the child completed the highest grade in that school.

The California Department of Education (CDE) submitted an assurance letter on February 17, 2016, and developed a 2016-2017 transition plan that included actions California LEAs must take in lieu of providing transfers. In May, the California State Board of Education (SBE) approved the transition plan, which is available on the CDE website.

For the 2016-2017 transition year, California school districts are no longer mandated to provide notice of public school choice transfer rights under federal law. Nor are they obligated to grant student transfers out of PI schools. However, if a student chooses to remain at the school they previously transferred to under the NCLB, the school district does not have authority to return the student back to his or her original school. Rather, school districts must permit students who transferred under NCLB out of a PI school to continue attending their current non-PI school through the highest grade level offered at that school, and districts must continue to provide transportation for those students if already doing so.

Please note, that neither ESSA nor California’s transition plan for federal law public school choice transfers have any impact on the various bases for student transfers under California law.

If you have any questions regarding this transition plan, or about the impacts of ESSA generally, please contact the authors of this Client News Brief or an attorney at one of our nine offices located statewide. You can also visit our website, follow us on Facebook or Twitter, or download our Client News Brief App.

Written by:
Thomas Manniello
Partner

Mariana Gerontides
Associate

©2016 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.