State’s Top Court Rules that Contractors Can be Prosecuted for Conflict of Interest

July 2017
Number 40

The California Supreme Court has ruled that an independent contractor can be criminally liable for a conflict of interest under California Government Code section 1090, expanding the universe of penalties a contractor can face for violating the statute and reversing a prior appellate court ruling that exempted contractors from criminal liability for such conflicts.

The Court’s decision in People v. Superior Court (Sahlolbei) (June 26, 2017, No. S232639) ___ Cal.5th ___ only applies to independent contractors who have been entrusted with entering into transactions on behalf of the public agency. But due to an expansion of government and public contracting in which regular employees and even consultants can have control over the public purse, the decision has broad implications for all California public agencies.

Section 1090 prohibits public officers and employees from making contracts in which they have a financial interest when acting in their official capacities. Generally, any contract made in violation of section 1090 is void and cannot be enforced. Criminal penalties for a willful violation include a fine of up to $1,000 or imprisonment, and a lifetime ban on holding public office.

Hossain Sahlolbei worked as a surgeon at a Riverside County hospital and served on the hospital’s executive committee, both in an independent contractor capacity. Sahlolbei negotiated a $36,000 per month contract with an anesthesiologist at the committee’s behest plus $10,000 for moving expenses. He then pressured the hospital to hire the anesthesiologist for $48,000 a month, with $40,000 for moving expenses. Sahlolbei instructed the anesthesiologist to deposit his paychecks into Sahlolbei’s bank account, and the surgeon paid the anesthesiologist $36,000 a month and pocketed the rest. He was later charged with violating section 1090.

In reversing the appellate court’s judgment dismissing the charge, the Supreme Court held that independent contractors are not categorically excluded from prosecution under section 1090 and that an independent contractor who has been retained or appointed by a public agency and whose actual duties include engaging in or advising on public contracting is charged with acting on the agency’s behalf. This makes such contractors fully subject to the statute. The Supreme Court found that Sahlolbei violated section 1090 because there was evidence that hospital leadership asked him to assist in identifying doctors to recruit to the hospital, which he actually did and directly profited from.

As the Supreme Court provided in a hypothetical, a stationery supplier that sells paper to a public agency would ordinarily not be liable under section 1090 if it advised the agency to buy pens from its subsidiary, because the
supplier was not engaging in a transaction on the agency’s behalf. However, a person who was initially hired by an agency as an officer or employee with contracting responsibilities and then rehired as an independent contractor to perform the same duties would be subject to section 1090.

The Court also expressly reversed the Second District Court of Appeal decision in People v. Christiansen (2013) 216 Cal.App.4th 1181 (Christiansen), reasoning that the Legislature intended for section 1090 to apply to certain contractors in both the civil and criminal liability contexts. In Christiansen, a school district’s planning and facilities director, who served the district as an independent contractor, was prosecuted for violating section 1090 after she advised the school district to hire her consulting company for facilities management services, among other self-dealings. The appellate court held that prior courts’ expansion of the statutory term “employees” to apply to independent contractors made them civilly but not criminally liable under section 1090. The Supreme Court disagreed with that conclusion.

Since Christiansen, California courts have applied civil liability under section 1090 to independent contractors in a series of “lease-leaseback” cases involving companies that provided “preconstruction” consulting services to school districts that later hired them as lease-leaseback contractors. (See 2017 Client News Brief No. 32,
2016 Client News Brief No. 29 and 2015 Client News Brief No. 30.) The Supreme Court decision in Sahlolbei raises the possibility that such contractors can now be either or both civilly and criminally liable under section 1090.

The Supreme Court limited its decision by refusing to express a view on whether an independent contractor can be held criminally liable under section 1090 for conduct that occurred during the time frame between the decisions in Christiansen and Sahlolbei.

Public agencies should be aware that independent contractors, including consultants, cannot “change hats” to obscure their participation in public contracting. In reviewing any transaction between an independent contractor and a public agency for a conflict, the focus should be on the substance, not the form, of the transaction. Transactions in which a public agency hires a consultant to perform work about which the consultant previously advised the public agency as well as those in which a public agency hires a former employee as a consultant when both roles include similar work are particularly prone to conflicts of interest and should be carefully evaluated for legality prior to any engagement.

If you have any questions about this decision or conflict of interest law 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 or Twitter or download our Client News Brief App.

Written by:

Iain J. MacMillan

Associate

©2017 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.

Employers Must Provide Information on Rights of Domestic Violence, Sexual Assault and Stalking Victims

July 2017
Number 39

California employers with 25 or more employees must now inform their employees in writing about the legal rights of domestic violence, sexual assault and stalking victims. Employers, including public agencies, must provide this information using the form prepared by the California Labor Commissioner or in a notice that is substantially similar to the Labor Commissioner’s form in content and clarity. The form must be provided to new employees upon hire and to other employees upon request.

California law permits victims of domestic violence, sexual assault and stalking to take time off from work to seek court intervention to help ensure the health, safety or welfare of themselves or their children. Victims may also take time off to seek medical attention, to obtain psychological counseling and other support services or to participate in safety planning.

Victims must give employers reasonable advance notice of their intention to take time off, unless providing advance notice is not feasible. If a victim takes an unscheduled absence, his or her employer must not take any action if the victim, within a reasonable time, provides proof that the absence was covered under the law. Victims may also request reasonable safety accommodations at work, which employers must provide. Employers may not retaliate or discriminate against a victim for taking time off or requesting reasonable accommodations.

Assembly Bill (AB) 2337, which became effective January 1, 2017, introduced a new requirement that employers with 25 or more employees inform employees of these rights. Employers were excused from compliance with this requirement until the Labor Commissioner prepared an information form and posted it on its website. The Labor Commissioner recently published the form, entitled “Rights of Victims of Domestic Violence, Sexual Assault and Stalking,” which is available here (English) and here(Spanish).

Violations of the laws governing victims’ leave and accommodations can result in civil liability and, in some cases, criminal liability. If you have any questions regarding victims’ leave and accommodations or other employment-related matters, 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:

Steven A. Nunes

Associate

©2017 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.

Public Agencies No Longer Required to Contract with DIR Registered Contractors for Small Projects

July 2017
Number 38

Senate Bill (SB) 96, passed this June as part of the California state budget, contains provisions designed to encourage more contractors to participate on small public works projects.

Public works projects under $25,000 and maintenance projects under $15,000 are now exempt from the requirements of the Department of Industrial Relations (DIR) registration program. The new law also permits contractors to register for up to three years in advance and imposes new penalties on contractors found to be in violation of the registration requirements. The deadline for public agencies to provide notice to DIR of new public works projects has also been extended from five to 30 days from the date the contract was awarded.

Prior Law

Since April 1, 2015, all contractors have been required to register with the DIR and to pay an annual registration fee of $300 in order to bid on or be awarded a public works project, regardless of whether the project was competitively bid. Some public agencies have experienced difficulty in identifying contractors willing to comply with the registration requirements, especially where the contemplated project is relatively small. In order to assist DIR in monitoring prevailing wage compliance, public agencies were required to provide notice to DIR within five days of the award of any public works contract. (See 2014 Client News Brief No. 43.)

Changes Made by SB 96

SB 96 amended Labor Code § 1725.5 to exempt public works projects, including construction, alteration, demolition, installation or repair work, of $25,000 or less and maintenance projects of $15,000 or less from the DIR registration and electronic certified payroll reporting requirements, effective July 1, 2017. This change is intended to encourage more contractors to participate on small public works projects. The law also increases the registration fee from $300 to $400 but will allow contractors to register or renew their registration for up to three years at a time beginning June 1, 2019.

Labor Code § 1773.3 has also been amended to provide more flexibility to local governments in providing DIR with notice of a new public works project. Public agencies now have 30 days from the date a public works contract was awarded to file the required notice with DIR.

Beginning January 1, 2018, new penalties will apply to any contractor or subcontractor found to be in violation of the registration requirements. Labor Code § 1771.1 now provides that contractors and subcontractors found to have engaged in work on a public works project without being registered may be assessed a $100 penalty for each day of work performed in violation of the registration requirements, up to a maximum of $8,000. Contractors or subcontractors found to have entered into a subcontract with an unregistered lower tier subcontractor could be assessed similar penalties.

Additionally, DIR is required to issue a stop order prohibiting the use of the unregistered contractor or subcontractor on all public works until that contractor or subcontractor complies with the registration requirement. A contractor or subcontractor’s violation of such a stop order is a misdemeanor punishable by imprisonment of up to 60 days in jail and a $10,000 fine.

If you have questions regarding these changes to the DIR registration program or other public works obligations, 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:

Anne L. Collins

Partner

Nicholas J. Clair

Associate

©2017 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.

IDEA Regulations Amended to Align with ESSA

July 2017
Number 37

The United States Department of Education has released amended regulations implementing Parts B and C of the Individuals with Disabilities Education Act (IDEA) intended to align the Act’s terminology with that under the Every Student Succeeds Act of 2015 (ESSA). The amended regulations, which were released on June 30, are effective immediately. A copy of the new regulations can be found here.

Most of the changes will not significantly affect the day-to-day practices of local education agencies (LEAs), and are not expected to affect LEA costs.

The IDEA was reauthorized in 2004 after adoption of the No Child Left Behind Act (NCLB). The NCLB was superseded by the ESSA in 2015.

A summary of substantive amendments to the IDEA regulations includes:

  • Change in the definition of “regular high school diploma” to exclude diplomas based on alternate academic achievement standards, general equivalency diploma, certificate of completion or attendance or other credential;
  • Listing of special education teacher qualification requirements in § 300.156(c);
  • Addition of specific references to the rules in ESSA that provide comprehensive trainings and support, such as professional development, for teachers of students with special needs;
  • Alignment of requirements for assessments based on alternate academic achievement standards with those under ESSA, such that these assessments are limited to “children with the most significant cognitive disabilities”; and
  • 2016-17 is the last school year for which states may report on the results of children with disabilities taking alternate assessments based on grade-level achievement standards.

A summary of technical amendments to the IDEA regulations includes:

  • Change in the definition of “charter school” to reference the definition under the ESSA;
  • Removal of the terms “core academic subjects,” “highly qualified special education teachers,” “scientifically based research;” and
  • Changes “limited English proficient” to “English Learner.”

If you have questions regarding these new regulations or other special education obligations, 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:

Jessi T. Gasbarro

Associate

©2017 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 New Instructions on Transgender Student Complaints

July 2017
Number 36

The U.S. Department of Education’s Office for Civil Rights (OCR) has issued new instructions to its regional directors regarding how to handle complaints involving transgender students. The document is intended to offer OCR staff additional guidance in light of recent court developments and the Trump Administration’s withdrawal of the Obama Administration’s guidance on transgender students. (See 2017 Client News Brief No. 9.)

The instructions affirm that transgender students still have federal protections against discrimination, bullying and harassment and urge OCR investigators to “approach each case with great care and individualized attention” before dismissing and to look for a permissible jurisdictional basis for OCR to retain and pursue a complaint. They direct OCR staff to rely on Title IX regulations, federal court decisions and other OCR guidance in evaluating complaints of sex discrimination, whether or not an individual is transgender.

The instructions describe five scenarios in which OCR has jurisdiction over complaints involving transgender students, including:

  • Failure to promptly and equitably resolve a transgender student’s complaint of sex discrimination;
  • Failure to assess whether sexual harassment or gender-based harassment of a transgender student created a hostile environment;
  • Failure to take steps reasonably calculated to address sexual or gender-based harassment that creates a hostile environment;
  • Retaliation against a transgender student after concerns about possible sex discrimination were brought to the recipient’s attention; and
  • Different treatment based on sex stereotyping.

Notably, failure to allow students to use the restroom consistent with their gender is not on the list. In fact, the instructions offer restroom access as an example of a type of case that might be dismissed. This is a clear shift in the approach set out in the Obama Administration’s guidance, which required schools to allow transgender students access to bathrooms and locker rooms according to their gender identity.

Regardless of whether the instructions clarify the federal government’s stance on transgender students’ rights, pending a final judicial opinion interpreting federal laws, California school districts must continue to comply with the state’s heightened anti-discrimination restrictions under California law. Since January 1, 2014, California’s Assembly Bill (AB) 1266 has required that students be permitted to participate in sex-segregated school programs and activities, including athletic teams and competitions, and use facilities consistent with their gender identity, irrespective of the gender listed on a student’s records. (See 2014 Client News Brief No. 14. ) Other California laws additionally prohibit discrimination against students based on their gender identities.

Schools and local education agencies should ensure they have board policies and regulations which are designed to address the needs and legal rights of both transgender and non-transgender students. For further guidance on best practices with regard to transgender student issues, 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:

Sara E. Santoyo

Partner

©2017 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.

School Wellness Policies Must be Revised for the 2017-18 School Year

July 2017
Number 35

Local educational agencies (LEAs) that participate in the national school lunch and school breakfast programs must update their school wellness policies to include new requirements for the 2017-18 school year. The requirements were included in regulations finalized by the U.S. Department of Agriculture (USDA) Food and Nutrition Service in 2016.

LEAs that participate in federal breakfast and lunch programs are required to create school wellness policies that describe methods participating schools will use to promote student wellness and to prevent and reduce childhood obesity. The new regulations create a framework and guidelines for revising these policies. The USDA provided guidance on the regulations in an April 6, 2017 guidance document.

According to the guidance document, a school wellness policy must include:

  • Specific goals for nutrition promotion and education, physical activity, and other school-based activities that promote student wellness;
  • Nutritional standards for all foods and beverages available on campus during the school day that are, at a minimum, consistent with federal standards for meals and snacks;
  • Requirements that limit marketing and advertising of foods and beverages to those that may be sold on campus during the day because they meet the wellness policy’s nutritional standards;
  • The identity of the school official(s) responsible for the implementation and oversight of the school wellness policy to ensure each school’s compliance with the policy;
  • A description of how parents, students, the public and specified school officials and employees will be given an opportunity to participate inthe development, implementation and periodic review and update of the
    local school wellness policy; and
  • A description of the plan for measuring the implementation of the local school wellness policy, and for reporting local school wellness policy issues to the public.

LEAs must also assess their schools’ compliance with the policy once every three years. Progress on goals and updates to the policy must be reported to the general public and school community on an annual basis and as part of this assessment process.

The USDA has stated that LEAs must update their school wellness policies by June 30, 2017. Lozano Smith is prepared to assist districts to quickly revise and update their school wellness policies as soon as possible in preparation for the new school year. For guidance on developing appropriate school wellness 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:

Desiree Serrano

Senior Counsel

Joshua Whiteside

Associate

©2017 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.

New Law Requires Union Access to Employee Orientation Sessions

June 2017
Number 34

Governor Jerry Brown has signed legislation that requires public agency employers to give union representatives access to new employees during orientation sessions. The bill, which went into effect immediately after Brown signed it on June 27, is part of Assembly Bill (AB) 119, a budget trailer bill.

The bill is a product of the efforts by unions representing public employees to mitigate the impact of an anticipated United States Supreme Court decision that could make union dues in public agencies voluntary. Under current law, public agency employees who opt out of participating in their union may be required to pay fees to cover union services including collective bargaining.

AB 119 requires public agency employers to grant union representatives access to new employee orientations, which are defined as onboarding processes conducted in person, online or by other means in which new employees are advised of their employment status, rights, benefits, duties and responsibilities. The structure, time and manner of access is subject to negotiations. This new law also requires that negotiations must be conducted during the period between the effective date of the bill and the expiration of a union’s existing contract.

Public agency employers must give their unions at least 10 days’ notice of a new employee orientation session, unless the employer and the bargaining unit reach an alternate agreement or in specific cases where an urgent, unforeseeable need prevents it. It also requires public agency employers to provide the names, job and contact information for new employees to unions within 30 days of hire or by the first pay period of the month following a hire, even if the employee previously worked for the district. Public agencies must provide the same information about all bargaining unit members every 120 days, though public agency employers and unions may negotiate the provision of more detailed lists or different time intervals for providing the information regarding new employees or bargaining unit members.

If a public agency and a union are unable to reach an agreement on the structure, time and manner of access, the dispute is subject to compulsory interest arbitration which means that that arbitrator has the authority to dedicate the terms of the agreement. Alleged violations of the new law may be addressed by the Public Employment Relations Board (PERB).

The budget trailer bill is less prescriptive than last year’s Assembly Bill (AB) 2835, which would have required public agency employers to hold in-person new employee orientations every four months during work hours, and also to allow unions to conduct 30-minute presentations during the first half of these orientations. That bill would also have required public agency employers to provide contact and job description information about bargaining unit members to unions every 90 days.

AB 119 gives public agency employers the opportunity to work with their labor partners to negotiate terms for access to employee orientations that are workable for the employer and meaningful to the union. There are a variety of options for implementing the requirements of this legislation, including airing a videotaped presentation from the union during employee orientations or allowing for an in-person presentation by a union representative. Public agency employers are encouraged to review existing collective bargaining agreements to determine if existing language conflicts with AB 119 and negotiate any necessary change, or develop, through negotiations, language to implement the terms of AB 119.

Lozano Smith has been tracking this legislation and court cases on union dues closely and is ready to assist public agencies with the implementation of these new mandates. A Frequently Asked Questions document that offers more details on the bill is available below. For more information on these new mandates, 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.

FREQUENTLY ASKED QUESTIONS

Q: What does this bill require public agencies to do?
A: Assembly Bill (AB) 119 requires public agencies to provide unions with access to new employee orientation sessions. It also requires public agencies to provide unions with names and contact information of new employees in bargaining unit positions.
Q: What was the reason for this bill?
A: Unions representing public employees sought this legislation because there is at least one case pending before the United States Supreme Court that could result in the Court ruling that union dues are voluntary, which could greatly reduce revenues for public employee unions. Currently, public employees who opt out of union membership are often required to pay service fees to cover the cost of negotiations and other union-provided services.
Q: When does the bill go into effect?
A: The bill went into effect immediately after the Governor signed it on June 26, 2017.
Q: Does the bill require public agencies to conduct face-to-face orientations?
A: No. Orientations may be conducted in person, online or by other means.
Q: Does the bill spell out when and how access must be provided?
A: No. The structure, time and manner of access are all subject to negotiations. However, the bill does, in the absence of an alternate agreement, require public agency employers to give unions at least 10 days’ notice before holding an employee orientation, except in specific instances where there is “an urgent need critical to the employer’s operations that was not reasonably foreseeable.”
Q: When should negotiations over access take place?
A: Negotiations must take place between the effective date of the bill and the expiration of a union’s contract.
Q: What happens if we can’t reach an agreement with the union on the structure, time and manner of access?
A: If any dispute that occurs during negotiations over access is not resolved within 45 days after the first meeting of the parties or 60 days after the initial request to negotiate, either side may make a demand for compulsory “interest arbitration.”
Q: What is “interest arbitration?”
A: “Interest arbitration” is one in which the arbitrator has the authority to determine the terms that will resolve the dispute, i.e. dictate the terms of the resolution to the parties.
Q: Couldn’t unions demand to bargain their role in employee orientations prior to AB 119?
A: Yes, unions could bargain their role in employee orientations prior to AB 119 taking the position that such participation was necessary in order to fulfill their representational rights under the EERA and because it impacted terms and conditions of employment.
Q: My agency hires new employees continuously, which will make it difficult to provide the notice and access the bill requires. How can I comply?
A: The bill permits public agencies and unions to reach an agreement that differs from the requirements of the new law. For example, public agencies could seek to negotiate an arrangement with their labor unions to provide access via a video aired at all in-person orientations or provided along with other orientation materials if orientations are conducted online.
Q: What information does the bill require public agencies to provide to unions?
A: Public agencies must provide the union a new employee’s name; job title; department; work location; work, home and personal cell phone numbers; personal email addresses on file with the agency; and home address, within 30 days of hire or by the first pay period of the month following the hire, even if the employee previously worked for the district. The bill also requires public agencies to provide the same information about all bargaining unit members every 120 days, though public agency employers can negotiate agreements with their unions to provide more detailed lists of information or different intervals for providing information about new employees and bargaining unit members. Public agency administrators may wish to work with their human resources departments to find out whether the generation of these lists can be automated to save time and ensure consistent compliance.
Q: What if an employee doesn’t want to stay to hear from the union?
A: The law only requires public agency employers to provide unions with access to new employees and to information on new employees and bargaining unit members. It does not require that an employee stay to hear from the union. This would be the employee’s choice.
Q: What happens if the union believes the public agency is violating the law?
A: Disputes may be submitted to the Public Employment Relations Board (PERB).

Written by:

Louis T. Lozano

Partner

©2017 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.