California Employers: Do You Know When Your Furlough is a Discharge?

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To employers, it may seem like California regulates nearly everything about employment relations. Yet, surprisingly, statutes and courts in California never answered the question of when a temporary layoff becomes a “discharge” of furloughed employees. That is, until the Ninth Circuit Court of Appeals did so recently in Hartstein v. Hyatt Corporation, 82 F.4th 825. The implications of this new ruling for California employers and employees are considerable.

Under the new ruling, any temporary layoff or furlough of employees without a specific return-to-work date within the employees’ regular pay period is considered a “discharge” under California Labor Code Section 201. That in turn triggers an immediate obligation for employers to pay all laid off employees all of the wages they have earned, including any pay owed for accrued vacation or Paid Time Off (“PTO”). Failure to pay in full all accrued wages, vacation and PTO when due runs the risk of substantial “waiting time penalties” under Labor Code Section 203. That can be a huge burden and risk for employers, as the Hartstein case demonstrated.

Hartstein arose during the beginning of the COVID-19 pandemic, when many businesses were forced to greatly reduce or cease business operations without knowing when they would be able to reopen. In March 2020 Hyatt, like many employers, furloughed thousands of employees and was unable to provide any specific return-to-work date. Hyatt advised employees that vacation and PTO would not accrue during the temporary layoff, and Hyatt offered to pay any accrued vacation to employees upon request. A month later, in June 2020, Hyatt sent a letter advising employees that the temporary layoff had become permanent and employees would be paid their accrued vacation and PTO as required by Labor Code Section § 201 when a “discharge” occurs.

Hyatt employee Karen Hartstein filed a class-action and Private Attorneys General Act (PAGA) lawsuit, arguing that a “discharge” had occurred with the indefinite temporary layoff in March 2020, and not when employees were permanently laid off in June 2020. The key question was whether a temporary layoff, lacking a specified return date, constituted a “discharge” under Labor Code Section 201, which had no definition of “discharge.” No previous published case had addressed the issue.

The Ninth Circuit turned to the California Division of Labor Standards Enforcement (DLSE) for guidance in its previously-issued Opinion and its Policies and Interpretations Manual. DLSE had indicated that, when an employee is laid off without a specified return date within the regular pay period, the employer must immediately give the employee a final paycheck that includes vested vacation pay. DLSE reasoned that this interpretation best aligned with the statute’s purpose of protecting workers and ensuring prompt payment of earned wages.

The Ninth Circuit characterized Hyatt’s actions as “understandable given the uncertainty during the early period of the pandemic,” but remanded the case to the trial court to determine whether Hyatt’s failure to issue full final paychecks in March 2020 constituted a “willful” violation, which would expose Hyatt to waiting time penalties. That question remains open and will be watched closely by employment lawyers.

Hartstein v. Hyatt provides new guidance to California employers who may need to implement open-ended furloughs or temporary shutdowns. This decision has made clear that California employers who furlough or temporarily lay off employees without specifying a return-to-work date within the same pay period should immediately issue final paychecks that include each employee’s vested and unused vacation or PTO.

Hartstein v. Hyatt demonstrates again that employment law in California is constantly evolving, and outcomes may not be as predictable as employers would hope. California employers facing such issues are well-advised to consult with qualified employment counsel to stay up-to-date on these and other important employment issues. Conkle, Kremer & Engel’s attorneys can help advise employers in navigating these complex and evolving issues.

 

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Conkle Firm Attorneys Attend Cosmoprof North America 2021 – Yes, In Person

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The 2020 Cosmoprof North America show was cancelled due to the COVID-19 pandemic but (after some delay) the show went on for 2021. Conkle, Kremer & Engel attorneys Amanda Washton and Sherron Wiggins attended this year’s Cosmoprof North America show on August 29, 2021 in Las Vegas, Nevada.  Attendance was lower than usual, of course, particularly in light of recent concerns about the Delta variant.  But the safety of all participants was paramount to the organizers and it showed.  The Cosmoprof attendees spread out and managed to fill the hall with enthusiasm while maintaining proper social distancing and appropriate masking.

Our attorneys visited the six specialty Cosmoprof sections, such as “Discover Green” featuring green, eco-friendly, clean, and organic products such as Orgaid facial sheet masks. Another notable section was “Tones of Beauty,” dedicated to beauty products for multicultural consumers such as Ceylon Skincare products by Anim Labs formulated to address skin issues that men, especially men of color, experience.

Sherron Wiggins and Amanda Washton at Cosmoprof NA 2021Our attorneys also spent time in the “Cosmo Trends” section of the show, where they reviewed product classes that have surged in popularity during the global COVID-19 pandemic. For example, skin barrier products designed to balance the skin’s microbiome and to kill pathogens gained considerable popularity in the market during the pandemic, likely due to increased consumer awareness and sensitivity to bacteria, micro-organisms, and viruses. As well, most of us have done more than a few Zoom meetings during the pandemic, and have had a chance to examine our appearance on video screens, perhaps more than we would have wished.  This fact was not missed by entrepreneurs who developed and promoted a variety of non-surgical treatments and devices for skin conditioning and application of beauty products. Examples included skin and under-eye serums, and skincare tools that apply LED, EMS, ultrasound, radio frequency, ion fusion, and sonic pulsation.

Makeup and skincare products that focused on overall skin health and a glowing appearance also gained popularity as consumers gradually ventured out to attend small gatherings of family and friends.  Many of these kinds of products were featured in the “Discovery Beauty” section of the show, presenting an array of “conscious beauty products,” such as Urban Secrets.  CBD-inclusive cosmetic products continued to increase in strength, this year warranting an entire dedicated section at Cosmoprof.  Finally, owing to consumers’ increasing environmental consciousness, use of biodegradable packaging represented a clear trend.

Whether virtually or in person, CK&E looks forward to attending Cosmoprof and other industry events in the future, to help us continue to help our clients, meet future clients, and stay up to date on personal care and beauty trends and evolving business needs.  Our attorneys pride themselves on keeping abreast of industry developments to help our clients, from entrepreneurs to mature businesses, grow and protect their brands and businesses.

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CARES Act Update: Application for Paycheck Protection Program Loans And Guidelines Available Here

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We recently blogged about the Paycheck Protection Program (“PPP”), and the tax free gifts it can provide to careful employers. On March 31, 2020, the U.S. Treasury Department published the Application Form for PPP loans, available here. The Application is short – just two pages.

The Application requires some basic information about the business applying for the PPP loan, including certifications that the loan is necessary to address economic uncertainty in the current circumstances, and that the loan proceeds will be used for payroll, rent and utility payments. The Application invites the borrower to insert its own calculation of its average monthly payroll, which should be calculated pursuant to the limitations noted in our prior blog post, including: (1) for most businesses, calculating payroll for the one-year period prior to the date on which the loan is made; and (2) excluding costs over $100,000 on an annualized basis for each employee. Borrowers should calculate payroll cost to include salaries, tips, payment for vacation or sick leave, health insurance premiums, retirement benefits and state and local payroll taxes. The Application notes that documentation of payroll costs will be required, but is not specific about what kind of documentation will be required or when it must be submitted.

The Treasury Department has also just published an Information Sheet for PPP Borrowers with important information, available here. The guidelines indicate that only 25 percent of the amount forgiven may consist of costs other than payroll costs (e.g., rent, utilities, etc.), which is a limitation not expressly stated in the CARES Act. Other notable points from the Treasury Department’s Information Sheet are:
• Loan applications for businesses and sole proprietorships will be available beginning April 3, 2020
• Loan applications for independent contractors and self-employed individuals will be available beginning April 10, 2020
• All payments will be deferred for 6 months
• The interest rate for PPP loans will be a fixed rate of 0.50%, and will accrue during the deferral period of the loan
• The loan term is two years.

[Despite the Treasury’s published Information Sheet, on April 2, 2020 U.S. Treasury Secretary Steven Mnuchin announced that the interest rate would be changed to 1% to help small banks. Further changes may arise, so check all loan terms carefully.]

We expect that more specific guidance about the PPP loan application process will be forthcoming over the next few days. Conkle, Kremer & Engel attorneys stay updated on legal events affecting businesses trying to manage the impact of the Coronavirus pandemic. We will update our blog as more developments occur.

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