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Fall 2011

Lawsuit Prevention for Employers



Most employers are by now aware that employee handbooks can provide potent protection to employers from the increasingly dangerous labor law environment California businesses must contend with.

What makes it dangerous? The ever-increasing number of labor laws employers are required to comply with makes even an inadvertent violation the source of a potential lawsuit. And, if a lawsuit is filed by a current or former employee, it will ordinarily be decided by a jury. Since juries are typically made up, not of business owners or managers, but employees, business owners have a very difficult time winning these cases.

The solution to this problem is a written, legally-enforceable arbitration policy. If properly drafted and distributed, such policies require an arbitrator, not a jury, to decide workplace disputes. An added benefit is that arbitration is usually far less expensive than a jury trial, and requires a fraction of the time required by traditional litigation.

Because California law requires all employers to have at least some written policies, the author encourages employers to distribute a state-of-the-art employee handbook to include required policies, as well as provisions protective of the employer, including a mandatory and (scrupulously consistent) arbitration policy to all employees, as soon as it can be done.

However, once the handbook and arbitration materials are in place, they must be reviewed annually for changes in the law, and revised accordingly, to maintain their protective qualities.


Several important new laws have either been introduced or strengthened, and take effect January 1, 2012, requiring corresponding changes to employee handbooks.

Moreover, 2011 court decisions require handbook additional changes to provide California employers with as much legal protection as the law will allow.

These are summarized as follows:

1. Arbitration Policies

It is imperative that employers be confident that they can successfully defend their personnel decisions, without risking insolvency in the process. Otherwise, supervisors who are paid to make the tough calls, including termination decisions, will be hearing the “footsteps” of a future lawsuit every time such a decision is required. This will inevitably result in a lower quality workforce as necessary decisions are deferred and marginal employees are retained.

This is no way for employers, already challenged in a difficult economy, to maintain their competitive edge. Employers must feel confident that lawsuits which second-guess their personnel decisions can be resolved favorably, quickly and affordably.

To that end, there is no more potent vehicle than a legally-enforceable, mandatory arbitration policy. Absent one, an employment related dispute will be decided by a jury.

For example, the 2012 U.S. Supreme Court decision in AT&T Mobility LLC v. Conception provides legal authority in support of an employer’s right to limit workplace dispute resolution to individual employees, as opposed to individual employees acting in a representative capacity for a class of similarly- situated employees.

The benefit to employers of this ruling is self-explanatory. However, arbitration policies should be revised in order for employers to derive the benefit of this very favorable decision.

Ironically, it is not unusual for employee handbooks to be so poorly drafted that they become the plaintiff’s strongest piece of evidence against the employer. This is why commercially available software requires that a lawyer specializing in labor law review all handbooks prior to distribution.

As the author frequently counsels his employer clients, “If you expect me to successfully defend you, remove the shackles and let me defend an employee handbook that I drafted.”

2. Equal Employment Opportunity

Effective January 1, protected status has been accorded to applicants and employees based on “gender identity,” “gender expression” and “genetic information.” The former two essentially expand the protected classification of “sex” by shielding persons from discriminatory treatment based on the employer’s awareness that they identify with a gender other than that they were born with, and/or engage in self-expression consistent with this.

3. Notice of Compensation Terms

Newly added Labor Code section 2810.5 requires employers, starting January 1, 2012, to provide non-exempt, non-union employees the following information, in writing, upon hire and thereafter if terms change:

a. The rate of pay or other basis for compensation, i.e., hourly wage, whether paid by the hour, day, week, or by commission, overtime rates of pay.

b. Any allowances the employer will apply to the minimum wage computation, such as meals or lodging.

c. The regular payday, and the name of the employer, including any “doing business as,” names.

d. The name, address and telephone number of the employer’s worker’s compensation carrier.

This information must be provided, in writing, within seven business days of any change in required information.

4. Credit Reports

AB22, signed into law by Governor Brown in October, significantly restricts the ability of employers to use credit reports in connection with employment-related decisions.

With the exception of certain financial institutions, employers are prohibited from obtaining a credit report of any applicant or employee unless the subject’s job falls within certain categories, including any managerial position, a position allowing access to confidential information or regular access to $10,000 or more in cash.

Among other new restrictions, AB22 requires that an employer provide written notice to the applicant/employee of the request for a credit report identifying which category of exemption the employer relied on, and allowing the subject of the report to obtain a copy.

If adverse action is taken, based on a requested credit report, the employer is required to disclose this, as well as the contact information for the consumer credit agency responsible for the report.

_______________________________________________________________________________________________________________________________________________________________________Jay G. Putnam is a Petaluma labor lawyer who has specialized in representing California employers for over 40 years. His practice is devoted to preventing lawsuits against his clients, without sacrificing workplace authority or management prerogatives. He has a remarkable record of success: Not one employer-client acting on his advice has been sued in over 40 years.

For those clients who have arrived with pending lawsuits, Putnam has established an excellent track record of success as well.

You are invited to visit Mr. Putnam’s website, where you will find in-depth discussion of the most common mistakes made by California employers, and how to avoid them.

This newsletter is not intended as a substitute for legal advice and its content is provided for discussion purposes only. Any suggestions or recommendations must be assessed by competent legal counsel to be sure the unique requirements of each workplace are properly considered.


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