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Poole & Shaffery, LLP

December 2012

Poole & Shaffery, LLP is a full service business firm with attorneys who focus on a variety of different areas of litigation, counseling and transactional services, including: bankruptcy, business litigation, business transactions, commercial litigation, construction law, construction defect claims, employment and labor law, environmental law, government affairs, intellectual property matters, insurance law, land use, non-profit and tax-exempt organizations, product liability, premises liability, real estate law, and toxic torts.

Disclaimer: The articles contained herein are intended for general information purposes only. Nothing contained in this document is legal advice, nor should it be relied upon as such.

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By: Brian E. Koegle

Paraphrasing the late, great Andy Williams: "It's the most wonderful time of the year . . . for employment attorneys! " With year-end right around the corner, businesses everywhere are scrambling to make sure their policy manuals are up-to-date, their managers are trained on the latest harassment, discrimination and retaliation issues, and they have taken every precaution to ensure compliance with a bevy of new laws set to ring in the new year. Is your business ready?

While we have previously addressed several of these in earlier articles, which can be found here, the following are some laws that become effective on January 1, 2013:

New Document Retention and Production Requirements

When the Governor signed AB 2674 in September 2012, a new record-keeping and production burden was placed on all California employers. As was the case before AB 2674, employers are required to maintain all payroll and personnel records for all current and former employees, and allow access to those records upon demand by the employee. However, the new law mandates that employers maintain those personnel records during the entire pendency of employment AND for a three-year period following termination.

Further, once an employee demands inspection, the employer has 30 days to allow the employee to review the contents of the personnel file. Also, the new bill expands existing law by requiring an employer to produce a copy of all personnel files, upon written demand. The employer is allowed to redact the names or personal information of any other non-supervisory employee, if included on the documentation, but must otherwise provide copies of the entirety of the records to an employee (or disgruntled former employee).

Failure to comply with a records request may result in a $750.00 civil penalty per violation, injunctive relief and (the ever-dreaded) attorneys' fees, meaning that we can expect this to become a new frontier for litigation in 2013 and beyond.

Accommodation of Religious Dress and Grooming Standards

Effective January 1, 2013, an employer must accommodate an employee's religious dress and grooming standards, unless doing so would be a significant undue hardship upon the business. AB 1964, which was signed in October, revises the California Fair Employment and Housing Act ("FEHA") [Cal. Government Code §12940, et seq.], and indicates that the "wearing or carrying of religious clothing, head or face coverings, jewelry, artifacts and any other item that is part of the observance by an individual of his or her religious creed" creates an affirmative obligation for the employer to reasonably accommodate the standard. In order to qualify for the undue hardship standard, an employer must demonstrate that the employee's dress or grooming practice would cause "significant difficulty or expense" for the business. This will undoubtedly become another blossoming area for future litigation claims based upon religious discrimination.

Breastfeeding Protections Expanded

The Legislature also approved AB 2386 earlier this year, which adds breastfeeding and "medical conditions related to breastfeeding" to the existing definition of "sex" under the FEHA. The law already precluded discrimination or harassment in the workplace based upon "sex," and the Legislature indicated that the addition of breastfeeding as a subset of existing protections was simply a clarification of existing law, which means that the additional protections became effective upon signature by Governor Brown on September 28, 2012.

IRS Mileage Reimbursement Rate Increase

In October 2012, the Internal Revenue Service published its revised guidelines for mileage reimbursement, which will go into effect on January 1, 2013. For business-related travel in an employee's personal vehicle, the reimbursable rate increased to 56.5 cents per mile, an increase of one cent from the 2012 rate.

In California, an employer is required to indemnify its employees for all "necessary expenditures or losses" incurred by the employee as a direct consequence of the discharge of his or her duties (Cal. Labor Code §2802). If an employer reimburses the employee at the IRS approved rate, that payment is presumed to be sufficient. However, if an employer chooses to reimburse the employee at a rate other than the IRS approved standard, the burden falls squarely upon the employer to establish that the rate was adequate under the circumstances to reimburse the employee for his/her actual business-related expenses. As such, it is recommended that, except under very limited circumstances, California employers should reimburse at the IRS-approved rate.

Use of Expired Employment Eligibility Verification Forms

Within 72 hours of hiring a new employee, an employer is required to obtain a completed Form I-9 from the new employee, indicating the employee's eligibility to work legally in the United States. As part of this verification process, employees are required to present identification to verify that they are eligible to do the work. If the employee is unable to present the requisite documents within that initial 72-hour window, s/he cannot legally work for your business.

From time-to-time, the U.S. Citizenship and Immigration Service (USCIS) updates the Form I-9 -- which was expected earlier this year. The current Form I-9 approved by the USCIS expired (as shown on the face of the document) on August 31, 2012. However, the USCIS apparently has no immediate plans to issue a new form. As such, the agency has indicated that employers should continue to use the most recent, expired form until such time that a revised Form I-9 is issued. Stay tuned, because the USCIS could approve the new form at any time, and make the new form effective immediately!

In light of the recent election results, 2013 is poised to be an active year for employment-related legislation, keeping employment attorneys – both plaintiffs' and employers' counsel – on their toes. As always, businesses should consult with competent employment law counsel to ensure that they remain on top of their ever-changing obligations before they find themselves embroiled in costly and time-consuming litigation.

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By: David S. Poole

It often started with a visit to your business that you were unaware of. An individual with a disability recognized by the American with Disabilities Act ("ADA") would show up unannounced with a camera and a tape measure. He or she would measure counter heights, distances between tables and chairs, count "handicapped" parking spaces and, often, document their visit with photographs. The first you would know of it would be the service of a summons and complaint alleging that you had violated the ADA. In many cases, the business owner had no prior knowledge that the business was out of compliance and were willing to address the problem promptly upon becoming informed. They would soon discover, however, that the cost to fix these violations was often dramatically exceeded by the amount the aggrieved plaintiffs wanted in damages and their attorneys demanded for fees.

After years of protests from California business and property owners who had been the object of thousands of these lawsuits, the California Legislature has finally provided them some relief. Senate Bill 1186 signed into law by Governor Brown in September 2012 as an urgency measure (so it took immediate effect) has imposed some serious new constraints on those professional ADA plaintiffs. SB 1186 (enacted as Civil Code §§ 55 et. seq.) provides:

Pre-litigation Demand Letters. Any attorney who sends a pre-litigation "Demand Letter" (not required by the law) must now: (a) identify the specific access barriers encountered; (b) describe how each barrier interfered with access; and (c) identify each date the barrier was encountered. Such a letter cannot make a demand for money and must advise the recipient of its rights. The attorney must identify him or herself as an attorney, include his or her State Bar number, and they must notify the State Bar and the California Commission on Disability Access of the Demand Letter. Civil Code §§ 55.3-55.32.

Certification for Access Specialists and CASp Inspections. A certification process is established for "Certified access specialists" or "CASp" who can inspect and determine whether a property meets standards or has been corrected to meet all applicable construction-related accessibility standards. Civil Code §§ 55.51, 55.52, 55.53. If a CASp report is obtained before the alleged discriminatory incident of which the plaintiff is complaining, there is an opportunity to reduce the minimum statutory damages. The new law also requires all commercial property owners for properties leased after July 1, 2013 to disclose to their tenants whether the property has undergone a CASp inspection and if there were any ADA violations detected. Civil Code § 1938.

Verified Complaints and Concurrent Notice to Defendant. Any lawsuit alleging a construction related accessibility claim must be verified by the plaintiff as true under penalty of perjury. When serving the lawsuit, an attorney must also give the defendant an advisory notice informing the recipient of certain rights related to the construction-related accessibility claim, including: (a) the right to seek a Court stay of the lawsuit; (b) the potential to have the minimum statutory damages reduced to $1,000 for each offense if a CASp report was obtained or the construction occurred after January 1, 2008; and (c) its rights as a small business owner. Civil Code §§ 55.54-55.545.

Limits on Damages. To be eligible for statutory damages, a plaintiff claiming a violation of one or more construction-related accessibility standards must show that he or she was denied "full and equal access to the place of public accommodation on a particular occasion." Civil Code § 55.56. The new law limits those damages to a minimum of $1,000 where any violation is corrected within 60 days of service of the complaint if: (a) the property was CASp inspected or found to "meet applicable standards" some time before the plaintiff was allegedly denied full and equal access; (b) the property was the subject of an inspection report indicating "CASp determination pending" or "Inspected by a CASp" and the defendant had either implemented corrective measures or was in the process of correcting any alleged violation some time before the plaintiff was allegedly denied full and equal access; and (c) the alleged violation relates to new construction or improvement that was approved after January 1, 2008 and remained unmodified before the plaintiff was allegedly denied full and equal access. In other cases, the amount of liability will be reduced to a minimum of $2,000.00 if the defendant has corrected all construction related violations that are the basis of the claim within thirty (30) days of being served with the complaint and the business is a "small business." (A "small business" is defined as having 25 or fewer employees and no more than $3.5 million in gross receipts). Civil Code § 55.56. Plaintiffs who claim multiple violations arising from multiple visits to the same location may also be limited in their efforts to "stack" those claims.

Limitations on Attorney's Fees and Costs. The Court may now consider settlement offers made and rejected by the plaintiffs in determining the reasonableness of an award of attorney's fees and costs. Civil Code § 55.55.

A Word to the Wise. Property owners and tenants who operate businesses open to the public should consider contacting a Certified Access Specialist to insure that they are in compliance with the ADA and to be able to minimize their risk associated with future ADA claims. If you are sued, promptly contact a law firm with experience in ADA compliance and litigation (such as Poole & Shaffery, LLP) to protect your interests.

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By: Samuel R.W. Price

The Ninth Circuit Expands, Then Retracts, Insurers' Good Faith Settlement Obligations

If you heard a faint exhale echo across the state recently, it just might have been the collective sigh of relief from California's insurance community as the Ninth Circuit walked back the potentially dramatic expansion of insurers' duty to settle claims that they had announced just four months earlier.

In June 2012, the Ninth Circuit boldly proclaimed that, where their insured's liability is reasonably clear, an insurer has a duty to effectuate a settlement of the claim even in the absence of a settlement demand. Du v. Allstate Insurance Company, 681 F.3d 1118 (9th Cir., June 11, 2012) ("Du I"). Then, on October 5, four months after the wave of consternation had engulfed much of the insurance community, the court issued an amendment, from which the boldest – and most troubling – holdings in its prior opinion were eliminated. Du v. Allstate Insurance Company, 697 F.3d 753 (9th Cir., Oct. 5, 2012) ("Du II").

In 2005, a vehicle driven by Joon Hak Kim collided with one driven by Yang Fang Du, resulting in serious injuries to Du and lesser injuries to three passengers in Du's vehicle. Several months after the accident, Kim's insurer, Deerbrook Insurance Company, a subsidiary of Allstate, conceded liability. Nevertheless, although Deerbrook was aware that Du had experienced serious injuries, its efforts to obtain documentation from Du to verify the extent of her medical bills continuously proved futile.

Finally, one year after the accident, Du's attorney issued a global settlement demand to Deerbrook for $300,000, the "per accident" limit on Kim's insurance policy. Along with the settlement demand, Du's lawyer provided over $108,000 in medical bills incurred by Du, as well as nearly $35,000 in bills for the passengers in Du's vehicle. Deerbrook declined the demand, stating that they had insufficient information on the passengers' claims. Instead, Deerbrook offered to settle Du's claim separately for $100,000, the "per person" policy limit. Du's attorney refused and filed a personal injury lawsuit against Kim, which resulted in a verdict for Du in excess of $4,000,000. Deerbrook paid $100,000 of the judgment – the amount of the "per person" policy limit. In exchange for an agreement not to execute on the judgment, Kim assigned his bad faith claim against Deerbrook to Du.

Du sued Deerbrook and Allstate, alleging that the insurer had breached the covenant of good faith and fair dealing owed to Kim by refusing to affirmatively settle within Kim's policy limits after Kim's liability for a judgment in excess of the policy limits became clear. At trial in the bad faith action, Du requested that the court instruct the jury that an insurance company has a duty to initiate settlement discussions even in the absence of a settlement demand. The court refused, rejecting the statement of the law offered by Du and finding that, given the facts of the case, the instruction was irrelevant because settlement discussions took place at a sufficiently early point in the claim process. A jury found that Deerbrook had not acted in bad faith, and Du appealed, based on the court's refusal to instruct the jury as requested.

The Ninth Circuit agreed that there was no evidentiary basis for the jury instruction requested by Du and affirmed the trial court's refusal to grant the instruction. But the ruling didn't stop there. Instead, believing that "the district court's ruling below evidences potential confusion as to the scope of insurers' duty to settle," the court elected to "take [the] opportunity to address the issue[]" by declaring that, "under California law, an insurer has a duty to effectuate settlement where liability is reasonably clear, even in the absence of a settlement demand." Du I, 681 F.3d at 1122.

The court acknowledged that the interests between an insurer and an insured are not always aligned, particularly in scenarios where, as in the action against Kim, the insured is exposed to the risk of a judgment in excess of policy limits. Accordingly, the insurer is required to consider in good faith the interests of the insured equally with its own and evaluate settlement demands as though it was bearing the burden alone. Unquestionably, an insurer can be found to have breached that duty of good faith when it rejects a reasonable settlement offer within policy limits.

But the Du I holding expanded the insurer's good faith duty by imposing an affirmative obligation on the insurer to pursue settlement as soon as liability becomes reasonably clear. Since failing to effectuate settlement in such a situation would then expose the insurer to liability for a bad faith claim by the insured, Du I had the potential to dramatically lower the bar for insureds to file bad faith claims against their carriers. Invariably, the end result would be higher costs for insurers and higher rates for all Californians.

Fortunately, after some time to reflect, the court apparently reconsidered the propriety of such an expansive ruling and, without hearing any oral argument from the parties, amended the opinion. Although Du II does generally set forth the competing arguments regarding an insurer's good faith duty to affirmatively pursue settlement, it specifically declines to resolve the issue, concluding that such resolution is unnecessary because, whether or not such duty exists, no evidence had been produced in the trial court to suggest that the insurer failed to reasonably engage in settlement discussions. By ultimately limiting the opinion to the specific facts of the case and abandoning Du I's bold legal holdings, Du II (not too subtly) concedes that such proclamations were superfluous (if not erroneous). In the end, it appears that the court ultimately got it right – even if it did need a Du over.

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