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FMG Law Blog Line

Posts Tagged ‘California’

Let’s Eat Grandma! Punctuation Matters

Posted on: July 19th, 2018

By: Ted Peters

California Corporations Code Section 1601 provides certain rights to shareholders of corporations doing business in California.  Specifically, as the statute currently reads, corporations are required to open their books and records upon written demand from any shareholder as long as the purpose of the demand is “reasonably related” to the shareholder’s interests.  In 2016, the California Court of Appeal in Innes v. Diablo controls, Inc., 248 Cal.App.4th 139 (2016), held that Section 1601 did not require a corporation to produce records in any particular place; rather, the corporation was required only to produce records in the state where they were located, even if outside of California.

On February 13, 2018, California Representative Brian Maienschein (R) sponsored a bill that would amend Section 1601.  In June, and without a single “no” vote against it, the California Legislature enacted the bill, AB 2237 (Maienschein).  Governor Jerry Brown signed the bill into law on July 9, 2018.

A redlined version of the changes to Section 1601 clearly illustrates that the amendments, which go into effect next year, effectively reverse the holding from Innes.  Specifically, when a shareholder demands an inspection, the records are to be made available for inspection “at the corporation’s principal office in [California], or if none, at the physical location for the corporation’s registered agent for service of process in [California].”  The amendment also provides an alternative procedure which would permit the shareholder to elect to receive the corporation’s books, records, and minutes by mail or electronically, as long as the shareholder agrees to pay the reasonable costs for copying or converting the requested documents to electronic format.

Thus, it is now clear that corporations doing business in the State of California will be required to produce records in California, regardless of where the records are maintained.  The significance of this change is obvious enough, but wait, there’s more… When amending the statute, the legislature made another minor change to the first sentence of the statute.

Previously, what was open to inspection were “The accounting books and records and minutes of proceedings…”  As amended, what will be open to inspection will be “The accounting books, records, and minutes of proceedings…”  The insertion of two commas seems innocent enough, but could lead to a heated debate as to the scope of shareholder inspections in general.  The term “accounting” in the original statute could have been interpreted to modify just “books” or both “books and records.” With the amendment, however, it would seem that “accounting books” and “records” are two separate things and a corporation might be justified in refusing to produce “accounting records” to the extent they differed from “accounting books.”

Maybe the drafters of the amendment were simply sticklers for the proper use of punctuation and thought it best to tidy the statute up.  Or maybe they intended to narrow the scope of what records corporations are required to produce.  Or perhaps the change was intended to send no message at all.  Why does it matter and who really cares?  Well, punctuation does matter, even one little comma.  At least grandmothers around the globe think so; there is a world of difference between  “Let’s eat Grandma” and “Let’s eat, Grandma.”

If you have questions or would like more information, please contact Ted Peters at [email protected].

On-Premises Rest Breaks: Should I Stay or Should I Go?

Posted on: July 18th, 2018

By: Allison Hyatt

Under California law, non-exempt employees are entitled to a 30-minute meal break if the employee works more than 5 hours in a workday, and a 10-minute break for every 4 hours worked (or “major fraction” thereof).  In the past, employers commonly required employees to remain on the premises during rest breaks.  However, with the California Supreme Court’s decision in Augustus v. ABM Services, Inc. (2016) 2 Cal. 5th 257, which emphasized the fact that employers must “relinquish any control over how employees spend their break time,” employers should discontinue any such policies still in practice.

Although the issue in Augustus was on-call rest periods and therefore the Court did not directly consider an on-premises rest break policy, the California Labor Commissioner’s office updated its fact sheet on rest breaks to specially address on-premises break policies in light of the Augustus opinion.  Quoting the Supreme Court’s opinion, the Labor Commissioner’s office explained that employers cannot impose such restraints, stating: “‘during rest periods employers must relieve employees of all duties and relinquish control over how employees spend their time.’  As a practical matter, however, if an employee is provided a ten minute rest period, the employee can only travel five minutes from a work post before heading back to return in time.”

Moving forward, it is unclear as to how courts will address pre-Augustus on-premises rest break policies believed to be legal at the time.  The Augustus Court did not clarify any limitations to what appears to be a sweeping ruling described by the Dissent in Augustus as a “marked departure from the approach we have taken in prior cases.”  2 Cal. 5th 257, 277.  In one post-Augustus case, Bell v. Home Depot U.S.A., Inc. 2017 U.S. Dist. LEXIS 55442 (E.D. Cal. April 11, 2017), the Eastern District of California declined to reconsider a summary judgment ruling in favor of Home Depot on the plaintiffs’ claims that Home Depot violated California law by requiring employees to remain on premises during rest breaks.  The Eastern District had ruled, prior to the decision in Augustus, that such a policy did not violate the applicable California wage order and statute.  In response to the plaintiffs’ motion for reconsideration, Home Depot argued that the Augustus decision implies that restricting employees to the premises, without additional duties or constraints, does not violate the rule.  The Eastern District declined to alter its ruling, noting:

“[t]he facts in Augustus and the present matter are distinct, as the present case does not concern ‘on-call’ rest periods. . . The Augustus court did not directly consider an on-premises rest break policy which does not require employees to remain on call such as the one at issue here.  While the Court finds Defendants’ reading of Augustus more persuasive and accurate than Plaintiffs, it does not specifically adopt Defendant’s interpretation that Augustus affirmatively condones on-premises rest breaks.  Rather, the Court finds that the holding in Augustus does not go as far as Plaintiffs contend.”  2017 U.S. LEXIS 55442 at *5.

It will be interesting to see how other courts interpret the implications of the Augustus opinion.  For now, employers are encouraged to follow the California Labor Commissioner’s advice and discontinue any practices that impose any restraints on how employees spend their break periods.  If you have any questions or would like more information, please contact Allison Hyatt at (916) 472-3302 or email at [email protected].

California Passes New Comprehensive Data Privacy Law

Posted on: July 16th, 2018

By: Kacie Manisco

California has passed a sweeping data privacy law that will result in dramatic changes to how businesses in the state handle consumer data. AB 375, which will take effect on January 1, 2020, grants consumers more control over and insight into the dissemination of personal information, but imposes significant obligations on certain businesses in order to achieve those goals.

The law will apply to any California business that: (1) has an annual gross revenue over $25 million; or (2) alone or in combination, annually buys, receives, sells or shares for commercial purposes the personal information of 50,000 or more consumers, households, or devices; or (3) derives 50% or more of its annual revenues from selling consumers’ personal information.

The new legislation is similar in nature to the European Union’s General Data Protection Regulation (GDPR) and is intended to provide residents of California the most comprehensive consumer privacy rights in the country. To that end, AB 375 requires covered businesses to give California residents:

  • The right to seek disclosure of any personal information collected by the business, up to twice a year;
  • The right to be informed of what categories of data will be collected, prior to its collection, and to be informed of any changes to this collection;
  • The right to request deletion of information collected by the business;
  • The right to opt-out of the sale of personal information;
  • Mandated opt-in before the sale of a minor’s information;
  • Protection of consumer data through reasonable security procedures and practices.

Additionally, one of the most significant aspects of the law creates a private right of action for any consumer for data breaches, without the requirement that the consumer prove injury before being awarded damages. The law provides, “any consumer whose nonencrypted or nonredacted personal information…is subject to an unauthorized access and exfiltration, theft, or disclosure as a result of the business’ violation of the duty to implement and maintain reasonable security procedures and practices appropriate to the nature of the information” may be subject to a civil lawsuit. A consumer would be entitled to recover actual damages or statutory damages of between $100 and $750 per consumer per incident (whichever is greater), plus injunctive or declaratory or other relief.

While AB 375 does not take effect until 2020, California businesses should begin the process of reviewing these new complex requirements and evaluating the applicability of the regulations to its operations. Specifically, businesses should begin to assess the types and scope of data it currently collects (and has collected and stored in the past) that may be covered by the law. Moreover, organizations should minimize their exposure in handling personal data, keeping only the data directly necessary for business and legal needs.

If you have any questions or would like more information, please contact Kacie Manisco at [email protected].

California’s New Independent Contractor Test

Posted on: July 11th, 2018

By: Christine Lee

On April 30, 2018, the California Supreme Court issued a landmark decision in Dynamex Operations West, Inc. v. Superior Court, No. S222732, in which the Court adopted an extremely broad view of workers who will be deemed “employees” as opposed to “independent contractors” for purposes of claims alleging violations of California’s Wage Orders.  This decision will undoubtedly lead to increased litigation challenging classification of workers across the state as employers will now have a much higher burden to defeat such claims.

Under the new “ABC” test set forth in Dynamex, a worker will be presumed to be an employee unless the hiring entity proves all of the following:

(A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract and in fact; and

(B) The worker performs work that is outside the usual course of the hiring entity’s business; and

(C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work he or she performed for the principal.

An employer’s failure to establish any one of the three factors will result in a determination that the worker is an employee as a matter of law.  The Court’s ruling specifically applies to claims asserted under the IWC Wage Orders, which impose obligations related to minimum wages, overtime, and required meal and rest breaks. It is presently unclear how the case applies to claims arising under other statutes.

We encourage all companies doing business in California to immediately evaluate classification of outside contractors or vendors.  Under Dynamex, the vast majority of persons performing services for a company will be considered employees if they are performing work within the usual course of the company’s business, even if those individuals act autonomously and are free from control or direction of the hiring entity.

Therefore, we strongly encourage employers to consult with counsel to evaluate and consider reclassifying independent contractors or risk finding themselves on the losing end of an expensive and painful misclassification case.

If you have any questions or would like more information, please contact Christine Lee at [email protected].

Pass That Dutch: California Insurers Respond to Budding Cannabis Industry

Posted on: July 2nd, 2018

By: Kristin Ingulsrud

California Insurance Commissioner Dave Jones announced on June 4, 2018 his approval of the Cannabis Business Owners Policy (CannaBOP) in California.  The new CannaBOP program was designed for cannabis dispensaries, storage facilities, processors, manufacturers, distributors, and other related businesses.  The CannaBOP program includes property and liability coverage for qualifying businesses.

Other recent offerings by insurers to the California cannabis industry include the first commercial insurance from an admitted carrier in November 2017, the first surety bond program in February 2018, and the first coverage for commercial landlords and a product liability and product recall program in May.

In April, President Donald Trump seemingly called off Attorney General Jeff Sessions’s war on marijuana and promised to support legislation that would protect states that have legalized marijuana from a federal crackdown.  The unpredictability of the current administration in regards to federal enforcement is just one of the unique issues the legalized cannabis industry faces.

Commissioner Jones hosted a webinar in May, Weeding through the Unique Insurance needs of the Cannabis Industry with the National Association of Insurance Commissioners Center for Insurance Policy and Research.   “Cannabis businesses face various insurance gaps—which means cannabis customers, workers and business owners may not have access to insurance to help them recover if there are accidents, injuries, property damage, or any of the things commercial insurance typically covers,” said Jones.

Topics included the effects of conflicting state and federal law on insurance claims, policy exclusions and gaps in coverage.  The webinar also covered the future of the cannabis industry and new trends such as on-site consumption, cryptocurrency, and blockchain.

Commissioner Jones  held the nation’s first public hearing in October 2017 to identify insurance gaps faced by the cannabis industry as part of his ongoing initiative to encourage commercial insurers to offer tailored coverage.  Since that time, insurers in California continue to expand their offerings to the cannabis industry.

If you have any questions or would like more information, please contact Kristin Ingulsrud at [email protected].