Change is Coming to Australian Parallel Importation Law – What Do You Need to Know?

Trade mark holders may need to reassess their commercial and international marketing strategies as the proposed amendments to the parallel importation provisions of the Trade Marks Act 1995 (Cth) (Act) take a step closer to enactment by the Australian Parliament.

The proposed amendments to the Act, contained in the draft Intellectual Property Laws Amendment (Productivity Commission response Part 1 and other measures) Bill (Draft Bill) will favour parallel importers in Australia.

WHAT IS PARALLEL IMPORTATION?

“Parallel importation” refers to the situation where genuine goods, marked with a registered trade mark with the authorisation of the rights holder outside Australia, are purchased by a third party – the “parallel importer” – who imports and sells them in Australia.

The price and quality of goods can vary across different countries, depending on the marketing strategy of the trade mark owner. Parallel importers seek to profit from this variance by selling the parallel imports at a cheaper price than the locally available equivalent and this can often impact the local distributer.

For instance, a company Green Lawns sells a lawn mower cheaper in the United States of America than in Australia where its sales are made by an authorised distributor. Green Lawns makes changes to its products to meet local standards and consumer expectations in different countries. So while Green Lawns’ lawn mower is cheaper in the U.S., it has different electrical requirements than the lawn mower it makes available for purchase in Australia. Both lawn mowers bear Green Lawns’ trade mark, which consumers rely on in making the purchase. When a parallel importer sells the U.S. lawn mower in Australia at a cheaper price than the Australian lawn mower without the authority of Green Lawns, the consumer may initially be drawn to the cheaper product – but when it doesn’t meet the consumer’s expectations, Green Lawns (or its Australian distributor) is blamed for the discrepancy and its goodwill diminishes as a result.

WHAT ARE THE POLICY CONSIDERATIONS ON PARALLEL IMPORTS?

Parallel importation pits the policy interests of promoting competition and protecting intellectual property rights against each other.

The parallel importer competes with the registered trade mark owner and its authorised distributors to sell the products in Australia. This disrupts the trade mark owner’s international marketing plans and prejudices their distribution agreements with local licensees.

On the other hand, competition is seen as a benefit for consumers as it drives prices down and increases their access to goods available in other jurisdictions – although as shown in the Green Lawns example above, consumers may be disappointed with the product intended for another jurisdiction.

WHAT IS THE LAW ON PARALLEL IMPORTATION?

Section 123 of the Act provides that a person does not infringe a registered trade mark by using it in relation to registered goods where that mark has been applied to goods with the registered owner’s consent.

This means that a parallel importer can rely on section 123 as a defence to infringement where the registered trade mark was applied to the goods by the trade mark owner at the time of manufacture.

Trade mark owners have been able to preclude parallel importers from relying on this defence by assigning the registered mark to their local licensee, distributor or subsidiary. Once the mark is assigned to a new registered owner, goods sold in Australia by parallel importers will not have the mark applied with the registered owner’s consent.

These cases rely on the legal fiction that goods that have been created in one factory have effectively two levels of authorisation for the affixing of the trade mark. The consent of the global trade mark owner for goods sold outside Australia and the consent of the Australian trade mark owner for goods sold in Australia. In reality for many products such as clothing, there is no practical difference between the goods at all. The manufacturer of the goods may not even be aware that the trade mark owner in Australia is a different company.

These types of agreements may include an option to reassign the trade mark back to the original owner, with the effect that the original trade mark owner maintains a level of control over the trade mark.

In its inquiry into Australia’s IP arrangements in 2015-16, the Productivity Commission considered the current restriction on parallel imports weighs in favour of rights holders at the expense of consumers.

WHAT ARE THE PROPOSED CHANGES TO THE LAW ON PARALLEL IMPORTATION?

The proposed changes are intended to facilitate parallel importation to the benefit of consumers by limiting the strategic use of such restrictions by trade mark owners.

The proposed changes repeal section 123 and insert a new section 122A into the Act. The proposed new section 122A comprehensively sets out the circumstances in which the parallel importation of trade marked goods does not infringe a registered trade mark.

Those circumstances are where:

  • the goods are similar to the trade marked goods
  • the goods have been put on the market in Australia or a foreign country
  • at the time of use, it was reasonable for the person using the registered trade mark to assume the trade mark had been applied to or in relation to the goods by or with the consent of the registered owner or certain other entities (which are set out below).

The parallel importer may assume the trade mark has been applied by or with the consent of:

  • the registered owner
  • an authorised user
  • a person authorised to use the trade mark by the registered owner or authorised user
  • a person with significant influence over the use of the trade mark by the registered owner or authorised user
  • an associated entity of any of the above persons.

WHAT IS THE EFFECT OF THE PROPOSED CHANGES?

By comprehensively setting out the persons who the parallel importer can assume applied, or consented to applying, the trade mark to the goods, trade mark owners will no longer be able to prevent parallel importers from relying on the parallel importation defence through assignments and other corporate and contractual arrangements.

Parallel importers will also be protected where the owner of the trade mark changes between the application of the mark to the goods and the use on the goods in Australia, as they may make the assumption at the time of their use of the trade mark.

The changes also remove the evidentiary burden on parallel importers, as they will not have to prove that the registered owner actually applied the trade mark to the goods or consented to the application of the trade mark to the goods by another party – only that it was reasonable for parallel importer to assume as such.

The changes apply the principle of “international exhaustion” to the effect that the trade mark owner’s rights are exhausted once they market their goods in their home jurisdiction.

If this change was in place, cases such as Sporte Leisure Pty Ltd & Ors v Paul’s International Pty Ltd & Ors [2010] FCA 1162 and Lonsdale Australia Limited v Paul’s Retail Pty Ltd [2012] FCA 584 would have been decided in favour of Paul’s Warehouse. The other authorities in this area will also be effectively overruled.

Existing arrangements made that resulted in Australian companies owning trade marks on behalf of international companies could also be unwound. The sole reason for such arrangements would no longer apply.

COMMENT

The proposed changes give effect to the Australian government’s policy position that parallel imports benefit competition. In our view, the proposed changes are lacking in that they do not address the problem that consumers, relying on the trade mark, will purchase goods that will not meet their expectations. This is to the detriment of both consumers and the registered trade mark owner. This could be managed if a “material difference” standard was imported into the proposed changes, to the effect that parallel importers could not rely on the proposed section 122A defence where there is a material difference between the imported goods and the goods put on the market in Australia. This is the approach adopted by courts in the US, which we consider strikes a better balance between the competing policy interests.

WHAT HAPPENS NEXT?

Public consultation on the Draft Bill closed on 4 December 2017. IP Australia, the agency tasked with developing the legislation for Parliament, is due to review the issues raised through consultation after 16 March 2018, and the Draft Bill is intended for introduction to Parliament as soon as possible.

Copyright 2018 K & L Gates
This article was written by Chris Round of K&L Gates
For more information, check out our global law page.

USCIS Issues Guidance on DACA Program While Supreme Court Looks at Legality of Program Rescission

Post-shutdown, while Congress debates immigration and the future of the “Dreamers,” the litigation over the legality of President Donald Trump’s rescission of DACA is speeding up. The U.S. Supreme Court accepted the request for an expedited review of the Administration’s petition for certiorari and has set February 2, 2018, as the date when briefs must be submitted.

In September 2017, just after the rescission was announced, close to 20 states and the District of Columbia filed lawsuits challenging the rescission.  In January, a federal judge in San Francisco, William Alsup, issued a nationwide injunction, ruling that DACA must remain in place while litigation over the legality of the President’s decision to wind down the program is pending. This opened a window for DACA beneficiaries whose applications for renewal had been barred by the rescission.

In light of the court order, USCIS issued the following guidance on January 13, 2018:

  • Individuals who were previously granted deferred action under DACA may apply for renewal.
  • Individuals whose DACA expired on or after September 5, 2016, may apply for renewal.
  • Individuals whose DACA expired before September 5, 2016, or whose DACA was previously terminated cannot submit renewal applications, but may submit initial DACA request applications.
  • USCIS will not accept applications from people who have never been granted DACA protection in the past.
  • USCIS will not accept or approve applications for Advance Parole from DACA beneficiaries (and those who currently have Advance Parole may not want to risk international travel at this time).

Congressional leadership has set a February 8, 2018, deadline for coming up with a possible solution for DACA.

Due to the current uncertainty, DACA beneficiaries should consider taking advantage of what might be a brief “window of opportunity” and file for renewals or initial applications where possible. If no permanent solution for DACA is found, only a minority of DACA beneficiaries likely will have other options for remaining in the U.S. and retaining work authorization. There may be family or employment-based avenues to permanent residence, but what options might be available is a complex and fact-specific determination.

Jackson Lewis P.C. © 2018
This article was written by Anna L. Susarina of Jackson Lewis P.C.

Government Shutdown Pushes Back Cadillac Tax

On January 22, 2018, Congress passed an interim funding bill to end the three-day government shutdown that also pushed back the effective date of the Affordable Care Act’s controversial “Cadillac Tax.”  The Cadillac Tax imposes an excise tax on group health plans that provide benefits in excess of certain thresholds.  The new legislation pushes the effective date back an additional two years to January 1, 2022.

© 2018 McDermott Will & Emery
This article was written by D. Finn Pressly of McDermott Will & Emery

California Expands Its Pay Equity Act, Twice: Compliance Challenges for Employers

Under recently-amended California law, an employer must not discriminate in compensation paid to employees based upon the employee’s gender, race or ethnicity, with limited exceptions. While gender has always been in the law, race and ethnicity were recently added to the protections afforded under the state.

These changes occurred due to concerns about the adequacy of existing state law, despite the Pay Equity Act being in existence for over 65 years. California law is similar to the federal Equal Pay Act. Most states have equal pay laws. California legislators have also advocated action by Congress on this issue.

Prior California law essentially prohibited an employer from paying an employee at a wage rate less than the rate paid to employees of the opposite sex in the “same establishment” for “equal work” on jobs the performance of which required equal skill, effort and responsibility and which were performed under similar working conditions.

SB 358

Governor Jerry Brown signed Senate Bill (SB) 358 by State Senator Hannah-Beth Jackson into law on October 6, 2015. Many practitioners call SB 358 the “strictest equal pay law” in the nation. It took effect on January 1, 2016. SB 358 prohibits an employer from paying any of its employees at wage rates less than those paid to employees of the opposite sex for “substantially similar work” when viewed as a composite of skill, effort, and responsibility. Prior language concerning the “same establishment” requirement is now considered as a possible bona fide factor.

The bill made various changes to California’s Equal Pay Act related to gender wage inequality. SB 358 seeks to strengthen existing California law that precludes an employer from discriminating against an employee in pay on the basis of gender.  Prior to the enactment of SB 358, Section 1197.5 mandated that an employer provide equal pay for equal work, unless a bona fide factor other than gender justified the differential.

          SB 358 changed statutory language to require equal pay for “substantially similar work,” instead of the harder to establish “equal work.” The law clarified that the burden of proof is on employers to demonstrate that wage differentials are based on some factor other than sex.

In an effort to eliminate the risk of a stringent interpretation of this standard, SB 358 amends the Labor Code to specify that an employee shall not be paid less than another employee who is performing “substantially similar” job duties, unless a bona fide factor exists.  As such, the new language should achieve the intent of the law and eliminate any employer from seeking to justify a wage differential through meaningless differences in job duties under the guise that such positions are not “equal.”

Moreover, SB 358 allows employees to overcome “pay secrecy” by prohibiting employers from taking adverse action against employees who discuss wages with one another, as well as prohibiting employers from retaliating against employees who invoke the Equal Pay Act, or encourage co-workers to do so.

As explained by the Department of Industrial Relations (DIR), Governor Brown signed the California Fair Pay Act (SB 358), which strengthens the Equal Pay Act in a number of ways, including by:

  • Requiring equal pay for employees who perform “substantially similar work, when viewed as a composite of skill, effort, and responsibility.”
  • Eliminating the requirement that the employees being compared [must] work at the “same establishment.”
  • Making it more difficult for employers to satisfy the “bona fide factor other than sex” defense.
  • Ensuring that any legitimate factors relied upon by the employer are applied reasonably and account for the entire pay difference.
  • Explicitly stating that retaliation against employees who seek to enforce the law is illegal, and making it illegal for employers to prohibit employees from discussing or inquiring about their co-workers’ wages.
  • Extending the number of years that employers must maintain wage and other employment-related records from two years to three years.

An important aspect of SB 358 is that the measure contains several findings and declarations by the Legislature to help set the stage for why these changes to the Labor Code were made.  Specifically, the Legislature determined that:

“In 2014, the gender wage gap in California stood at 16 cents on the dollar. A woman working full time year round earned an average of 84 cents to every dollar a man earned. This wage gap extends across almost all occupations reporting in California. This gap is far worse for women of color; Latina women in California make only 44 cents for every dollar a white male makes, the biggest gap for Latina women in the nation.

“While the state’s overall wage gap is slightly lower than the national average of 78 cents to the dollar, the persistent disparity in earnings still has a significant impact on the economic security and welfare of millions of working women and their families. Collectively, women working full time in California lose approximately $33,650,294,544 each year due to the gender wage gap. The wage gap contributes to the higher statewide poverty rate among women, which stands at 18 percent, compared to approximately 15 percent for men, and the poverty rate is even higher for women of color and single women living with children.

“California has prohibited gender-based wage discrimination since 1949. Section 1197.5 of the Labor Code was enacted to redress the segregation of women into historically undervalued occupations, but it has evolved over the last four decades so that it is now virtually identical to the federal Equal Pay Act of 1963 (29 U.S.C. Sec. 206(d)). However, the state provisions are rarely utilized because the current statutory language makes it difficult to establish a successful claim.

“Pay secrecy also contributes to the gender wage gap, because women cannot challenge wage discrimination that they do not know exists. Although California law prohibits employers from banning wage disclosures and retaliating against employees for engaging in this activity, in practice many employees are unaware of these protections and others are afraid to exercise these rights due to potential retaliation.

“To eliminate the gender wage gap in California, the state’s equal pay provisions and laws regarding wage disclosures must be improved.”

The proponents argued that “The California Fair Pay Act will strengthen the state’s existing equal pay laws by eliminating loopholes that prevent effective enforcement and by empowering employees to discuss their pay without fear of retaliation.” Proponents of SB 358 also claimed that the wage gap would cut the poverty rate for working single mothers by nearly half, from 28.7 percent to 15 percent.

Proponents specifically argued that SB 358 will ensure employees performing substantially equivalent work are paid fairly by requiring equal pay for work of a comparable character, eliminating the outdated same establishment requirement, by replacing the any bona fide factor other than sex catch-all defense with more specific affirmative defenses, and strengthening protections for workers who inquire about or discuss their wages or those of their coworkers.

SB 358 requires employers to affirmatively demonstrate that a wage differential is based upon one or more specified factors including a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a bona fide factor other than sex. Moreover, the new law requires the employer to demonstrate that each factor relied upon is applied reasonably and that the factor(s) relied upon account for the entire wage differential.

As a separate matter, SB 358 prohibits an employer from discharging or in any manner discriminating or retaliating against any employee by reason of any action taken by the employee to invoke or assist in any manner the enforcement of these provisions of the Labor Code. The new law authorizes an employee who has been discharged or discriminated or retaliated against to recover in a civil action reinstatement and reimbursement for lost wages and work benefits caused by the acts of the employer, including interest and equitable relief. It also requires a civil action to recover wages for retaliation to be commenced no later than one year after the cause of action occurs.

Finally, the bill prohibits an employer from prohibiting an employee from disclosing the employee’s own wages, discussing the wages of others, inquiring about another employee’s wages, or aiding or encouraging any other employee to exercise his or her rights under these provisions. And the new law increases the duration of employer recordkeeping requirements from 2 years to 3 years.  SB 358 extends existing enforcement mechanisms for wage discrimination to claims for retaliation and provides a one-year statute of limitations for retaliation claims.

SB 358 provides further clarity to the term “bona fide factor” under which an employer may provide differential pay for a legitimate business purpose, such as to compensate an employee that has more extensive training, education or experience.  Proponents believe this clarification will help employers navigate their pay structure and avoid unnecessary litigation regarding what business purposes qualify as a “bona fide factor”.

This factor applies only if the employer demonstrates that the factor is not based on or derived from a sex-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity. A business necessity is defined as an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.

There are some who believe that the changes made by SB 358 eliminated some justifications for a difference in pay.  However, those examining the changes to Section 1197.5 need to be aware of the statement of legislative intent provided by the author’s Letter to the Senate Daily Journal set forth below:

May 26, 2015 SENATE JOURNAL 1099

MOTIONS, RESOLUTIONS AND NOTICES

MOTION TO PRINT IN JOURNAL

Senator Jackson moved that the following letter be printed in the journal.

Motion carried.

May 26, 2015

The Honorable Kevin de León President pro Tempore of the Senate

Dear Senator De León: SB 358 is a measure intended to narrow the gender wage gap by modifying California’s equal pay law. I write this letter to clarify my intent of striking “work is performed at different geographic locations” and “work is performed on different shifts or at different times of day” from the bill. I would like to request that this letter be printed in the Senate Daily Journal regarding Senate Bill 358. Although the introduced version of the bill listed “work is performed at different geographic locations” and “work is performed on different shifts or at different times of day” as statutory exceptions to the equal pay law that could be claimed by an employer in response to a complaint alleging a gender-based wage differential, the current version does not specifically list those factors because each of those factors may be a “bona fide factor,” as that factor is defined in this bill. Accordingly, the amendments to this bill that strike “work is performed at different geographic locations” and “work is performed on different shifts or at different times of day” should not be construed as the Legislature’s intent to make those factors unavailable to an employer responding to an equal pay complaint. Rather, the employer may claim a “bona fide factor,” that may be specifically described by the employer as work that is performed at different geographic locations or work that is performed on different shifts or at different times of day, so long as the employer can prove that the factor is consistent with business necessity, as specified on in the bill.

Sincerely,

HANNAH-BETH JACKSON Senator, 19th District

As set forth in the author’s statement of legislative intent, SB 358 provides additional guidance to employers regarding justifications for wage differentials.  The author’s letter makes clear that work performed on different shifts or in different establishments still exist as justifications for a difference in pay. As a result, the business community actively supported the passage of SB 358 because the bill will provide clarity to the law and reduce the potential for costly litigation, and it strengthened the “bona fide factor” language.

This letter by Senator Jackson was submitted the day that SB 358 passed off the Senate Floor with a unanimous vote. As such, it was done contemporaneously with the vote of the full Senate and should be afforded considerable weight by a court of law when interpreting the changes made to Section 1197.5 by SB 358.

Finally, the California National Organization for Women (CA NOW) opposed SB 358 unless the bill was amended to include protections for wage discrimination for categories such as race, ethnicity, LGBTQ and disability status.  According to CA NOW, it is wrong to deny certain employees full protection under the California Equal Pay Act because these groups are afforded protections from other anti-discrimination laws. This position set the stage for the following year’s enactment of SB 1063.

SB 1063

On September 30, 2016, Governor Jerry Brown signed SB 1063 by State Senator Isadore Hall and Assembly Bill (AB) 1676 by Assemblywoman Nora Campos.  SB 1063 expands the Equal Pay Act to include a new basis for wage equality, while AB 1676 prohibits employers from basing an employee’s pay on prior salary alone.  Although both bills contain the same statutory language, SB 1063 was chaptered last by the Secretary of State. Because both bills contained “chaptering language” and SB 1063 was chaptered last, SB 1063 is the operative law.

SB 1063 became effective on January 1, 2017 and it prohibits an employer from paying any of its employees at wage rates less than the rates paid to employees of another race or ethnicity for substantially similar work. In addition, the new law specifies that prior salary cannot, by itself, justify any disparity in compensation under the “bona fide factor” exception contained in existing law.  These changes by the bill were made to Labor Code Section 1197.5.

SB 1063 adds the following language to Labor Code Section 1197.5(b):

(b) An employer shall not pay any of its employees at wage rates less than the rates paid to employees of another race or ethnicity for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions, except where the employer demonstrates:

(1) The wage differential is based upon one or more of the following factors:

(A) A seniority system.

(B) A merit system.

(C) A system that measures earnings by quantity or quality of production.

(D) A bona fide factor other than race or ethnicity, such as education, training, or experience. This factor shall apply only if the employer demonstrates that the factor is not based on or derived from a race- or ethnicity-based differential in compensation, is job related with respect to the position in question, and is consistent with a business necessity. For purposes of this subparagraph, “business necessity” means an overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve. This defense shall not apply if the employee demonstrates that an alternative business practice exists that would serve the same business purpose without producing the wage differential.

(2) Each factor relied upon is applied reasonably.

(3) The one or more factors relied upon account for the entire wage differential.

            Numerous business groups opposed SB 1063, but were neutral on AB 1676, because these groups favored allowing last year’s significant Equal Pay Act measure time to be tested and evaluated. They argued that SB 358, which enacted the FPA changes, should not be expanded until the law’s scope is fully known as the statutory changes only took effect on January 1.  SB 358 was hailed “as the strongest equal pay law for women in the country.”

In opposing SB 1063, business groups argued that, while no employee should be paid differently based upon any protected classification contained in California’s Labor Code, the Legislature should allow time for a newly-created task force, as well as time for the courts through pending litigation, to interpret and implement the new boundaries of the equal pay law before seeking to expand it even further.

According to the legislative policy committee’s bill analysis, “SB 1063 expands the prohibitions set forth in California’s Equal Pay Act to include discrimination based on race or ethnicity. By adding these provisions, this bill, among other things: (1) duplicates the provisions laid down in the Equal Pay Act regarding gender, but restates them to prevent wage rate discrimination based on race or ethnicity, and (2) mirrors the enforcement mechanism and penalties for wage rate discrimination based on gender and includes discrimination based on race or ethnicity.”

Senator Hall, as the author of SB 1063, argued that current state law does not recognize that wage discrimination is confined to women. Women of color, who are paid less than white women, should be able to make a claim under California’s Equal Pay Act. Men of color, who are paid less than white men, should be able to make a claim under California’s Equal Pay Act as well. Ideally, he argued, other protected classes, such as members of the LGBTQ or disabled community should be included in this remedy, but the addition of race and ethnicity begins the process of making pay equity in California more inclusive.

            According to the Assembly Appropriations Committee fiscal analysis of SB 1063, there will be unknown, likely significant costs (at least half a million dollars annually) to the Department of Industrial Relations (DIR) to process claims associated with wage discrimination based on race or ethnicity.

AB 1676

SB 1063 also incorporates changes made to Labor Code Section 1197.5 by AB 1676 (Campos). These changes clarify that prior salary, by itself, must not justify any disparity in compensation between workers of the opposite sex and the bill makes findings and declarations on the wage differential between men and women, recent case law, and that this bill is a codification of existing law.

The author of AB 1676, Assemblywoman Campos, argued that “the practice of paying someone solely based on their prior salary was not specifically addressed, recent administrative court decisions have made clear this is discriminatory and locks in a low level of pay for many women. AB 1676 addresses this by making explicit and clear that paying someone less on the basis of a prior salary is discriminatory.”

In terms of enforcement, existing law authorizes an employee paid lesser wages in violation of the law to file a complaint with the DLSE and authorizes the employee, the DLSE or the Department of Industrial Relations to commence a civil action for the wages the employee was deprived of because of the violation, interest on those wages, and liquidated damages. In addition, under current law, an employer or other person who violates or causes a violation of that prohibition, or who reduces the wages of any employee in order to comply with that prohibition, is guilty of a misdemeanor.

4. Other Provisions of Existing Law

Existing law provides that any employer who violates the law is liable in the amount of the employee’s wages and interest that the employee is deprived of, which is in addition to liquidated damages.

The DIR or the DLSE may commence and prosecute, unless otherwise requested by the employee or affected group of employees, a civil action on behalf of the employee and on behalf of a similarly affected group of employees to recover unpaid wages and liquidated damages for violations of the Act, and are entitled to recover costs of suit.

In addition, existing law provides that any employee receiving less than the wage to which the employee is entitled may recover in a civil action the balance of the wages, including interest and an equal amount as liquidated damages, together with the costs of the suit and reasonable attorney’s fees, notwithstanding any agreement to work for a lesser wage.

5. Further Guidance Forthcoming

In July 2016, a Task Force was created by the California Commission on the Status of Women and Girls to specifically develop guidelines for employees and employers regarding the new standards established in SB 358.   The Task Force is seeking to identify challenges to both employers and employees with regard to the implementation of SB 358, as well as explore potential definitions for the new terms incorporated into the law by SB 358.  This guidance provided by the Task Force will hopefully provide employers with resources to proactively ensure their pay structure is compliant with these laws and thereby limit costly litigation.

In addition, the private sector has been given a great deal of advice by practitioners on how to comply with the new laws. For example, employers should prepare to:

  1. Conduct or review job evaluations of substantially similar jobs based on a composite of skill, effort, and responsibility system wide
  2. Ensure that any wage differences can be explained by seniority, merit, quantity or quality of production, or another bona fide factor other than sex
  3. Document that the bona fide factors for wage differences are reasonably applied
  4. Add the Fair Pay Act to policies, procedures and handbooks prohibiting non-discrimination and retaliation
  5. Eliminate any policies and procedures prohibiting disclosure or discussion of, inquiry or organizing about wages
  6. Update recordkeeping to at least three years
  7. Train managers, supervisors, human resources professionals and others in the enterprise on compliance with the California Fair Pay Act.

6. Addressing Criticism about SB 358

California businesses will need to closely examine their wage policies, along with justifications they utilize for paying employees different wage amounts. In order to meet the burden of proving a “bona fide factor” exists, proper documentation will be required to demonstrate pay is not in any way based upon the employee’s sex, race or ethnicity.

California’s statute requiring equal pay has been on the books for over 65 years and, as such, the state has a long history of discouraging unequal pay rates between male and female employees doing essentially the same job. There is debate in the legal community whether SB 358 will make it easier to sue California employers and impose additional legal burdens upon businesses or not.

The following are some of the criticisms of SB 358:

The term “substantially similar” work is broader than the prior standard of “equal work.” The change from “equal work” to “substantially similar work” essentially codifies existing interpretations of the former term. A strict interpretation of prior law is not how the law’s federal counterpart or similar anti-discrimination laws have been interpreted to preclude gender-based wage discrimination in California.

In addition, the introduced version of SB 358 would have changed “equal work” to “comparable work,” a more difficult standard for employers to meet and one that was rejected at the federal level. As a result, the business community was successful in narrowing the language contained in SB 358.

Another criticism is that SB 358 expands obligations upon employers in this state. There are only two instances where there are substantive changes to employer obligations in the bill because the other provisions of SB 358 are a codification of existing court decisions and practice:

  • The bill increases the period of time that an employer must retain records from two years to three years.
  • The bill adds an existing cause of action for retaliating or discriminating against employees for exercising their rights under this section of the Labor Code.

The next criticism of SB 358 is that the “bona fide factor” language has been narrowed. While additional language was added to the Labor Code to explain what constitutes a bona fide factor and how an employer can demonstrate that such a factor justifies a wage differential, for the first time, California has codified three additional factors that fall under the bona fide factor affirmative defense: training, education and experience.

This new statutory language represents a significant improvement over existing law and the vast majority of wage differentials in practice are based upon one or more of these factors. The business community was successful in getting these additional factors enumerated in statute.

Another criticism of SB 358 is that the “same establishment” limitation has been eliminated from the law. While much has been made about the removal from the introduced version of SB 358 of the “different geographic location” and “shift differential” language, those affirmative defenses are still viable. The Legislature intended those affirmative defenses to fall under the bona fide language.

The final criticism is that employers now have the burden of demonstrating that the wage differential was justified. Although existing law was silent, and SB 358 adds language that “the employer demonstrates…,” the employer has always had the burden to affirmatively demonstrate that a wage differential is based upon one or more specified factors including a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or a bona fide factor other than gender.

Although SB 358 has additional language that is not in current law, such as “each factor is applied reasonably” and “one or more factors account for the entire wage differential,” these showings had to be made by employers under existing practice. It is not as if, under existing law, an employer could claim that a bona fide factor accounted for 80% of the wage differential and the remainder was due to gender and, therefore, no violation of the law had occurred.

While SB 358 is an important tool in the fight against unequal pay based upon gender, most of the statutory changes made by the bill are consistent with court interpretations and existing litigation practice in this area of the law. With nearly half the workforce comprised of women, the California business community supports efforts to ensure that workers in this state are not paid differently based solely upon their gender. SB 358 attempts to strike a fair balance between the interests of employers and employees in this state to address a very real problem.

[1]Labor Code Section 1197.5.

[2] Current law establishes exceptions to that prohibition where the payment is made pursuant to a seniority system, a merit system, a system which measures earnings by quantity or quality of production, or a differential based on any bona fide factor other than sex.

[3]See SB 358 from the 2015 Legislative Session and SB 1063 from the 2016 Legislative Session.

[4] California has prohibited gender-based wage discrimination since 1949.

[5]See 29 U.S.C. Sec. 206(d).

[6] The National Conference of State Legislatures (NCSL) compiled its most recent list in August 2016.http://www.ncsl.org/research/labor-and-employment/equal-pay-laws.aspx.

[7]See, e.g., AJR 47 (Block), Chapter 145 from the 2012 Legislative Session, a measure that urged the Congress to reintroduce and adopt the Paycheck Fairness Act to help close the gender wage gap.

[8]See Labor Code Section 1197.5 prior to amendments made by SB 358 in 2015. See, also, Senate Floor Analysis of SB 358.

[9] It is Chapter 546 of the Statutes of 2015.

[10] “California Governor Signs Strictest Equal Pay Law in the U.S.” October 7, 2015.http://www.seyfarth.com/publications/MA100715-LE. “California Lawmakers Pass Toughest U.S. Law Requiring Equal Pay,” August 27, 2015. https://www.bloomberg.com/politics/articles/2015-08-27/california-lawmakers-pass-toughest-u-s-law-requiring-equal-pay.

[11] According to the Department of Industrial Relations (DIR), “Although the law does not specifically define “wage rates,” it refers to the wages or salary paid, and also other forms of compensation and benefits.”http://www.dir.ca.gov/dlse/California_Equal_Pay_Act.htm.

[12] This phrase replaced the prior “equal work” language.

[13] According to the DIR, “substantially similar work” refers to work that is mostly similar in skill, effort, responsibility, and performed under similar working conditions.  Skill refers to the experience, ability, education, and training required to perform the job.  Effort refers to the amount of physical or mental exertion needed to perform the job.  Responsibility refers to the degree of accountability or duties required in performing the job.  “Working conditions” has been interpreted to mean the physical surroundings (temperature, fumes, ventilation) and hazards. http://www.dir.ca.gov/dlse/California_Equal_Pay_Act.htm.

[14] As indicated by Senator Jackson’s letter to the Daily Journal discussed below.

[15] See Senate Floor Analysis of SB 358.

[16] California’s Department of Industrial Relations has a website that provides guidance on SB 358. It is entitled “California Equal Pay Act: Frequently Asked Questions”. http://www.dir.ca.gov/dlse/California_Equal_Pay_Act.htm.

[17] According to the DIR, “The main differences are that the new law:

  • eliminates the requirement that the jobs that are compared must be located at the same establishment;
  • replaces a comparison of “equal” work with a comparison of “substantially similar” work; 
  • makes it more difficult for employers to justify unequal pay between men and women;
  • adds new express anti-retaliation protections for workers that assist employees with bringing claims under the Act;
  • provides that an employer cannot prohibit workers from disclosing their wages, discussing the wages of others, or inquiring about others’ wages.”http://www.dir.ca.gov/dlse/California_Equal_Pay_Act.htm

[18] See Senate Floor Analysis of SB 358.

[19] See Senate Floor Analysis of SB 358.

[20] Id. 

[21] Id. 

[22] See Section 1(a) of SB 358 as enacted.

[23] See Section 1(a) of SB 358 as enacted.

[24] See Section 1(c) of SB 358 as enacted.

[25] See Section 1(c) of SB 358 as enacted.

[26] See Section 1(c) of SB 358 as enacted.

[27] See fact sheet by proponents. https://www.cela.org/legislative/SB358FairPayFactSheet.pdf.

[28] See Senate Floor Analysis of SB 358.

[29] Id. 

[30] According to the DIR, “Under the new law, an employer can defeat an Equal Pay Act claim by proving that the difference in pay for substantially similar work is due to:

  • seniority;
  • merit;
  • a system that measures production; and/or
  • a ‘bona fide factor other than sex.’

In addition, an employer must show that it applied the above factor(s) reasonably and that the factor(s) accounts for the entire difference in wages.” http://www.dir.ca.gov/dlse/California_Equal_Pay_Act.htm.

[31] According to the DIR, “Under the new law, an employer may defeat an Equal Pay Act claim by proving that the wage differential is due to a ‘bona fide factor other than sex,’ but to succeed on this defense, the employer must also prove that the factor is 

  • not based on or derived from a sex-based factor;
  • job related; and
  • consistent with a business necessity.

Examples of a ‘bona fide factor other than sex’ include education, training or experience.”http://www.dir.ca.gov/dlse/California_Equal_Pay_Act.htm.

[32] According to the Senate Floor Analysis of SB 358, the “Assembly amendments clarify the bona fide factor affirmative defense.”

[33] Labor Code Section 1197.5(a)(2).

[34] Labor Code Section 1197.5(j)(1).

[35] Labor Code Section 1197.5(j)(2).

[36] Labor Code Section 1197.5(j)(3).

[37] Labor Code Section 232.

[38] Labor Code Section 1197.5(d).

[39] Labor Code Section 1197.5(h)

[40] Labor Code Section 1197.5(a)(1)(D).

[41] See Senate Floor Analysis of SB 358.

[42] Id. 

[43] Id. 

[44] See Senator Jackson’s Letter to the Senate Journal dated May 26, 2015.

[45] Id. 

[46] See Senate Floor Analysis of SB 358.

[47] Id. 

[48] Id. 

[49] Chapter 866 of the Statutes of 2016.

[50] It is referred to as the “Wage Equality Act of 2016.”

[51] As such, the provisions of SB 1063 are effective, rather than those contained in AB 1676.

[52] Section 3 of SB 1063 contains the following language: “Section 1.5 of this bill incorporates amendments to Section 1197.5 of the Labor Code proposed by both this bill and Assembly Bill 1676. It shall only become operative if (1) both bills are enacted and become effective on or before January 1, 2017, (2) each bill amends Section 1197.5 of the Labor Code, and (3) this bill is enacted after Assembly Bill 1676, in which case Section 1 of this bill shall not become operative.”

[53] Labor Code Section 1197.5(b).

[54] Labor Code Sections 1197.5(a)(3) and (b)(3).

[55] See Section One of SB 1063.

[56] The language related to equal pay protection based upon gender is contained in Section 1197.5(a).

[57] See Senate Floor Analysis of SB 1063.

[58] Id. 

[59] See, e.g., Los Angeles Times, October 6, 2015, “California now has one of the toughest equal pay laws in the country.”

[60] See letter from California Chamber of Commerce and other groups dated.

[61] See Assembly Judiciary Committee analysis of SB 1063.

[63] See Senate Floor Analysis of SB 1063.

See Assembly Appropriations Committee analysis of SB 1063.

[64] Pay equity bills were a top priority of the Legislative Women’s Caucus. See, e.g., Los Angeles Times, March 24, 2015.http://www.latimes.com/local/political/la-me-pc-california-womens-caucus-pay-equity-child-care-poverty-20150324-story.html.

[65] See Sections 1197.5(a)(3) and (b)(3), which now contain the following: “The one or more factors relied upon account for the entire wage differential. Prior salary shall not, by itself, justify any disparity in compensation.” (new language in italics)

[66] See Assembly Labor & Employment Committee analysis of AB 1676.

Labor Code Section 1197.5(e).

[68] See Section 2 of SB 1063 which amended Labor Code Section 1199.5. As a result, subdivision (a) now provides that “Pays or causes to be paid any employee a wage less than the rate paid to an employee of the opposite sex  another sex, race, or ethnicity,  as required by Section 1197.5.”

[69] Labor Code Sections 1197.5(b) and (c).

[70] Labor Code Section 1197.5(f).

[71] Labor Code Section 1197.5(g). 

[72] According to its website, “The Commission on the Status of Women and Girls, a nonpartisan state agency, works in a culturally inclusive manner to promote equality and justice for all women and girls by advocating on their behalf with the Governor, the Legislature and other public policymakers, and by educating the public in the areas of economic equity including educational equity, access to health care including reproductive choice, violence against women and other key issue areas identified by the Commission as significantly affecting women and girls.”

[73] http://www.women.ca.gov/CaliforniaPayEquityTaskForce.aspx.

[74] See, e.g., DLA Piper law firm guidance. https://www.dlapiper.com/en/us/insights/publications/2015/10/california-pay-equity-measure-signed-into-law/.

[75] Id. 

[76] Which is more than a decade longer than the comparable federal statute has existed.

[77] The Federal Equal Pay Act

[78] For Exampl, Title IX. 

[79] See the following statement of legislative intent by the bill’s author, Senator Hannah Beth Jackson, in her May 26, 2015 letter to the Sena

© 2018 University of the Pacific, Calif. All rights reserved.

This article was written by Chris M. Micheli of McGeorge School of Law, University of the Pacific

2018 Tax Reform Series: Goodbye to the Individual Mandate

This is the seventh article in our series covering various tax and employee benefits-related changes contained in the Tax Cuts and Jobs Act signed by the President on December 22, 2017.

Once significant change made by the Act, summarized below, is the elimination of the Affordable Care Act’s individual mandate, effective 2019.

Background

Long an unpopular feature of the ACA, the individual mandate requires most Americans (other than those who qualify for a hardship exemption) to purchase a minimum level of health coverage. Those who fail to do so are liable for a penalty of $695 for an adult or 2.5 percent of household income, whichever is greater.

The Act accomplished the elimination of the individual mandated by reducing the penalty amounts to $0 and zero percent, respectively.

Although often cited as an egregious example of government over-reach, the individual mandate does not impact the majority of Americans, specifically those who receive their health coverage through their employers or through public programs such as Medicare and Medicaid.

Impact of Elimination

The nonpartisan Congressional Budget Office (“CBO”) projects that the elimination of the individual mandate will spare taxpayers $43 billion in penalties that they would otherwise have paid through 2027. The CBO also projects that the elimination will result in 4 million people dropping health insurance coverage in 2019, with 13 million more becoming uninsured by 2027.

The elimination is expected to save the government $300 billion over the next ten years, in the form of fewer people receiving insurance subsidies or Medicaid, according to the CBO.

The CBO estimates that marketplace premiums will rise 10 percent without the individual mandate.

Employer Mandate and Other ACA Features Still in Place

The Act leaves many aspects of the ACA intact, including the individual marketplace, premium subsidies for those earning between 100% and 400% of the federal poverty rate, the ban on insurers charging more or denying coverage based on health factors, and Medicaid expansion.

Most significantly for employers, however, is the employer mandate and reporting requirements, which remain in force. Accordingly, applicable large employers will need to plan around the Code section 4980H(a) (“A”) penalty — which can apply if an employer does not offer minimum essential coverage to at least 95% of its full-time employees and at least one full-time employee buys subsidized marketplace coverage — and the Code section 4980H(b) (“B”) penalty — which can apply if an employer offers full-time employees coverage that is not affordable or does not meet minimum value requirements.

In 2018, A penalty is $2,320 (or $193.33 per month) multiplied by the total number of full-time employees (minus 30). The B penalty is $3,480 (or $290 per month) for each full-time employee who buys subsidized marketplace coverage (capped by the amount of the A penalty).

Jackson Lewis P.C. © 2018
This article was written by Stephanie O. Zorn of Jackson Lewis P.C.

Raise Your Hand If You’re Confused about I-9 Reverifications for Employees with TPS

Temporary Protected Status (TPS) is a humanitarian benefit available to foreign nationals who are unable to return to their home countries because of certain temporary conditions including ongoing armed conflict such as civil war, an environmental disaster like an earthquake, hurricane, epidemic, or other extraordinary conditions. During TPS designation, qualifying foreign nationals are not removable from the US and can obtain work authorization and travel permission.

The Department of Homeland Security (DHS) has recently terminated TPS for nationals of El Salvador, Haiti, Nicaragua, and Sudan but has granted a period of orderly departure to allow time for this population to wind up their affairs in the US. This has left employers in a quandary about which TPS holders remain able to work and how to comply with Form I-9 Employment Eligibility Verifications.

To help ease the confusion, the chart below illustrates TPS-designated countries, the dates by which beneficiaries were required to re-register and, for those who do re-register, how long their current Employment Authorization Cards (EAD) are automatically extended pending decisions of EAD renewal applications. The TPS termination dates for El Salvador, Haiti, Nicaragua, and Sudan are also included.

Country

Re-Registration Period Ends

EAD Auto-Extended Until

TPS End Date

El Salvador

03/19/2018

09/05/2018

09/09/2019

Haiti

03/19/2018

07/21/2018

07/22/2019

Honduras

02/13/2018

07/04/2018

Nepal

12/27/2016

06/24/2017

Nicaragua

02/13/2018

07/04/2018

01/05/2019

Somalia

03/20/2017

South Sudan

11/20/2017

05/01/2018

Sudan

12/11/2017

05/01/2018

11/12/2018

Syria

09/30/2016

03/31/2017

Yemen

03/06/2017

09/03/2017

As reflected in the chart above, sometimes DHS issues a blanket automatic extension of the expiring EADs for TPS beneficiaries of a specific country in order to allow time for EADs with new validity dates to be issued. The automatic extension periods are available to those TPS beneficiaries who timely re-register and apply to renew their EADs.

Although an employer cannot specify which documents an employee can present in connection with the I-9 Employment Eligibility Verification process, TPS beneficiaries with automatic EAD extensions may present an expired EAD bearing the C19 eligibility code along with a Form I-797C Notice of Action indicating the eligibility category code A12 or C19. The codes need not be the same.

The M-274 Handbook for Employers is an excellent resource in determining how to complete the Form I-9 for those employees with automatic EAD extensions. It specifies that:

“For a current employee, update Section 2 of Form I-9 with the new expiration date as follows:

  • Draw a line through the old expiration date and write the new expiration date in the margin of Section 2;

  • Write EAD EXT in Section 2;

  • Initial and date the correction.”

For TPS beneficiaries, the new expiration date should correspond with the respective date as noted in the chart above. An employee whose employment authorization is automatically extended along with his/her EAD may cross out the “employment authorized until” date in Section 1, write the new expiration date as reflected in the chart, initial and date the change.

A new employee may present the expired EAD and Form I-797C Notice of Action indicating USCIS’s receipt of the employee’s timely filed renewal application. When completing Section 1, the employee should enter the corresponding date from the chart in the “employment authorized until mm/dd/yyyy” field.

When completing Section 2, the employer should enter into the Expiration Date field the date the automatic extension period expires, not the expiration date on the face of the expired EAD. The employer should enter the receipt number from the I-797C Notice of Action as the document number on Form I-9. Note that reverification is required when the employee’s automatic extension ends.

While an employer is not required to be an expert in I-9 documents and review, having access to reliable resources comes in handy and will take you to the head of the class.

 

Copyright © 2018 Womble Bond Dickinson (US) LLP, All Rights Reserved.
This post was written by Jennifer Cory of Womble Bond Dickinson (US) LLP.

Getting Past Spectre and Meltdown: A Practical Guide

Recently, there has been a lot of discussion regarding the Spectre and Meltdown vulnerabilities. This alert provides a simple overview of what these vulnerabilities are, what systems could be affected, as well as steps that companies can take to reduce the risks that these vulnerabilities create.

  • What Are The Spectre And Meltdown Vulnerabilities?

Spectre and Meltdown are the names of two flaws that can affect a computer’s central processing unit (“CPU”). Certain CPU chips made by Intel and other manufacturers are vulnerable to the Spectre and Meltdown flaws. The CPU allows the computer to carry out instructions provided by a computer program. Unfortunately, security flaws that affect the CPU permeate the functionality of the computer system. As the CPU is a core aspect of the computer system, most every aspect of system functionality is at risk.Both the Spectre and Meltdown flaws work by causing issues with system memory, which computers use to store data. The way that system memory stores information and how it is accessed is crucial to system performance and security.   Security researchers have created a page explaining the different aspects of Spectre and Meltdown in more detail. “Meltdown breaks the mechanism that keeps applications from accessing arbitrary system memory. Consequently, [potentially malicious] applications can access system memory.” Meanwhile, “Spectre tricks other applications into accessing arbitrary locations in their memory. Both attacks use side channels to obtain the information from the accessed memory location.”

  • Which Systems Are Impacted By The Spectre And Meltdown Vulnerabilities?

Any systems that use or rely upon CPU chips that are vulnerable to the Spectre and Meltdown flaws could be impacted. Unfortunately this is a vast swath of potentially vulnerable systems. Most companies will use some physical computers locally, such as laptops, desktops, tablets, smart phones and others, as well as leveraging certain remotely provided computing resources, maintained by another portion of the same entity or by an external vendor.

As such, every company that leverages computing resources will need to ascertain which systems are exposed to the Spectre and Meltdown vulnerabilities. This will involve:

  1. Identifying and understanding any local physical computing resources that the company allows employees, contractors or others to use on behalf of the company.
  2. Working with qualified personal to identify which of these devices contain CPUs subject to the Spectre or Meltdown vulnerabilities.
  3.  Identifying all externally provided computing resources, such as cloud computing resources leveraged by the company.
  4.  Working with each identified provider of the externally provided computing resource to understand whether the provided computer resource leverages CPUs that are subject to the Spectre or Meltdown vulnerabilities.
  • What Steps can Companies Take to Reduce Spectre and Meltdown Risk?

Given the widespread nature of the Spectre and Meltdown vulnerabilities companies may wish to focus on using their limited resources effectively to reduce their risk in the most effective manner possible, while understanding that completely eliminating all Spectre and Meltdown vulnerability risk may not be possible. After performing the steps above to identify which computing systems leveraged by the company are at risk, companies will want to consider taking the steps below:

  1. Run vendor provided software management tools to identify and update applicable computer systems with appropriate released vendor patches to reduce Spectre and Meltdown exploit risk. Ensure that appropriate personnel are aware that system testing should occur after this process runs, as performance and stability issues could be created.
  2. Review and update applicable security policies, incident response, and business continuity plans if these documents are not effectively providing guidance and empowering appropriate stakeholders to identify and remediate Spectre and Meltdown vulnerability risk.
  3. Identify any systems where particularly sensitive data is kept and engage with appropriate internal or external personnel to identify and implement appropriate compensating controls due to any increased risk of data exfiltration as a result of potentially latent Spectre or Meltdown vulnerability risk.
  4. Consider working with appropriate legal counsel to identify whether Spectre and Meltdown present legal risks to the company, as potentially informed by the data being stored, or any products or services being offered by the company to external entities. Companies will likely want to be particularly concerned as to any increased data breach risk, or the risk that products and services being offered to others are subject to known Spectre or Meltdown vulnerabilities that have not been effectively addressed and disclosed.
©1994-2018 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.
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