The Supreme Court's Recent Ruling on the "Legal Arizona Workers Act" & its Impact on California Employers

Individual states that have passed laws aimed at preventing undocumented illegal aliens from obtaining employment within the state is a hot political topic. The Supreme Court recently upheld a decision by the Ninth Circuit Court of Appeals that legitimized a state’s law imposing harsh penalties for businesses in the state that knowingly and willingly violate the Federal law. California is one of the states in the Ninth circuit, thus it behooves business owners to be aware that California could implement a similar statute that would survive judicial scrutiny and significantly impact a company’s bottom line and operational capability if intentional violations occur.

Arizona Law

In 2007, Arizona passed into law the Legal Arizona Workers Act (“LAWA”), which provides that where an employer knowingly or intentionally employs an unauthorized alien, Arizona courts are authorized to suspend or revoke those licenses necessary to do business in the State of Arizona. As with the federal law addressing this issue, good faith I-9 compliance by an employer provides that employer with an affirmative defense to an alleged violation of this statute.

Under the Arizona law, various sanctions are imposed depending on the extent of the violation. When the employer has had one instance of “knowingly employing an unauthorized alien,” the licensing law requires that the court order the employer to terminate the employment of all unauthorized aliens and file quarterly reports on all new hires for a probationary period of three years, as well as “order the appropriate agencies to suspend all licenses . . . that are held by the employer for” not more than ten business days. A second violation requires the court to “permanently revoke all licenses that are held by the employer specific to the business location where the unauthorized alien performed work.”

Supreme Court Ruling

In the case of Chamber of Commerce of the United States of America, et al., v. Michael B. Whiting, et al., decided by the Supreme Court of the US, the Court held that the Arizona licensing law imposing penalties on employers knowingly or intentionally employing unauthorized aliens was not expressly or impliedly preempted by the Immigration Reform and Control Act (“IRCA”) provisions prohibiting States from imposing additional sanctions under the Act. The Court found that the Arizona licensing law fell under IRCA’s reservation of States’ rights through a savings clause to impose sanctions “through licensing and similar laws.” The licensing laws fell under this savings clause, thus they were upheld and found to be valid. Furthermore as an additional basis for its holding, the Supreme Court did not find an indication of implied or express preemption by Congress in the IRCA for the Arizona licensing law.

Current Impact on California Employers

California currently does not have any similar law likened to the Arizona licensing law; therefore, this recent ruling by the Supreme Court does not have any immediate impact on California employers. Rather, only compliance with the current federal scheme- the Immigration Reform and Control Act is required with respect to documentation of new workers. Compliance with the federal law requires that all employers must review certain documents establishing an employee’s eligibility for employment. Eligibility may be confirmed by review of the potential employee’s United States passport, resident alien card, alien registration card, or other document approved by the Attorney General; or by review of a combination of documents prescribed in 8 U.S.C. § 1324a. Further, the employer “must attest, under penalty of perjury and on a form designated by the Attorney General by regulation, [the Supreme Court names the I-9 as this designated form,] that the employer has verified that the individual is not an unauthorized alien by examining” the requisite documents. Several other states have similar licensing provisions to Arizona. Support from this recent ruling may have the effect of encouraging similar more stringent employment procedures by other states looking to preserve jobs for legal citizens.

In addition to Arizona, three states-Utah, Mississippi, and Virginia, have passed statutes mandating the use of E-Verify, but California is not one of them. (E-Verify is a voluntary Internet based system that allows an employer to verify an employee’s work authorization status through the submission of a request to the E-Verify system about a potential employee. The employer receives either a confirmation of the employee’s authorization to work or a non-confirmation indication from the system.) While the recent Court decision allowing Arizona to mandate use of the E-Verify system is significant, it marks no significant change for California employers in its use of E-Verify. In California, an employer’s use of the E-Verify system remains optional. Though the recent U.S. Supreme Court ruling regarding Arizona law does not have an immediate bearing on California employers, this decision still may affect California employers to the extent that it encourages similar legislation in California. As a business owner, if you require guidance with employee verification requirements for new employees in compliance with the federal immigration laws referenced above, then contact Ronnie Gipson at (415) 655-6820 or by email at info@higagipsonllp.com.

The 2011 Stimulus Package Mandates that Employers Adjust Their Employees' Social Security Tax Contributions

In December 2010, President Obama signed a new tax bill, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Included in this tax bill was a stimulus measure for 2011, commonly referred to as the “Payroll Tax Holiday.”  The Payroll Tax Holiday is a temporary one (1) year decrease in the employee’s portion of the social security tax that is deducted from the employee’s pay. Normally, an employee contributes 6.2% of his/her gross pay to Social Security. With the application of the Payroll Tax Holiday, the employee portion of the tax is reduced by 2.0% to 4.2%. Sadly, employers do not receive the same reduction. Thus, employers for 2011 continue to contribute 6.2% of the gross pay to Social Security. Because the tax law was passed with little time to implement changes before the start of 2011, the Internal Revenue Service advises employers to make adjustments to their employee’s paychecks “as soon as possible but not later than March 31st.”


Were you aware of the change in Social Security taxes for your employees? If your answer is “No”, then you are not alone. For more information or assistance with making your business compliant with this law, then contact Ronnie Gipson at (415) 655-6820 or via email at gipson@higagipsonllp.com.

The law firm of Higa & Gipson, LLP would like to extend its gratitude to Alison Heineman, with Keeping Your Balance- Bookkeeping, Tax & Payroll Services. Ms. Heineman provided the particulars of the new tax law’s implication for employers.  Ms. Heineman can be reached at (415) 399-9844.

The FAA’s Longtime Expunction Policy is Suspended

Since 1991, it has been the policy of the FAA to expunge, with some exceptions, an airmen’s record of an infraction after 5 years when the FAA has taken action in a civil penalty case or certificate action case.  In August 2010, an amendment to the Pilot Records Improvement Act (PRIA), codified in 49 USCS 44703, quietly eliminated the FAA’s ability to continue this policy.  The change to the law requires the FAA to create an electronic database that includes, “…summaries of legal enforcement actions resulting in a finding by the Administrator of a violation of this title or a regulation prescribed or order issued under this title that was not subsequently overturned.” Language appearing later in the text of the statute requires that the FAA maintain the entries in the electronic database until the FAA receives a notification that the Airmen is deceased. These two requirements taken together conflict with the FAA’s policy of expunging records of legal enforcement actions against individuals that resulted in a finding of a violation.

The aviation community was notified in a letter dated February 4, 2011, by the FAA’s Chief Counsel that the FAA suspended the expunction policy. The last expunction conducted by the FAA related to Airmen certificates occurred on November 1, 2010.  It is important to note that administrative actions and cases with no enforcement action will continue to be expunged, as PRIA does not require the FAA to place these types of entries into the pilot record database. The full impact of the changes to the PRIA have not been determined.  Once the FAA completes its analysis of the impact, the agency plans to amend the expunction policy accordingly and alert the aviation community through the Federal Register system.  In the interim, if you have questions about the changes to the expunction policy and how it may impact your certificate, then contact Ronnie Gipson at (415) 655-6820 or by email at Gipson@higagipsonllp.com.

Legal Issues to Consider Before You Launch a Website for Your Business

Today’s businesses often rely on the use of a website to market their services and/or products as well as convey information to consumers. The Internet has become so pervasive in our daily lives that consumers often turn to it before trying a new restaurant for the first time, to read reviews on a particular product, or to decide whether or not to purchase items from a company that is not a well-known big box retailer. Another advantage of the Internet is that it allows businesses to reach a consumer across the country or around the globe. As a result, businesses develop a niche and specialize in products/services that may not have been able to sustain their business if the company were restricted to a small geographic location.

Before you, as a business owner, take the plunge by setting up a website, you must protect your business from potential legal liability arising from the existence of a website. Such protection can be gained by having a Terms of Use Agreement and a Privacy Policy in place to minimize legal liability. A Terms of Use agreement (TUA) is a contract between the website user and your business that accomplishes the following tasks: (i) specifically describes the intended purpose and use of your website in conjunction with your business; (ii) identifies any pertinent, important contractual terms that are necessary as a result of the Internet relationship; and (iii) clearly identifies the proper forum and venue for resolving disputes arising from a consumer’s use of your company’s website. The TUA can be embedded in a pop-up notification that the consumer must read and affirmatively agree to prior to using the website. Alternatively, the TUA can take the form of a notice posted on the website that automatically binds all users of the website. The specific provisions that should be included in a TUA depend on your business and the purpose and content of the website. For example, if your website facilitates electronic transactions such as those involving the sale of items, the TUA must conform to the Uniform Computer Information Transactions Act.

With the rapid growth of the Internet, privacy issues regarding the disclosure of a user’s personal information through the Internet and data collection practices are a hot topic in legal circles. Owners of websites become privy to consumers’ personal information either by request or by electronic tracking. For example, if the business operates a member-based website which requires a user to sign up for an account, then the business often requires the user to reveal personal information such as date of birth, an address, or credit card number for identity verification. In a face-to-face transaction, a savvy consumer would hesitate to reveal such personal information without the assurance of a Privacy Policy to protect the information from being sold or transmitted to third parties that may use the information maliciously. The same precautions must be in place with the use of a website that captures a consumer’s personal information.

California’s Online Privacy Protection Act requires commercial websites to display a Privacy Policy that includes specific provisions that detail the type of information that is gathered, what the business intends to do with such information, and a description of the process for communicating changes in the Privacy Policy to the consumer, among other things. As part of your website’s Privacy Policy, your business should design and implement security measures to prevent a breach in your website’s security and a procedure to be taken in case of such a breach. It is important that the Privacy Policy accurately reflects security measures and procedures that your business actually follows. If your website simply displays a Privacy Policy that sounds good to the consumer but is not an accurate reflection of your business’ procedures, this leaves your business open to a potential lawsuit.

As you can see from this brief article on website use, a business must take great care when it generates a presence on the Internet. If you have questions about whether your company’s website complies with the applicable laws, then you should contact Ronnie Gipson at (415) 655-6820 or by email at gipson@higagipsonllp.com.

Comply with FAR 91.103 and Review the FAR/AIM 2011 Before Your Next Flight

The pilot in command of an aircraft carries huge responsibilities on his/her shoulders when operating an aircraft.  The potential for catastrophic property damage and loss of life is inherent in air operations.  Accordingly, FAR 91.103 provides in pertinent part, "Each pilot in command, shall before beginning a flight, become familiar with all available information concerning that flight."

Ask yourself this question, "How do the latest rule changes in the National Airspace System and operating regulations impact the way I conduct my flights?"  If you fail to ardently strive to make yourself aware of changes, then the seeds for a chain of events leading to a busted regulation have already been planted.  A great way to refresh your familiarity with the regulations and the changes is to review the FAR/AIM 2011 which is now available.  Identifying changes to regulations and standard operating procedures is easily detected by the solid black bar that appears within the borders of the text in the FAR/AIM.

The FAR/AIM incorporates in one place all of the changes to rules and regulations affecting airmen since the last publication of the FAR/AIM in 2010.  For instance, in February 2010, the FAA instituted a change that prohibits the operation of an aircraft under Parts 91, 125, and 135 with "polished frost" on the wings of stabilizer and control surfaces of the aircraft.  If you missed the notification of this rule change, then a review of the FAR/AIM 2011 would alert you to the change. 

To drive the point home, consider the legal impact.  If an airmen operates an aircraft under Part 91 with the mistaken belief that polished frost is allowed, then the airmen has arguably failed to make himself/herself familiar with all available information prior to conducting the flight. While polished frost may not relate to your flying, it is a good bet that a handful of the other changes that appear in the FAR/AIM will impact the safety of your flying.  As an airmen, the failure to make yourself aware of the changes could land you on the wrong side of an enforcement action resulting in separation from you with your hard earned cash at best, or with your certificate at worst. 

The message is clear, utilize the resources available and take the time to review the newly updated FAR/AIM.  The act will help you rediscover facts about safe operations that you may have forgotten and it is without question a necessary component for compliance with FAR 91.103.  If you have questions about the points raised in this article, then contact Ronnie Gipson at gipson@higagipsonllp.com. 

Independent Sales Distributors Must Register Their Business with Local Government

The current economy has created a stressful situation for employees worried about their job security and for the unemployed who are discouraged in their job searches. A promising option is to become self-employed as a small business owner. Having your own business can be flexible and personally rewarding, but the small business owner should also understand the accompanying responsibilities in terms of compliance with the local governing body. Direct sales, for example, is an area where small business owners often misunderstand their role as a business separate and distinct from the company whose products they are selling.

Independent distributors, sometimes called independent consultants, are not actual employees of the companies whose wares they sell. The agreement the distributors enter into is not an employment contract. Rather, the agreement allows the new business owner to (1) order wholesale goods from the company; (2) sell the products at retail pricing predetermined by the company; and (3) use the company’s promotional materials. In order to comply with local ordinances, the direct sales business owner must still register with the appropriate city or county as an independent business. In California, most cities or counties also require a business tax or license for business activities performed within the corresponding city/county limits. This means that the business owner must also register with any out of city or county locations where business activity will take place. The failure to obtain the proper business licenses and pay the required fees can result in monetary penalties assessed by the city and/or county.

Most cities provide their specific requirements and applications online for the prospective business owner’s convenience. In preparing a business license application, it is very important for the seller to consider the following:
• Unless specifically authorized to do so in the agreement executed with the wholesale company, the independent distributor cannot use the company’s name in its registered business name. The business license application will ask for the name of the new business. As a standard business practice, the terms of the independent distributor agreement, in most cases, do not permit the seller to use the company’s name in the title of the business.
• The independent distributor must not engage in business activities until receipt of the business license, unless the county or city authorizes operations pending license approval.

This blog entry was written and researched in large part by attorney Francesca Svarcas and has been reprinted here with her permission. If you have questions or concerns regarding making your independent business compliant with the local ordinances, then contact Ronnie Gipson at (415) 655-6820 or Gipson@higagipsonllp.com.

Federal Government Takes Action Against Employer Restrictions on Employee Speech

Constitutional case law on the right to free speech makes a distinction in the restrictions imposed based on the situs of the speech. At the simplest level, if the speech occurs in a public forum, then restrictions must pass tougher scrutiny to comply with the First Amendment to the Constitution's free speech clause. If the speech occurs in a private forum, then the restrictions imposed are subjected to less stringent standards for compliance with the free speech clause.

With the rise of social media websites, employers promulgated very broad restrictions governing their employees' use of these sites when the employees' posts pertain to the workplace. Referencing the traditional distinction for scrutinizing free speech issues, these employer restrictions warranted less stringent standards because the speech is regulated in private forums- the employer's workplace.

The Federal Government has now stepped in to challenge the employer restrictions using a law that governs labor practices as opposed to regulating speech. I discuss the facts of the case because they are instructive as a potential road map for future challenges by employee advocates.

The employer, an emergency medical services provider, demanded that one of its employees submit a written incident report in connection with an ongoing investigation that had the potential to lead to disciplinary action for the employee. The employee requested that a union representative assist her with the preparation and submission of the incident report. The employer denied that request. The employee submitted the report and received disciplinary action as a result. The employee subsequently made entries on her Facebook account about the working conditions to include the incident and the people involved. When the company became aware of the postings, the employee was terminated for violating the company's Internet posting policy.

The question that comes to mind from this scenario is, "Does the employer break the law by terminating an employee for submitting posts about the workplace to a social media website?" The short answer is Yes. The National Labor Relations Act ("NLRA") protects the rights of employees to communicate with each other in order to better the working conditions of their collective employment. Note that although the case referenced above includes a union, there is no need for the worker(s) to be represented by a union for the worker to receive the protection of the NLRA. Whereas in the past, the NLRA was used to protect the workers' rights to discuss the workplace conditions via public awareness campaigns using leaflets, by contacting the media, through bulletin board postings, or through conversations among workers in the workplace; the NLRA now extends to postings made by the employee on social media websites.

From a legal standpoint, this case is very interesting because the policy issue being decided effects an employee's free speech. However, the mechanism used to protect the free speech is not the 1st Amendment but the NLRA which governs fair labor practices. Some view this approach as an end-run around the public-private distinctions of the free speech analysis. The legal community, specifically the defense bar is watching the above-referenced case to see how far the National Labor Relations Board goes in applying the NLRA. Stay tuned to the Higa & Gipson, LLP blog for developments.

In the interim, if you are not sure whether your company's Internet policy complies with the law, then contact Ronnie Gipson at gipson@higagipsonllp.com or (415) 655-6820.