California Labor & Employment Law Blog

By Robin E. Weideman

Today the California Supreme Court issued its decision in Lu v. Hawaiian Gardens Casino, holding that Labor Code section 351 does not provide private litigants a direct right to sue for an alleged taking of their gratuities by their employer.

The Lu case is a tip pooling case, in which the plaintiff alleged that his casino employer unlawfully required the plaintiff to contribute 15-20% of his tips to a tip pool that was then distributed among various employees.  The plaintiff alleged that the tip pooling arrangement violated Labor Code section 351, which mandates that tips are the property of the employee for whom they are left.  The trial court and the appellate court both held that the plaintiff’s Labor Code section 351 claim was not a viable claim because there is no private right to sue to enforce that provision.  This holding conflicts with another California appellate court decision, Grodensky v. Artichoke Joe’s, which held that Labor Code section 351 does provide a private right of action.

The California Supreme Court granted review to resolve the narrow issue of whether Labor Code section 351 provides a private right of action.  The Court answered this question in the negative, reasoning that neither the express language of the statute nor the legislative history reveals that a private right of action was created.  The Court rejected the plaintiff’s argument that this leads to an absurd result because employees are arguably left without a vehicle to enforce violations.  The Court stated that in appropriate circumstances, employees can still pursue a tort claim for conversion and/or the Legislature was free to amend the Labor Code to add a private right of action.

The Court made clear that its opinion was limited to the issue of whether a private right of action exists under section 351.  The Court expressed no opinion on the lawfulness of tip pooling arrangements or the parameters for tip pooling plans.

Although the Lu opinion is a positive development for employers, it should not be interpreted as eliminating the ability of employees to sue for alleged tip pooling violations.  Employees may still bring suit under California’s Unfair Competition Law and/or under a tort theory such as conversion.  However, the remedies are different than those available under the Labor Code and , significantly, employees do not have the same ability to recover attorneys’ fees in such a lawsuit as they do in cases brought under the Labor Code. 
 

By Robin E. Weideman

Today the California Supreme Court issued its decision in Reid v. Google, an age discrimination case decided favorably for Google at the trial court level.  The trial court threw the case out on summary judgment, finding that the plaintiff’s evidence of “stray remarks” by non-decisionmakers and/or unrelated to the decision-making process, was insufficient evidence of discrimination to merit a trial.  The appellate court reversed the order granting Google summary judgment and held that the evidence of stray remarks was admissible and could be considered by the court in finding sufficient evidence of discrimination to deny an employer’s motion for summary judgment.  Today the California Supreme Court agreed and rejected strict application of the stray remarks doctrine in California discrimination cases.  The Court also held that a party’s objections to evidence (lodged in the trial court) are preserved on appeal, even if the trial court does not rule on those objections.  (However, objections that are not specifically ruled upon are deemed presumptively overruled on appeal.)  This post focuses on the decision as relates to the stray remarks doctrine.

Under the stray remarks doctrine, which is widely accepted in federal courts, evidence offered by a plaintiff that a co-worker or a non-decisionmaker made discriminatory remarks is not enough to defeat an employer’s motion for summary judgment.  Thus, by way of example, if a plaintiff is suing for age discrimination and the employer makes a motion for summary judgment, arguing that plaintiff’s termination was the result of poor performance and not any discriminatory motive, the plaintiff may try to defeat summary judgment by presenting evidence that co-workers or a supervisor not involved in the termination decision made ageist comments in the workplace. Under the stray remarks doctrine, such evidence would be considered irrelevant and inadmissible because it is not deemed probative of establishing discriminatory animus on the part of those actually involved in the decision-making process leading to termination.  As such, this type of evidence would not be enough to defeat the employer’s motion for summary judgment.

Today’s decision in Reid v. Google makes it more difficult for California employers to rely on the stray remarks doctrine because the Supreme Court specifically rejected strict application of the doctrine in California discrimination cases.  The Court instead held that evidence of stray remarks is admissible and must be considered along with the totality of the facts and inferences to be drawn from those facts, in determining whether the plaintiff has presented sufficient evidence of discrimination to necessitate a trial on the merits.  On the specific facts of the case before it, the Court held that Reid had presented sufficient evidence of age discrimination to make summary judgment inappropriate for Google.  Notably, Reid presented more than just stray remark evidence.  Reid presented statistical evidence arguably suggesting age discrimination and also presented evidence that Google provided him shifting reasons for the termination decision.  In terms of “stray remarks,” Reid additionally offered evidence that his superiors remarked that he was not a “cultural fit,” that his ideas were “obsolete,” and that he was “slow,” “fuzzy,” “lethargic,” and did not display a “sense of urgency.”  Co-workers allegedly called him an “old man” and “old fuddy duddy” on some occasions.  Although there was a lack of evidence tying any of these alleged remarks to the termination decision itself or to those responsible for making the decision, the Court held that this evidence, combined with other evidence, was admissible and sufficient evidence of discriminatory intent to defeat Google’s motion for summary judgment.  To be clear, however, the Court did not rule that Google discriminated against Reid.  The Court simply held that there was sufficient evidence to proceed to a trial on that issue.

The Reid case is not a positive development for California employers’ ability to win employment discrimination cases on summary judgment.  However, the case should not be misinterpreted as suggesting that stray remarks are, in and of themselves, sufficient evidence to always defeat summary judgment.  Rather, the case simply holds that stray remarks may be considered, along with other evidence, in assessing whether the plaintiff has enough evidence upon which a jury could conclude that discrimination was the motivating factor behind the adverse employment action.
 

By Alison Tsao

Following a much-publicized and anticipated trial, federal District Court Judge Vaughn Walker of the Northern District of California found that Proposition 8 (“Prop. 8”), the ballot initiative passed by California voters in November 2008 providing that “only marriage between a man and a woman is valid or recognized in California,” is unconstitutional under both the due process and equal protection clauses of the federal Constitution.  In Perry et al. v. City and County of San Francisco, Plaintiffs are two same-sex couples who seek to marry their partners but have been denied marriage licenses by their respective county authorities pursuant to Prop. 8.  They therefore challenged the constitutionality of Prop. 8’s ban against same-sex marriages under the due process and equal protection clauses of the Fourteenth Amendment of the United States Constitution and its enforcement by state officials under the federal civil rights statute 42 U.S.C. § 1983.  Plaintiffs contend that Prop. 8 singles out gay men and lesbians for unequal treatment because they are prevented from marrying the person of their choice and that California’s domestic partnership laws do not provide an adequate substitute for marriage.  Plaintiffs further contend that Prop. 8 should be subjected to heightened scrutiny under the Equal Protection clause because gay men and lesbians are a suspect class.  Proponents of Prop. 8 intervened as Defendants in the action and argued that Prop. 8 maintains California’s definition of marriage as excluding same-sex couples, affirms the will of California citizens, promotes stability in opposite-sex relationships, and promotes “statistically optimal” child-rearing households.

In ruling for Plaintiffs, Judge Walker found that Prop. 8 proponents failed to present credible factual evidence that Prop. 8 served a legitimate government interest, and in fact, Prop. 8 harms the state’s interest in equality “based only on antiquated and discredited notions of gender.”  While this decision may ultimately reach the U.S. Supreme Court (indeed, proponents of Prop. 8 will likely seek review of Judge Walker’s decision with the Ninth Circuit), the impact on employers is likely to be seen in the provision of employment benefits and leave rights to same-sex spouses if this decision is ultimately confirmed.

For a full discussion of the legislative and judicial history of the legality of same-sex marriage in California and trial court proceedings, it is contained in Judge Walker’s decision in the Perry case and can be found here.
 

By Robin E. Weideman

A recently published California case, Morgan v. United Retail Inc., illustrates just how ridiculous the wage and hour litigation front in California has gotten.  In this case, the plaintiff brought a putative class action against her employer alleging the employer’s pay stubs failed to comply with California Labor Code section 226 because the stubs did not have a separate line listing the employee’s total hours worked.  Instead, the stubs separately listed the total regular hours and the total overtime hours, but did not also provide the sum total of those two numbers on a separate line.  The plaintiff succeeded in getting a class certified but then lost the war when the court granted the employer’s motion for summary judgment.  In finding for the employer, the court held that the employer’s pay stubs satisfied the requirements of Labor Code section 226 by listing the total regular hours and the total overtime hours. The fact that the stubs did not separately list the sum total of these hours was insufficient to establish a violation of section 226. 

Because the court found that the stubs complied with section 226, the court refused to decide two other arguments made by the employer—that the plaintiff was in no way injured by the omission of the sum total of hours on the pay stub, and that the employer’s omission of the sum total was not knowing or intentional.  Perhaps these issues will be decided in another one of the many cases now alleging hyper-technical wage statement violations.
 

By Robin E. Weideman

In Kirby v. Immoos Fire, a California court held that attorneys’ fees were properly awarded to an employer who prevailed in a putative class action alleging missed rest breaks.  The court relied on the bilateral fee-shifting provision of Labor Code section 218.5, which provides that the prevailing party in an action alleging violations of certain provisions of the Labor Code is entitled to recover its attorneys’ fees.  Section 218.5’s fee-shifting provision excludes actions alleging claims for unpaid minimum wages or overtime wages covered by Labor Code section 1194 (which has a unilateral fee shifting provision allowing only a prevailing plaintiff to recover attorneys’ fees).  In this case, the plaintiff alleged (among other things) a claim for unpaid overtime wages, as well as a claim for missed rest periods.  The court held that the employer could not recover its fees incurred in defending the overtime claim, but could recover its fees incurred in defending the rest period claim.
This case presents a positive development for employers by providing precedent for an award of attorneys’ fees in actions alleging meal and rest period violations should the employer prevail.
 

By Kent J. Sprinkle

On July 28, 2010, Governor Schwarzenegger vetoed Senate Bill 1121, which would have provided overtime compensation to agricultural workers for workdays that exceed eight hours.  Agricultural workers have been specifically exempted from such overtime requirements in the past and this exemption continues as a result of the Governor's veto of SB 1121.  Governor Schwarzenegger included the following explanatory comments in his veto message to the State Senate:

"In 1999, California enacted sweeping legislation concerning overtime wages and adopted the requirements that overtime be generally paid after eight hours of work.  However, in enacting the "Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999" the Legislature specifically exempted agricultural workers from such overtime requirements, recognizing that agricultural work is different from other industries: it is seasonal, subject to the unpredictability of Mother Nature, and requires the harvesting of perishable goods.  Indeed, while California is the most progressive state in the nation by allowing overtime pay for agricultural employees after 10 hours of work, federal law exempts workers employed in agriculture from overtime pay altogether. Senate Bill 1121 would cast aside these longstanding rules and would require overtime pay for agricultural workers after eight hours per day and 40 hours per week.  My administration has made great strides to improve the lives of agricultural workers.  I have signed legislation to increase the minimum wage, fought hard to improve our state's infrastructure to ensure adequate water supplies for our agricultural regions, and enacted the first-in-the-nation outdoor heat stress regulations to help keep agricultural workers safe.  Unfortunately, this measure, while well-intended, will not improve the lives of California's agricultural workers and instead will result in additional burdens on California businesses, increased unemployment, and lower wages.  In order to remain competitive against other states that do not have such wage requirements, businesses will simply avoid paying overtime. Instead of working 10-hour days, multiple crews will be hired to work shorter shifts, resulting in lower take home pay for all workers.  Businesses trying to compete under the new wage rules may become unprofitable and go out of business, resulting in further damage to our already fragile economy.  Finally, it should be noted that Senate Bill 1121 would not just change the rules governing overtime pay for agricultural workers, but would also apply California's confusing and burdensome rest and meal requirements. Unfortunately, while there have been several attempts to clean up this section of law, efforts at comprehensive reform continue to fail.  There is no reason to exacerbate this continuing problem by adding agricultural workers to it. For these reasons, I am unable to sign this bill."

Agricultural employers large and small had vigorously opposed this legislation for many of the reasons identified by the Governor in his decision to veto SB 1121.  Key concerns from agricultural employers included the uniquely seasonal and weather-sensitive nature of agricultural work, which would make the proposed overtime requirements extremely difficult in light of the already challenging scheduling considerations in agricultural work.  Proponents of SB 1121 argued that exempting agricultural workers from overtime was discriminatory to farm workers.  Ultimately, however, the Governor concluded that SB 1121 would be too damaging and burdensome to California's agricultural economy, while also acknowledging the existing confusion regarding California's meal and rest break requirements.
 

By Robin E. Weideman

In Brownfield v. City of Yakima, the Ninth Circuit held that the City did not violate the ADA by requiring a police officer employee to undergo a fitness for duty exam following several incidents of erratic behavior by the employee.  The police officer in question had sustained a head injury causing him to be out of work for some time before being fully released to work.  He returned to duty and worked for three years essentially without incident and received positive performance reviews.  The following year, he had several incidents involving confrontations with co-workers and/or others during which he was visibly angry.  He also told a co-worker he was so angry during a traffic stop that at the time he did not know what he was going to do.  Based on these incidents, the City required the officer to undergo a fitness for duty exam.  The exam resulted in a reported finding that the officer was not fit for police duty due to disability and that the disability was permanent. The officer’s employment was ultimately terminated.  He filed suit for, among other things, violation of the ADA.

The question before the Ninth Circuit was whether the City violated the ADA by requiring the officer to undergo a fitness for duty exam prior to the officer having any real performance problems.  The court held that an employer does not have to wait until an employee’s work performance declines before requiring a fitness for duty exam “if the employer is faced with significant evidence that could cause a reasonable person to inquire as to whether the employee is still capable of performing his job.”  The court cautioned that the employee’s behavior cannot be merely annoying or inefficient.  Rather, there must be objective evidence leading the employer to reasonably believe that the employee may not be capable of performing his job duties.  In this case, the repeated instances of erratic behavior and angry outbursts by the officer were sufficient to lead the City to have such a belief even in the absence of specific performance problems on the part of the officer.

Employers should use caution when requiring “prophylactic” fitness for duty exams of employees. To pass muster under the ADA, a fitness for duty exam must be based on a showing of business necessity and it is always the employer’s burden of proving business necessity.
 

By Dan Forman

Last week a California court expanded the reach of California’s public policy against non-compete agreements by holding that an employer may be held liable for terminating an employee based on a desire to honor the employee’s illegal non-compete agreement with a former employer.  Thus, even though the new employer did not draft the non-compete agreement and was not a party to the non-compete agreement, the new employer could still be held liable to the employee on a wrongful termination claim simply because it honored the agreement.

In the case at issue, Silguero v. Creteguard, Inc., the plaintiff, a salesperson, signed a confidentiality agreement with her then employer, FST, that precluded her from working in sales for eighteen months following termination from FST.  Shortly thereafter she was terminated and found employment with Creteguard.  FST contacted Creteguard and asked it to honor the confidentiality agreement.  Creteguard terminated Plaintiff’s employment in a writing that stated “Although we believe that non-compete clauses are not legally enforceable here in California, [Creteguard] would like to keep the same respect and understanding with colleagues in the same industry.”

The plaintiff sued Creteguard for wrongful termination in violation of California’s public policy against non-compete agreements.  Creteguard tried to get the case dismissed, arguing that it could not be held liable for another company’s illegal non-compete agreement.  The trial court agreed with Creteguard and dismissed the case.  However, the plaintiff appealed and the appellate court agreed with the plaintiff.  The court reasoned that even though Creteguard was not a party to the illegal non-compete agreement itself, Creteguard’s honoring of the agreement (while knowing it was illegal) was tantamount to a no-hire policy or agreement whereby Creteguard agreed not to hire FST’s employees.  The court explained that such an agreement unfairly limits the mobility of employees and would be void and unenforceable under California law even if standing alone.

Employers should proceed with caution when faced with requests from an employee’s former employer to honor the terms of a non-compete or similar agreement containing restrictions on the employee’s work-related activities.  Assuming the Silguero case is not further appealed and remains good law, this opens to the door to potential litigation and liability against companies who refuse to hire a prospective employee (or who terminate a current employee) based on the employee’s non-compete agreement with a prior employer.
 

By Harley Bjelland

We all hoped and anticipated health care reform.  As we informed you in our recent Webinar on the Patient Protection and Affordable Care Act (the "Act"), the devil is in the detail.  As part of the Act, commencing January 1, 2012, all corporations will have to issue Form 1099s to any vendor from whom they purchase in excess of $600 worth of "property."  Once again, we have the statutory language (which if interpreted broadly will mean every vendor of the company including Costco, OfficeMax and any other vendor of goods) and no regulatory guidance as to how broad the scope of the Act will be.  Section 9006 of the Act is effective in 2012 and it appears to greatly and unduly expand corporate America's obligation to document and report expenses (and income for the vendor).  We note that Representative Dan Lungren (Rep. CA) has introduced a bill called the Small Business Paperwork Mandate Elimination Act that would repeal the reporting provisions adopted by the Act.
 

By Dan Forman

Continuing the recent trend in questioniong the propriety of classifying workers as independent contractors instead of employees, the Ninth Circuit reversed an employer's victory on this issue in Narayan v. EGL, Inc.  EGL, headquartered and incorporated in Texas, contracts with hundreds of persons and is the employer of hundreds of employees worldwide.  EGL enters into contracts with persons intended to be independent contractors (ICs).  The ICs lease vehicles and acknowledge that they will act as independent contractors to provide delivery services for EGL.  Each IC acknowledged that he or she was not an employee, and that he or she would “exercise independent discretion and judgment to determine the method, manner and means of performance of its contractual obligations.”  And, by contract, the ICs agreed that the contracts were to be enforced under Texas law. Nonetheless, a number of such California-based persons sued EGL claiming that they were employees and entitled to overtime pay, reimbursement of expenses, off-duty meal periods and other employment related claims.

The District Court for the Northern District of California found that the plaintiffs' claims did not have merit and granted summary judgment in favor of EGL.  The District Court not only held that Texas law applied and that under Texas law, the plaintiffs could not be considered to be employees, but also held that the same result would follow under California law.   Unfortunately for EGL, the District Court did not make any factual analysis to support the alternative finding and conclusion.

The Ninth Circuit reversed the District Court’s decision and held that the plaintiffs’ claims arose under California’s regulatory scheme and were governed by California law. Thus, the issue was whether under California’s labor laws (not Texas law), the plaintiffs were employees or independent contractors.  And, despite the trial court’s express finding that the plaintiffs would be considered to be independent contractors in California, the Ninth Circuit disagreed and found a triable issue of fact on this question.

In analyzing the independent contractor classification question, the Ninth Circuit created a shifting burden test not unlike discrimination cases finding that once a plaintiff established a prima facie case that he or she was an employee that the burden shifts to the employer to prove that the person was an independent contractor.  In this case, the Ninth Circuit concluded that the contract acknowledging independent contractor status was but one element in the employee/IC equation and that there were sufficient indicia of employment in this case to defeat summary judgment.  The Ninth Circuit further opined that summary judgment would rarely be appropriate in cases where employers claim that the plaintiffs were independent contactors, based on the numerous factors that must be considered in making the determination.

What should Companies do in light of Narayan and other recent court decisions and enforcement efforts focused on improper independent contractor classification?  Companies that have entered into Independent Contractor contracts (or verbal agreements) with persons located in California should consider having their counsel re-examine those relationships to assess whether the IC designation will hold up in California.  If it will not, consider engaging counsel to either change practices or convert existing ICs to employment before claims are filed against your Company.