Amended Standing Provisions of Proposition 64, Applying to Pending Cases, Do Not Expressly Or Implicitly Forbid Amendment Of Complaints To Substitute New Plaintiffs

Branick v. Downey Savings and Loan Association, 2006 DJDAR 9612 (Cal. July 24, 2006)

The California Supreme Court held that Proposition 64 does not affect the ordinary rules governing the amendment of complaints and their relation back and that courts could permit a plaintiff to amend a complaint to satisfy Proposition 64's standing requirements. However, whether Plaintiffs in this case can amend cannot be determined because they have not yet filed a motion for leave to amend, identified any person who might be named as a plaintiff, or described the claims such a person might assert.

Plaintiffs sued Downey Savings and Loan Association, alleging violations of Business and Professions Code sections 17200 and 17500. They brought the action on behalf of the general public. The trial court entered judgment against plaintiffs, finding the claims were pre-empted by the federal Home Owners' Loan Act. After an appeal was filed, Proposition 64 passed, which amended the statutes to give standing only to those plaintiffs who have suffered injury in fact and lost money or property. The court of appeal found Proposition 64 applied to this case and remanded to the lower court to determine whether this case warranted granting leave to amend.

The California Supreme Court affirmed. The companion case of Californians for Disability Rights v. Mervyn's (for related article click here) confirms that the amended standing provisions of Proposition 64 apply to cases pending when the proposition took effect. The proposition does not expressly or implicitly forbid the amendment of complaints to substitute new plaintiffs. A rule barring amendments to comply with Proposition 64 would not rationally further any goal articulated by the voters. Whether Plaintiffs in this case may amend cannot be determined yet, as they have not filed a motion for leave to amend, identified a substitute plaintiff or described the claims a new plaintiff may assert. If a motion to amend is filed, the trial court should decide the motion by applying established rules governing leave to amend and the relation back of amended complaints.

Dave Carothers of CDF Presents Ethics Training To Over 250 Cubic Corporation Employees

More than 250 San Diego-based defense, transportation and corporate employees attended training meetings this summer as part of the annual Ethics Training that Cubic Corp. has offered for more than 20 years.

The key message of the training was that employees must avoid even the appearance of impropriety in their business practices, because even if they have committed no crime, it could still cost Cubic hundreds of thousands of dollars to explain that in court.

Employees attending the Aug. 3 ethics session were joined by four members of the Cubic Corporation Board of Directors, who attended to show their commitment to Cubic's standards of ethical business conduct. The session was videotaped for eventual distribution to other Cubic sites.

"What we hope to do in these sessions is to sensitize you to the gray areas," said Dan Jacobsen, vice president and chief compliance officer for Cubic Corporation. "We assume that the employees know right from wrong, or we wouldn't have hired them. We want to instill in them a desire to call and ask for help."

Presenting the Aug. 3 seminar were two trial lawyers: Carolyn Oliver, a former Assistant U.S. Attorney who now heads The Alliance, a legal practice that handles business contracts, negotiations and complex federal criminal defense cases; and Dave Carothers, managing partner of Carothers DiSante & Freudenberger LLP, whose areas of practice include labor and contractual litigation.

Carothers, who has a military background as well as extensive legal experience, outlined some of the ethics problems that most concern government regulators: antitrust violations, price-fixing, bribes to foreign nationals, insider trading and conflicts of interest. He said companies that break these laws can pay fines from $5,000 to $75 million, depending on size of the company and the nature of the violation.

If Cubic was only a U.S. corporation, complying with these laws alone would be a challenge. However, as Jacobsen stated, "the sun never sets on Cubic." The company must also comply with the national laws of all the countries where it does business.

General guidelines for all employees worldwide are described in the Ethics, Standards of Conduct and Compliance section of Cubic's Employee Handbook, which along with other ethics information is also posted on the Corporate Intranet. Jacobsen emphasized that even though not all employees worldwide are covered by U.S. laws, they must still adhere to Cubic's employee policies.

Carothers observed that while many companies have ethics policies, those policies don't hold much weight in a court of law unless the companies take "affirmative, proactive steps" to make sure employees are aware of and adhere to them. "They have to be used, they have to be part of your cultural blood. They have to be reinforced ...; revamped, revised and debated within a company," Carothers said. "You can't just put policies on the shelf and bring them out when a lawsuit's filed. They've got to be a regular part of your work life."

If an employee believes that an ethical principle or law is being violated, they should first raise the issue with their manager. If the manager does not address the issue, or if the employee is not comfortable discussing the issue with their manager, or is not satisfied with the manager's response, they should contact Legal, Human Resources, Jacobsen or use the anonymous Ethics Hotline.

In addition to the annual ethics training, Jacobsen and the Corporate Legal Department are planning future workshops on international antitrust issues and the U.S. Foreign Corrupt Practices Act and similar laws of foreign countries.

Here are a few examples that highlight some of the "gray" ethical dilemmas Cubic employees may face:

Situation: You are a Cubic employee whose brother is the program manager for a prime contractor which has just awarded a subcontract to Cubic. The prime contractor is sometimes also a competitor to Cubic. While you have limited interaction with the subcontract in your job at Cubic, you do have some insight into the program. You attend a birthday party for your brother's son and present him with the latest Buzz Lightyear action figure toy. While at the birthday party, your brother asks you if you have heard anything new about his program, and if you can explain why Cubic raised its price on a particular product used in the program.

Potential issue: Conflict of interest; giving a gift to a customer, or in this case, his family; discussing company-sensitive information with a competitor.

Situation: You are at a bar with two other engineers who are your friends. All three of you work for separate companies that design widgets. The widgets are different designs, but somewhat similar. During the course of the evening, the three of you discuss the different widget designs and devise a business plan to design and manufacture fidgets, a smaller but integral component of the larger widgets, at a substantially lower costs than the current vendors that you know of.

Potential issue: Conflict of interest; discussing company-sensitive information with competitors; violating Cubic's secrecy and invention agreement.

Situation: You do business with General Gibson through your employment at Cubic. You also live near him and occasionally see him at neighborhood parties. The general's teenage daughter sometimes baby-sits your children. One day, your brother-in-law offers you four free tickets to a baseball game. General Gibson is a baseball fan. Do you invite him to the game?

Potential issue: The general is an Executive Branch employee, governed by dollar limits on the value of gifts that he can receive from a single source. Even if the value of the tickets does not exceed the $20 U.S. limit, giving them to the general may place him in a compromising position.

Situation: You have a good friend and golf buddy who works for a competitor. You and your friend are both privy to confidential pricing information in your jobs. You and your friend regularly exchange emails not only at work, but in home email accounts. One day your friend sends a file to your personal account named "Prices_06.doc."

Potential issue: Pricing is company-proprietary information, and sharing it with a competitor is a violation of the employee's duty of confidentiality and a possible violation of U.S. trade secret laws.

Defense Verdict Upheld In Layoff Case

Seever v. Copley Press, Inc., (Cal. Ct. App. Aug. 15, 2006)

The Court of Appeal (Second District, Division Seven) upheld a jury verdict in favor of Defendant where Plaintiff Seever contended at trial that the termination of his employment of 18 years was motivated by age, disability, and medical leave discrimination, and Copley defended that Seever's termination, along with 17 other people, was dictated by business necessity.

The court held substantial evidence supported the jury verdict. In 2001, the Daily Breeze eliminated 18 positions, including Seever's job as building superintendent. Contrary to a projected loss of $2 million for the year, the company showed a loss of $4.3 million for the year. Uncontradicted evidence was introduced at trial that the Daily Breeze was suffering hard times financially and laid people off for financial reasons. Further, before Seever was laid off, his supervisor had to write a business justification for the layoff recommendation, which included his belief that the department could operate capably without Seever as it had for four months when he had been out on leave.
The trial court made a notable ruling on Seever's trial subpoena on Copley for every single financial document relating to Copley and its divisions over the preceding five years. On a motion to quash by Copley, the trial court limited the subpoena to the profit and loss statements and balance sheets for the two years prior to Seever's termination, and any financial documents on which Copley planned to rely at the time of trial. The Court of Appeal said that was not reversible error.

Denial Of Class Certification In Executive Exemption Case Upheld

Dunbar v. Albertson's, Inc., _ Cal. Rptr. 3d _, 2006 WL 2025013 (Cal. App. 1st Dist. July 20, 2006)

The Court of Appeal (First Appellate District, Division One) affirmed the trial court's order denying class certification in an exemption case involving grocery managers (second in command at each store) at Albertson's. The appellate court "read the court's decision . . . to conclude[] that 900 individual inquiries -- one for each grocery manager -- would be required, because findings as to one manager could not 'reasonably [be] extrapolate[d]' to others given the significant variation in the work performed by grocery managers from store to store and week to week, as shown by defendant's evidence," which included 79 declarations of grocery managers, deposition excerpts, a chart outlining how the deposition testimony and Defendant's counter-declarations differed from Plaintiff's declarations, and statistics on varying amounts of time that grocery managers spent working cash registers over a year-long period.

Notably, Plaintiff urged on appeal that the trial court ignored its evidence and argument that individual issues could be effectively managed with the use of exemplar plaintiffs, survey results, subclassing, mini-trials, or special masters. The appellate court found that the record did not show that the trial court failed to consider these proposed methods but rather that the trial court rejected them in concluding that findings as to one grocery manager could not be extrapolated to others given the variations in their work. Although the trial court has an obligation to consider the use of "innovative procedural tools proposed by a party to certify a manageable class," the party seeking class certification "must explain how the procedure will effectively manage the issues in question," which the Plaintiff failed to do.

California’s Unruh Act And Disabled Persons Act Do Not Incorporate Title I Of ADA And Cannot Be Used To Enforce ADA’s Employment Protections

Bass v. The County of Butte, 2006 DJDAR 10757 (9th Cir. Aug. 15, 2006)

The Ninth Circuit upheld the Eastern District of California's dismissal at summary judgment of Plaintiffs' claims under California's Unruh Act and Disabled Persons Act ("DPA") on the grounds that those statutes do not incorporate Title I of the Americans with Disabilities Act and cannot be used to enforce the Americans with Disabilities Act's employment protections.
Plaintiffs Allison Bass and two other County of Butte employees asserted employment discrimination claims under the Unruh Act and the DPA based on the county's alleged failure to accommodate work-related injuries. The plaintiffs claimed that the Unruh Act and DPA incorporated Title I of the Americans with Disabilities Act and could be used to enforce the ADA's employment protections. A district court held in favor of the county, ruling that neither state statute provided a cause of action for employment discrimination.

The Ninth Circuit affirmed. Title I of the ADA prohibits employment discrimination against qualified persons with disabilities by public and private employers. The Unruh Act and DPA focus on ensuring that people with disabilities have equal access to public businesses, facilities, and other accommodations. California courts have historically been reluctant to expand the scope of the Unruh Act or DPA to include employment claims. Amendments to the Unruh Act and DPA (e.g., that a violation of the right of any individual under the ADA shall also constitute a violation of the Unruh Act) do not change matters because the plain meaning of the amendments does not require incorporation of the ADA, in its entirety, into the Unruh Act and DPA. Such a reading would broaden the reach of the state statutes from public accommodations to employment discrimination, which is "incompatible with the state's statutory scheme as a whole and is unsupported by the legislative history of the amendments" to the Unruh Act and DPA. Expanding the scope of these statutes (which do not have an administrative scheme requiring exhaustion) would also create an end-run around the administrative procedures of the FEHA solely for disability discrimination claimants.

The DLSE Agrees That Employers May Deduct Partial Day Absences From Exempt Employees’ Accrued Vacation/PTO Banks

Posted by Kendra D. Miller

The DLSE has endorsed the position taken by the California Court of Appeal last year in Conley v. Pacific Gas and Electric Co., 131 Cal. App. 4th 260 (Cal. App. 1st Dist., 2005) that employers may deduct partial-day absences from exempt employees' accrued vacation/PTO banks for absences of 4 hours or more without jeopardizing their exempt status. The DLSE amended its Enforcement Policies and Interpretations Manual to reflect the Conley decision. See DLSE Enforcement Policies and Interpretations Manual § This is a clear position reversal from that stated in a 2002 opinion letter which suggested that such deductions might jeopardize exemptions under the "salary basis" test and expose employers to significant risks of having to pay overtime to exempt workers.

California Supreme Court Reaffirms The At Will Doctrine

The California Supreme Court's ruling last week in Dore vs. Arnold Worldwide, Inc. strengthens employers' ability to terminate employees without cause. The Court ruled that an employee's offer letter stating that his employment was "at will" and that his employment could be terminated "at any time," means what it says.

Dore, who was living in Colorado, began negotiations with AWI for a job based in Los Angeles. He claimed that during negotiations AWI had told him that it had a new account that someone was required to manage on a long-term basis, that he would "play a critical role in growing the agency," that AWI was looking for "a long-term fix, not a Band-Aid," and that AWI employees were treated like family.

After the negotiations, AWI sent Dore a confirming letter stating:

Brook, please know that as with all of our company employees, your employment with Arnold Communications, Inc. is at will. This simply means that Arnold Communications has the right to terminate your employment at any time just as you have the right to terminate your employment with Arnold Communications, Inc. at any time.

When Dore was later terminated without cause, he attempted to argue that the language in the offer letter was ambiguous because it failed to specifically mention whether his termination could be with or without cause. Furthermore, he argued that there was an implied-in-fact contract that arose out of the comments made to him about the stability of his job, leading him to believe that he could only be terminated for cause.

The Court dispensed with Dore's argument that the letter was ambiguous:

We disagree with Dore that the verbal formulation "at any time" in the termination clause of an employment contract is per se ambiguous merely because it does not expressly speak to whether cause is required. As a matter of simple logic, rather, such a formulation ordinarily entails the notion of "with or without cause.

The Court continued to explain:

An at-will employment may be ended by either party 'at any time without cause,' for any or no reason, and subject to no procedure except the statutory requirement of notice." (Guz v. Bechtel National, Inc., supra, 24 Cal.4th at p. 335.) For the parties to specify--indeed to emphasize--that Dore's employment was at will (explaining that it could be terminated at any time) would make no sense if their true meaning was that his employment could be terminated only for cause. Thus, even though AWI's letter defined "at will" as meaning "at any time," without specifying it also meant without cause or for any or no reason, the letter's meaning was clear.

The majority's ruling is very helpful for employers who have clear "at-will" language in either their new hire packages and/or employee handbooks. However, Justice Moreno also notes in a concurring opinion that language authorizing termination "upon notice," or after a specified notice period could leave the door open for an implied-contract argument.

The employer in Dore used seemingly clear language in its offer letter yet it had to go all the way to the California Supreme Court to have this language enforced. This ruling should be a reminder to employers in California to review the language contained in the offer letters, employee handbooks, and other documentation setting forth the status of employment to ensure that there is no room for doubt concerning the at will status of their employees.

Minimum Wage Bill Goes to U.S. Senate, If Passed, Will Have Ramifications on California Employers

The Estate Tax and Extension of Tax Relief Act of 2006, H.R. 5970, which passed the House on July 29, 2006 and is now in front of the U.S. Senate, proposes to raise the national minimum wage to $7.25 over a three year period.

The provision of the bill that would permit employers across the country to credit tips earned by employees against the minimum wage requirements is one of the many issues that are being debated currently. Below is an explanation of the tip credit and some possible ramifications for California employers and employees.

All But Seven States Permit Tip Credits
All but seven states currently permit employers to count the amount tipped employees earn in tips towards their minimum wage. The seven states that do not allow tip credits are: Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington. H.R. 5970 proposes to bring California and the other six states into conformity with the rest of the country by requiring all states to recognize a tip credit.

What Is a Tip Credit?
Under federal law, employers are allowed to pay a lower hourly wage to employees who qualify as a tipped employee so long as the employee's total wages (the lower minimum wage paid by the employer and the tips received) equal at least the standard federal minimum wage, currently $5.15 per hour. To qualify as a tipped employee, the employee must earn more than $30 per month in tips. Under current federal law, if the employee meets these requirements, then employers may pay them $2.13 per hour, instead of the $5.15 standard minimum wage per hour. Contrary to many politicized statements on this topic, a tipped employee is still guaranteed to make minimum wage.

Many states have different requirements that are more employee-friendly than the federal tip credit law, and therefore the state law is applicable even if the Senate bill is passed. Click here for a chart describing the state requirements. Click here for a Department of Labor "Fact Sheet" pertaining to tipped employees.

How Would the Senate Bill Impact California Employers and Employees?
Currently in California, employers must pay tipped employees the full state minimum wage of $6.75 per hour, and cannot offset any of this amount by the employee's tips. If the bill passes, employees will still be guaranteed to earn at least the state minimum wage. The only difference is that the tips earned by employees could then counted towards the $6.75 per hour minimum wage amount. For example, if the bill passes, California employers could pay tipped employees $2.13 per hour so long as the employee earned at least another $4.62 per hour in tips ($2.13 + $4.62= $6.75). If the tipped employee does not earn enough tips to reach the $6.75 minimum wage threshold, then the employer will have to pay the difference to guarantee that the employee makes at least $6.75 per hour.

"Controversy" Surrounding the Tip Credit Provision
Some politicians, mostly Democrats, oppose the tip credit language in the bill because they argue it constitutes a wage reduction for tipped employees in the seven states that do not have a tip credit. However, the rationale for the minimum wage was to set the minimum that workers earn in the United States, and tipped employees are not minimum wage earners. The U.S. Bureau of Labor Statistics report that "Food Preparation and Serving Related Occupations" nationally earn on average $8.55 per hour as of May 2005, as reported here.

In California, these same employees earn on average $9.17 per hour as of May 2005, as reported here. On both the national level and in California, tipped employees who work in restaurants are paid well above the applicable minimum wage. Moreover, tipped employee's "wages" increase each year when restaurants raise their menu prices because tips left are based on a percentage of the total bill, unlike minimum wage earners who do not receive tips.

Furthermore, employers must pay payroll taxes including FICA (social security tax), SUTA (state unemployment taxes) and FUTA (federal unemployment taxes) on employee tips. Since employers must contribute their share of payroll taxes on these amounts, they should get credit for having paid these amounts towards an employee's minimum wage. This was the rationale for having a tip credit in the 43 states that recognize a tip credit.

Having a tip credit in California could also help equalize the disparity in wages often seen between the tipped employees and the "back of the house" employees. For example, cooks are often paid much less per hour than servers, and, ironically, are prohibited by California law from participating in tip pools (tip pools are different than the topic of tip credits - click here and here for prior posts on tip pools under California law). So unlike servers, they do not have the benefit of receiving additional income from patrons. If permitted to apply a tip credit to a server's minimum wage, a restaurant owner would have more resources he or she could redistribute to other staff members who are currently prohibited from participating in tip pools under California state law.

It is uncertain whether this bill will pass the Senate, but whether it does or not, the issue of a tip credit for employers in California will be hotly debated for some time to come.

UPDATE: The Senate failed to pass the minimum wage increase bill on Thursday, August 3, 2006. Click here for article.

Union’s “Corporate Campaign” Tactics Backfire—Jury Awards $17.3 million in Defamation Lawsuit Against UNITE HERE

A jury in Placer County recently came back with a $17.3 million defamation verdict in a defamation lawsuit brought by Sutter Health against UNITE HERE, one of the nation's largest unions. The big verdict highlights the increasing move of organized labor away from grass roots organizing of workers and toward so-called "corporate campaigns" designed to pressure Corporate leaders and shareholders. Traditionally, unions would achieve recognition by persuading workers that union representation was in their interests and attempting to obtain a majority of support in a recognition election supervised by the National Labor Relations Board.

As the popularity of union membership has dwindled, however, large unions have been increasingly unable to achieve majority status in contested, free elections. To maintain their financial viability, which depends on a steady supply of dues-paying members, unions are more likely now to try to forego the election process altogether by pressuring the employer to simply recognize them as the exclusive bargaining agent for the workers.

Why would an employer agree to this? That is where the union's "corporate campaign" comes into play. A "corporate campaign" merely refers to a coordinated strategy of pressuring corporate managers and shareholders that it is healthier for their bottom line to simply accede to union demands rather than endure the continued attacks. The following are some of the pressure tools most frequently used as part of a corporate campaign.

  • Encouraging media reports that damage the Company's goodwill and criticize its products and business practices.
  • Encouraging and financing civil litigation, including class action lawsuits for alleged discrimination and Labor Code violations.
  • Lobbying state and local lawmakers to enact laws and ordinances that are against the Company's interests.
  • Obstructing Company projects with zoning or environmental objections.

Typically, the union attempts to distance itself from these activities by using various front organizations, often nominally established as tax-exempt, non-profit "educational" groups. If the Company brings a legal challenge, the Union or its affiliated front group will typically argue that its conduct is privileged under the First Amendment.

In the Sutter Health case, however, the jury decided that the Union's hard-ball tactics had crossed the line. In particular, the Union mailed out thousands of post-cards to expectant mothers telling them that if they gave birth at a Sutter Health hospital they could become infected from linens contaminated by "blood, feces and harmful pathogens."

The jury's $17.3 million did not include any award of punitive damages and was intended to compensate the hospitals for their financial losses. The Union has vowed to appeal on grounds that its conduct was protected by the First Amendment and that a higher standard for proving defamation should apply in cases involving a "labor dispute."

Think Twice Before Deducting An Employee’s Pay

Diane Pfadenhauer, over at Strategic HR Lawyer, has a great post reminding employers to think twice about deducting business costs from an employee's pay check. In her post, she refers employers to review the U.S. Department of Labor's opinion letter regarding these types of deductions. Click here to read her post.

In California, state courts have clearly held that employers cannot legally deduct costs that result from simple employee negligence, such as shortages and other losses occurring without the fault on the part of the employee. Business must simply write these losses off as business expenses. However, businesses may deduct an employee's wages for losses that resulted from a dishonest or willful act or through the gross negligence of the employee. The California Division of Labor Standards and Enforcement's (DLSE) explanation of what types of deductions are permissible under California law can be found here.

Cal Labor Law

Robin E. Largent is a Partner in CDF’s Sacramento office and may be reached at 916.361.0991 or BIO »


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