California Labor & Employment Law Blog

By Alison Tsao

The Ninth Circuit recently revisited its prior decision in Rutti v. Lojack Corp., regarding compensability of commute time and preliminary and postliminary work.  The Ninth Circuit altered its prior decision in some respects.  Our prior post on the Rutti case is here.  On rehearing, the Ninth Circuit ruled that an employee may seek wages for time spent commuting to and from work in a company car he is required to use when he is “effectively subject to the control of the employer,” as well as time spent on the “postliminary” activity of transmitting required daily portable data transmissions to his employer from home.

Specifically, the Ninth Circuit considered Rutti’s claims for compensation for commuting in a car which use was mandated by his employer, and for certain “off-the-clock” work he performed both prior to and after his commuting time.  Rutti brought a putative class action for unpaid wages on behalf of all technicians employed by Lojack to install and repair alarms in customers’ cars.  Most, if not all of the installations and repairs are done at the clients’ locations. The technicians were required to travel to the job sites in a company-owned vehicle.  Rutti was paid on an hourly basis for the time period beginning when he arrived at his first job location and ending when he completed his final job installation of the day.  In addition to the time spent commuting to his first job assignment and from his last assignment to home, Rutti also sought compensation for “off-the-clock” activities he performed before he left the house and after he returned home.  Rutti alleged he spent time in the morning receiving assignments for the day, mapping his routes to assignments, prioritizing jobs for the day, and minimal paperwork.  Rutti further alleged that he spent time after he returned home in the evenings to upload data to his company from a portable data terminal (“PDT”) from which his work activities were recorded during the day.

Although Rutti filed a motion for class certification at the same time Lojack filed a motion for partial summary judgment, the district court only ruled on the summary judgment motion in disposing of Rutti’s federal claims and state law claim for commuting compensation, and later dismissed the remaining state law claims for lack of subject matter jurisdiction.

The Ninth Circuit affirmed the district court’s ruling that Rutti’s commute time was not compensable under federal law pursuant to the Employee Commuter Flexibility Act (“ECFA,” 29 U.S.C. § 254(a)(2)).  ECFA provides that the use of an employer’s vehicle that is subject to an agreement between the employer and employee and is not part of the employee’s principal activities is not compensable.  This interpretation is consistent with federal authorities that the cost of commuting is not compensable unless employees “perform additional legally cognizable work while driving to their workplace.”  However, the Court ruled that Rutti is entitled to seek compensation for his commute time under California law as compulsory travel time.  Rutti asserts that Lojack restricts him from using the vehicle for personal pursuits and transporting passengers, requires that he drive directly from home to work and from work to home, and requires that he keep his cell phone on during the commute.  The Ninth Circuit, relying on the California Supreme Court’s decision in Morillion v. Royal Packing Co., 22 Cal.4th 575, 578 (2000), held that Rutti was entitled to seek compensation because he was subject to his employer’s control during his commute because he was foreclosed from engaging in personal pursuits that he would otherwise have been able to undertake if he was permitted to travel to the field using his own transportation.

The Court held that Rutti’s preliminary activities (those that take place before he leaves home) of “receiving, mapping, and prioritizing jobs and routes for assignment” are related to his commute and not related to his principal activities.  Moreover, even if they are related to his principal work activities, appear to be de minimis.  As a result, they are not compensable.  In contrast, Rutti’s postliminary activities in performing the PDT transmissions were a regular part of his work duties and necessary to Lojack’s business.  The Court ruled that upon remand, Lojack might still be entitled to summary judgment if the time spent performing such tasks was de minimis.  However, the factual record did not compel this conclusion because, although it may take only five to ten minutes to initiate the transmission, employees were required to come back to see if the transmission was successful and, if not, to send it again.  There was evidence of frequent transmission failures.  In so holding, the Court stated there was no bright-line rule that activities requiring less than ten minutes’ time was per se de minimis.  Rather, courts are to employ a three-prong test as established in Lindow v. U.S., 738 F.2d 1057, 1063 (9th Cir. 1984) and consider:  (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work.  Because there was evidence that Lojack paid one technician 15 minutes a day to cover PDT transmission time, and Rutti testified that he spent about 15 minutes a day performing such tasks (which, over the course of one week was substantial enough to warrant compensation), the Court reversed the grant of summary judgment and remanded for reconsideration in light of these factors.

Employers who require employees to use company vehicles for commuting purposes should carefully review their policies to see whether they are exerting sufficient “control” over the time and manner in which employees are commuting to determine whether that time needs to be compensated.  Employers should also determine whether employees’ preliminary and postliminary activities are integral to the employees’ principal job duties and, if so, whether that work required more than de minimis time to determine whether additional compensation should be paid.

The Ninth Circuit's new opinion in Rutti v. Lojack Corp. is here.

By John Anthony

In Cumbie v. Woody Woo, Inc., the Ninth Circuit recently ruled on whether a restaurant violates the Fair Labor Standards Act when, despite paying a cash wage greater than the minimum wage, it requires its wait staff to participate in a "tip pool" that redistributes some of their tips to kitchen staff.

In the Cumbie case, the Plaintiff worked as a waitress in a restaurant.  The restaurant paid its servers a cash wage exceeding the federal minimum wage.  In addition to this cash wage, the servers received a portion of their daily tips.  The restaurant required its servers to contribute their tips to a "tip pool" that was redistributed to all restaurant employees including kitchen staff that did not wait on customers.  Neither the owners nor management participated in the tip pool.

The Court held that the restaurant's tip pooling policy did not violate the FLSA because the FLSA only restricts tip pools to employees who are customarily tipped when the employer takes a tip credit.  A tip credit occurs when an employer pays a cash wage below the minimum wage and then supplements the minimum wage with tips.

Notwithstanding the Ninth Circuit's decision upholding a tip pooling practice in these circumstances, California employers must be mindful that such a tip pooling practice would not be lawful under California law.  California does not allow payment of subminimum wage, and generally does not allow tip pooling participation by employees who do not provide direct table service to customers.

By Sarah Drechsler

Lobo v. Tamco, a California Court of Appeal decision that came out this week, involves an employee of a steel manufacturer who, as he was leaving the premises of the employer to commute home in his own vehicle, collided with a motorcycle police officer, resulting in the officer’s death.  The officer’s family filed a wrongful death suit against the employer, alleging vicarious liability under the respondent superior theory because the employee was acting in the course and scope of his employment when the accident occurred.  The employer argued that it could not be liable for the accident under the “going and coming” rule which establishes that employees are outside the course and scope of their employment while on their daily commute. Based on this rule, the trial court granted summary judgment in the employer’s favor, exempting the employer from liability.

On appeal, the plaintiffs argued that the employer could be liable under the “required-vehicle” exception to the going and coming rule.  This exception applies where a personally-owned vehicle is either an express or implied condition of employment.  In this case, as part of the employee’s position as a quality control manager, the employee was required to visit customer sites along with a sales engineer when a customer reported a problem with the product.  The employee testified that he did not have to make these trips often, and when he did, he usually went in the engineer’s car. In fact, the employee testified that in the 16 years that he worked for the employer, he used his own car to drive to a customer’s location 10 times or fewer.  The employer argued that, while the employee’s presence was essential when customers had quality complaints, driving was not an integral part of the employee’s job.  The Court of Appeal sided with the plaintiffs, finding that the employee’s commute was within the course and scope of his employment because the employer “requires or reasonably relies upon the employee to make his personal vehicle available to use for the employer’s benefit and the employer derives a benefit from the availability of the vehicle.”  The Court noted that, “the fact that the employer only rarely makes use of the employee’s personal vehicle should not, in and of itself, defeat the plaintiff’s case.”  The Court reversed the trial court's entry of summary judgment for the employer.

This ruling puts employers on notice that by requiring employees to utilize their personal vehicles to perform any aspect of their job, an employer may be opening itself up to potential vicarious liability for conduct occurring outside of work hours.  Employers may want to re-examine positions that require infrequent use of the employee’s personal vehicle to determine if the position can be restructured to eliminate any need for personal vehicle use.
 

By Cindy Caplan

In  McCarther v. Pacific Telesis Group, the California Supreme Court ruled that Labor Code Section 233 does not apply where the employer's sick leave policy provides for an uncapped number of paid sick days.

Pursuant to a collective bargaining agreement, Pacific Telesis provided up to five consecutive days of paid "sickness absence" in any seven-day period for an employee's own illness or injury. The company did not cap the amount of sick leave that may be taken by employees.  Two employees filed suit against Pacific Telesis, alleging that its policy violated Labor Code Section 233 because employees were not compensated for kin care time off under the sickness absence policy.

Labor Code Section 233 provides that “[a]ny employer who provides sick leave for employees shall permit an employee to use in any calendar year the employee’s accrued and available sick leave entitlement, in an amount not less than the sick leave that would be accrued during six months at the employee’s then current rate of entitlement, to attend to an illness of a child, parent, spouse, or domestic employee of the employee.”  The statute defines "sick leave" as "accrued increments of compensated leave."

The Court concluded that, under Pacific Telesis's plan, sick leave was not "accrued" within the meaning of Section 233.  The Court further reasoned that it would be impossible to determine "the sick leave that would be accrued during six months at the employee's current rate fo entitlement" given the nature of the Company's plan.  The Court concluded that Section 233 does not apply to policies in which the employer provides uncapped compensated sick leave.  Thus, where a policy allows for unlimited or uncapped sick leave, the employer is not obligated to provide paid "kin care" leave.  Employers who provide for a specific number of sick leave days per year remain obligated to allow employees to use half of their yearly allowance of paid sick leave to attend to a family member's illness.
 

By Marie DiSante

The alleged failure to provide legally mandated meal breaks has been one of the most common claims raised against California employers in the recent past.  The lack of agreement as to what it means to "provide" a meal break has allowed the number of these cases to explode.  As any employer who has faced a meal break claim knows, the California Supreme Court granted review of a case entitled Brinker Restaurant Corp. v. Superior Court (Hohnbaum).  (The Court also granted review of Brinkley v. Public Storage, another case raising similar meal break issues.)  The Supreme Court's decision in the Brinker case is expected to provide some much needed clarity with respect to the obligation of employers to "provide" meal breaks, including whether the employer must ensure that the meal breaks are taken, or whether the employer simply needs to make those breaks available for employees, to be taken or skipped at the employee's discretion.

The Supreme Court granted review of Brinker in October 2008.  The case has been fully briefed by the parties, and the deadline for filing amicus briefs has passed.  (There were more than 20 such briefs filed.)  The ball now is in the Supreme Court's hands.  The next step is for the Court to schedule a date for oral argument.  There is no deadline by which the Court needs to schedule this argument, so we do not know how quickly it will take place.  So far the Court has given no indication of when the argument will occur, although many expect it to occur in the first half of 2010.  Once the Court conducts the oral argument, it has 90 days in which to issue its decision.

The Court issues its monthly oral argument calendar on the 10th of each month for the following month.  The Brinker case is not listed on the Court's March calendar, so oral argument will not take place until April at the earliest.  We will keep you posted on the status.

By Candice Boyd

In Dotson v. Amgen, Inc., the Court of Appeal for the Second Appellate District, Division Six held that an employment arbitration agreement was an enforceable contract.  The California court reversed a trial court's order denying an employer's motion to compel arbitration.  The Court of Appeal held that the arbitration agreement entered into between an employer and employee was not unconscionable.  In reaching its decision, the Court of Appeal evaluated whether the arbitration agreement's terms were both procedurally and substantively unconscionable.  The Court of Appeal found that there was no substantive unconscionability in a provision in the arbitration agreement that limited the parties to one deposition each, unless the arbitrator determined that more were needed.  The Court of Appeal reasoned that this provision was reasonable and merely manifested one of the goals of arbitration - to be a streamlined process.  One of the ways this goal is achieved is by setting limitations on discovery.  Also, the Court of Appeal determined that the trial court wrongly assumed that the arbitrator would be unfair in determining whether additional depositions were needed, "We assume that the arbitrator will operate in a reasonable manner in conformity with the law." 

The Court of Appeal found that the existence of procedural unconscionability was minimal because the agreement was not overly long, the agreement was written in unambiguous language, and Dotson was a highly educated attorney with the ability to understand that he was agreeing to arbitration.

Even if it assumed that the discovery provision in the agreement was unconscionable, the Court of Appeal determined that the trial court abused its discretion by failing to take it out of the agreement.  "Where, as here, only one provision of the agreement is found to be unconscionable and that provision can easily be severed without affected the remainder of the agreement, the proper course is to do so." 

This decision provides a positive message to employers – some courts are willing to enforce arbitration agreements.  In order to increase the likelihood that an arbitration agreement will be enforced, employers must ensure that the agreement satisfies at least minimal standards of fairness, including sufficient discovery.   

By Leigh A. White

In an unfortunate case for employers, the Second Appellate District, Division One, reversed a trial court’s denial of a motion for class certification in Jaimez v. Daiohs USA, Inc., an exemption and meal and rest break case.

In this case, the proposed class representative worked as a Route Sales Representative (“RSR”) for Daiohs First Choice Services (“First Choice”).  RSRs spent almost all of their workday on the road or at customers’ locations, delivering, servicing, and up-selling bottled water products or coffee products.  In the 2003 to 2004 time frame, First Choice reclassified most of the RSR positions to non-exempt, and by October 2007, all RSR had been reclassified.  In mid-2007, however, Jaimez filed a putative class action, alleging that the RSRs had been misclassified, that they had been denied meal and rest breaks, and related claims.

 Jaimez moved for class certification, submitting 9 putative class member declarations (including his own) in support.  First Choice opposed the motion with 25 putative class member declarations, all of whom were current employees.  The trial court denied class certification, without prejudice, finding that Jaimez’s claims were not typical of the proposed class as demonstrated by First Choice’s declarations, that commonality was lacking because First Choice’s evidence demonstrated a “strong indication of conflicting testimony” at trial, and that because of the need for individualized inquiry, a class action was not the superior method for resolving the dispute.  The trial court also found that Jaimez was not an adequate class representative because of his deposition testimony, including the fact that he lied on his employment application by failing to disclose his felony conviction.

The Court of Appeal reversed, holding that the trial court “misapplied the criteria” for class certification by focusing on the potential conflicting issues of fact or law on an individual basis instead of determining whether the “theory of recovery” advanced by the plaintiff was likely to be amenable to class treatment.

The appellate court found that plaintiff submitted evidence that First Choice had uniform corporate practices applicable to the class claims, which were that RSRs performed the same duties every day; First Choice failed to properly pay overtime even after RSRs were reclassified; First Choice created delivery schedules which it pressured RSRs to complete in 8 hours, making it difficult to take meal and rest breaks; and First Choice failed to compensate RSRs for missed, late or interrupted breaks.  Regarding meal breaks, the Court of Appeal noted that the issue of what it means to “provide” meal breaks is pending before the California Supreme Court, but determined that there were common factual issues of whether First Choice had a practice of requiring RSRs to sign a manifest stating that they took a meal break in order to receive their paycheck and of First Choice’s pre-2006 practice of deducting 30 minutes per shift regardless of whether the RSR actually took a 30-minute meal break.

Based on these facts, the appellate court found that the plaintiff’s theory of recovery focused on uniform policies and practices applicable to the class, and was therefore more amenable to class treatment than individual disposition.  The Court of Appeal determined that the trial court improperly focused on the “merits of the declarations, evaluating the contradictions in the [declarants’] responses to the company’s uniform policies and practices, not the policies and practices themselves.”  The Court of Appeal concluded that had the trial court focused on the plaintiff’s theory of recovery, “it would have necessarily found the First Choice declarations, while identifying individual effects of policies and practices that may well call for individual damages determinations, nevertheless confirm the predominance of common legal and factual issues that make this case more amenable to class treatment.”  The Court of Appeal reversed the denial of class certification, except for the finding that Jaimez was not an adequate class representative, and directed the trial court to certify the case upon the court’s approval of a new class representative.

The Jaimez decision is here.

By Jennifer D. Barrera

A recent opinion from the Fourth Appellate District Court of Appeal emphasized that employers cannot by agreement limit the time period in which an employee can file a lawsuit for wage and hour issues.  The opinion also exemplifies the difficulty associated with satisfying the requirements of the administrative exemption. 

In Pellegrino v. Robert Half International, Inc., six former employees of a temporary staffing company sued their employer under Business and Professions Code section 17200 as well as various Labor Code sections on the grounds that the employer failed to properly compensate them for overtime worked, pay proper commissions, provide meal periods, or provide itemized wage statements.  The employer asserted two main defenses to the employees’ claims:  (1) the employees were properly classified as exempt under the administrative exemption; and (2) the employees’ claims were barred by the “Limitation on Claims” provision in their employment agreement that shortened the statute of limitations for such claims to six months.  The plaintiff filed a motion for summary judgment on the grounds that the shortened time frame to file these claims was unenforceable because it violated public policy, and that they were not properly classified as exempt under the administrative exemption.  The court granted the motion with regard to the shortened time frame, but found there was a triable issue of fact as to whether the employees were properly classified as exempt. 

At trial, the issue of the administrative exemption was tried first.  After all evidence was presented, the Court granted the employees’ motion for judgment and ruled that the employees were not properly classified as exempt as a matter of law.  The employer appealed the ruling on the motion for judgment at trial and the prior motion for summary judgment.

On appeal, the court affirmed both rulings.  With regard to the ruling concerning the shortened time frame to file the claims, the Court agreed that statutory wage and hour rights cannot be waived.  To support this conclusion, the Court cited to Labor Code section 219 that provides “Nothing in this article shall in any way limit or prohibit the payment of wages at more frequent intervals, or in greater amounts, or in full when or before due, but no provision of this article can in any way be contravened or set aside by a private agreement, whether written, oral, or implied.”  The Court also relied on prior cases, such as Gentry v. Superior Court, 42 Cal.4th 443 (2007), Franco v. Athens Disposal Co,. Inc., 171 Cal.App.4th 1277 (2009), and Zavala v. Scott Brothers Dairy, Inc., 143 Cal.App.4th 585 (2006), that previously determined certain wage and hour issues under the Labor Code, including the right to minimum wage, overtime compensation, meal and rest breaks, and itemized wage statements, could not be waived.  The Court additionally referenced Martinez v. Master Protection Corp., 118 Cal.App.4th 107 (2004), which determined an arbitration agreement that required an employee to file any employment related claims within six months of the date the claim arose was unenforceable.  The Court agreed with Martinez’s holding that “the enforcement of a provision in an employment agreement, which serious truncates the time period in which an employee may assert any claim, unlawfully restricts the employee’s ability to vindicate his or her statutory rights.”

With regard to the issue of whether the employees were properly classified as exempt under the administrative exemption, the Court agreed they were not.  The employees had presented evidence at trial that they did not perform work “directly related to the management policies or general business operations” of the company, as required to fall under the administrative exemption.  Rather, the employees performed duties that constituted sales work such as placing a candidate with a client, selling the services of the company to clients, and soliciting potential clients for sales.  The employees’ performance was evaluated on how well they met or exceeded their sales goals.  They had no supervisory duties and did not form any company policy.

The Pellegrino decision is here.

By Dan Forman

In a fascinating and lengthy opinion, a California appellate court held that a company that sells its trade secrets still has standing to sue for misappropriation that occurred prior to the sale.  In Jasmine Networks, Inc. v. Marvell Semiconductor, Inc., Jasmine sued Marvell and several of Marvell's employees for misappropriation of trade secrets and related causes of action based on allegations that Marvel had wrongfully acquired Jasmine’s trade secrets and hired away key employees, destroying or greatly reducing the value of Jasmine's trade secrets.  Less than 1 year later, Jasmine filed a Chapter 11 bankruptcy proceeding and, as part of its reorganization, sold substantially all of its assets, including its trade secrets and intellectual property.  However, Jasmine reserved its right to pursue its claims in the lawsuit against Marvell.  With an analogy to a victim of an automobile accident who does not need to keep her damaged vehicle until trial to recover for the damages caused by a negligent driver, the Court of Appeal made it clear that the sale of the trade secrets or intellectual property to a third party, after commencing a lawsuit over the harm caused by misappropriation, does not destroy the Plaintiff’s standing to pursue its case for misappropriation of trade secrets.  The Jasmine Networks case is here. 

By Robin E. Weideman

The United States Supreme Court has granted review in Quon v. Arch Wireless, which deals with the increasingly emerging issue of the scope of an employee's privacy in electronic messages sent using employer-provided equipment.  Our previous post regarding the Quon case is here.  Although the case deals with a public employer and is, therefore, specifically focused on the scope of Fourth Amendment privacy protection involving the use of text messaging in a fairly case-specific factual setting, the case may well provide some broader insight on the Supreme Court's view toward privacy issues in the electronic era that will be of use to private sector employers as well.  In the meantime, employers grappling with monitoring of employee electronic usage are best advised to have clear policies signed off on by employees, making clear that employees do not have an expectation of privacy in their usage of employer provided equipment and that the employer can and will monitor such usage.  Because there generally is not a "one-size-fits all" policy for all employment situations, employers are best advised to consult with counsel in drafting a comprehensive policy.  We will continue to provide updates regarding significant developments in the Quon case, and similar workplace privacy cases affecting California employers.

By Candice Boyd

In Barbosa v. IMPCO Technologies, Inc., a California court held that public policy protects an employee from being terminated for making a mistaken but good faith claim to overtime compensation.

Manuel Barbosa worked at IMPCO Technologies, Inc. as a "cell leader" supervising up to eight other carburetor assemblers.  Barbosa was paid by the hour and sometimes he and the other employees worked overtime.  Barbosa testified that in June 2007, two of the employees in his cell told him they were missing two hours of overtime.  After their discussion, Barbosa thought he was missing two hours of overtime.  Barbosa told the payroll administrator that he and a few other employees had worked overtime.  Barbosa also told the payroll administrator that the time clock was wrong and perhaps that was the reason why the employees failed to receive their overtime pay.  IMPCO had occasional problems with a prior time clock system, but had recently installed a new one with no issues.  The payroll administrator spoke to the human resources manager who ran a report that established that Barbosa and the other employees could not have worked the overtime that Barbosa claimed.  Soon thereafter, Barbosa was called to a meeting with his supervisor, the payroll administrator, the human resources manager, and the operations manager. Barbosa was asked if he was sure he and the other employees worked overtime.  Barbosa responded affirmatively.  The operations manager showed Barbosa the report and Barbosa said he was confused and apologized.  Barbosa offered to pay back the overtime pay.  Barbosa was terminated on June 19, 2007, for falsifying time records.  The overtime money was eventually taken back from the employees.

At trial, IMPCO moved for nonsuit.  The court graned the nonsuit stating that, "I will accept plaintiff's version.  It still comes down to a question of law.  Good faith belief turns out to be wrong; termination thereafter of an at-will employee.  I don't see that there's a public policy that requires the employer to then make a determination whether this was good faith, not good faith, and require[s] the employer then to continue to employ this employee, who from [its] perspective made an unjustified claim for monies."

The Court of Appeal recognized that the duty to pay overtime wages is a well-established fundamental public policy affecting the broad public interest.  The Court of Appeal determined just as an employee's good faith but mistaken belief is protected from employer retaliation in the whistleblowing context, it follows that the same result should occur when an employee exercises his statutory right to overtime wages out of a reasonable good faith belief he is entitled to it, notwithstanding the later discovery that he is wrong.

In reaching its conclusion, the Court of Appeal noted that Barbosa's mistaken belief was reasonable and in good faith because under the previous time clock system, mistakes in timekeeping had been made; the new system had been in place less than a month; Barbosa's co-workers convinced him the overtime was unpaid, and he in turn convinced his supervisor; and Barbosa testifed he was confused.  As a result, the Court of Appeal found that Barbosa had presented sufficient evidence to have his case submitted to a jury.

You may read the entire case here.

By Robin E. Weideman

Today the California Supreme Court issued its decision in Costco v. Superior Court (Randall), holding that a trial court erred by having an attorney-client privileged memorandum reviewed and redacted by a discovery referee, and then ordering portions of the memorandum produced to the other side.  Specifically, Costco had retained legal counsel to provide advice regarding the proper exempt/non-exempt classification of its managerial employees for wage and hour purposes. Costco’s outside legal counsel interviewed some managerial employees and prepared a memorandum to Costco, including information about those interviews and providing legal advice based thereon.  Later, Costco was sued by some managers for alleged misclassification and wage and hour violations.  The plaintiff in the case tried to obtain the memorandum in discovery from Costco.  Costco objected based on attorney-client privilege and refused to produce the memorandum.  The trial court ordered that Costco produce the memorandum for review by a discovery referee and the discovery referee ultimately determined that portions of the memorandum relating to a recitation of facts provided to the attorney by the manager employees were not privileged and should be produced.

On review by the California Supreme Court, the Court held that the trial court (1) should not have ordered the memorandum disclosed to a discovery referee in order to rule on the claim of privilege, and (2) the entire memorandum was privileged.  More specifically, the Court indicated that Evidence Code section 915 prohibits a court from ordering in camera review of a privileged document for the purpose on determining whether the document is actually privileged. Furthermore, the court ruled that regardless of whether or not conversations between an attorney and a corporation’s employees were themselves privileged, a legal memorandum between an attorney and client is privileged regardless of whether it includes potentially unprivileged information.  The fact that certain information may ultimately be discoverable through other means does not translate to a finding that the same information is discoverable in the form of a legal memorandum from an attorney to the client.

The Supreme Court’s decision in Costco is here.
 

By Robin E. Weideman

The California Supreme Court issued its decision today in Roby v. McKesson Corp., addressing two important issues—(1) whether personnel management conduct can constitute “harassment” within the meaning of FEHA, and (2) the constitutional limits on awards of punitive damages.  With respect to the first issue, the Court held that personnel management conduct, including reprimanding an employee in front of coworkers, belittling an employee’s job, and shunning an employee during staff meetings, is conduct that can support a finding of hostile work environment harassment.  The Court further held that evidence supporting discrimination claims and harassment claims often overlaps and is not necessarily exclusive.  Such evidence does not need to be separately allocated between the two claims.  This ruling blurs the distinction between conduct traditionally thought to support a “discrimination” claim on the one hand (e.g. written warnings, termination, etc.), and conduct traditionally thought to support a harassment claim on the other (e.g. discriminatory slurs, inappropriate physical contact, etc.).  This decision will likely make it more difficult for employers (and individual supervisors) defending claims of harassment under FEHA to obtain summary judgment.

With respect to the second issue on the size of the punitive damages award, the Court reiterated the standards articulated by the United States Supreme Court in State Farm v. Campbell, 538 U.S. 408 (2003), for reviewing the appropriateness of a punitive damages award:  (1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.  The decision contains a detailed explanation of how each of these factors is properly analyzed and applied.  In this particular case, the Court held that the jury’s $15 million punitive damage award was constitutionally excessive and that on the facts of the case, punitive damages could not properly exceed the amount of compensatory damages awarded to the plaintiff.  The punitive damages were, therefore, reduced from $15 million to $1.9 million.

The Roby decision is here.
 

By Robin E. Weideman

Another California court has refused to enforce non-compete and non-solicitation clauses in employment contracts signed by California employees.  In Dowell v. Pacesetter, Inc., the employees at issue worked in various capacities for a biotech company.  Upon accepting employment, they signed an agreement providing that for 18 months after termination of employment they would not render services for a competitor if such service could aid the competitor in competing by application of “confidential information” the employee had access to during employment.  “Confidential information” was broadly defined in the agreement to include “information disclosed to me or known by me as a result of my employment by the company, not generally known to the trade or industry in which the company is engaged, about products, processes, technologies, machines, customers, clients, employees, services and strategies…..”

The agreement also contained a non-solicitation clause providing that for 18 months following termination of employment the employee would not solicit business from, sell to, or render service to any customers with whom the employee had contact during the last 12 months of employment.
The court determined that both the non-compete and non-solicitation clauses were void and unenforceable under California Business and Professions Code section 16600, which provides that contracts in restraint of trade are prohibited.  The court further determined that the use of the agreements constituted unfair competition in violation of Business and Professions Code section 17200.  The court rejected the employer’s arguments that the clauses were enforceable because they were tied to protection of trade secrets and confidential information.  The court stated that it doubted the continuing validity of any “trade secret exception” to 16600’s prohibition on non-compete agreements, but reasoned that regardless of whether any trade secret exception still exists, it would not apply in this case because the agreement’s definition of “confidential information” was much broader than “trade secret” information as defined under California law.  By defining “confidential information” so broadly and precluding former employees from using such “confidential information,” the employees were effectively precluded from competing altogether.

This decision is not welcome news for employers utilizing confidentiality and non-solicitation agreements for California employees, but employers should be mindful of the continuing trend of California courts in refusing to enforce these agreements.
 

By Robin E. Weideman

If you are a California employer who has ever had to take negative employment action against an industrially injured employee, then you are likely familiar with California Labor Code section 132a.  Section 132a prohibits discrimination against an employee for filing a worker’s compensation claim or for related activity.  These claims are quite commonly filed by employees in conjunction with an underlying worker’s compensation claim.  Essentially, any time an employer takes adverse action against an industrially injured employee, the employer can expect a 132a claim to be filed.  The employee cannot prevail on the claim, however, unless the employee proves that the adverse action was taken against him because of his industrial injury.  Today, a California Court of Appeal further clarified that in order to prevail, the employee must establish that the employer treated the industrially injured employee differently than the employer would treat a non-industrially injured employee in the same circumstances. 

In Gelson’s Markets, Inc. v. WCAB, the employee sustained an industrial neck injury which resulted in the employee having surgery and being off work for over a year.  Following surgery, the employee provided a doctor’s note purporting to release the employee to return to work.  However, the release was ambiguous, prompting the employer to follow up with the doctor for clarification.  In the process of seeking clarification from the doctor, the doctor admitted that he did not believe the employee should return to work but should instead remain temporarily totally disabled.  However, the employee wanted to return to work and wanted a release, so the doctor provided a release based on the employee’s personal opinion that he could do his job.  As a result of the doctor’s admissions, the employer did not allow the employee to return to work.  Litigation over the underlying worker’s compensation claim proceeded, eventually resulting in an agreed medical evaluator opining that the employee could return to work.  At that point, the employer allowed the employee to return to work (one and one-half years after the employee’s original “release” from his treating doctor).

The employee filed a petition for discrimination under 132a, seeking lost wages for the time period his employer did not allow him to return to work.  The WCAB granted the petition and awarded the employee lost wages, as well as a $10,000 statutory penalty.  Specifically, the WCAB found that the employer’s failure to return the employee to work following an unambiguous full-duty release, constituted discrimination against an industrially injured worker in violation of 132a.

The employer appealed and the appellate court agreed with the employer.  Overturning the WCAB’s award, the court held that the WCAB applied the wrong legal standard and erroneously concluded that the employee had been the victim of discrimination under 132a.  The court explained that the proper standard to be used in evaluating a 132a claim is the standard articulated by the California Supreme Court in Dep’t of Rehabilitation v. WCAB (Lauher), 30 Cal.4th 1281 (2003).  Under Lauher, to prevail on a claim for discrimination under 132a, it is not enough for the employee to show he suffered some negative consequence as a result of an industrial injury.  Rather, the employee must show "discrimination"--i.e. differential treatment based on the industrial nature of the injury. 

Applying the Lauher standard to the case before it, the court held that the employee had made no such showing.  There were no facts suggesting that the employer would have treated an employee with a nonindustrial injury any differently in the circumstances.  “[The employee] made no showing that [the employer] treated him disadvantageously because of the industrial nature of his injury, as compared to how [the employer] treated a nonindustrially injured employee.”  The court, therefore, concluded that the employee could not prevail on his claim for discrimination under 132a and annulled the WCAB award in the employee’s favor.

The Gelson’s Market case is a positive case for employers, making it harder for employees to prove discrimination under 132a and thereby lessening the risk associated with taking necessary adverse action against an industrially injured employee.   

By Robin E. Weideman

California employers who have litigated claims for misappropriation of trade secrets are likely familiar with the requirement that the party claiming its trade secrets were misappropriated must identify, with “reasonable particularity,” the trade secrets that were misappropriated.  Until this identification is made, that party cannot take discovery from the other side regarding the trade secret claims.  A California court reiterated this principle this week in Perlan Therapeutics, Inc. v. Superior Court (NexBio).  The Perlan case involves alleged trade secrets related to development of treatments for viral infections.  The court, holding that Perlan did not sufficiently identify its trade secrets, applied the principle that “in a highly specialized technical field, a more exacting level of particularity may be required to distinguish the alleged trade secrets from matters already known to persons skilled in that field.”  The court found that Perlan’s vague description of its alleged trade secrets failed to meet this standard. 

Interestingly, the court also frowned on Perlan’s attempt to include broad, catch-all language in its identification statement, to preserve the ability to add additional trade secrets to the list of those misappropriated later in the case.  “Perlan is not entitled to include broad, catch-all language as a tactic to preserve an unrestricted, unilateral right to subsequently amend its trade secret statement.  If Perlan does not know what its own trade secrets are, it has no basis for suggesting defendants misappropriated them.  Nor is Perlan entitled to hide its trade secrets in plain sight by including surplusage and voluminous attachments in its trade secret statement.”

The case contains a good discussion of what identification with “reasonable particularity” means under Code of Civil Procedure section 2019.210, and canvasses some of the recent California cases addressing this issue.  The decision is here.

By Kent J. Sprinkle

By Robin E. Weideman

The California Supreme Court issued its decision in Schachter v. Citigroup, Inc. today, upholding the legality of an incentive compensation plan provision providing for forfeiture upon an employee’s resignation or termination for cause.  The plan at issue allowed employees to elect to receive shares of restricted stock at a reduced price in lieu of a portion of their annual compensation.  Title to the shares vested two years after the purchase date.  However, the plan provided that if the employee voluntarily resigned or was terminated for cause prior to the two-year vesting date, the employee forfeited his or her stock as well as the portion of annual income designated by the employee to be paid as shares of stock.  (If an employee was involuntarily terminated without cause prior to vesting, the employee still forfeited the stock but was paid for the percentage of annual income the employee had directed be used to purchase stock.)

Plaintiff Schachter enrolled in the plan and elected to receive about 5% of his annual compensation in the form of restricted stock.  Schachter voluntarily resigned prior to his shares vesting and, as a result, forfeited his shares as well as the amount of annual compensation that had been used to purchase the shares.  Schachter filed a class action lawsuit against Citigroup alleging that the forfeiture provisions in the incentive compensation plan violated certain provisions of the California Labor Code prohibiting the forfeiture of earned but unpaid wages.  The trial court granted summary judgment in favor of Citigroup and rejected Plaintiff’s claims.  A California Court of Appeal agreed.

Schachter petitioned for review by the California Supreme Court, which also agreed with the lower court rulings.  The Court rejected Schachter’s argument that Citigroup should have paid him, upon his resignation, cash for the amount of his annual income he had directed be used to purchase shares of stock.  The Court reasoned that an employer and an at-will employee are free to renegotiate the terms of the employee’s straight-time compensation at any time during employment.  Schachter’s election to participate in the incentive compensation plan, understanding its terms and its forfeiture provision, constituted Schachter’s agreement to a restructured compensation package.  Under the specific terms of the plan, Schachter’s interest in the shares he purchased did not vest (and hence was not “earned”) unless he remained employed for two years.  Because Schachter voluntarily resigned prior to the two-year mark, he had not “earned” and had no right to receive either the shares or the money used to purchase the shares. 

The Court also rejected Schachter’s argument that at least a portion of his incentive compensation should have vested on a pro rata basis, much like vacation wages.  The Court explained that unlike vacation, which is compensation for past services, an incentive compensation plan is inducement for continuing future service.  As a result, the Court held that rules prohibiting forfeiture of accrued vacation do not apply to incentive compensation plans.

Although the Schachter case is an employer-friendly decision that allows employers more control and flexibility in structuring incentive compensation plans, employers should note that the California Supreme Court placed some emphasis on the fact that Schachter had voluntarily resigned and, therefore, it was Schachter’s own actions that caused him to lose his contingent incentive compensation.  Although the Court did not say that a forfeiture provision tied to involuntary terminations would per se violate California law, employers should be mindful that forfeitures in the case of involuntary terminations frequently give rise to a claim that the employer terminated the employee as a pretext to avoid payment of the incentive compensation.  Therefore, particular care should be taken in drafting forfeiture provisions tied to involuntary terminations.

By Robin E. Weideman

The Ninth Circuit recently issued an employer-friendly ruling holding that an employer could lawfully reduce employees’ base hourly rate in connection with allowing employees to work an alternative schedule of 12-hour shifts instead of 8-hour shifts.  The employer was covered by an FLSA provision requiring payment of overtime for hours worked in excess of eight per day.  In order to neutralize the additional costs associated with payment of an overtime rate for employees desiring to work 12-hour shifts, the employer and the affected employees agreed to a lower base hourly rate, with the effect being that the employees would earn about the same amount per pay period regardless of whether they worked a normal 8-hour shift schedule or the alternative 12-hour shift schedule.

Some of the employees later filed a class action alleging that the employer’s reduction of their hourly rate was a subterfuge to avoid payment of mandated overtime premiums and thereby violated the federal Fair Labor Standards Act (FLSA).  A federal district court disagreed and found that the employer’s practice did not violate the FLSA.  The employees appealed to the Ninth Circuit, but the Ninth Circuit agreed with the district court, concluding that an employer “may alter the ‘regular rate’ of pay in order to provide employees a schedule they desire” without violating the FLSA.

Although the Ninth Circuit’s decision provides employers with much needed flexibility in considering whether to implement alternative workweek schedules, California employers are cautioned that the decision is based solely on federal law.  The decision does not address California law, and it is not clear whether California’s Department of Labor Standards Enforcement or a California court would find such a practice legal under California law.  Notably, California’s DLSE has previously issued at least one opinion letter disagreeing with some caselaw (the Belo case) on which the Ninth Circuit’s decision is based.  In addition, California Labor Code section 511(c) prohibits an employer from reducing an employee’s regular rate of hourly pay as a result of the adoption, repeal or nullification of an alternative workweek schedule.  As a result, California employers considering this type of pay reduction should consult counsel.

The Ninth Circuit decision is Parth v. Pomona Valley Hospital Medical Center and may be accessed here.

By Robin E. Weideman

The Ninth Circuit recently held that a non-disabled employee claiming retaliatory discharge had standing to sue her employer under Section 504 of the Rehabilitation Act of 1973 and Title II of the Americans With Disabilities Act—two laws which prohibit discrimination against disabled individuals by certain public entities, including the Plaintiff’s employer, the Riverside County Office of Education.

The plaintiff in the case, Susan Barker, was a special education teacher for Riverside County. During the course of her employment, she complained that the County’s special education services were noncompliant with federal and state law.  Barker alleges that following her complaint, her supervisors began to retaliate against her by excluding her from meetings, reducing her caseload, failing to respond to her emails and phone calls, and similar conduct.  Barker alleged that she was ultimately forced to resign as a result of her employer’s alleged retaliatory conduct.

Barker subsequently filed a lawsuit against the Riverside County Office of Education, alleging retaliation under the Rehabilitation Act and the ADA.  A federal District Court dismissed Barker’s complaint, finding that because Barker was not “disabled” within the meaning of either law, she did not have standing to sue under such laws.  Barker appealed and the Ninth Circuit agreed with Barker. Liberally construing the anti-retaliation provisions of these two laws, the Ninth Circuit held that the provisions prohibit retaliation not only against disabled individuals, but also against non-disabled individuals who advocate for the rights of disabled individuals.  As a result, the Court held that Barker could proceed with her retaliation claims against Riverside County.

The case is Barker v. Riverside County Office of Education and the opinion is here.   

By Robin E. Weideman

Do you think it is obvious that an employer should not be held liable for injuries suffered by an employee as a result of running a stop sign outside of work hours?  A California Workers’ Compensation judge apparently did not think so.  In Esquivel v. WCAB, an employee who worked in San Diego and was receiving regular medical treatments in the San Diego area for an industrial injury decided to travel to Los Angeles some 130 miles away to visit her family.  Shortly after leaving Los Angeles to drive back to San Diego to attend a medical appointment the employee ran a stop sign, caused a collision and sustained serious injuries as a result.  She sought worker’s compensation benefits for the injuries caused by the car accident, contending that because she was on her way to a medical appointment for an industrial injury, her employer bore responsibility for the further injuries (albeit unrelated) she sustained en route to her appointment.  The workers’ compensation judge agreed with the employee and found that the motor vehicle accident injuries were a compensable consequence of the employee’s existing industrial injuries. 

The employer rightfully sought reconsideration from the Workers’ Compensation Appeals Board and the Board agreed with the employer, reversing the award of additional benefits.  The WCAB held that the accident occurred too remotely from the employee’s home and doctor’s office to hold the employer responsible for the risk of that injury.  The employee appealed from the WCAB order.

On appeal, the California Court of Appeal agreed with the WCAB and held that the employee’s injuries occurred outside the reasonable geographic area of her employer’s compensability risk.  To be clear, the court did not hold that an employer is never liable for injuries sustained by an employee en route to a medical appointment for an industrial injury.  To the contrary, the court held that an employer bears the risk and responsibility for new injuries an employee suffers while en route to or from a medical appointment within a “reasonable geographic area.”  The court explained that there is no “bright line” test for what constitutes a “reasonable geographic area” and that it must be determined on a case by case basis.  However, on the facts before the court, the employee was, for purely personal reasons, some 130 miles away from her work, her residence, and the location of her medical appointments at the time of her car accident.  The court held that in these circumstances, the injury was clearly outside the reasonable geographic area the employer could have assumed risk for.

Interestingly, the court did not address the employer’s additional argument that the employer should not have been liable for the employee’s injuries (regardless of where they occurred geographically) because the injuries were caused by the employee’s own fault in running a stop sign (according to the CHP report of the accident).  What are we missing here?

By Robin E. Weideman

Yesterday the California Supreme Court heard oral argument in three employment cases:  Roby v. McKesson HBOC, Schachter v. Citigroup, Inc., and Costco Wholesale Corp. v. Superior Court.  The Roby case addresses the following issues:  (1) can a supervisor’s management and personnel actions be considered in determining whether an employee has been subjected to hostile work environment harassment? and (2) may an appellate court determine the maximum constitutionally permissible award of punitive damages when it reduces a compensatory damage award, or must the appellate court remand the issue to the trial court for a new determination of punitive damages?

The Schachter case addresses the following issue:  Does the forfeiture provision of a voluntary incentive compensation plan, which gives employees the option of using a portion of their earnings to purchase shares in the company’s stock below market price but provides that employees forfeit both the stock and the money used to purchase it if they resign or are terminated for cause within a two-year period, violate Labor Code sections 201 or 202?  Our previous post on the Schachter case is here.

The Costco case addresses the following issues relating to application of the attorney-client privilege to advice provided by outside counsel to in-house counsel in a wage and hour misclassification action:  (1) does the attorney-client privilege protect factual statements made by outside counsel in a legal memorandum to in-house counsel? and (2) is a trial court prohibited from conducting an in camera review of the legal memorandum to determine whether the attorney-client privilege applies?  Our previous post on the Costco case is here.

Each of these three cases has important implications for many California employers.  The California Supreme Court is expected to issue decisions in these cases in the next 90 days.  We will continue to monitor the cases and post significant developments.

By Robin E. Weideman

A California Court of Appeal ruled this week that an employer may be held vicariously liable for injuries caused by an employee in a car accident occurring during the employee’s commute home from a business conference.  In Jeewarat v. Warner Bros. Entertainment, Inc., an employee returning home from a three-day business conference was driving his usual commute route when he was involved in a car accident that injured three pedestrians.  The injured pedestrians sued the driver’s employer, Warner Bros., seeking to hold Warner Bros. responsible for the alleged negligence of its employee.  The trial court ruled against the plaintiffs and granted summary judgment in favor of Warner Bros., holding that under the “going and coming rule” an employer cannot be held vicariously liable for accidents occurring during an employee’s commute to or from the workplace.  The plaintiffs appealed.

The appellate court disagreed with the trial court and reversed the ruling in favor of Warner Bros.  The appellate court held that the going and coming rule did not apply because the employee was not engaged in his normal commute home from the workplace at the time of the accident. Instead, the employee was returning home from a business conference, which was more akin to a “special errand” for the employer.  Even though the employee drove by his office and took his normal commute route home from there after the conference, the court held that this was not enough to bring the case within the going and coming rule and preclude vicarious liability on the part of Warner Bros. for the alleged negligence of its employee.  Under the special errand doctrine, the employee is considered to be acting within the course and scope of employment until he arrives at his destination (home) after completing the special errand.

It would not be surprising if Warner Bros. petitions the California Supreme Court for review of this case.  In the interim, California employers should be aware of the potential for liability for commute time accidents by employees attending business-related conferences and events.

By Nancy Berner

In a positive development for employers and their defense counsel alike, the Fourth District Court of Appeals upheld the San Diego trial court’s denial of class certification in Ali v. U.S.A Cab.  The putative class maintained that cab drivers were misclassified as independent contractors and denied, among other things, meal and rest breaks, workers’ compensation coverage and payment of the minimum wage.  Of particular note is the appellate court’s analysis of the often tricky interplay between class certification issues and issues that speak to the merits of the case.

In U.S.A. Cab, plaintiffs sought certification of a class of drivers allegedly misclassified as independent contractors, and therefore denied the protections afforded to employees but burdened with the fees and deposits assessable to independent contractors.  The putative class consisted of cab drivers who leased cabs from USA Cab, a radio dispatch company that provided a lease agreement designating the leasee as an independent contractor, and setting forth the conditions under which USA Cab provided a taxi at a rate dependent on the leasee’s driving record, and additionally provided insurance, maintenance and use of a radio dispatch service for contacting potential customers.  In return, the leasee paid a security deposit, and could collect fares from passengers which he or she was not required to share with the company.  USA Cab also provided drivers with a training manual that instructed drivers on the use of the company’s dispatch system, on procedures to use when arriving at a passenger’s address, and on state and local rules regulating cab drivers.

In opposition to the class certification, the trial court considered 36 declarations of taxi drivers testifying not only to variation in individual conduct, but to conduct at variance with Plaintiffs’ allegations of pervasive employer control by USA Cab of the drivers’ activities.  The trial court considered evidence that the drivers “promoted their services in Web sites and phone books, and by giving out business cards and their personal cell phone numbers; provided some of their own work tools, such as map books, cell phones, flashlights, computers and credit card machines; set their own rates, such as flat rates per trip or rates below the standard metered rate; did not accept USA Cab's credit card system; obtained fares from sources other than USA Cab's dispatch service; refused fares at their discretion; had other drivers fill in for them, or filled in for other drivers; and used their taxis for personal reasons.”  In other words, the trial court’s denial of class certification rested at least in part on consideration of the legal merits of Plaintiffs’ underlying allegation that they were treated as independent contractors rather than employees.  The court denied certification because individual issues predominated and because the lack of common issues meant class treatment was not a superior method of litigation and would render a class unmanageable.

Plaintiffs sought review, contending that the trial court’s reliance on the declarations submitted by Defendant was an erroneous ruling on an ultimate issue in the case, namely that the drivers were independent contractors.  The Court of Appeals disagreed. Citing to and emphasizing language from a California Supreme Court case relied upon by Plaintiffs, the Court noted that “issues affecting the merits of a case may be enmeshed with class action requirements, such as whether substantially similar questions are common to the class and predominate over individual questions or whether the claims or defenses of the representative plaintiffs are typical of class claims or defenses.”  In U.S.A. Cab, the trial court used the declarations to decide the certification issues of commonality, manageability and predominance of individual issues.  The appellate court agreed, for example, that the declarations supported the trial court’s conclusion that a class action trial would lead to “a parade of drivers” presenting testimony on individual issues such as the fact of damages, rather that simply the amount of damages. 

This appellate decision sounds an encouraging note for those fighting to defeat class certification. As the Court noted in conclusion, “there is no precise test for determining whether common issues predominate, and thus “the court must pragmatically assess the entire action and the issues involved.”  Evidence as to the underlying merits of the case may well be persuasive if the evidence speaks pragmatically to the class certification issues as well. 

By Robin E. Weideman

Last week, the Ninth Circuit issued its decision in Rutti v. Lojack Corp., holding that a technician who installed vehicle recovery systems at customer locations was not entitled to compensation for time spent commuting from home to the first job site (and back home after the last job site) each day in a company vehicle.  The court further held that the employee was not entitled to compensation for time he spent performing preliminary activities at home (e.g. reviewing assignments and mapping his route for the day) prior to leaving for the first job site.  The court reasoned that the time spent performing this preliminary work was "de minimis" and, therefore, not compensable.

Although the court came down in favor of the employer on the issues of commuting time pay and pay for preliminary work, the court refused to find in the employer's favor on the issue of pay for postliminary work (work performed at home at the end of the day).  The trial court had ruled in favor of the employer on this issue by granting the employer summary judgment based on a finding that the employee's postliminary work (which consisted of transmitting a report of the day's activity to the employer) was also de minimis and, therefore, not compensable.  The Ninth Circuit reversed reversed, holding that there was a factual dispute regarding the amount of time spent by employees on postliminary work (ranging from 1-2 minutes per day to 15 minutes per day) and that this dispute precluded a finding on summary judgment that the work was de minimis and not compensable.  The court remanded that issue for further trial court proceedings.

The Lojack decision, including some interesting dissenting opinions, provides further guidance for employers on how courts analyze the compensability of commute time and off the clock time spent on preliminary and postliminary work. 

By Robin E. Weideman

Following the lead of the California Supreme Court’s recent decision in Edwards v. Arthur Andersen, a California Court of Appeal reiterated this week that contracts prohibiting former employees from soliciting customers are not enforceable, unless tied to protecting the employer’s trade secrets.  In The Retirement Group v. Galante, the trial court granted an injunction barring some former employees from directly or indirectly soliciting the employer’s customers to do business with a competitor.  The appellate court reversed the injunction, holding that the injunction against solicitation was improper under California law.  Although the employees at issue had each signed contracts with their employer agreeing that they would not solicit the employer’s customers following termination of employment, the court held that such non-solicitation provisions are not enforceable in California because they are prohibited by Business and Professions Code section 16600’s broad restriction on non-compete agreements.  The court made clear that employers can validly prohibit employees from using the employer’s trade secrets post-employment, but emphasized that general non-solicitation restrictions are not enforceable unless directly tied to the use of protected trade secrets.  In this case, the former employees solicited customers whose contact information was available not just through the employer’s database, but also through independent third party databases.  As such, the court held that the employer had not successfully established that the solicitation at issue was tied to the use of protected trade secret information.

The Retirement Group case is another reminder of California’s strict stance against non-compete agreements in the employment context.  Unlike many states, which allow non-compete agreements if narrowly tailored and reasonable, California broadly prohibits restrictions on an employee’s ability to lawfully compete post-employment.  With the exception of limited allowance of such agreements in the sale of business or dissolution of partnership contexts, these agreements generally will not be enforced in the employment context.  Employers generally are limited to preventing employees from using protected trade secret information.  Whether information constitutes a protected trade secret under California law is a fact-specific inquiry that involves consideration of the value of the information, the extent to which the information is generally known or available to competitors, and the employer’s efforts to keep the information a secret.

Although non-compete agreements are allowed in only narrow circumstances in California, employers with sensitive business information are still wise to utilize confidentiality and non-disclosure agreements, for the purpose of demonstrating to employees the types of information the employer considers confidential and the importance the employer places on retaining the secrecy of such information.  Employers who require California employees to sign “non-compete” type agreements as a condition of employment are urged to have such agreements reviewed by counsel because requiring employees to sign overbroad and unlawful agreements can support a potential lawsuit by the employee for wrongful termination in violation of public policy and/or interference with prospective business advantage.
 

By Robin E. Weideman

Earlier this week, the California Supreme Court issued its decision in Hernandez v. Hillsides, Inc., holding that two employees could not prevail on an invasion of privacy claim against their employer even though the employer had set up hidden video surveillance equipment in their office.  The plaintiffs in the case were two clerical employees who shared an office.  The employer discovered that someone was accessing pornography sites after hours on one of the plaintiffs’ computers.  The employer did not suspect either plaintiff of having accessed the pornography because the conduct occurred after hours. In an effort to catch the wrongdoer, the employer set up a hidden camera in the plaintiffs’ office. According to the employer, the camera was not activated during business hours and plaintiffs were never actually recorded.  The camera was only activated after hours when plaintiffs were not present.  However, one day during work, the plaintiffs discovered the hidden camera equipment and complained.  They later sued the employer for invasion of privacy.

The California Supreme Court held that plaintiffs could not prevail on their invasion of privacy claim against the employer.  Notably, the Court did find that plaintiffs had a reasonable expectation of privacy in their workplace and that their privacy was intruded upon by virtue of the hidden surveillance system.  However, the Court held that even though plaintiffs’ privacy was intruded upon, this was not enough for them to prevail on their claim against their employer.  In order to prevail, plaintiffs would also have to prove that the intrusion would be “highly offensive” to a reasonable person, and “sufficiently serious” and unwarranted as to constitute an “egregious breach of social norms.”  Based on the facts before the Court, the Court held that the employer’s conduct was not highly offensive or sufficiently serious.  The Court relied heavily on employer’s motivation for installing the equipment, the employer’s limited use of the equipment after hours, and the fact that the plaintiffs themselves were never actually recorded (nor did the employer even intend to record them).

This case provides some good guidance on applicable principles for employers to consider when implementing measures that might intrude on employee privacy.  Although the employees in Hernandez were unsuccessful on their invasion of privacy claim, the case does not stand for any broad proposition that employees do not have a reasonable expectation of privacy in the workplace.  The case in fact makes clear that they do have an expectation of privacy, though that expectation may be diminished by virtue of employer policies making clear that employees should not expect privacy.  The bottom line is that there is no “bright line” rule as to when an employee has an expectation of privacy or when an employer’s conduct may violate employee privacy.  The analysis is very fact specific and employers are cautioned to seek legal advice before implementing measures that may intrude on employee privacy.

By Mark S. Spring

In December 2005, Los Angeles enacted a city ordinance that required that when a large non-union grocery store buys another grocery store, the new owner must retain most of the workers working under the previous owner.  (For a copy of the ordinance, click here.)

A similar ordinance had been enacted in San Francisco and several smaller cities including Santa Monica and Gardena, and many in the grocery industry were fearful that other cities would continue the trend, or a similar state law could be passed.

The Los Angeles Ordinance was challenged in the courts by the California Grocers Association (CGA) as being unconstitutional and preempted by state and federal law.  Yesterday, the Second District Court of Appeal issued its decision in the lawsuit, finding that the CGA's petition was valid.  The Court of Appeal struck down the ordinance as being preempted by both the California Retail Food Code and the National Labor Relations Act.  Unless the City of Los Angeles seeks and obtains a writ with the California Supreme Court, this decision should effectively wipe out the other similar ordinances and prohibit future attempts at similar type regulations.

By Robin E. Weideman

In two companion cases decided today, the California Supreme Court provided clarification on whether cases brought as “representative” actions under California’s Unfair Competition Law (UCL) and Private Attorneys General Act (PAGA) must meet class action requirements.  In Arias v. Superior Court (Angelo Dairy), the Court held that a plaintiff seeking relief on behalf of others under the UCL must satisfy the requirements for a class action set forth in California Code of Civil Procedure section 382.  The Court based its decision on the plain language and voter intent behind Proposition 64, which amended the standing requirements of the UCL to preclude uninjured plaintiffs from seeking relief on behalf of others under the statute.

With respect to the PAGA claim, however, the Court held that an individual may pursue a representative claim for penalties without satisfying statutory class action requirements.  The Court reasoned that PAGA, in contrast to the UCL, contains no express requirement that an individual comply with the requirements of Code of Civil Procedure section 382. The Arias decision is here.

In a companion case also decided today, Amalgamated Transit Union, et al v. Superior Court (First Transit, Inc.), the California Supreme Court held that a labor union that has not suffered actual injury under the UCL, and that is not an “aggrieved employee” under PAGA, may not bring a representative action under those laws on behalf of injured members.  The Court reasoned that injured parties’ claims under the UCL and PAGA may not be assigned to an uninjured party, and that an uninjured party does not have standing to sue under either law.  The Amalgamated Transit decision is here.

By Cindy Caplan and Jing Li

On June 18, 2009, in a 5-4 decision the Supreme Court held that a plaintiff bringing an age discrimination case under the Age Discrimination in Employment Act of 1967 (the “ADEA”) must prove by a preponderance of the evidence, that age was the “but-for” cause of the employment decision.  The Supreme Court further held that even if the employee presents some evidence that age was a factor, the burden of proof does not shift to the employer to show that it would have acted regardless of plaintiff’s age.

Plaintiff Jack Gross began working for FBL Financial Group, Inc. (“FBL”) in 1971.  In 2003, at age 54, Gross held the position of “claims administration director.”  Gross was reassigned to the position of “claims project coordinator.”  At the same time, FBL transferred many of Gross’ job duties to a new position called “claims administration manager.”  The new position was given to a woman in her early forties.  Gross contended that the reassignment constituted a demotion and sued under the ADEA. 

At trial, Gross presented evidence suggesting that his reassignment was based at least in part on his age. FBL contended that the reassignment was part of a corporate restructuring.  Over FBL’s objections, the District Court instructed the jury that it must return a verdict for the Plaintiff if it found that “age was a motivating factor” in the demotion.  The jury was further instructed that Gross’ age would be considered a motivating factor if it “played a part or a role in [FBL’s] decision to demote him.”  The jury was also instructed that if FBL proved by a preponderance of the evidence that it would have demoted Gross regardless of his age, the jury must find in FBL’s favor.  The jury found in favor of Gross and awarded him $46,945.

On appeal, the Eighth Circuit held that the jury had been incorrectly instructed.  The Court of Appeals found that Gross needed to present “[d]irect evidence…sufficient to support a finding by a reasonable fact finder that an illegitimate criterion actually motivated the adverse employment action” in order to shift the burden of persuasion to FBL to establish that it would have made the same decision regardless of Gross’ age.  Because Gross did not present any “direct evidence” of discrimination, the Court of Appeals found that he was not entitled to a “mixed motive” jury instruction.    

The Supreme Court reversed the Eighth Circuit decision, holding that a Plaintiff bringing a disparate-treatment claim under the ADEA must prove by a preponderance of the evidence, that age was the “but-for” cause of the employment action.  The Supreme Court noted that, unlike Title VII, which was amended to prohibit employment actions where a protected category was a “motivating factor” in the employment decision, the ADEA prohibits discrimination “because of” the individual’s age.  Due to the distinction between the language of Title VII and the ADEA, the Court declined to apply the “mixed motive” standard applicable in Title VII cases.  The Court held that the plaintiff “retains the burden of persuasion to establish that age was the ‘but-for’ cause of the employer’s adverse action.”  The Court noted that the burden of persuasion does not shift to the employer “even when the plaintiff has produced some evidence that age was one motivating factor in that decision.”

Although the Gross decision places a more onerous burden on Plaintiffs suing under the ADEA, it remains to be seen whether California courts will apply a similar standard to FEHA age discrimination cases.

The decision in Gross v. FBL Financial Group is here.

By Cindy Caplan and Jing Li

In Smith v. T-Mobile USA, the Ninth Circuit held that an appeal of a district court’s denial of conditional certification of an FLSA collective action is moot where the named plaintiffs settled all of their individual claims prior to appeal.

Plaintiffs Mentha Smith and Justin Gossett filed an FLSA collective action against T-Mobile for unpaid wages and meal and rest break violations, seeking to represent a class of 25,000 current and former T-Mobile USA employees.

After the District Court denied conditional certification of the class, Smith and Gossett settled all of their individual claims with T-Mobile.  Hoping to preserve their ability to appeal the District Court’s denial of certification while still settling their individual claims, plaintiffs agreed to a stipulated judgment that included a provision in which they reserved their right to appeal the denial of conditional certification and to continue to prosecute the case on behalf of the putative class should their appeal be successful.

On appeal, the Ninth Circuit ruled that plaintiffs did not have standing to pursue the appeal, thus rendering the appeal moot.  The Court reasoned that “a FLSA plaintiff who voluntarily settles his individual claims prior to being joined by opt-in plaintiffs and after the district court’s certification denial does not retain a personal stake in the appeal so as to preserve our jurisdiction.”  Because Smith and Gossett did not have a personal stake in the appeal, their appeal was declared moot and they were barred from recovering attorneys’ fees, liquidated damages, and punitive damages relating to the collective action claims.  The decision is here.

By Candice Boyd

In Munson v. Del Taco, Inc., the California Supreme Court unanimously ruled that a plaintiff who seeks damages under California Civil Code Section 52 (Civ. Code sec. 52), claiming the denial of full and equal treatment on the basis of disability in violation of the Unruh Civil Rights Act (Civ. Code sec. 51) and the Americans with Disabilities Act of 1990 (42 U.S.C. sec. 12101 et seq.), does not need to prove "intentional discrimination".  Based on its ruling, the Court did not address the second issue regarding the meaning of "intentional discrimination".

During a visit to a Del Taco restaurant, Plaintiff Kenneth Munson ("Munson"), whose disability requires the use of a wheelchair, was unable to access the restaurant's parking lot and restrooms because of architectural barriers.  Munson filed suit against Del Taco in the Central District of California.  Munson alleged violations of the American with Disabilities Act of 1990 ("ADA"), 42 U.S.C. sections 121010-12213, and the Unruh Civil Rights Act, Cal. Civ. Code sec. 51.  Munson sought injunctive relief, damages, and attorney fees under California Civil Code sec. 52 for the alleged Unruh Act violations.  The District Court granted partial summary judgment in favor of Munson because there was no genuine issue of fact that an ADA violation had occurred.  The District Court found Del Taco liable under the Unruh Act and determined that Munson was entitled to pursue statutory damages.  The parties stipulated to $12,000 in damages under the Unruh Act. Del Taco appealed the District Court's grant of Munson's motion for partial summary judgment.  Del Taco argued that it was entitled to summary judgment because Munson was required to allege evidence that Del Taco had intentionally discriminated against him. Munson argued that no such requirement existed.

Pursuant to California Rule of Court 8.548, the United States Court of Appeals, Ninth Circuit requested that the California Supreme Court decide whether a plaintiff seeking damages under Civ. Code sec. 52 needs to prove "intentional discrimination" and, if the answer is yes, provide the meaning of "intentional discrimination".

Despite its decision in Harris v. Capital Growth Investors XIV, Cal. 3d 1142, 1175 (1991), in which the California Supreme Court ruled that proof of intentional discrimination was necessary to establish a violation of the Unruh Civil Rights Act, the Court determined that based on the Legislature's addition of subdivision (f) to Civ. Code sec. 51, which was subsequent to the Harris decision, as well as the Legislature's intent in adding subdivision (f), a plaintiff need not prove intentional discrimination in order to obtain damages under Civ. Code sec. 52.

The California Supreme Court also concluded that the Federal Court's interpretation of Civ. Code sec. 51 in, Lentini v. California Center for the Arts, 370 F.3d 837, 846-847 (9th Cir. 2004) was right - section 51, subdivision (f) added ADA violations, whether or not involving intentional discrimination, to the class of discriminatory acts for which the Unruh Civil Rights Act provides remedies.  Moreover, the Supreme Court overruled the Court of Appeal's decision in Gunther v. Lin, 144 Cal. App. 4th 223 (2006), which was in direct contrast to the Federal Court's interpretation of Civ. Code sec. 51 in Lentini.  The California Supreme Court also overruled, Coronado v. Cobblestone Village Community Rentals, 163 Cal. App. 4th 831 (2008).

This ruling will encourage more plaintiffs to bring more disability lawsuits alleging violations of the Unruh Act and will make it easier for them to prevail.  Employers should seek legal counsel in order to ensure they are operating in full compliance with disability laws.

By Cindy Caplan and Jing Li

On June 9, 2009 the Court of Appeal for the Second Appellate District clarified the differences between a FLSA opt-in action and an opt-out class action, holding that actions under the Fair Labor Standards Act (“FLSA”) cannot be maintained as class actions under the California Rules of Civil Procedure.

In Randy Haro v. City of Rosemead, plaintiffs Randy Haro and Robert Ballin filed a collective action under 29 U.S.C. § 216(b), also known as the Fair Labor Standards Act of 1938.  Plaintiffs later attempted to certify the action as a class under California Code of Civil Procedure section 382.  The trial court denied plaintiffs’ motion for class certification, finding that the Plaintiffs had improperly attempted to certify their FLSA action as a class action. 

The Court of Appeal noted that FLSA actions are collective actions where potential plaintiffs must opt in in order to be a part of the action, whereas in a class action, potential plaintiffs must opt out if they do not wish to be a member of the class.  The Court made clear that while the critical difference between FLSA actions and class actions is the opt-in versus the opt-out feature, there are other important differences as well, such as the difference in the tolling of the statute of limitations, the difference in the trial court’s involvement in the process of notifying potential additional plaintiffs, and the definitions of parties “similarly situated.”

Due to the significant differences between FLSA collective actions and class actions under Section 382, as well as the absence of any established procedures for an "opt in" class action in the California Code of Civil Procedure, the Court held that FLSA collective actions cannot be maintained as class actions.

By Alison Tsao

The Fifth Appellate District recently confirmed that unless a statute specifically provides otherwise, public agencies are exempt from wage and hour provisions of California’s Labor Code.  In Johnson v. Arvin-Edison Water Storage District, Plaintiff Randell Johnson filed a putative wage and hour class action against the Arvin-Edison Water Storage District (“District”), a public agency, alleging violations of various provisions of the California Labor Code, including failure to pay overtime, failure to provide proper meal breaks, and failure to provide all wages due upon termination.  The Court of Appeal upheld the trial court’s granting of the District’s demurrer that public agencies are exempt from the provisions of the Labor Code alleged by Plaintiff in the Complaint.

The Court of Appeal held that absent express statutory authorization, governmental agencies are not subject to a general statute like the Labor Code.  For example, in Labor Code Section 555, the Legislature specifically stated that provisions of that chapter (sections 550-552 and 554) pertaining to maximum consecutive working days (generally stating that employees are entitled to one day of rest in seven days of work),“ are applicable to cities which are cities and counties and to the officers and employees thereof.” Because Labor Code sections 510 and 512 pertaining to overtime and meal periods do not expressly contain language applying these statutes to public agencies, they are held to apply only to the private sector.  Moreover, Labor Code section 220(b) states that provisions in that chapter (including final pay provisions under Labor Code sections 201 and 202) do not apply to “employees directly employed by any county, incorporated city, or town or other municipal corporation.”  The Court held that the District exercises a governmental function and therefore qualified as an “other municipal corporation.”

The Court of Appeal further noted that the District is also exempt under the “sovereign powers” maxim.  Under the “sovereign powers” maxim, a statute infringes upon a public entity’s sovereign powers if it affects the entity’s governmental purposes and functions, and the Court held that setting employees’ compensation was a fundamental function of the District.  While public agencies like the District must still comply with the wage and hour laws set forth in the federal Fair Labor Standards Act (“FLSA”), this decision confirms that absent specific statutory authorization, most public agencies will not be subject to provisions of the California Labor Code.

By Chris Robertson

On June 3, 2009, a California Court of Appeal issued a favorable decision for employers regarding post-termination commission claims.

The plaintiff was a salesman who suggested a transaction to his employer that was not consummated until a month after the employer terminated the plaintiff's employment.  The plaintiff sued his former employer for failure to pay him any commission on the transaction.

The plaintiff's employment contract stated that he "will be eligible for commission pay … so long as he remains employed with the Company."  The Court of Appeal ruled that this language "is reasonably susceptible to only one interpretation - that once plaintiff ceased to be employed by defendant, he would no longer be eligible for commission pay."  Consequently, the Court of Appeal affirmed summary judgment in favor of the employer because "pursuant to the plain language of the written employment agreement, plaintiff was not entitled to any further commissions after he was terminated."

The Court of Appeal, however, made clear that the outcome would not necessarily be so favorable for employers in other cases because "there is an exception to this principle when a contract provision is unconscionable," which the Court of Appeal did not consider in this case because the plaintiff did not make that argument.  The Court of Appeal gave as an example a previous case where a provision in an employment agreement that a salesman forfeited his right to a commission if he terminated his employment before his employer received payment for the sale was found to be unconscionable and therefore unenforceable.

Accordingly, commission agreements need be carefully analyzed and drafted to maximize the likelihood that a court will uphold the language on which the employer bases its decisions regarding commission payments.  The case is Nein v. Hostpro, Inc. and can be found here.

By Robin E. Weideman

Earlier today, a California Court of Appeal overturned a recent trial court verdict awarding a class of current and former Starbucks baristas $86 million in tips they were required to share with shift supervisors.  The Court of Appeal held in Chau v. Starbucks that the trial court erred in ruling that Starbucks’ tip allocation policy violated California law.  More specifically, the court explained:

“The applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes.  The court’s ruling was improperly based on a line of decisions that concerns an employer’s authority to mandate that a tip given to an individual service employee must be shared with other employees.  The policy challenged here presents the flip side of this mandatory tip-pooling practice.  It concerns an employer’s authority to require equitable allocation of tips placed in a collective tip box for those employees providing service to the customer.  There is no decisional or statutory authority prohibiting an employer from allowing a service employee to keep a portion of the collective tip, in proportion to the amount of hours worked, merely because the employee also has limited supervisory duties.”

The Court of Appeal further explained that it did not matter whether or not the shift supervisors qualified as “agents” of Starbucks under California Labor Code section 350.  “Even if shift supervisors can be considered ‘agents’ within the meaning of section 350, subdivision (d), Starbucks did not violate section 351 by permitting shift supervisors to share in the tip proceeds that were left in a collective tip box for baristas and shift supervisors.”  According to the court, the evidence established that shift supervisors spent the majority of their time performing the same service tasks as the baristas, and that customers would not be capable of distinguishing between an employee who was a barista and one who was a shift supervisor.   "Thus, customers who place money in the tip box understand and intend that the money will be shared by the entire team, including baristas and shift supervisors.”

Based on this reasoning, the Court of Appeal reversed the trial court judgment against Starbucks and ordered the trial court to enter judgment in Starbucks’ favor.  This is a very positive decision for California businesses that have tip allocation policies based on the use of collective tip jars similar to those used by Starbucks.  However, businesses with mandatory tip pooling policies involving customers who leave personal tips for a specific employee (as is often the case in restaurants with direct table service) must continue to be mindful of the general restriction against permitting “agents” of the employer to share in pooled tips.

By Mark S. Spring

Late last week, the Second District Court of Appeal published its decision in Sonic-Calabasas A, Inc. v. Moreno, holding that a properly drafted arbitration agreement can be used by the employer to force an employee who filed a wage claim under section 98.2 of the California Labor Code to proceed with the claim under the terms and conditions of the arbitration agreement in the arbitral forum.  First, the Court of Appeal looked at section 229 of the California Labor Code and held that because the arbitration agreement was drafted under the provisions of the Federal Arbitration Act, the FAA superseded section 229 of the California Labor Code and therefore that statute was not a bar to arbitration.  Second, the Court analyzed the arbitration agreement under the Armenderiz and Gentry standards.  The Court of Appeal found that these prior California Supreme Court decisions did not preclude mandatory arbitration of the wage claim. 

A complete copy of the Sonic-Calabasas opinion is available here.  The lesson of this decision is that employers can successfully avoid having to litigate wage claims before the California Labor Commissioner with a properly worded mandatory arbitration agreement drafted under the FAA. 

By Robin E. Weideman

Earlier today, the California Supreme Court issued its decision in Strauss v. Horton, upholding Proposition 8, an initiative passed by California voters in November 2008 to amend the California Constitution to ban the right of same-sex couples to marry.  The Court rejected a variety of constitutional challenges to the Proposition and ultimately concluded that the Proposition was a validly enacted constitutional amendment that must be enforced.  Therefore, going forward, only marriages between a man and a woman are recognized as valid in California.

Interestingly, however, the California Supreme Court held that Proposition 8 is not retroactive.  Thus, same-sex marriages entered into prior to the effective date of Proposition 8 (and following the Supreme Court's prior decision in In re Marriage Cases) continue to be valid in California.

By Nancy Berner and Kent Sprinkle

On May 18, 2009, the California Supreme Court issued a significant interpretation of Proposition 64, the 2004 initiative that limited class action claims brought pursuant to the Unfair Competition Law (the “UCL,” i.e., Business and Professions Code § 17200, et seq.).  Employers likely recall that Prop. 64 required UCL class action plaintiffs to suffer an actual injury to have the standing necessary to maintain a claim, rather than simply seeking recovery on behalf of the general public.  The Tobacco plaintiffs provide an instructive example: the original class included not only smokers, but Californians who had been exposed to tobacco ads.  To some extent, the California Supreme Court’s decision arguably turns back the clock -- at least in consumer class action suits under the UCL -- by loosening the standing requirement of Prop. 64.

In the 4-3 decision of In Re: Tobacco II Cases, the Supreme Court overturned the trial and appellate courts, both of which permitted the defendant tobacco companies to decertify a class initially certified prior to passage of Prop. 64.  The trial court originally granted certification to a class brought “on behalf of the General Public of the State of California.”  Following the 2004 passage of Prop. 64, defendants moved successfully for decertification, arguing that the standing requirement of the “new” UCL, as amended by Prop 64, applied to every class member.  In other words, in order to certify the putative UCL claims, each member of the class had to demonstrate injury in fact and a loss of money or property as a result of the alleged unfair practices.

The California Supreme Court disagreed, and held (among other things) that “the standing requirements are applicable only to the class representatives, and not all absent class members.”  Referencing both the plain language of the statute and the ballot materials describing the Proposition, the Court concluded “that the initiative was not intended to have any effect on absent class members.”  It is notable, however, that the opinion was far from unanimous at 4-3, with the dissenting opinion, authored by Justice Baxter, joined by Justices Chin and Corrigan, expressly disagreeing with the majority's conclusions about Prop 64.  The dissent reasoned that: "[e]ven if the majority’s holding has some sympathetic appeal on the particular facts alleged here, the rule the majority announces will apply equally to less egregious cases, where it invites the very kinds of mischief Proposition 64 was intended to curtail.  Accordingly, I cannot join the majority’s erroneous determination, which turns class action law upside down and contravenes the initiative measure’s plain intent."  In addition, the Chief Justice did not participate, having recused himself from the matter.  In his place and voting with the majority was Justice Moore, Associate Justice, Court of Appeal, Fourth Appellate District, Division 3, assigned by the Acting Chief Justice.

While obviously clearing the way for pursuit of consumer class action cases under the UCL, the impact on California employers is less dire.  Specifically, Tobacco held that each class member need not demonstrate a reliance on misleading ads.  However, putative employee class actions rarely invoke the UCL’s prohibition of fraudulent practices and/or false advertising in seeking class certification of employment-related claims.  Instead, employee's putative class complaints often simply append a UCL claim to the more common allegations of Labor Code violations in an effort to extend the statutory recovery period.  Nonetheless, given the popularity of including a UCL claim in civil complaints of all varieties, employers must keep a wary eye on this breed of putative class actions.

By Candice Boyd

In a 7-2 decision, the U.S. Supreme Court ruled in Hulteen v. AT&T that AT&T did not violate the Pregnancy Discrimination Act (PDA), by paying pension benefits calculated in part under an accrual rule that, prior to the enactment of the PDA, gave less retirement credit for pregnancy leave than for medical leave generally.  The Court also ruled that the benefit calculation rule is part of a bona fide seniority system under § 703(h) of Title VII - a system that has no discriminatory terms, which insulates it from challenge.  In reaching its decision, the Court stated that Congress intended for the PDA to be applied prospectively, not retroactively.

AT&T employees were eligible for pensions and other benefits that were based on an employee's term of employment - the period of service time at AT&T minus uncredited leave time.  In the 1960s and early to mid-1970s, AT&T employees on "disability" leave got full service credit for the entire absence, but those who took "personal" leaves of absence received a maximum service credit of 30 days.  Pregnancy leave was considered personal leave.

In 1977, AT&T instituted its Maternity Payment Plan (MPP), which entitled pregnant employees to disability benefits and service credit for up to six weeks of leave.  If the absence went beyond six weeks, it was treated as personal leave, i.e., no further benefits or credit could be earned.  The contrasting treatment of pregnancy leave between the pre-1977 plan and the MPP was legal.  In General Elec. Co. v. Gilbert, 429 U.S. 125 (1976), the Supreme Court ruled that a disability benefit plan excluding disabilities related to pregnancy was not sex-based discrimination within the meaning of Title VII.

In 1978, Congress amended Title VII by passing the PDA, which superseded Gilbert so as to make it "clear that it is discriminatory to treat pregnancy-related conditions less favorably than other medical conditions."  Newport News Shipbuilding & Dry Dock Co. v. EEOC, 462 U.S. 669, 684 (1983).

On April 29, 1979, the effective date of the PDA, AT&T adopted its Anticipated Disability Plan which replaced the MPP and provided service credit for pregnancy leave on the same basis as leave taken for other temporary disabilities.  AT&T did not, however, make any retroactive adjustments to the service credit calculations of women who had been subject to the pre-PDA personnel policies.

Noreen Hulteen and three additional female respondents (collectively, "Hulteen") along with the Communications Workers of America (CWA), the collective-bargaining representative for the majority of AT&T's nonmanagement employees, filed charges of discrimination with the Equal Employment Opportunity Commission (EEOC), alleging discrimination on the basis of sex and pregnancy in violation of Title VII.  If her total term of employment had not been decreased due to her pregnancy leave, each respondent would be entitled to a greater pension benefit.  All but one of the respondents have retired from AT&T.  The EEOC issued a notice of right to sue to Hulteen and the CWA.  Hulteen filed suit in the United Sates District Court for the Northern District of California.

The District Court held itself bound by a prior Ninth Circuit decision, Pallas v. Pacific Bell, 940 F. 2d 1324 (1991), which found a Title VII violation where post-PDA retirement eligibility calculations incorporated pre-PDA accrual rules that differentiated on the basis of pregnancy.  In contrast, the Sixth and Seventh Circuits have ruled that reliance on a pre-PDA differential accrual rule to determine pension benefits does not constitute a current violation of Title VII.  The U.S. Supreme Court granted certiorari in order to resolve the split.

This decision may affect thousands of women who took pregnancy leaves decades ago and are now headed toward retirement.  Employers should seek legal counsel regarding their pension plans and other benefits programs in order to ensure they are in legal compliance.

By Robin E. Weideman

Several class action lawsuits are pending before the Ninth Circuit and federal district courts in California challenging the exempt classification of pharmaceutical sales representatives under the outside salesperson exemption and administrative exemption.  One of these cases, D’Este v. Bayer Corporation is currently before the Ninth Circuit. Earlier this week the Ninth Circuit certified questions of California law to the California Supreme Court regarding the scope of these exemptions, reasoning that it is unclear under California law whether these exemptions apply to pharmaceutical sales representatives and the outcome of several pending cases depends on clear guidance on these issues.  The specific questions certified to the California Supreme Court are as follows:

1. The Industrial Welfare Commission’s Wage Orders 1-

2001 and 4-2001 define “outside salesperson” to mean

“any person, 18 years of age or over, who customarily

and regularly works more than half the working time

away from the employer’s place of business selling tangible

or intangible items or obtaining orders or contracts for

products, services or use of facilities.”  8 Cal. Code Regs.,

tit. 8, §§ 11010, subd. 2(J); 11040, subd. 2(M).  Does a

pharmaceutical sales representative (PSR) qualify as an

“outside salesperson” under this definition, if the PSR

spends more than half the working time away from the

employer’s place of business and personally interacts

with doctors and hospitals on behalf of drug companies

for the purpose of increasing individual doctors’ prescriptions

of specific drugs?

2. In the alternative, Wage Order 4-2001 defines a person

employed in an administrative capacity as a person whose

duties and responsibilities involve (among other things)

“[t]he performance of office or non-manual work directly

related to management policies or general business opera-

tions of his/her employer or his employer’s customers”

and “[w]ho customarily and regularly exercises discretion

and independent judgment.”  Cal. Code Regs., tit. 8

§ 11040, subd. 1(A)(2)(a)(I), 1(A)(2)(b).  Is a PSR, as

described above, involved in duties and responsibilities

that meet these requirements?

The California Supreme Court has discretion whether to accept the Ninth Circuit's request for certification.  We will continue to monitor and post any developments. 

By Robin E. Weideman

Earlier this week, a California Court of Appeal held that “me too” evidence of discrimination was admissible in opposition to an employer’s motion for summary judgment and that such evidence was sufficient to require that the employer’s motion be denied.  The case is Dewandra Johnson v. United Cerebral Palsy/Spastic Children’s Foundation of Los Angeles and the decision is here.

The plaintiff alleged that her employment was terminated the day she returned from a one-week leave for a pregnancy-related disability.  The employee’s reason for believing her termination was because of her pregnancy was largely due to the timing of the action and the fact that the employer did not specifically tell her why she was being fired.  The employer presented evidence that the employee was fired for falsifying time and billing records, which was discovered during the employee’s absence.  The employer moved for summary judgment, arguing that the employee did not have sufficient evidence of discriminatory motive for the case to proceed to trial.  The trial court agreed, finding that timing alone and evidence that the employer’s decision may have been unwise or unsound, were not sufficient grounds to rebut the employer’s proffered non-discriminatory justification for the termination. 

In opposition to the employer’s motion, the plaintiff also presented a number of declarations of other former employees, all suggesting that they too had been discriminated against by the same decisionmakers on account of pregnancy.  The employer made evidentiary objections to these declarations, arguing that they were not admissible evidence.  It appears that the trial court never ruled on the employer’s objections, but granted the employer’s motion for summary judgment, finding that the plaintiff had failed to present sufficient evidence of discrimination.  The plaintiff appealed.

The appellate court reversed the trial court’s ruling, finding that the “me too” declarations were admissible evidence and that they provided sufficient evidence that the employer’s action may have been motivated by discriminatory animus to entitle the plaintiff to proceed to trial on her claim.  The trial court reasoned that the factual circumstances alleged in the “me too” declarations were sufficiently similar to the plaintiff’s allegations that they were sufficiently probative to be admissible evidence.

This case is a good reminder that timing alone, while generally insufficient by itself to defeat summary judgment, is often the trigger for a lawsuit and the expensive litigation that follows.  Another factor that can compound a timing problem is not being forthcoming with an employee as to the reason for termination.  Finally, this case is a good reminder that employers should always demand rulings on evidentiary objections made in connection with motions for summary judgment, because these rulings are important in any subsequent appeal.

By Robin E. Weideman

A California Court of Appeal issued a surprising opinion last week in Roman v. Superior Court (Flo-Kem, Inc.), holding that an arbitration provision in an employment application signed by an employee constituted an enforceable agreement to arbitrate the employee’s discrimination and wrongful termination claims.  The specific language in the application was as follows:  “I agree, in the event I am hired by the company, that all disputes and claims that might arise out of my employment with the company will be submitted to binding arbitration.”  The application did not contain any substantive rules governing the arbitration process, instead stating simply that the arbitration would be conducted under the rules of the American Arbitration Association.  The employee initialed the arbitration provision in the application.

Following the employee’s termination later the same year, the employee filed suit alleging discrimination.  The employer demurred to the complaint without raising the issue of arbitration, and also served written discovery followed by a motion to compel.  Before hearing on the demurrer and motion to compel, the employer filed a motion to compel arbitration.  The employee opposed the motion to compel arbitration, arguing that the arbitration agreement was unenforceable, on the grounds that it was procedurally and substantively unconscionable.  The employee also argued that the employer had waived any right to compel arbitration by participating in the litigation.  The court rejected all of the employee’s arguments.  Of note, the court held that the agreement was a mutual agreement to arbitrate, even though the agreement stated “I agree” to arbitrate.  The court also held that the agreement’s lack of any substantive rules governing the arbitration process did not render the agreement substantively unconscionable.  The court held that the agreement’s incorporation of AAA rules sufficed to satisfy minimal standards of fairness in the arbitration process.  Finally, the court held that the employer’s participation in the litigation prior to moving to compel arbitration, did not constitute a waiver of the right to arbitrate.  The court held that the employer moved to compel arbitration prior to any hearing on the demurrer or motion to compel discovery, and the fact that some written discovery had been exchanged was insufficient to constitute a waiver because even in arbitration the parties would have to respond to some written discovery.

The Roman case is an interesting one, given the recent trend of California courts to closely scrutinize and refuse to enforce employment arbitration agreements.  Notwithstanding the result in the Roman case, employers are cautioned against relying on the same type of agreement utilized by the employer in Roman, and are further cautioned against affirmatively participating in litigation prior to seeking enforcement of an arbitration agreement because it is far from clear whether another court would reach the same result on the issues of enforceability of the arbitration agreement and waiver. 

By Nancy Berner

In a 5-4 decision issued Wednesday, April 1, the U. S. Supreme Court overturned the district and appellate courts to hold that labor contracts may require union members to settle age discrimination claims via arbitration. The decision in 14 Penn Plaza LLC et al. v. Pyett et al., written by Justice Clarence Thomas, permits enforcement of an arbitration clause embodied in a collective bargaining agreement that waives employees rights to bring statutory claims in federal court. While the factual scenario dealt specifically with enforcement of a provision of a collective bargaining agreement, Justice Thomas’ decision is suggestive of a broader application.

Facts of the Case

The Plaintiffs in the underlying case were members of the Service Employees International Union (SEIU) who worked as night lobby watchmen at office buildings in New York City. Due to a change in the security guard provider, Plaintiffs were reassigned to jobs as porters and cleaner, jobs that they maintained were inferior and were assigned on the impermissible basis of age. The Plaintiffs received right-to-sue notices from the EEOC, and promptly brought claims asserting violation of the Age Discrimination in Employment Act (“ADEA”). In the ensuing lawsuit, both the District Court and the Second Circuit Court of Appeals agreed that the employer’s motion to compel arbitration should be denied because case law forbade enforcement of collective-bargaining provisions mandating arbitration of ADEA claims. (Alexander v. Gardner-Denver Co. 415 U.S. 36 (1974)).

Supreme Court Holding

The Supreme Court flatly disagreed, holding that the union and the employer “collectively bargained in good faith and agreed that employment-related discrimination claims, including claims brought under the ADEA, would be resolved in arbitration.” The Court noted that “[a]s in any contractual negotiation, a union may agree to the inclusion of an arbitration provision in a collective-bargaining agreement in return for other concessions from the employer.” In essence, the Court stated that if the union, representing the employees, and the employer reached an agreement both could live with, the courts should not interfere, in the absence of expressed legislative intent to preclude a waiver of judicial remedies, an intent that is absent from the ADEA.

Broader Implications?

In distinguishing 14 Penn Plaza from Gardner-Denver and its progeny, Justice Thomas opined that “the right to a judicial forum is not the nonwaivable ‘substantive right’ protected by the ADEA.” Additionally, and perhaps significantly, “[n]othing in the law suggests a distinction between the status of arbitration agreements signed by an individual employee and those agreed to by a union representative.” Individual agreements to arbitration have a murky past, as they are often characterized by those who wish to avoid them as unconscionable contracts of adhesion. Nonetheless, it now appears likely that a clear and unmistakable waiver of the right to pursue a discrimination claim in court will be upheld, if the arbitration agreement conforms to the admittedly stringent legal standards governing arbitration agreements.  As always, employers are advised to seek a legal opinion on arbitration agreements presented to employees.

By Mark Spring

Altering a long standing interpretation of California law, on March 27 California's Second District Court of Appeal in Etheridge v. Reins International California, Inc., held that California law does not restrict mandatory tip pools only to those employees who provide "direct table service" to the customer.  The Court of Appeal extended the scope of who may participate in mandatory tip pools, holding that any employee who participates in the chain of service may be required to participate in the mandatory tip pool.  The Court of Appeal distinguished California law from the FLSA, noting that the FLSA restricts mandatory tip pools to those employees who customarily receive tips whereas California law and section 351 of the California Labor Code contain no such restriction.

This is a stark change in prior interpretations so it will be interesting to see if the plaintiff's attorneys attempt to take this issue up with the California Supreme Court.  The California Employment Lawyers Association filed briefs in support of the plaintiff in this matter and the California Restaurant Association filed briefs in support of the defendant/employer.  We will continue to keep you posted on this and other tip pooling cases.
 

By Robin E. Weideman

Earlier this week, the California Supreme Court denied review and denied depublication of Brewer v. Premier Golf Properties, which is an important case for employers holding that punitive damages are not recoverable for wage and hour violations under the California Labor Code.  Our prior post on this case is here.

By Robin E. Weideman

Earlier this week, another California Court of Appeal ruled that an employment arbitration agreement was unconscionable and unenforceable based in part on the agreement’s inclusion of a class action waiver.  In Sanchez v. Western Pizza Enterprises, Inc., the plaintiff worked as a delivery driver for a pizza restaurant.  The plaintiff alleged that the employer violated California law by failing to reimburse the plaintiff and other employees for all mileage expenses.  Plaintiff filed a putative class action and the employer moved to compel arbitration based on a signed employment arbitration agreement between the employer and the plaintiff.  The trial court denied the motion to compel arbitration, finding that the agreement was unconscionable and unenforceable.  The employer appealed, but the appellate court agreed with the trial court’s ruling.  The court first held that the determination of the enforceability of the arbitration agreement was an issue for the court, not the arbitrator, to decide.  The court distinguished a number of cases holding that this is an issue for an arbitrator to decide, finding that in those cases the arbitration agreement expressly provided for arbitrator determination of issues of enforceability.  The court found that the arbitration agreement before it did not clearly provide for arbitrator determination of this issue.

Further analyzing the arbitration agreement before it, the court held that the agreement’s inclusion of a class action waiver was unenforceable under the four-factor test set forth by the California Supreme Court in Gentry v. Superior Court, 42 Cal.4^th 443 (2007).  The court also found the agreement procedurally unconscionable, notwithstanding the fact that the agreement on its face made clear that execution of the agreement was “not a mandatory condition of employment.”  Finally, the court found that the agreement was substantively unconscionable in that the arbitrator selection process was not sufficiently mutual.  The decision is here. 

The Sanchez case is another reminder that employment arbitration agreements remain a subject of much litigation and close judicial scrutiny in California.  In addition, litigation over expense reimbursement policies is increasing in popularity.  Employers should review their policies related to these subjects.  

By Sarah Drechsler

In a departure from prior case holdings, a California Court of Appeal has now ruled that there is a private right of action under Labor Code Section 351 which allows employees to recover civil damages for tip pooling violations.  In the case, Grodensky v. Artichoke Joe's Casino, the defendant casino implemented a mandatory tip pooling policy that required dealers to pay a set hourly amount into a tip pool, to be divided among shift managers, floor managers, board persons, and chip sellers.  Plaintiff Grodensky, a dealer, filed a class action alleging claims for conversion, unfair competition, and violation of Labor Code sections 351 (tip pooling) and 1194 (minimum hourly wage laws).  The trial court held in part that the mandatory tip pool was legal, but that the casino violated Labor Code section 351 by distributing a portion of the tip money to shift managers. 

Labor Code Section 351 ("Section 351") states:  "No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer.  Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. . . ."  The trial court ruled that the casino's shift managers qualified as "agents" of the casino because they were mainly responsible for ensuring that the floor managers were doing their jobs correctly.  The shift managers assigned the floor managers to sections of the casino and assigned dealers to particular tables.  They also had the authority to discipline employees by sending them home, and when higher-level managers were absent from the premises, the shift managers had authority over the entire casino.  Because the shift managers were agents of the casino, the casino violated Section 351 by requiring the dealers to share their tips with the shift managers.

Both parties in the case appealed various rulings by the trial court.  Notably, the casino appealed the trial court's holding that Section 351 provided Grodensky with a private right of action.  Analyzing this issue on appeal, the Court of Appeals referred to Labor Code section 354, which provides: "Any employer who violates any provision of this article [including Section 351] is guilty of a misdemeanor, punishable by a fine not exceeding one thousand dollars ($1,000) or by imprisonment for not exceeding 60 days, or both."  Section 354 provides for administrative enforcement of the tip protection law, giving the Department of Industrial Relations the authority to enforce Section 351 by finding the employer guilty of a misdemeanor.  The Court reasoned that, by expressly stating in Section 351 that every gratuity is "the sole property of the employee or employees to whom it was paid, given, or left for," the Legislature appears to be strongly implying that the employee also has a private right of action; otherwise, the statute provides the employee with an unenforceable right, as the Department of Industrial Relations does not have the authority to recover gratuities wrongfully taken by an employer.  The Court analyzed the legislative history and found that it supports this conclusion.  The Court also noted that an additional policy reason for concluding that Section 351 creates a private right of action is to dissaude plaintiffs from bringing a cause of action for unfair competition whenever the plaintiff is deprived of his or her tip by the employer, by allowing employees to recover their tips by a simple action under Section 351.

The Court recognized that this holding contradicts the previous state court holding in Lu v. Hawaiian Gardens, 170 Cal.App.4th 466 (2009), and the federal court holding in Matoff v. Brinker Restaurant Corp., 439 F.Supp.2d 1035 (C.D. Cal. 2006).  The Court stated that because there was little analysis of the statute in Matoff, and because neither the federal court in Matoff nor the state court in Lu considered the significance of the language in the statute regarding the employee's property interest in the gratuity, the Court of Appeal did not find these cases to be persuasive.

The Court of Appeals upheld the trial court's finding that the casino's shift managers were agents of the casino, and therefore could not lawfully participate in the tip pool.  However, the court also upheld the trial court's finding that the casino's policy of requiring a tipping pool for the dealers did not violate Section 351.  In upholding this ruling, the Court rejected Grodensky's arguments on appeal that the type of tipping pool at issue in this case violated Section 351 for multiple reasons, including: (1) it was not a "group tip context" as with waiters in a restaurant because in this situation the dealers were directly given the money from players after winning hands, (2) the casino took the money and then distributed it to other employees, (3) casinos do not have a long-term practice of tipping pools like restaurants, and (4) the fixed point system was unfair.  In rejecting these arguments the Court commented that Section 351 does not address these types of equitable considerations, but rather, "the statute's clear intent is to prevent the public from being defrauded, which could happen if employers or their agents use any portion of the gratuities left for employees for their own benefit."

The full text of the decision is available here.

By Robin E. Weideman

In Franco v. Athens Disposal Co., Inc., the court held that an employment arbitration agreement was unconscionable and unenforceable in its entirety, based on the agreement’s inclusion of a provision prohibiting the employee from pursuing class relief or representative relief under PAGA in arbitration.  The plaintiff in the case filed a class action in state court alleging his former employer violated the Labor Code by, among other things, denying him and the putative class members meal and rest breaks.  The employer filed a petition to compel arbitration based on a written arbitration agreement the plaintiff had signed during his employment.  The trial court found the arbitration agreement enforceable and granted the petition to compel arbitration.  Plaintiff appealed, arguing that the arbitration agreement was unenforceable because the class action and PAGA waiver rendered the agreement unconscionable.

The Court of Appeal agreed with the plaintiff and held that the arbitration agreement was unenforceable in its entirety.  Relying heavily on the California Supreme Court’s decision in Gentry v. Superior Court, 42 Cal.4th 443 (2007), the court stated:  “We conclude that the class arbitration waiver is unconscionable with respect to the alleged violations of the meal and rest period laws given the modest size of the potential individual recovery, the potential for retaliation against members of the class, and the fact that absent members of the class may be ill informed about their rights.”  The court further concluded that because the agreement prevented the plaintiff from acting as a private attorney general and pursuing penalties on a representative basis, it conflicted with the Private Attorney Generals Act of 2004, which was enacted to further the goal of comprehensive enforcement of state labor laws.

This case is another reminder that California courts continue to closely scrutizine employment arbitration agreements.  These agreements must be carefully drafted to ensure enforceability.

By Robin E. Weideman

Today the Ninth Circuit issued an order denying Golden Gate Restaurant Association’s petition for en banc review of the court’s previous ruling that San Francisco’s employer-mandated health care ordinance is not preempted by ERISA.  A number of justices dissented from the denial of en banc review, including Smith, Kozinski, O’Scannlain, Kleinfeld, Tallman, Bybee, Callahan and Bea.  It is anticipated that the Golden Gate Restaurant Association will seek review by the United States Supreme Court on the issue of whether San Francisco’s Health Care Ordinance is preempted by ERISA.  For a link to updates provided by the Golden Gate Restaurant Association, click here. To review our prior postings on this case, click here and here.
 

By Robin E. Weideman

In Budrow v. Dave & Buster’s of California, Inc., the court upheld summary judgment for Dave & Buster’s and rejected the plaintiff’s claim that the restaurant’s tip pooling policy was unlawful.  The plaintiff in the case argued that the restaurant’s tip pooling policy violated California Law because servers were required to share a percentage of their tips with bartenders who did not provide “direct” table service.  The court rejected the plaintiff’s argument and held that California law does not distinguish between “direct” and “indirect” table service for purposes of determining which employees can share in a tip pool.  Instead, the proper inquiry is determining which employee or employees the tip was left for.  According to the court, there is no bright line rule for answering this question and the answer may vary from restaurant to restaurant, depending on the nature of the service provided.  In this case, the court held that it did not matter whether or not bartenders actually brought drinks to customers’ tables.  Even if they did not, the fact that the bartender mixes and/or pours drinks that are delivered to customers is sufficient to permit the bartender to share in the tip pool.  The court rejected categorical exclusions on the types of employees that may participate in a tip pool, reasoning:  “Given that restaurants differ, there must be flexibility in determining the employees that the tip was ‘paid, given or left for.’”  “Ultimately, the decision about which employees are to participate in the tip pool must be based on a reasonable assessment of the patrons’ intentions.”  The decision is here.
 

By Jeremy T. Naftel

Ever since the California Supreme Court issued its decision in Reynolds v. Bement, 36 Cal.4th 1075 (2005), it has been fairly well settled that individuals cannot be personally liable for their corporate employer’s violation of state wage and hour laws.  However, creative plaintiff attorneys have found a way to use the Private Attorneys General Act (PAGA) to reinstate the specter of personal liability.

On Friday, Judge Karlton in the Eastern District federal court in Sacramento, California ruled on a defendant’s motion for judgment on the pleadings in Ontiveros v. Zamora, et al.  The plaintiff had alleged wage and hour violations against both his corporate employer and an individual officer of the company.  The plaintiff bolstered his claims against the individual defendant by describing a high degree of control exercised by the individual, and attributed the wage and hour violations to actions and decisions by the individual.  The defendants filed a motion for judgment on the pleadings, arguing that the individual defendant should be dismissed because Reynolds did not permit individual liability.

The Court denied the motion as to the individual, holding that the plaintiff had stated a viable theory supporting personal liability against the corporate officer.  Specifically, Judge Karlton pointed to Labor Code Section 558, which prohibits any employer “or any other person acting on behalf of an employer” from violating or causing to be violated certain Labor Code Statutes and IWC Wage Order provisions.  Violators of Section 558 (or the underlying Labor Code statutes or Wage Order provisions) are subject to a civil penalty.  This civil penalty can be collected by an aggrieved employee pursuant to PAGA.  Since the plaintiff alleged that the corporate officer had “caused” the violation of numerous Labor Code and Wage Order provisions, he could proceed with his claims against that officer.  The Court also held that claims against the individual could be pursued under a joint employer theory, because the plaintiff had alleged that the corporate employer and the officer were joint employers.

Although California courts are not bound to follow this federal decision, reinstatement of personal liability against individuals for wage and hour violations is a troubling development for employers, supervisors, and corporate officers.

By Robin E. Weideman

Last November, the Ninth Circuit issued its decision in Sullivan v. Oracle Corp. and held that non-California residents are covered under California labor laws for any work performed within the state of California.  The plaintiffs in the case were instructors who traveled to different states, including California, to train customers on the use of Oracle software.  The plaintiffs worked between approximately five and thirty-five days per year in California.  The rest of time they worked in other states.  The plaintiffs alleged that Oracle misclassified them as exempt and failed to pay them daily and/or weekly overtime.  The Ninth Circuit held that California wage and hour law, including its daily overtime requirement, applied to the days and weeks the plaintiffs worked in California.

Earlier this week, the Ninth Circuit withdrew its published decision in the Sullivan v. Oracle case, and instead asked for guidance from the California Supreme Court on the issues presented in the case.  The Ninth Circuit certified the following three questions to the California Supreme Court:

1.         Does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?

2.         Does California Business and Professions Code § 17200 apply to the overtime work described in question one?

3.         Does § 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the FLSA?

The California Supreme Court has discretion whether or not to accept the request for certification and generally makes this decision within about 90 days.  Historically, the California Supreme Court has granted most of the Ninth Circuit's requests for certification.  If you have employees who perform only limited work in California and you are concerned about the potential applicability of California wage laws to these employees, you will want to monitor the progress of this case.  We will continue to monitor it as well and post any developments.

By Cindy Caplan

In Lakeside-Scott v. Multnomah County, the Ninth Circuit held that an employer's independent, legitimate decision to terminate an employee insulates a lower-level supervisor from liability despite the supervisor's retaliatory motive.

The Plaintiff, Lea Lakeside-Scott ("Scott"), filed a formal complaint alleging, among other things, that her supervisor Jann Brown ("Brown") gave preferential treatment to gays and lesbians in hiring and promotions.  During a review of another County employee's email as part of an investigation into the employee's alleged misconduct, Brown (and other employees participating in the investigation) discovered Scott's journal, which contained discriminatory comments and excerpts of other employees' work documents.  Joanne Fuller, the Department Director, placed Scott on administrative leave and imitated an investigation into Scott's possible violation of County policies. Brown's role in the investigation was limited to answering the investigator's questions.

Scott was eventually terminated and sued the County and Brown, alleging retaliation under Oregon's Whistleblower Act and 42 U.S.C. § 1983.  The jury found in Scott's favor with respect to her claims against Brown.  On appeal, the Ninth Circuit found that despite her retaliatory motive, Brown could not be held personally liable for retaliation based on her limited involvement in the chain of events that ultimately led to Scott's termination.  In reaching this conclusion, the Court noted that there was no evidence that Brown influenced Fuller's termination decision.  The Court noted that although it is important to prevent retaliation in the workplace, employees who engage in constitutionally protected conduct are not granted a "get out of jail free card" shielding them from legitimate discipline and/or termination.

Unlike the Oregon statute at issue in this case, California supervisors cannot be held individually liable for retaliation under Fair Employment and Housing Act.  Nonetheless, as this case illustrates, it important that an employer's investigation into employee misconduct is conducted by an independent and neutral investigator.  An employer that terminates an employee with previous "whistleblower" complaints may still be found liable for retaliation where there is evidence that the decision was based on a retaliatory motive.  Accordingly, employers are cautioned to consult with legal counsel before terminating an employee who has engaged in protected activity.
 

By Robin E. Weideman

In Pineda v. Bank of America, a California Court of Appeal held that waiting time penalties under Labor Code section 203 cannot be recovered as restitution under California’s Unfair Competition Law.  The plaintiff, seeking to represent a class of former employees, alleged that he had not been timely paid his final wages following his resignation of employment.  (His last day was May 11 and he was paid on May 15.)  He alleged a claim for waiting time penalties under Section 203 and a claim for restitution under the UCL (Business and Professions Code section 17200).  The trial court granted Bank of America’s motion for judgment on the pleadings, holding that the Labor Code claim was barred by the statute of limitations and that penalties could not be recovered as “restitution” under the UCL.

On appeal, the First District Court of Appeal agreed with the trial court.  In an unpublished portion of the decision, the court held that a one-year statute of limitations applies to a claim for waiting time penalties where there is no underlying claim for unpaid wages.  (The court suggested that if there is an underlying claim for unpaid wages, the statute of limitations for both claims is three years.)  In this case, the plaintiff did not allege that Bank of America failed to pay him wages; he simply alleged that his final wages were paid 4 days late.  Because the plaintiff did not have an underlying claim for unpaid wages, a one-year statute of limitations applied.  The plaintiff filed his action more than one year after his resignation and the Labor Code claim was, therefore, time-barred.

 Also in an unpublished portion of the decision, the court interestingly held that leave to amend to substitute a suitable class representative as plaintiff, was properly denied by the trial court.  The court held that plaintiff’s counsel had several months to find a suitable class plaintiff through discovery and had failed to do so due to a lack of diligence.  As a result, the court held that the trial court did not abuse its discretion in denying leave to amend.

Finally, in the published portion of the decision, the court held that the plaintiff’s UCL claim was properly dismissed because Section 203 penalties cannot be recovered as restitution under the UCL.  The court rejected the plaintiff’s argument that waiting time penalties are a “vested property interest” that arises upon an employer’s failure to timely pay wages.

Although this case was a victory for the employer, it is also a reminder of the litigation that can, and often does, follow when final wages are not paid in accordance with California’s strict statutory time requirements.  As a reminder, if an employee is involuntarily terminated, final wages (including accrued, unused vacation) must be paid at the time of termination (on the employee’s last day).  If an employee resigns and gives at least 72 hours notice, final wages must be paid on the employee’s last day.  If an employee resigns with less than 72 hours notice, final wages must be paid within 72 hours.
 

By Robin E. Weideman

As anticipated, the California Supreme Court granted review yesterday in Brinkley v. Public Storage.  The Court deferred briefing and further action on the matter pending its consideration and disposition of Brinker v. Superior Court (Hohnbaum).  We will continue to keep you apprised of developments on these matters, and of new court decisions interpreting California's meal break laws.

By Connor Moyle

A recent appellate decision, Starbucks Corp. v. Superior Court (Lords), determined that three plaintiffs could not bring suit on behalf of an estimated class of 135,000 unsuccessful applicants at Starbucks locations based on an allegedly illegal question in the Starbucks application that arguably sought information regarding marijuana-related convictions more than two years old in violation of California law.

The plaintiffs in Starbucks had applied unsuccessfully for positions at Starbucks locations and had filled out the standard application form used by Starbucks throughout the country.  Starbucks’ standard application form contained the following question:  “Have you been convicted of a crime in the last seven (7) years? . . .  If Yes, list convictions that are a matter of public record (arrests are not convictions). A conviction will not necessarily disqualify you for employment.”  The plaintiffs claimed that this question violated California Labor Code section 432.8, which prohibits employers from soliciting disclosure from applicants of most marijuana convictions that are more than two years old.  Plaintiffs sought recovery of actual damages or $200, whichever is greater, for all unsuccessful California applicants pursuant to Labor Code sections 432.7 and 432.8.

Starbucks argued that its application did not violate the California Labor Code because it included a disclaimer that clarified the application of the challenged question to California applicants.  The disclaimer, printed in bold type at the end of the application, read:  “CALIFORNIA APPLICANTS ONLY: Applicant may omit any convictions for the possession of marijuana (except for convictions for the possessions of marijuana on school grounds or possession of concentrated cannabis) that are more than two (2) years old, and any information concerning a referral to, and participation in, any pretrial or post trial diversion program.”

The trial court certified a class of all California applicants who had submitted an application to Starbucks since June of 2004 and who sought no more than $200.  The trial court further found that the mere offering of the application violated the Labor Code and that damages could be calculated simply by multiplying the probable number of applicants during the class period times $200. Based on the estimated class size, the court’s reasoning implied potential damages of $27,000,000 even before inclusion of any interest or attorneys’ fees.  The trial court also denied Starbucks’ motion for summary judgment, finding that (1) there was a material issue of fact as to whether the disclaimer was sufficient to avoid a violation of the Labor Code and (2) plaintiffs had standing to assert the statutory violation based on the fact that they were given the job application containing the improper question.  The trial court determined that none of the plaintiffs had to prove any damage in order to recover the statutory penalty of $200 per applicant.

On appeal, the Fourth District first addressed the legal sufficiency of the Starbucks job application form.  The court found that, although it was printed in bold type, the language of the disclaimer was not sufficiently “conspicuous, plain and clear” to make it sufficient as a matter of law.  The court pointed out that the disclaimer was placed at the end of the application, rather than near the question about marijuana convictions.  Furthermore, the disclaimer was part of a larger boldface paragraph that included similar disclaimers applicable to Maryland and Massachusetts applicants, as well as one directed at U.S. applicants generally.  The court explained that the disclaimer would have made the application proper if it had been included immediately after the question about marijuana convictions.  However, with the disclaimer at the end, the court held that there was a question of fact as to whether it was sufficient and Starbucks was not entitled to summary judgment on the legal sufficiency of its application form.

The court next addressed whether plaintiffs could properly bring their claim on behalf of all unsuccessful California applicants within the statutory period.  The court first noted that two of the three named plaintiffs had testified that they understood the disclaimer in the application form and knew that they were not required to answer the improper question.  The court reasoned that ignoring the plaintiffs’ actual understanding of the application would open the door to suits by “professional job seekers, whose quest is to voluntarily find (and fill out) job applications which they know to be defective solely for the purpose of pursuing litigation.”  Instead, the court determined, the fact that the individual plaintiffs were in no way harmed by the allegedly improper application mandated that they could not proceed with their claim.

Viewing the matter more broadly, the court also determined that the plaintiffs’ claim was precluded because the plaintiffs were not similarly situated to persons that Labor Code section 432.8 was intended to protect.  The court emphasized that, “[w]here civil liability is predicated upon a legislative provision . . ., plaintiffs must establish that they fall within the class of persons for whose protection the legislative provision was enacted.”  The court reasoned, based on the language of section 432.7(c), that only an individual with a marijuana-related conviction falls within the class of people the legislature sought to protect.  Thus, the plaintiffs, who had not been convicted of any marijuana offenses, did not fall within the protected class and were not proper representatives of a potential class suing for violations of Labor Code section 432.8.  The court emphasized disapproval of the “use of the very process of litigation to precipitate payoffs by private businesses for alleged violations of law having no real relationship to a true public interest.”  Thus, the trial court should have granted summary judgment for Starbucks.

If applied consistently in other cases, the reasoning of Starbucks could limit the ability of plaintiffs to bring lawsuits for technical violations of the Labor Code where they have not suffered demonstrable harm due to the alleged violation.  The decision’s reasoning affirms that the scope of such potential suits should be limited to the class of persons who have actually suffered the harm that the relevant statute is intended to prevent.  However, employers should note that the court upheld the denial of summary judgment on the threshold issue of the legal sufficiency of the disclaimer in the Starbucks application.  Because the disclaimer language was not placed in close proximity to the question relating to marijuana convictions, and because it was only part of a larger paragraph setting forth similar disclaimers applicable to applicants in other states, the court found that a triable issue existed as to whether the application form clearly directed applicants not to disclose protected marijuana convictions.  Thus, had plaintiffs been able to demonstrate that they fell within the class of persons protected by Labor Code section 432.8 because they did have such convictions, they might have been able to proceed with a claim that the application form was ambiguous and could be read to require disclosure of protected convictions.  Employers should ensure that their application forms do not inquire about marijuana-related convictions more than two years old. If the form must include such a question, it should make absolutely clear that California applicants need not provide such information, and the disclaimer should be conspicuous and located immediately following the relevant question.
 

By Robin E. Weideman

As anticipated, a petition for review before the California Supreme Court was filed last week in Brinkley v. Public Storage, the most recent published decision by a California State court holding that an employer need only make meal periods available to employees, not ensure that the meal periods are actually taken.  The California Supreme Court has 60 days to decide whether or not to grant review.  In light of the Court's recent grant of review in Brinker v. Hohnbaum, involving the same issue, it is anticipated that the Court will grant review of Brinkley but issue a hold order delaying briefing pending resolution of the Brinker case.  If the Court grants review, Brinkley will no longer be citable precedent pending review.

By Connor Moyle

The Court of Appeal for the Fourth Appellate District issued a decision last week clarifying that punitive damages are not available for violations of the California Labor Code statutes regulating meal and rest breaks, pay stubs, and minimum wage laws.  In Brewer v. Premier Golf Properties,  the court reversed a jury’s award of $195,000 in punitive damages (subsequently reduced to $75,000 by the trial court’s conditional new trial order) based on the jury’s determination that the employer acted with malice in relation to its alleged Labor Code violations.

Brewer, a waitress at a golf course restaurant, sued her employer (“Cottonwood”) alleging age discrimination, meal and rest break violations, and other violations of the Labor Code including failure to pay the minimum wage and failure to provide accurate itemized wage statements.  After a bifurcated trial, the jury found for the defendant on Brewer’s age discrimination claim.  However, during the same phase of trial, the jury returned a verdict in favor of the plaintiff on her Labor Code claims, finding that Cottonwood (1) failed to provide meal and rest periods as required by law, (2) failed to pay wages at the required minimum rate, and (3) failed to provide accurate itemized wage statements.  When the jury also returned a finding that Cottonwood had acted with “oppression, fraud or malice,” the court submitted a supplemental special verdict to the jury that sought to determine whether the jury found malice based on conduct relating to (1) the age discrimination on which Cottonwood prevailed or (2) the Labor Code violations on which Brewer prevailed.  The jury’s supplemental special verdict clarified that its malice conclusion stemmed from conduct related to the Labor Code violations.

Based on the verdicts, the court entered a judgment awarding $956.10 in unpaid wages and $195,000 in punitive damages.  The judgment also included approximately $6,000 in wages due for meal and rest period violations, $4,000 as penalties relating to the missed meal and rest periods, and $15,300 in penalties pursuant to Labor Code § 1197.1.  Brewer later accepted a reduction of the punitive damages to $75,000 on the court’s order that Cottonwood’s motion for a new trial based due to excessive damages would be granted absent such a reduction.

Both parties raised various purported errors on appeal.  Most notably, Cottonwood challenged the jury’s award of punitive damages on several grounds, including that such damages were simply unavailable for the pleaded Labor Code violations.  In the published portion of its opinion, the court agreed with Cottonwood, stating its holding as follows:  "We are convinced . . . punitive damages are not recoverable when liability is premised solely on the employer’s violation of the Labor Code statutes that regulate meal and rest breaks, pay stubs, and minimum wage laws."

The court provided two distinct justifications for its determination that Brewer could not recover punitive damages on her Labor Code claims.  First, the court determined that the “new right-exclusive remedy” doctrine operated as a bar to such recovery.  This doctrine provides that “[w]here a statute creates new rights and obligations not previously existing in the common law, the express statutory remedy is deemed to be the exclusive remedy available for statutory violations, unless it is inadequate.”  The court determined that the Labor Code statutes regulating pay stubs (§ 226) and minimum wages (§ 1197.1), as well as the regulations requiring employers to provide meal breaks (§ 512) and rest breaks (Cal. Code Regs., tit. 8, § 11090, sudb. 12(A)), all “create new rights and obligations not previously existing in the common law.”  Furthermore, these provisions provide their own remedial schemes, including damages and penalties, and the “new right-exclusive remedy” doctrine therefore applies.  The court rejected the plaintiff’s argument that punitive damages should be allowed because some of the relevant Labor Code sections, including section 226.3 and 1197.1, state that the penalties provided are “in addition to any other penalty provided by law.”  The court determined that, instead of authorizing punitive damages for Labor Code violations, this language insures that the recovery of civil penalties under the relevant provisions does not function to preclude recovery of other statutory penalties provided in the Labor Code.

Second, the court held that recovery of punitive damages was also prohibited by the more general principle that punitive damages are ordinarily limited to actions for the breach of an obligation not arising from contract.  See Cal. Civ. Code § 3294.  The court reasoned that “when a statute imposes additional obligations on an underlying contractual relationship, a breach of the statutory obligation is a breach of contract that will not support tort damages beyond those contained in the statute.”  Consequently, the court disagreed with Brewer’s position that the alleged Labor Code violations constituted a breach of an obligation not arising from contract.  Instead, the court found that the relevant Labor Code requirements were obligations arising from Brewer’s employment contract because those obligations only apply once the parties have entered into an employment contract.  The court therefore concluded that the Labor Code violations for which Cottonwood was found liable did not support an award of punitive damages under Civil Code section 3294.

The Brewer decision provides some comfort to employers faced with allegations of Labor Code violations by clarifying that such allegations do not carry with them the large increase in potential exposure that results in any case where punitive damages may be recoverable.  As the facts of Brewer indicate, the presence of punitive damages in such claims would greatly increase the amount at risk since a jury may decide to award punitive damages that greatly exceed the amount of any unpaid wages and applicable statutory penalties.  However, employers should bear in mind that the Brewer decision’s precise holding is limited to the specific Labor Code violations analyzed in that case (meal and rest periods, minimum wage, and itemized wage statements), and the decision is not clear on the extent to which its reasoning would necessarily apply to other similar Labor Code provisions. 
 

By David Greco

Last week, the Ninth Circuit issued its decision in Sullivan v. Oracle Corp. and held that non-California residents are covered under California labor laws for any work performed within the state of California.  The plaintiffs in the case were instructors who traveled to different states, including California, to train customers on the use of Oracle software.  The plaintiffs worked between approximately five and thirty-five days per year in California.  The rest of time they worked in other states.  The plaintiffs alleged that Oracle misclassified them as exempt and failed to pay them daily and/or weekly overtime.  The Ninth Circuit held that California wage and hour law, including its daily overtime requirement, applied to the days and weeks the plaintiffs worked in California.

In reaching its decision, the Ninth Circuit relied on Tidewater Marine Western, Inc. v. Bradshaw, 14 Cal.4th 557 (1996) wherein the California Supreme Court stated that "California employment laws implicitly extend to employment occurring within California's state law boundaries."  The issue presented to the court in Tidewater was whether federal law or wage orders of California's Industrial Welfare Commission should apply to California resident crew members who perform work off the coast of California in the Santa Barbara Channel.  The Tidewater Court held that California's wage orders apply to those employees who worked in the Santa Barbara Channel because they were California wage earners as they resided in California, received pay in California, and essentially worked in California as the waters of the Santa Barbara Channel are within California's jurisdiction.  The Tidewater Court, however, specifically noted that it was not prepared to apply California law to all employment in California.

The Ninth Circuit’s decision in Sullivan appears to hold that California law applies to an employee who works even one full day in California.  Therefore, all employers who send non-California employees to California to perform any work should be aware of and familiar with the Sullivan case.  It is not clear whether a California court would reach the same decision as the Ninth Circuit on the applicability of California wage and hour laws to non-resident employees performing varying degrees of work in California.  However, in light of the Sullivan decision, employers are cautioned to obtain legal advice with respect to application of and compliance with California labor laws insofar as non-resident employees are concerned.
 

By Robin E. Weideman

Today California’s Second Appellate District, Division Three, issued its decision in Brinkley v. Public Storage and held that California law only requires employers to make meal periods available to employees, not to ensure that the meal periods are actually taken.  This newly published decision is good news for California employers, given that Brinker is no longer citable precedent pending review by the California Supreme Court.

In holding that an employer need not ensure that meal breaks are taken, the Brinkley court relied on the reasoning of the recent federal court decisions reaching the same conclusion, including Brown v. Federal Express Corp. and White v. Starbucks.  The court held that the employer was entitled to summary adjudication of plaintiff’s meal period claim (which was brought as a class action) because there was no evidence that plaintiff or the class members were deprived of the opportunity to take meal breaks.  To the contrary, the evidence showed that the employer had a policy allowing for meal breaks, plaintiff and other class members were aware of the policy, and the employer reprimanded employees for not taking meal breaks.  The employer also submitted 21 declarations of class members indicating that they were allowed to take meal breaks at their discretion.  Although plaintiff submitted evidence that he and other class members at times missed meal breaks, the court held that this evidence did not support a finding that plaintiff or the class members were denied the opportunity to take meal breaks.

In addition to holding that employers need only provide employees the opportunity to take meal breaks, the court also held that there is no requirement that meal breaks be provided within the first five hours of work, finding that “nothing in the applicable statutes or wage orders supports [this] position.”  (Notably, the DLSE currently appears to be taking the contrary position that meal periods must be provided within the first five hours of work, according to the DLSE's most recent memo on the subject.  See our October 27 blog entry regarding the DLSE's memo.)

By Robin E. Weideman

Earlier this week, the California Supreme Court issued its opinion in McDonald v. Antelope Valley Community College District and held that the doctrine of equitable tolling may apply to toll the statute of limitations on a FEHA claim when an employee voluntarily pursues an internal complaint procedure with the employer. 

The plaintiff, Sylvia Brown, worked as a library technician’s assistant for the District.  During her employment, she twice responded to internal job postings for a database administrator position. The first time she applied, the District did not interview her.  The second time she applied, the District interviewed her but did not offer her the position.  Plaintiff alleged that the District denied her the position because of her race and gender.  The last act of alleged discrimination occurred in January 2001.  In October 2001, Plaintiff filed a discrimination complaint with Human Resources, followed by a further formal complaint with the Chancellor’s Office in November 2001.  The Chancellor’s Office informed Plaintiff that the complaint would be forwarded to the District to investigate, that the District would have until January 31, 2002 to resolve the complaint, and that Plaintiff would have certain appeal rights following the District’s resolution of the complaint.  The Chancellor’s Office also specifically advised Plaintiff that she could file a complaint with the DFEH at any time.

The District ultimately investigated and concluded in January 2002 that Plaintiff had not been discriminated against.  Plaintiff pursued internal administrative appeals.  While the appeal process was still underway, Plaintiff filed a DFEH charge in October 2002 (a year and one-half after the alleged discrimination), received a right to sue notice, and filed a lawsuit one year later.  The District moved for summary judgment, arguing that Plaintiff’s complaint was time-barred because she had filed her DFEH complaint more than one-year after the last discriminatory act allegedly occurred.  The trial court granted the District’s motion for summary judgment, finding that Plaintiff’s complaint was barred by the statute of limitations.  The Court of Appeal reversed, holding that the statute of limitations may have been equitably tolled during the time period in which Plaintiff was pursuing relief through the District’s administrative complaint procedure.  Finding a triable issue of fact regarding application of the equitable tolling doctrine, the Court of Appeal held that the District was not entitled to summary judgment.

The California Supreme Court agreed with the Court of Appeal and held that equitable tolling may apply to the pursuit of internal administrative remedies prior to filing a FEHA claim.  The Court reasoned that equitable tolling encourages and promotes informal resolutions and the avoidance of unnecessary, premature litigation.  The Court also held that the purposes behind the statute of limitations—timely notice to the defendant and preservation of evidence—were not frustrated by application of equitable tolling in the circumstances before it.  The District had notice of the complaint and the opportunity to preserve appropriate evidence and even investigate the complaint, within the one-year statute of limitations.  In these circumstances, the Court held that equitable tolling may be appropriate to avoid the otherwise technical forfeiture of a claim.

The Supreme Court’s decision does not mean that equitable tolling applies to every situation in which an employee pursues an internal complaint with the employer.  It requires a fact-specific inquiry, keeping in mind the dual goals of providing timely notice to the defendant of legal claims, yet avoiding unjust, technical forfeitures of claims where the plaintiff has acted in good faith in pursuing relief.
 

By Kent J. Sprinkle

Today the California Supreme Court granted Plaintiff Adam Hohnbaum’s petition for review of the Court of Appeal's decision in Brinker Restaurant Corp. v. Superior Court (Hohnbaum).  We have followed the developments in this case dealing with the dispute on what it means to "provide" employees with meal and rest breaks.  The Court of Appeal in Brinker had resolved this issue favorably for employers, reversing the trial court's class certification order (which included meal and rest break claims and off-the-clock claims), concluding that, among other things, "while employers cannot impede, discourage or dissuade employees from taking meal (and rest) periods, they need only provide, not ensure, meal (and rest) periods are taken."

With the Brinker case now pending review by the Supreme Court, the decision by the Court of Appeal is no longer considered citable or binding on California courts.  However, the federal district court decisions addressing the same issue, two of which were cited favorably in the Brinker decision itself, remain good law that may be cited as persuasive authorities, though the federal decisions are not binding on state courts.  The federal district court cases include White v. Starbucks Corp., Brown v. Federal Express Corp., and Kenny v. Supercuts, Inc., each of which were discussed in prior blog entries.  Also, as discussed in our July 29, 2008 blog posting, the DLSE issued a memo dated July 25, 2008 directing its staff to follow the Brinker holding for all matters pending with the DLSE.  It remains to be seen whether the DLSE will adjust its position with Brinker pending review by the Supreme Court.

We will continue to monitor and post any further developments on this important issue, including any further information concerning the DLSE's position, as well as any proposed legislative action concerning the interpretation of "providing" breaks.  If you have any questions regarding drafting policies or the implications of this decision for your business, please contact us directly.
 

By Cindy R. Caplan

In Stillwell v. The Salvation Army, Plaintiff Arthur Stillwell claimed that The Salvation Army (TSA) breached an implied employment agreement to terminate him for good cause.  TSA claimed that Stillwell had entered into an at-will employment agreement that precluded any type of implied agreement to terminate for cause.  Stillwell argued that the Agreement was invalid because it was not signed by TSA's field secretary for personnel, as required by the terms of the contract.  The Jury found that the at-will agreement was effective, but that TSA had nonetheless breached an implied agreement to terminate Stillwell for cause and awarded Stillwell $155,363 in damages.  TSA filed a Motion for Judgment Notwithstanding the Verdict, claiming that a finding that the written at-will employment agreement was valid precluded Stillwell from prevailing on any claim that TSA had breached an implied agreement.  The trial court concurred and granted TSA's motion.

The Court of Appeal held that the proper remedy for inconsistent verdicts is to grant a new trial and remanded the case to the trial court for a new trial.  In its ruling, however, the Court noted that there was substantial evidence to support the jury's finding that TSA had promised to terminate Stillwell only for good cause.  Specifically, Stillwell presented evidence that TSA managers had made repeated assurances of continued employment, including a statement that Stillwell "would have a job with [TSA] as long as [he] chose to work for them" and that Stillwell would work "as long as [he] wanted to."  The Court also found that grievance procedures in TSA's employee handbooks were inconsistent with an at-will employment relationship. 

Although the Stillwell decision is primarily procedural in nature, it contains several valuable lessons.  California employers should carefully review and at-will employment agreements to ensure that they are valid and enforceable.  Furthermore, employers should carefully review all handbooks and policies to make sure that they do not contain language that is inconsistent with at-will employment and refrain from making any statements to employees assuring continued employment.

By Marianne C. Koepf

Despite hope for relief for San Francisco employers, yesterday the Ninth Circuit upheld San Francisco’s Health Care Security Ordinance’s employer spending requirement.

In November 2006, the Golden Gate Restaurant Association (GGRA) filed a lawsuit which challenged the employer spending requirement on the theory that it is preempted by the federal Employee Retirement Income Security Act (ERISA). The U.S. District Court agreed, and the City of San Francisco appealed the ruling. On April 17, the Ninth Circuit held oral arguments on the merits of the City’s appeal. Yesterday, on September 30, the Ninth Circuit overturned the U.S. District Court’s decision. It held that ERISA does not preempt the ordinance because it does not require employers to establish or alter ERISA plans.

The employer spending requirement, which became effective January 9, 2008, mandates that employers with 50 or more employees make minimum health care expenditures on behalf of covered employees on a quarterly basis. The ordinance became effective on April 21, 2008 for for-profit employers with 20-49 employees. The ordinance sets out a number of options for employers, including making payments for health care insurance, setting up health savings accounts, or providing direct reimbursement for health care costs. The next quarterly payments under the Ordinance are due on October 30, 2008.

It is expected that the GGRA will seek review of the Ninth Circuit’s decision from the U.S. Supreme Court.

By Chris Robertson

In Varisco v. Gateway Science and Engineering, Inc., the California Court of Appeal rejected an independent contractor's assertion of employee claims.

Although Al Varisco had worked as an independent contractor, his lawsuit asserted that he was an employee because he was terminable at will and paid by the hour instead of by the project. The Court of Appeal, however, confirmed that independent contractors (1) can be terminable at will and (2) are now commonly paid by the hour. 

While these two factors indicate that an individual may be an employee instead of an independent contractor, the Court of Appeal explained: "The principal issue is the right to control the 'manner and means' of accomplishing the work, and the facts are that Gateway had no such control, and no right to such control."

By Candice F. Boyd

In Lee v. Dynamex, Inc., a California Court of Appeal reversed an order denying class certification because the trial court had refused to permit discovery of class member contact information under Pioneer Electronics (USA) Inc. v. Superior Court.

Plaintiff and class representative Charles Lee filed a putative class action lawsuit against his former employer Dynamex, Inc., a parcel delivery company.  Lee, a former driver for Dynamex, alleged Dynamex improperly reclassified the drivers from employees to independent contractors in violation of California law.  Shortly after filing the complaint, Lee sought to discover the names and addresses of all drivers who had worked as independent contractors for Dynamex.  Dynamex refused to provide the requested information, relying on Pioneer Electronics, 40 Cal.4th 360 (2005), in which the court approved the use of an “opt-in” letter for notifying members of a putative class of the pending lawsuit.  Dynamex rejected Lee’s proposal to use an “opt-out” letter.  At a December 12, 2006 hearing, Lee sought to certify a class.  After Dynamex argued that the proposed class was over-inclusive, Lee refined the putative class definition.

The Court denied Lee’s motion based on the lack of ascertainability of the class; a lack of commonality among the factual situations of the various drivers; a lack of typicality of the claims and defenses relating to Lee, the proposed class representative; and the court’s doubt class adjudication would be the superior remedy for resolution of the claims raised in the complaint.

Lee appealed the order denying class certification.  The Court of Appeal found that the basic parameters of the class proposed by Lee were readily ascertained through company records, and thus, the trial court’s rejection of the proposed class on this ground was unjustified.  In addition, the Court of Appeal determined that the trial court abused its discretion in denying plaintiffs' motion to compel disclosure of the identity of potential class members.  The Court of Appeal noted that in Pioneer Electronics, supra, 40 Cal.4^th 360, decided after the trial court rulings in Lee v. Dynamex, Inc., the Supreme Court unanimously reversed the Court of Appeal decision relied upon by Dynamex in opposing Lee’s precertification discovery request, finding the Court of Appeal’s decision requiring an opt-in letter, rather than an opt-out procedure, had been overly deferential to the consumers’ rights of privacy.  The Supreme Court noted that, “contact information regarding the identity of potential class member is generally discoverable, so that the lead plaintiff may learn the names of other persons who might assist in prosecuting the case."  The Supreme Court therefore held the trial court had reasonably concluded the plaintiff’s interest in obtaining contact information outweighed the modest privacy invasion occasioned by the opt-out letter proposed by the plaintiff. (Pioneer, supra, 40 Cal.4^th at p. 373-374).

By Leigh A. White

The First Appellate District's recent decision of Nadaf-Rahrov v. Neiman Marcus Group, Inc. highlights the importance of exhausting all possibilities of accommodating an employee regardless of what the employee's medical certifications state.  In that case, the plaintiff, who was a fitter for Neiman Marcus, went on medical leave in November 2003 for pain related to osteoarthritis.  The plaintiff's medical certifications stated that she was unable to perform work of any kind, and subsequent certifications extended the plaintiff's leave through August 2004.  Although Neiman Marcus' human resources manager had some discussions and correspondence with the plaintiff about returning to work, the plaintiff's doctor never released her to return to work, and as a result, after the plaintiff had exhausted her sick leave and vacation benefits, Neiman Marcus terminated her employment on July 14, 2004.

The trial court granted summary judgment to Neiman Marcus on the plaintiff's claims for disability discrimination based on termination of employment, failure to accommodate, and failure to engage in the interactive process, and the plaintiff appealed.  On appeal, the Court reversed summary judgment for the disability discrimination claims and the national origin discrimination claim. 

Regarding the disability discrimination claim based on termination of employment, the Court of Appeal rejected all three of Neiman Marcus' arguments that the plaintiff could not have performed the essential functions of any vacant position, with or without accommodation. 

First, the Court of Appeal found that the doctor's certifications that the plaintiff was unable to perform work of any kind did not require summary judgment because: (1) the doctor intended the certification forms to indicate only that the plaintiff was unable to perform the essential functions of her current job; (2) the doctor sent Neiman Marcus a letter after the certification forms stating that he would "strongly support" the plaintiff's change to a position that did not involve bending, standing or kneeling; and, (3) the doctor did not release the plaintiff to return to work because he did not believe she could perform her job as a fitter, and Neiman Marcus had not offered her any other positions for him to evaluate.  Based on that additional evidence, the medical certifications alone did not establish that the plaintiff was unable to perform work of any kind at the time of the termination of her employment or in the foreseeable future.

Second, the Court of Appeal found that the plaintiff's admissions in deposition that she was so severely physically disabled that she was unable to perform most ordinary household chores or activities of daily living, as physical activity increased her pain, did not mandate summary judgment.  The Court, while noting that these physical restrictions were "substantial," found that they did not "obviously preclude" the plaintiff from performing desk jobs with accommodation.  The Court of Appeal found that the plaintiff had raised a triable issue of fact about "whether vacant desk jobs" were available for which the plaintiff would be qualified.

Third, although Neiman Marcus submitted a declaration from its human resources manager stating that the plaintiff was not able to perform a laundry list of various positions that were available up to the date of the plaintiff's termination, the Court of Appeal found that the plaintiff raised a triable issue of fact by pointing to jobs that came open, at least some of which came open after the plaintiff's employment terminated.  Specifically, the plaintiff produced evidence that other jobs were available at Neiman Marcus through November 2004, more than three months after her employment terminated, several of which the plaintiff's doctor opined that she could have performed. The Court of Appeal found that jobs available for an "extended period" after termination are relevant because "it may have been a reasonable accommodation for Neiman Marcus" to give the plaintiff an extension on her leave of absence "for a limited period of time until a position became available," especially if the employer could have anticipated the future opening.  For this same reason, the Court of Appeal also reversed summary judgment on the plaintiff's failure to accommodate claim.

Finally, regarding the plaintiff's failure to engage in the interactive process claim, the Court of Appeal determined that, consistent with the federal rule, an employer cannot be liable for failing to engage in the interactive process where no reasonable accommodation would have enabled the plaintiff to perform the essential functions of the job held or sought, rejecting two prior Court of Appeal cases holding that FEHA imposes liability for failure to engage in the interactive process even if no reasonable accommodation would have been possible.  The Court of Appeal, however, found that there was a triable issue of fact as to whether Neiman Marcus was responsible for the breakdown in the interactive process by requiring plaintiff to provide a release to return to work listing her restrictions before discussing other open job positions, as providing information about available positions could have assisted the plaintiff and her doctor in providing specific work restrictions.  Moreover, the Court of Appeal found that a reasonable jury could determine that Neiman Marcus' decision to terminate plaintiff's employment without advance warning or further discussion was unreasonable and caused a break down in the interactive process.

The lesson to be learned from this case is that the employer cannot rely on the doctor's leave certificates to terminate employment without exhausting all possibilities for accommodation with the employee.  Employers should always make one last final attempt to engage in the interactive process with the employee before terminating employment.  The employer should ask if any accommodations would permit the employee to returnt to work in his/her current position at that current time or in the reasonably forseeable future.  The employer should also give the employee information about all of the open job positions at that time (to the extent they are not promotions) as well as any job positions that the employer believes will come open in the forseeable future, and provide job descriptions for the employee to review with his/her doctor to determine whether the employee can be accommodated in any of these positions.  If the employer has more than one location, the employer should provide information about open positions in all of the locations to which the employee is willing to relocate.  Finally, the employer should not require a release to return to work prior to this type of an exchange.

By Robin E. Weideman

On August 29, Plaintiff Adam Hohnbaum’s counsel filed the much anticipated petition for review before the California Supreme Court in the well-publicized meal period case Brinker v. Hohnbaum. The California Supreme Court has 60 days to decide whether to grant review, which  means that employers should know by late October whether the Brinker decision will remain citable precedent. In some instances, the Court extends the time period for determining whether to grant review by 30 days. If that happens, a decision should issue by November at the latest. We will continue to monitor the progress of the petition and post updates here.

By Candice F. Boyd

In Whitman v. Mineta, 9th Cir. 05-36231 (09/02/08), the Ninth Circuit Court of Appeals reversed the district court and held that the Age Discrimination in Employment Act ("ADEA") provides a cause of action for retaliation against federal employers.  The Court of Appeals relied on the U.S. Supreme Court's opinion in Gomez-Perez v. Potter, 128 S.Ct. 1931 (2008), to make its determination.  In support of his retaliation claim, Plaintiff asserted that his employer, the Federal Aviation Administration ("FAA"), mistreated him after he filed his age discrimination complaint with the EEOC.  The Court of Appeals affirmed the district court's dismissal of plaintiff's other two claims because plaintiff failed to establish a prima facie case of age discrimination (he failed to show he was qualified or eligible for the position) and plaintiff's ADEA claim for denial of an extension of a work detail was untimely.

Employers should remain mindful that, although individual employees are not personally liable, employers are liable for any unlawful retaliation.

By Vanessa W. Whang

In Pearson Dental Supplies, Inc. v. Sup. Court of Los Angeles (Turcios), 2008 WL 3867617, an employee failed to demand arbitration within one year from his termination as required in a mandatory arbitration agreement and was held to have waived his FEHA age discrimination claim.  In Pearson Dental Supplies, Inc., an arbitrator granted summary judgment in favor of the employer finding that the employee had failed to timely submit his FEHA claim to arbitration and thus waived it.  The trial court reversed the arbitrator's decision, but the Second Appellate District Court of Appeal upheld the arbitrator's decision, holding that the one-year limitations period did not unreasonably restrict the employee's ability to vindicate his rights under FEHA. 

The court rejected the employee’s argument that the arbitrator's application of the one-year limitations period in the arbitration agreement contravened public policy because it shortened the FEHA limitations period.  In reaching its decision, the court distinguished several Ninth Circuit decisions finding a one-year limitations period in an arbitration agreement substantively unconscionable by pointing to the fact that in those cases the one-year time limit potentially deprived the plaintiffs of the ability to proceed with a theory of continuing violations.  (In Pearson Dental Supplies, Inc., the employee's claims involved a termination, i.e., one discrete act.)  The court also highlighted the fact that the plaintiff failed to raise unconscionability of the one-year limitations period with the trial court when the defendant moved to compel the matter to arbitration and, because of that, the court could not review the arbitrator's decision for errors of fact or law, even if the error causes substantial injustice to a party. 

While this is a welcome victory for employers and can be said to strengthen an employer's ability to use mandatory arbitration agreements involving individual FEHA claims, the case is somewhat limited to its facts. Employers seeking to utilize arbitration agreements should continue to utilize experienced California employment lawyers when drafting and implementing them.  Additionally, it remains to be seen whether this case is taken up to the California Supreme Court for further review.

By John Anthony

In Avila v. Continental Airlines, Inc., the California Court of Appeals addressed employee notice obligations under the California Family Rights Act (“CFRA”).  Upon proper notification from an employee (which varies depending on the circumstances), the CFRA requires covered employers to provide eligible employees up to 12 weeks unpaid leave to care for the employee’s own "serious health condition.”  Avila addressed whether an employee who never specifically requested CFRA leave nevertheless provided sufficient notice for such a leave.

In this case, Mr. Avila, a CFRA eligible employee of Continental Airlines, called in sick during his hospitalization but never specifically requested such absences be considered CFRA leave.  Upon return to work, he provided Continental with documentation verifying his hospitalization.  A month later, Mr. Avila was again absent from work, this time without any confirmed medical justification, and was thereafter terminated for excessive absenteeism.  Continental considered the hospitalization related absences in its termination decision.  Avila sued, contending such absences were CFRA protected and thus should not have been considered.  Continental sought to dismiss the case, claiming Avila did not properly request CFRA leave, and thus the hospitalization stay could not be considered CFRA leave.  The Court disagreed, reasoning that Mr. Avila's calling in sick, coupled with his providing documentation of his hospitalization, was sufficient to establish notice of a CFRA protected "serious health condition", entitling Mr. Avila to protected leave.

California employers should remain mindful that their written notice obligations under the CFRA (and FMLA as well) are far more exacting than what is required of employees.  Accordingly, whenever a CFRA/FMLA eligible employee is absent from work for a reason which potentially might be CFRA/FMLA protected, California employers are well advised to determine whether such leave is indeed protected before classifying any absence as unexcused.

We knew that title would get people's attention.  Human Resources Executive Online recently published an article by author Mark McGraw on the Kathy E. Adams vs. Condoleezza Rice decision by the DC Circuit and the recent trend of expanding the protections of the ADA.  CDF LLP Partner Mark S. Spring was quoted in the article about the difficulties employers face in managing these disability issues and the need for skilled human resources professionals to help train managers and supervisors to recognize and properly deal with these issues.  Click here for article: http://www.hreonline.com/HRE/story.jsp?storyId=115377289.

In Adams v. Rice, the plaintiff, a cancer survivor, claimed she was limited in a major life activity because she was unable to have sexual relations.  The issue in the case was whether such limitation would enable the plaintiff, Adams, to qualify as a "disabled" individual.  After holding that sex is "a cornerstone of family and marital life, a conduit to emotional and spiritual fulfillment, and a crucial element of intimate relationships…," the Court of Appeals reversed the granting of summary judgment and held that Adams has proven that she has a record of disability as a result of her limitation.  Cases like Adams v. Rice, combined with the looming ADA Amendments Act of 2008 http://www.callaborlaw.com/archives/new-laws-legislation-congress-attempting-to-expand-americans-with-disabilities-act-protections.html, illustrate the trend to expand the ADA's protections to an unprecedented level that is far beyond what Congress and former President Bush intended when the law was enacted in 1991. 

Look for disability discrimination to remain a hot button issue and major challenge for employers in the next few years.

By Robin E. Weideman

Today the California Supreme Court issued its much anticipated decision in Edwards v. Arthur Andersen and held that California law prohibits agreements restraining competition, regardless of how narrow or reasonable the restraint may be.  The Court flatly rejected the “narrow restraint” exception that California federal courts have in some instances applied to uphold agreements limiting an employee’s ability to compete.

The Court explained that under the “plain meaning” of California Business and Professions Code section 16600, “an employer cannot by contract restrain a former employee from engaging in his or her profession, trade, or business unless the agreement falls within one of the exceptions to the rule” [referring to statutory exceptions that allow non-compete agreements in the context of a sale or dissolution of a corporation, partnership, or limited liability company].  The Court declined to read into the statute an exception permitting narrow, reasonably tailored restraints on competition:  “Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect.  We reject Andersen’s contention that we should adopt a narrow-restraint exception to section 16600 and leave it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under section 16600.”

Based on this interpretation of section 16600, the Court held that the non-compete agreement Arthur Andersen required Edwards to sign was invalid.  The agreement at issue prohibited Edwards from performing professional services for certain clients of Arthur Andersen for a period of 18 months post-termination.  The Court explained that this provision clearly restrained Edwards’ ability to practice his professions and was, therefore, invalid under section 16600. 

Notably, the Court did not address the enforceability of restrictions tied to the protection of trade secrets (such as provisions prohibiting an employee from using the employer’s trade secrets to solicit customers), or restrictions against recruiting co-workers to work for a competitor.  The Court did, however, cite with approval Thompson v. Impaxx, Inc., 113 Cal.App.4^th 1425 (2003), which held that non-solicitation of customer provisions are only lawful to the extent they are tied to the protection of trade secrets.  Thus, although the Court’s decision does not directly address the validity of traditional non-solicitation of customer provisions, it certainly does not disturb California precedent holding that such provisions are only enforceable if tied to trade secrets.

California employers who require employees to sign “non-interference” and/or “non-compete” type agreements should ensure that such agreements do not run afoul of section 16600, as strictly interpreted by the California Supreme Court.

By Kent J. Sprinkle

Today a California Court of Appeal finally resolved the dispute regarding what it means to "provide" employees with meal breaks.  Following some unusual transitions between being an unpublished opinion, a vacated opinion, an appealed opinion, and a transfer back to the Court of Appeal for reconsideration, the Court of Appeal today issued a new published decision in Brinker Restaurant Corp. v. Superior Court, previously discussed in our October 23, 2007 and November 12, 2007 postings. 

Resolving this issue favorably for employers, the California Court of Appeal in Brinker reversed the trial court's class certification order (which included meal and rest break claims and off-the-clock claims), concluding that the trial court "failed to properly consider the elements of plaintiffs' claims in determining if they were susceptible to class treatment."  A primary highlight of this reversal includes the Court of Appeal's analysis of the issue of what it means to "provide" meal breaks.  The Brinker court held that the class certification order was erroneous and had to be vacated based on the following conclusions:

"Specifically, we conclude that (1) while employers cannot impede, discourage or dissuade employees from taking rest periods, they need only provide, not ensure, rest periods are taken; (2) employers need only authorize and permit rest periods every four hours or major fraction thereof and they need not, where impracticable, be in the middle of each work period; (3) employers are not required to provide a meal period for every five consecutive hours worked; (4) while employers cannot impede, discourage or dissuade employees from taking meal periods, they need only provide them and not ensure they are taken; and (5) while employers cannot coerce, require or compel employees to work off the clock, they can only be held liable for employees working off the clock if they knew or should have known they were doing so.  We further conclude that because the rest and meal breaks need only be "made available" and not "ensured," individual issues predominate and, based upon the evidence presented to the trial court, they are not amenable to class treatment.  Finally, we conclude the off-the-clock claims are also not amenable to class treatment as individual issues predominate on the issue of whether Brinker forced employees to work off the clock, whether Brinker changed time records, and whether Brinker knew or should have known employees were working off the clock.  Accordingly, we grant the petition and order the superior court to vacate its order granting class certification and enter a new order denying certification of plaintiffs' proposed class."

In Brinker, a group of restaurant employees sued their employer for alleged failure to provide certain rest breaks and meal breaks, or compensation in lieu of such breaks, and also claimed that the restaurant required them to perform "work off the clock" during meal periods.  The decision contains substantially positive analysis concerning these claims as well as their amenability to class treatment, including a discussion of when breaks must be provided in terms of timing during the workday and that rest periods may be waived.  However, still the most notable feature of the opinion is that it now expressly endorses the interpretation that an employer's obligation to "provide" employees with a meal break merely means to "offer" meal breaks or to make such breaks available. 

The Brinker Court favorably cites White v. Starbucks Corp., a positive published federal decision which held that "provide" requires only that employers "offer" meal breaks.  The Brinker Court also cites the district court's reasoning and conclusions in Brown v. Federal Express Corp., in support of its determination of what it means to "provide" meal breaks.  The Court noted that the plaintiffs in Brown, as in Brinker, asserted that "California law requires employers to ensure that meal breaks are actually taken."  The district court in Brown rejected this argument, holding that section 512 and the applicable wage order did not support plaintiff's position.  The court explained that section 512's statement that employer must "provide" meal periods "does not suggest any obligation to ensure that employees take advantage of what is made available to them."  The court also noted that the California Supreme Court "in characterizing violations of California's meal period obligations...repeatedly described it as an obligation not to force employees to work through breaks."  The court also noted that "[r]equiring enforcement of meal breaks would place an undue burden on employers whose employees are numerous...it would also create perverse incentives, encouraging employees to violate company meal break policy in order to receive extra compensation under California wage and hour laws."  The Brinker Court found the reasoning in Starbucks and Brown persuasive and concluded that employers need not ensure meal breaks are actually taken, but need only make them available. 

By Shannon Going and Vanessa Whang 

In Quon, et al. v. Arch Wireless, City of Ontario, the Ontario Police Department, et al. 2008 WL 2440559 (9th Cir. 2008), the Ninth Circuit Court of Appeals recently found a public employer (the Ontario Police Department) violated the Fourth Amendment when the Police Chief and others read an employee's text messages on employer-provided two-way pagers.  The Police Department had a general computer usage policy applicable to all employees mandating that City-owned computers and "all associated equipment" was limited to Police Department-related business, and that users should have no expectation of privacy or confidentiality when using email or the Internet.  The computer usage policy clearly stated that personal use of these technologies was a “significant violation.”  Although there was no official policy regarding text-messaging, the Police Department argued that employees were informed that their text messages would be handled according to the terms of the computer usage policy, but Plaintiff Quon asserted that he did not remember such a warning.  Regardless, the Lieutenant who supervised the two-way pagers communicated to employees that their text messages would only be reviewed if there were charges for over use and the employees refused to pay the overcharges, at which time they would have to review the text messages to determine the reason for the over use – personal or business.   

Despite handling the overage charges for several months in accordance with the informal policy described above, the Lieutenant became frustrated with the repeated overage charges for plaintiff and other employees, and decided to review transcripts of plaintiff’s text messages to determine whether the monthly overage charges stemmed from work-related or personal use, even though the plaintiff had not refused to pay for the overage charges.  The transcripts revealed personal messages sent by the plaintiff to his wife and fellow employees, some of which were sexually explicit in nature.  The plaintiff and others who were the recipients of plaintiff’s text messages brought suit alleging violation of their privacy rights under the Fourth Amendment and Article I, Section 1 of the California Constitution.  Of note, several defendants were named including the police chief and another sergeant who read the text messages.

The district court employed a two-pronged inquiry to determine whether a privacy violation occurred, looking at both the plaintiff’s reasonable expectation of privacy in the messages and the reasonableness of the search that revealed the contents of those messages.  The district court concluded as a matter of law that the plaintiff had a reasonable expectation of privacy regarding the messages but a jury thereafter determined that no violation had occurred because the search conducted was reasonable as the intent of the officer was not to discover misconduct, but rather to determine the basis for the overage charges.  The plaintiff appealed.  Upon review, the Ninth Circuit agreed that the plaintiff had a reasonable expectation of privacy in the text messages because of the “operational reality” regarding the way in which overage charges had been previously treated.  However, the Ninth Circuit disagreed that the search was reasonable, holding that even though the search was intended to serve a valid purpose, the scope of the search was too broad.  The Court stated that there were less intrusive means of finding the desired information, such as simply asking the plaintiff to redact the personal content of any text messages so that the department could still obtain the desired information.  

By Mark Spring

In 2000, California enacted AB 1889.  That bill, codified as section 16645 of the California Government Code, provides that government employers and private employers that contract with the government are prohibited from using government funds to assist, promote, or deter union organizing.  In practicality, what the bill does is prohibit public employers and private employers doing business with the California government from influencing a union campaign and allows union organizing of such employers to be done without any counter campaigning from the employer.  In other words, the law acts to silence any affected employer in a union organizing campaign. 

By Mark Spring

In 2005, the United States Supreme Court issued its ruling in Smith v. City of Jackson, 544 U.S. 228 (2005), recognizing that employees can bring disparate impact claims for age discrimination under the Age Discrimination in Employment Act (ADEA) (claims based on evidence that older workers are disproportionately affected by an employment decision, even if the decision was not taken because of the employees' age). 

Yesterday, the United States Supreme Court issued its opinion in Meacham v. Knolls Atomic Power Laboratory, setting forth its interpretation of the burden of proof in such cases. In a 7-1 ruling (Justice Breyer did not participate), the Court held that in disparate impact ADEA claims , the employer bears the burden of both producing evidence and of ultimately persuading the fact finder that there is a reasonable explanation other than age for the company’s action. As a result of this decision, in disparate impact cases, if the employer cannot meet its burden of proving both (a) that the decision was based on a factor other than age, and (b) that the decision was "reasonable," liability will be established simply by the employee establishing that the decision had an adverse impact on older workers through statistical or other evidence.

Justice Souter issued the opinion and the lone dissent was issued by Justice Thomas, who continued to assert his belief that disparate impact cases are not cognizable under the ADEA. In the opinion, the Court specifically held that "there is no denying that putting employers to the work of persuading factfinders that their choices are reasonable makes it harder and costlier to defend than if the employers merely bore the burden of production; nor do we doubt that this will sometimes affect the way employers do business with their employees." However, the Court specifically held that it could only interpret the statute and that it is up to Congress to modify the language if a different result were to be reached.

By Brent Giddens

On May 15, 2008, the California Supreme Court held that same sex couples have a constitutional right to marry.  California and Massachusetts are now the only states which recognize such marriages.  The decision became effective on June 16, 2008, resulting in a wave of same sex marriages throughout the State.  Despite the significant publicity surrounding both the Court's decision, and the onset of actual marriage ceremonies, the decision appears to extend, but not necessarily alter, the obligations of California employers to same sex couples.  Since 2005, California law has required California employers to grant the same rights, privileges and benefits to registered domestic partners – which in most cases are same sex couples – as granted to married spouses.  Now, in addition to granting those rights to registered domestic partners to the same extent as offered to traditionally married spouses, such benefits may also be required to be granted to same sex spouses. 

Recognize, however, that any federally mandated right or benefit may not be granted to either same sex spouses or registered domestic partners.  Federal law does not recognize such unions.  Consequently, registered domestic partners, and now same sex spouses, are not entitled to COBRA, FMLA or any other federally provided right or benefit (there are over 1,100 rights/benefits provided to married couples, which under federal law, must be a man and woman).  Recognize also that FMLA/CFRA may not run concurrently in situations involving same sex spouses or registered domestic partners, in addition to other differing treatment (state/federal income tax deductions, Section 125 benefit plans, etc.). 

It appears a measure will be placed on California's November ballot seeking to amend the California Constitution to require marriages be between a man and a woman only, similar to federal law.  If this passes, the effect on same sex marriages being entered now is unclear.  However, the measure does not appear to have retroactive effect, and thus should not invalidate those marriages. 

By John Anthony

Multiple wage and hour related class actions continue to be filed daily throughout California. Defense of these cases is often centered on an effort to defeat class certification, meaning that the case can proceed only as an individual action on behalf of the named plaintiff(s). Typically, after substantial discovery has taken place, the plaintiff will file a Motion for Class Certification, presenting evidence on why the court should determine that proceeding as a class action is appropriate. In response, the defendant files an Opposition to Class Certification, generally contending that class treatment is inappropriate. Rather than wait to oppose a class certification motion, some California employers have affirmatively sought an order to deny, or strike, class allegations from the complaint. 

In In re BCBG Overtime Cases, on June 13, 2008, the California Court of Appeals for the Fourth Appellate District reaffirmed a defendant’s right – in a purported class action lawsuit – to affirmatively move to strike the class allegations from a complaint even before a representative plaintiff moves for class certification. 

In this case, a group of managers and assistant managers for the clothing retailer BCBG Maxazria (BCBG) brought a lawsuit against their employer claiming various violations of California’s wage-and-hour laws. The plaintiffs’ complaint purported to be brought on behalf of all similarly situated managers and assistant managers in all of BCBG’s California locations. BCBG filed a motion “to strike class allegations pursuant to California Rules of Court, rule 1857(a)(3) and/or for judgment on the pleadings.” In its motion, BCBG explained how each of its managers and assistant managers had vastly different jobs and accordingly were not similarly situated enough to properly be certified as a class. In support of its contentions, BCBG also submitted declarations of 25 current or former managers and assistant managers from various California stores supporting its contentions. 

The Plaintiffs opposed BCBG’s motion, contending it was an improper attempt to circumvent the class certification process and that evidence outside the pleadings could not be considered on a motion to strike. The trial court, however, agreed with BCBG and granted the motion to strike the class allegations, finding the motion was properly before it because “class certification issues may be determined at any time during the litigation” and evidence outside the pleadings could be considered. Moreover, the trial court found that BCBG had met its burden to show that the action is not suitable for class certification by producing “substantial evidence which establishes that Plaintiffs cannot prove the elements of typicality or commonality necessary for class certification.” The California Appellate Court affirmed the trial courts decision, reasoning among other things that the trial court’s class certification decision complied with all the requirements imposed by applicable rules of procedure.

By Jennifer D. Barrera

In Aramark Facility Services v. Service Employees International Union Local, 1877, the Ninth Circuit affirmed an arbitrator’s decision awarding 33 employees back-pay and reinstatement after they were terminated from their employment for failing to correct “no-match” letters received by their employer from the Social Security Administration (“SSA”).  Specifically, in early 2003, Aramark Facility Services (“Aramark”) received “no-match” letters from the SSA for thousands of its employees, including 48 employees in Southern California.  In response to these “no-match” letters for the 48 employees, Aramark sent the employees a letter stating they had three days to correct the discrepancy with the SSA or produce documentation that they had applied for a new social security card.  Out of the 48 employees, only 15 met the three day deadline.  The other 33 employees were terminated from their employment and told they would be rehired if they subsequently provided the requested documentation.  The union filed a grievance on behalf of the 33 employees, claiming Aramark had violated the collective bargaining agreement by terminating their employment without just cause.  Aramark argued that it was simply complying with federal law that prohibits an employer from knowingly employing undocumented workers.  After completing several days of arbitration, the arbitrator concluded that there was no “convincing information” presented to demonstrate any of the 33 employees were undocumented workers and therefore awarded the workers back-pay and reinstatement.  Aramark appealed the arbitrator’s ruling to the United States District Court, which reversed the arbitration award on the grounds that the arbitrator’s award of reinstatement and back pay required Aramark to violate federal immigration laws.  Thereafter, the union appealed to the Ninth Circuit.

On appeal, the Ninth Circuit determined two issues: (1) whether there was an explicit, well-defined public policy at issue; and (2) whether the public policy required the award ordered by the arbitrator to be changed.  In response to the first question, the Court agreed that there was a well defined public policy set forth in the Immigration Reform and Control Act (“IRCA”) against the employment of undocumented workers.  However, in response to the second question, the Court determined that this public policy did not require the reversal of the arbitrator’s award as there was no “constructive knowledge” that the employees were undocumented workers.  The Court emphasized that for purposes of immigration law, “constructive knowledge” must be narrowly construed to only include “positive information” that would lead a reasonable person to learn about a certain condition.  Neither the “no-match letter” nor the employees’ lack of response thereto within the three days provided was sufficient to justify “constructive knowledge” of their undocumented status.  In fact, both the SSA and the Department of Homeland Security (“DHS”) have specifically stated that a no-match letter, alone, does not rise to the level of “constructive knowledge” that an employee is undocumented.  Furthermore, the Court determined that the three day turnaround time provided to the 33 employees in which to respond to the no-match letters was simply too onerous and that the employees’ failure to respond within such a short time frame could have been the result of multiple factors other than their alleged undocumented status, including the inability to get to a SSA office within the three days due to work or family obligations.  The Court noted that the three day deadline was significantly more accelerated than even the DHS’s 90-day deadline, set forth in the DHS’s proposed safe harbor regulations regarding an employer’s receipt of no-match letters (these proposed regulations have not yet taken effect).  Based upon this information provided to the arbitrator and the Court’s inability to disrupt the arbitrator’s factual findings, the Court affirmed the arbitrator’s award.  In its conclusion the Court did note that “though it seems reasonable to suspect that some of the fired workers were undocumented, the law did not permit the district court to rely on this suspicion in vacating the arbitration award.”

By David Greco

On June 11, 2008, California’s First Appellate District issued its decision in Amaral v. Cintas Corp. No. 2 addressing the effect of a Living Wage Ordinance on a California employer who entered into a service contract with the City of Hayward.

In Amaral, Cintas employees filed a class action seeking to recover unpaid wages on a theory that Cintas violated the City of Hayward's Living Wage Ordinance when it paid its employees, who performed laundry services for the City of Hayward, less than required by the Living Wage Ordinance.  Hayward's Living Wage Ordinance required that any company who entered into service contracts with the City pay its employees at a higher rate than the standard minimum wage.  Cintas argued that it was not required to comply with the City of Hayward's Living Wage Ordinance because the putative class member employees worked outside of the City of Hayward.  The Court rejected Cintas' argument, finding that the City of Hayward's Living Wage Ordinance applied to all work governed by the service contract, regardless of where that work was performed. 

As a result of the Amaral  decision, it is important that California employers who contract with cities and/or municipalities comply with any applicable Living Wage Ordinances.  Under the Amaral decision, however, California employers who contract with a city or municipality that has adopted a Living Wage Ordinance are not necessarily required to compensate all of their employees in accordance with the Living Wage Ordinance but instead only those employees who actually perform work under the city or municipality contract.  Thus, covered employers should ensure that the affected work is segregated from non-affected work, and assign the affected work to a subset of employees to avoid having to compensate all employees at the higher wage specified by the Living Wage Ordinance.

By Kent Sprinkle

Yet another federal district court held that employers need only "provide" employees with meal breaks under California law by making them available, as opposed to ensuring that the breaks provided are actually taken.  In Kenny v. Supercuts, Inc., 2008 WL 2265194 (June 2, 2008), District Judge Charles Breyer added another brick to the growing wall of favorable federal district court decisions resolving this ongoing debate about what it means to "provide" employees with meal breaks.  The Kenny decision cites to the similar holding in White v. Starbucks, 497 F.Supp.2d 1080, 1088-89 (N.D. Cal. 2007), in addition to citing to the more recent decision of Brown v. Federal Express Corporation, et al., 2008 WL 906517 (C.D. Cal. Feb. 26, 2008).  Both of these decisions were addressed in prior blog entries. 

In Kenny, a putative class action, Judge Breyer denied the plaintiff's motion to certify a class action alleging that defendants failed to regularly provide their hair salon employees with 30-minute meal breaks as required by California law.  Judge Breyer also rejected the plaintiff's argument that Cicairos v. Summit Logistics, Inc., 133 Cal.App.4th 949 (2006) – plaintiffs' attorneys' preferred decision to cite in seeking certification of such claims – compelled a contrary conclusion.  In Kenny, the plaintiff did not dispute that "on paper" defendants had a proper meal break policy.  Instead, the plaintiff claimed that despite the official policy, defendants actually "have an on going practice of not providing meal breaks" and not paying the additional one hour of wages for every missed or shortened meal break.  The plaintiff's time records reveal that she did not "clock out" for a full 30-minute meal break approximately 40 percent of the time her employer was required to provide her with a meal break.  Defendants never paid the plaintiff for her missed meal periods, and the plaintiff offered evidence that defendants' pay system is not programmed to provide the one hour compensation for the missed meal periods. 

Following a thorough discussion on the meaning of "provide" and the prior decisions and reasoning on the subject, Judge Breyer concluded that whatever "fails to provide" in the Labor Code means, it does not require an employer to ensure that an employee take a meal break.  Therefore, an employer is not liable for "failing to provide a meal break" simply because the evidence demonstrates that the employee did not actually take a full 30-minute meal break.  Having resolved this legal question for purposes of the plaintiff's motion, Judge Breyer held that it was apparent that the plaintiff had failed to identify any theory of liability that presented a common question to warrant class treatment.  In rejecting each of the plaintiff's theories for class certification in turn, Judge Breyer reasoned as follows:  

"[The plaintiff] attests that for a few months she was the only employee for one salon which made it impossible to take breaks.  That theory – which may demonstrate a failure to provide a meal period – does not apply class-wide; it applies only to those employees who did not take breaks while working alone.  And it applies to plaintiff for only a few months of the class period and there is no indication in the record that it is relevant to any other class members.  Plaintiff's next theory – that the stores were too busy to give employees a meaningful opportunity to take breaks – requires an individual inquiry into each store, each shift, each employee.  Perhaps the employee wanted to work through her meal break in order to earn more in tips or because she did not want to keep a valued customer waiting.  On the other hand, the evidence might also show that in a particular case the store manager instructed an employee to help a customer rather than take a lunch break.  Such an instruction could be viewed as the employer not 'providing' a meal break; however, it is an individual question that cannot be resolved class wide.  Plaintiff's third theory – that defendants did not schedule breaks – fails as a matter of law as, whatever the law requires, it does not require an employer to affirmatively schedule meal breaks.  There is no support in the statute or the case law for such a theory.  Finally, plaintiff's contention that a review of the time records of the 68 declarants creates an inference of a company-wide practice that interfered with the employees' right to a meal break, also fails.  The time records actually demonstrate the individual nature of the inquiry.  Some of these employees clocked out for their full 30-minute meal break nearly all the time, some none of the time, and some part of the time.  This disparity suggests that 'the availability' of meal breaks varied employee to employee, or at least store to store or manager to manager.  Even plaintiff herself admits that she took her full 30-minute meal break 60 percent of the time."

By John Anthony

Labor Code section 510, subdivision (a) mandates that an employer pay an employee time and one-half for (1) more than eight hours of work in one workday, and (2) more than 40 hours of work in any workweek.  For employees paid on an hourly basis, the overtime rate for any workweek is generally one and a half times the hourly rate.  However, other compensation received during the week may also need to be included, such as shift differentials, stand by pay, and some (but not all) types of bonuses. 

On June 3, 2008, the Second Appellate District issued its decision in Advanced-Tech Security v. Super. Ct., which considered whether voluntarily provided premium pay must be included within an employee’s "regular rate of pay" for purposes of calculating an employee’s overtime rate.  In this case, the employer's holiday pay policy provided that employees who worked on designated holidays would receive time and a half for hours worked, even though section 510 would only require such work to be paid at straight time.  The issue presented to the Court was whether this voluntarily provided premium pay must be included in calculating the employee's regular rate of pay for determining the overtime rate for that work week. 

The Court found that section 510 does not require an employer to compensate an employee at a rate higher than one and one-half times the regular non-holiday rate of pay under circumstances when employers voluntarily provide premium pay for holidays.  The Court ruled that employers are entitled to credit the time and one-half premium pay on holidays against otherwise earned overtime, and that the voluntarily provided premium pay need not be included as part of the regular rate of pay. 

By John Anthony

On May 28, 2008, the Second Appellate District issued its decision in Sharp v. Next Entertainment, upholding a labor union's right to sponsor class action “wage and hour” litigation in support of its labor organizing efforts. 

In Sharp, The Writers Guild of America (the Guild) had been attempting to organize employees in reality television.  The Guild held meetings during which such employees discussed purported wage and hour violations.  Some who participated in the meetings, along with other reality television employees, brought class action lawsuits against the production companies and the television networks (collectively defendants).  The Guild sponsored the class action litigation by paying the costs and fees of the class counsel – the same law firm that also represented the Guild in its organizing efforts.  The plaintiffs and the Guild both conceded that the purpose of the lawsuit was both to prevail in the litigation and as a tool to organize employees.  Thereafter, the trial court denied defendants’ motion to disqualify the class counsel based on a conflict of interest between the putative class members and the Guild, finding that the Guild’s goal of organizing the defendants’ employees did not impermissibly conflict with the employees’ litigation claims.

The California Appellate Court for the Second District affirmed, finding that “[w]age and hour litigation is often financed by labor unions to support their members and members of the public because employees often lack the resources to do so.  Such litigation is designed to protect all workers, including members of the union and non-union members.”

This case emphasizes the need for California employers to recognize that class litigation is frequently used by unions as an additional tool to organize employees and thus provides yet another reason to ensure that wage and hour policies are compliant with California law.

By Leigh A. White

On May 23, 2008, the First Appellate District issued its decision in McCarther v. Pacific Telesis Group, interpreting California Labor Code section 233, or California's so-called "Kin Care" law.  Labor Code section 233 requires that if employers provide sick leave for their employees, employers must also allow the employees to use their "accrued and available" sick leave, in "an amount not less than the sick leave that would be accrued during six months" at the employee's then-current sick leave accrual rate, to attend to the illness of the employee's child, parent, spouse, or domestic partner.  Section 233 also defines the terms "child" and "parent" very broadly.

In the McCarther case, two plaintiffs sued a number of defendants (all alleged to all be divisions of SBC Communications, Inc. and operating under the same policy), in a putative class action, claiming that the defendants did not pay them for absences they took to care for ill family members in violation of section 233.  At issue was the defendants' "sickness absence" policy contained in a collective bargaining agreement, under which employees were paid for absences for illness or injury, in an amount up to five-day increments, after one year of service.  The defendants' "sickness absence" policy differed from traditional sick leave policies, in that there was no cap or limit on the amount of sick leave but sick leave did not earn, vest, or accrue to the employees.  The trial court granted the defendants' summary judgment motion, finding that Labor Code section 233 did not apply because the sickness absence payments were not "sick leave" as defined by section 233 as "accrued increments of compensated leave."  The Court of Appeal reversed, finding that section 233 applied to sick leave to which the employee had become entitled, regardless of whether that sick leave is actually banked or formally accrued.

While this decision may not have new implications for employers with traditional sick leave policies or employers without sick leave, it is an important reminder to employers to ensure that sick leave policies are drafted and interpreted in compliance with section 233.

By Candice F. Boyd

The California Supreme Court has granted a petition for review in Schachter v. Citigroup, Inc. 159 Cal.App.4th 10 (2008), which held that Citigroup’s stock forfeiture provisions do not violate Labor Code sections 201 and 202 because employees who elect to participate in the plan’s stock-purchase program are paid all wages they designate to invest in company stock.  Labor Code sections 201 and 202 require an employer to pay all earned, but unpaid compensation following the employee’s discharge or voluntary termination of employment.

On December 21, 1994, while employed as a securities salesperson for Salomon Smith Barney (Smith Barney), a subsidiary of Citigroup, Inc., David B. Schachter elected to participate in Smith Barney’s voluntary Capital Accumulation Plan (the Plan).  Under the terms of the Plan, Schachter directed Smith Barney to pay him 5 percent of his total compensation "in the form of restricted stock out of all cash compensation paid to me" during the specified periods.  An employee’s restricted Citigroup shares acquired under the Plan were purchased at a 25 percent discount below the stock’s then-current market price.

The Plan’s restrictions summarized in pertinent part:  If the employee voluntarily terminates his or her employment or is terminated for cause during the two-year vesting period, which commences on the date of stock acquisition, he or she forfeits the shares, as well as the money used to purchase them.

Employees who were involuntarily terminated without cause or who retired from employment were not subject to the same forfeiture provisions.

On July 1, 1995, Schachter received 44 shares of restricted stock, and on January 2, 1996, he received 38 additional shares in accordance with the Plan’s terms.  On March 31, 1996, Schachter voluntarily terminated his employment, forfeiting the 82 shares of restricted stock and the money used to purchase those shares.

The trial court denied the defendants’ motion for summary judgment and ruled that Schachter’s forfeiture of the restricted stock as well as the funds used to purchase it when he left Smith Barney within the two-year period, constituted a forced employee rebate in violation of the Labor Code.  On August 21, 2001, the trial court certified a class of similarly situated former employees.  On February 27, 2002, Schachter filed a third amended complaint.  On November 8, 2002, Citigroup filed a second motion for summary judgment.  The court granted the motion and entered judgment in favor of Citigroup.

Schachter appealed from the judgment, arguing that the court had erred both procedurally in considering the second summary judgment motion and substantively in granting the motion on its merits.  On February 8, 2005, the appellate court reversed the judgment, concluding the Citigroup defendants’ filing of the second summary judgment motion violated Code of Civil Procedure section 437c, subdivision (f)(2), which prohibits a party from filing a summary judgment motion based on issues asserted in a prior summary judgment motion absent a showing of newly discovered facts or circumstances or a pertinent change of law.  In reversing the trial court’s order and judgment, however, the court noted that Code of Civil Procedure section 437c, subdivision (f)(2), did not, and could not, vitiate the court’s inherent power under the California Constitution to reconsider its own rulings sua sponte.  Upon the appellate court’s reversal and remand, the trial court granted summary judgment in favor of the Citigroup defendants, concluding the Plan did not authorize an unlawful forfeiture of earned wages in violation of the Labor Code.  The appellate court affirmed.

By Anthony Lewis

Today, the California Supreme Court issued its decision in In Re Marriage Cases (May 15, 2008), ruling that a California statute defining marriage as “between a man and a woman” while excluding same-sex couples from the definition is a violation of the California constitutional rights of privacy and equal protection.  The decision opens the door to same-sex marriage in the state of California.  The supreme court of the state of Massachusetts reached a similar conclusion regarding a proposed (but not enacted) Massachusetts law in 2004, and the issue is also currently pending before the Connecticut Supreme Court.  

California has provided legal protections of tangible benefits to same-sex domestic partnerships that are similar to marriage for several years.  The Court was focused on whether the intangible differences resulting from the exclusion of same-sex couples from marriage are justified.  Because the Court found the exclusion is not justified, the decision will enable same-sex couples to be married in the eyes of the State of California.  However, federal law continues to define marriage as between a man and a woman for federal law purposes. 

Among the more important legal aspects of the decision:

·        Marriage is clearly recognized as a fundamental right.

·        The California law excluding same-sex couples from the definition of marriage does not discriminate on the basis of sex, but does discriminate on the basis of sexual orientation.

·        Differential treatment of individuals based on sexual orientation under the law will be subject to the “strict scrutiny” standard of review, which means the differential treatment must (1) serve a compelling state interest, and (2) be necessary to serve that compelling interest.

·        Denying the fundamental right of marriage to persons of the same sex based on their sexual orientation (1) serves no compelling state interest, and (2) is not necessary to serve any compelling state interest.

·        The Court rejected arguments that limiting marriage to opposite sex couples was justified to serve purposes of procreation, noting that a 1965 U.S. Supreme Court decision upheld a married couple’s right to use contraception to prevent procreation.

The Court’s analysis harkened back to a California Supreme Court decision in 1948 that struck down a California law that prohibited interracial marriage and was followed, nearly twenty years later in 1967, by the U.S. Supreme Court decision that struck down all such laws (called “miscegenation statutes”) across the United States. 

California businesses and employers must be alert to the ramifications of this holding.  As same-sex couples begin to exercise their new right to marry under California law, discrimination against these individuals, either as patrons of a business or employees, for doing so may subject employers and businesses to legal liability.  Complaints of discrimination based on the exercise of the right to marriage by same-sex couples should be taken seriously, and you should consult qualified legal counsel if you require assistance with any such issues.

By Sarah Drechsler

Oral argument before the California Supreme Court is scheduled for May 27 in the Edwards v. Arthur Andersen case, which addresses the permissible scope of non-compete agreements in California.  In Edwards, Plaintiff Edwards, a tax manager at Arthur Andersen ("Andersen") in Los Angeles, provided income and estate planning services to wealthy individuals.  Edwards was required to sign Arthur Andersen's standard non-compete agreement when he was hired.  The agreement prohibited Edwards, for an eighteen month period after his departure from Arthur Andersen, from performing professional services of the type he provided at Arthur Andersen for any client on whose account he had worked during eighteen months prior to his departure.  It also prohibited Edwards, for a year after his departure, from providing professional services to any client of Arthur Andersen's Los Angeles office.  In 2002, Arthur Andersen sold its Los Angeles office to HSBC, and as a condition of being hired by HSBC, Edwards was required to sign a release of claims in favor of Arthur Andersen in exchange for Arthur Andersen’s agreement to relieve Edwards of his non-compete restrictions.  Edwards refused to sign the release agreement and was not hired by HSBC as a result.  Edwards then brought an action against Arthur Andersen, claiming in part that the non-compete agreement was invalid under California law and therefore it was unlawful to condition his employment with HSBC on his execution of the release agreement.  The trial court disagreed with Edwards and held that the non-compete agreement was valid because it fit within the "narrow restraint" exception, which permits covenants not to compete where the covenant is narrowly crafted so that an employee who leaves a company still can work in his or her profession.  The trial court noted that given the large number of wealthy individuals in Los Angeles, preventing Edwards from performing services for a period of time for individuals who were clients of Arthur Andersen, was not a significant restriction on Edwards’ ability to work.

Edwards successfully appealed the trial court's decision.  The California Court of Appeal held that there is no "narrow restraint" exception under California law, and that Edwards’ non-compete agreement was, therefore, invalid.  According to the court, California prohibits non-compete agreements, no matter how narrow the restraints on competition are, except in a few limited circumstances outlined by statute involving the sale of a business, or where necessary to protect an employer's trade secrets.  The Court of Appeal reasoned in part that allowing narrowly restrained non-compete agreements would give employers an incentive to draft agreements that "push the envelope of the narrowness requirement" and employees would not be able to determine on their own whether the restraint was enforceable.

Arthur Andersen petitioned for review by the California Supreme Court, and the Court granted review in November 2006.  The matter is now fully briefed and is scheduled for oral argument later this month.  A decision is expected shortly thereafter on this important issue for California employers.

By Connor Moyle

A recent decision by California's Fourth District Court of Appeal analyzed the administrative exemption from overtime compensation and found that an employer was entitled to summary judgment because its network operations director qualified for the administrative exemption.  Significantly, in reaching its conclusion in Combs v. Skyriver Communications, Inc., 159 Cal.App.4th 1242 (2008), the court held that it was not necessary to apply the administrative/production worker dichotomy and that the employee qualified for the exemption without regard to that test. 

Background

Plaintiff Mark Combs sued his former employer Skyriver Communications seeking recovery of unpaid overtime.  Skyriver is a high-speed wireless broadband internet service provider.  Combs worked for Skyriver starting in 2001, first as manager of capacity planning, and then as director of network operations.  Combs’ duties were largely undisputed.  A resume Combs prepared after leaving Skyriver indicated that he was responsible for project management, budgeting, vendor management, purchasing, forecasting, employee management, management of overseas deployment of wireless data network, management of the integration and standardization of three networks into the Skyriver architecture, and the overseeing of day to day network operations.  At trial, Combs testified that he spent 60-70% of his time on his “core” responsibility of maintaining the well-being of Skyriver’s network.  This responsibility included high-level problem solving and “troubleshooting,” as well as planning to integrate acquired networks into Skyriver’s network.  Combs also prepared reports for Skyriver’s board of directors and conducted lease negotiations and equipment sourcing and purchasing.  The trial court granted Skyriver’s motion for judgment on the ground that Combs was exempt from overtime under the administrative exemption. 

On appeal, Combs claimed that the court should have applied the “administrative/production worker dichotomy” as set forth in Bell v. Farmers Insurance Exchange, 87 Cal.App.4th 805 (2001) (“Bell”), and that application of the dichotomy would have led to a determination that he was a nonexempt production worker.  Combs also claimed that, apart from the administrative/production worker dichotomy, application of the proper test for the administrative exemption under IWC Wage Order No. 4-2001 would have resulted in summary judgment in his favor because his job duties did not meet the requirements of the exemption.

Appellate Court Analysis

1.  Administrative/Production Worker Dichotomy Did Not Apply

The court first addressed the issue of whether the trial court should have applied the administrative/production worker dichotomy to determine whether Combs was an exempt or nonexempt worker.  The court explained that in some cases, such as Bell, a distinction was drawn between 1) administrative employees, who are usually described as employees performing work directly related to management polices or general business operations and 2) production employees, whose primary duty is producing the commodity or commodities that the enterprise exists to produce.  Employees falling into the first category are more likely exempt from overtime compensation requirements while employees in the second category are more likely nonexempt.  Combs claimed that he fell into the second category because Skyriver’s product for purposes of the administrative/production worker dichotomy was its network because the network provided the internet connectivity that Skyriver marketed.  Combs accordingly claimed he was a production worker who provided the network that provided the connectivity.

By Alison L. Tsao

The Sixth Circuit of the U.S. Court of Appeals recently ruled that an employer who hired an employee through a staffing agency may be liable for violations of the federal Family Medical Leave Act (FMLA).  In Grace v. USCAR and Bartech Technical Services, LLC, --F.3d--, 2008 WL 782470 (6^th Cir. 2008), Plaintiff Rosalyn Grace was a long-term “contractor” who provided information technology (IT) services to Defendant USCAR through a couple of different placement agencies for a period of eight years.  In the fall of 2004, Grace developed a respiratory disability (asthma) that eventually resulted in her hospitalization, whereupon she took a leave of absence through her staffing agency, Bartech.  In late December 2004, just days before Grace’s original anticipated date of return to work, Bartech informed Grace that USCAR had decided to outsource its IT duties and that, as a result, her position was terminated.

USCAR contended that its management decided in the fall of 2004 to restructure its IT division to switch from using full-time contractors to contracting directly with individual providers on an as-needed basis.  Grace’s position was allegedly targeted for restructuring.  While Grace was on FMLA leave in December 2004, USCAR decided to use the services of another Bartech contractor, Spolarich, to handle regular IT maintenance issues due to Grace’s absence.  In May 2005, USCAR contracted directly with Spolarich for a 20-hour per week job to permanently fill the new IT position at USCAR.

Grace filed suit against Bartech and USCAR in federal district court, alleging among other things, violations of the FMLA for failing to return her to her pre-leave (or comparable) position and retaliation, and for gender discrimination under Title VII and Michigan’s civil rights law.  The district court granted both employers’ motions for summary judgment.  The Sixth Circuit Court of Appeals reversed the district court’s ruling with respect to the FMLA claims but affirmed the grant of summary judgment as to Grace’s Title VII claim.

The Court recognized that the FMLA is silent about the issue of joint employment.  However, the Department of Labor (DOL) has promulgated regulations such that liability could attach to Bartech and USCAR under either an “integrated employer test” or “joint employment” test under 29 C.F.R. § 825.104(c)(1).  The Court found that the integrated employer test did not apply because there was not sufficient interrelation between the operations of the staffing agency and client employer.  However, the Court found sufficient evidence under a joint employment test because each employer exercised a sufficient level of control over Grace’s work or working conditions.  Specifically, 29 C.F.R. § 825.106(a) describes three employment relationships where joint employment will “generally . . . be considered to exist:” (1) “where there is an arrangement between employers to share an employee’s services or to interchange employees;” (2) “where one employer acts directly or indirectly in the interest of the other employer in relation to the employee;” or, (3) “where the employers are not completely disassociated with respect to the employee’s employment and may be deemed to share control of the employee, directly or indirectly, because one employer controls, is controlled by, or is under the common control with the other employer.”  Under specific regulations pertaining to cases involving staffing agencies and client employers, Bartech was determined to be Grace’s primary employer because it had the ultimate decision to hire and fire, the sole ability to assign Grace, and was the entity in charge of her payroll and benefits.  USCAR was determined to be a secondary employer because it supervised Grace’s day-to-day work and determined her salary and hours.  Although only the primary employer is responsible for giving required notices, providing FMLA leave, and maintaining health benefits, both primary and secondary employers must honor the FMLA leave and not engage in “retributory action.”  Significantly, the Court notes that the anti-retaliation provisions applicable to secondary employers apply even if the secondary employer may not be covered by FMLA.  Under 29 C.F.R. § 825.106(e), the secondary employer is responsible for “accepting the employee returning from FMLA leave in place of the replacement employee if the secondary employer continues to utilize an employee from the temporary or leasing agency.”

The Court ruled that Grace produced sufficient evidence to raise triable issues of fact as to whether USCAR’s decision to restructure its IT functions was unlawful discrimination or retaliation for Grace’s exercise of her FMLA rights.  Grace contended that the replacement employee, Spolarich, performed functions similar to those performed by her before her FMLA leave.  While Spolarich was contracted for fewer hours, he was paid at a higher rate such that the cost savings to USCAR was not significant.  Most damning was evidence of meetings notes where USCAR’s Director of Operations inquired as to Grace’s termination, and when apprised of a need for a “legitimate business reason” to avoid the risk of being sued, asked “can lawyers construct a way to make it [Grace’s termination] doable?”  The Court held these facts warranted a trier of fact to determine the true motive behind USCAR’s decision not to reinstate Grace after the expiration of her FMLA leave.

Employers who rely on staffing and placement agencies for its personnel needs are advised to review their policies with respect to FMLA compliance in relation to its “contracted” personnel.  If you have any questions about FMLA compliance with respect to an employee employed through a staffing agency, please contact us.

By Kent J. Sprinkle

Echoing the California Supreme Court's recent decision in Jones v. The Lodge at Torrey Pines Partnership et al., a California Court of Appeal has provided additional clarification on the holding that individual supervisors cannot be personally liable for retaliation under the FEHA.  Specifically, the Court of Appeal in Hammond v. County of Los Angeles et al., 73 Cal.Rptr.3d 690 (2008), held that individual supervisors cannot be personally liable for retaliation under the FEHA even when the claim of alleged retaliation by a supervisor is in response to an employee's complaint for harassment by the same supervisor (as opposed to a complaint for discrimination).  

Plaintiff Hammond, a nursing instructor employed by the Los Angeles County Sheriff's Department, sued her employer, the County, as well as her supervisor, alleging violations of the FEHA, including race and age discrimination, harassment and retaliation.  The County and her supervisor successfully moved for summary judgment and Plaintiff appealed.  On appeal, the summary judgment order was reversed.  However, the Court of Appeal held that the individual supervisor defendant was entitled to summary adjudication in her favor as to Plaintiff's claim for retaliation because such claims cannot be asserted against non-employer individuals.  Plaintiff argued that the Supreme Court's holding in Jones does not extend to claims alleging retaliation by a supervisor in response to an employee's report of harassment by that supervisor, and that Jones involved claims of retaliation by a supervisor in response to an employee's report of discrimination, not harassment.  Plaintiff argued that a supervisor who is allegedly liable for harassment should also be liable for retaliation against an employee who opposes or reports that harassment.  The Hammond court rejected this argument and instead concluded that "there is no sound basis for a distinction between retaliation for a complaint about discrimination on the one hand and retaliation for a complaint about harassment on the other." 

The Hammond court explained its reasoning in the following manner:  "The Supreme Court in Jones interpreted the FEHA as not imposing individual liability for retaliation.  The court said, 'In this case, we must decide whether the FEHA makes individuals personally liable for retaliation.  We conclude that the same rule applies to actions for retaliation that applies to actions for discrimination: The employer, but not non-employer individuals, may be held liable.'  The court's reliance on the discussion in Reno v. Baird, 18 Cal.4th 640, 643 (1998), pointing to the adverse consequences of subjecting supervisors to personal liability for personnel decisions, seems equally applicable to claims of retaliation based on reports of harassment.  It is true that under the FEHA a supervisor may be subject to personal liability for harassment, but not for discrimination.  But that distinction is of little significance in determining the question of whether a supervisor should personally be liable for retaliation under the FEHA.  The policy of protecting supervisors from 'the ever-present threat of a lawsuit each time they make a personnel decision' would seem to apply generally to retaliation claims, regardless of whether the alleged retaliation was in response to an employee's report of discrimination or harassment.  The idea that a supervisor has more incentive to retaliate for reports of harassment than for reports of discrimination is highly theoretical.  Accordingly, we hold that Brennan [the supervisor] cannot personally be liable for retaliation under the FEHA."

In analyzing this decision, as with Jones, employers should remain mindful that, although individual employees are not personally liable, employers are still liable for any unlawful retaliation, whether it relates to complaints of discrimination or harassment or something else.  Please contact us directly if you have any questions regarding the Hammond decision.

By Anthony B. Lewis

The California First District Court of Appeal has decided that individual owners of defunct corporations were not the employers of, and did not owe restitution for unpaid wages to, the employees of the defunct corporations.  The decision, Bradstreet v. Wong (April 16, 2008) affirmed a trial court’s decision that the individual owners of the garment manufacturers known as the Wins corporations were not liable for wages the corporations owed to their employees.  The Wins corporations employed garment workers for more than a decade.  They experienced financial difficulty and closed without sufficient funds to pay all wages owed to their employees.  In this case, the California Labor Commissioner, on behalf of the employees, attempted to recover the wages from the individual owners of the Wins corporations.  The Labor Commissioner lost at the trial court level and appealed, along with an intervening party.  The appeal asserted several arguments that the individual owners should be held liable for the unpaid wages, but the appellate decision rejected those arguments.

First, the decision explained that a limited, common law definition of “employer” (instead of a broader Industrial Welfare Commission definition found in its Wage Order for the garment industry) applies to actions brought pursuant to California Labor Code section 1193.6, which is the law authorizing the Labor Commissioner to file lawsuits against employers to recover unpaid wages on behalf of employees.  Under the common law definition of employer, owners of corporate employers are not ordinarily considered employers in their individual capacity, and thus are not generally liable for wages owed by the corporate employer.

Second, the decision addressed California Labor Code section 2677, a statute that is specific to the garment manufacturing industry.  This statute provides that parties other than the corporate employer can be held liable for unpaid wages as “deemed employers” in some circumstances, mostly relating to problems that arise from doing business with unregistered garment manufacturers.  The appellate court held the plaintiffs did not establish the necessary facts to prove the individuals in this case should be deemed employers under this statute.

Third, the decision held that the individual owners were not liable for restitution of the employees’ unpaid wages under California’s Unfair Competition Law, Business and Professions Code section 17203.  In this case, the individual owners did not require any employee to work for them personally and did not misappropriate to themselves any of the wages owed to the employees.  If the plaintiffs had proven otherwise, the individual owners may have been liable for restitution.

This case is important for all individual owners of corporations that are employers.  The decision respects the legal significance of incorporating a business and the protection that the corporate entity provides its owners and agents when corporate formalities are followed (this protection is know as the “corporate veil”).  Still, if you are an individual owner of a corporation that may be unable to pay wages owed to its employees, you should consult with a qualified attorney to help insure that you do not become liable in your individual capacity.

By Kent J. Sprinkle

A Plaintiff alleging racial discrimination and retaliation against his employer was ordered to pay the employer's attorneys' fees after the employer obtained summary judgment on all of Plaintiff's claims.  In Villanueva v. City of Colton, 160 Cal.App.4th 1188 (2008), Plaintiff was employed by the City of Colton in its wastewater division.  After being demoted to a lesser paying position following a reduction in force, the Court found that Plaintiff's demotion was due to legitimate non-discriminatory reasons, including Plaintiff's prior incident of mishandling an alarm incident and his lack of seniority based on continuous service.  The employer filed a motion for summary judgment and the essence of its position was that, in light of the negligent manner in which Plaintiff had handled the prior alarm incident, and the elimination of Plaintiff's position being due to the City's budget shortfall and resulting reduction in force, it had legitimate non-discriminatory reasons to defeat Plaintiff's claim of pretext for the demotion.  While Plaintiff attempted to introduce evidence of allegedly racial remarks by various individuals at the City, all of this evidence was properly excluded for various reasons.  Moreover, Plaintiff was removed from his higher-paying position instead of removing another employee holding the same position, who had more seniority, and the employee who was not demoted was also Hispanic, like Plaintiff, giving the Court further reason to believe that Plaintiff's demotion was not based on race.  

The employer sought an award of attorneys' fees to be paid by Plaintiff, based on California Government Code Section 12965(b), which authorizes an award of reasonable attorneys' fees and costs to the prevailing party in a FEHA case under certain circumstances.  The trial court awarded the employer nearly $40,000 in attorneys' fees.  The Court of Appeal affirmed the award, noting that the employer's entitlement to the award of attorneys' fees under the statute "cannot seriously be questioned" and further stated that "[i]ndeed, the record reflects overwhelming evidence that the lawsuit was unfounded, unreasonable, and frivolous."  

Plaintiff argued that the trial court was required to take into consideration his ability to pay when making a fee award.  However, the Court of Appeal held that the award of attorneys' fees was proper because the Plaintiff offered no evidence of any kind regarding his inability to pay.  The Court of Appeal noted that, in responding to the employer's request for attorneys' fees, the Plaintiff could easily have offered a declaration setting forth his income and other information that would lend support to his position.  Thus, the Court of Appeal held that even though it agreed "that a trial court has an obligation to consider a losing party's financial status before assessing attorney fees under the FEHA, on the record before us we are unable to say that the court's fee award was an abuse of discretion."

By Connor Moyle

On Monday, the California Supreme Court decided two issues arising under the California Family Rights Act (“CFRA”).  The Court’s decision in Lonicki v. Sutter Health Central addressed the following questions, deciding one in favor of the employer and one in favor of the employee:

1.      When faced with conflicting medical opinions on whether an employee is unable to perform her job, is an employer required to obtain a “tie-breaking” medical opinion in order to preserve its right to challenge the employee’s subsequent CFRA claim?

2.      Can an employee who works a similar job for another employer on a part-time basis still sue based on a claim that she was not capable of performing her job?

Background

The plaintiff worked at a Roseville, California hospital, first in the housekeeping department and then as a certified technician in the sterile processing department.  She claimed her work-related stress greatly increased when the hospital became a level II trauma center in 1997, and when she began working under a new supervisor. 

In July of 1999, the plaintiff left work after her supervisor informed her that her shift was being changed and denied her request for a vacation.  She claimed she was too upset to work and sought medical treatment.  The plaintiff saw a doctor who gave her a note for a one-month leave of absence for “medical reasons” which she presented to her employer.  The defendant hospital then directed her to see another doctor, who determined that she could return to work without any restrictions.  The plaintiff also went to see her primary care physician, who referred her to a psychologist.  She indicated that, based on medical advice, she would not return to work prior to August 27.

The employer determined that it would allow the plaintiff to use paid time off, but directed her to return to work by August 23 or face dismissal.  On August 26, the plaintiff saw a psychiatrist who determined that the plaintiff was “disabled by major depression” and recommended that her medical leave be extended through September 26.  The plaintiff brought the note to the hospital, but the human resources department informed her that she had been terminated for failure to appear at work on August 23 and 24. 

An employer is not required to obtain a “tie-breaker” opinion when the employee’s doctor disagrees with the employer’s doctor.

The CFRA provides for an unpaid leave of absence for up to 12 weeks for several possible reasons including “an employee’s own serious health condition” that “makes the employee unable to perform the functions” of his/her position.  An employer can require the employee to submit certification of a serious health condition from the employee’s healthcare provider.  An employer may also choose to pay for the employee to obtain a second opinion from a healthcare provider designated by the employer if the employer has reason to doubt the validity of the first opinion.  Finally, if the two healthcare providers disagree, the employer may require a third opinion from a healthcare provider approved by both parties.  The third opinion is binding on both parties.

The plaintiff in Lonicki argued that she had a “serious health condition” that made her unable to perform her job and that Sutter improperly denied her CFRA leave.  Plaintiff argued that the hospital was precluded from challenging that Plaintiff had a serious health condition because it had not exercised its option to obtain a third medical opinion under the CFRA’s dispute resolution procedures. 

The Court rejected the plaintiff’s argument and determined that, under the statutory language of the CFRA, an employer merely has the option to request a tie-breaking opinion if the first two doctors disagree.  Failure to do so does not prevent the employer from challenging a later claim that the employee suffered from a serious health condition that rendered her unable to do her job.  The court partially relied on several federal opinions reaching similar conclusions under the Family Medical Leave Act (“FMLA”) and declined to follow other federal authority to the contrary.

An employee who performs a substantially similar job for another employer can still claim that she was unable to perform her job.

During her “leave” from Sutter and at the time of her termination, the plaintiff worked part-time at another hospital performing duties substantially similar to those she performed for Sutter.  The trial and appellate courts in Lonicki both determined that Sutter was entitled to summary judgment on the plaintiff’s CFRA claim because the plaintiff’s ability to work part-time at another hospital performing substantially similar duties conclusively demonstrated that she could also perform her job for the defendant.  In a sharply divided and surprising opinion, the Supreme Court disagreed and determined that the plaintiff could bring her claim despite holding a similar second job. 

In reaching its conclusion, the Supreme Court determined that the Court of Appeal erred in holding that an employer must grant medical leave under the CFRA only if the employee is unable to perform her essential job functions “generally, rather than for a specific employer.”  Instead, the Supreme Court stated, the relevant inquiry was whether the plaintiff’s alleged serious health condition rendered her unable to do her job at the defendant’s hospital. 

The Court noted that the difference between a part-time job and a full-time job may be significant to a CFRA inquiry because an employee may be able to work a part-time job despite suffering from a “serious medical condition” that renders the employee unable to work full time.  The Court also pointed out that the alleged sources of plaintiff’s job-related stress (mainly a particular supervisor) were unique to her job with the defendant.  Consequently, the Court determined that the plaintiff’s ability to work part time at another hospital did not conclusively establish her ability to perform similar duties at the defendant’s hospital.  As a result, the Court reversed the award of summary judgment.

In a dissenting opinion joined by two other Justices, Justice Chin criticized the Court’s holding on this issue, stating that it was inconsistent with the legislative purpose and history behind CFRA’s enactment.  According to Justice Chin, allowing employees to obtain and hold substantially similar alternative employment while claiming inability to work their usual job, is fraught with potential for abuse.  Indeed, under the Court’s ruling, an employer faced with this situation potentially would be required to continue providing benefits for an employee on leave, even if the employee was performing work for, and being paid by, another employer.

Implications

The Court’s determination that holding a similar job does not prevent an employee from claiming she was unable to perform her job for a particular employer means that employers will find summary judgment harder to obtain in similar cases.  It also means that employers may face liability if they terminate an employee on leave simply because the employee obtains alternative employment during that leave.  Many employers have policies providing for termination of employment in these circumstances, and such policies are problematic in light of the Court’s ruling.     

Additionally, employers should not interpret Lonicki as an indication that “tie-breaker” opinions are always unnecessary or inadvisable when faced with conflicting medical opinions regarding a claim of entitlement to leave.  Although Lonicki makes clear that California law does not require an employer to seek a “tie-breaker” opinion, the decision does not control future decisions by federal courts addressing the same issue under the FMLA.  Furthermore, because a tie-breaker opinion binds both parties, requesting the opinion may often provide a relatively inexpensive means of resolving disputes in their early stages.  Consequently, employers should not adopt any blanket policy regarding whether to seek a “tie-breaker” opinion and should evaluate each case on its own facts.

By Kent J. Sprinkle

A federal district court recently addressed the ongoing debate in California regarding what it means to "provide" employees with meal breaks under California law.  California's Department of Labor Standards Enforcement takes the position that employers have an affirmative obligation to ensure that employees take their meal breaks and that employers are liable for one hour of premium pay for each meal period that is not taken (or that is not timely taken), regardless of the reason.  Plaintiffs' attorneys often cite to Cicairos v. Summit Logistics, 133 Cal.App.4th 949 (2005), as endorsing the DLSE's interpretation of the law.  In contrast, as discussed in a prior post on July 22, 2007, at least one federal district court rejected the DLSE's interpretation and instead determined that an employer complies with its obligation to "provide" meal periods if the employer makes the meal periods available to employees and provides the opportunity for employees to take them.  (White v. Starbucks, 497 F.Supp.2d 1080, 1088-89 (N.D. Cal. 2007)).  In White, the court held that in order to prevail on a meal period claim, the plaintiff would have to show that he was "forced to forego" meal periods, not simply that he did not take them. 

Another federal court has now weighed in on the subject and agreed with White v. Starbucks. In Brown v. Federal Express Corporation, et al., 2008 WL 906517 (C.D. Cal. Feb. 26, 2008), District Judge Dale Fischer denied class certification to a subclass of driver employees that were allegedly denied meal and rest breaks.  The plaintiffs and putative class members were current and former non-exempt hourly drivers employed by Defendant Federal Express Corporation.  The plaintiffs claimed that the putative class of drivers, who performed a variety of delivery and hauling duties with varied types of work and distances driven, were allegedly put under excessive pressure to make deliveries as quickly as possible, such that they were unable to take meal and rest breaks within the time required by law.  They also alleged that FedEx failed to pay an additional hour of pay to putative class members who missed their meal and/or rest breaks.  In denying class certification, the court held that FedEx's requirement to "provide" meal periods only meant making meal periods available to employees.  "It does not suggest any obligation to ensure that employees take advantage of what is made available to them."  Brown, 2008 WL 906517 *5.  Citing White v. Starbucks, Judge Fischer held that "[r]equiring enforcement of meal breaks would place an undue burden on employers whose employees are so numerous or who, as with Plaintiffs, do not appear to remain in contact with the employer during the day.  It would also create perverse incentives, encouraging employees to violate company meal break policy in order to receive extra compensation under California wage and hour laws.  In the absence of California Supreme Court precedent, this Court must apply the rule it believes the court would adopt under the circumstances. (internal citations omitted).  The court does not believe that the California Supreme Court would adopt the enforcement rule advocated by Plaintiffs."  Brown, 2008 WL 906517 at *6.

The court in Brown  also relied on language in the California Supreme Court's decision in Murphy v. Kenneth Cole Prods., Inc., 40 Cal.4th 1094, 1104 (2007), as supporting its interpretation of "providing" meal breaks.  "The California Supreme Court has described the interest protected by meal break provisions, stating that '[a]n employee forced to forgo his or her meal period . . . has been deprived of the right to be free of the employer's control during the meal period.' (citing Murphy, 40 Cal.4th at 1104).  It is an employer's obligation to ensure that its employees are free from its control for thirty minutes, not to ensure that the employees do any particular thing during that time.  Indeed, in characterizing violations of California meal period obligations in Murphy, the California Supreme Court repeatedly described it as an obligation not to force employees to work through breaks."  (internal citations omitted).

Notably, the Brown court rejected Plaintiffs' argument that Cicairos v. Summit Logistics, Inc. compelled a contrary conclusion.  In addition to rejecting the notion that Cicairos mandates that "employers have 'an affirmative obligation to ensure that workers are actually relieved of all duty,'" the court in Brown also distinguished the decision, pointing out that in Cicairos, "the court found liability where an employer simply assumed breaks were taken, despite its institution of policies that prevented employees from taking meal breaks."  2008 WL 906517 at *6.  Though not discussed in such detail by the court in Brown, it is notable that a distinguishing fact (the policy that was considered to prevent employees from taking breaks) in Cicairos was the absence of a code for meal or rest breaks whereas the driver employees were required to enter codes for all sorts of other activities conducted during the work day.

After articulating the legal standard for what it means to "provide" meal periods, the Brown court found that there was no evidence of any particular policy at FedEx susceptible to common proof to show that drivers were affirmatively prevented from taking required breaks.  As a result, the court found that individual issues predominated on the meal period claims, and denied class certification.

While federal district court decisions are not binding on state courts or on the Ninth Circuit, the growing acceptance of the reasoning in White v. Starbucks is a good sign for employers.  The extended discussion in Brown regarding the Supreme Court's comments in Murphy is also a good sign, since the Murphy case, while not squarely addressing the standard for "providing" breaks, certainly provides a sound basis for the reasoning in Brown.  We will closely monitor further developments on this important issue and will post any news. 

By Nancy Berner

As has been widely reported in the news, Starbucks’ baristas have scored an apparent victory in California, as a San Diego Superior Court judge recently determined the company violated Business and Professions Code section 17200 (Unfair Competition Law) when it allowed shift supervisors to share the proceeds of the tip jar with the baristas.  (Chou v. Starbucks, GIC 836925.)  Originally pled as a violation of both the Unfair Competition Law and the California Labor Code, the class action plaintiffs made the strategic decision to dismiss their legal Labor Code claims and proceed to trial (without a jury) solely on their equitable unfair competition claim (and its four-year statute of limitations).  Plaintiffs successfully argued that 120,000 California-based baristas are owed restitution in the amount of $86 million dollars plus interest, for a final sum exceeding $100 million.  Plaintiffs will also seek to recover attorneys’ fees.  Starbucks has reported that it intends to “vigorously” appeal the decision, but in the meantime, restaurateurs are well advised to review their own tip pooling policies.

Tip pooling arrangements are not per se illegal.  Indeed, according to California’s Department of Labor Standards Enforcement (DLSE), restaurants can implement mandatory tip pooling policies requiring tips to be shared with employees who provide direct table service, provided that the pooling arrangement is fair and equitable.  Tip pooling policies whereby the servers receive 80% of the tips and the remaining 20% is shared with other direct table service employees, have been found fair and equitable.  The tips may not be shared with employees, such as cooks and dishwashers, who do not provide direct table service. 

The Starbucks case highlights another important limitation on tip pooling policies.  The California Labor Code prohibits employers “or their agents” from sharing in the tips left for employees.  Therefore, owners, managers or supervisors may not share in the tips, even if they share in the table waiting duties.  It is important to note that the DLSE takes a broad view of the range of employees who qualify as “supervisors.”  According to the DLSE, a supervisor is anyone “with the authority to hire or discharge any employee or supervise, direct, or control the acts of employees."  (September 8, 2005 Op. Letter of Donna M. Dell.)  

Tip pooling lawsuits appear to be the flavor of the month.  In fact, in the wake of the recent San Diego Superior Court ruling, Starbucks was hit with similar class action lawsuits in Massachusetts and Minnesota.  All employers who utilize tip pooling should review their policies to ensure compliance with the law.  For further guidance on the legal requirements for tip pooling policies, please see our previous post on this subject.

By Vanessa W. Whang

California's Fourth District Court of Appeal recently dealt another blow to arbitration agreements in the employment context.  In Metters v. Ralphs Grocery Company, the court affirmed the denial of a motion to compel arbitration of a discrimination and harassment case.  The plaintiff, Metters, had signed a dispute resolution form entitled "Notice of Dispute and Request for Resolution Form," to submit his discrimination and harassment claims to the Company for internal investigation.  The dispute resolution form contained an arbitration provision and when the employee eventually sued Ralph's, the company moved to compel the case to arbitration.  However, the trial and appellate courts found the dispute resolution form was insufficient evidence of an agreement to arbitrate.  The form included plain language explaining that the employee, by submitting the form, was agreeing to mandatory, binding arbitration of any "covered disputes" as defined in a "policy" that was referenced but, according to Metters, not attached to the form or provided to him.  The Court found that the document did not look like a contract and did not sufficiently alert the employee that, by signing the form, he was agreeing to binding arbitration.  "A transactional attorney sitting in an office somewhere…[might] be able to figure out what it meant," but the Court felt that the employee should not have been expected to figure out that the dispute resolution form bound him to arbitrate his claims.  The trial court, finding no "meeting of the minds" between the parties on an agreement to arbitrate disputes, refused to compel the case to arbitration and the California Court of Appeal affirmed. 

To avoid the result in Metters, California employers would be well-advised to:  1) create free-standing arbitration agreements that are not buried or hidden within other documents; 2) draft arbitration agreements to make them appear contractual in nature; 3) ensure arbitration agreements do not substantially rely on extraneous documents or policies incorporated by reference; 4) ensure that the language of the arbitration agreement is clear so that the employee is alerted to the arbitration provision; and 5) have arbitration agreements reviewed by competent legal counsel to ensure compliance with California law.  While the Metters case is largely limited to very detailed facts, this case is another reminder that arbitration agreements continue to be subject to close scrutiny by California courts.

By Robin E. Weideman

In Costco Wholesale Corp. v. Superior Court, a putative class action alleging misclassification of certain Costco managers, California’s Second Appellate District held that the trial court did not err by ordering Costco to produce portions of a pre-litigation attorney-client memorandum prepared for Costco by its outside counsel.  Specifically, in 2000, Costco retained outside counsel to analyze whether its department managers (including those at issue in this class action) qualified for exempt status.  Outside counsel conducted interviews, reviewed job descriptions, and prepared an in-depth 22-page memorandum to Costco’s in-house counsel, analyzing the exempt status of these managers.  Costco unsurprisingly refused to produce this memorandum to plaintiffs in discovery, asserting the memorandum was protected from disclosure by the attorney-client privilege and work product doctrine.  The trial court ordered Costco (over Costco’s objections) to produce the memorandum for an in camera review by a referee.  The referee determined that portions of the memorandum summarizing the managers’ job duties were not privileged and should be produced.  Costco petitioned for a writ of mandate.

On review, the Second Appellate District affirmed the trial court’s order, based on its determination that Costco has not proven the need for “extraordinary” writ relief. According to the court, Costco had not demonstrated that it would be “irreparably harmed” by disclosure of portions of the memorandum describing managers’ job duties because, according to the court, this information “came from job descriptions and interviews with two managers,” was “inconsequential,” and did not “infringe on the attorney-client relationship.”  The court rejected Costco’s argument that the factual portions of the memorandum were work product in that they necessarily reflected counsel’s legal impression of the facts.  The court also concluded that Costco would not be harmed by the disclosure because the information was readily available through other sources anyway, i.e. depositions, interrogatories, requests for production of job descriptions.

Assuming the Costco decision withstands further appeal, it should be expected that plaintiffs’ attorneys will heavily rely on this decision going forward as a means of trying to obtain in camera review and possible production of legal memoranda and other communications between counsel and their clients, analyzing the propriety of exempt classification.

Posted by Brent M. Giddens

Last week, a California Court of Appeal issued its decision in Isner v. Falkenberg, a case addressing whether and to what extent time spent by employees living on the employer's property was compensable hours worked.  The Isners were required, along with other resident employees, to remain within earshot of the Company's emergency alarm system during off duty hours.  Although the case is limited to the relatively rare instance of resident employees, it does underscore the general rule regarding whether "on call" time constitutes compensable "hours worked."  As often described, if employees are "engaged to wait," meaning their personal freedom to pursue private interests is substantially restricted, then such time is considered hours worked.  Conversely, if employees are "waiting to be engaged," meaning they can go about their usual business without substantial restriction, such time is not hours worked despite the potential obligation to be prepared to work.  The Isner court found that since the employees were permitted to engage in personal interests and activities without material limitation, such time spent "within earshot" of the employer's emergency alarm system was not "hours worked."

Employers would be well advised to carefully review any "on call" requirements for non-exempt employees to ensure such time is being properly treated from an hours worked perspective.

Posted by Jennifer Barrera

A judge in the Northern District of California recently ruled that an on-duty meal period is not equivalent to a “waived” meal period.  In McFarland v. Guardsmark, LLC, the employee (a security guard) worked shifts in excess of ten hours, thereby entitling him to two meal periods under California's Labor Code.  The employee later filed a lawsuit against his employer, claiming the two on-duty meal periods in one shift were essentially two waived meal periods, and therefore violated his right to a duty-free meal period.  The employee relied upon an excerpt from the Department of Labor Standards Enforcement (“DLSE”) Operations Manual that implied the DLSE considers an on-duty meal periods as a “waived” meal period and that an employee cannot waive two meal periods in one shift.  The employer filed a motion for summary judgment and argued that an on-duty meal period is a type of paid meal period, not a waived meal period. 

In her ruling, the judge rejected the DLSE’s interpretation of on-duty meal periods and stated that courts are not required to defer to the DLSE’s manual.  The judge agreed with the employer and held that an on-duty meal period is not a waived meal period and, therefore, the employee may take two on-duty meal periods in one shift, assuming the other requirements for an on-duty meal period are satisfied. 

The employee’s attorneys have indicated that they are planning to appeal this ruling, and we will provide updates if the court's decision is ultimately reviewed on appeal.  In the interim, please contact us with any questions on this issue or to discuss the requirements an employer must satisfy to establish an on-duty meal period. 

Posted by Jeremy T. Naftel

California employers are very familiar with the negotiating leverage afforded to employees by the state's wage and hour laws.  Last week, a California Court of Appeal took a step towards leveling the playing field in Harrington v. Payroll Entertainment Services, Inc. 

In that case, the plaintiff -- who had admittedly been underpaid $44.63 in overtime -- filed a lawsuit on behalf of himself and all similarly situated employees.  The court denied class certification and the case ultimately settled for $10,500.  The parties agreed that plaintiff was the “prevailing party” for purposes of an attorney fee award, and agreed that the trial court would determine the reasonableness of the fee claimed by plaintiff’s lawyers.

The fee request submitted by the plaintiff’s lawyers totaled $46,277.  Defendant opposed the application, and the trial court denied it in its entirety.  On appeal, the court agreed with plaintiff that “reasonable” attorneys fees were mandated by statute.  However, the court characterized the $10,500 settlement of a $44.63 claim as a “windfall” and refused to work a still greater injustice by awarding tens of thousands of dollars in attorney's fees.  The court reasoned that such an award would not meet the “reasonableness” standard of the statute.  Instead, the court awarded a total of $500 in fees, and encouraged the plaintiff to share his windfall with his attorneys.

This ruling recognizes that California’s strict wage and hour laws can result in injustice if applied blindly, and may be helpful in injecting an element of reasonableness into future employee-employer negotiations.  Please contact us directly to discuss any questions you may have relating to the impact of this decision as it relates to your business.

Employers and managers received some welcome news yesterday when the California Supreme Court ruled in Jones v. The Lodge at Torrey Pines Partnership that supervising employees could not be held personally liable in cases alleging claims of retaliation. 

In Jones, a jury returned a verdict against the employer and an individual defendant supervisor, finding both liable for retaliating against an employee who had made a sexual orientation discrimination complaint.  In reversing the appellate court's decision affirming that verdict, the California Supreme Court found that the statutory language prohibiting retaliation did not plainly provide for personal liability on retaliation claims.  Drawing an analogy to discrimination claims, which also do not provide for personal liability of individual employees, the Court stated that:

“All of these reasons for not imposing individual liability for discrimination – supervisors can avoid harassment but cannot avoid personnel decisions, it is incongruous to exempt small employers but to hold individual non-employers liable, sound policy favors avoiding conflicts of interest and the chilling of effective management, corporate decisions are often collective, and it is bad policy to subject supervisors to the threat of a lawsuit every time they make a personnel decision – apply equally to retaliation.” 

Based upon these policy considerations, the ambiguous statutory language, and a review of legislative history, the Court held that there was no personal liability for retaliation claims.

In analyzing this decision, employers should be mindful that, although individual employees are not personally liability, employers are still liable for any unlawful retaliation.  Please contact us directly if you have any questions regarding the Jones decision.

Posted by Nancy G. Berner

In its unanimous decision in Sprint/United Management Co. v. Mendelsohn, an age discrimination case, the U.S. Supreme Court explicitly directed a lower court to question the relevancy of testimony by co-workers who claimed they were also subjected to age discrimination, but who played no role in the discrimination allegedly suffered by the plaintiff.

In that case, a former 51-year old Sprint employee alleged that she had been selected to be part of a reduction-in-force because of her age, and attempted to present evidence that five other former employees had also been unfairly treated due to their age.  None of the five witnesses had worked in the same group as plaintiff or under the supervisors in her chain-of-command.  The trial court held that this so-called "me too" evidence was both unfairly prejudicial and irrelevant because those workers were not similarly situated given that their work had not been overseen by any of plaintiff's direct supervisors; this ruling was subsequently interpreted to mean that such "me too" evidence was per se prohibited in such cases.

The U.S. Supreme Court, however, found that such evidence is neither per se admissible nor per se inadmissible.  Specifically, the Court held that the appropriate methodology in such cases would be a fact intensive, case-by-case approach, including an analysis of how closely related the evidence is to the plaintiff's circumstances and theory of the case. 

In practical terms, even if the evidence is determined to be relevant, the court must still then determine whether it should be presented to a jury, especially where it could be highly prejudicial to the defendant, also requiring a fact intensive, case-by-case approach.  Please contact us directly to discuss any questions you may have relating to the impact of this decision as it relates to your business.

Posted by Christopher M. Robertson

Hammond v. County of Los Angeles illustrates that an employer's success at the appellate court level can be just as dependent on the luck of the draw as at the trial court level.  Specifically, in that case the dissenting justice had a completely different view of what constitutes an adverse employment action and sufficient evidence of discrimination than the two justices who reversed the trial court's order granting the employer's motion for summary judgment. 

To be actionable under California's Fair Employment and Housing Act (FEHA), the discriminatory or retaliatory adverse employment action must materially affect the terms, conditions or privileges of employment, and must have occurred during the one year preceding the filing of the DFEH complaint.  The majority opinion in Hammond found that a reduction in teaching assignments for the plaintiff, a nursing instructor, was sufficient to constitute an adverse employment action, and although that reduction began before the applicable statute of limitations period, such an adverse employment action was not time-barred because it continued into the applicable statute of limitations period.  The dissenting justice, on the other hand, rejected the majority's contention that the reduction in teaching assignments constituted an adverse employment action because it relegated the plaintiff to "some undefined, but lesser, status," and criticized the majority opinion for "essentially allowing an infinite period of limitations." 

Posted by Nancy G. Berner

Posted by Nancy G. Berner

On Friday, February 8, 2008, the Golden Gate Restaurant Association (“GGRA”) appealed to U.S. Supreme Court Justice Anthony Kennedy seeking, in essence, to stop enforcement of the portion of the San Francisco Health Care Security Ordinance mandating employer spending requirements for employee healthcare.  The employer spending requirement was deemed unenforceable by the U. S. District Court in December 2007.  The City of San Francisco appealed that decision; the following month, the Ninth Circuit stayed the lower court's ruling during the City’s appeal, meaning that employers must make the mandated payments while the dispute works its way through the appellate process. 

It is this latest ruling – namely, that San Francisco employers make payments that may or may not eventually be found enforceable – that the GGRA seeks to overturn.  Plainly put, the GGRA has asked the Supreme Court to stay the requirement that employers make required payments until the courts determine whether or not the mandate is legally viable.  Justice Kennedy has the option of either acting alone on the GGRA’s petition, or referring it to his colleagues, and has requested a response from the City by 5:00 pm, Wednesday, February 20th. 

For the immediate future, however, the law has not changed, and employers must make the mandated payments until and unless the Supreme Court says otherwise.  Please contact us directly to discuss any questions you may have relating to this matter. 

Posted by Ursula R. Kubal

A federal court recently determined that an employer's issuance of paychecks drawn on non-California banks warrants the imposition of sizable penalties.  Specifically, in Solis v. Regis Corporation, plaintiff filed a putative class action lawsuit alleging that by issuing paychecks drawn on an Illinois bank, Regis violated Labor Code section 212, which requires that California paychecks be "payable in cash, on demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument."  Plaintiff sought penalties pursuant to Labor Code section 225.5 (authorizing a civil penalty against any person who unlawfully withholds wages due to a violation of Section 212) because some of them had been forced to pay additional fees to cash these out-of-state payroll checks.

Although Regis admitted a technical violation of Section 212, it argued that it did not owe penalties for those employees who had been able to cash their paychecks for no charge -- in other words, employees who did not pay a check-cashing fee had no wages withheld and, therefore, no penalty should be imposed.

The U.S. District Court for the Northern District of California disagreed, holding that regardless of whether an employee had been injured, Regis technically violated the statute by paying employees with checks that did not comply with Section 212.  The court recognized that Section 225.5 penalties apply only when workers have to pay a fee, but noted that even if penalties are not available under Section 225.5 for those employees who did not pay such fees, penalties are available to them under California's Private Attorneys General Act. 

The Solis decision is a harsh reminder to employers of the importance of periodically having their employment policies and practices audited to ensure that they are in full compliance with California's intricate maze of labor laws.  If you have any questions regarding the Solis decision or your company's pay practices, please contact us directly.

Posted by Candice Boyd

California employers recently suffered a setback in their ability to curb perceived defamatory statements made about their businesses. In Nygard, Inc. v. Uusi-Kerttula, the California Court of Appeal affirmed the granting of motions to strike an employer’s complaint pursuant to California’s “anti-SLAPP” statute. Cal. Code Civ. Proc. § 425.16. The statute allows a defendant to seek early dismissal of a lawsuit that qualifies as a “strategic lawsuit against public participation.” 

In Nygard, a former employee gave an interview to a magazine after ceasing his employment with plaintiffs Nygard, Inc. and Nygard International Partnership (collectively, “Nygard”). The interview concerned the employee’s work experiences with Nygard, about which the employee provided several negative comments. 

Posted by Sarah N. Drechsler

An appellate court's recent decision in Ahmadi-Kasani v. The Regents of the University of California highlights the fact that an employee will not always be required to exhaust an employer's internal grievance procedure if that procedure fails to provide sufficient due process.

In that case, a university employee filed a grievance alleging that she had been sexually harassed by her supervisor.  The university's internal four-step grievance procedure was set out in its collective bargaining agreement with the employee's union.  However, after participating in the grievance procedure through the third step, the employee aborted the procedure and filed her lawsuit due to concerns that her grievance was not being adequately addressed by the university.

The university challenged the lawsuit, arguing that once the employee initiated the internal grievance procedure, she was required to complete the process before filing a lawsuit.  The appellate court reviewing the matter determined that the employee was not obligated to fully exhaust the internal grievance procedure because it did not provide for a "quasi-judicial hearing with sufficient due process to generate a legally-binding result."  Based on the facts of the case (i.e., there was no provision in the grievance procedure whereby the employee had the right to present sworn testimony or other evidence or to cross-examine witnesses; the employee had no right to invoke the arbitration, although the union did; and the decision of the arbitrator would not have had any binding effect in the subsequent lawsuit), the court held that it would make no sense to require an employee to fully exhaust all steps of an internal procedure before filing a lawsuit if full exhaustion would not even result in a finding that had any bearing on the subsequent lawsuit.

This decision should serve as a strong reminder that employers must ensure that their internal grievance procedures provide sufficient due process to encourage employees to avail themselves of internal remedies, and to result in findings that will be binding in subsequent litigation.  If you have any questions regarding drafting such procedures or the implications of this decision for your business, please contact us directly.

Posted by Nancy G. Berner

The Ninth Circuit Court of Appeals recently issued a ruling denying a union’s claim that a company engaged in unlawful surveillance when HR personnel interrupted two meetings between union organizers and individual employees.  Local Joint Executive Board of Las Vegas v. NLRB (9th Cir. 05-75515 01/28/08).

The underlying facts were not at issue. Unions implemented an open campaign to organize and unionize culinary workers at a Las Vegas hotel. On two separate occasions, a human resource manager observed and then interrupted conversations in the employee dining room between organizers and workers to present the hotel’s point of view.  In particular, the manager stated that workers should be aware that signing a union card obligated the worker to pay monthly dues, and that the workers should make sure they had all the facts before signing the card.

The California Supreme Court announced today that it granted the petition for review filed by Google in that company's continued appeal of an age-discrimination action filed by one of its former employees. 

Specifically, and as reported in a previous entry on this blog, the plaintiff in Reid v. Google, Inc. (who was 54 years old at the time of his termination) claimed he had been called “fuzzy,” “sluggish,” and “lethargic” at work, and that he had been told his ideas were "obsolete" and "too old to matter."   After the trial court granted Google's summary judgment motion, plaintiff appealed the decision.  The appellate court found that these comments were not, as a matter of law, "stray remarks," and that the plaintiff should consequently be allowed to pursue his claims (click here to review that decision).  Google has now appealed from that ruling, seeking relief from the California Supreme Court, which has agreed to hear the matter.

We will continue to provide updates as this case makes its way through the Court.  In the interim, please contact us directly to discuss any questions you may have relating to this matter.

Posted by Robin E. Weideman

Earlier today the California Supreme Court issued its long-awaited decision in Ross v. RagingWire Telecommunications, Inc. and held that an employee who was fired for failing a drug test due to medical marijuana use does not have a valid claim for disability discrimination or wrongful termination against the employer. 

The plaintiff in that case applied for and was offered a position as a systems administrator with RagingWire.  In connection with his hiring, he was required to take a drug test, and three days later started work for RagingWire.  Later the same week, RagingWire received plaintiff's drug test results, which were positive for marijuana, and suspended plaintiff.  Plaintiff provided RagingWire with a doctor's note explaining that he was medically prescribed marijuana to treat chronic back pain.  Notwithstanding the doctor's note, RagingWire terminated plaintiff's employment.

Plaintiff subsequently sued RagingWire for disability discrimination and failure to accommodate a disability under the California Fair Employment and Housing Act.  He also alleged a claim for wrongful termination in violation of public policy, arguing that RagingWire's termination of his employment contravened the public policy behind California's Compassionate Use Act (the California statute exempting users of medically prescribed marijuana from criminal liability under certain state laws). 

Posted by David V. Greco

Employers facing class actions for failure to provide employees with meal and rest breaks received a bit of good news from a California appellate court when it denied class certification on such claims because it determined that common questions of law and fact did not predominate. 

Specifically, in Bell v. Superior Court, plaintiffs were drivers who claimed, among other things, that their employer failed to provide them meal and rest breaks as required by law.  Plaintiffs contended that the company had an unwritten policy of scheduling too much work to allow drivers to take their breaks and submitted declarations to support their claims.  In response, the company submitted evidence demonstrating that meal and rest breaks were provided, including personnel handbooks and manuals that set forth policies for meal and rest breaks and declarations confirming that drivers were trained to take breaks and that at least some drivers did so.  The court denied class certification, finding that individual issues predominated over common issues, based in part on its determination that there was no evidence of a company-wide policy prohibiting meal and rest breaks. 

What this means for California employers is that the existence of written policies directing employees to take meal and rest breaks (including those in employee manuals) is something that courts consider when determining whether or not to certify a class.  Drafting and implementing such policies is a relatively simple process, and one which – as shown by this case – can have significant positive repercussions at a later date. If you have any questions regarding drafting such policies or the implications of this decision for your business, please contact us directly.

In a ruling last month, the National Labor Relations Board allowed employers to uniformly prohibit use of company e-mail for e-mail solicitations to other employees, even if those solicitations were to organize union-related activities on behalf of employees. In The Guard Publishing Company, 351 N.L.R.B. No. 70 (2007), the employer implemented a policy prohibiting employees from engaging in non-job-related e-mail solicitations. Based upon this policy, the employer disciplined an employee, the union president, for sending e-mails to other employees requesting that employees wear green and participate in a parade to show union solidarity. The union charged that this discipline unlawfully discriminated against union-related activities. 

The NLRB held that an employer may “lawfully bar employees’ non-work-related use of its e-mail system, unless the [employer] acts in a manner that discriminates against Section 7 activity.” The NLRB further held that because the non-solicitation policy “on its face does not discriminate against Section 7 activity,” the union’s discrimination charge with respect to the two e-mails was without merit. Key to the NLRB’s decision was the fact that the company did not discriminate by applying the non-solicitation policy to only union-related solicitations. If the company had only enforced the policy against union-related solicitations while allowing other non-job-related solicitations to proceed unfettered, the policy would have indeed constituted unlawful discrimination under the National Labor Relations Act. 

In a somewhat disappointing ruling for employers, the Ninth Circuit recently held in NLRB v. Friendly Cab Company that taxicab drivers were improperly classified as independent contractors rather than employees.  In reaching its decision, the court focused on the control the employer exercised over the drivers and its restriction on the drivers' entrepreneurial activities. 

As background, the National Labor Relations Act ("NLRA") provides employees the right to engage in collective bargaining, but does not extend this right to independent contractors.  Friendly Cab Company ("Friendly") contended that its taxicab drivers were independent contractors and therefore not entitled to collective bargaining rights under the NLRA.  The National Labor Relations Board ("NLRB") concluded that the drivers were indeed employees, rather than independent contractors.  Friendly appealed the decision to the Ninth Circuit, and the Ninth Circuit affirmed.

Posted by Connor J. Moyle

A recent appellate court decision has confirmed that an agreement providing for 1) written notice of termination and 2) a termination review procedure does not alter the at-will nature of the employment relationship.  Specifically, in Bernard v. State Farm Mutual Automobile Insurance Co. the court held that a plaintiff could not pursue his contract-based cause of action for wrongful termination because he had an at-will employment relationship with his employer that was terminable at any time.

In that case, the parties had entered into an agreement that contained the following language:

     III.A. You or [employer] have the right to terminate this Agreement by written notice delivered to the other or mailed to the other’s last know address.

     III.B. In the event we [employer] terminate this Agreement, you are entitled upon request to review in accordance with the termination review procedures approved by the Board of Directors of the Companies, as amended from time to time.

The former employee argued that extrinsic evidence of the contract’s meaning should be admitted because the language was ambiguous.  However, the court held that the plain language of the agreement was not reasonably susceptible to an interpretation requiring good cause for termination, and instead interpreted the agreement as having created an at-will employment relationship.  The court also held that the termination review procedure referenced in the agreement did not substantively alter the at-will nature of the relationship.

The Bernard decision esssentially confirms that employers may include carefully-drafted provisions for termination notice and review procedures in employment agreements without sacrificing the at-will nature of an employment relationship.  If you have any questions about the implications of the Bernard decision for your business, please contact us directly.

Posted by Nancy G. Berner

Yesterday the Ninth Circuit Court of Appeals issued an emergency stay permitting the City of San Francisco to implement the Employer Spending Requirement (“ESR”) provision of its Health Care Ordinance while it appeals the recent lower court ruling that found the ESR is preempted by federal law (click here to view the court's order).  Although the City’s appeal is distinct from the stay, the court ruled that the City has a “strong likelihood of success” in prevailing on its appeal.

This emergency stay has an immediate impact on employers who employ 50 or more individuals total, with any of those persons working in San Francisco.  Specifically, businesses with 50 to 99 employees that are not already spending a minimum of $1.17 per hour on employees who work 10 or more hours per week will now be required to do so; businesses with more than 99 employees that are not spending more than $1.76 per hour for employee healthcare must now spend that amount.  Although the court did not articulate an effective date, its ruling in essence means that covered employers are required to immediately begin complying with the ESR.

We will continue to provide updates on this rapidly changing issue.  In the interim, please contact us directly to discuss any questions you may have relating to this matter.

Posted by Nancy G. Berner

The holiday season brought at least temporary tidings of comfort to San Francisco employers when U.S. District Judge Jeffrey White ruled that a key provision of the City’s Employer Mandate for Healthcare – requiring employers to meet minimum contribution levels to employee health insurance benefits or help fund a city program – violates the 1974 federal Employee Retirement Income Security Act.  In his most recent ruling, Judge White agreed with the Golden Gate Restaurant Association that the Employer Spending Requirement provision is preempted by federal law and granted summary judgment in its favor (click here to view the decision).  The City responded swiftly with a request for an emergency stay of the ruling, pending an appeal, from the Ninth U.S. Circuit Court of Appeals.  The Ninth Circuit did not rule immediately on the emergency stay, but agreed to hear oral argument on January 3rd.

Updates on this rapidly changing issue will be posted on this website as information becomes available.  In the interim, please contact us directly to discuss any questions you may have relating to this matter.

The California Supreme Court recently heard oral arguments in Ross v. Ragingwire Telecommunications, Inc., a case in which a lower court held that an employer does not have a duty to accommodate an employee's disability by permitting him to use illegal drugs, even if the drug is marijuana used for medical purposes pursuant to California's Compassionate Use Act (which protects medical marijuana users from criminal liability).

In that case, plaintiff was offered a job and worked for 8 days before his employer learned he had tested positive for marijuana and thus failed a pre-employment drug test.  Even though he produced a note from his physician confirming that the marijuana was prescribed for medical purposes to provide relief for lower back strain and muscle spasms, the employee was fired.  The employee subsequently filed suit, contending that his employer had violated California's Fair Employment and Housing Act in failing to reasonably accommodate his disability by terminating him for his use of medically-prescribed marijuana. 

In its defense, the employer raised many of the concerns that are shared by other employers throughout the state, including absenteeism from work, diminished productivity and greater health care costs, as well as concerns relating to the contradictions between state and federal law regarding the legality of using medicinal marijuana.  In response to these concerns, plaintiff argued that his use of marijuana did not interfere with his job performance, and that he did not use the drug during working hours or on the job site.  Ultimately, the court of appeal sided with the employer and found that employers may legally terminate employees for using illegal drugs, with no exceptions for medically-prescribed marijuana. 

A decision is expected by the California Supreme Court in this case by early February 2008, at which time we will post a blog-entry summarizing the Court's decision.  In the interim, please contact us directly to discuss any questions you may have regarding your obligation to accommodate employees using marijuana for medicinal purposes.

Posted by Connor J. Moyle

A California appellate court recently clarified that a one-year statute of limitations applies to claims brought solely for waiting time penalties relating to late payment of wages under Labor Code section 203. 

Specifically, in McCoy v. Superior Court, the court determined that a putative class action plaintiff was not entitled to allege a claim for waiting time penalties alone because the one-year statute of limitations for those penalties had run.  In that case, the underlying wages had indisputably been paid, but plaintiff claimed that his employer had not paid wages owed until one day after completion of temporary work assignments.  Plaintiff argued that the statute of limitations for a claim seeking waiting time penalties is the same as that for recovery of the underlying wages, which he asserted is four years.  Defendant argued, however, that in a claim that only seeks waiting time penalties, the general one-year statute of limitations for penalties should apply.

The appellate court agreed with the defendant-employer and reasoned that the purpose of Section 203 is to ensure that employers pay wages promptly, not to provide for a penalty independent of the wage claim. Thus,  where the employer has paid the underlying wages, the purpose for extending the statute of limitations for waiting time penalties to coincide with that for wages no longer exists.  Having found the time period in Section 203 inapplicable, the court applied the general one-year limitations period for penalties found in Code of Civil Procedure section 340(a).  The court also rejected plaintiff's alternative argument that waiting time penalties should be considered “wages” rather than a penalty, and that the longer limitations period for wages should therefore apply. 

Employers should note that the McCoy court explicitly limited its holding to suits that do not also involve a claim for unpaid wages.  Nevertheless, this decision has the potential to benefit employers by limiting the amount of time they remain exposed to employees for waiting time penalties where all underlying wages have been paid.  The decision also underscores the importance of promptly paying wages due upon discharge.  Please contact us directly to discuss any questions relating to the effect this decision may have on your workplace.

A recent California appellate court decision clarifies that not every instance of inappropriate conduct can give rise to a “hostile work environment” sexual harassment claim.  Specifically, in Mokler v. County of Orange, the court determined that three instances of offensive behavior over a five-week period, though inappropriate, did not demonstrate the continuous, pervasive harassment necessary to show a hostile work environment.

In Mokler, plaintiff served as the Executive Director of the Orange County Office on Aging; as part of her job, she routinely interacted with County Supervisors.  One of the male Supervisors called plaintiff an “aging nun” when he learned she was not married.  A week later, when plaintiff greeted the Supervisor at a social function, he took her arm, pulled her towards him so that the sides of their bodies were touching and asked her if she was there to lobby him.  When she responded in the negative, the Supervisor pointed to two women standing next to him and asked, “Why not?  These women are lobbying me.”  He also looked her up and down and told her she had a nice suit and nice legs.  A month later, when plaintiff went to the Supervisor's office, he told her she looked nice and put his arm around her; he then pressed her to tell him where she lived and put his arm around her again, rubbing her breast in the process.  During this same meeting, the Supervisor made a derogatory remark about Mexicans.

In a decision that surprised and pleased many employers, the appellate court held that the three incidents, though “rude, inappropriate, and offensive,” were not sufficient to create a hostile work environment as a matter of law because they did not show “a pattern of continuous, pervasive harassment.” 

Note that although the employer in this case was not found liable for sexual harassment, the decision nevertheless underscores the potential liability employers face from sexual harassment claims.  To minimize this risk, employers should have strongly worded policies in place forbidding sexual harassment and should ensure that their supervisors are trained in sexual harassment prevention.  In addition, employers should be sure to investigate all complaints of harassment quickly and thoroughly.  Please contact us directly to discuss any questions relating to the effect this decision may have on your workplace.

Posted by Mark S. Spring

On December 3, 2007, the United States Supreme Court will hear arguments in Sprint/United Management Co. v. Mendelsohn, a federal age discrimination lawsuit.  The primary issue in the case is whether or not, and to what extent, trial courts should admit so called "me-too" evidence in age discrimination cases.

Simply stated, "me-too" evidence is evidence that other individuals were also discriminated against by the same employer.  "Me-too" evidence is present in most discrimination actions and, in some cases, the plaintiff places great reliance on substantial "me-too" evidence in proving discriminatory motive.  In Sprint/United, plaintiff Mendelsohn was laid off as part of a Reduction in Force (RIF) and claims that she was chosen for this RIF because of her age.  In an attempt to help prove that age was a factor in her case, Mendelsohn seeks to admit evidence that five other former Sprint employees were also chosen for a RIF because of their age.  Significantly, these individuals were supervised by different supervisors than Mendelsohn.  The trial court excluded the evidence and the jury ruled for Sprint.  On appeal, the Tenth Circuit Court of Appeal reversed and ordered the evidence admitted; Sprint then took the case to the U.S. Supreme Court.  

In jury trials of all types of discrimination lawsuits, "me-too" evidence, when admitted, is often very influential.  Plaintiffs' attorneys argue that without this evidence, the jury is not getting the complete picture, and that it constitutes key circumstantial evidence of discriminatory motive that the jury must be entitled to weigh for itself.  Defense attorneys, on the other hand, argue that the evidence is highly prejudicial, and leads to extended discovery and lengthy trials that encompass numerous unrelated discrimination claims and results that are often based on facts that are not connected to the actual plaintiff's situation. 

Posted by Kent J. Sprinkle

The recent Court of Appeal decision in Brinker Restaurant Corp. v. Superior Court, discussed in our October 23, 2007 posting, has gone from being merely an unpublished opinion to being vacated and transferred back for reconsideration following a petition for review to the California Supreme Court. 

Specifically, at the request of the appellate court, the California Supreme Court – in a highly unusual move – granted review and then transferred the case back to the Court of Appeal to be reconsidered, at which point the parties may submit additional briefing (although briefing is limited to discussion of any issues that could have been raised in a petition for rehearing).  According to the California Supreme Court's docket, review was granted on the appellate court's own motion, the cause was transferred back to the Court of Appeal, and the petition for review and requests for publication were both denied as moot.

A relevant excerpt from the Court of Appeal docket explained: ". . . [t]his court requested that the California Supreme Court grant review and transfer the matter back to this court based upon the fact that the disposition in the original opinion stated that it was 'final as to this court immediately,' and the fact that statement was a clerical error.  In an order dated October 31, 2007, the Supreme Court did so, ordering that this court 'vacate its opinion and reconsider the matter as it sees fit.'  Therefore, the real parties in interest's supplemental letter brief, and any response thereto, shall be limited to a discussion of any issues that could have been raised in a petition for rehearing had the decision not become final immediately upon its issuance.  This supplemental letter brief should be filed on or before Monday, December 17, 2007."

The open question is whether the "reconsidered" opinion will include any new or changed substantive discussion on the meal and rest break and class certification issues.  In the meantime, employers must wait for further developments in this potentially critical decision.     

Earlier this week, the California Supreme Court issued its decision in Gattuso v. Harte-Hanks Shoppers, Inc. and addressed the issue of whether an employer may satisfy its obligation to reimburse employees for employment-related expenses by paying increased wages and/or commissions instead of separately reimbursing them for actual expenses.  The Court determined that an employer may satisfy its obligation by paying increases in base salary or in commissions rates, or both (referred to as the “lump sum” payment method), provided there is a means to apportion the enhanced compensation to determine what amount is being paid for labor performed and what amount constitutes reimbursement for business expenses.

Specifically, Labor Code section 2802(a) requires that an employer indemnify its employees for expenses necessarily incurred in the performance of their job duties.  Harte-Hanks required its outside sales representatives to drive their own automobiles on sales calls, and compensated both outside and inside sales representatives by commissions on sales or by a combination of salary plus commissions.  In response to the lawsuit filed by an outside sales representative, Harte-Hanks argued that it satisfied its obligation to reimburse outside representatives for expenses related to the use of their own automobiles by paying them higher base salaries and higher commission rates than were paid to inside sales representatives.

Posted by Robin E. Weideman

On October 17, 2007, the California Supreme Court granted review of Alliance Payment Systems, Inc. v. Walczer, a California appellate court decision.  This case involved a business dispute between two former partners which they subsequently resolved by way of a settlement agreement.  In the settlement agreement, the former partners agreed not to solicit each others' customers for five years.  They further agreed that if either received money from the others' customers (even without solicitation) the money would be turned over to the partner who originally had the customer.         

In the ensuing dispute between the partners, the appellate court held that both of these provisions violated California Business and Professions Code section 16600's prohibition against contracts in restraint of trade because they were not tied to the protection of trade secrets.  However, the court held that the non-solicitation of customers provision was enforceable under the dissolution of partnership exception to Section 16600.  Notably, though, the court held that the provision requiring the turning over of monies was not enforceable under any exception to Section 16600.  The California Supreme Court subsequently granted review.

The California Supreme Court's grant of review in the Walczer case appears to signal an interest on its part in providing further guidance on non-compete issues under Section 16600.  This is further bolstered by the fact that another case addressing these issues  -- Edwards v. Arthur Andersen  -- is also still pending review before the Court.  Please contact us directly to discuss any questions you have regarding the effect the grant of review may have on your workplace. 

Posted by Kent J. Sprinkle

There have been few decisions dealing with the question of whether employers are merely obligated to "provide" meal breaks to employees simply by making such breaks available or – as many plaintiffs have argued – whether the obligation to "provide" meal breaks in fact carries with it an obligation for employers to forcefully ensure that employees are actually taking such breaks, e.g., to actively police employees to ensure meal breaks are both offered and taken.  The answer to this question will clearly have a significant impact on whether such claims are amenable to class treatment in class actions. 

Appearing to address this issue favorably for employers, a California Court of Appeal in Brinker Restaurant Corp. v. Superior Court, 2007 WL 2965604 (Oct. 12, 2007) – a recent but as yet unpublished decision – reversed a trial court's class certification order (which included meal and rest break claims), stating that the trial court's order relied on improper criteria and incorrect assumptions, including its failure in deciding the issue of what it means to "provide" meal breaks.  The Brinker court held that the class certification order was erroneous and had to be vacated because, among other reasons, "the class certification order rests on an incorrect assumption with respect to the meal period claims to the extent those claims are based on the theory that [the employer] had a duty to ensure that its hourly employees took the meal periods it provided to them, and thus the court abused its discretion in finding that these claims are amenable to class treatment." 

Specifically, in Brinker, a group of restaurant employees sued their employer for alleged failure to provide certain rest breaks and meal breaks, or compensation in lieu of such breaks, and also claimed that the restaurant required them to perform "work off the clock" during meal periods.  The decision contains substantially positive analysis concerning these claims as well as their amenability to class treatment, including a discussion of when breaks must be provided in terms of timing during the workday and that rest periods may be waived.  However, a most notable feature of the opinion is that it apparently, although not expressly, endorses the interpretation that an employer's obligation to "provide" employees with a meal break merely means to "offer" meal breaks or to make such breaks available.  The Brinker Court cited White v. Starbucks Corp., 497 F.Supp.2d 1080 (N.D. 2007), a positive published federal decision which held that "provide" requires only that employers "offer" meal breaks.  Unfortunately, the Brinker decision avoids a completely clear ruling on this question, instead pointing to the trial court's error in simply failing to decide on the issue of the meaning of "provide," but the cite to White may be indicative of the trend in such cases.  Hopefully, the Brinker decision will ultimately be published and subsequent cases, especially class action cases, will benefit from having a clearer answer to the question of how to "provide" meal breaks once and for all.  

Most California employers are aware of California's Private Attorneys General Act (“PAGA”) (also known as the “Sue Your Boss” or “Bounty Hunter” law), which allows plaintiffs to bring representative claims on behalf of themselves and other employees for alleged Labor Code violations.  Successful plaintiffs can recover up to $100 per employee for an initial violation, and $200 per employee per pay period for subsequent violations.  Recently, the California Supreme Court granted a petition for review in Arias v. Superior Court of San Joaquin County (Angelo Dairy), a case that has the potential to greatly increase the number of suits brought against employers under PAGA.

In Arias, plaintiff sued his former employer, alleging PAGA claims for various Labor Code violations, including claims for unpaid overtime and denial of meal periods and rest breaks.  The appellate court determined, among other things, that a PAGA-plaintiff may bring an action on behalf of himself and other employees without satisfying the requirements for a class action, which is what the employer had argued should be required.  This decision raises the possibility that PAGA may provide a new avenue for the kind of representative actions that Proposition 64 (requiring that actions brought under the state's Unfair Competition Law comport with class requirements) sought to curtail.  Specifically, if plaintiffs do not have to face the many hurdles presented by the class certification process, it will be far easier for them to bring representative claims again their employers for alleged violations of the Labor Code.  

The California Supreme Court’s decision in this matter is one that may well determine whether California employers face a new wave of representative claims under PAGA.  Please contact us directly to discuss any questions you have regarding the effect the grant of review may have on your workplace. 

Posted by Nancy G. Berner 

U.S. District Court Judge Charles M. Breyer granted a preliminary injunction against the so-called “no match” program that would require employers to verify Social Security numbers and terminate workers whose numbers did not match official records. In a ruling issued on October 10, 2007, Judge Breyer granted the preliminary injunction after extending a restraining order blocking the Department of Homeland Security from implementing the rule until the lawsuit brought in August by a coalition of immigration and labor groups (including the American Civil Liberties Union, the AFL-CIO, and the United States Chamber of Commerce) is heard at trial.

Please contact us directly to discuss any questions relating to the effect this ruling may have on your workplace.

Posted by Nancy G. Berner

In a recent 4-3 decision, the California Supreme Court concluded that employees who allege disability discrimination based on California's Fair Employment and Housing Act ("FEHA") must prove that they can perform their essential job functions, with or without accommodation.  With this ruling, the Court resolved a split in authority, and aligned FEHA requirements with those of the Americans with Disabilities Act, its federal counterpart.

What Happened

The controversy in Green v. State of California stemmed from a disagreement between the plaintiff and his employer, the Department of Corrections ("DOC"), about whether or not the employee was able to perform the job functions of a stationary engineer.  The DOC maintained that the fatigue caused by the employee's ongoing treatment for Hepatitis C rendered him permanently unable to work, and denied his request to return to his position.  The employee filed a lawsuit seeking recovery for disability discrimination; both the trial and appellate courts held that FEHA required the DOC to establish that plaintiff was incapable of doing his job.  The California Supreme Court, however, disagreed: Plaintiff and all employees who claim disability discrimination in the future bear the burden of proving that they are able to perform the essential functions of their jobs.

What it Means for California Employers

The Supreme Court’s ruling is unambiguous.  FEHA prohibits employers from drawing distinctions based on physical and mental disability “only if the adverse employment action occurs because of a disability and the disability would not prevent an employee from performing the essential duties of the job, at least not without reasonable accommodation.”  Therefore, it is now incumbent upon employees to prove that they can perform their jobs.  Nonetheless, from a practical point of view, it still behooves employers to carefully evaluate a disabled employee’s ability to perform the job, and carefully review potential reasonable accommodations.  In other words, even though employees must demonstrate that they can do the job, employers are well advised to conduct careful, good faith investigation to determine whether a reasonable accommodation can be provided to help minimize a plaintiff's potential for recovery in such cases.

For specific questions concerning compliance, please contact us directly.

Employers generally recognize that profit-sharing plans can be important tools for motivating employees and improving their morale.  Such plans help focus employees on their employers’ bottom line and foster a common goal among employers and their employees.  In California, however, such plans were also possibly unlawful until the California Supreme Court issued its recent decision in Prachasaisoradej v. Ralphs Grocery Co., Inc.  In that ruling, the Court held that an employee bonus plan based on a profit figure that considered store expenses such as the cost of workers’ compensation insurance, cash shortages and inventory losses was lawful.

Prior to Prachasaisoradej, two California appellate courts had held that Ralphs’ profit-based employee bonus plans that used workers’ compensation costs, cash shortages, and merchandise damages to calculate the amount of profits to be shared with the employees in effect off-set a portion of those expenses against their employees’ wages.  The appellate decisions held that such profit-based employee bonus plans violate California law because the state's Labor Code and wage and hour regulations prohibit employers from deducting such expenses from their employees’ wages

In analyzing the issues presented in Prachasaisoradej, the California Supreme Court first recognized that compensation plans that charge a portion of an employer’s expenses against an employee’s commissions or bonus that was dependent upon that employee’s individual efforts are unlawful.  In such cases, employers pay less to employees than what they had offered or promised to pay, and as a result, the “employee[s], having performed the labor, actually received or retains less than the paid, offered or promised compensation.”

The Court then distinguished those compensation plans from the one utilized by Ralphs, finding that the Ralphs' plan did not involve deductions from the wages offered, promised and paid to the employees, and therefore did not affect the wages paid to Ralphs' employees.  Under the Ralphs' bonus plan, “after the store had completed the relevant period of operation, and the resulting profit or loss figure was then derived, that it was possible to determine … whether [bonus plan] participants were entitled to a supplementary incentive compensation payment, and if so, how much.  This final figure, and this figure only, once calculated, was the amount offered or promised as compensation for labor performed by eligible employees, and it thus represented their supplemental ‘wages’ or ‘earnings.’”

Accordingly, the Ralphs’ plan did not involve a deduction of employer’s expenses from its employees’ individual commissions or bonuses.  Rather, it provided supplemental compensation the company used to “encourage and reward certain employees’ cooperative and collective contributions to the profitable performance of their stores” by providing them a portion of their store profits that “Ralphs would otherwise be entitled to retain for itself.” 

Thus, Prachasaisoradej represents a victory for employers both because it held that an important compensation tool is lawful, and because it addressed and attempted to reconcile several of California’s complex and sometimes incongruous labor laws.  For specific questions regarding the impact Prachasaisoradej may have on your business, please contact us directly.

On June 12, 2007, the Third District Court of Appeal further narrowed the administrative exemption that employers may use to exempt certain employees from California overtime requirements. In Eicher v. Advanced Business Integrators, Inc., (2007) ____ Cal. App. 4th ______, the plaintiff provided customer service and training concerning the defendant employer’s software. The defendant classified the plaintiff as exempt under the administrative exemption. The Court of Appeal sustained the superior court’s ruling that the plaintiff did not meet the requirements of the administrative exemption. 

To qualify for the administrative exemption, an employee must, among other things, perform “office or non-manual work directly related to management policies or general business operations” of the employer or its customers. In Eicher, the court narrowly interpreted this requirement to insist that the employee have “personal effect on the policy or general business operations” of the employer.  In Eicher, the plaintiff's primary responsibilities consisted of implementing and troubleshooting his employer's software at customer venues, as well as providing on-site and off-site customer support. The court opined that the plaintiff was more akin to a production worker previously found not to qualify for the administrative exemption because he was simply “engaged in the core day-to-day business” of the defendant.  Because the plaintiff had no personal effect on policy or general business operations, the court found that the requirement was not satisfied and, therefore, the administrative exemption did not apply. For more information concerning Eicher v. Advanced Business Integrators, Inc., click here. 

This class certification violates the requirements of Rule 23. It threatens the rights of women injured by sex discrimination. And it threatens Wal-Mart's rights. The district court's formula approach to dividing up punitive damages and back pay means that women injured by sex discrimination will have to share any recovery with women who were not. Women who were fired or not promoted for good reasons will take money from Wal-Mart they do not deserve, and get reinstated or promoted as well. This is “rough justice” indeed. “Rough,” anyway. Since when were the district courts converted into administrative agencies and empowered to ignore individual justice?

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.

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.

   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.

• 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.

A federal judge on Wednesday overturned a Maryland law that would have required Wal-Mart to spend more on employee health care, arguing the retail giant "faces threatened injury" from the law's spending requirement. Click here for article.

California employers should carefully follow the outcome of this case in Maryland. There is similar proposed legislation in California. Click here to read a prior post. "The decision sends a clear signal that employer health plans are governed by federal law, not a patchwork of state and local laws. It also is a clear message that similar bills under consideration in other states and municipalities violate federal law as well," Sandy Kennedy, president of the Retail Industry Leaders Association, told Reuters.

The Maryland law requires large employers to spend at least 8 percent of payroll on health care or pay the difference in taxes and only Wal-Mart is impacted by the law. The proposed California legislation, very similar to Maryland's overturned law, would affect about 70 California employers that have more than 10,000 employees.

Plaintiff filed a DFEH complaint, received a right-to-sue letter, and timely filed a complaint in state court. Her employer demurred to the complaint, claiming that plaintiff had not timely served it with a copy of the administrative complaint within sixty days (although she had timely served a copy of her state court complaint). The trial court sustained the demurrer, but the appeals court granted plaintiff's petition for a peremptory writ of mandate. The court concluded that the 2003 amendment to the FEHA (Cal. Gov't Code § 12962) only requires an employee to serve her administrative complaint on her employer when (a) it is filed for investigation (instead of seeking an immediate right-to-sue), and (b) when the complainant is represented by counsel. Wasti v. Superior Ct. (Ezratty), 2006 DJDAR 7638 (4th Dist., June 20, 2006).

Plaintiff John Singleton was hired in February 2002. He was suspended and ultimately terminated on December 27, 2002 for making a comment about bringing a gun to work and shooting people if he had to work on Christmas. The plaintiff sued, claiming that his coworkers had repeatedly taunted him with sexually themed comments, and that these comments constituted harassment "because of ... sex." He claimed he also made frequent verbal complaints to his supervisors, but was always told to just ignore the taunts.

The trial court granted summary judgment in favor of the defendant employer on the plaintiff's FEHA-based claims, but the appeals court reversed, finding that plaintiff had raised genuine issues of material fact regarding whether he was sexually harassed, whether he reported the harassment to his supervisors, and whether action was taken to correct and eliminate the harassment. The court reasoned that the plaintiff's testimony about his coworkers' graphically sexual comments to him would, if believed, show that he experienced a hostile environment "because of [his] sex." Because the coworkers' comments would "challenge [him] as a man," thus attacking plaintiff's heterosexual identity, they constituted discrimination "because of ... sex." Singleton v. U.S. Gypsum Co., 2006 DJDAR 8758 (2d Dist., Div. 8, July 3, 2006).

Arbitration of employment related disputes has many advantages. It is often (but not always) a faster, cheaper and more confidential way to resolution a dispute. Another advantage for defendants is eliminating the need for a jury -- and hence the risk of a "runaway jury" delivering a grossly excessive verdict. For these reasons alone, an increasing number of employers have instituted arbitration programs in recent years. Another potential advantage currently being debated in the Courts is the extent to which the parties may craft their arbitration agreement to exclude class actions.
Under federal law, such class action exclusions are generally enforceable. Under California law, by contrast, such class arbitration waivers are often, but not always, struck down as unconscionable and unenforceable. The recent case of Gentry v. Superior Court (Circuit City Stores, Inc.), however, demonstrated that such class action waiver agreements can be enforceable in California if they are properly drafted and implemented.

Under California law, a contract is unenforceable when one party is both forced to enter into the agreement under one-sided circumstances (known as "procedural" unconscionability) and the agreement is also unfairly one-sided in its substantive terms (known as "substantive" unconscionability). For example, in Discover Bank v. Superior Court (Szetla), the court struck down a provision waiving class arbitration that had been sent to consumers in the "bill stuffer" that came with their credit card statements. The Court found that this waiver was procedurally unconscionable because it had been buried in fine print. The Court also found the provision to be substantively unconscionable because most consumer claims would be so small that they would never be enforced by individuals.

In Gentry, however, the Court found that the facts were different. First, the arbitration program had not been imposed under procedurally unconscionable circumstances. The employer, Circuit City, had "clearly spelled out" the pros and cons of arbitration to its employees in written materials and a videotape presentation and had given them the choice to "opt out" of the program for up to 30 days. Second, the provision waiving class actions was held not to be substantively unconscionable because, unlike the small claims of individual credit card consumers, Gentry's claims were for substantial amounts of unpaid overtime as a result of allegedly being misclassified as a salaried-exempt manager. The Court reasoned that these claims provided a sufficient incentive for individual enforcement and that class-wide arbitration was therefore not the only feasible means of enforcement. For all these reasons, the Court upheld the arbitration agreement, including Gentry's agreement to waive any right to prosecute a class-wide arbitration.

Gentry is thus an extremely significant decision for California employers. It shows that a well-crafted arbitration program can prevent individual claims from mushrooming into expensive, time-consuming class actions.

UPDATE: The California Supreme Court granted review of the Gentry case in April 2006.