The Hazards of Dukes: Ninth Circuit Certifies Largest-Ever Discrimination Class Action Lawsuit against Wal-Mart

The Ninth Circuit Court of Appeals recently handed down its much-anticipated opinion in Dukes v. Wal-Mart. In a 2-1 decision, the majority of the panel approved the lower court's decision to certify a sex discrimination class action by 1.5 million women against Wal-Mart.

The certified class included all current and former female employees who worked for Wal-Mart during the relevant statute of limitations. Neither the lower court nor the Ninth Circuit made any attempt to address whether these discrimination claims might have merit. Rather, the only issue at stake was purely procedural -- i.e., whether the case could be tried as a single class action despite the different facts involved in proving whether each particular woman was truly a victim of discrimination.
Under Rule 23 of the Federal Rules of Civil Procedure, class certification depends mainly on whether the "common issues" shared by the plaintiffs outweigh the differences in their respective cases. But the majority opinion in Dukes appears to significantly lower the standard of "commonality" necessary to obtain class certification for large and diverse groups of plaintiffs.

For example, to the extent that Wal-Mart promulgated centralized personnel policies and procedures, the majority found that these supported a finding of "commonality." Yet, to the extent Wal-Mart lacked such centrally imposed policies, the majority held that that, too, was evidence of "commonality" -- because it demonstrated a "common" policy of permitting subjective decisions by local managers. Predictably, Wal-Mart had no way of escaping this logical Catch-22.

In his dissenting opinion, Judge Kleinfeld issued a sharp criticism of the majority's decision. As Judge Kleinfeld wrote:

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 Ninth Circuit may decide to grant en banc review. Moreover, the United States Supreme Court will no doubt have an opportunity to weigh in by granting certiori at the conclusion of the Circuit Court proceedings. Given the size and scope of the issues involved and Wal-Mart's demonstrated preference for fighting rather than settling high-profile litigation, this will probably not be the last word on the Dukes case.

LAX Living Wage Ordinance Rescinded, But Businesses Still Need to Be Aware

On January 31, Los Angeles City Council unanimously rescinded the ordinance that would have applied the city's living wage ordinance to a select few hotels located on Century Boulevard near LAX under terms of a compromise with city business leaders. However, many questions still exist as to the final terms of the compromise, which includes the drafting of a new ordinance in attempts to assuage some of the local businesses' primary concerns with the rescinded ordinance. However, business leaders are just realizing that the terms agreed to under a new ordinance do nothing to protect businesses against the concerns they had under the rescinded ordinance.

First, the new ordinance increases the workers' pay at the dozen or so hotels targeted by the original ordinance to $9.50 an hour upon the passage of the ordinance, and on July 1, 2007, this amount increases to $10.64. Click here for an article in the Los Angeles Business Journal.

Second, the compromise proposes a system for determining whether the living wage could expand in the future based upon the economic effects of such an expansion. The economic effects would be determined by two economists, one selected by the chamber of commerce, and the other selected by the Los Angeles County of Federation of Labor. The primary concern for Los Angeles businesses was that the original rational for extending the living wage ordinance to the hotels on Century Boulevard could be used to extend the living wage to all employers operating in Los Angeles. It appears that the compromise does nothing, or very little, to actually prevent this slippery slope.

Los Angeles business leaders still need to be vigilant as there will be many more battles in this ongoing effort to increase the minimum wage of workers in Los Angeles under the guise of a living wage.

California Court Creates New Cause of Action for “Negligent Failure To Prevent Retaliation.”

In Taylor v. Los Angeles Dept. of Water and Power, 144 Cal.App.4th 1216 (2006), the Court of Appeal recently handed plaintiffs lawyers a favorable holdings for use against California employers in retaliation lawsuits.

Discrimination, Retaliation and Harassment.
By way of background, the California Fair Employment and Housing Act ("FEHA"), generally creates three distinct causes of action for discrimination, retaliation and harassment. A discrimination claim arises where an adverse employment action such as termination or demotion is allegedly based the employee's race, sex or other protected characteristics. An harassment claim exists where the employee is subjected to a hostile work environments based on a "severe or pervasive" pattern of offensive actions such as verbal insults or unwanted sexual propositions. Finally, a retaliation claim may exists where an employee is subjected to an adverse employment action because of making protected complaints about discrimination or other illegal conduct.

Each of these three major FEHA claims has distinct elements of liability and distinct remedies. Courts have often struggled, however, in defining the precise boundary lines between these different claims. The Taylor case involved the boundary between retaliation and the other claims.

Retaliation: The Same as Discrimination, Except When Its Different.
Probably the most significant aspect of the Taylor decision is its creation of a new cause of action for "negligent failure to prevent retaliation." The FEHA already contains an express provision stating that employers must "take all reasonable steps necessary to prevent discrimination and harassment." In drafting this section, the Legislature elected to omit any reference to "retaliation" claims. Despite this conspicuous omission, the Taylor Court decided to extend the reach of this statutory provision to also include retaliation claims, reasoning that "retaliation is a form of discrimination." Id. at 1240.

In reaching this result, the Court's opinion is hardly a model of consistency. For example, the Court based its creation of this new "negligent retaliation" claim on its characterization that retaliation claims were equivalent to discrimination claims. Yet, elsewhere in the same opinion, the Court specifically holds that retaliation is different from discrimination when it comes to imposing personal liability on supervisors. Thus, unlike a mere discrimination claim, the Taylor Court found that that "a supervisor may be held personally liable for retaliation under the FEHA." Id. at 1237.

In short, retaliation may be treated as either the same or different from discrimination, depending on which characterization provides the most "liberal construction" for plaintiffs in suing their employers. Id. at 1240.

What Does the Decision Mean For Employers and Supervisors?
Once an employee lodges a potentially protected complaint, any subsequent changes in his job assignments or status may be cited as a form of alleged "retaliation." Employers are now required to "take all reasonable steps" to train and supervise their personnel in order to prevent retaliation against such protected employees. Supervisors should be especially motivated to avoid retaliation claims because they may be held personally liable for damages in any retaliation lawsuit under the FEHA.

Thus, employers and supervisors need to be especially vigilant whenever an employee has lodged an arguably protected complaint. Performance issues should be carefully documented and, in an abundance of caution, changes in a complaining employee's job status should be reviewed and approved by Human Resources or some higher level of management.

Office of Administrative Law Disapproves FEHC Regulations on AB 1825

On Tuesday, January 30, the Office of Administrative Law ("OAL") informed the Fair Employment Housing Commission ("FEHC") that it would not approve the regulations submitted by FEHC on December 14, 2006 regarding the requirements of AB 1825, the existing law that requires California employers with 50 or more employees to provide sexual harassment training to all supervisory employees every two years. The OAL disapproved the regulations as lacking sufficient clarity and because of procedural mistakes made by FEHC in propounding the regulations. Under the California Administrative Procedures Act (Gov. Code 11349.4) the agency has 120 days to correct the errors and resubmit the regulations to OAL for further review.

From a practical point of view, this is unlikely to have a significant impact on clients. The proposed regulations contain a form of grandfather clause saying, in effect, that any business that has made a good-faith effort to comply with the statute as of the effective date of the regulation (whenever that turns out to be) will be deemed to be in compliance with the regulation. Clients who are familiar with the requirements of regulation, and can document their efforts at compliance will have little to worry about.

San Francisco’s Paid Sick Leave Ordinance

What It Is And What Employers Need To Do

On February 5, 2007, San Francisco will become the first city in the country to require that employers offer paid sick leave to their employees. As with so many 'firsts,' this mandate leaves many questions unanswered while companies scramble to understand both what the new law requires, and how they can meet those requirements.

What Does The Paid Sick Leave Ordinance Say?
In brief, the Ordinance requires employers with employees who work in San Francisco, either full-time, part-time or on a temporary basis, to provide them with paid sick time, accrued at a rate of one hour of sick time for every thirty hours worked. Note that a covered employee is one who works in San Francisco, regardless of the location of the employer. For example, a San Diego based company with a branch office in San Francisco will be required to meet the requirements of the Ordinance for its San Francisco-based employees. Accrual begins on February 5 for those employees who began work for their current employer on or before that date. For those hired after February 5, accrual begins 90 days after the start of employment. Accrual is 'capped' at 72 hours for large businesses (those with 10 or more employees) and at 40 hours for small businesses (those with fewer than 10 employees).

Paid sick leave does not expire annually and the cap is absolute rather than annual. So an employee who ends the year with 72 paid sick leave hours begins the next year with the same number, and does not accrue additional hours beyond the 72 already accumulated. Employers are not required to pay employees for unused time. Once the employee has accrued time, the time can be applied to cover illness of either the employee, a family member (broadly defined to include grandparents, grandchildren and domestic partners), or a "designated person" selected by employees who are unmarried and are not part of a registered domestic partnership.

The Ordinance requires employers to post a notice of the Ordinance, and to record the amount of sick time accumulated and used by each employee and retain the records for four years. The required poster is available from the OLSE here. The Ordinance may be enforced by the City of San Francisco, or by a civil lawsuit brought by an aggrieved employee.

Additional detailed information covering the requirements of the Ordinance is available here and here.

What Does The Paid Sick Leave Ordinance Fail To Say?
As currently described by the Office of Labor Standards Enforcement (or "OLSE"), the Ordinance leaves unanswered a number of questions critical to employers. As an initial matter, even the apparently straightforward definition of an employee as a person working within San Francisco does not address concerns relating to employees who are only temporarily located in San Francisco, such as seasonal workers and delivery or repair people. The Ordinance simply states that while an employee is working in San Francisco, that employee is accumulating paid sick leave. Nor does the Ordinance advise employers whose workforce varies above and below the 10 person cutoff used to calculate the amount of sick time accrued. For example, a small retailer may have six employees for most of the year, but might increase to 11 to cover the busy holiday shopping season.

Currently, the OLSE maintains that the Ordinance applies to both non-exempt, hourly employees, and exempt, salaried employees. How employers will track the amount of sick time accrued by exempt employees whose hours are not tracked is not addressed by either the Ordinance or the OLSE. In addition, although the Ordinance allows employers to take "reasonable measures" to document propose use of paid sick time, "reasonable" is left undefined.

What Can Employers Do To Comply With The Paid Sick Leave Ordinance?
First, it is important to remember that it is still early days for the Paid Sick Leave Ordinance, so there are few guidelines and fewer precedents available to guide employers. For example, the OLSE is still drafting and providing sample forms, such as the form needed to identify the Ordinance's "designated person." Employers and those who advise them are left in the unenviable position of taking aim at a moving target.

That having been said, there are ways for employers to protect themselves. As an initial step, a careful review of current paid time off policies is critical to determine if modification of current policies is needed, and if so, what modifications. Although not widely applicable, the requirements of the Ordinance can be explicitly waived by a collective bargaining agreement. Perhaps the best protection lies in providing a sick leave policy that is as generous as the policy provided by the Ordinance. One simple solution would be to provide a Paid Time Off Bank in which employees accumulate time off (at no less than the rate required by the Ordinance) that can be used for any purpose, including medical care of the employee, the employee's family members, and any person the employee needs to take to the doctor during hours when he or she would normally be working. The downside for employers is that time accumulated pursuant to a Paid Time Off policy becomes a vested right of the employee, and upon termination, the employee must be paid for unused time, unlike unused sick time, which is not owed or payable upon termination of employment.

In Conclusion
In addition to the steps listed above, employers must remain vigilant and aware of developments as the Ordinance is implemented as law, particularly given the number of questions that remain in spite of the approaching compliance deadline. Additional information will be posted on this blog as soon as it becomes available.

UPDATE: The OLSE published a sample "Designated Person" form. The document can be downloaded here (a Word document).

Nancy Berner of CDF Quoted on NPR’s Morning Edition and in the San Francisco Chronicle

Nancy Berner in Calton DiSante & Freudenberger LLP's San Francisco office was quoted on NPR's Morning Edition and in the San Francisco Chronicle regarding the repercussions in the business community as a result of the city's new law requiring sick leave for employees. On February 5, 2007, San Francisco will become the first city in the country to require all businesses to provide paid sick leave to all employees.

Final Proposed Regulations On Sexual Harassment Training

As previously posted here, the California Fair Employment and Housing Commission has been busy finalizing its proposed regulations to help California employers implement the new California sexual harassment supervisory training law, Government Code Section 12950.1 (AB 1825).

On November 14, 2006, the Commission adopted its final proposed regulations and submitted the regulations to the Office of Administrative Law ("OAL") for review on December 14, 2006. If approved by the OAL, it is expected for the regulations to become effective sometime in February 2007.

The final proposed regulations, which are available for review at www.fehc.ca.gov, specify, among other things, that:

  1. independent contractors and temporary workers must be counted as part of the workforce;
  2. new supervisory employees who were trained in prior employment do not necessarily need to be immediately re-trained, but the burden is on the new employer to establish that the prior training complied with the requirements of AB 1825;
  3. employers can use either an individual tracking method for ensuring that each supervisor is re-trained every two years, or employers may use a "training year" method, whereby some or all supervisors are trained every other calendar year by group; and
  4. the term "supervisor" adopt the broad definition in Government Code Section 12926(r) to include "any individuals having the authority, in the interest of the employer to hire, transfer, suspend, lay off, recall, promote, discharge assign, reward, or discipline other employees, or the responsibility to direct them, or to adjust their grievances, or effectively to recommend that action, if, in connection with the foregoing, the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment."

The final regulations also provide details regarding the required qualifications of the trainers and the content and manner of training (in person, on-line, etc.).

Please check back on this blog on or after February 14, 2007 to find out the status on the proposed regulations.

Carothers DiSante & Freudenberger LLP offers training conducted by its attorneys that fully complies with the requirements of California Government Code Section 12950.1 (AB 1825) and is actively monitoring the proposed regulations discussed above to ensure compliance. For more information about CDF's training classes, click here.

California 2007 Employment Law Update

On January 16, 2007 Carothers DiSante & Freudenberger LLP's attorneys conducted a presentation on the new laws facing California employers in 2007 and developing legal issues that employers should be aware of over the next year.

Some of the topics discussed included:

  • The increase in California's minimum wage and implications for exempt employees
  • Clarification of law mandating sexual harassment training of supervisors
  • San Francisco's sick leave ordinance
  • Proposed regulations regarding reimbursement for employee travel expenses
  • Payment of wages upon termination of employment
  • Additional developments in new cases changing employer's obligations in California

Click here for a copy of the presentation handout.

“Wal-Mart Bill” Preempted By Federal Law

Maryland law requiring corporations with 10,000 or more workers to spend 8 percent of their payrolls on health insurance, or pay the difference into a state fund was found to be preempted by Employee Retirement Income Security Act (ERISA). By a 2-to-1 ruling, the United States Court of Appeals for the Fourth Circuit in Baltimore found that the Maryland law was preempted by ERISA, a 32 year old federal labor law. ERISA was developed to allow large companies to uniformly administer health benefits across the country, rather than becoming entangled in state-by-state requirements. Here is the opinion.

We have commented previously that it is likely California's attempts to impose employer funded health insurance will encounter similar challenges.

Department of Labor Seeking Comments on FMLA

The United States Department of Labor is now inviting interested parties having knowledge of or experience with the FMLA to submit information. The Department welcomes any pertinent information that will provide a basis for ascertaining the effectiveness of the current regulations and the Department's administration of the Famly Leave Act. They are seeking to understand the problems and issues that employers and employees are facing with FMLA. Supposedly, the DOL is going to be considering these comments for additional regulations and comments.

The employer's voice needs to be heard. If you have positive or negative comments or experiences with FMLA, we enourage you to participate in this process. The DOL will be taking comments through February 2, 2007.

Click here for information on how to submit comments and here to access the Federal Register Notice Page.

Editor
Cal Labor Law

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

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