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.

Employers are soon to be prohibited from discriminating against individuals on the basis of their genetic information. 

Last week, the U.S. House of Representatives passed a bill on a vote of 414-1, called the Genetic Information Nondiscrimination Act (GINA), which prohibits employers from using genetic data in hiring, firing, and other workplace decisions affecting employment.  GINA also requires employers to maintain genetic information strictly confidential in compliance with the ADA and HIPAA.  The bill also forbids insurance companies from using an individual's genetic information to deny or limit coverage, or establish different rates.  The same bill unanimously passed the Senate on April 24.  

Genetic tests are now regularly used to determine an individual's predisposition for diseases such as cystic fibrosis, breast and prostate cancer, diabetes and Lou Gehrig's disease.  As genetic testing has become more prevalent in society, the U.S. Congress has enacted GINA to address widespread concern that such information would be misused, especially in the health care and employment arenas.   

President George W. Bush is expected to sign the bill.  The employer provisions of the bill will take effect in November 2009, after the U.S. Department of Labor has had an opportunity to enact implementing regulations.

California employers face a myriad of state and federal laws prohibiting discrimination on a number of different grounds.  Simply keeping track of the groups protected by the anti-discrimination laws can present a daunting task for any company.

Please join our employment attorneys for a discussion of some of the vital issues of which all California employers should be aware in order to limit their exposure to potential claims of discrimination.  The presentation will address the common grounds for discrimination claims, highlight some of the less obvious situations that can lead to complaints of discrimination, and provide practical tips on how to prevent discrimination in your organization and how to deal with complaints of discrimination in their early stages in order to reduce the likelihood of costly litigation later.  

To register to attend this complimentary Roundtable at one of our five California offices, please e-mail your name, your company name, and the location you will be attending, to the following address:  register@cdflaborlaw.com.

Office Locations:

Sacramento:

8950 Cal Center Drive, Suite 160
Sacramento, CA  95826

San Francisco:

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San Francisco, CA 94111

Los Angeles:

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Los Angeles, CA 90017

Orange County:

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San Diego, CA 92121

As previously posted on this blog, in March a San Diego judge awarded over $85 million dollars to a California class of Starbucks employees who successfully argued that Starbucks had improperly allowed shift supervisors to share in the employee tip pool and thereby denied other non-supervisory employees their fair share of the tips.  Starbucks' position is that the shift supervisors did not have the necessary supervisory responsibilities to be considered "supervisors," as the law defines that term, and that because of their customer service responsibilities, they were properly allowed to share in the tip pool.  Starbucks is expected to appeal the verdict and it has recently made public statements and statements to its employees supporting its position and its confidence in the appeal.  Even if Starbucks does succeed on appeal, the superior court decision is already producing ramifications for employers with tipped employees. 

Within weeks of the decision, separate similar lawsuits were filed against Starbucks in Massachusetts, New York and Minnesota by two different law firms.  Other industries are also being adversely affected.  Baggage handlers have brought tip pooling lawsuits against the struggling airline companies.  Casinos, restaurants, and other hospitality and service industry employers are also seeing more and more of these claims.  As news of the Starbucks decision and wave of tip pooling lawsuits continues to circulate and be discussed by the plaintiffs' bar, a snowball effect is likely to ensue.  Employers who have mandatory tip pools in their workplaces should not sit back waiting to be the next victim.  In California, damages for an improper tip pool can be awarded to all current and former employees who were improperly denied a fair share of the tip pool over the last four years. 

At-risk employers should consider auditing their tip pooling practices to make sure that they are in compliance with both state and federal law.  To review a very basic discussion of the general guidelines on tip pooling regulations applicable to California employers, click here  http://www.cdflaborlaw.com/view_article.php?id=108&s=0.  Employers who seek more information on this topic can also contact Kendra Miller at kmiller@cdflaborlaw.com in Southern California or Jeremy Naftel at jnaftel@cdflaborlaw.com in Northern California.   

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.

Addressing the facts of Combs’ employment, the court determined that, unlike the employees in Bell, Combs performed “specialized functions” that were not limited to the “routine and unimportant.”  The analysis therefore called for “finer distinctions than the administrative/production worker dichotomy provides.”  Consequently, the trial court did not err in deciding not to apply the dichotomy test.

2.  Combs’ Duties Met the Administrative Exemption Test Under California Law

The court also rejected Combs’s arguments that, regardless of the application of the dichotomy test, Skyriver failed to prove that 1) Combs’s work was directly related to Skyriver’s management policies or general business operations, 2) Combs customarily and regularly exercised discretion and independent judgment, and 3) Combs’s job duties made up more than half of his work day. 

The court relied on various FLSA regulatory definitions and interpretive guidelines which IWC Wage Order No. 4-2001 explicitly incorporates.  Among those guidelines is 29 C.F.R. 541.201, which includes the terms “budgeting,” “purchasing, procurement,” and “computer network, internet and database administration” in the meaning of work “directly related to the management or general business operations.”  Based on the plain meaning of those terms, the court found that Combs’ undisputed duties fell clearly within the category of work directly related to Skyriver’s management policies or general business operations. 

The court found that Skyriver met the second element described above with evidence that Combs spent 60 to 70 percent of his time maintaining the well-being of Skyriver’s network.  This responsibility constituted a “matter of significance” on which Combs exercised discretion and independent judgment.  The court also noted that Combs was responsible for identifying, selecting, and integrating new equipment into Skyriver’s network.  Consequently, Combs regularly exercised discretion and independent judgment.  Based on the same evidence regarding Combs’ duties, the court also determined that Combs’ exempt activities constituted over half of his time. 

Having found that the requirements of the administrative exemption were met, the court upheld the trial court’s grant of summary judgment in favor of Skyriver. 

Implications

The Skyriver decision suggests that the administrative/production worker dichotomy may not apply in every case to defeat a finding of exempt status.  This decision provides support for limiting application of the dichotomy test to cases in which employees perform tasks that are “routine and unimportant.”  The Skyriver decision may also make it more difficult for plaintiffs to obtain summary judgment based solely on a mechanical application of administrative/production dichotomy. 

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.

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.

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.

On April 15, 2008, the California Senate Labor and Industrial Relations Committee unanimously approved SB 1539 as amended to “declare the intent of the Legislature to enact legislation to address issues related to meal periods in employment.”   SB 1539, authored by Senator Ron Calderon (D-Montebello), sponsored and supported by the California Chamber of Commerce, California Restaurant Association, and approximately 40 trade and professional organizations, was introduced to provide a comprehensive solution to compliance with and enforcement of California’s meal period laws.

SB 1539 has generated bipartisan support from Committee members who have expressed concern over the inflexibility and ambiguity of meal period laws in California that have spawned a tidal wave of expensive litigation and liability for California employers.  As a result, Committee members have recognized the need for clarity and greater flexibility to meet the needs of both employers and employees.  SB 1539, as originally drafted, would have provided for the following changes to existing meal period law (among others):  (1) allowing the employee to waive either the first or second meal period if the employee is otherwise entitled to two meal periods in a day; (2) expanding conditions for employees to take on-duty meal periods; (3) allowing collective bargaining agreements to override provisions of the meal period rules; and (4) defining “providing an employee with” a meal period to mean “giving the employee an opportunity to take” a meal period.  The Committee amended SB 1539 to delete all of the substantive changes to the meal period laws, and amended the bill to simply declare the intent of the Legislature to enact legislation to address issues related to meal periods in employment.  While the meal period laws have not been changed, the Legislature’s declaration of intent is a good sign that lawmakers recognize the need for change and will continue to have further discussions to try to find consensus on a solution that contains adequate protections for employers and employees.  SB 1539 has been referred to the Senate Appropriations Committee.  Employers and employees are encouraged to contact the Senate Appropriations Committee to voice their opinions regarding SB 1539 to continue to build the momentum for change in meal period laws.  We will continue to monitor this legislation and apprise you of any developments.

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."

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.

As recently discussed in the media, immigration issues in the workplace are a hot topic upon which the federal government is currently focusing. In recent months, it has ramped up penalties against employers to reduce the number of unauthorized workers in the workforce. In order to avoid being targeted by the federal government and facing penalties for hiring and/or retaining unauthorized workers, come to this month's Roundtable to learn about ways you can respond to issues regarding the hiring and retention of employees who are not authorized to work in the United States. Also, learn about the proposed Department of Homeland Security regulations regarding no-match letters as well as the status of the implementation of those regulations. 

This month's Roundtable will provide valuable information that may help you avoid costly penalties and/or litigation regarding the hiring and retention of persons not authorized to work in the United States.

To register to attend this complimentary Roundtable at one of our five California offices, please e-mail your name, your company name, and the location you will be attending, to the following address:  register@cdflaborlaw.com.

Who Should Attend?

Newly hired supervisors;

Newly promoted supervisors; and

Supervisors who have not attended training in the last two years.

Training Sessions That Comply With California Law:

California Government Code section 12950.1 (AB 1825) requires all employers in California with 50 or more employees to provide at least two hours of sexual harassment prevention training to all supervisors in California every two years. Additionally, employers of this size must provide this training to newly hired or promoted supervisors in California within six months of the assumption of supervisory duties and then once every two years thereafter.

To assist employers in complying with the ongoing requirements of this law, Carlton DiSante & Freudenberger offers periodic sexual harassment prevention training sessions at all five of our office locations in California. The two-hour training is interactive and provides useful information on preventing sexual harassment in the workplace, investigating and handling complaints of sexual harassment, and preventing retaliation. The next session is April 18.

Training Times:

7:30 a.m. to 7:50 a.m. - Continental Breakfast
7:50 a.m. to 10:00 a.m. - Training Session

Upcoming Training Dates:

April 18, 2008
July 18, 2008
October 17, 2008

Cost:  $70 per person (or $60 per person if two or more people from the same company attend).

TO REGISTER: Click on the following link to our website and download the registration brochure: Click Here.

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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.