What's New in Employment Law?

California Supreme Court Takes on Harassment v. Discrimination

2009-12-06T10:32:00.000-08:00

Roby sued McKesson for disability-based harassment and discrimination. The jury awarded over $3million in actual and $15million in punitive damages, including an award of damages for harassment against an individual defendant. The verdict, though, was a mess and was reduced because of overlapping, duplicative damages awards. In addition, there was an issue of whether the individual could be sued for harassment because much of the alleged conduct was in connection with personnel decisions.

One of the issues the Supreme Court addressed is whether a manager / supervisor's conduct during "personnel actions" is evidence not only of the discriminatory motive, but also harassment. The court explained the difference as follows: "discrimination refers to bias in the exercise of official actions on behalf of the employer, and harassment refers to bias that is expressed or communicated through interpersonal relations in the workplace. " * * *
"[H]arassment is generally concerned with the message conveyed to an employee, and therefore with the social environment of the workplace, whereas discrimination is concerned with explicit changes in the terms or conditions of employment"

Applying this standard, the court upheld Roby's harassment claim:

Roby's discrimination claim sought compensation for official employment actions that were motivated by improper bias. These discriminatory actions included not only the termination itself but also official employment actions that preceded the termination, such as the progressive disciplinary warnings and the decision to assign Roby to answer the office telephones during office parties. Roby's harassment claim, by contrast, sought compensation for hostile social interactions in the workplace that affected the workplace environment because of the offensive message they conveyed to Roby. These harassing actions included Schoener's demeaning comments to Roby about her body odor n10 and arm sores, Schoener's refusal to respond [*40] to Roby's greetings, Schoener's demeaning facial expressions and gestures toward Roby, and Schoener's disparate treatment of Roby in handing out small gifts. None of these events can fairly be characterized as an official employment action. None involved Schoener's exercising the authority that McKesson had delegated to her so as to cause McKesson, in its corporate capacity, to take some action with respect to Roby. Rather, these were events that were unrelated to Schoener's managerial role,
engaged in for her own purposes.

Does this clear things up? There was a bright line between personnel actions and harassing conduct before this case, supported by 15 years of authority. Does this mean that personnel actions now are evidence of harassment when the manager carrying them out is unpleasant? We will see how lower courts treat evidence of harassment after this decision.

Separately - the Court also analyzed punitive damages in employment law cases. After detailed analysis, the Court decided that a one-to-one ratio between actual and punitive damages was the constitutional limit. The Court based its conclusion on its conclusion that as a corporation, McKesson's conduct was not particularly "reprehensible." The Court also based its decision on the high damages award, warranting a lower ratio because of the actual damages' deterrence of similar conduct.

The Court also explained what a "managing agent" is for punitive damages purposes, clarifying prior rulings:

In this case, the Court of Appeal concluded that the jury could reasonably have found supervisor Schoener to be a "managing agent" of employer McKesson. On that basis, the court concluded that the jury's award of punitive damages could be justified based on Schoener's actions alone, regardless of whether more senior managers at McKesson were informed of Schoener's actions. We disagree.
At the time of Roby's termination, McKesson had over 20,000 employees; Schoener
worked at a local distribution center supervising four of them. When we spoke in White about persons having "discretionary authority over . . . corporate policy"
(White, supra, 21 Cal.4th at p. 577), we were referring to formal policies that affect a substantial portion of the company and that are the type likely to come to the attention of corporate leadership. It is this sort of broad authority that justifies punishing an entire company for an otherwise isolated act of oppression, {Slip Opn. Page 32} fraud, or malice. The record here does not support the conclusion that Schoener exercised that sort of broad authority or that she was a "managing agent" for purposes of awarding punitive damages under Civil Code section 3294, subdivision (b). Therefore, in assessing the reprehensibility of employer McKesson's conduct, we must look to what McKesson's more senior managers knew and did.

The case is Roby v. McKesson Corp. and the opinion is here.

IRS Standard Mileage Rate for 2010 is $0.50

2009-12-04T05:40:00.000-08:00

The IRS dropped the standard mileage reimbursement rate to $0.50 from $0.505. So, beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

50 cents per mile for business miles driven
16.5 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

Those of you who don't believe me and who want an IRS cookie (yum) deposited on their computers may see the announcement here.

DGV

CA Supreme Court Upholds Attorney-Client Privilege

2009-12-01T04:46:00.000-08:00

Costco hired a law firm to advise the company regarding the classification of certain managers as exempt. The lawyer interviewed two of the managers to analyze their duties and responsibilities. She then produced a 22-page report. The report was considered confidential and privileged from the start.

Later, Costco was the subject of a wage and hour class action regarding the alleged mis-classification of the managers. The plaintiffs sought disclosure of the opinion letter. Costco objected, asserting attorney-client privilege.

Lower courts held that portions of the letter, containing factual information rather than attorneys' advice or opinions, should be disclosed. The California Supreme Court accepted the case for review and reversed.

The court flatly rejected any attempt to "parse" the letter:

We hold the attorney-client privilege attaches to Hensley’s opinion letter in its entirety, irrespective of the letter’s content. Further, Evidence Code section 915 prohibits disclosure of the information claimed to be privileged as a confidential communication between attorney and client “in order to rule on the claim of privilege.” (Id., subd. (a).) Finally, contrary to the Court of Appeal’s holding, a party seeking extraordinary relief from a discovery order that wrongfully invades the attorney-client relationship need not also establish that its case will be harmed by disclosure of the evidence.

Without deciding whether the communications between the managers and lawyer during the wage and hour audit were privileged, the court held that the lawyer's discussion with Costco concerning the managers' interviews were still privileged:

In sum, if, as plaintiffs contend, the factual material referred to or summarized in Hensley’s opinion letter is itself unprivileged it may be discoverable by some other means, but plaintiffs may not obtain it by compelling disclosure of the letter.

This obviously is an important decision for employers seeking advice from lawyers without fear of having that advice disclosed in later discovery.

The case is Costco Wholesale Corp. v. Superior Court and the opinion is here.

Another Non-Solicit Bites the Dust

2009-11-21T08:55:00.000-08:00

The Court of Appeal took up a complex lawsuit involving claims and cross-claims of unfair competition, including strong agreements not to compete or solicit and choices of law and forum clauses. The Court expanded on the decision this summer in The Retirement Group v. Galante, posted here.

Basically, Dowell, other employees and their new employer, St. Jude, sued Biosense Webster, which was attempting to enforce a non-compete agreement, which included broad non-solicitation clauses. The Court of Appeal agreed with the trial court that the agreements were unenforceable. Here is some language from the opinion:

Biosense contends that the clauses are valid because they were tailored to protect trade secrets or confidential information, and as such satisfy the so-called trade secret exception, citing cases such as Thompson v. Impaxx, Inc. (2003) 113 Cal.App.4th 1425, 1429–1430; Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1462; Metro Traffic, supra, 22 Cal.App.4th at p. 860; and American Paper & Packaging Products, Inc. v. Kirgan (1986) 183 Cal.App.3d 1318, 1322. Plaintiffs counter that in light of our Supreme Court’s recent decision of Edwards, supra, 44 Cal.4th 937, a common law trade secret exception no longer exists.The Court in Edwards concluded that section 16600 “prohibits employee noncompetition agreements unless the agreement falls within a statutory exception.” (Edwards, supra, 44 Cal.4th at p. 942.) . . . .

* * *

Although we doubt the continued viability of the common law trade secret exception to covenants not to compete, we need not resolve the issue here. Even assuming the exception exists, we agree with the trial court that it has no application here. This is so because the noncompete and nonsolicitation clauses in the agreements are not narrowly tailored or carefully limited to the protection of trade secrets, but are so broadly worded as to restrain competition. ...

Biosense argues that the clauses in the agreements are narrowly tailored to protect trade secrets and confidential information because they are “tethered” to the use of confidential information, and are triggered only when the former employee’s services for a competitor implicate the use of confidential information. As such, to the extent that no confidential information was disclosed or made known to Dowell and Chapman during their employment with Biosense, the noncompete clause would never be triggered. But this argument ignores the broad wording of the agreements. The noncompete clause prohibits an employee from rendering services, directly or indirectly, to a competitor where those services could enhance the use or marketability of a conflicting product through the use of confidential information to which the employee had access at Biosense. “Confidential information” is broadly
defined as information disclosed to or known by the employee, including such
information as the number or location of sales representatives, the names of customers, customer preferences, needs, requirements, purchasing histories or
other customer-specific information. Given such an inclusive and broad list of confidential information, it seems nearly impossible that employees like Dowell and Chapman, who worked directly with customers, would not have possession of such information. The prohibition here is not unlike the noncompete clause found facially invalid by the court in D’Sa, supra, 85 Cal.App.4th at p. 930. . . . .

We also reject the argument of Biosense that the nonsolicitation clause is narrowly tailored to protect trade secrets and confidential information. The same argument was rejected by the Galante court, which noted: “However, Edwards rejected the claim that antisolicitation clauses could be exempt from section 16600 if the conduct covered by such clauses fell within the ‘narrow-restraint’ exception discussed in Campbell (Edwards, supra, 44 Cal.4th at pp. 948–950), and we decline TRG’s implicit invitation to engraft that exception onto this case.” (Galante, supra, 176 Cal.App.4th at p. 1241.) Moreover, the clause at issue here goes well beyond prohibiting active solicitation by prohibiting departing employees from selling or rendering any services to Biosense customers or directly or indirectly assisting others to do so—even if it is the customer who solicits the former employee. (See
Morris v. Harris (1954) 127 Cal.App.2d 476, 478 [invalidating restraint that
prohibited employee from providing services to former customers who sought him
out without any solicitation].)

St. Jude, though, lost on its attempt to enjoin Biosense from enforcing its non-compete agreement against all employees in California. The court said that St. Jude had no standing under the UCL to enforce an injunction in favor of plaintiffs not before the court.

Biosense cross-claimed against St. Jude for "raiding" by hiring Dowell and other employees. The Court of Appeal again affirmed summary judgment against Biosense, holding there was no evidence of unlawful conduct by St. Jude, which by default has the right to hire away St. Jude employees.

Biosense argued St. Jude used similar agreements to prevent competition by its own former employees. Therefore, Biosense reasoned, St. Jude came into court with "unclean hands." No sale. St. Jude's alleged unfair practices with respect to their own employees did not go to the heart of the matter with respect to Dowell's suit against Biosense. Therefore, unclean hands did not apply.

So, lots to read. Bottom line, though, is that a non-solicit probably is not going to be enforced except as a remedy for trade secret violations, not as a prophylactic measure where there is no finding of actual or threatened misappropriation under the UTSA. The agreement here was too broad, but there does not seem to be much room left for clauses that prohibit solicitation merely because an employee is exposed to "confidential" information and might use them some day.

The case is Dowell v. Biosense Webster, Inc. and the opinion is here.

Court of Appeal Once Again Explains 132a Liability

2009-11-14T12:54:00.000-08:00

The Court of Appeal clarified what Labor Code Section 132a means - again. It appears the Workers' Compensation Appeals Board has not adapted to the California Supreme Court's decision in Department of Rehabilitation v. Workers’ Comp. Appeals Bd. (2003) 30 Cal.4th 1281 (Lauher).

So, Fowler had significant spine surgery. Initially he could not be cleared to return to work as an order puller / machine operator. The doctor's restrictions permitted him to use equipment for just an hour a day. Then, the doctor changed his mind and returned Fowler to work with no restrictions. Because of the seeming conflict, Fowler and his employer submitted his case to an "AME" doctor, who decided Fowler could return to work.

Fowler filed a workers' compensation discrimination claim under Labor Code Section 132a because of the delay in returning him to work. The Workers' Compensation Appeals Board held that Gelson's, the employer, discriminated against Fowler by refusing to accept his doctor's note returning him to work. The Board appeared to apply old law, basically saying that any negative action against an industrially injured worker is a violation of section 132a regardless of whether the employer would take the same action against a non-injured worker.

The Court of Appeal annulled the WCAB decision because Fowler did not prove discrimination - differential treatment:

Here Fowler made no showing that Gelson’s treated him differently from nonindustrially injured employees. That is, Fowler made no showing that Gelson’s would have returned to work a nonindustrially injured employee whose physician provided the same releases, but discriminated against Fowler by not returning him to work. Fowler made no showing that Gelson’s treated him disadvantageously because of the industrial nature of his injury, as compared to how Gelson’s treated a nonindustrially injured employee. Thus he did not make a prima facie case of discrimination in violation of section 132a and did not shift the burden to Gelson’s to establish an affirmative defense.

The case is Gelson's Markets, Inc. v. WCAB and the opinion is here.

Anybody See a Top 100 Employment Law Blog?

2009-11-04T09:26:00.000-08:00

Who us? I mean, of COURSE it's us. Well, thanks for the honor, Delaware Employment Law Blog. We like you too.

California Supreme Court Upholds Bonus Plan's Forfeiture

2009-11-02T21:01:00.000-08:00

Can a bonus plan provide for forfeiture of unpaid bonus if an employee voluntarily leaves employment or is fired for cause? Yes, said the California Supreme Court. Money quote:

“nothing in the public policy of this state concerning wages . . . transforms [a] contingent expectation of receiving bonuses into an entitlement.” (Neisendorf, supra, 143 Cal.App.4th at p. 522.) Only when an employee satisfies the condition(s) precedent to receiving incentive compensation, which often includes remaining employed for a particular period of time, can that employee be said to have earned the incentive compensation (thereby necessitating payment upon resignation or termination). (Ibid.; Lucian v. All States Trucking Co., supra, 116 Cal.App.3d at p. 975 [“An employee who voluntarily leaves his employment before the bonus calculation date is not entitled to receive it”].)
Here, of course, Schachter voluntarily terminated his employment before his restricted stock fully vested. By the terms of the Plan, and Schachter’s own concession, he is not entitled to those unvested shares of restricted stock. Having elected to receive some of his compensation in the form of restricted stock, a transaction he was aware carried risk as well as the potential for reward, Schachter cannot now assert that he should have been paid in cash that portion of his compensation he elected to receive as restricted stock.[1] As the company persuasively argues, Schachter’s “bargained-for ‘wages’ have been paid in full. He received all of his promised cash compensation, received immediately exercisable voting and dividend rights in the restricted stock, and was awarded contingent rights of full ownership in that stock. The only thing that has not been ‘paid’ is something Schachter never ‘earned’ — fully vested [company] stock. Schachter therefore has no claim under [section] 201 or [section] 202.” [1]

So, the Supreme Court has blessed bonus plans that require the employee to remain employed. However, the Court did note that Citigroup's plan would have paid certain compensation to Schachter if he has been fired without "cause," e.g., laid off. The Court approved this formulation, noting that employees terminated "without cause" may not be be deprived of the benefits of their contract. This was all "dicta" so it should not have much force. But the DLSE will rely on it to bolster its own enforcement position.

The case is Schachter v. Citigroup and the opinion is here.

Mixed Motives in FEHA Cases

2009-11-01T08:11:00.000-08:00

The U.S. Supreme Court in Gross v. FBL Fin. Servs. (blogged here) limited "mixed motive" cases under federal law. The Court said there is no need for that defense in age discrimination cases under the federal ADEA. Employees must prove "but-for" causation, so the employer need not prove it would have made the same decision with or without additional discriminatory motivation. The defense remains viable in discrimination cases brought under Title VII.

Anyway, in California, the mixed motive is alive and well. The Court of Appeal in Harris v. Santa Monica, opinion here, held that the trial court prejudiced the city of Santa Monica by refusing to instruct the jury that even if discrimination played a role in Harris' termination, the City was entitled to win if it would have made the same decision regardless.

The opinion is noteworthy for a few reasons:
- it reinforces the relevance of employment at will in discrimination cases.
- it explains clearly that the employer's decision cannot be attached for being "unwise" or "factually incorrect" if it is not motivated by discrimination.
- it revives the old "BAJI" jury instruction on mixed motive cases, given the new CACI instructions do not contain model for mixed motive cases.
- "mixed motives" need not be pleaded as an affirmative defense because it is not "new matter."

New Poster!

2009-10-31T12:58:00.000-07:00

The EEOC has issued a revised “Equal Employment Opportunity is the Law” poster. See the announcement here.
Here's your chance to update the look of your breakroom, time clock wall, and anywhere else that employees are likely to see the poster. Those of you with laminated multi-posters will contribute to our economic recovery by purchasing the new versions.

Click here for the compliance options. You either may print and post the "supplement" or replace your existing posters.

Greg

New California Employment Statutes 2009

2009-10-25T13:52:00.000-07:00

The California Bar's Labor and Employment Law Section provided this helpful list of the employment law bills Governor Schwarzenegger signed.... He vetoed the scary ones. The long list below primarily involve public sector employees and their benefits.

SB 519 by Senator Roy Ashburn (R-Bakersfield) - This one affects certain retirement benefits calulations for public employees.

SB 538 by Committee on Public Employment and Retirement - County employees’ retirement: mandatory retirement.

SB 751 by Senator Gloria Romero (D-Los Angeles) - Teacher credentials - permits California to issue teaching credentials to teachers certified in other countries.

AB 399 by Assemblymember Julia Brownley (D-Santa Monica) - Public employee retirement benefits.

SB 11 by Senator Gloria Negrete McLeod (D-Chino) - County employees retirement: San Bernardino County health benefits.

SB 37 by Senator Tony Strickland (R-Thousand Oaks) - State employees: statement of deductions. This law permits state employees to receive electronic wage statements unless they opt out.

SB 634 by Committee on Public Employment and Retirement - State Teachers’ Retirement System.

AB 65 by Assemblymember Mary Hayashi (D-Hayward) - Public employee health benefits: vision care: local, school, and university members.

AB 239 by Assemblymember Julia Brownley (D-Santa Monica) - Teacher credentialing.

AB 468 by Assemblymember Mary Hayashi (D-Hayward) - Public Employees’ Medical and Hospital Care Act: employer contributions.

AB 506 by Assemblymember Warren Furutani (D-South Los Angeles County) - State teachers’ retirement: postretirement earnings.

AB 544 by Assemblymember Joe Coto (D-San Jose) - Teaching credential: American Indian languages.

AB 854 by Assemblymember Juan Arambula (I-Fresno) - Employment regulation and supervision: unpaid wages.

AB 1319 by Assemblymember Paul Krekorian (D-Burbank) - Talent services.

AB 1584 by Assemblymember Dr. Ed Hernandez (D-West Covina) - Public employees’ retirement: retirement boards.

SB 72 by Committee on Budget and Fiscal Review - State employees: payroll: health care.

SB 752 by Senator Lou Correa (D-Santa Ana) - County employees’ retirement: Orange County.

AB 1025 by Assemblymember Connie Conway (R-Tulare) - Schools: employees and volunteers: Activity Supervisor Clearance Certificate.

AB 381 by Assemblymember Marty Block (D-San Diego) - Unemployment compensation disability benefits: academic employees.

AB 395 by Assemblymember Felipe Fuentes (D-Sylmar) - Employment: apprenticeship programs.

AB 720 by Assemblymember Anna Caballero (D-Salinas) - Peace officers: marital privilege.

Court of Appeal: "Reasonable Accommodation" Must Be Perfectly Executed Every Time

2009-10-25T13:12:00.000-07:00

It is one thing to grant a reasonable accommodation. It is another thing to ensure that it is implemented perfectly, every time. Hard cases make bad law. This is a combination of a sympathetic plaintiff, a big company, and a one-time event resulting in a huge verdict.

A.M. was a cashier at an Albertson's in Marin County. After receiving treatment for cancer, she needed to drink copious water. Albertson's let her have water at her station, even though it was against policy. Naturally, A.M. had to use the bathroom more frequently because of the water she was drinking. Albertson's said that she could call her supervisor and they would cover her.

So, Albertson's had granted A.M. extra breaks as an accommodation, and had implemented a system for A.M. to obtain them. The system was working, with A.M. receiving extra breaks by calling her supervisor. On one occasion, the system did not work because the supervisor was the only person who could relieve her and he was unloading a truck. A.M. had an accident at her cashier station. She went home and did not return to work for Albertson's.

According to the court of appeal, that single failure of the supervisor sufficed to be a "denial" of reasonable accommodation. The court upheld a jury verdict of $200K for that one incident. Add the plaintiff's and defense attorney's fees and sooner or later we're talking about a lot of money.

By the same argument, then, if an employee's wrist starts to hurt a few months after the employer installs ergonomic equipment, that alone is the denial of an accommodation? If a diabetic experiences low blood sugar one day, does that mean the employer's accommodation of permitting food at the work area is actionable?

If an accommodation becomes ineffective, the employer is required to engage in the interactive process to come up with a better accommodation, and grant the new accommodation. It is unreasonable to assume that an employee with a disability has a right to a perfect work environment and a guaranteed flawless accommodation, every day. The world does not work that way for anyone - with or without a disability. The issue is: did Albertson's grant her request for accommodation? Yes. Was it effective? Except for the one occasion, apparently so. Was there evidence the company intended to mistreat A.M. or only pretended to accommodate her? No. Could A.M. have filed a workers' compensation claim if she were injured by a work-related condition? Yeah, which was her real remedy here.

Again, A.M. was very sympathetic and what happened that day was truly unfortunate. But absent proof of intentional discrimination, the result of this case is that FEHA is not providing a remedy for a wrong; it is elevating individuals with disabilities above all others and exposing employers to potential liability for isolated failures.

The case is A.M. v. Albertson's and the opinion is here.

My 0.02.

U.S. DOT: Medical Marijuana Users Cannot Breathe Easier

2009-10-25T12:41:00.000-07:00

And they can't breathe sighs of relief, either. I kill me. Anyway, the Department of Justice announced it would pull back on enforcement against medical marijuana users where they are operating within the bounds of state law. (See DOJ memo: here) But the US Department of Transportation wants you to know they're a completely separate agency and there is no free pass on drug testing for medical marijuana users. Here is the DOT announcement.

Ninth Circuit Upholds FLSA OT Plan

2009-10-25T12:04:00.000-07:00

Ponoma Valley Hospital pays nurses one rate for 12 hour shifts, and a higher rate for eight hour shifts. The nurses requested the 12-hour shifts. To accommodate them, the hospital calculated how much it would have to pay to neutralize the payroll effect of the 12-hour shift.

An employee claimed that the differing rates were a subterfuge to avoid paying overtime under the federal FLSA.

The Ninth Circuit held that it is lawful to pay different rates for different shifts. And it is OK to lower a base rate to minimize paying overtime, as long as it is above minimum wage.
The opinion does not address California wage and hour law.

The case is Parth v. Pomona Valley Hospital and the opinion is here.

Court of Appeal: Class Certification Denied in Independent Contractor Case

2009-09-19T16:40:00.000-07:00

Ali brought a class action on behalf of taxi drivers. The primary claim was that the drivers were misclassified as independent contractors. Ali sought class certification, which the trial court denied.

The Court of Appeal affirmed, on the ground that common issues did not predominate. The company submitted over 40 declarations demonstrating that each putative class member experienced different working conditions and degrees of control by the company. Therefore, the case was not amenable to class treatment.

This case demonstrates that a motion for class certification may be defeated where declarations demonstrate numerous differences among each putative plaintiff's treatment. If the plaintiff cannot generalize about all employees by pointing to a few, a trial court may find that a class action is not suitable.

The case is Ali v. USA Cab LTD and the opinion is here.

Ninth Circuit Limits Federal Anti-Hacking Law

2009-09-19T16:20:00.000-07:00

Brekka was an employee of LVRC Holdings, LLC. While employed, he was fully authorized to use the employer's network. He emailed several confidential documents to his personal email account during his employment. The employer discovered this activity after Brekka left LVRC. The employer sued Brekka under the federal Computer Fraud and Abuse Act. The CFAA provides for criminal penalties and a civil action against those who:

intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains— . . . (C) information from any protected computer if the conduct involved an interstate or foreign communication . . . . 18 U.S.C. § 1030(a)(2). . . .

or who

knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct
furthers the intended fraud and obtains anything of value . . . .

18 U.S.C. § 1030(a)(4).

The issue was whether Brekka exceeded authorization during his employment by sending out company information to his personal account. The court of appeals, agreeing with the district court said he did not.

The court held that an employee's self-dealing is not "exceeding" authorization under the CFAA. Rather, a violation occurs only when the employee (1) does not have authorization to access the files or (2) accesses them after authorization is terminated.

This decision does not affect any state law violations or torts that the employer might bring. It underscores the need for employers to have in place effective policies and procedures for limiting computer access, particularly after employees depart.

The case is LVRC Holdings LLC v. Brekka and the opinion is here.

Court of Appeal Explains Safe Harbor Period for Obtaining Sanctions

2009-09-13T21:38:00.000-07:00

Most folks who read this blog don't care about sanctions. Like some of the courts. So, I'll make this quick. The employer settled a wrongful termination lawsuit with the employee. The employee tried to reopen the case four years after the settlement. The motion to reopen the case was frivolous.

The defendant filed a motion for sanctions because the plaintiff's motion was frivolous. To bring a motion for sanctions, you have to wait 21 days to see if the other side will withdraw its frivolous papers (called a "safe harbor"). But the court denied the plaintiff's motion too quickly to give the plaintiff the full 21-day opportunity to see the error of his ways and withdraw it. Therefore, the defendant could not successfully bring the motion for sanctions unless it (1) asked the court to delay the hearing on the frivolous motion. Or (2) the defendant could have gone into court and asked the court to shorten the "safe harbor" period. So, the defendant, victim of legally meritless litigation, has to spend more money and time changing the hearing dates too. Grrreatttt!

In fairness to the court of appeal that reversed the award of sanctions, the statute says what it says. But the statute is not a big deterrent to those who file legally frivolous papers. The Legislature probably will now go about amending it. Stop giggling.

The case is Li v. Majestic Industry Hills LLC and the opinion is here.

Ninth Circuit: Subjective Criteria Cannot Be Used at Prima Facie Stage

2009-09-13T20:17:00.000-07:00

Nicholson was a pilot for Cape Air. The airline rated her as unqualified to fly certain aircraft because of "CRM" skills, which included her communication and cooperation skills with her crew. She was the only female pilot in the Pacific area of operations. She had a personal relationship with one of the other pilots.

Once disqualified from flying a certain type of plane, she did not bid on other types of aircraft and was fired for job abandonment. She sued for sex discrimination under Title VII.

The court reversed the district court's grant of summary judgment. The court disagreed with the district court's determination that Nicholson was unqualified - an element of the prima facie case:

This court has long held that subjective criteria should not be considered in determining whether a plaintiff is “qualified” for purposes of establishing a prima facie case under McDonnell Douglas. Instead, “[t]he qualifications that are most appropriately considered at step one [of McDonnell Douglas] are those to which objective criteria can be applied . . . .” Lynn v. Regents of Univ. of Cal., 656 F.2d 1337, 1345 n.8 (9th Cir. 1981).

The court also found a genuine issue of material fact regarding pretext. Sometimes the court requires specific evidence when there is only circumstantial evidence (rather than direct evidence of discrimination such as sex-based comments). But here, the court picked from its patchwork of jurisprudence on what amount of evidence is required to show pretext, and settled on its most employee-friendly standard:

To avoid summary judgment at this step, however, the plaintiff must only demonstrate that there is a genuine dispute of material fact regarding pretext.
The amount of evidence required to do so is minimal. “We have held that very little evidence is necessary to raise a genuine issue of fact regarding an employer’s motive; any indication of discriminatory motive may suffice to raise a question that can only be resolved by a fact-finder. When the evidence, direct or circumstantial, consists of more than the McDonnell Douglas presumption, a factual question will almost always exist with respect to any claim of a nondiscriminatory reason.” McGinest v. GTE Serv. Corp., 360 F.3d 1103, 1124 (9th Cir. 2004)

The court found sufficient evidence of pretext. Under the above formulation of the law, how could it not? In fact, the court said that the evidence supporting the prima face case alone in this case would have been sufficient.

I'm pointing this out because it's time for the Ninth Circuit to articulate a clear standard regarding summary judgment in discrimination cases. Here's what the court said in another case in 2006:

To establish that a defendant's nondiscriminatory explanation is a pretext for discrimination, plaintiffs may rely on circumstantial evidence, which we previously have said must be "specific" and "substantial" to create a genuine issue of material fact. n7 Godwin v. Hunt Wesson, Inc., 150 F.3d 1217, 1222 (9th Cir. 1998) ("Such [circumstantial] evidence of 'pretense' must be 'specific' and 'substantial' in order to create a triable issue with respect to whether the employer intended to discriminate on the basis of sex.").

Cornwell v. Electra Cent. Credit Union, 439 F.3d 1018, 1029 (9th Cir. Or. 2006).

The court in Cornwell then went on to note that Godwin may have been undermined by later decisions:

Although there may be some tension in our post-Costa cases on this point -- several of our cases decided after Costa repeat the Godwin requirement that a plaintiff's circumstantial evidence of pretext must be "specific" and "substantial" n9 -- this panel may not overturn Ninth Circuit precedents in the absence of "intervening higher authority" that is "clearly irreconcilable" with a prior circuit holding, see Miller v. Gammie, 335 F.3d 889, 893 (9th Cir. 2003) (en banc), because that power is generally reserved to our en banc panels. See Miller, 335 F.3d at 899; United States v. Hayes, 231 F.3d 1132, 1139-40 (9th Cir. 2000); United States v. Washington, 872 F.2d 874, 880 (9th Cir. 1989). Whether or not the precedential weight of Godwin has been diminished to any degree by the Supreme Court's decision in Costa, or by our decision in McGinest, we conclude that Cornwell's evidence is sufficient to create a genuine issue of material fact regarding the motives for his demotion under either the Godwin standard which would require "specific" and "substantial" circumstantial evidence of pretext, or the McGinest standard, which would not.

Cornwell v. Electra Cent. Credit Union, 439 F.3d 1018, 1031 (9th Cir. Or. 2006).

The Cornwell court seems to be politely suggesting that there is a patchwork of decisions and they cannot really be reconciled without an en banc intervention, followed by Supreme Court clarification of its prior holdings. Just sayin'.

The case is Nicholson v. Hyannis Air Service, Inc. and the opinion is here.

DLSE Opinion Letter re Reducing Salary and Workdays

2009-08-22T08:34:00.001-07:00

The California Division of Labor Standards Enforcement agreed that temporarily reducing an exempt salaried employee's workweek to 4 days did not violate the salary basis test. The employer was free to proportionally reduce the employee's salary. This is consistent with a long line of federal authorities.

In a prior letter, 2002.03.12, the DLSE said that exempt employees would not be subject to salary reductions for a furlough. It appears DLSE has reversed that position. The new DLSE opinion is here.

Unfortunately, DLSE did not address another, separate, furlough question re exempt employees: can the employer "force" payout of vacation / PTO for furloughs / shutdowns of less than a full workweek? It's not a controversial proposition that the exempt employee is not entitled to any salary if the furlough is a full workweek. Therefore, there should not be any problem in paying out PTO/vacation for full workweek absences.

But what about partial week, ad hoc furloughs? Normally, the exempt employee is entitled to a full salary for any workweek in which s/he performs any work. There are exceptions, but involuntary absences of a day or more for lack of work are not one of them.

The new letter does not fully address this issue. I understand a prospective announcement reducing exempt employees' responsibilities to work with a concomitant reduction in salary. But if the employer says "we're going to shut down three days before Christmas," is that covered by this letter? If so, then it would be OK to pay required PTO for the three day furlough because the salary was reduced prospectively. If the opinion letter does not apply to this scenario, then it probably remains improper to force payout of PTO because the employee was already entitled to full salary. If you're confused, join the club.

This is a California-only issue, because the FLSA does not consider vacation / PTO to be vested. Also, there is an FLSA provision for public sector furloughs for economic reasons, so the question does not apply to the public sector.

Any wage-hour gurus who want to debate, send me an email / comment / wine.

Ninth Circuit: Commute in Employer's Vehicle Not Compensable Time

2009-08-22T08:14:00.000-07:00

Lojack, the car security company, required employees to use a company vehicle between home and the first work assignment of the day. Analyzing the FLSA and California law, the court held such time is not compensable. The employee did not have sufficient work responsibilities over and above using the company car. This part of the opinion was decided 2-1 with one dissenter.

The district court had rejected the employee's claim that time spent washing his uniform, the car, and other incidental work was not compensable "preliminary" activity under either federal or California law. The employees did not appeal that conclusion.

But the court of appeals held that mapping out his route, prioritizing his jobs for the day, and receiving instructions on the day's jobs were non-compensable either because they are part of the commute, or because they did not take up sufficient time and, therefore, were "de minimis." This decision was 2-1 with one dissenter.

The test for "de minimis" work that is not compensable includes three factors:

(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.

The court of appeals found, however, that employees may have to be compensated for a "postliminary" activity: uploading his data in his handheld computer to the company's system. The court found that doing so was integral to his job, required attention if the upload was unsuccessful, and was performed every day. The court said that the record was unclear as to whether the work was "de minimis," but concluded that it was not based on the facts before it. This decision was 2-1, with one judge dissenting.

The court also declined to adopt the "continuation of the workday" principle that other courts have adopted. Under that standard, even commute time is compensable if the employee performs substantial work at home and then heads out to work somewhere else.

So, the postliminary activity survived summary judgment. Everything else was rejected.

The opinion is Rutti v. Lojack Corp., Inc. and the opinion is here.

No More Non-Solicits?

2009-08-20T20:11:00.000-07:00

Looks that way. Mostly. The Court of Appeal held in The Retirement Group v. Galante, opinion here, that contractual agreements not to solicit customers are not enforceable because of California's unfair competition statute, Bus. and Prof. Code section 16600.

TRG sued a bunch of ex-employees for stealing trade secrets and violating a non-solicitation agreement. TRG obtained a preliminary injunction and the employees appealed. The Court of Appeal in essence held that if a former employer proves misuse of trade secrets under the Trade Secrets Act or Unfair Competition Law, the former employee may be enjoined from misusing those trade secrets. But no court can enjoin a non-solicitation clause merely because it appears in an agreement. Here is the money quote:

We distill from the foregoing cases that section 16600 bars a court from specifically enforcing (by way of injunctive relief) a contractual clause purporting to ban a former employee from soliciting former customers to transfer their business away from the former employer to the employee's new business, but a court may enjoin tortious conduct (as violative of either the Uniform Trade Secrets Act and/or the Unfair Competition Law) by banning the former employee from using trade secret information to identify existing customers, to facilitate the solicitation of such customers, or to otherwise unfairly compete with the former employer. Viewed in this light, therefore, the conduct is enjoinable not because it falls within a judicially-created "exception" to section 16600's ban on contractual nonsolicitation clauses, but is instead enjoinable because it is wrongful independent of any contractual undertaking.

Recent decisions have said as much, albeit less concisely. The point is that a non-solicitation agreement is now legally unnecessary to create substantive rights because the Trade Secret Act does not require such an agreement for an employer to come within its provisions. However, a non-solicitation clause, which is usually found in a confidentiality agreement, may be part of the evidence showing that the employer takes reasonable measures to maintain the secrecy of trade secrets. Therefore, it may not be a good idea to abandon such contractual provisions.
At the same time, it remains to be seen whether such clauses will be attacked as "overreaching" and, therefore, unfair competition.

FEHC Updates FMLA / CFRA Comparison Chart

2009-08-11T03:37:00.000-07:00

California's anti-discrimination agency just updated its chart comparing the FMLA and California's CFRA. It's posted here.

Court of Appeal: Breach of Contract Against Employer for Breach of Settlement Confidentiality

2009-08-09T14:00:00.000-07:00

Sanchez was a county labor relations manager for San Bernadino County. She became romantically involved with a union official, Erwin. Their respective employers negotiated labor relations memoranda of understanding. At some point, their relationship became known and unacceptable to the county's brass. The County thought a romance between labor negotiators on opposite sides of the table might constitute a conflict of interest. So sensitive! For her part, Sanchez denied the conflict of interest, but admitted the appearance of impropriety. So, the county gave Sanchez the chance to resign with a separation agreement.

The separation agreement contained a strict confidentiality requirement. But immediately after Sanchez resigned, the newspapers picked up on the story and quoted county officials. She sued the county and individual defendants for a variety of claims, including breach of contract. The county successfully "SLAPPED" most of the causes of action. The trial court eventually granted summary judgment on the rest of them. The court dismissed the breach of contract claim because the confidentiality agreement was contrary to the county's legal duty to disclose such facts to the public.

On appeal, the court of appeal reinstated the contract claim. The county's primary argument was that it was bound to disclose Sanchez's affair. After analyzing the various legal theories (including the Public Records Act and the First Amendment), the court said there was a triable issue of fact on the contract claim because the county did not have to disclose the affair to the papers. Had the settlement agreement been disclosed under the Public Records Act, the court might have come down the other way.

The court rejected the county's argument that Sanchez waived the confidentiality agreement by speaking with her parents and showing the agreement to Erwin. The court found it significant that Sanchez did so only after learning of the county's breach.

Regarding the issue of damages, she presented significant evidence it was harder to find a job after the disclosure of the affair to the newspapers. Therefore, the court rejected the county's contention that there were no damages available for the breach of confidentiality.

Typically, employers do not advertise their settlements with employees. So, this case may be an anomaly, particularly in the private sector. But to the extent employers needed motivation to maintain confidentiality, the prospect of a breach of contract claim should provide it. Employers should ensure they honor confidentiality provisions in separation agreements.

The case is Sanchez v. County of San Bernardino and the opinion is here.

CA Supreme Court: No Invasion of Privacy

2009-08-03T12:10:00.001-07:00

The Supreme Court unanimously held that an employer did not invade the privacy of employees when it set up video surveillance in the employees' offices. We first blogged about Hernandez v. Hillsides here.

So, Hernandez and Lopez worked at Hillsides, a residential treatment center for children. The administration determined that someone was using one of the computers to view porn at night. The computer was in a private office - used by Lopez and Hernandez during the day. Administration did not suspect Lopez or Hernandez, but rather one of the night time workers.

Management set up a hidden camera in Lopez/Hernandez's office, which was activated after they left, and which was turned off in the morning. The camera never taped Lopez or Hernandez. On one occasion, the boss forgot to turn the camera off in the morning, but it did not tape either Plaintiff. They did not catch the person who was viewing the porn either.

Despite the seemingly insignificant injuries, Lopez and Hernandez sued Hillsides for invading their privacy. The trial court threw out the case, but the court of appeal reinstated it.

The Supreme Court on review first held that setting up a secret camera was enough to constitute an "intrusion" - an element of the invasion of privacy tort. Here are some quotes on this point:

defendants [are] a private employer accused of installing electronic equipment that gave it the capacity to secretly watch and record employee activities behind closed doors in an office to which the general public had limited access. As we discuss later with respect to the “offensiveness” element of plaintiffs' claim, an employer may have sound reasons for monitoring the workplace, and an intrusion upon the employee's reasonable privacy expectations may not be egregious or actionable under the particular circumstances. However, on the threshold question whether such expectations were infringed, decisional law suggests that is the case here.* * *

Finding an intrusion, the Court took into consideration that this was a private office, that cameras were surreptitious, and case law and statutes regarding monitoring:

Plaintiffs plausibly claim that Hillsides provided an enclosed office with a door that could be shut and locked, and window blinds that could be drawn, to allow the occupants to obtain some measure of refuge, to focus on their work, and to escape visual and aural interruptions from other sources, including their employer. Such a protective setting generates legitimate expectations that not all activities performed behind closed doors would be clerical and work related. As suggested by the evidence here, employees who share an office, and who have four walls that shield them from outside view (albeit, with a broken “doggie” flap on the door), may perform grooming or hygiene activities, or conduct personal conversations, during the workday. Privacy is not wholly lacking because the occupants of an office can see one another, or because colleagues, supervisors, visitors, and security and maintenance personnel have varying degrees of access. . . .

Regarding another relevant factor in Sanders, supra, 20 Cal.4th 907, 923, the “means of intrusion,” employees who retreat into a shared or solo office, and who perform work and personal activities in relative seclusion there, would not reasonably expect to be the subject of televised spying and secret filming by their employer. As noted, in assessing social norms in this regard, we may look at both the “common law” and “statutory enactment.” (Hill, supra, 7 Cal.4th 1, 36.)

Now, a policy permitting such monitoring might have killed the employees' expectation of privacy and, therefore, the intrusion. But there was no such policy in place:

plaintiffs cannot plausibly be found to have received warning that they would be subjected to the risk of such surveillance, or to have agreed to it in advance. We have said that notice of and consent to an impending intrusion can “inhibit reasonable expectations of privacy.” (Hill, supra, 7 Cal.4th 1, 36; accord, Sheehan, supra, 45 Cal.4th 992, 1000-1001.) Such factors also can “ „ “limit [an] intrusion upon personal dignity” ‟ ” by providing an opportunity for persons to regulate their conduct while being monitored. (Hill, supra, at p. 36.) Here, however, the evidence shows that no one at Hillsides told plaintiffs that someone had used Lopez‟s computer to access pornographic Web sites. Nor were they told that Hitchcock planned to install surveillance equipment inside their office to catch the perpetrator on television and videotape.

Moreover, nothing in Hillsides' written computer policy mentioned or even alluded to the latter scenario. As noted earlier, the version in effect at the relevant time made clear that any monitoring and recording of employee activity, and any resulting diminution in reasonable privacy expectations, were limited to “use of Company computers” in the form of “e-mail” messages, electronic “files,” and “web site” data. Foster performed this administrative function when he used the network server to produce the list of pornographic Web sites accessed in both the computer laboratory and Lopez‟s office, and showed such computer-generated data to Hitchcock. There is no evidence that employees like plaintiffs had any indication that Hillsides would take the next drastic step and use cameras and recording devices to view and videotape employees sitting at their desks and computer workstations, or moving around their offices within camera range.

In sum, the undisputed evidence seems clearly to support the first of two basic elements we have identified as necessary to establish a violation of privacy as alleged in plaintiffs‟ complaint. Defendants secretly installed a hidden video camera that was both operable and operating (electricity-wise), and that could be made to monitor and record activities inside plaintiffs‟ office, at will, by anyone who plugged in the receptors, and who had access to the remote location in which both the receptors and recording equipment were located. The workplace policy, that by means within the computer system itself, plaintiffs would be monitored about the pattern and use of Web sites visited, to prevent abuse of Hillsides‟ computer system, is distinguishable from and does not necessarily create a social norm that in order to advance that same interest, a camera would be placed inside their office, and would be aimed toward a computer workstation to capture all human activity occurring there. Plaintiffs had no reasonable expectation that their employer would intrude so tangibly into their semi-private office

Next, the court considered whether the intrusion was sufficiently "serious" or "offensive" to constitute a tort. Here is where the employer won. The court considered factors such as the degree of the intrusion, the workplace setting, and the employer's justification. The Court concluded that the intrusion was justified and was slight under the circumstances. As such, the court of appeal had it wrong.

Finally, the court held that the employer does not have to prove there is no "less intrusive alternative" to prevail.

The key takeaway is that that notice to employees regarding employer procedures will defeat these claims in most cases by destroying the reasonable expectation of privacy.

The case is Hernandez v. Hillsides and the opinion is here.

Ninth Circuit: Everyone's an Employer under FLSA

2009-07-28T06:14:00.001-07:00

So, the FLSA's wage and hour provisions receive little attention in California. But with the bad economy and companies going bankrupt, the Ninth Circuit Court of Appeals may have just given plaintiffs a reason to heart federal court.

Boucher and a couple of others worked for the Castaways Hotel in Nevada. The Castaways filed for Bankruptcy protection. Later, it fired the plaintiffs. Undeterred by their former employer's insolvency, they sued the CEO, CFO and a senior manager responsible for labor relations (hi, HR managers!).

The defendants asked the district court to dismiss the case because they were not the plaintiffs' employer - that was the Castaways' role. The district court obliged. But the Ninth Circuit reversed as to the federal claims. As to claims brought under Nevada's wage and hour laws, the Court of Appeals, relying on the Nevada Supreme Court's opinion, held that individuals cannot be held liable.

As to the FLSA claims, however, the Court decided that the individuals could be held liable as employers. They got no help from the defendants, who did not argue the point apparently. Here is the money quote:

In the case at bar, Ballard has alleged that Defendant Villamor was responsible for handling labor and employment matters at the Castaways; Defendant Shaw was chairman and chief executive officer of the Castaways; and Defendant Van Woerkom was the Castaways’ chief financial officer and had responsibility for supervision and oversight of the Castaways’ cash management. The plaintiff also alleges that Shaw held a 70 percent ownership interest in the Castaways, Villemor held a 30 percent ownership interest and all three defendants had “control and custody of the plaintiff class, their employment, and their place of employment.” (See Complaint ¶¶ 9-11.)
Accepting these allegations of material fact as true, Ballard’s claim withstands a motion to dismiss. . . .

The individuals spent their brief arguing that the bankruptcy proceedings by the Castaways insulated them from liability. Logically, if the individuals stand in the shoes as employers under FLSA, then they should be covered by the Castaways' bankruptcy too, right? Nope.

We have never addressed the question whether a company’s bankruptcy affects the
liability of its individual managers under the FLSA. But our case law regarding guarantors, sureties and other non-debtor parties who are liable for thedebts of the debtor leaves no doubt about the answer: the Castaways bankruptcy has no effect on the claims against the individual managers at issue here.

So, the plaintiffs could proceed against these senior managers who owned The Castaways by suing under the FLSA, even though the Castaways went bankrupt and eventually liquidated.

The case is Boucher v. Shaw and the opinion is here.

Ninth Circuit: Walmart Has No Obligation to Foreign Suppliers' Workers

2009-07-18T12:54:00.001-07:00

Walmart contracts with a number of companies in foreign countries to supply Walmart with the goods it sells in the U.S. Walmart's contracts with these suppliers include a code of conduct, imposing requirements that the suppliers comply with local workplace laws and standards regarding workplace law issues such as child labor, discrimination, etc. The code also permits Walmart to inspect the suppliers' operations. The suppliers' failure to adhere to the standards, including permitting inspections, could result in cancellation of the contract.

Employees of a number of foreign suppliers sued Walmart, claiming that Walmart was liable under these provisions for their employers' alleged violations of law. They claimed Walmart tells the public it is improving the workers' lives, and that Walmart's inspection program was flawed. They sought damages as third party beneficiaries of the supplier contracts, and on a variety of negligence theories, as well as unjust enrichment.

Upon dismissal of their complaint in district court, the employees appealed to the Ninth Circuit. The Ninth Circuit affirmed. The primary rationale was that the employees had no employment relationship with Walmart merely because of Walmart's right to inspect the workplace. Walmart exercised no day-to-day control over the workers.

The case is Doe v. Walmart and the opinion is here.