November 30, 2001

Ninth United States Circuit Court of Appeals

A. Continuing Violation May Result Where Employer Maintains Potentially Discriminatory Policy

Douglas v. California Dept. of Youth Authority, (2001 DJDAR 12057) (9^th Cir. 11/14/01).⁽¹⁾ The Ninth Circuit reversed summary judgment in favor of the California Dept of Youth Authority ("CYA") in a disability discrimination/failure to hire case, in a potentially far-reaching extension of the continuing violations doctrine.

Dossey Douglas sought employment with the CYA as a Group Supervisor in 1994 and took its biennial written examination for applicants in November of that year. He placed fourth on the eligibility list. CYA's hiring process also involves oral interviews, a background check, and a physical examination. In June 1995, CYA adopted a color vision standard and so notified Douglas. In January 1996, CYA offered Douglas a position, conditioned on his passing a medical examination. Douglas failed the color vision test, as well as a second vision test, and CYA notified him on March 1, 1996 that he had failed the vision test and could appeal to the State Personnel Board. Douglas next contacted CYA's EEO office where an officer notified him that he could file a complaint with the EEO or appeal to the State Personnel Board, but did not notify him of his right to file with the EEOC or explain that EEO was different from EEOC. Douglas filed a complaint with the EEO and appealed to the State Personnel Board. His EEO complaint was denied on May 2, 1996. He retested for the position in the fall of 1996. On February 27, 1997, the State Personnel Board informed him his appeal was denied and for the first time Douglas was informed of his right to file a claim with EEOC or DFEH. He filed an EEOC Charge on April 9, 1997. The EEOC issued a cause finding on February 23, 1998, finding that the color vision requirement violated ADA. Douglas filed suit in July 1998 alleging violations of ADA and the Rehabilitation Act.

CYA was awarded summary judgment on the grounds that Douglas failed to exhaust administrative remedies as to the ADA claim and that his Rehabilitation Act claim was time-barred. The district court rejected Douglas' argument that equitable tolling or estoppel should save his claim. The Ninth Circuit reversed. It largely rejected CYA's Eleventh Amendment immunity claims. As to the Rehabilitation Act claim, CYA waived immunity by accepting federal funds. As to the ADA claim, the court remanded for a determination of whether CYA waived immunity by not raising it as an affirmative defense before the district court, citing an insufficient factual record as to waiver.

On the key issue of timeliness, the Ninth Circuit reversed the district court, finding a continuing violation. Under Draper v. Coeur Rochester, Inc., 147 F.3d 1104 (9^th Cir. 1998), a plaintiff may survive summary judgment merely by establishing a genuine issue of fact as to whether an allegedly discriminatory policy extended into the statutory period. A plaintiff may show a continuing violation either by demonstrating a series of related acts directed at the plaintiff, or by showing a "systematic policy or practice of discrimination that operated, in part, within the limitations period--a systemic violation." The court noted that under the latter method, "the limitations clock does not begin to tick until the invidious conduct ends." Thus, the court considered, "whether the maintenance of a systemic discrimination policy, when combined with repeated efforts by the plaintiff to gain employment, extends the accrual of the limitations period in such a case."

The court noted that a Rehabilitation Act claim, to be timely, must be filed within a year of the July 6, 1998 filing of the lawsuit, i.e. based on an act that occurred no earlier than July 5, 1997. An ADA claim is timely if an EEOC Charge was filed within 300 days of the discriminatory act. Based on the Charge filing date of April 18, 1997, only acts occurring on or after June 22, 1996 would make the ADA claim timely. Douglas argued that although he was denied the position on March 1, 1996, his ADA claim should be deemed timely because he reapplied in October 1996, and his appeal of the rejection of his 1994 application was denied in February 1997. The Court agreed, finding an issue as whether Douglas was "exposed to CYA's discriminatory policy during the period of limitations" and whether CYA continued to discriminate against him by not considering or responding to his pending application during the statutory period, presumably due to his color vision deficiency.

While the court noted that the discriminatory policy remained in place while Douglas continued to attempt to gain employment, it did not decide whether the maintenance of the policy alone, even without further efforts to gain employment, would extend the limitations period. In dicta, however, it disapproved a Fifth Circuit ruling answering this question in the negative because to permit such an extension would make it "difficult to conceive of a circumstance in which a plaintiff's claim of an unlawful employment policy could be untimely." Said the Ninth Circuit, "this rationale ignores the fact that the employer may end the period of exposure to litigation by disavowing the discriminatory policy."

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Other United States Circuit Courts of Appeals

A. No FMLA Violation or Termination in "Key Employee" Notification

Kelly v. DecisionOne Corp. (3^rd Cir. 10/29/01).⁽²⁾ Moira Kelly, a regional sales director, began a maternity leave to adopt a child in August 1999, planning to return November 8. In August, she requested an extension of her leave to January 4, 2000 due to her child's medical problems. The company informed her on November 9 that she was a "key employee" whose continued absence would result in substantial and grievous economic injury. It agreed to extend her leave but not to restore her to her former position. Rather, the company would determine whether a position was available in January. Kelly claimed this was a termination letter and demanded severance benefits. The company responded that it did not intend to terminate her, but would attempt to find her a comparable position if hers was filled in January 2000. She continued to demand severance benefits, but on December 30, 1999, the company informed her that her old position would be available for her on January 4, 2000.

Still, she sued under the FMLA and Pennsylvania law, claiming the November 9 letter was a termination letter entitling her to severance benefits. The trial court granted summary judgment, finding that a "key employee" notification does not constitute termination because it permits the employee to return and seek a different job upon conclusion of her leave. The Third Circuit affirmed, ruling the letter clearly was not a termination letter.

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B. No Fees For Firm That Beat ULP Charges

Hovey Electric, Inc. v. NLRB (6^th Cir. 11/2/01).⁽³⁾ Despite successfully beating back unfair labor practice charges before the NLRB, a Michigan electrical contractor was not entitled to attorney's fees and costs under the Equal Access to Justice Act. Hovey Electric entered into a recognition agreement with the Christian Labor Association in 1997, despite the latter's lack of majority support. Local 131 of the IBEW filed a ULP Charge. Due to the language of the contract's recognition clause, which included the phrase "the Employer recognizes the Union as the sole bargaining representative of his employees," the NLRB General Counsel alleged the agreement was a Section 9(a) relationship, rather than a Section 8(f) prehire agreement, and was illegal due to the lack of majority support. (A section 8(f) prehire agreement permits employers in the building and construction industry to enter into recognition agreements with unions even where the union's majority status has not been established.)

The General Counsel argued that because the union security clause provided employees a 30-day grace period after the effective date of the agreement to join the union, instead of tying the grace period to the employees' hire dates, the company effectively denied employees the 30-day grace period required for Section 9(a) agreements. (Section 8(f) agreements require only a 7-day grace period.) However, evidence showed that union representatives assured employees that they had 30 days after hire before they had to pay dues or agency fees.

Ultimately, Hovey successfully convinced an NLRB ALJ and the Board that it entered into an 8(f) relationship that was converted into a 9(a) relationship when the union eventually proved majority support and that employees were not denied the statutorily-mandated grace period. This victory, however, did not translate into an EAJA fee recovery. The ALJ hearing Hovey's EAJA application found the General Counsel's arguments were substantially justified, and the Board agreed. On appeal, the Sixth Circuit affirmed. The Court held that the General Counsel's position in a case should be considered substantially justified if it has a reasonable basis in law and fact. The Court found that the Board's interpretation of the recognition clause as compliant with the NLRA was not the only possible interpretation of the clause, and the clause was sufficiently ambiguous to cause the General Counsel reasonably to believe a violation had taken place.

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C. Punitive Damages Awardable Without Compensatory Damages

Cush-Crawford v. Adchem Corp. (2^nd Cir. 11/16/01).⁽⁴⁾ The Second Circuit affirmed a jury verdict of $100,000, based on punitive damages only in a Title VII sexual harassment suit. The plaintiff alleged a pattern of harassment starting even before she was hired, including calls at home by her supervisor prior to her commencement. Advances continued into the beginning period of her employment, which she rebuffed until her supervisor began to complain about her performance. Veiled job threats were also made by the supervisor. She complained once in September 1993, then again in July 1994 and November 1994. After her third complaint, she was transferred to a new facility and the supervisor was suspended. She later requested a return to the original facility, then suffered an on-the-job injury and did not return.

The jury found for her on the quid pro quo harassment and retaliation claims, but found for the employer on the hostile work environment claim. On appeal, the Second Circuit ruled that to recover punitive damages under Title VII, an employee need show only that the employer engaged in a discriminatory practice with malice or reckless indifference to the employee's federally protected rights. Noting a split in the appeals courts as to the availability of punitives in the absence of compensatory damages, the court held that the concern over unreasonably high punitive damage awards was "eliminated by the imposition of the statutory caps" on awards in 42 U.S.C. ó 1981a(b)(3). The court rejected the argument that punitive damages are inappropriate in the absence of compensatory damages. "There is some unseemliness for a defendant who engages in malicious or reckless violations of legal duty to escape either the punitive or deterrent goal of punitive damages merely because either good fortune or a plaintiff's unusual strength or resilience protected the plaintiff from suffering harm." The reckless indifference was found based on the company's failure to respond to the plaintiff's complaints until over a year had passed since she started to make them.

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D. Claim of Retaliation for Intent to Take FMLA Leave Rejected

Skrjanc v. Great Lakes Power Service, Co. (6^th Cir. 11/14/01).⁽⁵⁾ Michael Skrjanc, a marine power pump repairman, informed his supervisor in May 1998 that he needed surgery, but would schedule it for the fall, when the plant was less busy. A month later he was terminated. Shortly thereafter, he saw the company's classified ad for another position but upon inquiry was told he lacked the necessary experience. The company had considered eliminating Skrjanc's entire unit several months before the request, and fired all four people in his unit simultaneously. Skrjanc sued under FMLA and state law.

The district court rejected the company's argument that Skrjanc failed to establish a prima facie claim, ruling that an employee who announces his intent to take FMLA-protected leave is protected from retaliation as if he actually had taken leave. However, it dismissed the claim because Skrjanc failed to rebut the employer's non-discriminatory reason for his termination--the divestment of his unit. The Sixth Circuit affirmed, also rejecting Skrjanc's claim based on the denial of the other position he sought. "The FMLA does not provide a free-standing right to transfer." The court also rejected Skrjanc's theory that the company's decision to hire an employee who would not be eligible for FMLA leave for a year (based on the statutory eligibility requirements) evinced a preference for employees who did not take FMLA leave. Ultimately, Skrjanc had nothing more to support his claim "than the proximity in time between the date he informed Great Lakes Service of his intention to take a leave of absence and his discharge one month later."

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United States District Courts

Shtab v. Great Bay Hotel & Casino, Inc. (D.N.J. 11/13/01). An employer that asked an employee to delay his leave until after the Memorial Day weekend may have violated the FMLA, according to a federal court in New Jersey. Ira Shtab was a cook at the Sands Hotel in Atlantic City for five years until his layoff in February 1998 due to the closure of the restaurant in which he worked. In mid-May, he received a recall notice, seeking his response within a week. His son had been diagnosed with autism in April. Thus, when he received the notice, he requested family leave to care for his son. The company asked him to delay his leave until after the busy Memorial Day weekend, but Shtab declined, citing his son's condition. He then provided the employer with a medical certification for intermittent leave from May 28 (three days after Memorial Day) and continuing through September. The form did not address the Memorial Day issue, and the employer rejected his leave request and terminated him. Shtab unsuccessfully pursued a union grievance, then sued under FMLA.

The employer moved for summary judgment, but the court denied it, finding questions as to whether Shtab should have been permitted to correct flaws in the certification form and whether his rights were chilled when the hotel asked him to delay his leave. The court acknowledged that a "literal reading" of FMLA permitted the employer to treat the certification as complete and therefore inadequate, but a question remained as to whether the doctor was sufficiently apprized of the request and whether the certificate was actually complete (FMLA regulations require an employer to give an employee an opportunity to amend a certification only if the form is incomplete). The court rejected the employer's argument that the employee must suffer adverse employment actions due directly to the alleged interference with the exercise of rights. It found that reasonable people could conclude the employer chilled Shtab's FMLA rights by asking him not to take leave over Memorial Day.

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California Courts of Appeal

A. Employee Wrongfully Terminated for a Refusal to Sign Non-Compete Agreement

Walia v. Aetna, Inc., 2001 DJDAR 12311 (1^st Dist. 11/21/01).⁽⁶⁾ A California appellate court affirmed a jury award of compensatory and punitive damages to an employee who was terminated for refusing to sign a non-compete agreement. The court also affirmed the trial court's instruction that the agreement violated B&P Code ó 16600 and that if Aetna's termination of Anita Walia was based on her refusal to sign it, the termination was a wrongful termination in violation of public policy.

Following a merger, Aetna's co-president decided a number of employees should sign an agreement covering various issues. Entitled "Non-Compete and Confidentiality Agreement," the agreement contained a non-compete covenant, a non-solicitation covenant, a confidentiality covenant, and a cooperation covenant. The non-compete covenant prohibited employees from working for a competitor of Aetna's for six months following departure from Aetna in the same state in which they had been employed by Aetna. It also permitted Aetna to sue employees for breach of the agreement. Walia, an Account Manager, offered to sign the agreement if the non-compete covenant were removed. The company refused and terminated her for refusing to sign the agreement.

In light of the trial court's instructions, the jury awarded $54,312 in compensatory damages, $125,000 in emotional distress damages, and $1,080,000 in punitive damages. The appeals court easily found the non-compete violated ó 16600. Despite the company's argument, the court found it did not fit within the "narrow restraint" exemption of Boughton v. Socony Mobil Oil Co., 231 Cal.App.2d 188 (1964) because it barred Walia from accepting a job as a salesperson for any health care company in California. The court also noted the Central District of California rejected the same "narrow restraint" argument in interpreting an identical contract in Latona v. Aetna U.S.Healthcare, Inc., 82 F.Supp.2d 1089 (C.D. Cal. 1999).

The court also rejected Aetna's "trade secrets" exception argument, finding the non-compete covenant made no reference to trade secrets, and that a separate covenant in the agreement did pertain to trade secrets. Finally, following Latona, the court rejected Aetna's argument that the agreement did not violate ó 16600 because it was severable. The contract was not signed and Aetna terminated the employee. That other inoffensive covenants existed did not mitigate the illegal non-compete covenant.

Turning to the public policy tort, Aetna argued that the termination did not violate public policy because any such policy was "neither articulated at the time of her discharge nor fundamental and substantial." The court disagreed, noting the policy against non-compete agreements in California dates to 1872 and the long history of reaffirmance of this policy by courts, as reflected in the statute itself. Nor did Aetna lack notice that the particular non-compete at issue at bar was unenforceable, according to the court.

In unpublished portions of the decision, the court affirmed the jury's award in all respects.

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1. Opinion by Pregerson, joined by Ferguson and Hawkins.

2. Opinion by Greenberg, joined by Becker and Scirica.

3. Opinion by Kennedy, joined by Guy and Boggs.

4. Opinion by Leval, joined by Newman and Sack.

5. Opinion by Gilman, joined by Daughtrey and Cohn.

6. Opinion by Haerle, joined by Kline and Ruvolo.

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