2002-16

CALIFORNIA CASES

A. Employee Fired For Discussing Bonus Pay Structure Can Sue On Grounds Of Public Policy

In Grant-Burton v. Covenant Care, Inc., 143 D.L.R. A-1(Cal. Ct. of App. No. B151342, 7/10/02), the California Court of Appeals held that a nursing home marketing director who was fired at least in part because she discussed with co-workers the fairness of the company's bonus pay structure may proceed with her claim for wrongful discharge in violation of public policy.

Covenant owns 42 skilled nursing and assistant living facilities, each of which has a marketing director supervised by an executive director. Grant-Burton was hired as a marketing director in June of 1998. At a monthly meeting of Covenant's seven marketing directors working in Southern California, one marketing director asked the others about their bonus structure. Three or four described the criteria applicable to them for determining a bonus. Grant-Burton said she did not receive any bonuses because her executive director did not believe in them. Grant-Burton also said she did not mind not receiving bonuses because the company was paying for her continuing education classes. One marketing director was offended by the discussion, who then told her boss, who then sent an email to other executive directors, including Grant-Burton's supervisor, saying the marketing directors should not have been discussing their bonuses. In turn, Grant-Burton's executive director fired Grant-Burton six days after the meeting. Grant-Burton sued in part for wrongful discharge in violation of public policy, breach of contract, breach of the covenant of good faith and fair dealing, and for violation of the California Labor Code Section 232. The Los Angeles County Superior Court granted summary judgment to Covenant on these claims.

Reversing summary judgment for Covenant, the California Court of Appeals found that Grant-Burton's wrongful discharge claim is based on public policy established by the National Labor Relations Act and the California Labor Code protecting employees' right to discuss their compensation with each other. In this regard, the Appeals Court noted that even though Grant-Burton and the other marketing directors may not have been members of a Union or governed by a collective bargaining agreement, their concerted activity -- participating in a group discussion about the fairness of their compensation -- is protected under the NLRA, which protects workers' right to engage in concerted activities for mutual aid or protection, including discussion of wages. The court also held that California Labor Code Section 232 prohibits employers from taking adverse action against "an employee who discloses the amount of his or her wages." Furthermore, the term "wages" is defined to include "all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation." The Appeals Court also found that California Labor Code Section 923 declares that it is the public policy of the state that workers must be free to engage in concerted activities for mutual aid or protection.

Covenant argued that Section 232's reference to "wages" should be limited to compensation already earned by the employee. However, the Appeals Court held that this argument, if accepted, would render Section 232 virtually meaningless because under this definition, an effort by employees to obtain a pay increase would not involve wages, and as a result, would not be covered by Section 232.

Covenant also argued that Section 232 was not triggered because the marketing directors did not disclose the amount of their bonuses. The Court of Appeal, however, disagreed stating that an amount of wages can be disclosed without mentioning dollars and cents. Such a disclosure necessarily includes the discussion of a pay structure that allows for an increase or decrease in wages through the awarding of bonuses. In this regard, the Appeals Court identified that Grant-Burton said that she did not receive a bonus at all.

Finally, Covenant argued that it had good cause to fire Grant-Burton because of her allegedly poor performance and unprofessional conduct. However, the court found that the company failed to cite any evidence to support this assertion. Further, the Court held that Covenant's "good cause" argument was meritless because it was evidenced that Grant-Burton was terminated, at least in part, because she participated in the discussion about bonuses. The Court concluded that this indeed was an unlawful reason to terminate Grant-Burton and that the burden of proof must shift to the company to show it would have fired Grant-Burton regardless of the bonus-pay discussion.

CIRCUIT CASES

In Costa v. Desert Palace, Inc., dba Caesars Palace Hotel and Casino, 2002 D.J. D.A.R. 8738 (9^th Cir. 3/21/02) , the Ninth Circuit⁽¹⁾ examined the legal standard for proof of a violation of Title VII of the Civil Rights Act of 1964. In brief, the Ninth Circuit returned to the clear language of the statute.

At the trial court level, Costa argued and the jury agreed, that sex was a motivating factor in her termination. Because Caesars failed to establish that she would have been terminated without consideration of her sex, the jury awarded back pay and compensatory damages. Finally, the jury found that the discrimination was egregious and warranted punitive damages.⁽²⁾ On appeal, Caesars argued that Costa should have been held to a special, higher standard of "direct evidence," a threshold it claims she did not meet. The Ninth Circuit did not share the same views as Caesars, holding that Title VII imposes no special or heightened evidentiary burden on a plaintiff in a so called "mixed-motive" case. Thus, the Ninth Circuit concluded that plaintiff did not have to show "direct evidence" that the employer's decision to fire her was tainted by sex discrimination in order to bring a "mixed-motive" case under Title VII.

Costa, a member of Teamsters Local 995, operated forklifts and pallet jacks to retrieve food and beverage orders. In her lawsuit against Caesars, Costa alleged that she endured a series of escalating events including informal rebukes, a denial of privileges, suspension, and finally discharge after an altercation with a co-worker. With respect to the discharge, Costa alleged that a co-worker confronted her over a report he believed she had made about his unauthorized lunch breaks. He trapped her in an elevator and shoved her against a wall, bruising her arm. She reported the incident to a supervisor, but the person with whom she had the altercation confronted her again. Her report to the company included photographs of bruises and corroboration by a witness who had seen the person, with whom she had the altercation blocking the elevator door. The person involved in the altercation with Costa did not immediately report the incident, had no physical corroboration of the account, offered few details, and claimed that Costa hit him. Caesars responded by suspending the person with whom Costa had the altercation for a period of five days and fired Costa.

In December 2000, a three-judge panel of the Ninth Circuit reversed, holding that by giving a mixed-motive jury instruction rather than a pretext instruction, the lower court prejudiced Caesars because it erroneously shifted the burden of proof to the employer when Costa had not presented substantial evidence of discriminatory animus. One year later, the full Ninth Circuit vacated the decision and agreed to review the case.

Upon full review, the Ninth Circuit ruled that the trial judge did not err when he told the jury it could find for Costa if it decided that her sex was a motivating factor for her termination, even if there were other lawful reasons for her termination. The Ninth Circuit rejected Caesars' argument that this instruction was unfairly prejudicial. Moreover, the Ninth Circuit stated that there was sufficient evidence that sex was a motivating factor in the firing decision, citing evidence that Costa, the only female member of her bargaining unit, was disciplined more often and more harshly than her male co-workers, treated differently, and denied overtime.

In order to understand this case fully, the dissent must also be examined. Four judges dissented, arguing that the mixed-motive analysis was not available here, and instead, the jury should have been instructed to decide whether the employers' other allegedly valid reasons for firing Costa were a pretext for discrimination. The dissent emphasized that the majority's decision disregards the Supreme Court's ruling in Price Waterhouse v. Hopkins. The dissent explained that while the Supreme Court issued a number of concurring opinions in that case, the concurrence issued by Justice O'Connor is generally considered controlling. Under Justice O'Connor's opinion, a Title VII plaintiff in a mixed-motive case must produce "direct evidence" showing that "decisionmakers place substantial negative reliance on [the] illegitimate criterion." The dissent further expressed that when Congress amended Title VII in 1991, it did not change the holding in Price Waterhouse. "By visciating [O'Connor's] direct evidence requirement, the majority's holding puts our circuit in conflict with almost all others," further arguing that the majority's holding threatens the stability of the traditional McDonnell Douglas method of proving a discrimination case.

The majority, however, explained that after the Supreme Court issued its 1989 decision in Price Waterhouse, Congress enacted the Civil Rights Act of 1991. The amendment to Title VII "clarified (1) that a Title VII violation is established through proof that a protected characteristic was 'a motivating factor' in the employment action and (2) that the employer's 'same decision' evidence serves as an affirmative defense with respect to the scope of remedies, not as a defense to liability." The majority continued by emphasizing that the legislative history of the act evinces a clear intent to overrule Price Waterhouse." The majority expressed that while the history does not address O'Connor's "direct evidence" comment, it "does show beyond a doubt . . . that the premise for Justice O'Connor's comment is wholly abrogated" because employers' discriminatory conduct may not escape liability. The majority thus held that as a consequence, "there is no longer a basis for a special 'evidentiary scheme' or heightened standard of proof to determine 'but for' causation." In conclusion, the majority reaffirmed that "the best way out of this morass is a return to the language of the statute, which imposes no special requirement and does not reference 'direct evidence.'" The Ninth Circuit therefore held that the trial court did not err in giving the mixed-motive instruction rather than the pretext instruction.

B. The Ninth Circuit Refuses To Enforce An Arbitration Agreement

In Ferguson v. Countrywide Credit Indus., Inc., 145 D.L.R. AA-1 (9th Cir. 7/23/02)⁽³⁾, an arbitration agreement used by Countrywide was found unenforceable by the Ninth Circuit because its fee and discovery provisions and its limitations on what issues could be arbitrated rendered it both procedurally and substantively unconscionable. The Ninth Circuit, reviewing the lower court ruling that refused to compel arbitration on sexual harassment claims by multiple plaintiffs, found that Countrywide's mandatory arbitration agreements were "one-sided" and shifted an already unbalanced power situation further to the advantage of the employer.

Relying on Armendariz v. Foundation Health Psych Care Services and Circuit City Stores, Inc. v. Adams, the Ninth Circuit found that the agreement satisfied the two requirements necessary for finding an agreement unenforceable: procedural and substantive unconscionability. On the question of procedural unconscionability, the Ninth Circuit expressed that a contract is unconscionable if it creates "oppression" - an inequality of bargaining power that means little negotiation can take place and leave little choice - and whether it contains "surprise"- the level to which agreed upon terms are hidden in the contract. On this issue, Countrywide argued that the agreement lacked oppression or surprise because Ferguson had plenty of time to consider the agreement and reject it and that the contract was in plain language. The Ninth Circuit, however, rejected these arguments, saying Ferguson was left with a "take it or leave it" situation. In so ruling, the Ninth Circuit expressed that California Courts have consistently held that where a party in a position of unequal bargaining power is presented with an offending clause without the opportunity for a meaningful negotiation, oppression and procedural unconscionability are present.

On the question of substantive unconscionability, the Ninth Circuit found that Countrywide's agreement was "unfairly one-sided" because it compelled arbitration of claims traditionally brought by employees but excluded claims traditionally brought by the employer. The Ninth Circuit noted that the agreement required employees to arbitrate contract, anti-discrimination, and federal and state statutory claims, but exempted workers' compensation and unemployment compensation, as well as suits over intellectual property, unfair competition, privacy, and disclosure, and trade secret issues.

The Countrywide agreement also required the employee to pay a $125.00 filing fee. Moreover, after the employer was to pay for the first hearing day, all other arbitration costs were to be shared between the employer and the employee. The Ninth Circuit thus stated that because the only valid fee provision is one in which an employee is not required to bear any expense beyond what would be required to bring the action in court, it insisted on affirming the District Court's conclusion that the original fee provision appeared to violate the Armendariz standard. In addition, the Ninth Circuit noted that on remand in Circuit City, it had found that a fee allocation scheme which requires the employee to split the arbitrator's fees with the employer, would alone render an arbitration agreement substantively unconscionable.

In terms of discovery, the agreement limited depositions of corporate representatives to no more than four designated subjects but placed no similar limitations on depositions requested by the company. In addition, the agreement limited both sides to no more than three depositions, however, allowed for unlimited use of expert witnesses. Ferguson thus argued that these elements favored Countrywide because of its superior position for information gathering and greater access to funds. While finding that the discovery limitations appeared reasonable, the Ninth Circuit indicated that it recognized an insidious pattern in Countrywide's arbitration agreement. The Ninth Circuit expressed that not only do these discovery provisions appear to favor Countrywide at the expense of its employees, but the entire agreement seems drawn to provide Countrywide with undue advantages should an employment-related dispute arise.

The Ninth Circuit also held that because of the lack of mutuality regarding the type of claims that must be arbitrated, the fee provision, and the discovery provisions, the arbitration agreement was uncapable of being severed.⁽⁴⁾

C. The Ninth Circuit Holds That A Union Is Not Required To Provide Audited Financial Statements For Purposes Of Assessing Agency Fees To Non-Members

In Harick v. Teacher's Assn., 2002 DJDAR 8686 (9^th Cir. 4/9/02), ⁽⁵⁾ a group of teachers in eight California school districts sued the Local Teachers Unions, of which they were not members. Instead, they simply paid an agency fee to the Union for collective bargaining activities that benefitted the non-member teachers. The lawsuit challenged the process by which the fees were deducted from the teachers' wages. Specifically, the lawsuit alleged that the Unions failed to provide adequate financial statements to support the imposition of the fees. The District Court agreed with the plaintiffs, finding that all local Unions, regardless of their size, must disclose to non-members, financial statements that are audited by an independent accountant.

The Ninth Circuit vacated the District Court's decision, holding that a local Union must be able to disclose financial statements that are independently verified, however, this does not mean that an audit is required as the District Court held. The Ninth Circuit held that there merely must be an independent verification that non-members are not paying for non-chargeable expenses. The Ninth Circuit pointed out that an audit is the highest level of scrutiny of financial documents and although unnecessary, the Union must provide a statement of its chargeable and non-chargeable expenses, together with an independent verification that the expenses were actually incurred.

D. The Ninth Circuit Holds That A Union, And Not An Employer, Has The Duty To Provide Notice of The Basis of Agency Fees

In Prescott v. County of El Dorado, 2002 DJDAR 8682 (9^th Cir. Apr. 9, 2002),⁽⁶⁾ the Ninth Circuit held that it is the responsibility of the Union to provide notice of the basis of agency fees. The plaintiffs were non-union members of an agency shop bargaining unit employed by the defendant. They challenged an indemnification provision of the collective bargaining agreement that required the Union to hold the employer harmless from any liability arising out of the collection of agency fees from non-union members of the bargaining unit. On remand from the U.S. Supreme Court, the District Court held that the plaintiffs lacked standing to challenge the indemnification clause.⁽⁷⁾

In affirming the District Court's holding, the Ninth Circuit emphasized that there is no casual relationship between the indemnification agreement and the injury plaintiffs have suffered. The indemnification agreement requires the Union to defend and indemnify the employer against all claims arising out of the employer's collection of agency fees. The Ninth Circuit concluded that in order to have standing, however, a plaintiff must establish injury in fact, causation, and redressability. However, in this instance, the only injury that the plaintiff's allege was that the Union failed to comply with the requirements to provide notice of the basis of agency fees that the plaintiffs had to pay as members of an agency shop and to maintain an adequate portion of collected fees in escrow pending fee arbitration. The plaintiffs nevertheless contend that because the notice requirement is triggered by the collective bargaining agreement, and because the employer had stipulated that it would not have entered into the collective bargaining agreement unless it contained the indemnification clause, the indemnification clause is the legal cause of the inadequate notice. The Ninth Circuit held, however, that this casual relationship was too remote. The injury must be "fairly traceable to the challenged action of the defendant."

E. Nurses Placed By Temporary Agency May Sue State As Employees, Eighth Circuit Decides

In Hunt v. Missouri Dep't of Corr., 144 D.L.R. A-2 (8^th Cir. 7/22/02), the Eighth Circuit ruled that nurses employed by a temporary agency can sue the state prison system where they were placed, as "employees."

The Eighth Circuit ruled that plaintiffs, who had settled their claims with the temporary agency, also could bring suit under Title VII against the state prison system for retaliation they experienced while working at one of the state's correctional facilities. The Eighth Circuit emphasized that a dual employment status is possible and, therefore, the state prison system could be sued as an employer. The Eighth Circuit emphasized that "nothing in the law precludes the possibility that a person may have two or more employers for the same work." The Eighth Circuit found that the undisputed fact that the plaintiffs were employed by the temporary agency for the work they were conducting at the correctional facility was a factor to be considered in assessing plaintiffs' employment status vis-a-vis the state prison system, but it was not the decisive factor. The prison system argued that it was not in a direct, traditional master-servant relationship with plaintiffs and that the temporary agency assigned them to the state prison system subject only to the prison system's approval, and the nurses made independent decisions about their work and medical issues. The state prison system also argued that it did not help plaintiffs to become licensed, was not in the business of providing health care services, and did not hire plaintiffs as "employees," but instead contracted with the temporary agency.

The Eighth Circuit found that although plaintiffs were paid by the temporary agency, they did not work independently at the correctional facilities, and they constantly were under the supervision and control of the state prison system's employees and officials. Furthermore, the Eighth Circuit explained that the state prison system hired them, created their work duties and schedules, provided the supplies and tools necessary to do their work, provided the medical oversight and physicians' orders, determined and paid their salaries, and threatened them with job action if they did not get along with other state prison system employees.

F. The Tenth Circuit Holds That FMLA Leave Serves As An Accommodation Under The ADA

In Smith v. Diffee Ford-Lincoln-Mercury, Inc., 148 D.L.R. AA-1 (10^th Cir. 7/29/02), the Tenth Circuit held that a leave within the limitations of the Family and Medical Leave Act ("FMLA") also is a reasonable accommodation under the Americans With Disabilities Act ("ADA"), thus reviving an ADA claim on behalf of a car dealership employee with breast cancer who was terminated during her FMLA leave.

Smith worked at the dealership for a number of years when, in April 1997, she was diagnosed with breast cancer. She requested medical leave from April 30 until June 16, 1997, for treatment, which was within the twelve weeks required under the FMLA. During her absence, Diffee Ford said it became apparent that Smith had not properly trained junior employees on submitting warranty claims an issue that had been raised in a formal reprimand four months before Smith took her leave. Diffee Ford also maintained that Smith had improperly trained another employee on how to submit the claims, which were a significant revenue producer for the company. Smith was terminated two weeks before she was to return from leave.

Smith brought suit against Diffee Ford under the FMLA, the ADA, and Title VII, though she abandoned her Title VII claim at trial. The District Court granted summary judgment in favor of Diffee Ford as to Smith's ADA claim of failing to reasonably accommodate her disability. Diffee Ford stipulated that Smith was an FMLA eligible employee and took leave because of a serious medical condition, that she was fired while on FMLA leave and not reinstated to her former position, and that had she not been fired, she would have been able to return to work at the end of the 12 weeks of leave. The District Court therefore held that Smith was entitled to FMLA back pay and prejudgment interest.

Smith appealed the District Court's denial of her motion for summary judgment on her claim under the ADA, and the court's grant of summary judgment to Diffee Ford. Reversing summary judgment granted on behalf of Diffee Ford, the Tenth Circuit found that Smith was able to show that the dealership failed to accommodate her disability and therefore prevented her from performing the essential functions of her position as a warranty clerk. The Tenth Circuit emphasized that because Smith had requested and taken no more leave than the FMLA already required that she be given, "we cannot conclude that the length of time was unreasonable or that the leave unduly burdened Diffee." The Tenth Circuit also maintained that the question of whether Smith was "otherwise qualified" was indistinguishable from the issue submitted to the jury on the successful FMLA claim and therefore should have been submitted to the jury. The Tenth Circuit said that it was up to the jury to decide whether or not Smith would have kept her job had she not taken medical leave or whether she would have been fired anyway. The Tenth Circuit also noted that the timing of Smith's dismissal and the testimony suggesting that Smith's dismissal was attributable to her taking medical leave together provide adequate prima facie evidence of discrimination under the ADA.

G. The Sixth Circuit Rules That A Job Reassignment 100 Miles Away Is Not An Adverse Job Action.

In Policastro v. Northwest Airlines, Inc., 147 D.L.R. A-3 (6^th Cir. 7/29/02) the Sixth Circuit held that a sales representative for Northwest Airlines who was reassigned to work exclusively in an area 80 miles to 100 miles from her home failed to show that she sustained an adverse employment action to support her claims of sex and age discrimination.

Policastro was assigned a reconfigured sales territory beginning in 1995 as part of a restructuring. Formerly based in Cincinnati, Ohio, Policastro had spent and average of four days to six days a month in Lexington and Louisville, Kentucky, 80 miles and 100 miles from Cincinnati, respectively. She had occasionally spent the night in Kentucky, and she devoted 30% to 40% of her selling time to the Kentucky markets. After her reassignment, Policastro was assigned solely to the Kentucky markets, and she worked in Lexington and Louisville, four days a week. In 1996, she resigned at age 45 and sued the airline in 1998 in the U.S. District Court for the Southern District of Ohio, alleging age discrimination under Title VII, including claims of constructive discharge. The District Court granted summary judgment to Northwest, ruling that Policastro failed to show an adverse employment action.

The Sixth Circuit affirmed the District Court's decision emphasizing that an employee's subjective impressions as to the desirability of one position over another are not relevant. Although increased distance from home to a new position is a factor to be considered in determining whether a constructive discharge occurred, the only aspect of Policastro's job that changed after her reassignment was the requirement to spend her time solely in Kentucky, the court said. The Sixth Circuit also examined the fact that the distance Policastro had to travel did not increase, although the number of times per month that she had to travel that distance did. However, Policastro had the option of staying overnight, the court noted, if she found the daily drive inconvenient. Of particular import, the Sixth Circuit emphasized that reassignments without changes in salary, benefits, title, or work hours usually do not constitute adverse employment actions. "For a transfer or reassignment to amount to a constructive discharge, its conditions must be objectively intolerable to a reasonable person."

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1. Opinion by McKeown; Dissent by Gould.

2. The jury returned a verdict in favor of Costa for $64,377 in back pay, $200,000 in compensatory damages, and $100,000 in punitive damages. The trial judge denied Caesars' motions for judgment as a matter of law and for a new trial, but reduced the compensatory damages to $100,000.

3. Opinion by Pregerson.

4. Using similar reasoning, the California Court of Appeal, in an unpublished decision, reached the same conclusion as the Ninth Circuit in reviewing Countrywide's agreement. In Hendrix v. Countrywide Home Loans, (Cal. Ct. App., No. B153848, 7/17/02), the California Court of Appeals found that the Countrywide agreement failed to provide plaintiff the procedural and substantive protections necessary to enforce the agreement to compel arbitration of FEHA sexual harassment claims.

5. Opinion by Schroeder.

6. Opinion by Schroeder.

7. Plaintiffs sued challenging the validity of the indemnification clause on public policy grounds.

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