2005-15

California Supreme Court Allows Retaliation Suit by Manager Who Received Negative Performance Evaluations After Refusing to Comply With Order to Fire Female Employee, But Never Told Her Employer She Believed the Order Was Discriminatory.

The California Supreme Court has affirmed the Court of Appeal's decision reversing summary judgment for defendant L'Oreal USA, Inc. and held that plaintiff Alyssa Yanowitz can proceed with her retaliation claim under the Fair Employment and Housing Act ("FEHA"), despite her failure to explicitly complain about discrimination. Yanowitz v. L'Oreal USA, Inc., 2005 DJDAR 9664 (August 11, 2005). (1)

Yanowitz joined the defendant's predecessor company in 1981. She was promoted from a Sales Representative to a Regional Sales Manager for Northern California and the Pacific Northwest in 1986. Her region at times included stores in 11 states. She managed the sales force and dealt with the department stores and specialty stores that sold her employer's fragrances.

For her first 10 years as a Regional Sales Manager, she was consistently reviewed as "above expectation," although her reviews during this period also consistently contained criticism of her listening and communication skills. In June 1997, Yanowitz's immediate supervisor, Richard Roderick, wrote a memo to Yanowitz's personnel file again criticizing her listening skills, characterizing her attitude as negative, and noting that he had received complaints about her attitudes from several retailers. In August 1997, Roderick also wrote a memorandum to the Human Resources Manager reiterating the same criticisms about Yanowitz as in the June 1997 memo. Nevertheless, in 1997, she was named the Regional Sales Manager of the Year for 1996.

In fall 1997, Yanowitz's division merged with Ralph Lauren Fragrance Division. While other Regional Sales Managers were laid off in the merger, Yanowitz retained her position and had increased responsibility. Shortly thereafter, the General Manager for the new division, Jack Wiswall, toured the Ralph Lauren installation at a Macy's Store in San Jose. After the tour, Wiswall told Yanowitz to terminate a dark-skinned female sales associate because he did not find her sufficiently physically attractive. Wiswall expressed a preference for fair-skinned blonds and directed Yanowitz to "get me somebody hot" or words to that effect. When Wiswall returned to the store and discovered the sales associate had not been fired, he restated his directive and pointed out another young, attractive blonde, telling Yanowitz, "God damn it, get me one that looks like that." Yanowitz then asked Wiswall for an "adequate justification" for termination. She never carried out the termination order.

On several subsequent occasions, Wiswall again asked whether the associate had been dismissed and Yanowitz again asked for an adequate justification. She did not complain to her supervisor or to the Human Resources Department, nor did she explicitly tell Wiswall that she believed his order was discriminatory. In March 1998, she learned that the sales associate in question was among the Macy's West's top sellers of men's fragrances.

In April 1998, Roderick began soliciting negative information about Yanowitz from her subordinates. He called one subordinate, Christine DeGracia, who was asked repeatedly if she or others were having problems with her. DeGracia said she had some problems with Yanowitz. DeGracia was again asked in early June 1998 to notify Roderick of any negative incidents involving Yanowitz.

On May 13, 1998, Yanowitz was summoned to New York for a meeting with Roderick. He criticized Yanowitz for her "dictatorial" managerial style, obtained her travel and expense reports and audited them. In June 1998, a representative for Macy's West complained to Roderick about the handling of a promotion for which Yanowitz's team was responsible. Also in June l998, Yanowitz met with Wiswall and Roderick, along with various account executives and regional sales managers responsible for Macy's account. Wiswall screamed at her in front of her staff and told her he was "sick and tired of all the fuck-ups" on the Macy account. On June 22, 1998, Yanowitz wrote Roderick, advising him that her team was disturbed about certain issues. Roderick then wrote three memos to Human Resources documenting the May 13 meeting, a conversation with DeGracia on June 4, and a visit to Yanowitz's market in early June 1998. All three memos were critical of Yanowitz, with one memo stating she was too assertive.

In July l998, the same Macy's account executive who earlier complained about Yanowitz complained about the handling of another promotion by Yanowitz team. On July 16, 1998, Roderick prepared a more detailed memorandum criticizing Yanowitz's performance and requested a reply within one week of Yanowitz's receipt. Yanowitz thought the memo was intended to develop pretextual grounds for terminating her. She suggested a meeting to discuss a severance package and further indicated that she wanted to prepare a written response to the July 16 memorandum. A meeting was set for July 22, l998, but Yanowitz's request that the meeting be postponed was denied, as was her request to have her attorney-husband present at the meeting. During the July 22 meeting, Roderick questioned Yanowitz about the accusations in the July 16 memorandum, without having read her written response. During the meeting, a new travel schedule regulating precisely how often she would visit each market in her territory was imposed. Yanowitz broke down in tears. Two days later, she took a "stress" disability leave. She did not return and was replaced in November 1998.

Yanowitz sued L'Oreal for retaliation under FEHA. The trial court granted summary judgment, finding Yanowitz had engaged in no protected activity.

The Court of Appeal reversed. The appellate court found that Yanowitz's refusal to obey Wiswall's order was protected activity under the FEHA, that she was not required to give L'Oreal notice that the order was discriminatory, that she was not precluded from relying on L?Oreal's acts that occurred prior to the date of the alleged adverse action shown in the administrative complaint, that L'Oreal's conduct constituted an adverse employment action under the "deterrence test," and that a genuine issue of material fact remained regarding whether L'Oreal's non-retaliatory reasons for the adverse employment action were pretextual. The California Supreme Court granted review.

1. Yanowitz's Refusal to Follow Her Supervisor's Order That She Reasonably Believed to Be Discriminatory Constitutes "Protected Activity" Under the FEHA.

An employee may assert a retaliation claim where the employee has complained of or opposed conduct that he or she reasonably believes to be discriminatory, regardless of whether the conduct is ultimately found to violate the FEHA. L'Oreal did not dispute that disparate treatment on the basis of sex was impermissible under the FEHA, but claimed that the evidence presented at the summary judgment motion was insufficient to support a reasonable belief that Wiswall's order constituted sexual discrimination. The Supreme Court disagreed.

The court found that Yanowitz presented evidence that she reasonably believed that Wiswall's order constituted unlawful sex discrimination, because she believed the order applied a different standard for female associates than for male associates. She cited repeated instances where Wiswall ordered her to terminate a female sales associate because the associate was not physically attractive enough. Wiswall never responded to her request to provide "adequate justification" for the dismissal. Yanowitz stated that during her years of hiring and firing male and female sales associates, she had never been asked to terminate a male sales associate because he was not sufficiently attractive. Moreover, L'Oreal failed to present any evidence during the summary judgment proceedings to refute the claim that Wiswall's order was an instance of sexual discrimination. There was no evidence suggesting that the dismissal was based upon the sales associate's performance, nor did the company establish that it had a general policy requiring cosmetic sales associates to be physically or sexually attractive, or that such policy was routinely applied to both male and female associates.

2. Yanowitz's Concession That She Never Explicitly Told Her Supervisor She Believed His Order Was Discriminatory Does Not Defeat Her Retaliation Claim.

L'Oreal next argued that even if Yanowitz refused to obey Wiswall's order to dismiss the employee because she believed it was discriminatory, Yanowitz failed to establish that she engaged in a protected activity because the evidence she provided at summary judgment failed to demonstrate that she had made L'Oreal aware that her refusal to terminate the sales associate amounted to a protest against unlawful discrimination. Yanowitz conceded that she never explicitly stated to Wiswall that she believed his order was discriminatory. Instead, she contended that in light of the nature of the order and her repeated request that Wiswall provide"adequate justification" for the order, there was sufficient evidence for a trier of fact to find that Wiswall knew she had declined to follow the order because she believed it to be discriminatory. The court agreed with Yanowitz.

An employee's "unarticulated belief that an employer is engaging is discrimination" is insufficient to establish protected conduct for establishing a prima facie of retaliation, where there is no evidence the employer knew that the employee's opposition was based upon a reasonable belief that the employer was engaging in discrimination. But opposing activity will be found ?"if an employee's comments when read in their totality, oppose discrimination."' Here, Yanowitz refused to follow Wiswall's directive to terminate the sales associate and repeatedly asked for "adequate justification" for the order. The court found no evidence in the record that Wiswall ever asked the Yanowitz to explain her numerous requests for "adequate justification" and L'Oreal failed to present any evidence regarding Wiswall's understanding or knowledge of Yanowitz's reasons for refusing to follow his directive or demanding "adequate justification" for that directive. The court found that Yanowitz's evidence would permit ? "although it certainly would not compel" ? a reasonable trier of fact to find that given the nature of Wiswall's order, Yanowitz's refusal to implement the order, and her many requests for "adequate justification," sufficiently communicated to Wiswall her belief that his order was discriminatory.

3. The Court Applies the "Materiality" Test and Finds That an Adverse Employment Action is One That "Materially" Affects the Terms, Conditions, or Privileges of Employment.

The court also addressed the appropriate standard for determining what an "adverse employment action" is for purposes of a FEHA retaliation claim. Under Government Code section 12940, subdivision (h), the FEHA retaliation provision, it is an unlawful employment practice for an employer to "discharge, expel, or otherwise discriminate" against a person for opposing any practices forbidden by the FEHA. L'Oreal contended that the language "or otherwise discriminate" in subdivision (h) should be interpreted to refer to the same category of adverse employment measures or sanctions that are set forth in FEHA's anti-discrimination provision in Government Code section 12940, subdivision (a), "in the terms, conditions or privileges of employment." Yanowitz asserted that subdivision (h) should be interpreted more broadly. She argued that the proper standard is the "deterrence test" set forth in the Court of Appeal's opinion, under which an employee may prevail against an employer for improper retaliation not only when the employee has been subjected to discrimination in the terms, conditions or privileges of employment, but also when the individual has been subjected to any other action that is reasonably likely to deter employees from engaging in protected activities.

The court concluded that the term "otherwise discriminate" in subdivision (h) should be interpreted to refer to and encompass the same forms of adverse employment activity actionable under subdivision (a). The court held that an adverse employment action must materially affect the terms, conditions, or privileges of employment to be actionable and "the determination of whether a particular action or course of conduct rises to the level of actionable conduct should take into account the unique circumstances of the affected employee as well as the work place context of the claim." Minor or relatively trivial adverse actions or conduct by employers or fellow employees that, from an objective perspective, are reasonably likely to do no more than anger or upset an employee cannot properly be viewed as materially affecting the terms, conditions, or privileges of employment and are not actionable. However, adverse treatment that is reasonably likely to impair a reasonable employee's job performance or prospects for advancement of performance fall within the reach of the anti-discrimination provisions of section 12940, subdivisions (a) and (h).

4. The Continuing Violation Doctrine Applies to Yanowitz's FEHA Retaliation Claim.

Yanowitz contended that the following conduct constituted adverse employment actions: (1) unwanted negative performance evaluations, specifically Roderick's July 16, l998 memo criticizing her; (2) refusing to allow her to respond to the allegedly unwarranted criticism, by insisting on the July 22, l998 meeting despite Yanowitz's request to postpone the meeting; (3) Roderick's unwarranted criticism in the presence of Yanowitz's associates and employees on May 13, 1998 and the humiliating public reprobation by Wiswall on June 11, 1998; (4) refusing her request to provide assistance to employee DeGracia, thereby allegedly fueling the employee resentment for which Yanowitz was chastised in her performance review; and (5) Roderick's solicitation of negative feedback from Yanowitz's staff in April 1998. The court stated that it did not need to decide whether each alleged retaliatory act constituted an adverse employment action because Yanowitz alleged that L'Oreal's actions formed a pattern of systematic retaliation for her opposing Wiswall's allegedly discriminatory directive.

L'Oreal asserted that the court could not consider the full range of alleged acts because only those that occurred within the one year prior to the filing of Yanowitz's claim of DFEH were actionable and the remaining acts were barred by the statute of limitations. Yanowitz, however, urged the court to apply the continuing violation doctrine as discussed in its decision Richards v. CH2M Hill, Inc. (2001) 26 Cal.4th 798. Richards held that: (1) an employer is liable for actions occurring outside the limitations period if the actions are sufficiently linked to conduct within the statutory period; and (2) the statute of limitations ran either when the discriminatory conduct ends or when the employee is on notice that further efforts to end the conduct will be futile.

L'Oreal argued that Yanowitz's claims should be limited to only those events occurring within one year of her June 25, 1999 DFEH claim. L'Oreal asserted that the court should adopt the reasoning of the United States Supreme Court in National Railroad Passenger Corp. v. Morgan (2002) 536 U.S. 101, which found the continuing violation doctrine unavailable for claims based on discrete acts of discrimination and retaliation, and applicable only to harassment cases. The court disagreed and found that a series of separate retaliatory acts collectively may constitute an adverse employment action, even if some or all of the acts might not be individually actionable. The court held that the continuing violation doctrine applies in FEHA retaliation cases if the requisite showing of a continuing course of conduct has been made and the statute of limitations begins to run when an alleged adverse employment action acquires some degree of permanence or finality.

Applying Richards, the court concluded that a reasonable trier of fact could find that: (1) solicitation of negative information from subordinates, the verbal and written criticism of Yanowitz based in part on the negative information taken from subordinates, and the refusal to allow Yanowitz to answer the charges against her, were similar in kind and occurred with sufficient frequency to constitute a continuous course of conduct; and (2) Yanowitz was not on notice that further conciliatory efforts would be futile, until her final attempts to meet with the company representatives to discuss the criticism of her were finally rebuffed.

The court also found that Yanowitz met her burden of establishing the adverse employment action element of her prima facie retaliation claim. She had been a highly rated and honored employee of L'Oreal for 18 years. In 1998, her supervisors began to actively solicit negative information about her and then used this information to criticize Yanowitz both in the presence of her subordinates and in written memoranda. Roderick so much as told Yanowitz that unless she made immediate changes, her career at L'Oreal was over. Actions that threaten to derail an employee's career are objectively adverse, and Yanowitz's evidence created a factual dispute on this issue.

5. Yanowitz Produced Sufficient Evidence of Pretext.

L'Oreal also argued that Yanowitz failed to meet her burden establishing that L'Oreal's stated non-retaliatory grounds for taking the actions against her were pretextual. L'Oreal pointed to Roderick's August 1997 memo, written months before the incident with Wiswall, that severely criticized Yanowitz for deficiencies, customer complaints both before and after the Wiswall incident, as well as Yanowitz's own admission that the November 1997 merger created problems in her department. Although there was evidence of performance problems with Yanowitz, the record reflected many of the problems identified had been associated with Yanowitz in a number of reviews conducted between 1987 and 1996. Yet, despite these criticisms, these same performance reviews consistently reviewed Yanowitz "above expectation" and in 1997 she received the Sales Manager of the Year Award. The court noted that Roderick's active solicitation of negative information concerning Yanowitz in the Spring of 1998 strongly suggests the possibility that L'Oreal was searching for a pretextual basis for discipline, which in turn suggests that the subsequent discipline was imposed for retaliatory purposes.

6. Justice Chin's Dissent.

Justice Chin characterized the issue on appeal as "whether a person can be a whistle blower without blowing the whistle." Here, where the personnel order was not clearly unlawful, the dissent concluded that the answer is "no." Justice Chin stated that it makes no sense to give special protection under the FEHA to someone like Yanowitz who did nothing until after she filed the lawsuit to communicate to her employer that she had opposed what she believed to be a discriminatory act. He opined that if the court interprets the FEHA as not requiring conduct that was actually illegal, but merely conduct the employee believes to be illegal, then the court should require that Yanowitz communicate this belief to the employer. Yanowitz's "words, in their totality, only asked for justification; they did not hint at a concern that the personnel order constituted sex discrimination." Yanowitz's complaint of sex discrimination was not merely "inartful" or "subtle" or "circumspect," but nonexistent.

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Company's Officers and Directors Are Not Personally Liable to Employees for Unpaid Wages.

The California Supreme Court affirmed a judgment for defendants from a demurrer finding that individual shareholders of a corporation who were officers or directors of the corporate defendant could not be found individually liable for unpaid overtime wages owed to plaintiffs. Reynolds v. Bement, 2005 DJDAR 9680 (August 11, 2005).(2)

Plaintiff Steven Reynolds alleged that he was employed by defendants Earl Scheib, Inc. and Earl Scheib of California (jointly referred to as "Scheib") and by individual defendants who were officers or directors of the corporate defendant and allegedly directly or indirectly, or through an agent or other person, employed or exercised control over their wages, hours, or working conditions as class members. Reynolds sued on behalf of himself and other shop managers and/or assistant shop managers at several locations of Scheib's automotive painting shops. Reynolds alleged that Scheib had a policy and practice of requiring the shop managers to work long overtime hours without overtime compensation. Reynolds alleged several causes of action, including a claim for failure to pay overtime compensation in violation of Labor Code sections 1194 and 510, and the applicable wage orders. The individual defendants demurred, and the trial court sustained the demurrer without leave to amend as to the overtime claim against the individuals. The Court of Appeal affirmed, and the California Supreme Court granted Reynolds's petition for review.

Under Wage Order No. 9, the Industrial Welfare Commission (IWC) defines an "employer" to include any individual who "exercises control over the wages, hours, or working conditions of any person." Reynolds argued that since Labor Code section 510, which obligates "an employer" to pay overtime compensation, does not define that term, and since Labor Code section 1194, which provides "any employee" with a private right of action to recover unpaid minimum or overtime wages, does not specify potential defendants, then the IWC employer definition should be applied to determine who the proper defendants are. The individual defendants asserted that: (1) California's labor statutes do not impose personal liability on corporate officers and directors for unpaid wages owed by a corporate employer; and (2) common law principles protect them against civil liability as employers for economic harm Reynolds's corporate employer may have caused.

The court agreed with the individual defendants and found that neither section 510 nor section 1194 contains any reference to the IWC employer definition. In circumstances where a statute refers to employees without defining the term, courts have generally applied the common law test of employment. Under the common law, corporate agents acting within the scope of their agency are not personally liable for a corporate employer's failure to pay its employees' wages. The court held that had the Legislature intended section 1194 to expose corporate agents to personal civil liability for exercising control over an employee's wages, hours, or working conditions, "it would have manifested its intent more clearly than by mere silence after the IWC's promulgation of Wage Order No. 9."

Justice Moreno issued a concurring opinion. He stated that the abuse of the corporate form to avoid paying overtime wages is well documented, noting that the workers most often affected by these abuses are low-wage workers, often non-English-speaking immigrants in the garment, restaurant, electronics, and agriculture industries. He suggested that the Private Attorneys General Act may provide workers with a mechanism to recover unpaid overtime wages through private enforcement of Labor Code section 558, which authorizes civil penalties for violations of the wage laws that include unpaid wages from "any employer or other person acting on behalf of an employer." Alternatively, since Labor Code section 1194 is an established remedy directed specifically at recovering unpaid overtime wages, Justice Moreno stated that "it would make sense for the Legislature to extend the reach of section 1194 to include individuals who are directly responsible for the nonpayment of overtime wages, but hide behind the corporate form."

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California Supreme Court Refuses to Enforce Parties' Pre-Dispute Agreement to Waive Right to Jury Trial.

The California Supreme Court has held that a pre-dispute agreement between parties waiving the right to adjudicate a lawsuit through jury trial is unenforceable. Grafton Partners L.P. v. Superior Court, 2005 DJDAR 9387 (August 4, 2005).(3)

Petitioners Grafton and Allied engaged PriceWaterhouseCoopers L.L.P. to audit their accounts. Price Waterhouse and Petitioners signed a letter agreement containing a waiver of their right to a jury trial in the event of a dispute over fees or services. Approximately three years later, Petitioners sued Price Waterhouse and demanded a jury trial. Price Waterhouse moved to strike the jury demand and the trial court, relying upon the waiver contained in the letter, granted the motion. The Court of Appeal granted Petitioners' Petition for Writ of Mandate, finding that a pre-dispute waiver of a jury trial is not authorized by Code of Civil Procedure section 631 and that only waivers authorized by statute comply with Article I, section 16 of the California Constitution. The California Supreme Court granted review and affirmed the decision of the appellate court.

Article I, section 16 of the California Constitution provides that trial by jury is an inviolate right and in a civil cause, any waiver of this right to a jury must occur "by the consent of the parties expressed as prescribed by statute." Code of Civil Procedure section 631 implements this constitutional provision and prescribes that a party to a civil action can waive a jury trial by any of six enumerated ways. Price Waterhouse argued that the provision of section 631 permitting waiver where written consent is filed with the clerk or the judge is satisfied if the pre-dispute agreement is filed with the clerk or judge once a dispute commences. The court disagreed, finding that section 631 presupposes the existence of a pending action and relates solely to the manner in which a party can waive his or her right to demand a jury trial instead of a court trial. Because the state constitution describes the right to a jury trial as "inviolate," the court stated that any ambiguity or doubt concerning the waiver provision in section 631 must resolved in favor of granting a litigant a jury trial. The court concluded that a pre-dispute waiver was not provided for by section 631 and, thus, was unenforceable.

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1. Opinion by George, C.J., joined by Kennard, Werdegar, and Moreno, JJ.; Dissent by Chin, J., joined by Baxter, J.

2. Opinion by Werdegar, J., joined by George C. J., Kennard, Baxter, Chin, and Moreno, JJ. Concurring opinion by Moreno, J.

3. Opinion by George, C. J., joined by Kennard, Baxter, Chin, Moreno, and Spencer, JJ.