2006-11

Amendment To FEHA Subjecting Employers To Liability For Acts Of Nonemployees Merely Clarified Existing Law.

In Carter v. California Department of Veterans Affairs, 2006 DJDAR 7069 (Cal. June 8, 2006)(1), the California Supreme Court held that a 2003 amendment to the Fair Employment and Housing Act ("FEHA") subjecting employers to liability for sexual harassment committed by nonemployees (i.e., customers) simply clarified existing law, and as such could be applied retroactively to cases initiated before the amendment was passed.

The Plaintiff in this case was Helga Carter, who worked as a nurse for the California Department of Veterans Affairs ("the VA"). Among the patients assigned to Carter, all of whom were disabled veterans over the age of 62, was Elber Scott Brown. Carter befriended Brown, who was recovering from surgery. She took quilting lessons from him, and invited him to spend Thanksgiving with her family. Initially, Brown would make what Carter considered to be "inappropriate but harmless" statements, telling Carter she had a "great ass." However, Brown's conduct worsened, and he threatened Carter and demanded that she sleep with him, falsely told other people at the clinic that he had sexual encounters with Carter, and rammed Carter with his electric scooter. Carter complained to her supervisor, who advised Carter to avoid Brown. He also provided counseling for Brown, and issued Carter a walkie-talkie with which she could call security if the harassment continued. However, according to Carter, the harassment did not stop. Carter took a series of administrative leaves, and ultimately declined to return to work. While on leave, Carter filed a complaint with the Department of Fair Employment and Housing ("DFEH"), and was issued a right-to-sue letter. Carter alleged that when her superiors at the VA found out about her complaint, they told her that a state employee could not sue a state agency, and threatened to fire her if she filed a lawsuit.

At trial, the court entered judgment in Carter's favor. The Court of Appeal reversed, finding that FEHA does not impose liability on employers for the acts of their customers. The California Supreme Court granted Carter's petition for review, and held the case pending its decision in Salazar v. Diversified Paratransit, Inc., another case where the Court of Appeal had determined that FEHA does not hold employers liable for the acts of nonemployees. However, while review in Salazar was pending, the Legislature amended Government Code section 12940(j)(1) in response to the Salazar decision. The amendment added language to FEHA specifying that employers are "responsible for the acts of nonemployees, with respect to the sexual harassment of employees ... where the employer ... knows or should have known of the conduct and fails to take immediate and appropriate corrective action." At this point, the Supreme Court dismissed the review of both Salazar and Carter and remanded them for reconsideration in light of the amendment to section 12940(j)(1). The Court of Appeal reconsidering Salazar found the amendment to be a clarification of exiting law, and remanded to the trial court. The Court of Appeal reconsidering Carter, however, found that the amendment was neither expressly retroactive nor declaratory of existing law. To resolve the conflict between the Carter and Salazar cases, the Supreme Court granted Carter's petition for review (having previously denied an untimely petition for review in Salazar).

Upon review, the Supreme Court reversed the Court of Appeal, finding that the amendment to section 12940(j)(1) merely clarified existing law, and therefore applied to Carter's claims. The court initiated its analysis by noting that beginning in 1984, FEHA made it unlawful for "an employer, labor organization, employment agency ... or any other person" to harass an employee based on a protected category. Employers since that time have also been required to take "all reasonable steps to prevent harassment from occurring." Additionally, as amended in 1984, the uncodified preamble to FEHA stated that it was the policy of the state of California that "employers be required to establish affirmative programs which include prompt and remedial internal procedures and monitoring so that worksites will be maintained free from prohibited harassment and discrimination by their agents, administrators, and supervisors as well as by their nonsupervisors and clientele."

In 2003, the Legislature made the amendment to section 12940(j)(1) that was at issue in this case. The Legislature retained the language referring to harassment by "any person." However, the Legislature added language stating that an employer could be held liable for sexual harassment of its employees by nonemployees, where it knew or should have known of the conduct and fails to act. The Legislature also amended the statute to state that "the extent of the employer's control and any other legal responsibility which the employer may have with respect to the conduct of these nonemployees shall be considered." In an uncodified section, the Legislature stated that its intent was to "construe and clarify the effect of existing law and to reject the interpretation given to the law" by the first Court of Appeal decision in Salazar.

The Carter court then proceeded to analyze this amendment to FEHA. It agreed with the Legislature that the amendment merely clarified, and did not change, existing law. The court noted that while the Legislature may not declare that an amendment merely clarifies existing law if the Supreme Court has spoken to the issue, it may do so "if the courts have not yet finally and conclusively interpreted" the statute. A statute may be found simply to clarify existing law even were the Legislature has made material changes to the language of the statute, as this "may simply indicate an effort to clarify the statute's true meaning." This is especially likely when the "Legislature promptly reacts to the emergence of a novel question of statutory interpretation." The court found that such was the case here, as the amendment at issue was introduced less than two months after the first Court of Appeal decision in Salazar, and specifically referred to that case.

With this in mind, the court went on to analyze whether the amendment to section 12940(j)(1) did more than clarify existing law. In order to determine this issue, the court examined whether former section 12940(j)(1) also prohibited harassment by nonemployees. The court held that it did. The court found that FEHA's reference to "any other person" was broad enough to encompass harassment by nonemployees. It rejected the VA's argument that the reference to "any other person" was intended to be limited to individuals who could be held liable under FEHA. The court found that this interpretation was at odds with the uncodified preamble, which expressly referred to harassment by an employer's "clientele." The court noted that this uncodified preamble was a proper source from which to determine the Legislature's intent, since it helped to resolve the statute's apparent ambiguity. The court also rejected the argument that the preamble established only a policy against harassment by clientele, and did not create a remedy for such conduct.

The court distinguished the case of Jennings v. Marralle (1994) 8 Cal. 4th 121, which held that an employee cannot bring a claim for wrongful termination in violation of public policy based on FEHA against an employer with fewer than five employees. The court found that here, unlike in Jennings, the statutory language of FEHA already indicated that employers could be held liable for harassment by nonemployees. Still, because the court found that the VA's reading of former section 12940(j)(1) was "reasonable," it proceeded to examine the Legislative history behind this provision. To begin with, the court did not find any probative value in the Legislature's failure to specifically address the issue of harassment by nonemployees when FEHA was enacted. Although FEHA borrowed much of its language from federal regulations, and 29 C.F.R. § 1604.11(e) at that time contained language substantially similar to the language of the 2003 amendment to section 12940(j)(1), the court determined that not much could be learned from the Legislature's failure to enact a statute specifically addressing this issue. The Legislature's failure to include language specifically addressing harassment by nonemployees might have been mere oversight, especially as this issue was not extensively discussed.

The court also found letters written by Senator Diane Watson, the author of the 1984 amendments to FEHA, to be of little value. Although Senator Watson distributed a memo to all Senators around the time that the 1984 amendments to FEHA were being considered, which said that the bill would not hold an employer liable for "outside harassment," Senator Watson failed to explain what she meant by this phrase. The court noted that Senator Watson could have been referring to harassment outside the workplace. A subsequent letter written by Senator Watson to a constituent group stating that FEHA provisions relating to customer harassment had been "amended out of the bill" was found to be of little probative value, as that letter was sent out after the enactment of the amendments, was not sent to other members of the Legislature, and did not necessarily reflect the Legislature's collective intent in passing the 1984 amendments to FEHA.

What the court found dispositive was the Legislature's express statement that the 2003 amendment to section 12940(j)(1) was meant to clarify existing law. The court found that this statement of intent, combined with the fact that the amendment was introduced shortly after the Court of Appeal decision in Salazar, made clear that the Legislature had indeed intended only to clarify existing law. This declaration removed any ambiguity that existed in the language and the legislative history of FEHA. Thus, because the meaning of the statute had not changed, it did not need to address the issues of retroactivity and due process.

Because the 2003 amendment to section 12940(j)(1) merely clarified existing law, the Court of Appeal should have reviewed Carter's allegations in light of the amended statute. Pursuant to that statute, the VA could be held liable for Brown's actions. Therefore, the California Supreme Court reversed the Court of Appeal, and remanded for further proceedings consistent with its opinion.

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Employees In The Health Care Industry On An Alternative Workweek Schedule Are Not Entitled To Overtime On All Hours Worked Beyond Their Scheduled Workweek.

In Singh v. Superior Court, 2006 DJDAR 7338 (Cal. App. June 12, 2006)(2), the Court of Appeal found that a health care employee on a "3/12" alternative workweek schedule was entitled to weekly overtime only on the hours he worked in excess of 40 in a workweek, and not for all hours worked in excess of his scheduled workweek.

The plaintiff here was Parminder Singh, a registered nurse at Lancaster Community Hospital ("Lancaster"). Prior to Singh's employment, Lancaster's Medical/Surgical Unit nurses elected by secret ballot an alternative workweek schedule of three 12-hour days ("3/12"). Singh signed an employment agreement under which he would receive double time pay for all hours worked in excess of 12 in one day, but would receive weekly overtime only for hours worked in excess of 40 in a workweek. Two years after he was hired, Singh resigned, citing "circumstances that [were] beyond [his] control." Soon thereafter, he sued Lancaster for violations of California Labor Code sections 201, 202, 226, 511, and 1198, as well as Business and Professions Code section 17200. Among other remedies, Singh sought unpaid overtime compensation for all hours worked in excess of those scheduled by the alternative workweek schedule.

Singh argued that Section 3(B)(1) of Wage Order 5 required that he be paid at time and a half for all hours worked in excess of his scheduled workweek, including hours 37 to 40 of each week. The trial court disagreed, finding that section 3(B)(8) governed, and did not require that weekly overtime be paid until Singh had worked 40 hours in a workweek. Singh then moved for, and the trial court issued, an interlocutory order expressing the view that appellate resolution of the controlling question of law would advance the litigation. Pursuant to this order, the Court of Appeal examined whether section 3(B)(1) or section 3(B)(8) of Wage Order 5 governed Singh's overtime claim.

In evaluating this issue, the court first reviewed the history of Wage Order 5. The court noted that, prior to 1986, Wage Order 5-80 provided that alternative workweeks could not exceed " four (4) working days of not more than ten (10) hours each." In 1986, the Industrial Welfare Commission ("IWC") amended Wage Order 5-80 and extended the policy to allow for 3/12 alternative workweeks for the first time. The amended wage order entitled employees to overtime pay on all hours worked in excess of the number of hours scheduled by the alternative workweek. In 1993, the IWC repealed this language, and added new language governing the "health care industry." Under the new provision, overtime pay for employees under a 3/12 alternative workweek for hours 37 to 40 was eliminated. Employees were entitled to weekly overtime only after they had worked 40 hours in the workweek.

Then, in 1999, the Legislature enacted AB 60. This bill added Labor Code section 511, which authorized the adoption of alternative workweek schedules for no longer than 10 hours per day, provided that employees were paid overtime for all hours worked in excess of their regularly scheduled hours or 40 hours per week. However, it also added Labor Code section 517. This statute directed the IWC to review wage, hour and working conditions in the health care and other enumerated industries before July 1, 2000. AB 60 also rendered "null and void" various IWC Wage Orders, including former Wage Order 5-89 and its 1993 amendment.

Pursuant to AB 60, the IWC held public hearings regarding wages, hours and working conditions in the health care industry, and amended Wage Order 5 accordingly. As amended, Wage Order 5, in Section 3(B)(1), authorizes alternative workweek schedules of not more than 10 hours per day within a 40 hour workweek without the payment of overtime to employees. Under that section, employees are expressly entitled to overtime payment for all hours worked in excess of those established by the alternative workweek agreement. However, in Section 3(B)(8) of the same Wage Order, the IWC provides that "[n]otwithstanding the above provisions regarding alternative workweek schedules, no employer of employees in the health care industry shall be deemed to have violated the daily overtime provisions by instituting, pursuant to the election procedures set forth in this wage order a regularly scheduled alternative workweek schedule that includes work days exceeding ten (10) hours but not more than 12 hours within a 40 hour workweek without the payment of overtime compensation," provided that employees receive double time pay for all hours worked in excess of 12 in a day, and overtime pay for all hours worked "in excess of 40 in a workweek." The IWC considered, but rejected, language that would have required that employees in the health care industry working a 3/12 alternative workweek schedule be paid overtime for all hours worked in excess of those established by the alternative workweek agreement.

In examining whether Section 3(B)(1) or 3(B)(8) applied to Singh, who was admittedly an employee in the health care industry, the Court of Appeal first noted that "[w]hen the Legislature uses materially different language in statutory provisions addressing the same subject or related subjects, the normal inference is that the Legislature intended a difference in meaning." Reading the two provisions together, the court found it reasonable to conclude that the IWC intended to establish different rules for the payment of weekly overtime to employees working a 3/12 alternative workweek schedule. Additionally, the court noted that it is a cardinal rule of statutory interpretation that "specific statutory regulations control over general statutes." Here, the more specific provisions of section 3(B)(8), applicable to the 3/12 workweek schedule in the health care industry, was controlling over the broader provisions of section 3(B)(1), which apply generally to the public housekeeping industry. Further, the court found the language of Wage Order 5 to be "clear and unambiguous." By stating that section 3(B)(8) applied "notwithstanding" other provisions in the order, the IWC made clear that in the health care industry, weekly overtime pay is not required until the employee works 40 hours in the workweek.

The court rejected Singh's claim that this reading of Wage Order 5 was contrary to the intent of the Legislature in enacting AB 60. AB 60, while it repealed Wage Order 5-89 and added Labor Code section 511, also added Labor Code section 517. Labor Code section 517 specifically directed the IWC to review wage and hour issues in the health care industry, which included issues relating to alternative workweeks. Labor Code section 517 also expressly directed the IWC to issue new wage orders, which were to be "final and conclusive for all purposes." It was pursuant to this statute that the IWC promulgated current section 3(B)(8), which clearly provides for overtime pay for employees working a 3/12 alternative workweek only after they have worked 40 hours in the workweek. In promulgating this section, the IWC expressly rejected language that would have required that employees be paid weekly overtime for all hours worked in excess of their scheduled hours.

Finally, the court rejected the argument that its holding was contrary to the ruling in Huntington Memorial Hospital v. Superior Court (2005) 131 Cal. App. 4th 893. Huntington merely made reference to the fact that section 3(B)(1) applies generally to health care employers, and that Section 3(B)(8) permits a longer non-overtime workday in the health care industry. It did not state that the two sections should not be read independently. In any event, Huntington dealt with the payment of short-shift differentials, which are regulated under Section 3(B)(2) of Wage Order 5. Therefore, that case was not in conflict with the plain meaning of Section 3(B)(8). Thus, the court found that Singh was not owed weekly overtime for all hours worked in excess of his scheduled hours, but was entitled to overtime payments only for those worked in excess of 40 in a workweek. As such, the court denied his petition for writ of mandate.

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FEHA Does Not Require Employees Who File Complaints With The DFEH Requesting Civil Action Rather Than Investigation To Serve Their Employer With A Copy of the Defunct Complaint..

In Wasti v. Superior Court, 2006 DJDAR 7638 (Cal. App. June 16, 2006)(3), the Court of Appeal held that the plaintiff's FEHA claim was not barred for failure to serve her employer with a copy of her DFEH complaint, when that complaint requested civil action rather than an investigation by the DFEH. The plaintiff in this case was Selena Wasti, who worked as a shoe store manager for an unnamed Laguna Beach shoe store. She claimed that her employer lowered her pay upon learning she was pregnant, and soon afterwards terminated her employment. On July 7, 2004, shortly after her termination, Wasti filed a complaint with the DFEH. Wasti signed a preprinted form in which she requested that the DFEH not investigate her claim, but instead issue her a right-to-sue letter because she wished to pursue the matter in court. Two days later, the DFEH issued Wasti the right-to-sue letter. Wasti retained an attorney in March 2005, and initiated her civil action later that month. Among other claims, Wasti alleged pregnancy and sex discrimination in violation of FEHA. The employer demurred to the FEHA cause of action on the grounds that Wasti failed to plead that she had served her administrative complaint on the company prior to September 2004, as was allegedly required under Government Code section 12962. The employer argued that because it was not served with Wasti's administrative complaint, Wasti had thereby failed to exhaust her administrative remedies, creating a jurisdictional bar to her civil suit. The trial court agreed, and sustained the employer's demurrer to Wasti's FEHA cause of action. The Court of Appeal issued a Palma notice, which stayed the trial proceedings and informed the parties that the court was considering issuing a peremptory writ.

Once the issue was briefed, the Court of Appeal found that Wasti's FEHA claim was not barred by her failure to serve her employer with her DFEH complaint. In so finding, the court began by noting that Wasti had properly pled that she timely filed an administrative complaint with the DFEH, received a right-to-sue letter, and had complied with the one-year statute of limitations. Next, the court pointed out that it was not aware of any Court of Appeal decision that had required an employee to serve the employer with a copy of a complaint that was not investigated by the DFEH as a jurisdictional prerequisite to asserting a claim under FEHA.

The court went on to review the legislative history of Government Code section 12962, which allegedly established this requirement. The court noted that, as originally drafted, section 12692 required the DFEH to serve any verified complaint filed by an employee on the employer within 45 days. In 2003, this section was amended in order to "ease the Department's burdens." The Legislature amended the statute to require service only of "any verified complaint filed for investigation." Section 12962 was further amended to require that an employee who was represented by private counsel serve a copy of his administrative complaint on the employer himself. As such, the amendment to section 12962 limited the DFEH's obligation to serve employers with verified complaints to complaints filed "for investigation" by unrepresented employees.

The Court of Appeal held that the language of section 12692 is clear. It stated that "the limiting phrase ‘for investigation' was added for a purpose," and was clearly intended to limit the statute's requirements to complaints that are actually investigated by the DFEH. In other words, the statute completely eliminated the DFEH's duty to serve employers with complaints when the employee requests that no investigation be conducted. The court noted that, as a practical matter, the DFEH serves "only as a way station" for a large number of complaints. Once a right-to-sue letter is requested, the DFEH's involvement in a matter ceases, and the complainant is on his or her own to obtain relief. Read as a whole, the 2003 amendments to section 12962 were clearly intended to eliminate the service requirement where the employee opts to receive an immediate right-to-sue letter.

The court went on to note that it found no "jurisdictional value" in requiring service of a form document which, on its face, asks the DFEH not to act. Adding an additional jurisdictional service requirement for such a "defunct" administrative complaint would serve only to "impose a trap on the unwary." Therefore, because Wasti never filed a complaint with the DFEH "for investigation," but instead simply requested a right-to-sue letter, her FEHA claim was not barred for failure to exhaust her administrative remedies.

Next, the court went on to find a "second and separate" reason to overturn the trial court's ruling on the employer's demurrer. The Court of Appeal noted that Wasti was not represented by counsel at the time that she filed her administrative complaint with the DFEH in July of 2004. In fact, she did not retain counsel until March 2005. However, the 2003 amendment to section 12962 did not change the service requirements for unrepresented employees. Both before and after the amendment, responsibility for serving complaints filed by unrepresented employees rested with the DFEH.

Thus, Wasti's FEHA claim was not barred for the additional reason that any failure to serve the employer with the complaint was the fault of the DFEH, not Wasti. The court noted that employees do not forfeit their FEHA claims because of the DFEH's failure to comply with its ministerial duties. This rule is the same as under the federal scheme, where the EEOC's failure to serve a charge on an employer has consistently been found not to preclude an employee's Title VII claim. Thus, because any procedural error was the fault of the DFEH, Wasti's FEHA claim was not barred. As such, the court issued a peremptory writ of mandate directing the superior court to vacate its order sustaining the demurrer to Wasti's FEHA cause of action, and directing it to grant a new order overruling the demurrer as to this cause of action.

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

2. Opinion by Zelon, J., joined by Perluss, P.J. and Johnson, J.

3. Opinion by Sills, P.J., joined by Aronson and Fybel, JJ.