2007-21

Plaintiffs Alleging Disability Discrimination under California Law Have Burden of Proving They Can Perform Essential Duties of the Job

 In Green v. State of California, a 4-3 split decision, the state Supreme Court brought the burdens of proof under the disability provisions of the Fair Employment and Housing Act (“FEHA”) more in line with the evidentiary burdens under the federal Americans with Disabilities Act (“ADA”), holding that FEHA requires plaintiffs alleging disability discrimination to prove that they are “qualified individuals” under the statute, just as the federal ADA requires.

 Plaintiff Dwight Green, a maintenance worker at the California Institute for Men in Chino, was not allowed to return to work after a disability leave based on an independent medical examiners recommendation that Green should be restricted to light duty only because of the side effects of his ongoing treatment for hepatitis C, and a determination that this restriction rendered him unable to perform the essential duties of his job, even with reasonable accommodation.

 Green sued the State for disability discrimination. The trial court denied the State’s request for modification of a standard jury instruction to specify that the plaintiff bears the burden of proving that he was able to perform the essential duties of the position to which he sought to return. A jury found for Green and awarded him almost $2.6 million in damages.

 The Court of Appeal affirmed the judgment for Green, rejecting the State’s claim of instructional error and holding that the burden is on the defendant in a disability discrimination action under FEHA to establish that the plaintiff is incapable of performing his essential duties, even with reasonable accommodation. The Supreme Court reversed.

 Writing for the majority, Justice Ming Chin began his analysis by noting that Court of Appeals decisions over the last decade have “nearly unanimously presumed” that plaintiffs bear the burden of proving that they are “qualified individuals” under FEHA, as is the case for plaintiffs suing under the ADA. Justice Chin reviewed the legislative history and found that the Legislature intended to conform FEHA to the ADA provision that limits protection to “qualified individuals” with disabilities.

Deduction of Workers Compensation Costs In Calculating Profits for Profit-Based Incentive Plan Does Not Violate California Labor Code

 In Prachasaisoradej v. Ralphs Grocery Co., the California Supreme Court ruled by a 4-3 vote that a profit sharing incentive plan based on a net profit calculation, which included deductions for workers compensation costs, cash and merchandise shortages and the costs of third party tort claims, did not violate Labor Code prohibitions against deducting such costs from employee wages.

 Plaintiff Eddy Prachasaisoradej, a produce manager and participant in Ralphs’ incentive compensation plan (“ICP”), sued Ralphs on behalf of himself and similarly situated employees. He alleged that the ICP, which provided supplemental compensation in addition to employees’ regular wages based on the net profits of the store in which an employee worked, and that, in calculating net profits for purposes of the ICP, Ralphs illegally deducted the store’s expenses for cash shortages, damaged or lost merchandise, workers’ compensation, tort claims by nonemployees, and other business expenses beyond the employees’ control. Plaintiff alleged that deducting these items in the profit calculation violated a number of Labor Code sections, as well as Wage Order 7 and Business and Professions Code section 11700.

 Ralphs demurred on grounds that: (1) the claims were preempted under section 301 of the Labor Management Relations Act because they required the interpretation of a collective bargaining agreement; and (2) Plaintiff failed to state a claim under state law. The trial court sustained the demurrer based on 301 preemption. On appeal, the Court of Appeal found that 301 preemption was not applicable and that the allegations sufficiently stated a claim under state law. The Supreme Court granted review limited to the question of whether the plan violated state law.

 In an opinion by Justice Marvin Baxter, the majority defined a deduction from wages or earnings under the Labor Code provisions at issue as a deduction from “the amount the employer has offered or promised to pay, or has paid pursuant to such an offer or promise.” “Here, each Ralphs store employee was offered, promised and paid, as full compensation for his or her individual work, an agreed and guaranteed dollar wage, which did not vary with the store’s financial fortunes, and from which no unauthorized amounts were deducted, withheld, set off, or otherwise received or collected by the employer.”

 However, employee expectations with respect to supplemental compensation from the ICP derived exclusively from the terms of the ICP, which based the amount of payment to any employee on a comparison of the operational profits of that employee’s store compared to preset profit targets for the relevant period of operation. “The final figure, and this figure only, once calculated, was the amount offered or promised as compensation for labor performed by eligible employees, and it thus represented their supplemental ‘wages’ or ‘earnings.’” Since no deductions were made from this amount once it was calculated, the Labor Code provisions at issue had not been violated.

 Employees understood from the beginning that, by the Plan’s very nature, supplementary incentive compensation for a particular period depended on the extent to which the store’s revenues for the relevant period exceeded its operating expenses as defined in the Plan. Amounts calculated as a percentage of the store’s Plan-defined profit were the only “wages” or “earnings” offered or promised to eligible employees under the Plan.”

 The majority also rejected Plaintiff’s argument that tying employee compensation to minimizing workers compensations costs, by including them in the profit-sharing plan, would cause employees not to report valid injury claims, noting that “one might equally argue that inclusion of workers’ compensation costs in the profit calculation promotes the goals of the workers’ compensation system by encouraging employees to maintain a safe workplace, and by discouraging claim abuse.”

California Supreme Court Restricts Class Action Waivers In Employment Arbitration Agreements

 In Gentry v. Superior Court, the California Supreme Court reversed an appellate court’s denial of a writ of mandate upholding a class arbitration waiver, and held that employment arbitration agreements containing class action waivers are unenforceable if class arbitration would be a significantly more effective way of vindicating employees’ rights than individual arbitration.

 Plaintiff Robert Gentry was hired by Circuit City in 1995 as a salaried customer service manager. At the time he was hired, he received a packet that included an “Associate Issue Resolution Package” and a copy of Circuit City’s “Dispute Resolution Rules and Procedures.” The Arbitration Program was voluntary and employees were provided a form that gave an employee 30 days to opt out of the Arbitration Agreement. Gentry did not do so. The Agreement contained a class arbitration waiver stating: “The Arbitrator shall not consolidate claims of different Associates into one proceeding, nor shall the Arbitrator have the power to hear arbitration as a class action ....”

 Gentry filed a class action lawsuit on behalf of salaried customer service managers such as himself whom, he claimed, Circuit City had allegedly misclassified as exempt managerial/executive employees not entitled to overtime pay when, in fact, they were non-exempt employees and entitled to overtime compensation. Circuit City successfully moved to compel arbitration. Gentry filed a writ petition with the Court of Appeal seeking reversal of the order. The appellate court denied the writ petition, but the Supreme Court accepted review and reversed by a 4-3 vote.

 The Supreme Court found that the statutory right to receive overtime time embodied in Labor Code section 1194 was not a waivable right. The court was concerned that the class action waiver of wage and hour claims might result in a “de facto” waiver of employees’ unwaivable right to overtime, and discussed four benefits of class actions in litigating overtime claims. First, individual awards in wage and hour cases tend to be modest, thus making individual actions an unattractive option to recover small amounts. Even if the employee waits until after termination to sue, the litigation costs often reduce the value of any amounts ultimately recovered. Second, class actions minimize the risk for retaliation present when an employee individually sues his or her employer. Third, some individual employees may not sue because they are unaware that their legal rights have been violated. This unawareness is even greater where, as in the instant action, the employer not only fails to pay overtime, but tells its employees that they are not eligible for overtime. Fourth, class actions help assure the enforcement of statutory policies regardless of the monetary value of the potential claims.

 The court held that where an employer is alleged to have systematically denied proper overtime payment to a class of employees and a class action is requested despite a class arbitration waiver in a pre-dispute arbitration agreement, before enforcing the agreement the trial court must consider the following factors: (1) the modest size of the potential individual recovery; (2) the potential for retaliation against members of the class; (3) the fact that absent members of the class may be ill-informed about their rights; and (4) other obstacles to the vindication of class members’ right to overtime pay through individual arbitration. If, based on these factors, a trial court finds that a class arbitration “is likely to be a significantly more effective practicable means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employers’ violations,” the court must invalidate the class arbitration waiver so employees can vindicate their unwaivable rights in an arbitration forum. The court remanded the case to the Court of Appeal to determine whether, in light of this decision, class arbitration would be a significantly more effective method than individual arbitration of vindicating the overtime claims of the Circuit City customer service managers.

 The court also considered and rejected the appellate court’s finding that the fact employees had 30 days to opt out of the Agreement meant that its terms, including the class arbitration waiver, were not procedurally unconscionable and thus enforceable. While Gentry’s failure to sign the opt-out established his assent to the Agreement, the court found this fact did not foreclose a review of the Agreement to determine whether there were any unconscionable provisions that might affect its enforceability.

 The court identified several examples of procedurally unconscionable terms in the Agreement such that Gentry’s failure to exercise the opt-out provision did not represent “an authentic informed choice.” The explanation of the benefits of arbitration was “markedly one-sided.” Although the materials explained some of the pros and cons of arbitration, they failed to mention any significant disadvantages of the arbitration agreement being offered to the employees. For example, the Circuit City Agreement provided for a one year statute of limitations as opposed to the three year statute for recovering overtime wages and the four year statute for unfair competition claims under the Business and Professions Code. Further, remedies for backpay were limited to only up to one year from the time the employee knew or should have known of the alleged violation, whereas in a civil action an employee can potentially recover backpay for up to three years. The Agreement also imposed a maximum of $5,000 in punitive damages and, further, provided that parties would generally be liable for their own attorney fees, with the arbitrator having the discretion to award the employee attorney fees, as opposed to Labor Code section 1194's provision providing reasonable attorneys’ fees and costs to a prevailing employee.

 In a dissenting opinion, Justice Marvin Baxter found the majority opinion at odds with the provisions of the Federal Arbitration Act (“FAA”) and the California Arbitration Act (“CAA”) under which agreements to dissolve disputes by arbitration must be enforced except upon grounds applicable to contracts generally. Justice Baxter found the majority’s willingness to sanction class certification, despite an arbitration agreement to the contrary, undermined the provisions of the FAA and the CAA. He stated: “[T]he majority may not elevate a mere judicial affinity for class actions as a beneficial device for implementing the wage laws above the policy expressed by both Congress and our own Legislature that voluntary individual agreements to arbitrate – by which parties give up certain litigation rights and procedures in return for the relative speed, informality, and cost efficiency of arbitration – should be enforced according to their terms.” Unless Gentry’s agreement to arbitrate individually constituted a de facto waiver of his own statutory rights, the dissent opined that he should not be allowed to act, contrary to his agreement, as a representative plaintiff.

Insurance Adjusters Held Not Exempt from California Wage Orders

 In Harris v. Superior Court, a divided California Court of Appeal panel held that insurance adjusters are not exempt from employees under the administrative exemption to California’s wage orders because their work does not “rise to the level of management policy or general operations” – despite the majority’s acknowledgment of no less than eight contrary rulings by federal courts applying identical regulatory language to insurance claims adjusters and contrary determinations by the U.S. Department of Labor in interpreting its own regulations. The court found that the work of the adjusters was not “directly related to management policy and general business operations” because they were “production workers” and that this analysis was dispositive and rendered the administrative exemption inapplicable, regardless of the degree to which the adjusters work required them to make independent discretionary decisions as to matters of significance.

Calculation of Retirement Benefits Affected by Discriminatory Policy Which Pre-Dated Pregnancy Discrimination Act Held Unlawful

 In Huelteen v. AT&T, a Ninth Circuit en banc panel held that calculation of retirement benefits violated the federal Pregnancy Discrimination Act where the calculation was based on a seniority-accrual system in place in the late 1960s and 1970s which discriminated against employees on pregnancy leave, even though application of the discriminatory policy pre-dated the 1978 Pregnancy Discrimination Act. The 11-4 decision essentially reaffirmed an identical ruling against AT&T’s predecessor, Pacific Bell, in 1992, and overturned a three-judge panel’s decision to overrule the earlier case on the grounds that it was an improper retroactive application of the PDA.

Title VII Sexual Harassment Claim Survives Employer’s Despite Anti-Harassment Policy And Prompt Investigation

 In Craig v. M&O Agencies, Inc., the plaintiff filed a federal court lawsuit that alleged sexual harassment in violation of Title VII of the Civil Rights Act of 1964 against her employer (M&O Agencies, Inc., d/b/a the Mahoney Group), her direct supervisor (Leon Byrd), and his wife (Patricia Roberts), as well as various theories under Arizona state law. Plaintiff’s complaint is based on Byrd’s repeated sexual advances and the company’s handling of her harassment complaint. The District Court granted summary judgment on the Title VII claims and several of the state law claims. On appeal, the Ninth Circuit reversed summary judgment on the plaintiff’s harassment, assault and battery claims against the Mahoney Group, and on her assault, battery and infliction of emotional distress claims against Byrd. It affirmed the summary judgment as to all other claims against the Mahoney Group and Byrd, and on all claims against Roberts.

 Plaintiff was the branch manager of the Mahoney Group office in Tucson and reported to Byrd, the interim president. Over a period of several months, Byrd made numerous remarks about Plaintiff’s legs, and suggested she wear shorter skirts. During a happy hour on August 8, 2003, when Plaintiff expected to discuss work as they had done previously, Byrd instead talked about “making love” to her and followed her into the ladies room and grabbed her, kissed her and put his tongue in her mouth. The kiss ended when someone came into the restroom. Plaintiff left the restaurant alone while Byrd paid the bill. Byrd then called Plaintiff’s house but hung up when her husband answered the phone. Her husband urged her to report the incident but she refused. Byrd continued calling Plaintiff over the next two weeks and making advances which Plaintiff rejected. Byrd never expressly conditioned her continued employment or promotion on having a sexual relationship with him, but he told her he didn’t think he could work with her anymore.

 Plaintiff reported Byrd on August 27 to one of the individuals listed on the company’s sexual harassment policy. Plaintiff’s complaint was immediately investigated, Byrd was instructed to stay away from Plaintiff and to stop making sexual comments, and Plaintiff began reporting to a different executive. Plaintiff gave the investigator – outside corporate counsel – the names of others whom Byrd sexually harassed (Byrd had been previously investigated for sexual harassment), but outside corporate counsel did not follow up on the leads or include this information in his report. The report recommended that (1) Plaintiff and her husband be offered counseling, (2) Byrd receive a written reprimand and be given notice that he would be terminated if it happened again, and (3) Byrd and all managers and supervisors promptly attend sexual harassment training.

 By September 2003, Plaintiff was told the investigation was completed and she began reporting to Byrd again. Plaintiff claimed Byrd then retaliated against her by ignoring her, not responding to e-mails, providing budget information too late, and communicating with others about work she normally handled. The Company claimed it could not remove Byrd from the Tucson office or transfer Plaintiff, and reassigned some of her job functions. Plaintiff got sick, had panic attacks and other emotional difficulties and eventually resigned.

 To prove a quid pro quo harassment claim, a plaintiff may show a manager explicitly or implicitly conditioned a benefit or “absence of a job detriment” on an employee accepting sexual conduct. Despite the facts indicating a job detriment (Byrd saying he didn’t think he could work with her, and work being assigned elsewhere plus other changes in her work), the court found no evidence of quid pro quo harassment, stating that Plaintiff was “neither demoted nor fired, nor did she suffer any other ‘tangible employment action.’”

 However, the court found that Plaintiff did establish a prima facie case of liability under a hostile environment theory. It concluded Byrd’s conduct was both subjectively and objectively offensive, and fell somewhere between mere isolated incidents which do not create a violation of Title VII, and acts that are “pervasive and serious” enough to amount to “a change in the terms and conditions of employment.” The court noted that Byrd made repeated comments for several months before the bathroom encounter (although Plaintiff said these did not offend her), and there were at least four significant incidents after the bathroom encounter, such that a jury should determine the “pervasive and serious” issue.

 Plaintiff also alleged that Byrd’s actions resulted in a concrete change in her working environment, such that after her complaint, she was removed from many of her duties, received budgets late, had some of her duties reassigned, and was forced to interact with Byrd despite his continued propositions. The court found these facts sufficient to state a prima facie case for violation of Title VII.

 The Mahoney Group raised an affirmative defense under the Supreme Court’s decisions in the Faragher and Ellerth cases, asserting it exercised reasonable care to prevent and correct any sexually harassing behavior, and that the employee unreasonably failed to take advantage of the preventive or corrective opportunities in its anti-harassment policy by waiting 19 days before making a report. The court found that the Mahoney Group satisfied the first prong of the affirmative defense – showing that it exercised reasonable care to prevent and correct promptly any sexually harassing behavior. But it failed to satisfy the second prong – showing that Plaintiff unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer. The court rejected the claim that the 19 day delay in reporting the bathroom incident was unreasonable because Plaintiff may have hoped that the situation would resolve itself without the need of a formal complaint, and Plaintiff’s delay was a reasonable attempt to avoid what could be adverse or unpleasant employment consequences. The court noted that Byrd’s behavior continued until August 20, 2003, and a reporting delay of seven days from the last event could not be found unreasonable, noting that two cases in which delays in reporting were found to be unreasonable involved periods of over two years.

 The court affirmed the dismissal of the individual defendants, Byrd and Roberts, because Title VII (unlike California law) does not provide a separate cause of action against supervisors or coworkers.

Termination of Public Employee for Maintaining and Participating in Sexually Explicit Website Did Not Violate First Amendment

 In Dible v. City of Chandler, the Ninth Circuit affirmed a summary judgment for the City of Chandler, Arizona and its police department, and found that the discharge of police officer Ronald Dible for operating and participating in a sexually explicit website did not violate Dible's First Amendment free speech rights.

 In September 2000, Dible and his wife established a sexually explicit website containing photos of Dible, his wife, and others. When department officials learned about the website, Dible was ordered to suspend all website activity and placed on administrative leave pending an investigation. During the investigation, Dible provided several false statements to the investigators. There were also unflattering media reports about the website, naming Dible and his wife as the website’s operators and identifying Dible as a city police officer. The police department’s investigation found that the website and surrounding publicity had severely impacted its officers' working situation. Dible was terminated for violating a department regulation prohibiting officers from bringing discredit to the city service. Dible sued the city, the police department, and others asserting that his off duty activities were protected employee speech and his discharge because of these activities violated his First Amendment right to freedom of speech. The trial court granted summary judgment to defendants and the Ninth Circuit affirmed.

 Government employees have the right to speak on matters of public concern about government policies of interest to the public at large, but this right is not unfettered. Analyzing whether such speech is protected depends on whether the speech is related to the person’s employment. To determine whether employment related speech is protected, a court must balance the employee's interests as a citizen commenting upon matters of public concern and the state’s interest as an employer in promoting the efficiency of the services it performs through its employees. The court found that if Dible’s “speech” was “employment related” by virtue of it becoming publicly known that he was involved with the website and that he was a police officer, the speech would not be protected because his activities "were simply vulgar and indecent" and did not contribute to speech on a matter of public concern.

 If Dible’s website-related activities were unrelated to his employment, such speech would be entitled to First Amendment protection, unless there was some governmental justification "'far stronger than mere speculation'" in regulating it. The court found the city had a “particularly strong” interest in maintaining an effective and efficient police department, stating that “[i]t would not seem to require an astute moral philosopher or a brilliant social scientist to discern the fact that Ronald Dible's activities, when known to the public, would be ‘detrimental to the mission and functions of the employer.’” Thus, whether Dible’s activities were related to his employment or not, the City could discipline him for those activities without violating his First Amendment rights.

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