Richard S. Rosenberg, Editor

IWC ALERT

This is a reminder that the California Industrial Welfare Commission ("IWC") is meeting between now and July 1, 2000 to promulgate final Wage Orders which will fully implement the state's new daily overtime law (AB 60). There are several items on the IWC's agenda which might result in substantial changes regarding our wage-hour laws. These include the payment of daily overtime, whether employers may require employees to work overtime, and the adoption of alternative workweek schedules. We will closely monitor these IWC proceedings and will report on major developments in future issues of the Update. In the meantime, employers must continue to post the Interim Wage Order 2000 which took effect this past March 1 and the IWC's Summary of the Interim Wage Order. The Interim Wage Order must be posted immediately adjacent to all other applicable Wage Orders (1-89, 2-80, 3-80, 4-89 as amended in 1993, 5-89 as amended in 1993, 6-80, 7-80, 8-80, 9-90, 10-89, 11-80, 12-80, 13-80, and 15-86), and Section 10 of the Interim Order must be posted immediately adjacent to Wage Order 14-80.

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The California Legislature is once again considering several bills which would impose numerous additional legal burdens on employers. Below is a summary of some of the more noteworthy employment measures currently before the Legislature. We are closely monitoring these bills, and we will inform you of significant developments in future issues of the Update.

¥ Family Leave. SB 118 (Hayden), which contains further expansions of our state's Family Rights Act, has already passed both the Senate and Assembly and now awaits final action by Governor Davis. If the Governor signs SB 118, it will allow employees to take up to 12 weeks of unpaid leave per year to care for a grandparent, sibling, domestic partner, or any individual who depends on the employee for immediate care and support who shares a common residence with the employee, and who has a "serious health condition." Another family leave bill, SB 1149 (Speier), provides that all businesses with 20 or more employees would be covered by the family leave law, instead of the 50-employee minimum under current law. SB 1149 also would require the Department of Fair Employment and Housing to provide employers with information sheets concerning family and pregnancy leave, and would require employers to pass on such information sheets to employees. Employers also would be required to give employees reasonable advance notice of any policies the employer adopts concerning the California Family Rights Act ("CFRA") and pregnancy leave, including policies related to employees' rights, duties and obligations regarding the taking a leave, and an explanation of an employer's attendance or leave policies.

¥ Pro-Union Bills. Several pending bills reflect the power unions and their allies continue to wield in the state Legislature. AB 1889 (Cedillo) would forbid recipients of state funds from using such funds to discourage unionization. Companies would also be required to keep records concerning the use of state funds, and violators would become ineligible for such funds. In addition, AB 2178 (Knox) would require at least one of the seven members of the Workers' Compensation Appeals Board to be from organized labor. (There is no parallel requirement that any of these Board members be from management.)

¥ Expansions Of Disability Bias Laws. AB 2222 (Kuehl) would drastically expand the already-broad state laws which prohibit job bias based on disability and require "reasonable accommodations" of disabled persons. In particular, the bill would eliminate the existing requirement that a disabling condition "substantially limit" one or more "major life activities." Instead, under AB 2222, any "limitation" would do - presumably even minor limitations such as very mild nearsightedness. Mitigating measures (such as eyeglasses) would not be considered in determining whether a person is "disabled." Taken together, these provisions suggest that virtually every Californian could claim to have at least one physical or mental "disability" if AB 2222 becomes law. This bill also would prohibit employers from conducting medical and psychological examinations and inquiries that are currently permitted under the law. In addition, AB 2222 would specifically require employers to conduct a "timely, good faith interactive process" to determine "reasonable accommodations" for disabled employees.

¥ Social Anxiety Disorder. SB 1456 (Kelley) would require every health care service plan contract that provides mental health benefit coverage to include coverage for medically necessary treatment of social anxiety disorder.

¥ Disability Benefits for Pregnant Employees. AB 1844 (Washington) would grant 10 weeks of unemployment compensation disability benefits to expectant mothers with normal deliveries (not to begin before the 36^th week of pregnancy) and allow more than 10 weeks where the delivery is by caesarian section or medical complications exist.

¥ Workplace Harassment. AB 1856 (Kuehl) would make non-supervisory co-employees personally liable for committing workplace harassment in violation of our state's job bias law, the Fair Employment and Housing Act ("FEHA"). The intent of this bill is to overrule last year's decision by the California Supreme Court in the Carrisales case which found against co-employee liability for harassment. In addition, SB 1432 (Alpert) would list certain measures that may qualify as "reasonable" steps to prevent workplace harassment from occurring. These measures would include the use of licensed private investigators and persons with prescribed qualifications in human resource management.

¥ Local Job Bias Laws. AB 2534 (Shelley) would permit California counties, cities and other localities to pass job bias provisions that are even more stringent than the FEHA. Currently, the FEHA prohibits enforcement of all local job bias laws. In a related development, San Francisco's Board of Supervisors recently passed a controversial ordinance banning job and housing bias against people based on their size or weight. This ordinance will become enforceable against all San Francisco employers if AB 2534 becomes law.

¥ Gender Identity. The Assembly recently approved AB 2142 (Keeley), which would add "gender identity" to the list of classifications protected under the FEHA. The bill expands the definition of "gender" to include "a person's identity, appearance, or behavior, regardless of whether different from that traditionally associated with the person's sex at birth." The author of AB 2142 states that "the bill would protect a female employee who is told that she must dress in a more 'feminine' manner or man who is subjected to gender-based harassment on the job because he has a soft voice or slight build." On the other hand, the "Committee on Moral Concerns" opposes AB 2142 and contends that the bill would give "special protection" to "cross-dressers, transsexuals, opposite sex impersonators, and comedians." The bill has now been forwarded to the state Senate for further action. Even if AB 2142 does not become law, local ordinances prohibiting job bias based on gender identity (such as those already on the books in San Francisco and Santa Cruz) would become enforceable if AB 2534 is enacted.

¥ Expansions To Wage-Hour Laws. On the heels of the 1999 passage of AB 60, AB 2509 (Shelley) would further broaden our state's wage-hour laws, and would expand the enforcement powers of the California Labor Commissioner and the Division of Labor Standards Enforcement ("DLSE"). Among other things, AB 2509 provides that: (1) the DLSE can compel attendance of a party or officer, director or a managing agent of a party with "notice," eliminating the need to issue a subpoena; (2) appeals of DLSE awards are exempt form court-ordered arbitration; (3) employers appealing a DLSE award must post a bond; (4) if an employer unsuccessfully appeals a Labor Commissioner decision, the employee will recover attorneys' fees and costs, even if the DLSE represents the employee; (5) employers cannot recover attorneys' fees and costs in direct civil actions brought for unpaid minimum wages or overtime; (6) substantial shareholders, parent companies and successors will be liable for wage and hour violations; (7) employers cannot receive any part of a gratuity, and all gratuities paid by credit card must be paid to the employee by the following business day; (8) all employers would be liable for a penalty of up to 30 days' wages for dishonored wage checks; (9) employers must reflect the hourly rate and hours worked for hourly workers in itemized pay statements; and (10) employers are subject to enhanced penalties for violations of wage-hour, meal period and recordkeeping requirements.

¥ Record-Keeping Requirements. AB 96 (Shelley) would subject employers to a $500 penalty for failing to maintain records required by any Wage Order of the Industrial Wage Commission.

¥ Personnel Files. Under SB 1327 (Escutia), employees would have the right to request corrections and deletions in their personnel files that are not accurate, relevant, timely, or complete. Employers must act within 21 days of such requests to either make the requested changes or explain why the changes are being denied. In addition, employers would be required to remove any adverse material from a personnel file that has not been used within two years of the placement of the material in the file. For the first time, public employers would be subjected to the laws regarding inspection of personnel files.

¥ Disclosure Of Information. SB 1409 (Murray), titled "the California Privacy Protection Act of 2000," would make it a crime "for a consumer credit reporting agency, financial institution, health care provider, or insurance company to disclose to a third party or parties personal information relating to an individual without that individual's prior consent."

¥ Workers' Compensation. SB 996 (Johnston) would make numerous changes to the workers' compensation laws. Some of the more noteworthy provisions include: (1) increased penalties for failure to secure workers' compensation insurance; (2) funding for investigations of employers' willful failure to secure payment of workers' compensation; (3) elimination of the requirement on workers' compensation insurers to maintain or provide occupational and health loss control consultation services; (4) allowing insurers to increase rates on workers' compensation policies inception prior to January 1, 2001; (5) eliminating the prohibition on employees from obtaining additional medical legal evaluations after the employees obtain representation by an attorney; (6) limiting the presumption that the treating physician's findings would be correct, if unrebutted, to apply only when the treatment by a personal physician is pre-designated prior to the date of injury; (7) increasing workers' compensation benefits; (8) extending death benefits to a child who is physically or mentally incapacitated; and (9) prohibit arbitration of workers' compensation disputes.

¥ Arbitration Agreements. AB 858 (Kuehl) would outlaw most pre-dispute agreements to arbitrate employment-related claims. This bill was proposed last year and passed the Assembly, but the Assembly refused to approve amendments to the bill passed by the Senate. AB 858 is now in the Senate Inactive File and its future status is uncertain.

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RACE DISCRIMINATION

The California Supreme Court has ruled that Hughes Aircraft Co. is entitled to a new trial in a race bias and retaliation lawsuit that originally resulted in an incredible $89.5 million jury verdict. The lawsuit was brought by two former Hughes employees, Jeffrey Lane and David Villalpando. Lane claimed he was discriminated against because he is African-American, while Villalpando alleged he was retaliated against for opposing race discrimination against Lane. The case was originally tried in 1994 at the Central Civil West courthouse near downtown Los Angeles -- a court which is infamous for its frequent huge jury verdicts in favor of plaintiffs. Despite the jury's $89.5 million verdict in favor of the plaintiffs, the trial judge ruled there was insufficient evidence of discrimination or retaliation. The judge thus threw out the jury's verdict altogether and entered judgment in favor of Hughes. The judge also ruled that if this judgment was reversed on appeal, Hughes was at least entitled to a new trial. The California Court of Appeal not only reversed the trial judge's entry of judgment for Hughes, but also reversed the order granting Hughes a new trial, and ordered the trial judge to enter judgment for the plaintiffs in the reduced amount of $17.3 million. The California Supreme Court was only asked to review whether Hughes was entitled to a new trial. The Court noted that a trial judge has great leeway in ordering a new trial because the judge, like the jury, sat through the entire trial and viewed all the evidence. In this case, there was conflicting evidence on the issues of race discrimination and retaliation. Under these circumstances, the Court ruled that the trial judge was entitled to grant a new trial and that his ruling should not have been overturned. Thus, the Court reinstated the trial judge's ruling and sent the case back for a new trial. (Lane v. Hughes Aircraft Co.)

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DISABILITY DISCRIMINATION

¥ Reasonable Accommodations. Our Ninth Circuit U.S. Court of Appeals has withdrawn one of its rare pro-employer decisions, at least for the time being. The Ninth Circuit recently granted a rehearing in Barnett v. U.S. Air, a case involving accommodations employers must provide under the Americans with Disabilities Act. In October 1998, a three-judge panel of the Ninth Circuit ruled that it is up to the employee in an ADA case to identify at least one specific reasonable accommodation which was available to the employer and which would have enabled the employee to perform the essential functions of the job. The court also stated that the ADA does not require employers to exempt disabled employees from a seniority system which applies to all other employees. In addition, the court rejected a "bright-line" rule under which an employer automatically violates the ADA by failing to initiate an "interactive process" with employees to decide reasonable accommodation issues. However, an 11-judge panel of the Ninth Circuit will hold a new hearing in Barnett on June 22, 2000. After this hearing, the court has the option of either adopting the original October 1998 decision in Barnett, or rendering a new decision altogether. Given the Ninth Circuit's strong pro-plaintiff leanings, many court watchers view the court's decision to grant a rehearing in Barnett as a bad sign for employers.

¥ "Continuing Violations". The California Court of Appeal recently threw out a $1.4 million jury verdict for an employee in a disability bias lawsuit. The employee, who had multiple sclerosis, claimed that the employer failed to accommodate her disability on numerous occasions over a five-year period. However, the court ruled that most of these claims were barred by the one-year statute of limitations under the state's Fair Employment and Housing Act ("FEHA"). The employee argued that the jury was allowed to consider all of her claims because the employer's conduct over the years constituted a "continuing violation." The "continuing violation" theory is a popular tactic among plaintiffs' lawyers to get around the statute of limitations. But the appellate court found that the "continuing violation" doctrine was unavailable for the most part, because the employee knowingly allowed the statute of limitations to expire on several of the employer's actions. On the other hand, the court ruled that the "continuing violation" theory may be available in cases where the employer has a specific unlawful policy or practice which continued inside of the limitations period. The employee in this case claimed that the employer continually failed to fix her problems with wheelchair access and neglected to prepare an adequate fire escape plan. The court sent these claims back to the trial court for further proceedings to determine whether the employer was guilty of a failure to accommodate within the one-year limitations period, but dismissed most of the employee's remaining allegations as untimely. (Richards v. CH2M Hill Inc.)

¥ Disability Insurance Benefits. Many employers and insurance administrators offer group disability insurance policies that provide different levels of benefits depending on the type of disability involved. For example, many plans offer more generous benefits to employees with physical disabilities than to employees with mental disabilities. Plaintiffs' lawyers have long contended that these practices violate the ADA. However, every federal appellate court which has considered this argument has rejected it, including our Ninth Circuit U.S. Court of Appeals. In a case decided earlier this year, the Ninth Circuit ruled that there was no ADA violation where the employer offered insurance benefits for individuals with physical disabilities, but limited them to 24 months for persons disabled because of mental illness, alcoholism, or drug abuse. (Weyer v. Twentieth Century Fox Film Corp.) The Second Circuit in New York reached the same result in another recent case and explained: "So long as every employee is offered the same plan regardless of the employee's contemporary or future disability status, then no discrimination has occurred even if the plan offers different coverage for various disabilities." (EEOC v. Staten Island Savings Bank)

¥ Pre-Hire Inquiries. The Ninth Circuit recently recognized a narrow exception to the general rule that the ADA prohibits pre-hire inquiries about potential disabilities or medical restrictions. The court ruled that an employer was permitted to require a former employee to submit a medical release as a condition of re-employment. According to the court, the employer's medical release requirement was "more akin to a progress report from a specialist treating a particular injury, than a comprehensive evaluation from a general practitioner testing a worker for physical and mental impairments." The Ninth Circuit thus ruled that the employer did not violate the ADA by refusing to rehire the former employee without a medical release. (Harris v. Harris & Hart, Inc.) By contrast, the Tenth Circuit recently upheld a $157,500 judgment in favor of a job applicant who had lost his right arm below the elbow joint, although he had full use of the appendage with the aid of a prosthesis. The applicant was asked during a job interview "what current or past medical problems might limit your abilities to do a job." The Tenth Circuit found that this type of pre-hire inquiry was "improper" under the ADA. (EEOC v. Wal-Mart Stores, Inc.)

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AGE DISCRIMINATION

In an extremely controversial opinion, the California Court of Appeal has reinstated a jury verdict in favor of the plaintiff in an age bias lawsuit, despite the fact that the plaintiff was replaced by an older employee after being terminated. Jeannie McKenzie and three other women filed age discrimination lawsuits after they were discharged by their former employer, Canfield & Associates. The company stated that it terminated the employees for performance reasons, but the plaintiffs claimed this was a pretext for age discrimination. At the time of their terminations, McKenzie was age 40, and the other three plaintiffs were age 53, 59 and 64, respectively. An Oakland jury found in favor of all four plaintiffs and awarded each of them damages ranging from $20,000 to $35,000. The employer claimed there was insufficient evidence of age bias, and asked the trial judge to enter judgment in its favor notwithstanding the jury's verdicts. The trial judge granted the employer's request in McKenzie's case but upheld the verdicts in favor of the other employees. The appellate court, however, ruled that the verdicts in favor of all four plaintiffs -- including McKenzie -- must be upheld. The court conceded that McKenzie's age bias claim was weakened by the fact that she was replaced by an older employee. However, the court ruled that this did not preclude her claim altogether and that the jury could look at other evidence in deciding whether McKenzie was the victim of age bias. The court referred to evidence that the company's reasons for terminating McKenzie were false, as well as statistical evidence which suggested that the company was more likely to terminate older employees than younger ones. In addition, a witness testified that the company president once remarked that for marketing positions, he wanted "someone that's young, but not too young, someone that wears makeup, but not gaudy makeup, someone that dresses well but doesn't overdress." According to the court, this was enough evidence to support the jury's verdict in McKenzie's favor on her age discrimination claim. (Begnal v. Canfield & Assocs.)

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INDEMNIFICATION OF EMPLOYEES

RETALIATION

FAMILY LEAVE

Right to Reinstatement. Federal and state family leave laws generally give an employee the right to return to the same or a comparable position upon returning from family leave. However, two recent court decisions suggest that this right is not absolute. The Eleventh Circuit U.S. Court of Appeals ruled that a company did not violate the federal Family and Medical Leave Act ("FMLA") by laying off an executive-level employee during her FMLA leave. The plaintiff argued that all FMLA rights, including reinstatement, are absolute. Since she was not reinstated after her leave, she claimed that the company violated the FMLA. The court disagreed. It stated that an employer can deny reinstatement to an employee returning from FMLA leave under certain circumstances, including a reduction-in-force undertaken while the employee is on leave. (O'Connor v. PCA Family Health Plan Inc.) Meanwhile, the Seventh Circuit U.S. Court of Appeals ruled that the employee has the burden of proving that she would have been reinstated but for the taking of family leave. On the other hand, the court cautioned that the FMLA still requires the employer to present evidence that the employee's position would not have been available to the employee even if she had not taken leave. (Rice v. Sunrise Express, Inc.)

Child's Emergency Room Visit. A trip to the emergency room does not necessarily prove that a person has a "serious health condition" which would justify family leave. However, the Eighth Circuit U.S. Court of Appeals ruled that a plaintiff who accompanied her three-year-old son to the emergency room had a potential FMLA claim that should be sent to a jury to decide. The court noted that there were several factual questions that could not be decided without a trial. These included whether the child was incapacitated for more than three consecutive days and whether he received continued supervised treatments. There was evidence that the child was given prescribed antibiotics and was scheduled for surgery to treat an ear infection. The court added that, in determining what would constitute an incapacity of a three-year-old, a jury must determine whether the child's illness had a demonstrated affect on his daily routines. (Caldwell v. Holland of Texas, Inc. dba Kentucky Fried Chicken)

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LABOR RELATIONS

However, another recent Ninth Circuit case involving similar federal labor law issues turned out more favorably for the employer. The plaintiffs in this case accused the employer of conducting surveillance in restrooms via two-way mirrors and video cameras, in violation of the California Penal Code. The plaintiffs brought state law claims for invasion of privacy and infliction of emotional distress. One of the plaintiffs also alleged that he was discharged in retaliation for complaining about the surveillance, and he brought a claim for wrongful discharge in violation of public policy. The Ninth Circuit ruled that the privacy and emotional distress claims were barred by federal labor law, but that the wrongful discharge claim could go forward. The court noted that privacy rights may be bargained away in an employment contract. Thus, the union contract in this case -- which specifically addressed the use of video surveillance -- had to be interpreted to determine whether the employees had a reasonable expectation that the company would not conduct video surveillance in employee restrooms. However, the court also ruled that no interpretation of the union contract was necessary in order to determine whether the company retaliated against the employee who complained about the surveillance. The court thus sent the wrongful discharge claim to state court for further proceedings, and dismissed all the other claims. (Cramer v. Consolidated Freightways, Inc.)

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WAGE/HOUR

Travel Time. The California Supreme Court has ruled that employers who require employees to travel to work sites in employer-provided transportation must pay the employees for their travel time. The Court reasoned that the employees are subject to the employer's "control" while on the bus, even though they do no work during this travel. This is an exception to the usual rule that employees need not be paid for traveling to and from work. The Court recognized that there are strong public policy considerations which favor agricultural employers providing transportation for their employees. However, the Court stated that its ruling was compelled by the clear language of Wage Order 14-80, which governs the agricultural industry. The Court's decision was unanimous. (Morillion v. Royal Packing Co.)

¥ Legislation To Exclude Stock Options From Overtime Calculations. In our January 2000 Update, we reported on a Department of Labor opinion letter which stated that the value of employees' stock options should be added into employees' regular rate of pay for purposes of calculating overtime premiums. This opinion sparked considerable controversy, because it would make it far more expensive for employers to give stock options to non-exempt employees. Earlier this year, Congressional legislation was introduced which would essentially overrule the DOL's opinion letter and exclude the value of stock options from overtime premium calculations. This legislation has received broad bipartisan support and is expected to pass. Even the DOL has supported the legislation, explaining that its opinion letter was simply an interpretation of what the law is, not what it should be. We will continue to watch this issue and will report on future developments in upcoming issues of the Update.

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UNFAIR COMPETITION

¥ Personal Liability of Officers and Directors. The state Court of Appeal recently ruled that a corporation's officers and directors may be held personally liable for misappropriation of trade secrets, unfair competition or interference with economic advantage. The following questions must be considered in deciding individual liability: (1) whether the officer or director purchased or invested in the corporation's principal assets which resulted in unlawful conduct; (2) whether the officer or director took control of the corporation and appointed personnel to run the corporation which was engaging in unlawful conduct; and (3) whether the officer or director did so with knowledge of the unlawful conduct -- or, with respect to trade secret misappropriation, whether he or she had reason to know of the misappropriation. (PMC, Inc. v. Kadisha)

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WORKPLACE VIOLENCE

EMPLOYEE PRIVACY

WORKER'S COMPENSATION

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The Ballard, Rosenberg, Golper & Savitt Employment Law Update is published as a service for clients and business associates of the Firm. While every effort is made to ensure accuracy, it is not intended to serve as legal advice. Copyright 2000, Ballard, Rosenberg, Golper & Savitt. All rights reserved. Additional copies of this publication are available upon request.

Editorial Staff: Richard S. Rosenberg and John J. Manier.

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