and Employment Law|
On Behalf of Management and Related Litigation
January 25, 2000
Dear Clients and Friends of the Firm:
Our first Employment Law Update of the new millennium features articles which highlight employers' increasing exposure to costly overtime wage claims. One especially troubling development for employers is a Department of Labor opinion letter which would require the value of employee stock options to be included in the calculation of overtime pay premiums. This could make it far more expensive for employers to offer stock options to non-exempt employees. Another disturbing trend is the filing of class action lawsuits which seek to recover millions of dollars in unpaid overtime premiums. In addition, the summary of new California labor and employment laws in this issue of the Update specifically addresses the confusion surrounding the scope of AB 60, the new law which restores mandatory daily overtime pay for most California employees. We also include articles on the following topics:
All of us at the Firm send our best wishes for a safe, enjoyable and prosperous Winter.
Richard S. Rosenberg, Editor
? Inclusion Of Stock Options In Calculation Of Overtime Premiums. The Department of Labor has issued a highly controversial opinion letter which would make it more expensive for employers to give stock options to non-exempt employees under federal law. The opinion letter was originally prepared by the DOL in February 1999 but was only recently released to the public. According to this letter, the value of employees' stock options should be added into employees' regular rate of pay for purposes of calculating overtime premiums. The letter states that the employee's profit from exercised stock options must be allocated over the period of time in which the profit was earned, but not over more than the previous two years. This means that employers would have to pay additional overtime to employees after they cash in their stock options. The DOL reasoned that stock option plans which are tied to hours worked or production goals are not exempt from overtime pay calculations. Although the DOL's opinion letter does not have the same effect as a formal regulation, it is a strong indicator of how the DOL may rule on the issue in the future. Critics contend that if the DOL's opinion letter is enforced, it would cause administrative headaches and discourage employers from offering stock options to employees who are not exempt from overtime pay requirements. In addition, employers who already have stock option plans in place will likely put any new grants of stock options "on hold" until the dispute over the DOL's opinion letter is resolved. The DOL is under considerable pressure to rescind this opinion letter, but there is no indication that it is prepared to do so. We will continue to monitor this hotly-debated issue and will report on future developments in upcoming issues of the Update.
Dollar Class Action Claims. The field of wage-hour law
has become extremely lucrative in recent years for trial lawyers seeking
to extract huge jury verdicts or settlements from companies. One strategy
that has become particularly popular is the filing of class action lawsuits
on behalf of hundreds or thousands of salaried white collar employees
who claim they were improperly classified as exempt employees and denied
overtime pay for extended lengths of time. Because of the high salaries
which these employees often receive, the overtime pay claim can run
into the six and seven figure range -- or more. On top of this, the
applicable statutes provide for an award of attorneys' fees against
the employer, which can easily run into six figures as well. The latest
reported example involves the Mervyn's department store chain, which
has been forced to pay millions of dollars to resolve these costly claims.
Just before we went to press, Mervyn's agreed to pay $11.3 million to
settle two lawsuits brought in Orange County Superior Court on behalf
of approximately 4,600 white collar employees in California. Mervyn's
had classified these employees as managers who were exempt from overtime
pay requirements. However, these employees claimed that they were misclassified
because they actually spent most of their time on non-managerial duties,
such as stocking shelves. One plaintiff alleged that she typically worked
70-hour weeks with no overtime, and once was coerced into working against
her doctor's orders while she endured a painful kidney stone. Mervyn's
continued to deny any wrongdoing as it agreed to the settlement, which
now awaits final approval from the Superior Court. In the meantime,
cases such as the one against Mervyn's serve as an important reminder
that employers must be careful to correctly classify their employees
as exempt or non-exempt from overtime pay requirements. Employers who
make the wrong decisions on these issues may face multi-million dollar
consequences down the road -- especially where large categories of employees
are misclassified as exempt. Your contact at the Firm is ready to assist
you if you have any questions on classifying employees for purposes
of overtime pay.
Several new labor and employment laws took effect January 1, 2000. We reported on many of these new laws in our October 1999 Update, while other laws were approved by the Governor after our last issue went to press. Employers should make it a top priority to familiarize themselves with all of their new legal obligations. Here's a brief overview of the new laws:
? Daily Overtime. As reported in the October 1999 Update, "The Eight- Hour-Day Restoration and Workplace Flexibility Act of 1999" (AB 60) reinstates the requirement of paying daily overtime premiums to the 8 million California employees who lost the benefit two years ago. Covered employers will once again have to pay so-called non-exempt workers "time-and-a-half" after 8 hours worked in any one day and for the first 8 hours on the 7th day of work in the workweek, and "double- time" after 12 hours in any day and after 8 hours on the 7th day of work. AB 60 also nullifies many existing "alternative workweek" arrangements; restricts the use of compensatory time off in lieu of daily overtime; restores the strict pre-1998 meal period requirements; adds several new record keeping requirements and increased penalties; provides that no hourly paid employees -- even "professional" employees -- may be exempt from overtime pay requirements; and substantially raises the salary threshold required for overtime exemption from $1,150 per month to twice the state's minimum wage (currently $5.75 per hour, or $1,993.33 per month).
There already has been much confusion about the scope of certain provisions in AB 60. The California Division of Labor Standards Enforcement ("DLSE") recently issued an internal memorandum to its field officers which addresses some of these matters:
Seventh Day Premiums. The DLSE memorandum states that an employee is eligible for time-and-a-half for the first 8 hours on the 7th day of the workweek, and double time after 8 hours on the 7th day, only if the employee has worked all 7 days of that workweek.
Alternative Work Schedules. The memorandum also contains an extensive discussion of alternative workweek schedules which are not the result of collective bargaining between an employer and a union. According to the Labor Commissioner, adoption of such alternative work schedules requires a secret ballot election with approval by at least two-thirds of affected employees. The memorandum discusses in detail the specific procedures which must be followed in holding such an election. These procedures mirror those which were in the old Wage Orders. Among other things, each employee eligible to vote in an election must be informed, prior to the election, of the precise work schedule -- that is, the precise work days and work hours -- that the employee will be assigned to work and/or in the case of an election to establish a "menu of work schedule options" allowed to choose from. The memorandum appears to preclude most employees from individually adopting an alternative work schedule. Under AB 60, individual employees can unilaterally work alternative schedules without election only if: (1) as of July 1, 1999, the employee was employed and was voluntarily working an alternative workweek schedule, which did not provide for work in excess of 10 hours of work in any work day; and (2) the employee makes a written request to the employer to continue working this schedule, which the employer approves. You may obtain a copy of this DLSE internal memorandum from your contact at the Firm.
? Pharmacy Employees. After AB 60 was signed into law, a separate bill, SB 651, was enacted to provide that pharmacy employees are no longer exempt from overtime requirements as a class. These employees must now be paid the requisite statutory overtime unless they otherwise meet the test for exemption either as executive or administrative employees.
? New Job Bias Provisions. Several major changes were made to the Fair Employment and Housing Act ("FEHA"). Our October 1999 Update reported on new laws which drastically expand California's law against age discrimination and which add sexual orientation to the list of prohibited bases for job discrimination and harassment under FEHA. In addition, Governor Davis signed a bill titled "California Civil Rights Amendments of 1999" (AB 1670) which has the potential to further add to the explosion of job bias litigation against employers. This bill contains the following provisions:
Discrimination Based On Perceptions. It is now illegal to discriminate based on the mere "perception" that a person has any characteristic protected under FEHA, or that a person is "associated with" one who has, or is perceived to have, such characteristics. Taken to its extreme, this provision arguably outlaws job bias against anyone perceived to be associated with a person who is perceived to have one or more enumerated characteristics.
Independent Contractors. The job bias provisions of our state law have been greatly expanded to protect workers hired as independent contractors from unlawful sexual or other harassment. Previously, FEHA did not apply in any manner to independent contractors. That will no longer be true in the harassment context. However, AB 1670 does not appear to expand the other anti-bias provisions of FEHA to apply to independent contractors.
Genetic Testing. Employers are now prohibited from "directly or indirectly" subjecting employees, applicants or other persons to testing for genetic characteristics. This further expands the prohibition against job bias based on genetic characteristics which was added to FEHA effective January 1, 1999.
Pregnancy Accommodations. AB 1670 requires employers to grant requests for reasonable accommodation made by an employee, on the advice of her health care provider, for pregnancy, childbirth or related medical conditions. FEHA previously allowed employers to deny the accommodation requests of pregnant employees.
Small Employers. The FEHA's protections for employees with mental disabilities now apply to all companies with 5 or more employees. This is the same "small employer" exemption that applies to most other provisions of FEHA, except for the anti-harassment protections. Prior to AB 1670, only companies with 15 or more employees were covered by the mental disability provisions.
Enhanced Remedies. The remedies available for violation of FEHA have been greatly increased. AB 1670 triples the maximum amount of damages that the Fair Employment and Housing Commission may award for nonpecuniary loss and administrative fines, from $50,000 to $150,000 per aggrieved person. Moreover, in litigation cases under FEHA, the "costs" recoverable by the "prevailing party" will now include expert witness fees. Courts may additionally order employers to conduct training of their employees, supervisors and management as to the requirements, rights and remedies under FEHA and "the employer's internal grievance procedures." Such training can be quite expensive, particularly if outside consultants must be hired.
? Unlawful Acts During Labor Disputes. Unions scored a major legislative victory with the passage of AB 1268. This law gives unions new special protections against litigation during a strike or other work stoppage. Unions and their officers and members are now immune from liability for any unlawful act undertaken by union officers, members or agents in a labor dispute, unless there is "clear proof of actual participation in, or actual authorization of those acts." This provision overrules a 1989 California Court of Appeal decision (J.R. Norton Co. v. General Teamsters etc.) which held unions and their officers to the same standard of liability as most other defendants in civil lawsuits (including employers). AB 1268 also imposes stringent new conditions on the authority of state courts to issue temporary and permanent injunctions related to labor disputes. As a result, it will be far more difficult to obtain such injunctions. Employers typically seek injunctive relief in response to violence, vandalism and other misconduct committed by striking union members. AB 1268 bars injunctions in labor dispute cases unless there has been live testimony of supporting and opposing witnesses in open court (temporary restraining orders are no longer available based on affidavits). Trial judges must now make specific findings of fact before granting any relief, and the relief granted shall be restricted to the specific acts included in the findings of fact. Moreover, no complainant can obtain injunctive relief "who has failed to comply with any obligation imposed by law, or who has failed to make every reasonable effort to settle that dispute either by negotiation or with the aid of any available governmental machinery or voluntary arbitration." Thus, courts will be restricted from issuing labor injunctions unless the employer can prove that these settlement efforts occurred and were unsuccessful.
? Time Off For Victims of Domestic Violence and Other Crimes. Under revisions to Labor Code section 230, employees who are victims of crimes now have the right to take time off to appear and/or testify in court. The new law prohibits employers from retaliating against employees who exercise this right. Similar protections also cover employees who are victims of domestic violence and need time off to seek injunctive or other relief. These protections apply only if the employee gives reasonable notice of all scheduled and non-emergency court appearances.
? Lawful Off-Work Activities. One of the most cryptic and controversial new employment laws is AB 1689. This bill gives the Labor Commissioner jurisdiction over "[c]laims for loss of wages as the result of demotion, suspension, or discharge from employment for lawful conduct occurring during non-working hours away from the employer's premises." Some plaintiffs' attorneys have stated publicly that the law prohibits discrimination based on any "lawful" off-work conduct and may even give rise to personal injury-type damages. The courts will eventually have to decide how broad this new law really is. Notably, AB 1689 attracted little public attention because the initial versions of the bill had nothing to do with employment. On August 30, 1999 -- less than 2 weeks before the end of the Legislature's session -- the bill was revised to amend the Labor Code. The revised bill won Senate and Assembly approval within 3 days.
? Workplace Safety. California's wide-ranging Occupational Safety and Health Act ("Cal-OSHA") has been revised. Among other things, civil and criminal penalties have been increased, and governmental entities no longer are exempt from civil penalties. The amendments also strengthen the enforcement procedures for Cal-OSHA violations and expand the definition of "serious violations" which trigger more stringent enforcement and penalty provisions under the law. In addition, 1997 regulations regarding responsibility for Cal-OSHA violations in multi-employer work sites have been reaffirmed.
? Labor Commissioner Complaints. There is now an expanded, 6-month limitations period for the filing of a complaint with the Labor Commissioner for discharge or discrimination in violation of the Labor Code. The former limitations period was 30 days after the alleged unlawful act.
? Workers' Compensation. Several bills amend the Workers' Compensation Act. Most notably, the maximum penalties for failure to secure workers' compensation insurance have been increased to a $10,000 fine and one year in jail. Insurers are now required to inform employers of all elements of a claim file that affect the employer's premium. Employers who contest billing for medical services rendered by an employee's treating doctor must give written notice within 30 working days' from receipt of the billing.
? Confidential Medical Information. Many employers are still unfamiliar with the Confidentiality of Medical Information Act ("CMIA"), which was enacted in California nearly 20 years ago. The CMIA contains extremely strict provisions against employer use and disclosure of confidential medical information pertaining to employees. One of the limited exceptions to the CMIA applies to records pertaining to workers' compensation claims. However, a new law narrows this exception to exclude HIV-related information, unless the patient claims to have been infected with HIV because of a workplace incident.
? Paid Sick Leave. As reported in our October 1999 Update, newly-enacted "kin-care" legislation obligates employers to permit employees to use up to half of their accrued sick leave to attend to an illness of a child, parent or spouse. The minimum amount of sick leave an employer must allow to be used for kin-care purposes is the amount of sick leave the employee would accrue during six months at his or her then-current rate of sick leave accrual. All conditions and restrictions the employer places on sick leave also shall apply when sick leave is used for these purposes. The law also adds an anti-retaliation provision to protect employees who attempt to use these kin-care benefits.
? Advance Fee Talent Services and Garment Manufacturers. The Labor Code now contains numerous new requirements for contracts of advance fee talent services. In addition, the laws which regulate garment manufacturing in California have been substantially revised. Employers in these industries should contact the Firm for specific details on these new laws.
Monitoring Bill Vetoed. One of the few legislative victories
for employers in 1999 was the veto of SB 1016, which would have restricted
employers' rights to monitor employees' e-mail or other computer records.
In his veto message, Governor Davis explained that the bill was "unnecessary."
Indeed, employers who secretly monitor employees' e-mail or
other computer records already risk potential liability under existing
laws, including the constitutional right to privacy and anti-eavesdropping
statutes. Employers who seek to engage in such monitoring should consult
their contact at the Firm to ensure that they are acting within the
bounds of the law.
? New "Public Policy" Claim. A recent California Court of Appeal decision drastically expands the types of so-called "public policy" wrongful discharge claims which may be brought against California employers. The court ruled that an employer can be sued for a costly "public policy" wrongful termination claim where the company is alleged to have retaliated against an employee who retains a lawyer or other representative to resolve a workplace dispute. If proven, a public policy violation exposes the employer to expensive personal injury-type damages, including emotional distress and punitive damages. The case before the court, Gelini v. Tishgart, involved a lawyer named Kelley Gelini who worked at a small law office in San Francisco. Gelini hired a lawyer to write a letter to her employer complaining about pregnancy discrimination. Soon thereafter, Gelini was fired. A jury concluded that the employer did not commit pregnancy discrimination, but that he did unlawfully retaliate against Gelini because of her lawyer's letter. The employee won a modest $15,000 verdict, which was upheld on appeal. The Gelini decision has extremely broad implications for employers. It now appears that any time an employee enlists the aid of a lawyer or any other "representative" (such as a friend or family member, for example) to complain about even a trivial "term or condition of employment," the employee is protected against retaliation. The employer in the Gelini case plans to ask the state Supreme Court to review this decision. We will keep you informed on further developments in future editions of the Update.
Contracts. A recent California appellate court decision
provides yet another warning that employers who do not implement clear
"at-will" employment policies are vulnerable to "implied contract" claims.
In Binder v. Aetna Life Ins. Co., the state Court of Appeal
ruled that Ian Binder was entitled to go to trial over whether Aetna
had "good cause" to terminate him after 30 years of employment. Aetna
did not have a stated at-will policy, but claimed it terminated Binder
for good cause. According to Aetna, Binder engaged in "unethical conduct"
when he submitted a falsified expense report in order to collect a bonus
he had already earned. However, Aetna's employment manual was silent
on the issue. Since there was no at-will policy statement in the handbook
or elsewhere, the appellate court ruled that a jury would have to decide
whether Binder could be terminated under these circumstances.
? Non-Supervisory Co-Workers Not Personally Liable. In a remarkable pro-employer ruling, the California Supreme Court unanimously ruled that a non-supervisory employee who sexually harasses a co-employee cannot be held personally liable for the sex harassment. Moreover, the employer can only be sued for such co-worker harassment when the employer knew or should have known about the harassment, but failed to take prompt and effective remedial action. (Carrisales v. Department of Corrections) Employers should note, however, that this decision is explicitly limited to harassment committed by non-supervisory co-workers. The state Supreme Court strongly suggested -- without officially deciding -- that individual managers and supervisors can be held personally liable for harassment, and that the employer is strictly liable under California law in such cases.
? Racial Harassment Against Independent Contractors. As discussed above at page 4, AB 1670 now permits independent contractors in California to sue for any type of workplace harassment which violates the FEHA. Meanwhile, the United States Supreme Court recently declined to review a controversial decision by the First Circuit U.S. Court of Appeals which allows independent contractors to sue for racial harassment under federal law. The First Circuit noted that the comprehensive federal job bias law, Title VII, applies only to "employees." However, the plaintiffs in this case relied instead on a post-Civil War era statute which outlaws racial discrimination in the making and enforcement of contracts. In 1991, Congress amended this 125-year-old statute to specifically prohibit racial harassment. Benjamin Guiliani, who brought the lawsuit on behalf of himself and the company he owns, alleged that Wal-Mart employees engaged in several acts of racial harassment. According to Guiliani, one employee spray-painted the words "White Supremacy" near Guiliani's car, while another worker told Guiliani he didn't like "Puerto Ricans" and then assaulted and threatened Guiliani when he replied that he was Mexican-American. A jury found against Wal-Mart and awarded the plaintiffs a total of $650,000. The award was later reduced to $300,000, and was upheld by the First Circuit. The court ruled that federal law allows independent contractors to sue their clients for racial harassment. (Danco, Inc. v. Wal-Mart Stores)
? Federal Damages Cap Evaded. When Congress enacted the 1991 Civil Rights Act, employers were assured that the law set a $300,000 cap on compensatory damages in all federal job bias cases, except those involving race discrimination. However, the Ninth Circuit U.S. Court of Appeals in San Francisco has created a gigantic loophole in this law. The court ruled that the damages cap does not apply to lost future pay and benefits that a sex harassment victim would have earned if she kept working until retirement. The ruling came in a lawsuit filed by Meriola Gotthardt, who claimed she was forced to quit her job with Amtrak because of sex harassment. At trial, Gotthardt was awarded $400,000 in damages for pain and suffering, and an additional $728,000 in lost wages -- including $604,000 in "front pay" from the time of trial to retirement. The Ninth Circuit upheld the entire award. Notably, the damages issue in this case would not have existed under California's job bias law, which places no cap on any type of damages. (Gotthardt v. National R.R. Passenger Corp.)
? Nude Male Photos Not Sex Harassment. Several courts have allowed women to sue for sex harassment in cases where the workplace was littered with pictures of nude females. Recently, however, a federal appellate court in New York rejected the sex harassment claim of a female former employee of the Metropolitan Opera who took offense to sexually suggestive photos of naked men. The court ruled that the pictures, "while arguably offensive," were simply not enough to create a workplace pervaded by "intimidation, ridicule and insult." (Brennan v. Metropolitan Opera Ass'n)
Corrective Action. Our Ninth Circuit U.S. Court of Appeals
has handed a major victory to employers who take all necessary steps
to prevent and remedy sex harassment. In Montero v. AGCO Corp.,
the court upheld the dismissal of a sex harassment lawsuit because the
employer had a written policy against harassment and responded quickly
and effectively when the plaintiff complained about harassment. In this
case, the employer fired one of the alleged harassers and disciplined
two other culprits. The Montero decision is particularly helpful
for employers because the case was decided by summary judgment without
the need for a trial.
? Proof of Discrimination. The United States Supreme Court has agreed to decide a potentially important case concerning how much proof is necessary for a plaintiff to succeed in a job bias lawsuit. The case was brought by Roger Reeves, who claimed he was terminated because of his age (57). Reeves relied primarily on two age-related statements allegedly made by a company manager several months before Reeves was discharged: (1) that Reeves was so old he "must have come over on the Mayflower"; and (2) that Reeves was "too damn old to do the job." A federal court jury found in favor of Reeves on his age bias claim and awarded him nearly $100,000 in damages. However, the Fifth Circuit U.S. Court of Appeals struck down the jury's verdict and ruled in favor of the employer. The Fifth Circuit ruled that Reeves did not have sufficient evidence of age discrimination in this case. The company claimed it terminated Reeves because of his "shoddy record keeping." The Fifth Circuit found that "Reeves failed to offer evidence sufficient to prove both that this reason is untrue and that age is what really triggered Reeves's discharge." The U.S. Supreme Court will now decide whether the Fifth Circuit was correct to throw out the jury's verdict of age discrimination. A decision by the High Court is expected by late June. (Reeves v. Sanderson Plumbing Products)
? Retaliation Claims. In some good news for employers, the California Court of Appeal has limited the types of retaliation claims employees may bring under our state's job bias law. The court ruled that to make out such a claim, the employee must actually suffer an "adverse employment action." While this requirement is easily satisfied if the employee has been terminated or demoted in response to an EEO complaint, it is less clear where the alleged retaliation involves lesser actions. The court ruled that to establish such a claim, the employee will have to show that there was "a materially adverse change in the terms of employment." In making this ruling, the court expressed its apparent frustration with the many bogus claims that are filed over trivial events: "If every minor change in working conditions or trivial action were a materially adverse action then any 'action that an irritable, chip-on-the-shoulder employee did not like would form the basis of a discrimination suit.'" The employee in the case before the court claimed her employer retaliated against her because she complained about race and sex discrimination. However, the employee was never terminated or demoted, but only experienced "one time events, such as a delayed check, an early job change, and failure to receive one overtime check." The court ruled that these incidents were not substantial enough to constitute "adverse employment actions," and threw out her lawsuit. (Thomas v. Department of Corrections)
? Watch What You Eat. According to the Seventh Circuit U.S. Court of Appeals, Wal-Mart took its employee-theft policy a bit too far. The company terminated an African-American employee because he ate a handful of Doritos chips from an open bag left by a co-employee on a lunchroom counter. The plaintiff claimed that Wal-Mart's actual motive was race discrimination. He offered evidence that the company decided not to terminate other employees who committed far more serious misconduct. A lower court rejected the plaintiff's claim, but the Seventh Circuit reversed the judgment and sent the case back for a jury trial. The appellate court analogized Wal-Mart's actions in firing the employee to "swatting a fly with a sledgehammer," and left it for a jury to decide whether the termination should stand. (Stalter v. Wal-Mart Stores)
? Mental Disabilities. The California Supreme Court has agreed to decide a case dealing with the scope of our state's anti-bias protections for persons with "mental disabilities." The California Court of Appeal had adopted an extremely broad definition of who has a "mental disability" in its recent decision in Swenson v. County of Los Angeles. In so doing, the appellate court upheld a $900,000 jury verdict for Stanley Swenson, Jr., a doctor who claimed he was terminated from County/USC Medical Center in Los Angeles because he has "attention deficit disorder." The jury was instructed that our state's job bias law covers any "disabling" mental condition which simply "affects" one or more "major life activities." The Court of Appeal agreed with this jury instruction. Notably, however, a mental condition is not covered under the federal Americans with Disabilities Act unless it "substantially limits" one or more major life activities. The "substantially limits" standard also applies to physical disabilities under both state and federal law. Thus, the Court of Appeal's decision would have made it much easier for plaintiffs to prove they are "mentally disabled" under state law. The state Supreme Court will now decide this question in the Swenson case. In the meantime, California employers need to be especially careful when managing employees with any type of mental condition.
? "Major Life Activities." The Ninth Circuit U.S. Court of Appeals has issued a pair of rulings which considerably expand the list of who is disabled under the ADA. In one particularly controversial decision (McAlindin v. County of San Diego), the court ruled that sleeping, sexual relations and even "interacting with others" are all major life activities. The court thus reinstated the ADA claim of an employee who suffered from anxiety, panic and sleeping disorders. One judge who dissented from this ruling was particularly troubled by the court's suggestion that almost any employee who cannot "get along with others" may now have a viable claim under the ADA. The judge commented: "Not only is this 'disability' vague, but it's bizarre, ominous, and wholly outside of the group of serious disabilities Congress intended to cover with this statute. Does this opinion suggest that a person's foul temperament may no longer be a reason to deny that person a job?" Meanwhile, in Wellington v. Lyon County School Dist., the Ninth Circuit repeated its position that working is a major life activity under the ADA, despite the fact that the U.S. Supreme Court raised serious doubts on this issue in its June 1999 decision in Sutton v. United Airlines Inc. The Ninth Circuit ruled against the employers in the McAlindin and Wellington cases and sent both lawsuits back to the lower courts for trial.
? Job Applicant Not Entitled to Withhold Social Security Number. The Ninth Circuit U.S. Court of Appeals has rejected a creative claim of religious bias by a job applicant who refused to divulge his social security number to his prospective employer. The plaintiff claimed to believe that a social security number is the "Mark of the Beast" prophesied in the New Testament. The court noted that employers are required to obtain social security numbers from all employees. Thus, an employer may refuse to hire an applicant who refuses to reveal his social security number. The court ruled that there is no "religious freedom" exception to this requirement and that the plaintiff's lawsuit was correctly dismissed. (Sutton v. Providence St. Joseph Med. Ctr.)
From Job Bias Laws. A pair of recent job bias decisions
suggest that not all employers are created equal. The United States
Supreme Court has ruled that state governments cannot be sued in federal
court for alleged violations of the federal Age Discrimination in Employment
Act. The High Court stated that the Eleventh Amendment to the U.S. Constitution
makes states immune from such age bias lawsuits in federal court. However,
the decision has no effect on such lawsuits brought under state job
bias laws. (Kimel v. Florida Board of Regents) Several commentators
have predicted that the U.S. Supreme Court would likewise hold state
governments immune from lawsuits for alleged violations of the Americans
with Disabilities Act. In a late-breaking development, the Court has
agreed to hear a case which involves this very issue. A decision is
expected by late June. (Florida Dept. of Corrections v. Dickson)
Conversely, the California Supreme Court has ruled that banks are only
partially immune from state-law job bias claims by bank officers. The
court noted that the federal National Bank Act of 1864 gives banks extremely
broad rights to terminate their officers at-will. Under the court's
ruling, bank officers who are victims of job bias can still sue under
state law, but can only obtain remedies which are available under federal
law. This decision is helpful to banks because federal job bias laws
are more narrow and offer less generous remedies than California's anti-bias
provisions. (Peatros v. Bank of America NT&SA)
? Pre-Dispute Agreements. California's lower appellate courts continue to decide cases involving pre-dispute arbitration agreements, while we await the state Supreme Court's decision on this very issue. In one particularly far-reaching decision, a state appellate court has ruled that employers may terminate or refuse to hire anyone who declines to sign an agreement submitting all future employment disputes to arbitration. (Lagatree v. Luce, Forward, Hamilton & Scripps) Meanwhile, a different appellate court ruled that such pre-dispute arbitration agreements cannot be enforced at all. (Ramirez v. Circuit City Stores) The state Supreme Court recently gave employers reason to be hopeful on this issue, when it ruled that a patient's claim for damages against a healthcare provider was arbitratable and emphasized the "strong public policy in favor of enforcing arbitration agreements." (Broughton v. Cigna Healthplans) Until the Supreme Court decides the Armendariz case, however, the future of pre-dispute arbitration agreements in the employment context remains uncertain.
Limited By Employee's Arbitration Agreement. The Fourth
Circuit U.S. Court of Appeals has attempted to clarify what role the
U.S. Equal Employment Opportunity Commission may play in cases where
an alleged victim of job bias has agreed to submit the dispute to binding
arbitration. The court ruled that the arbitration agreement does not
prevent the EEOC from going to court to obtain an injunction against
future discrimination. However, the EEOC cannot seek money damages on
behalf of the employee, because such relief is available to the employee
in arbitration. (EEOC v. Waffle House, Inc.)
? "Serious Health Conditions." The Ninth Circuit U.S. Court of Appeals recently ruled that an employee who took time off work to help her teenage son move to the Philippines was not protected under either the federal Family and Medical Leave Act ("FMLA") or the California Family Rights Act ("CFRA"). Both of these laws give employees the right to take time off work to care for children who have "serious health conditions." The employee's son in this case suffered from numerous behavioral problems, but was never diagnosed with any mental disorder. A psychiatrist recommended that the employee, who was a native of the Philippines, send her son to live with other relatives in that country so that he could live in a "more wholesome environment." The employee asked the hospital where she worked if she could take a five-week leave of absence to help her son move. The hospital denied the request and terminated the employee when she took the time off anyway. While the Ninth Circuit expressed sympathy for the employee, it found no evidence that her son suffered from any serious health condition. The court also noted that under FMLA regulations, "'caring for' a child with a 'serious health condition' involves some level of participation and ongoing treatment of that condition." However, the employee's son in this case did not receive any "treatment" in the Philippines for his behavior problems. For these reasons, the Ninth Circuit ruled that a lower court correctly dismissed the employee's lawsuit. (Marchischeck v. San Mateo County)
? Measuring Eligibility for Coverage. An employer who terminates an employee for excessive absenteeism may be found to have violated the FMLA if some of the employee's absences were covered by the Act. However, only employees who worked at least 1,250 hours over a 12-month period are eligible for FMLA coverage. The Sixth Circuit U.S. Court of Appeals recently ruled that this 12-month period dates back from the time the employee took FMLA leave, not from the date the employee was terminated for excessive absenteeism. (Butler v. Owens-Brockaway Plastic Products)
Changes to FMLA. Seven years after the FMLA was enacted,
President Clinton and Congress are proposing some modifications to the
law. The President is planning to issue an Executive Order that would
allow states to use their unemployment insurance systems to convert
some FMLA leave from unpaid to paid. Two Democratic-sponsored bills
in Congress would expand FMLA to cover companies with 25 or more employees
(the current minimum is 50 employees) and permit up to 24 weeks per
year of unpaid leave (the current maximum is 12 weeks). Republicans
have opposed these bills and have instead proposed legislation that
would tighten up FMLA's definition of "serious medical condition" and
ease paperwork requirements. We will keep you posted on significant
FMLA legislation developments in future issues of the Update.
? Trade Secrets. California law strongly favors the freedom of employees to move from one company to another, but a narrow exception exists for employees who are privy to a company's trade secrets. The California Court of Appeal recently confirmed that an employer can obtain a court injunction to prevent an ex-employee from working for a competitor where such a move would "inevitably" lead to disclosure of trade secrets. However, the court found that the employer in this case, Electro Optical Industries, was not entitled to prevent Stephen White from working for a competitor. According to the court, the employer did not offer enough evidence to show that it had any trade secrets, let alone that White had knowledge of trade secrets or would "inevitably" disclose them to the competitor. (Electro Optical Industries v. White)
Fired For Rejecting "Non-Compete" Agreement Wins $1.2 Million Verdict.
Most "non-compete" agreements are unlawful under California law. Aetna
Inc. learned this lesson the hard way. A state court jury in San Francisco
recently awarded $1.2 million to Anita Walia, a former account representative
who claimed Aetna fired her because she refused to sign a non-compete
agreement. In 1997, Aetna decided to require its employees nationwide
to sign a contract prohibiting them from working for any competitor
for six months after leaving Aetna. While such agreements are legal
in most states, they usually cannot be enforced in California. Aetna
denied that it ever tried to enforce its non-compete agreements in this
state. However, Walia claimed that Aetna knew it was violating California
law when it discharged her for rejecting the non-compete agreement.
Walia also argued that Aetna violated "public policy" and should be
required to pay personal injury-type damages. The jury agreed and awarded
Walia $180,000 in compensatory damages and $1,080,000 in punitive damages.
Both federal and
California state law prohibit employers from requiring employees to
submit to lie detector tests. A recent decision by the Seventh Circuit
U.S. Court of Appeals illustrates how an employer can run afoul of the
polygraph law by requiring an employee to provide a recorded voice sample.
The plaintiff in this case was accused of leaving a hostile and threatening
(and anonymous) message on a co-employee's voice mail. The company asked
the plaintiff to read a verbatim transcript of the offending message
into a tape recorder. He refused, but offered instead to make a tape
of himself reading a different message. The company rejected the plaintiff's
counter-proposal and fired him. The plaintiff filed suit under the federal
Employee Polygraph Protection Act ("EPPA"). A lower court originally
dismissed the case, but the Seventh Circuit reinstated it. The appellate
court cited evidence that showed the company was going to use the tape
recording with other devices, such as a voice stress analyzer, that
would show whether the plaintiff lied when he denied leaving the threatening
message. Thus, the employer was potentially liable for violating the
EPPA. (Veazey v. Communications & Cable of Chicago, Inc.)
? Cal-OSHA Ergonomics Regulation. The California Court of Appeal has struck down a "small employer" exemption to an ergonomics regulation issued in 1997 by the Cal-OSHA Standards Board. (Pulaski v. California Occupational Safety & Health Standards Board) A state statute passed in 1993 required the Board to issue regulations designed to minimize repetitive motion injuries ("RMIs") in the workplace. The Board decided on its own to exempt all businesses with nine or fewer employees from the regulation, in order to ease the economic burden on such small employers. The Court of Appeal ruled that the Board had no authority to create this exemption, and that all employers -- large and small -- must now comply with the ergonomics regulation.
The Court of Appeal upheld all other portions of the Cal-OSHA ergonomics regulation. Here's a summary of the provisions which will remain in effect and apply to all employers:
The regulation covers any "job, process, or operation" where an RMI has occurred to more than one employee under the following conditions:
(1) the RMIs were predominantly caused by "a repetitive job, process, or operation";
(2) the employees who incurred the RMIs were performing the same repetitive motion task;
(3) the RMIs were musculoskeletal disorders that were identified and diagnosed by a licensed physician; and
(4) the RMIs were reported in the last 12 months, but not before July 3, 1997.
All employers shall establish and implement a program designed to minimize RMIs, consisting of:
(1) a worksite evaluation of jobs, processes or operations of identical work activities for exposures which have caused RMIs;
(2) control of exposures which have caused RMIs; and
(3) training which includes an explanation of the employer's program, exposures associated with RMIs, symptoms and consequences of RMIs, the importance of reporting symptoms and injuries to the employer, and employer methods to minimize RMIs.
? "Flip-Flop" On Home Office Safety Standards. The Labor Department recently shocked and outraged employers by issuing an advisory letter which stated that companies that allow employees to "telecommute" must assume responsibility for safety and health violations in the employees' home offices. Perhaps even more stunning was the Labor Department's abrupt "about-face" on this issue. Just 24 hours after the controversial advisory letter became public, Labor Secretary Alexis Herman rescinded it. For now, at least, Fed-OSHA inspectors are unlikely to descend upon the home offices of the 19 million Americans who telecommute.
The Ballard, Rosenberg & Golper 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. 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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