Dear Clients and Friends of the Firm:

As we enter 1999, alternative dispute resolution remains a much discussed topic. In this Fourth Quarter 1998 issue of the Update, we highlight recent court decisions involving the enforceability and pitfalls of pre-dispute arbitration agreements and arbitration generally. We also include our annual rundown of significant new laws and changes to existing laws that have taken effect as of January 1, 1999. In addition, you will find articles on:

Jury Duty Crackdown
California Supreme Court Docket
Disability Discrimination
Race and National Origin Discrimination
Sex Harassment
Pregnancy Discrimination
Emotional Distress Claims
Labor Relations
Severance Agreements
Family and Medical Leave
Wage and Hour
Cal-OSHA
Bereavement Leave

We expect 1999 to be another busy year on the legislative front. California's newly-elected Governor, Gray Davis, may be more inclined than outgoing Governor Pete Wilson to sign legislation which is favorable to employees and Unions. We will keep you posted on important developments in upcoming issues of the Update.

All of us at the Firm wish you a prosperous New Year.

Richard S. Rosenberg, Editor

California Court Cannot Overturn $1.3 Million Arbitration Award. Arbitration has become an increasingly popular alternative for employers who want to avoid expensive and time-consuming litigation of employment disputes. However, there are also significant risks for employers who pursue arbitration. For example, there is almost no right of appeal of an arbitrator's decision. A recent decision by our California Court of Appeal highlights this dilemma. In Siegel v. Prudential Insurance Co., a former Prudential employee sued the Company in a California state court for wrongful termination and other related claims. Prudential convinced a lower court that the case had to be sent to arbitration based on an arbitration provision in the employment agreement. However, Prudential was less than pleased with the results of the arbitration. A panel of three arbitrators ruled in favor of the ex-employee and awarded him a total of $1,338,016 in damages, including $1 million in punitive damages. Prudential tried to overturn this award in court, but learned the hard way that the employer will be stuck with the arbitrator's award in all but the rarest of circumstances. The lower court refused to disturb the award, and the Court of Appeal upheld this ruling. Under California law, an arbitration award is final and binding on the parties, even in cases where the arbitrators have disregarded the law. Prudential asked the court to ignore this state law and instead follow a federal statute which allows arbitration awards to be reversed where there has been "a manifest disregard of the law." The court rejected Prudential's argument and ruled that California's broad prohibition of review of arbitration awards applies to all cases brought in state court. This case should serve as a cautionary tale for employers considering arbitration. Most employers believe that arbitration is advantageous because arbitrators are less likely than juries to issue excessively high money awards in employment cases. Our research suggests this is true. However, once an arbitration award is issued, it is almost impossible to win a reversal in court. Employers considering the arbitration alternative must carefully weigh this risk.

Job Bias Claims Of Union Employees. In a long-awaited decision, the United States Supreme Court recently ruled that a unionized employee could sue his employer in federal court under the Americans with Disabilities Act, even though his union's collective bargaining agreement ("CBA") contained an arbitration clause. The Court noted that since the CBA's arbitration provision in this case was extremely general, and did not specifically refer to arbitration of employment discrimination claims, there was no "clear and unmistakable" waiver of the employee's right to pursue job bias claims in court. Unfortunately, the Court's decision left many important questions unanswered. For example, the Court did not specify what type of arbitration provision in a CBA would qualify as a "clear and unmistakable" waiver of the right to file a discrimination lawsuit. Nor did the Court say whether a union-negotiated waiver in a CBA would be enforceable at all against individual employees, leaving this important issue for another day. (Wright v. Universal Maritime Service Corp.)

Pre-Dispute Arbitration Agreements. Many employers ask employees to sign agreements committing disputes to arbitration before a dispute even arises. While this may be a good litigation avoidance tactic, there is a growing rift between federal courts and the California state courts over whether such pre-dispute arbitration agreements are enforceable at all. As we reported in the Second Quarter 1998 Update, in its controversial Duffield decision, our federal Ninth Circuit Court of Appeals refused to enforce a pre-dispute arbitration agreement. However, a state Court of Appeal has now rejected Duffield and ruled that pre-dispute arbitration agreements are generally enforceable in California state courts. (Armendariz v. Foundation Health Psychare Services) Yet, the court refused to enforce that portion of the agreement which severely limited the types of damages an employee could recover in arbitration. In another recent decision, the California Court of Appeal upheld a pre-dispute agreement which stated that all employment-related disputes must be sent to arbitration as provided in the employee handbook. (24 Hour Fitness v. Superior Court of Sonoma County) Meanwhile, the Ninth Circuit remains openly hostile to such arbitration agreements. In a startling development, the Ninth Circuit recently went so far as to say that the Federal Arbitration Act -- the law which allows for enforcement of arbitration agreements in federal court -- does not apply at all to labor or employment contracts. (Craft v. Campbell Soup Co.) The Ninth Circuit is virtually alone among federal courts nationwide on this very important issue. It appears that the U.S. Supreme Court eventually will have to address this question. For now, however, it seems as though employers will find it much easier to enforce arbitration agreements in our state courts rather than in federal court.

JURY DUTY CRACKDOWN

A newly-enacted California law is intended to lighten the burdens on employers and employees which result from serving on jury duty. In one of his last acts as Governor, Pete Wilson signed a bill this past Fall titled the "One Day, One Trial" law. This new law provides that by the end of the first day on jury duty, citizens will either be seated on a jury panel or be relieved from service altogether. Every county in the State must take steps to implement the new law no later than January 1, 2000, unless the county can show "good cause" why such a requirement is impractical. Los Angeles County initially indicated it would try to avoid the "One Day, One Trial" law, but the County has since changed its position and now promises to follow the law. (This rule already exists in 21 counties, including Orange, Riverside, San Bernardino, Ventura, Contra Costa and Marin.) While the law should now make jury service less lengthy, the pay for jurors will remain the same. Governor Wilson used his line-item veto to delete a provision in the state's spending bill which would have increased juror pay from $5.00 per day to $10.00 per day after the first day of a trial.

Below, we highlight several new state and federal laws of interest to employers which are effective as of January 1, 1999.

Breast Cancer Patients. Employers that offer health insurance benefits should be aware of new federal and state laws which significantly expand the rights of breast cancer patients. On the federal front, this Fall Congress enacted the Women's Health and Cancer Rights Act of 1998. Under this new federal law, all group health plans, insurance companies and health maintenance organizations ("HMOs") that provide medical and surgical coverage for mastectomies must now also pay for breast reconstructive surgeries. This law applies to group health plans for plan years beginning on or after October 21, 1998, as well as to individual health insurance policies sold or in effect that day. The new coverage must be provided in a manner determined in consultation with breast cancer patients and their attending physicians for: (1) reconstruction of the breast on which the mastectomy was performed; (2) surgery and reconstruction of the other breast to produce a symmetrical appearance; and (3) prostheses and treatment of physical complications at all stages of the mastectomy. This coverage may be subject only to deductibles and coinsurance limitations which are consistent with those established for other health benefits.

The new law also contains strict notice requirements. All group health plans, insurers, HMOs and self-insured employers were given a deadline of January 1, 1999 to furnish participants and beneficiaries with a written description of all benefits required under the new law, along with the information on deductibles and coinsurance limitations. Additional notices must be provided to participants and beneficiaries upon their enrollment in health plans and on an annual basis thereafter. We recommend that all employers verify that these notices were timely given.

In a related development, California has enacted a new law requiring all health plans to allow attending physicians (rather than insurers) to determine the length of a hospital stay for women who have had mastectomies. The California law also provides that health plans must cover the cost of prosthetic devices and reconstructive surgery, including all complications from the surgery.

We recommend that employers consider the advantages of publicizing this important new benefit which will be offered to employees. Such a change no doubt will be viewed favorably and thus will provide an opportunity to favorably affect the labor relations environment. You may call your contact at the Firm for recommended language and a copy of a question/answer sheet about the notice requirements published by the Department of Labor.

Other New Employee Benefit Laws. California also has enacted several other new laws relating to employee benefits. One new law requires health insurers to provide coverage for children born with birth defects or other deformities which are caused by infection, illness, tumors or injury. Coverage is required for surgeries to create a normal appearance, but not for elective cosmetic surgery. Women who are members of health plans now have the right to obtain obstetrical and gynecological services directly from OB-GYNs and family practice doctors, and cannot be required to visit a primary care physician beforehand. Another new state law provides that health plans must cover the cost of pain management for terminally ill patients. Health plans are also now required to ensure that patients receive continuing care if a doctor or other provider who has treated them for acute or serious chronic conditions has been terminated from the plan. In regard to prescription drugs, a new law provides that if a drug has been previously approved for a patient, a health plan cannot limit coverage for the drug. Lastly, to allow consumers to compare health plans, HMOs must present their benefits and exclusions in an easy-to-understand standard format.

Job Bias Based On Genetic Characteristics. California's Fair Employment and Housing Act now includes a section making it unlawful for employers to discriminate against healthy individuals who are predisposed to hereditary diseases based on their genetic characteristics. This new law was prompted by the growing practice by employers to subject employees and job applicants to some of the more than 50 genetic marking tests now available. Some employers reportedly had refused to hire job applicants and even terminated some existing employees based on the results of these tests. Opponents of the law argued that little will be gained under the new provision that was not already provided under the federal Americans with Disabilities Act and analogous state laws.

Surveillance Of Employees. A new provision in California's Labor Code (Section 435) expressly prohibits employers from using audio or video recording devices to eavesdrop on employees in restrooms, locker rooms or other areas where employees change clothes. The only exception to this law is where an employer first obtains a court order authorizing such surveillance.

Employment Applications. California employers are now prohibited from charging a fee or any other consideration for processing employment applications. This law amends Section 450 of the Labor Code, which generally precludes employers from compelling employees or job applicants to make purchases from the employer or any other person.

Domestic Violence. Employees who are forced to quit their employment to protect themselves or their children against domestic violence can now collect unemployment insurance.

Workers' Compensation. Acupuncture has been added to the list of available treatments and services for employees who are injured on the job.

Motion Picture Employees. An employer who lays off an employee engaged in the production of motion pictures whose wages require special computation gets a break in terms of when the final paycheck must be given. An employer in this situation is deemed to have made immediate payment of the wages if they are paid by the next regular payday following the layoff. If an employee is discharged, wages must be paid within 24 hours of the discharge.

Employment Of Infants. A new law makes it a misdemeanor for motion picture employers to employ infants under the age of one month, unless a board-certified pediatrician provides written certification that the infant is at least 15 days old and satisfies certain health requirements.

E-Mail. The police are now allowed to issue search and arrest warrants via electronic mail.

Supplying Alcohol To Minors. A new law increases the risks associated with alcohol consumption at company sponsored events. Employers who employ minors must be aware of this new requirement, especially where alcohol is consumed at company picnics and the like. Under this new law, adults who supply alcohol to minors may be punished by a minimum of six months in jail or a $1,000 fine, or both, if the drinking results in significant injuries or death.

Ride Sharing. Companies in Southern California with fewer than 250 employees are now permanently exempted from ride sharing regulations intended to improve air quality.

Tinted Windshields. There is good news for transportation companies, hospitality employers who provide van service and other employers that provide vehicles for employees. California motorists can now legally install federally-approved tinted material on car windshields to block ultraviolet rays from the sun.

Restaurants. Our hospitality clients will be glad to know that California has rescinded health regulations which prohibited restaurants from using raw eggs in their Caesar salad dressing. A new law permits the use of uncooked eggs in the dressing if restaurant servers or menus give warnings to customers and customers are notified of their right to request a dressing without raw eggs.

Credit Reports. Credit reporting agencies are now required to verify credit reports which indicate that the consumer faces criminal charges or has a tax lien, pending civil action or a civil judgment. Moreover, if the consumer believes the information provided in the report is inaccurate, or if the consumer is unemployed, the agency must provide the report to the consumer free of charge. Violations of the law now entitle the consumer to $2,500, rather than the previous $300.

Punitive Damages Against Corporate Employers. The prospect of a runaway jury issuing an astronomical punitive damage award in wrongful termination and discrimination litigation often pressures employers into settling such cases. Under a provision of the California Civil Code, a corporation cannot be liable for punitive damages unless one of its officers, directors or "managing agents" has engaged in certain types of wrongful conduct. The California Supreme Court has agreed to review two cases in which punitive damages were awarded against corporate employers accused of wrongful termination. The Supreme Court is expected to clarify which supervisory employees qualify as "managing agents" for purposes of imposing punitive damages under state law. We will report to you on these very important cases when they are decided. (White v. Ultramar Inc.; Maxwell v. Beverly Enterprises-California)

Co-Employee And Supervisory Liability For Sexual Harassment. The state Supreme Court has granted review in Carrisales v. Department of Corrections to clarify the important issue of when a supervisor can be personally liable for sexual harassment. As we reported in the Third Quarter 1998 Update, the Court of Appeal in Carrisales ruled that a non-supervisory employee who engages in sexual harassment of a co-worker cannot be held personally liable under our state's job bias law. The court also decided that a supervisor who did not personally participate in or otherwise aid in the sexual harassment, but simply failed to take prompt and effective action to remedy the harassment, cannot be held personally liable. The Supreme Court, in a case reported earlier this year (Reno v. Baird), indicated that a supervisor who personally engages in sexual harassment can be found liable under the state job bias law. We expect the Supreme Court to decide some or all of these questions in the Carrisales case.

Reductions In Force. In a late-breaking development, our state Supreme Court has recently agreed to review a wrongful termination case which arose after a reduction in force. In Soliz v. Great Western Bank, the Court of Appeal ruled that a workforce reduction which is based on legitimate business considerations qualifies as "good cause" to terminate employees. The appellate court emphasized that it is not necessary for an employer in such cases to show that the employee was a poor performer, and noted that even hard-working and well-qualified employees may be laid off for "good cause." On the other hand, the Court of Appeal noted that if the employer's stated reasons for terminating the employee are false and pretextual, a wrongful termination lawsuit may be brought. The Supreme Court announced that it would hold off making any decision in the Soliz case until after it has decided another pending case, Guz v. Bechtel National (reported in our Third/Fourth Quarter 1997 Update). The Guz case also involved a wrongful termination lawsuit based on a workforce reduction, and further addressed the question of how an implied contract requiring "good cause" for termination may be created. We are hopeful that the Supreme Court will publish a decision in one or both of these cases some time in 1999.

Disability Benefits Applications. When a person applying for Social Security Disability Insurance benefits represents to the federal government that he is disabled, should this representation bar a later suit under the Americans with Disabilities Act ("ADA")? The United States Supreme Court has agreed to decide a a case which involves this issue. In the case before the court, an employee claimed to be "totally disabled" and unable to work on an application for Social Security disability benefits. He also claimed in a federal lawsuit that he was covered under the ADA because he was a "qualified individual with a disability" and able to perform the essential functions of his job. The Fifth Circuit U.S. Court of Appeals in this case ruled that the plaintiff's ADA claim was barred by the representations of total disability in a Social Security benefit application. Other courts have reached the opposite result. A decision from the Supreme Court is expected by June 1999. (Cleveland v. Policy Management Systems Corp.)

Reasonable Accommodations. One of the most complex and confusing issues in ADA cases is what an employer must do to satisfy its duty to "reasonably accommodate" its disabled employees. Employers recently received good news on this front from an unlikely source -- our Ninth Circuit U.S. Court of Appeals. The court 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 plaintiff in this case argued that it was the employer's duty under the ADA to initiate an "interactive process" with the employee to determine how to reasonably accommodate the employee's disability. While the court encouraged employers to engage in interactive processes, it stopped short of requiring employers to do so. The court also rejected the plaintiff's argument that the ADA requires employers to accommodate disabled employees by exempting them from a seniority system which applies to all other employees. (Barnett v. U.S. Air) Note that this decision is contrary to a case decided last year by the California Court of Appeal under our state Fair Employment and Housing Act. (Prilliman v. United Airlines)

Leaves Of Absence. A recent decision by the U.S. Court of Appeals for the Sixth Circuit suggests that employers may be required to accommodate their disabled employees by providing extended unpaid leaves of absence. The plaintiff in this case suffered from severe chronic psoriasis. The employer's leave policy allowed employees to take 90 days of unpaid leave and then apply for a 90-day extension. The plaintiff took a 90-day leave under this policy. She later gave the company medical documentation stating she would be unable to return to work at the end of her leave, but she never formally applied for an extension of her leave and the Company did not send her an extension form. The Company terminated the plaintiff for failing to complete the required forms to extend her leave of absence. The plaintiff sued for violation of the ADA. A lower court dismissed the case, but the Sixth Circuit reversed this ruling and ordered the case to trial. The court explained that a dispute existed as to whether giving the plaintiff an extended leave of absence would have been a reasonable accommodation under ADA, or whether it would have posed an undue hardship on the Company. (Cehrs v. Northeast Ohio Alzheimer's Research Center)

Disabled Employees Under Medication. When an employee takes medication to control the effects of a medical condition, must the fact that the medication is needed be considered in determining whether the employee is "disabled" for purposes of the ADA? Not necessarily, according to the Fifth Circuit U.S. Court of Appeals. The court upheld the ADA claim of a plaintiff who was diagnosed with Adult Stills Disease, a severe degenerative rheumatoid condition affecting his bones and joints. The plaintiff must take medication every day to control the effects of the disease. Otherwise, the disease would leave him bedridden and unable to work. The plaintiff saw his workload increase to 60-80 hours per week. He suffered a collapse on the job, after which his doctor asked that he be limited to 50 hours per week. The employer refused the request and eventually laid off the plaintiff. The court ruled that because of the severity of the plaintiff's condition and the requirement that he take medication on a daily basis, the medication should not be considered in determining whether he is "disabled" under the ADA. The court noted that the result would be the same for conditions such as diabetes and epilepsy, but that other conditions must be evaluated on a case-by-case basis, depending on the nature of the impairment and the mitigating measures used by the individual. (Washington v. HCA Health Services of Texas)

Drug Testing. The Second Circuit U.S. Court of Appeals has rejected the ADA claim of a recovering drug addict who failed to submit to random urinalysis tests as mandated by his employer. The Company required all of its employees to submit to drug and alcohol urine tests, but substance abusers such as the plaintiff had to provide samples much more frequently -- once every 25 days. In order to ensure accuracy, the Company required employees to provide urine specimens while under observation and, occasionally, while naked. This was a major problem for the plaintiff. He claimed he suffered from a bladder condition which made it difficult for him to urinate in public or on command. When he failed to provide a urine sample within the allotted time, he was terminated. The plaintiff sued under the ADA. He conceded his bladder condition was not a disability, but argued that the employer discriminated against him under the ADA on the basis of his being a "recovering-substance-abuser" and that it was unreasonable for the Company to use urine drug tests (as opposed to blood tests). The Second Circuit disagreed and dismissed the case. (Buckley v. Consolidated Edison Co. of New York)

Menopause. A federal judge in Minneapolis has dismissed a lawsuit brought under the ADA by a female employee who was in early menopause. The plaintiff told her manager about her menopause and also disclosed that she suffered from arthritis and was undergoing therapy for depression. However, the plaintiff did not give any specific details about her condition and never asked for any accommodation. The court stated there was no medical evidence that the plaintiff was substantially limited in her ability to work or any other significant life activity. Instead, the plaintiff was able to work without restrictions, and her supervisor did not consider her unable to work. For these reasons, the court ruled that the plaintiff was not protected under the ADA. (McGraw v. Sears, Roebuck & Co.)

Motorcycle Helmet Law. California's Attorney General Office has just issued an opinion letter of interest to employers in industries that use motorcycles. According to the Attorney General, disabled persons are not exempt from our state's mandatory motorcycle helmet law. A member of the state Assembly asked the Attorney General for an opinion as to whether disabled employees who are required to operate motorcycles as part of their jobs must comply with the helmet law. The Attorney General's opinion noted that some persons suffer from medical conditions which make the wearing of safety helmets a physical and functional hazard. Despite these considerations, the Attorney General concluded that the helmet law applies to all persons who operate motorcycles, including disabled persons.

Indian Tribal Affiliation. Courts usually apply a broad interpretation to the terms "race" and "national origin" when considering what types of groups are entitled to protection under job bias laws. In a recent example of this approach, our Ninth Circuit U.S. Court of Appeals has ruled that federal law prohibits employment discrimination based on a Native American individual's particular tribal affiliation. The plaintiff in this case claimed he was denied employment by an Arizona company because he is a member of the Hopi Indian tribe rather than the Navajo Nation. Under an agreement with the Navajo Nation, the Company was allowed to operate a generating station on Navajo land in exchange for Navajo tribe members being given employment preferences. The plaintiff argued that these preferences for Navajo Indians constitute national origin discrimination in violation of the federal job bias law, Title VII. The Ninth Circuit agreed and allowed the lawsuit to proceed. The court noted that in an earlier case, it ruled that a Serbian employee could sue for national origin discrimination even though the nation of Serbia was extinct at the time. Likewise, each of the different Indian tribes located in this country were once considered to be separate nations independent from the United States. The court also stated that this case does not involve a little-known exception to Title VII which allows employers to give preferential treatment to Native Americans under very limited circumstances. Instead, the court found that this provision does not permit employers to discriminate between various Native American tribes. (Dawavendewa v. Salt River Project Agricultural Improvement & Power Dist.)

Job Bias Claims Of Caucasian Employees. As most employers already know, state and federal law prohibit employment discrimination against any person based on race. In one recent case, however, Wal-Mart argued that a Caucasian employee was not protected by the laws against race bias. The Fifth Circuit U.S. Court of Appeals rejected this claim in no uncertain terms. The court upheld a jury verdict in favor of a woman who claimed her manager terminated her because she is Caucasian and because she dated an African-American male co-employee. The manager made a remark to the plaintiff which suggested that the Company did not approve of interracial dating. The court ruled that the Company could be held responsible for the manager's racially-motivated termination decision. (Deffenbaugh-Williams v. Wal-Mart Stores Inc.) In another case, a New York federal judge has allowed a Caucasian employee to proceed on her claim that she was subjected to racial harassment and discrimination by her African-American co-employees. The court noted that "in a majority-nonwhite office in a majority-nonwhite city in an increasingly diverse country, it is not clear that whites are a majority that we should doubt face racial discrimination." (Cully v. Milliman & Robertson Inc.)

Racial Harassment. A single drawing of a monkey prompted a lawsuit for race harassment which went all the way to the Ninth Circuit U.S. Court of Appeals before finally being dismissed. The plaintiff, Eric Gregory, is an African-American who worked as a technician in the Alaska Air National Guard. His claim of race harassment was based on a memorandum circulated to senior officers which included a drawing of a monkey. The memorandum stated that it was intended as a reminder for officers to "get the monkeys off their back" and avoid passing their job duties to others. The Ninth Circuit found that in this context, the drawing of the monkey was not enough evidence to support a claim of race harassment or discrimination. (Gregory v. Widnall)

Use of "Testers". In a 1993 issue of the Update, we reported on the use of so-called "testers" to combat race bias in hiring. Testers are persons who apply for jobs but, in reality, are trained professionals who hope to uncover discriminatory hiring practices. Critics of the practice have long argued that testers have no "standing" to sue an employer for job discrimination, since they were not really looking for work and could not have been harmed by actions that frustrated their fictitious job search. In a recent case, an Illinois federal judge agreed with this argument and dismissed a job bias lawsuit brought by testers. A legal assistance organization directed four people -- two Caucasian and two African-American -- to respond to a job advertisement. The organization prepared resumes for the "applicants" which were meant to show that the African-American testers were better qualified than their Caucasian counterparts. However, the African-Americans were eliminated early in the selection process while the Caucasian testers were offered jobs. The African-American testers filed a lawsuit for race discrimination in federal court. The judge dismissed the case, however, and found that the testers suffered no injury since they had no intention of taking the positions in the first place. It remains to be seen whether other courts will follow this ruling. Of course, the best way for employers to avoid such lawsuits in the first place is to ensure that hiring practices are lawful and consistent with applicable EEO standards. (Kyles v. J.K. Guardian Security Services Inc.)

Importance Of Anti-Harassment Policies And Training. The U.S. Supreme Court's rulings this past June in two sex harassment cases demonstrated the need for employers to implement and enforce strong anti-harassment policies in the workplace, and to provide sex harassment training to all employees. (Burlington Industries v. Ellerth; Faragher v. Boca Raton) Several lower courts have begun to apply the Burlington Industries and Faragher decisions. California employers may take some small comfort in one recent ruling by a federal district judge who dismissed a sex harassment lawsuit because the plaintiff failed to follow the Company's sex harassment policy and complaint procedure. The plaintiff, a female, claimed that two of her male supervisors and a co-employee subjected her to offensive and unwanted verbal and physical sexual behavior. However, she waited two years before finally complaining to a human resources manger. The Company reacted swiftly by investigating the plaintiff's complaint and taking strong disciplinary action, including termination of one of the harassing supervisors. The Company also warned all employees that it would not tolerate any retaliation against the plaintiff. Apparently, however, this was not enough for the plaintiff. She quit her job and sued for sex harassment under federal and state law. In dismissing the lawsuit, the judge found that the Company took reasonable measures to prevent and remedy sex harassment, and that the plaintiff unreasonably failed to take advantage of the Company's complaint procedure. (Montero v. AGCO Corp.) It is unclear whether California state courts will follow this ruling, since previous California cases have found employers "strictly liable" for sex harassment committed by supervisors. However, employers will certainly be in a better position to defend against such lawsuits by implementing and enforcing policies against sex harassment and by training employees on how to avoid harassment.

Investigations Of Harassment Claims. Many employers decide to consult legal counsel in the course of investigating sex harassment claims, or to retain counsel to conduct the entire investigation. One question which often arises is whether these communications are protected by the attorney-client privilege. A California appellate court recently offered some guidance on this issue. The court ruled that where a sex harassment investigation is conducted by a company's human resources manager, confidential communications between the manager and legal counsel may be protected by the attorney-client privilege. However, the privilege may be waived or lost if a large portion of the communications are disclosed to outside third parties. (Kaiser Foundation Hospitals v. Superior Court) We strongly recommend that clients consult your contact at the Firm for guidance before undertaking this kind of sensitive investigation.

Female Attorney Wins $1.4 Million Jury Award. A recent trial in an Illinois federal court once again shows just how lucrative sex harassment lawsuits can be. The jury in this case awarded $1.4 million to a female attorney who claimed that the senior partner at her former law firm sexually harassed her and sexually assaulted her on two occasions. The plaintiff, Roxanne Rochester, claimed that the senior partner began harassing her soon after she was hired as an associate attorney. The senior partner allegedly committed two sexual assaults against Rochester, one in his office and the other in a downtown condominium. The harassment did not stop until Rochester complained to other partners and threatened to call the police. Even then, Rochester claimed her career was derailed. The firm had viewed Rochester as a potential partner, but started giving her negative performance reviews after she complained about the harassment. Rochester alleged that she was eventually forced to quit her job. The jury found the law firm and the partner liable for sexual harassment, retaliation and constructive termination. More than half of the $1.4 million award was assessed against the partner individually, while the firm was held responsible for the remainder. (Rochester v. Fishman)

Punitive Damages. Employers who respond to job bias claims by attempting to falsify and cover up evidence may be subjected to a large punitive damage award, according to our Ninth Circuit Court of Appeals. The case was brought by the U.S. Equal Employment Opportunity Commission on behalf of Jenny Stein, who was rejected for a job opening at a job at a Wal-Mart store in Arizona. During her initial interview, Stein informed a human resources manager that she was pregnant, and was told she would be "great" for the job. Later, however, an assistant manager told Stein she was being rejected "because of conditions of [her] pregnancy" but that she was welcome to reapply after she had the baby. Wal-Mart took the case to trial and attempted to tell a very different story than Stein's version. Wal-Mart contended that Stein's pregnancy was not discussed in the initial interview, and that Stein herself told the assistant manager she was concerned about being able to perform lifting functions of her job. The assistant manager testified that she wrote notes on an "Interview Comment Sheet" form. However, the human resources manager testified that the form was blank when she received it, and Wal-Mart failed to produce the document at all. Wal-Mart told yet another story to the EEOC, claiming that Stein was rejected because she could only work two days per week. Yet, Stein's job application did not contain any such statement. The jury found that Wal-Mart was guilty of pregnancy discrimination. However, the trial judge did not allow the jury to consider awarding punitive damages against Wal-Mart. The Ninth Circuit reversed this decision and found that Wal-Mart's deceptive actions were sufficiently outrageous to allow the jury to decide whether to award punitive damages. (EEOC v. Wal-Mart)

Diagnostic Hysterectomy. California's job bias law prohibits discrimination based on medical conditions "related to" pregnancy. Recently, a state Court of Appeal ruled that a diagnostic hysterectomy was not the type of medical condition covered by this provision. The case involved an employee named Julie Williams who was a part-time cashier for MacFrugal's. Williams was denied a leave of absence for a diagnostic hysterectomy and was subsequently terminated after the surgery because she lacked the necessary hours to qualify for medical leave. Williams sued the Company and argued that every medical condition involving a woman's reproductive organs is covered under the Fair Employment and Housing Act. The Court of Appeal, however, read the law more narrowly. According to the court, there must be a direct link between a medical condition and an employee's pregnancy in order for the law to apply. In this case, Williams did not claim that she was pregnant or even intended to have a pregnancy. For this reason, the court found that her hysterectomy was not protected under the law. Despite the result in this case, it is not always clear whether an employee's medical condition is related to pregnancy or is entitled to protection under some other provision in the job bias laws. Employers should exercise extreme caution when faced with such issues. (Williams v. MacFrugal's Bargains Close-Outs Inc.)

Lawsuit On Behalf Of Infant Child. In an unusual twist, a Michigan woman named Lisa Burchett filed an employment lawsuit on behalf of herself and her infant son. Burchett claimed that while she was pregnant, her employer subjected her to unlawful job bias and retaliation. Burchett's son was born prematurely, and Burchett alleged that this was a result of the employer's conduct. A Michigan court allowed Burchett's own claims to proceed, but dismissed the claims filed on behalf of the baby boy. The court ruled that Michigan's job bias and whistleblower statutes only protect employees, not their unborn children. According to the court, the child's only remedy would be a negligence claim for fetal injury. (Burchett v. Rx Optical)

Plaintiffs in job bias and wrongful termination lawsuits frequently seek large monetary awards for emotional distress damages. In defending these cases, employers often try to have the plaintiff submit to a psychiatric evaluation to determine how much emotional damage, if any, the plaintiff has suffered. Some judges have refused to permit such examinations because the plaintiff's mental condition was not really "in controversy." In a recent decision, a California federal judge has specified some of the requirements which may need to be satisfied before a mental examination can be compelled. The judge ruled that an examination is proper if the plaintiff claims to have suffered a specific mental or psychiatric injury or particularly severe emotional distress, or if the plaintiff plans to offer expert testimony to support an emotional distress claim. However, the judge stated that merely including a request for emotional distress damages is not enough to justify a psychiatric examination of the plaintiff. (Ford v. Contra Costa County)

The U.S. Supreme Court's landmark decision in the 1988 Beck case states that employees have the right to decline Union membership and to avoid paying the portion of Union dues which is not spent on activities directly related to collective bargaining. More recently, the Seventh Circuit U.S. Court of Appeals has gone further and ruled that unions have a duty to actually inform employees of their rights under Beck. The court also held that unions must give employees sufficient information and notify them of union procedures for objecting to paying for union activities which do not pertain to collective bargaining. In the case before the court, a Union induced a Chicago employer to discharge three employees because they failed to pay their Union dues. The Union had never notified the employees of their Beck rights. The court upheld a decision by the National Labor Relations Board which found that the Union's conduct violated federal labor law. (Production Workers Union v. NLRB)

Employers entering into severance agreements with older workers (over the age of 40) must comply with the technical requirements of the federal Older Workers' Benefit Protection Act ("OWBPA") for the release to be effective as a bar to a later filed age bias claim. If the severance agreement does not satisfy all OWBPA requirements, the former employee may sue the employer for age discrimination. A recent case from the Second Circuit U.S. Court of Appeals illustrates the consequences to employers who do not follow OWBPA. The plaintiff was a college professor who filed an age bias complaint with the EEOC after being told he no longer had "tenure" with the college. The professor later agreed to sign a non-renewable employment contract in exchange for withdrawing his EEOC complaint and releasing the college from any claims for age bias. However, this severance agreement did not contain all of the technical language required under the OWBPA. The professor accepted benefits throughout the remainder of his employment under the agreement. He then turned around and sued the college for age discrimination. The Second Circuit allowed the lawsuit to proceed and found that the severance agreement was invalid under the OWBPA. The court did not require the professor to give back any of the benefits he had received under the agreement. In addition, the court invalidated the portion of the agreement which provided for the professor's termination of employment. This had the effect of preventing the college from relying on a statute of limitations defense to the lawsuit, because the agreement did not provide the professor with valid notice of his termination. The professor now may seek to be reinstated to his job, or to recover "front pay" from the college as an alternative remedy. (Hodge v. New York College of Podiatric Medicine)

Individual Manager Liability. Many job bias laws only allow lawsuits against employers, and protect individual managers from liability. Unfortunately, several federal district courts have found that the federal Family and Medical Leave Act ("FMLA") is not one of them. A federal judge in Orange County, California recently followed this trend and refused to dismiss an individual manager from an FMLA lawsuit. (Mercer v. Bordan) Such decisions create an ironic result. The FMLA has a "small employer" exception which protects companies with less than 50 employees from being sued under the FMLA. Yet, individual managers are being subjected to costly lawsuits under this very same law. Employers and managers can only hope for better rulings from the appellate courts, which have yet to address the question of individual liability under the FMLA.

WAGE AND HOUR

I-9 Audits. Employers must be mindful that undocumented aliens are protected under most labor and employment laws. Under a work sharing arrangement between the Immigration and Naturalization Service ("INS") and the U.S. Department of Labor ("DOL"), DOL investigators have conducted I-9 audits as part of their routine wage/hour compliance audits. Some immigrants' rights advocates complained that this arrangement discouraged illegal aliens from filing wage complaints out of a fear of being deported. The federal government has recently devised a new enforcement arrangement to encourage illegal immigrants to file complaints about labor abuses without fear of deportation. Under the new arrangement, DOL inspectors no longer will review I-9 forms when an employee initiates a complaint about alleged labor abuses. Instead, from now on, I-9 forms will be reviewed only when the DOL initiates an investigation of possible violations.

Retaliation Claims. Federal law prohibits retaliation against employees who file formal wage/hour claims under the federal Fair Labor Standards Act ("FLSA") or cause any FLSA-related proceeding to be started. In a lawsuit filed by an employee in the State of Washington, the Ninth Circuit recently ruled that this anti-retaliation provision does not protect employees who raise informal complaints with their employers about overtime violations. However, the court ruled that Washington state law does prohibit retaliation for such informal complaints. (Lambert v. Ackerly) California courts have likewise found that our state's wage/hour laws and regulations prohibit retaliation against employees who make informal allegations of unlawful practices to employers. In addition, employees who file "public policy" wrongful termination lawsuits based on such complaints may be entitled to recover lucrative personal injury damages and even punitive damages.

CAL-OSHA

California's Occupational Safety and Health Act ("Cal-OSHA") contains an exemption for individuals who perform "household domestic services." These employees are not covered by the law's safety requirements. The California Court of Appeal recently ruled that residential landscape maintenance employees also fall within this exemption from Cal-OSHA. The case involved an employee who provided landscape maintenance services to the defendants for over 10 years. While attempting to cut a tree branch, the employee fell to the ground and injured his back. The court noted that Cal-OSHA excludes from coverage "household occupations," which include services relating to maintenance of a private home or its premises, such as gardening. (Rosas v. Dishong)

A recent Illinois case shows that heterosexual employees may take advantage of the same laws which prohibit discrimination against gays and lesbians. The plaintiff in this case is a Chicago police officer who was engaged to be married. He claimed he was disciplined for taking sick leave to mourn the death of his fiancee's father. The plaintiff argued that he was denied his right to equal protection under the United States Constitution, because the police force allowed married heterosexual employees and unmarried homosexual employees to take bereavement leave to mourn the deaths of their "in-laws." A federal judge refused the City's request to dismiss the case. The judge noted that the City did not provide any rational basis for giving unfavorable treatment to unmarried heterosexual employees who seek bereavement leave. (Cleaves v. Chicago) Although private employers are not covered by the federal Constitution, California law prohibits all job bias based on sexual orientation. As this case shows, heterosexuals subjected to "reverse" discrimination are entitled to protection under these laws.

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 1998, Ballard, Rosenberg & Golper. All rights reserved. Additional copies of this publication are available upon request.

Editorial Staff: Richard S. Rosenberg, John J. Manier, Tali H. Shaddow, Erin N. Medina and Sandra A. Marciari.