October 1, 1999

Dear Clients and Friends of the Firm:

Our lead story is the return of mandatory daily overtime pay for eight million California workers. Governor Gray Davis recently signed into law AB 60, a bill which will restore daily overtime for most employees. Other bills signed into law by the Governor will change the way private sick leave policies are administered and greatly expand the reach of our state laws against age bias and sexual orientation discrimination. These new laws take effect January 1, 2000. Another bill which was still awaiting final action from the Governor as we went to press would restrict employers' rights to monitor employees' e-mail and other computer records. In this issue of the Update, we also discuss recent landmark rulings by the United States and California Supreme Courts on disability discrimination, workplace harassment and punitive damages, as well as a recent opinion letter by the Federal Trade Commission dealing with how sexual harassment investigations could fall under the Fair Credit Reporting Act. In addition, you will find articles on the following topics:

• ?Family and Medical Leave
• ?Employee Benefits
• ?Arbitration
• ?E-Mail Abuse
• ?Labor Relations
• ?Recruitment Nightmare
• ?Wage-Hour
• ?EDD Notices
• ?Firing Is Stressful

Best wishes for an enjoyable and productive Fall.

Richard S. Rosenberg, Editor

Nearly two years ago, the California Industrial Welfare Commission ("IWC") scuttled our state's daily overtime requirement for a large segment of the work force. Democratic candidate Gray Davis made the restoration of daily overtime a campaign priority. Fulfilling his campaign promise, Governor Davis recently signed into law "The Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999" (AB 60), which takes effect on January 1, 2000. AB 60 is even more pro-employee than the daily overtime regulations which the IWC abolished. Moreover, this time it looks like daily overtime is here to stay, because the new law prevents the IWC from backtracking again on the daily overtime requirement.

AB 60 reinstates the requirement of paying daily overtime premiums after eight hours work in a single day to the approximately eight million California employees who lost the benefit two years ago. AB 60 also makes several other sweeping changes to California's wage-hour laws. Among other things, AB 60 nullifies many existing alternative workweek arrangements, dramatically increases the salary threshold required for overtime exemptions, adds new record keeping requirements and increased penalties, and restores the strict meal period requirements which were in place prior to 1998.

AB 60 changes the rules on: (1) which employees are entitled to overtime pay; (2) when overtime pay must be paid; (3) whether compensatory time off may be given in lieu of daily overtime; and (4) how an employer determines the applicable rate of pay when the employee is paid a salary. With the passage of AB 60, compliance with the new overtime pay rules is mandatory unless the employee in question is "exempt" from the requirements.

? Who Is Covered. AB 60 will apply to most California employers, including companies which are based out-of-state but who have employees in California. The Act specifically restores daily overtime to employers whose operations are classified under one of the five California Wage Orders which were modified by the IWC on January 1, 1998. Thus, beginning January 1, 2000, employers who are classified under Wage Order 1 (Manufacturing Industry); Wage Order  4 (Professional, Technical, Clerical, Mechanical, and Similar Occupations); Wage Order 5 (Public Housekeeping Industry); Wage Order 7 (Mercantile Industry); and Wage Order 9 (Transportation Industry) must pay daily overtime.

AB 60 specifically excludes the following employers from the new daily overtime requirements until July 1, 2000, or possibly later: licensed hospitals; ski establishments; stable employees in the horse racing industry; and the commercial fishing industry.

? When Overtime Is Paid. Currently, employers covered by Wage Orders 1, 4, 5, 7 and 9 are required to compensate every "non-exempt" employee for all hours worked in excess of 40 hours in any work week. Overtime is to be paid at the rate of one and one-half (1?) times the employee's "regular rate" of pay, or "time-and-a-half." If the employee in question is salaried and not exempt from overtime requirements, the overtime pay rate is determined by dividing the salary by no more than 40 hours.

Under AB 60, effective January 1, 2000, these California employers will additionally be required to pay daily overtime at time-and-a-half for all hours worked over eight in a day. This requirement also applies to the first eight hours worked by employees on the seventh consecutive work day in the workweek. In addition, the new law reinstates the state's double-time pay requirement for all hours worked in excess of 12 per day or after eight hours on the seventh consecutive day.

? "Alternative Work Schedules" Limited. AB 60 will have a significant impact on alternative work schedules. When the IWC eliminated the daily overtime rules in 1998 for employers covered under Wage Orders 1, 4, 5, 7 and 9, many employers adopted alternative work schedules consisting of longer days (sometimes up to 12 hours in a day) to accommodate work flow and employee convenience. AB 60 makes all of these new alternative workweek schedules "null and void" unless the employer had followed the paperwork and voting regulations in place prior to the IWC's 1998 amendments. Those regulations called for specified written notice, a two-thirds vote of affected employees in a secret ballot election, and notice to the Labor Commissioner of the alternative schedule.

AB 60 allows employers to adopt an alternative workweek schedule only if the schedule does not call for more than 40 hours per week or 10 hours per day. Two-thirds of the employees must approve the plan pursuant to a secret ballot election and notice of the new schedule must be given to the Labor Commissioner's office. A "grandfather clause" in AB 60 permits employees who were voluntarily working an alternative workweek schedule of up to 10 hours per day as of July 1, 1999, to continue on such a schedule if the employee asks to do so in writing and the employer approves. The new law also requires employers to "make a reasonable effort" to allow employees who do not wish to work the alternative schedule to work an eight hour shift. Notably, there is no similar accommodation requirement for employees hired after an alternative schedule is in place.

? "Comp Time" Rules Changed. "Comp time" is when an employer allows employees to take time off without a reduction in pay in exchange for working an equivalent number of hours at some other time. AB 60 changes many of the rules which apply to comp time. Under the new law, compensatory time off in lieu of daily overtime is allowed only under the following guidelines: (1) the make up time and the lost time must be in the same work week; (2) the time off is due to "personal obligations of the employee" (and not the employer's work demands); and (3) the request is entirely voluntary. The hours "made up" will not count for daily overtime purposes so long as working the extra hours does not cause the employee to work in excess of 11 hours in a single work day. Furthermore, employers are prohibited from initiating the request for comp time. In an effort to ensure that employees' requests for comp time are entirely voluntary, AB 60 requires employees to put each request for comp time in writing. Employers are prohibited from soliciting or encouraging an employee to make such a request.

? Meal Periods. AB 60 restores the strict meal period requirements which were in place prior to the IWC's wage order amendments of 1998. Under AB 60, all employees who work more than five hours per day are entitled to one meal period of 30 minutes or more, and all employees who work more than 10 hours per day are entitled to a second meal period of 30 minutes or more. Employees' rights to meal periods under AB 60 are non-waivable, except that: (1) employees who work six hours or less may waive their right to the first meal period; and (2) employees who work 12 hours or less may waive their right to a second meal period, but only if there was no waiver of the first meal period. These limited waivers require the "mutual consent" of the employer and employee, although AB 60 does not expressly require such consent to be in writing. AB 60 thus eliminates the provisions in the 1998 amendments which permitted all employees to execute written waivers of their meal periods, regardless of the number of hours worked per day. Notably, however, AB 60 is silent on the issue of "on duty" meal periods. Both before and after the 1998 wage order amendments, employers could require employees to remain on duty during their meal periods, with pay, but only where: (1) the nature of the work precluded the employee from being relieved of all duties during the meal period; and (2) the employer and employee executed a written agreement permitting "on duty" meal periods. Because AB 60 does not address the issue of "on duty" meal periods, the legality of this practice is uncertain at this time.

? Exemptions. Every employee working in an industry or occupation covered by AB 60 is eligible for overtime premium pay unless it can be established that the employee is "exempt" from these requirements. Both state and federal overtime laws provide overtime exemptions for bona fide "executive," "administrative" and "professional" employees. These exemptions focus on the employee's duties and the method and amount of pay. California law has long provided that to be exempt, the employee actually must spend a majority of time (in excess of 50% of a typical work week) engaged in exempt duties. AB 60 reaffirms that if the employee does not meet this time requirement, then the employee cannot be exempt.

Further, AB 60 requires that exempt employees be paid on a salaried basis to qualify for an overtime exemption. Employees who are paid by the hour cannot be exempt. This marks a major change in California law with respect to "professional" employees, who previously were exempt even if they were paid by the hour. AB 60 also substantially increases the threshold salary for the overtime exemptions from $1,150 per month to double the state's current minimum wage. Since the minimum wage is now $5.75 per hour, as of January 1, 2000, the salary required for exempt status will be $1,993.33 per month, or $23,920 per year. Notably, this threshold will increase with every increase in the minimum wage. This means that heretofore lower-paid exempt employees will lose their exemption on January 1, 2000 unless their pay is increased over the new threshold.

? Remedies for Non-Compliance. As before, employees who are denied overtime pay may file an administrative complaint with the California Division of Labor Standards Enforcement ("DLSE"), or pursue claims privately in court. Claims filed with the DLSE are investigated by the state's Labor Commissioner. Employees also may file with the U.S. Department of Labor ("DOL") for violations of federal overtime pay laws. If the employee is successful, the employer will be liable for unpaid overtime wages, attorneys' fees and interest. Under California law, employers also may be ordered to pay "waiting time" penalties of up to 30 additional days of pay in cases where the Labor Commissioner finds that the employer willfully violated the law. Federal law permits an award of "liquidated damages" in an amount equal to the unpaid wages for violations found to be willful.

In addition, both state and federal law subject employers and individuals to possible civil penalties for overtime violations. Under AB 60, employers and individuals in management positions can be liable for civil fines ranging from $50 to $100 per employee per pay period. Likewise, under certain circumstances, violation of these overtime laws is a crime under both California and federal law.

Wage-hour violations also can trigger a "public policy" wrongful termination lawsuit for expensive tort damages. Our state Court of Appeal permitted such a suit in one 1995 case where the employee was discharged to avoid paying accrued commissions and vacation pay and in retaliation for reporting alleged overtime violations to upper management. (Gould v. Maryland Sound Industries) Just last year, the state Court of Appeal found that an employee could sue for "public policy" wrongful termination based on his claim that he was terminated for questioning his employer about certain deductions from his paycheck. (Phillips v. Gemini Moving Specialists)

? Effect of Federal Wage-Hour Laws. The pay practices of California employers continue to be regulated by both state and federal law. There are important differences between these laws. When the laws conflict, the employer must follow the rule which is more generous to the employee. With the passage of AB 60, this will most often be California law. The passage of AB 60 will once again focus public attention on the overtime pay issue. With the new millennium on the horizon, California employers should take this opportunity to update their pay practices and plan for the re-implementation of daily overtime procedures. Your contact at the Firm is ready to assist you with any questions you may have in this area.

Another new law passed by the Legislature and signed by the Governor, AB 109 (to be added to the Labor Code as Section 233), will significantly alter the ways in which employers' paid sick leave policies are administered. Under AB 109, employers who provide paid sick leave will be required to permit employees to use accrued sick leave to attend to the illness of the employee's child, parent or spouse. Employees must be permitted to make such use of their sick leave in any calendar year in an amount equal to or greater than the sick leave the employee would accrue during six months at the employee's then-current rate of entitlement to sick leave. In addition, all conditions and restrictions an employer places upon use of employee sick leave must apply to use of sick leave to attend to illness of the employee's child, parent or spouse. The law specifically defines "sick leave" to include "accrued increments of compensated leave" provided as an employment benefit for use during employee absences where: (a) "[t]he employee is physically or mentally unable to perform his or her duties due to illness, injury, or a medical condition"; (b) the employee's absence "is for the purpose of obtaining professional diagnosis or treatment for a medical condition"; or (c) the absence is for "other medical reasons," such as "pregnancy or obtaining a physical examination." Note that this law does not require employers to provide paid sick leave in general, although unpaid sick leave is mandated under certain conditions by the federal Family and Medical Leave Act ("FMLA") and the California Family Rights Act of 1992 ("CFRA"). AB 109 also does not extend the maximum period of leave to which an employee is entitled under the FMLA or the CFRA, regardless of whether an employee receives sick leave compensation during an FMLA or CFRA leave. In addition, AB 109 does not apply to benefits under ERISA benefit plans or "any insurance benefit, workers' compensation benefit, unemployment compensation disability benefit, or benefit not payable from the employer's general assets." AB 109 further prohibits any retaliation against employees who use or attempt to use their sick leave to attend to the illness of a child, parent or spouse.

When making work force cutbacks, employers often intuitively look at eliminating higher-paid positions which can be replaced by lower-paid, less experienced employees. The problem with this approach is that it often leads to the termination of older employees (that is, those who are age 40 and over) because salary, experience and age naturally tend to correlate. As you may recall from previous editions of the Update, the California Court of Appeal handed down a very pro-employer decision called Marks v. Loral Corp. which directed attention to this issue. In Marks, the court approved salary-based layoffs, regardless of the impact on older employees. Not surprisingly, there were those in the Legislature who found the Marks decision problematic. Soon after Gray Davis was elected Governor, overruling Marks became a highlight of the Democratic agenda.

Governor Davis recently signed SB 26 into law. SB 26 drastically expands our state's age bias law by effectively overruling Marks. The new law states that an employer may commit unlawful age discrimination by using salary as a basis for termina-ting employees, if this practice has a statistical "adverse impact" on older workers as a group. The Marks decision had approved employer preferences for retaining lower-paid employees in a layoff, and specifically declared that then-existing law permitted employers to use salary as a factor in making layoff decisions, even if this resulted in a dispropor-tionate number of older employees losing their jobs. In SB 26, however, the Legislature expressly "declares its rejection" of the Marks decision "and states that the opinion does not affect existing law in any way." The new law also states that the Legislature "reaffirms and declares its intent" that the courts interpret the state's laws against age bias "broadly and vigorously, in a manner comparable to prohibitions against sex and race discrimination, and with the goal of not only protecting older workers as individuals, but also of protecting older workers as a group, since they face unique obstacles in the later phases of their careers." Under this law, employers no longer can simply select employees for termination based upon salary, but will be forced to justify each and every layoff decision. This will no doubt spur unnecessary litigation over layoff decisions.

Since 1992, the California Labor Code has expressly prohibited job bias on the basis of sexual orientation. However, gay rights groups have long sought even stronger protections. These efforts paid off when Governor Davis signed AB 1001 into law. This new law replaces the Labor Code provision by adding sexual orientation to the list of classifications protected under our state's job bias law, the Fair Employment and Housing Act ("FEHA"). Symbolically, AB 1001 places job bias based on sexual orientation on an equal footing with discrimination based on race, sex, age, religion, disability and other such factors. The "real world" significance of this new law is that employers who commit discrimination based on sexual orientation may now be required to pay expensive punitive damages and attorneys' fees. In addition, unlike the old Labor Code provision, AB 1001 expressly defines "sexual orientation" to include heterosexuality, homosexuality and bisexuality.

The Legislature has also passed a bill (SB 1016) which would restrict employers' rights to monitor employees' e-mail or other computer records. This bill was awaiting final action from the Governor as we went to press. Employers believe that they have the right to engage in such monitoring because the computers used by employees are usually the property of the company. SB 1016 would limit employers' property rights and expands employees' privacy rights by prohibiting employers from secretly monitoring e-mail or other personal computer records, regardless of who owns the equipment. Any employer who wishes to inspect, review or even retain such information first must prepare and distribute a written company policy on workplace privacy and electronic monitoring. The proposed law would give employers a deadline of March 1, 2000 to comply with this notice requirement. Employees must then sign or electronically verify the employer notices to confirm that they have read the policies and understand them. In addition, SB 1016 would give employees the right to access all records the employer collects through electronic monitoring, as well as the right to dispute and correct such information. Employers who violate this proposed law may be found guilty of a criminal misdemeanor. We will inform you of the final fate of SB 1016 in our next issue of the Update.

The United States Supreme Court handed down a trio of landmark decisions under the Americans with Disabilities Act. While the High Court's decisions place some limitations on the scope of the ADA, employers continue to be subjected to a flood of lawsuits under the ADA and analogous state job bias laws.

? Correctable Conditions Not "Disabilities". In two separate cases, the Supreme Court limited the definition of who may be deemed "disabled" under the ADA by ruling that an impairment must be viewed in its corrected state. (Sutton v. United Airlines Inc.; Murphy v. United Parcel Service) In the Sutton case, the plaintiffs were twin sisters whose vision was fine with glasses, but without corrective lenses was 20/200 or worse. They applied for jobs as airline pilots, but were rejected because they failed to meet the airline's minimum requirement of uncorrected vision of 20/100 or better. In the Murphy case, the plaintiff was employed as a truck mechanic, and was required as part of his job to drive commercial motor vehicles. The company terminated the plaintiff because he suffered from high blood pressure, which made him ineligible for certification by the Department of Transportation. Although the plaintiff took medication to control his condition, the DOT's regulations require that covered employees have "no current clinical diagnosis of high blood pressure likely to interfere with his/her ability to operate a commercial vehicle safely." In both the Sutton and Murphy cases, the plaintiffs contended that they were "disabled" and thus entitled to the protections of the ADA. The Supreme Court disagreed. According to the Court, the ADA's express language demonstrates that each impairment must be viewed with reference to corrective measures, on a case-by-case basis, in determining whether an individual is presently disabled under the ADA definitions. In enacting the ADA, Congress stated that 43 million Americans "have one or more physical and mental disabilities." Since this number would be much higher if conditions such as near-sightedness were considered without regard to corrective measures, the Court concluded that Congress must have intended that corrective measures be considered.

The plaintiffs in the Sutton and Murphy cases also argued that they were entitled to the protections of the ADA because they were "regarded as" disabled. The Supreme Court disagreed, finding that while the plaintiffs were deemed unable to perform the jobs at issue, they were not "regarded as" substantially limited in their ability to perform any major life activities. The Court noted that regulations adopted by the U.S. Equal Employment Opportunity Commission ("EEOC") list "working" as a major life activity, but only where an individual is "significantly restricted in the ability to perform either a class of jobs or a broad range of jobs in various classes as compared to the average person having comparable training, skills and abilities." The Court assumed, without deciding, that this EEOC regulation is valid and that "working" is a "major life activity." (Note that our Ninth Circuit U.S. Court of Appeals has expressly found "working" to be a "major life activity.") However, the Supreme Court found that because each plaintiff was only regarded as being unable to perform a single, particular job, they did not meet the ADA's strict definition of being "regarded as" disabled.

? "Qualified" Individuals With Disabilities. In another important ADA decision, the U.S. Supreme Court ruled that an employer did not violate the Act by requiring its truck drivers to satisfy Department of Transportation visual acuity requirements. (Kirkingburg v. Albertson's, Inc.) The plaintiff in this case suffered from an uncorrectable condition which left him with monocular vision. The company hired the plaintiff after a doctor erroneously certified that he met the DOT's basic vision standard. Another doctor later found that the plaintiff's eyesight did not meet DOT standards, and the company terminated the plaintiff for this reason. The company argued that the plaintiff was not "qualified" under the ADA due to his failure to satisfy the DOT's visual acuity standards. Our Ninth Circuit U.S. Court of Appeals disagreed and held that the company was not entitled to rely on the DOT standards, because the plaintiff had obtained a waiver of these requirements under an experimental program administered by the Federal Highway Administration. However, the Supreme Court unanimously reversed the Ninth Circuit's decision. The High Court noted that the waiver program did not modify DOT's general visual acuity standards, and that it was "simply not credible" to conclude, as the Ninth Circuit did, that the ADA requires employers to independently justify safety standards issued by the federal government. The Court therefore found that the employer was justified in using the DOT's general vision standards as minimum qualifications for its employees.

? Persons "Perceived" As Disabled. One particularly tricky aspect of the ADA and our state law against disability bias is the protection given to persons who are not actually disabled, but are "perceived" as such. But how is someone "perceived" to be disabled? The California Court of Appeal recently examined this issue in a case involving the disability bias claim of a former Compton police officer named James Real who suffered from knee injuries. Real's doctor informed the City that Real needed to be placed on a variety of work restrictions because of his knee condition, and could not perform tasks such as "very heavy lifting, running, jumping, or climbing ladders, working on unprotected elevations, . . . crawling, squatting, ascending or descending stairs, and walking on uneven or inclined surfaces." After reviewing these restrictions, the City concluded that Real could not perform his duties as a police officer and Real was forced to take early retirement. He then sued the City for disability discrimination. At trial, the jury found that Real actually was not disabled, but that he was covered under the ADA anyway because he was "perceived" as disabled. Thus, the trial court ruled that the City violated the ADA by removing Real from his job. The appellate court struck down this verdict and ruled in favor of the City. According to the court, for a person to be covered under the ADA simply because he is perceived as disabled, he or she must be perceived as having an impairment which "substantially limits" one or more "major life activities." The court stated that this provision of the ADA does not protect persons who are perceived to have no impairment at all, or who are perceived to have an impairment which does not limit major life activities. (Real v. City of Compton)

? Leave Of Absence As Reasonable Accommodation. Several courts have interpreted the disability bias laws to require employers to allow a disabled employee to take time off. This is particularly true where a reasonable leave of absence is likely to help the disabled employee perform his duties upon returning to work. On the other hand, employees are not entitled to infinite leaves of absence, since regular and reliable attendance is an essential function of most jobs. Employers who grant reasonable leaves of absence to disabled employees will usually find themselves in a better position to defend themselves in the event the employee later files a lawsuit under the ADA or FEHA.

In one recent case, our state's Court of Appeal rejected the disability bias lawsuit of Wayne Hanson, a meat cutter who had been given a 16-month leave of absence so that he could recover from on-the-job hand and back injuries. Unfortunately, even after this lengthy absence, Hanson still was hampered by his injuries, and was restricted from heavy lifting, pulling, pushing with his right hand and prolonged standing. This meant that Hanson was not qualified to return to his former position as a full-time meat cutter. Instead, the only position within the company for which Hanson was qualified was as a part-time meat clerk. The employer offered Hanson this position, but he rejected it because it only paid half the wage and included none of the benefits of his former meat cutter job. When Hanson refused to report to the part-time job, he was discharged. The appellate court ruled that the employer reasonably accommodated Hanson's disability when it gave him a 16-month leave of absence, noting that the union contract only required nine months of leave. The employer also offered Hanson a reasonable accommodation by assigning him to the only position in the company which was compatible with his work restrictions. For these reasons, the court ruled in favor of the employer on Hanson's disability bias lawsuit. (Hanson v. Lucky Stores)

? Injunction Against Harassing Speech Upheld. In an extremely controversial decision, the California Supreme Court has added yet another weapon to the arsenal of plaintiffs' lawyers in workplace harassment lawsuits. Plaintiffs who win at trial in such cases now may be entitled to obtain injunctions barring employers and their employees from uttering harassing words in the future. This was the Supreme Court's ruling in a case involving racial epithets at work. Injunctions are particularly potent remedies because violators can be charged with contempt of court and, in some cases, even sentenced to jail. So far, California is the only state in the nation where an appellate court has allowed injunctions against speech which is found to have created a hostile work environment. Free speech advocates argued that such "prior restraint" was unconstitu-tional, but the state Supreme Court did not agree. (Aguilar v. Avis Rent A Car System)

? Harassment Investigations. Two U.S. Supreme Court decisions last year (Faragher v. City of Boca Raton and Burlington Industries v. Ellerth) emphasized the need for employers to fully investigate claims of sex harassment. However, employers must be careful how such investigations are conducted. The latest "red flag" comes from an unlikely source - an opinion letter recently issued by the Federal Trade Commission ("FTC"). The FTC letter states that sex harassment investigations must comport with the federal Fair Credit Reporting Act ("FCRA"). If the employer undertakes an investigation covered by the FCRA, it must give advance notification to the employee who is the subject of the investigation, and also must provide the employee a complete, unedited copy of the investigation report after it is prepared. As noted in the FTC opinion letter, in the sex harassment context, this means that the accused harasser will be entitled to advance notification of an investigation. This requirement may very well hamper the ability of an employer to conduct a prompt, thorough and effective investigation. Notably, the FCRA does not apply to strictly internal investigations conducted by the employer's own personnel. The FTC's opinion letter is yet another reason why employers should call our office before attempting to conduct such investigations. (The FTC's opinion letter is currently posted on the Internet at www.ftc.gov/os/statutes/fcra/vail.htm.)

? Multi-Million Dollar Settlement Of Harassment Case. Ford Motor Company is the latest in a growing list of employers who have agreed to pay a hefty sum to avoid a possible jury trial on explosive sex harassment charges. The EEOC contended that anywhere from 700 to 900 female employees were groped and subjected to crude sexual comments and graffiti at two Ford facilities in the Chicago area. Under the settlement, Ford will pay $7.75 million in damages, to be split amongst the alleged victims. This means that each woman will receive anywhere from approximately $8,500 to $11,000. The agreement also requires Ford to hire outside consultants for sensitivity training at the company's plants across the nation. The EEOC estimates that this training may cost up to $10 million on top of the damage payments to the harassment victims. The settlement is the fourth-highest among sex harassment cases in the EEOC's history. The largest such settlement - $34 million to be paid by Mitsubishi Motors Manufacturing of America - recently received final approval.

? Corporate Liability For Wrongdoing Of "Managing Agents". A recent decision by the California Supreme Court offers some helpful guidance to employers on precisely when they are exposed to liability for punitive damage awards based on the conduct of their supervisory employees. (White v. Ultramar, Inc.) Under a provision of the California Civil Code, a corporation can be liable for punitive damage awards only if one of its officers, directors or "managing agents" has engaged in certain types of wrongful conduct. The statute does not define the term "managing agent," thus leaving it to the appellate courts to fashion a definition. The state Supreme Court has finally ruled that the term "managing agent" only covers corporate employees who exercise substantial independent authority and discretion over "significant aspects" of the corporation's business, "so that their decisions ultimately determine corporate policy." According to the Court, punitive damage liability does not depend on the employee's title or managerial level within the corporation. The Court also rejected a line of pro-plaintiff decisions by lower appellate courts which had suggested that any supervisor with the power to hire or fire employees may be a "managing agent" under the law. However, the Court refused to set forth a "bright line" test, opting instead to determine the "managing agent" issue on a "case-by-case" basis. In fact, the California Supreme Court upheld the punitive damage award against the corporate employer in this case, based on the conduct of a zone manager who was found to have wrongfully terminated the plaintiff in retaliation for testifying at a former co-worker's unemployment hearing. The zone manager was given virtually total responsibility for running eight of the company's convenience stores and supervised 65 or more employees. The manager had the ability to make decisions independently of the company's human resources department and other employees. The state Supreme Court found that these facts were sufficient to qualify the decision-making manager as a "managing agent" and to support the jury award of punitive damages against the corporate employer.

? Punitive Damages In Bias Cases. The U.S. Supreme Court recently lowered the bar for obtaining a punitive damages award against an employer under federal job bias laws such as Title VII and the ADA. In Kolstad v. American Dental Ass'n, the Court ruled that punitive damages are available whenever the employer has acted "with malice or reckless indifference" in committing job bias against the plaintiff. The Court did note, however, that there will be some cases where punitive damages are not available even where the employer commits intentional discrimination. Examples listed by the Court include where the employer may simply be unaware of a relevant anti-bias provision or theory of recovery, or where it has "the distinct belief that its discrimination is lawful." The Supreme Court in Kolstad also discussed the issue of when a corporate employer may be held liable for punitive damages based on the acts of a supervisory employee. Although the High Court did little to resolve the issue, it did suggest that the employee must be a "managerial agent" or act in a "managerial capacity." It therefore remains unclear under federal law precisely which managerial employees may bind a corporation for punitive damages.

? Employers' Good-Faith Efforts To Follow Anti-Bias Policies. Both the California Supreme Court in White and the U.S. Supreme Court in Kolstad strongly suggested that employers may avoid punitive damage awards by engaging in good-faith attempts to adopt and implement policies against job discrimination or retaliation. The U.S. Supreme Court ruling in Kolstad adopted the common-sense notion that an employer cannot be held liable for punitive damages under federal job bias laws where a manager's discriminatory behavior is contrary to the employer's good-faith efforts to comply with the law. As the Court noted, the job bias laws were intended to encourage employers to implement programs or policies to prevent bias in the workplace. For this reason, the Court declared that employers who make "every effort to comply" with federal job bias laws should not be held liable for punitive damages based on an errant manager's discriminatory conduct. Our state Supreme Court echoed these same sentiments in its decision in White, stating that employers should be encouraged to make "good faith efforts to enforce policies that forbid discrimination or retaliation." On the other hand, the Kolstad and White cases make it clear that those employers who do not have policies against discrimination or retaliation - or fail to enforce such policies - place themselves at grave risk of liability for punitive damages.

? Wrongful Discharge Claims. We encourage clients to carefully follow the many requirements in federal and state family leave laws. Now there is yet another reason to do so. A state Court of Appeal has added the California Family Rights Act of 1992 ("CFRA") to the list of laws which can form the basis of a so-called public policy wrongful discharge claim. This means that employees who are fired or laid off can file a civil claim for damages asserting that the termination violated the California Family Rights Act. (Nelson v. United Technologies)

? Notice To Employer Of Serious Health Condition. Under the CFRA and FMLA, certain paperwork obligations are triggered when an employee gives the company notice of the need for a leave. A recent California Court of Appeal decision gives employers some "breathing room" in cases where the employee fails to give adequate notice that the requested time off is for family leave. The case involved a former American Airlines employee named Kathleen Gibbs who had a past history of excessive job absenteeism. When Gibbs called in sick for four days in 1995, she only told the company that she was experiencing cold or flu-like symptoms and that she had fever blisters on her nose and mouth. After returning to work, Gibbs attended a previously-scheduled meeting with her supervisor to discuss her attendance problems. The supervisor told Gibbs that for the next 90 days, she would have to produce a doctor's note validating any illness before she could receive sick pay for missing work. This was evidently too much for Gibbs to take. She promptly quit her job and sued the company under the CFRA. In her lawsuit, Gibbs claimed for the first time that she had suffered for several years from "fibro-myalgia," a syndrome which consists of complaints including chronic diffused pain, fatigue, sleeplessness and depression. Gibbs' lawsuit went all the way to a jury, which found in favor of the company on her CFRA claim. The appellate court upheld the jury's finding. Under most circumstances, a cold or flu does not constitute a "serious health condition." Not only had Gibbs never told her employer about the fibro-myalgia - which was not even diagnosed until three months after Gibbs quit her job - but Gibbs' own doctor admitted that the fibro-myalgia was not connected with the cold and flu symptoms which had caused Gibbs to take her most recent sick leave. The court therefore concluded that Gibbs did not place her employer on notice that she required CFRA leave simply by telling her about her cold and flu symptoms. (Gibbs v. American Airlines)

? Employer Paperwork. The U.S. Department of Labor ("DOL") regulations under the FMLA require employers to advise workers seeking family leave that their time off will be counted toward their annual 12-week FMLA entitlement. This notice must be in writing. If the notice is not given, none of the time off counts toward the employee's annual allotment of family leave. Employers have complained that the DOL regulation goes beyond what Congress intended when it wrote the statute. Two federal appellate courts recently agreed. In one of the cases, the plaintiff, Michael Sarno, told his employer that he would take workers' compensation leave for an on-the-job injury. The employer informed Sarno that his absence would be treated as unpaid FMLA leave, but did not mention that it would terminate him if he failed to return to work after 12 weeks. Sarno was still disabled after 12 weeks. He told the company he could not return and was terminated. The Second Circuit U.S. Court of Appeals ruled against Sarno on his FMLA claim, despite the DOL regulation. The court reasoned that Sarno did not become entitled to more than 12 weeks' leave under FMLA simply because his employer failed to tell him his leave was limited to 12 weeks. However, the court cautioned that the result in this case might have been different if Sarno had relied on the employer's lack of information by remaining on leave. Because Sarno was still disabled after 12 weeks, he would have remained on leave regardless of what information the employer gave him. (Sarno v. Douglas Elliman-Gibbons & Ives Inc.) Likewise, the Eleventh Circuit U.S. Court of Appeals ruled against Alicia Cox in her FMLA lawsuit. Cox was demoted after returning from a 15-week pregnancy leave. The employer did not give Cox the requisite advance notice that her 13-week pregnancy leave would count against her annual 12 weeks of FMLA leave. The Eleventh Circuit ruled that since the employer complied with the FMLA by actually giving Cox the time off, it could not be faulted merely because it failed to notify her of this technicality. (Cox v. AutoZone Inc.)

? Age Discrimination. A recent federal age discrimination ruling provides yet another warning to employers that the linkage of almost any type of employee benefit to age may violate the age bias laws. The case arose after two police officers who had been hired on the same day were injured in the same on-the-job accident. One officer was age 25 while the other was age 45. Due solely to their ages at the time of hire, the younger employee received 50% of final monthly compensation as a disability benefit, while the older employee received only 20%. Our Ninth Circuit U.S. Court of Appeals ruled that since the plan treated individuals differently solely because of their age, the plan violated the federal age discrimination law. (Arnett v. California Public Employees Retirement System)

? Disclosure Of Proposals To Change Retirement Benefits. Under two other recent rulings by the Ninth Circuit U.S. Court of Appeals, fiduciaries for retirement plans face new disclosure responsibilities. The court ruled that a fiduciary must notify plan participants of any potential changes to retirement benefits as soon as such changes are being "seriously considered." The employees in both cases sued for the right to participate in sweetened retirement plans which were not offered until after they retired. The plaintiffs claimed that they would have delayed retirement had the employers told them about the proposed changes to the plans. In one case, the court found that an employer was required to disclose such proposed changes to all plan participants whom the company knew, or had reason to know, were considering retirement - regardless of whether the employees asked for the information. (Benz v. Exxon Company USA) In the other case, the court ruled that the employer was required to disclose its proposed benefit changes when it offered an enhanced early retirement program during contract negotiations with the employees' union - even though no agreement over the proposal had been reached before they retired. (Wayne v. Pacific Bell) The court stated that a proposed change to a retirement plan is under "serious consideration" whenever (1) a specified proposal (2) is being discussed for purposes of implementing the change (3) by senior management with the authority to implement the change.

? Infertility Treatment Coverage. Insurance coverage for employee infertility treatments under group health plans has become a hotly contested issue. Recently, the U.S. Equal Employment Opportunity Commission issued an opinion letter stating that a company's denial of coverage for infertility treatment may violate the ADA and constitute unlawful sex bias under Title VII. The EEOC issued its opinion letter in response to a complaint filed by a female employee who claimed discrimination based on disability and sex when she was denied infertility benefits under her group insurance plan. The company argued that its medical plan was typical in that it excluded certain infertility treatments, but provided other substantial benefits above and beyond what is required under federal law. The company also argued that the exclusion of infertility treatments was not discriminatory since it did not distinguish between disabled and non-disabled employees, nor did it make distinctions based on the employee's sex. However, the EEOC's New York district office determined that the denial of benefits violated the ADA and Title VII.

? Mandatory Pre-Dispute Arbitration. Despite all the talk of getting employment cases out of the overburdened court system and into binding arbitration or other forms of alternative dispute resolution, the fact remains that plaintiffs' trial lawyers profit handsomely in these cases. Thus, it is not surprising that their advocacy group, the Consumer Attorneys of California, lobbied hard to create a bill outlawing virtually all mandatory pre-dispute arbitration agreements. The Consumer Attorneys sponsored AB 858, which would have made it unlawful for an employer to have an arbitration agreement in an employee handbook or otherwise. Notably, the bill was recently pulled when the Consumer Attorneys objected to what they viewed as certain pro-employer amendments to the bill. In its original version, AB 858 would have precluded employers from requiring any employee, as a condition to employment or continued employment, to waive any statutory or other legal right, including the right to a jury trial. The original bill also applied to non-employment contracts between consumers and businesses, but was later limited only to employment agreements. More recently, the bill was amended to allow mandatory pre-dispute arbitration agreements for employees whose total annual compensation at the time of the agreement (including stock options and other non-monetary consideration) exceeded $150,000. That was the last straw for the Consumer Attorneys, who asked the author of AB 858, Assembly Member Sheila Kuehl (D-Santa Monica), to have it placed on inactive status. We expect the Consumer Attorneys to try again next year.

In the meantime, California appellate courts remain divided on the issue of whether pre-dispute arbitration agreements are even enforceable in the employment context under current law. One recent decision upheld such an agreement (Pichly v. Nortech Waste), while a different appellate panel struck down an agreement in another case (Maciejewski v. Alpha Systems Lab). As we reported in our June 1999 Update, the California Supreme Court recently announced it would decide this important issue in the Armendariz case. Bills such as AB 858 may become moot if the High Court finds that existing law prohibits enforcement of pre-dispute employment agreements to arbitrate.

? Arbitration Agreement Struck Down Under OWBPA. The federal Older Workers' Benefit Protection Act ("OWBPA") contains strict requirements which must be satisfied before courts will enforce a waiver of rights under the federal Age Discrimination in Employment Act ("ADEA"). Most cases under OWBPA have involved attempts to nullify an agreement where a plaintiff received compensation or some other incentive in exchange for a full release of any and all claims. In an apparent first, however, a federal district judge in San Diego has ruled that arbitration agreements are subject to the requirements of OWBPA as well. The judge ruled that a financial consultant terminated from his job with Merrill Lynch could ignore an arbitration agreement and bring his age bias claim against the company in federal court because the arbitration agreement did not comply with OWBPA. The judge noted that OWBPA specifically requires that all waivers of rights under the federal age bias law be "knowing and voluntary," that the agreement specifically refer to the employee's rights under ADEA and OWBPA, and that employees cannot waive rights or claims under ADEA that may arise after the date the waiver is executed. According to the judge, the right to a jury trial is guaranteed under ADEA, and a waiver of that right - including an agreement to arbitrate future ADEA claims - must therefore comply with the strict provisions of OWBPA. (Thiele v. Merrill Lynch Pierce Fenner & Smith)

? EEOC Ignores Arbitration Agreements. The EEOC has taken the position that the Commission may sue an employer even where the complaining employee had agreed to submit the dispute to binding arbitration. The Sixth Circuit U.S. Court of Appeals recently sided with the EEOC on this issue. The court ruled that the individual employee's decision to enter into an arbitration agreement does not negate the EEOC's authority to combat employment discrimination. Additionally, the court noted that the EEOC could not be compelled to arbitrate the case, since it never agreed to do so. (EEOC v. Frank's Nursery & Crafts Inc.)

A former employee of Intel apparently decided to "get even" with the company by "spamming" its computer system with thousands of derogatory e-mails. The company had the last laugh in this case when it successfully sued the employee for trespass. The employee had the audacity to argue that his e-mail barrage constituted protected "speech" under the First Amendment because Intel's e-mail system is connected to the Internet. The judge disagreed and ordered the employee to stop sending the offensive e-mails altogether. (Intel Corp. v. Hamidi)

In an ironic twist, a labor union has found itself caught in the middle of a class action age bias lawsuit brought by some of the union's own members. To make matters even more bizarre, the plaintiffs in this case originally were represented by the union's own attorneys! The lawsuit alleges that Unisys Corporation committed age discrimination in the manner in which it conducted a layoff of 232 engineers. The company contends that the layoffs were lawful and in accordance with the terms of a collective bargaining agreement with the Company's engineers. The company further asserts that if the agreement itself is found to be unlawful, then the union must share financial responsibility for any age discrimination, since the agreement was the result of negotiations between the company and the union. Originally, the plaintiffs only sued the company and not the union - which is not surprising, since the plaintiffs and the union were represented by the same law firm. In fact, this law firm represented the union during negotiations of the very collective bargaining agreement which is now being challenged. However, the company filed a motion to force the union to be "joined" into the lawsuit. The judge agreed to do so. Meanwhile, the judge disqualified the plaintiffs' law firm from the case because it had an obvious conflict of interest. As the judge stated, the law firm could not adequately represent the employees while also continuing to represent their union, which is now a defendant in the case. (Rodolico v. Unisys Corp.)

Hyundai Electronics found out the hard way that imposing illegal hiring criteria on an recruiter may be hazardous to your pocketbook. In an unusual lawsuit, an executive recruiter won a $10 million jury verdict against his own client. The recruiter claimed that Hyundai violated his state Constitutional "right of association" by telling him not to refer black or women candidates to the Company. The recruiter claimed that he ignored this illegal request and submitted the resumes of qualified blacks and women anyway. Hyundai terminated the agreement with the recruiter, and he sued. A California jury awarded him nearly $10 million in damages. (Abraham v. Hyundai Electronics America Inc.)

? Overtime Exemptions. The California Supreme Court has confirmed how very difficult it is for an employer to exempt an employee from our state's overtime protections. The Court ruled that a bottled water delivery driver will not be an exempt "outside salesperson" under California's overtime laws where the employee in question allegedly spent less than half of his working time involved in actual sales-related activities. The employee testified that his primary job duties were to drive a delivery truck and deliver bottles of water to residential and commercial customers of Yosemite Water Company. He also acknowledged that the company expected him to engage in some sales activity, including obtaining new customers and obtaining additional sales from existing customers. However, the evidence indicated that existing customers rarely changed their orders and that the employee's sales activities took only a small percentage of his time. The employee's lawsuit started when he filed a claim for unpaid overtime against the company. Two lower courts rejected the claim and found the employee was an "outside salesperson" exempt from California's overtime laws. An "outside salesperson" is defined by Wage Order 7-80 as someone who "regularly works more than half . . . [their] working time" engaged in sales activities outside the workplace. The state Supreme Court reinstated the lawsuit and ruled that California law focuses on the actual amount of time the employee spends on sales activities. The case was sent back to the trial court for a specific factual finding on the amount of time the employee actually spent on sales activities. (Ramirez v. Yosemite Water Company)

? "Living Wage" Ordinances. Earlier this summer, the Los Angeles County Board of Supervisors became the largest governmental entity in the nation to adopt a so-called "living wage" law. The ordinance applies to all full-time employees who work either for the county government or for a company which (1) has a contract with the county or (2) receives subsidies from the county. Employees covered under this law must be paid a minimum of $8.32 per hour with health insurance or $9.46 per hour without health insurance. Part-time employees are not covered under the ordinance.

A similar "living wage" ordinance has been proposed for the city of Santa Monica by a group called Santa Monicans Allied for Responsible Tourism ("SMART"). The proposed law would primarily impact the city's hospitality industry, and would apply to all companies with 50 or more employees located in the city's coastal zone. Specifically, the ordinance would: (1) set a minimum "living wage" of $10.69 per hour - higher than any other city in the nation; (2) require covered employers to provide health insurance; (3) create an employee protection board; and (4) create a "local hiring" provision that would give workers applying for tourism industry jobs through Santa Monica job centers first "dibs" at the jobs they desire. A study on the effects of this proposed ordinance is due to be completed by April 1, 2000. It is likely that Santa Monica will enact a living wage law in some form after the study is completed.

Many employers are still unaware of a six-year-old California regulation which requires employers to give written notices to any employee who is discharged, laid off or placed on a leave of absence. Employers who fail to comply with these notice requirements may be guilty of a misdemeanor under the California Unemployment Insurance Code. The following is a summary of the required notices:

First, the employer must provide a copy of a pamphlet from the state Employment Development Department ("EDD") entitled "For Your Benefit: California's Program For The Unemployed." This pamphlet informs employees of the EDD's unemployment insurance and disability insurance programs. Copies of these pamphlets are available from the EDD, which is required to provide them to employers free of charge.

Second, employers must post and maintain in places readily accessible to all employees an EDD Form entitled "Notice to Employees." This notice informs employees of their rights to unemployment insurance and disability insurance. Copies of this form are also available from the EDD at no cost.

Third, the employer must give the employee a written notice regarding the employee's change in status no later than the effective date of the discharge or layoff or the start date of the leave of absence. The notice also must contain the following information, at a minimum: (1) the employer's name; (2) the employee's name; (3) the employee's Social Security account number; (4) whether the action was a discharge, layoff, leave of absence or change in status from employee to independent contractor; and (5) the effective date of the action. You may obtain a sample notice which satisfies these requirements from your contact at the Firm.

Employees frequently complain of suffering stress as a result of being terminated from their employment. Less recognized, however, is the stressful effect that termination of employment may have on the manager or supervisor who makes or communicates the termination decision. Fortune Magazine recently released a study which sheds some light on this phenomenon. According to the study, a manager's risk of suffering a heart attack is twice as high as normal during the week following an employee termination. The precise cause of this heightened stress is unclear. Could it be empathy for the plight of the newly-unemployed individual, or is it the unpleasant task of communicating the bad news? Some managers have adopted an unorthodox tactic to make this unhappy process easier on themselves: sending termination notices via e-mail. One Oklahoma-based company recently used e-mail to notify 1,450 employees that they were being let go. At first blush, e-mail may seem like a relatively impersonal and insensitive - or even cowardly - way to tell someone that they are out of a job. However, the study reported by Fortune found that a majority of people actually prefer learning bad news by e-mail than via an embarrassing and awkward telephone call or face-to-face meeting.

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 1999, Ballard, Rosenberg & Golper. All rights reserved. Additional copies of this publication are available upon request.

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