No More Non-Solicits?

Looks that way. Mostly. The Court of Appeal held in The Retirement Group v. Galante, opinion here, that contractual agreements not to solicit customers are not enforceable because of California's unfair competition statute, Bus. and Prof. Code section 16600.

TRG sued a bunch of ex-employees for stealing trade secrets and violating a non-solicitation agreement. TRG obtained a preliminary injunction and the employees appealed. The Court of Appeal in essence held that if a former employer proves misuse of trade secrets under the Trade Secrets Act or Unfair Competition Law, the former employee may be enjoined from misusing those trade secrets. But no court can enjoin a non-solicitation clause merely because it appears in an agreement. Here is the money quote:

We distill from the foregoing cases that section 16600 bars a court from specifically enforcing (by way of injunctive relief) a contractual clause purporting to ban a former employee from soliciting former customers to transfer their business away from the former employer to the employee's new business, but a court may enjoin tortious conduct (as violative of either the Uniform Trade Secrets Act and/or the Unfair Competition Law) by banning the former employee from using trade secret information to identify existing customers, to facilitate the solicitation of such customers, or to otherwise unfairly compete with the former employer. Viewed in this light, therefore, the conduct is enjoinable not because it falls within a judicially-created "exception" to section 16600's ban on contractual nonsolicitation clauses, but is instead enjoinable because it is wrongful independent of any contractual undertaking.

Recent decisions have said as much, albeit less concisely. The point is that a non-solicitation agreement is now legally unnecessary to create substantive rights because the Trade Secret Act does not require such an agreement for an employer to come within its provisions. However, a non-solicitation clause, which is usually found in a confidentiality agreement, may be part of the evidence showing that the employer takes reasonable measures to maintain the secrecy of trade secrets. Therefore, it may not be a good idea to abandon such contractual provisions.
At the same time, it remains to be seen whether such clauses will be attacked as "overreaching" and, therefore, unfair competition.

FEHC Updates FMLA / CFRA Comparison Chart

California's anti-discrimination agency just updated its chart comparing the FMLA and California's CFRA. It's posted here.

Court of Appeal: Breach of Contract Against Employer for Breach of Settlement Confidentiality

Sanchez was a county labor relations manager for San Bernadino County. She became romantically involved with a union official, Erwin. Their respective employers negotiated labor relations memoranda of understanding. At some point, their relationship became known and unacceptable to the county's brass. The County thought a romance between labor negotiators on opposite sides of the table might constitute a conflict of interest. So sensitive! For her part, Sanchez denied the conflict of interest, but admitted the appearance of impropriety. So, the county gave Sanchez the chance to resign with a separation agreement.

The separation agreement contained a strict confidentiality requirement. But immediately after Sanchez resigned, the newspapers picked up on the story and quoted county officials. She sued the county and individual defendants for a variety of claims, including breach of contract. The county successfully "SLAPPED" most of the causes of action. The trial court eventually granted summary judgment on the rest of them. The court dismissed the breach of contract claim because the confidentiality agreement was contrary to the county's legal duty to disclose such facts to the public.

On appeal, the court of appeal reinstated the contract claim. The county's primary argument was that it was bound to disclose Sanchez's affair. After analyzing the various legal theories (including the Public Records Act and the First Amendment), the court said there was a triable issue of fact on the contract claim because the county did not have to disclose the affair to the papers. Had the settlement agreement been disclosed under the Public Records Act, the court might have come down the other way.

The court rejected the county's argument that Sanchez waived the confidentiality agreement by speaking with her parents and showing the agreement to Erwin. The court found it significant that Sanchez did so only after learning of the county's breach.

Regarding the issue of damages, she presented significant evidence it was harder to find a job after the disclosure of the affair to the newspapers. Therefore, the court rejected the county's contention that there were no damages available for the breach of confidentiality.

Typically, employers do not advertise their settlements with employees. So, this case may be an anomaly, particularly in the private sector. But to the extent employers needed motivation to maintain confidentiality, the prospect of a breach of contract claim should provide it. Employers should ensure they honor confidentiality provisions in separation agreements.

The case is Sanchez v. County of San Bernardino and the opinion is here.

CA Supreme Court: No Invasion of Privacy

The Supreme Court unanimously held that an employer did not invade the privacy of employees when it set up video surveillance in the employees' offices. We first blogged about Hernandez v. Hillsides here.

So, Hernandez and Lopez worked at Hillsides, a residential treatment center for children. The administration determined that someone was using one of the computers to view porn at night. The computer was in a private office - used by Lopez and Hernandez during the day. Administration did not suspect Lopez or Hernandez, but rather one of the night time workers.

Management set up a hidden camera in Lopez/Hernandez's office, which was activated after they left, and which was turned off in the morning. The camera never taped Lopez or Hernandez. On one occasion, the boss forgot to turn the camera off in the morning, but it did not tape either Plaintiff. They did not catch the person who was viewing the porn either.

Despite the seemingly insignificant injuries, Lopez and Hernandez sued Hillsides for invading their privacy. The trial court threw out the case, but the court of appeal reinstated it.

The Supreme Court on review first held that setting up a secret camera was enough to constitute an "intrusion" - an element of the invasion of privacy tort. Here are some quotes on this point:

defendants [are] a private employer accused of installing electronic equipment that gave it the capacity to secretly watch and record employee activities behind closed doors in an office to which the general public had limited access. As we discuss later with respect to the “offensiveness” element of plaintiffs' claim, an employer may have sound reasons for monitoring the workplace, and an intrusion upon the employee's reasonable privacy expectations may not be egregious or actionable under the particular circumstances. However, on the threshold question whether such expectations were infringed, decisional law suggests that is the case here.* * *

Finding an intrusion, the Court took into consideration that this was a private office, that cameras were surreptitious, and case law and statutes regarding monitoring:

Plaintiffs plausibly claim that Hillsides provided an enclosed office with a door that could be shut and locked, and window blinds that could be drawn, to allow the occupants to obtain some measure of refuge, to focus on their work, and to escape visual and aural interruptions from other sources, including their employer. Such a protective setting generates legitimate expectations that not all activities performed behind closed doors would be clerical and work related. As suggested by the evidence here, employees who share an office, and who have four walls that shield them from outside view (albeit, with a broken “doggie” flap on the door), may perform grooming or hygiene activities, or conduct personal conversations, during the workday. Privacy is not wholly lacking because the occupants of an office can see one another, or because colleagues, supervisors, visitors, and security and maintenance personnel have varying degrees of access. . . .

Regarding another relevant factor in Sanders, supra, 20 Cal.4th 907, 923, the “means of intrusion,” employees who retreat into a shared or solo office, and who perform work and personal activities in relative seclusion there, would not reasonably expect to be the subject of televised spying and secret filming by their employer. As noted, in assessing social norms in this regard, we may look at both the “common law” and “statutory enactment.” (Hill, supra, 7 Cal.4th 1, 36.)

Now, a policy permitting such monitoring might have killed the employees' expectation of privacy and, therefore, the intrusion. But there was no such policy in place:

plaintiffs cannot plausibly be found to have received warning that they would be subjected to the risk of such surveillance, or to have agreed to it in advance. We have said that notice of and consent to an impending intrusion can “inhibit reasonable expectations of privacy.” (Hill, supra, 7 Cal.4th 1, 36; accord, Sheehan, supra, 45 Cal.4th 992, 1000-1001.) Such factors also can “ „ “limit [an] intrusion upon personal dignity” ‟ ” by providing an opportunity for persons to regulate their conduct while being monitored. (Hill, supra, at p. 36.) Here, however, the evidence shows that no one at Hillsides told plaintiffs that someone had used Lopez‟s computer to access pornographic Web sites. Nor were they told that Hitchcock planned to install surveillance equipment inside their office to catch the perpetrator on television and videotape.

Moreover, nothing in Hillsides' written computer policy mentioned or even alluded to the latter scenario. As noted earlier, the version in effect at the relevant time made clear that any monitoring and recording of employee activity, and any resulting diminution in reasonable privacy expectations, were limited to “use of Company computers” in the form of “e-mail” messages, electronic “files,” and “web site” data. Foster performed this administrative function when he used the network server to produce the list of pornographic Web sites accessed in both the computer laboratory and Lopez‟s office, and showed such computer-generated data to Hitchcock. There is no evidence that employees like plaintiffs had any indication that Hillsides would take the next drastic step and use cameras and recording devices to view and videotape employees sitting at their desks and computer workstations, or moving around their offices within camera range.

In sum, the undisputed evidence seems clearly to support the first of two basic elements we have identified as necessary to establish a violation of privacy as alleged in plaintiffs‟ complaint. Defendants secretly installed a hidden video camera that was both operable and operating (electricity-wise), and that could be made to monitor and record activities inside plaintiffs‟ office, at will, by anyone who plugged in the receptors, and who had access to the remote location in which both the receptors and recording equipment were located. The workplace policy, that by means within the computer system itself, plaintiffs would be monitored about the pattern and use of Web sites visited, to prevent abuse of Hillsides‟ computer system, is distinguishable from and does not necessarily create a social norm that in order to advance that same interest, a camera would be placed inside their office, and would be aimed toward a computer workstation to capture all human activity occurring there. Plaintiffs had no reasonable expectation that their employer would intrude so tangibly into their semi-private office

Next, the court considered whether the intrusion was sufficiently "serious" or "offensive" to constitute a tort. Here is where the employer won. The court considered factors such as the degree of the intrusion, the workplace setting, and the employer's justification. The Court concluded that the intrusion was justified and was slight under the circumstances. As such, the court of appeal had it wrong.

Finally, the court held that the employer does not have to prove there is no "less intrusive alternative" to prevail.

The key takeaway is that that notice to employees regarding employer procedures will defeat these claims in most cases by destroying the reasonable expectation of privacy.

The case is Hernandez v. Hillsides and the opinion is here.

Ninth Circuit: Everyone's an Employer under FLSA

So, the FLSA's wage and hour provisions receive little attention in California. But with the bad economy and companies going bankrupt, the Ninth Circuit Court of Appeals may have just given plaintiffs a reason to heart federal court.

Boucher and a couple of others worked for the Castaways Hotel in Nevada. The Castaways filed for Bankruptcy protection. Later, it fired the plaintiffs. Undeterred by their former employer's insolvency, they sued the CEO, CFO and a senior manager responsible for labor relations (hi, HR managers!).

The defendants asked the district court to dismiss the case because they were not the plaintiffs' employer - that was the Castaways' role. The district court obliged. But the Ninth Circuit reversed as to the federal claims. As to claims brought under Nevada's wage and hour laws, the Court of Appeals, relying on the Nevada Supreme Court's opinion, held that individuals cannot be held liable.

As to the FLSA claims, however, the Court decided that the individuals could be held liable as employers. They got no help from the defendants, who did not argue the point apparently. Here is the money quote:

In the case at bar, Ballard has alleged that Defendant Villamor was responsible for handling labor and employment matters at the Castaways; Defendant Shaw was chairman and chief executive officer of the Castaways; and Defendant Van Woerkom was the Castaways’ chief financial officer and had responsibility for supervision and oversight of the Castaways’ cash management. The plaintiff also alleges that Shaw held a 70 percent ownership interest in the Castaways, Villemor held a 30 percent ownership interest and all three defendants had “control and custody of the plaintiff class, their employment, and their place of employment.” (See Complaint ¶¶ 9-11.)
Accepting these allegations of material fact as true, Ballard’s claim withstands a motion to dismiss. . . .

The individuals spent their brief arguing that the bankruptcy proceedings by the Castaways insulated them from liability. Logically, if the individuals stand in the shoes as employers under FLSA, then they should be covered by the Castaways' bankruptcy too, right? Nope.

We have never addressed the question whether a company’s bankruptcy affects the
liability of its individual managers under the FLSA. But our case law regarding guarantors, sureties and other non-debtor parties who are liable for thedebts of the debtor leaves no doubt about the answer: the Castaways bankruptcy has no effect on the claims against the individual managers at issue here.

So, the plaintiffs could proceed against these senior managers who owned The Castaways by suing under the FLSA, even though the Castaways went bankrupt and eventually liquidated.

The case is Boucher v. Shaw and the opinion is here.

Ninth Circuit: Walmart Has No Obligation to Foreign Suppliers' Workers

Walmart contracts with a number of companies in foreign countries to supply Walmart with the goods it sells in the U.S. Walmart's contracts with these suppliers include a code of conduct, imposing requirements that the suppliers comply with local workplace laws and standards regarding workplace law issues such as child labor, discrimination, etc. The code also permits Walmart to inspect the suppliers' operations. The suppliers' failure to adhere to the standards, including permitting inspections, could result in cancellation of the contract.

Employees of a number of foreign suppliers sued Walmart, claiming that Walmart was liable under these provisions for their employers' alleged violations of law. They claimed Walmart tells the public it is improving the workers' lives, and that Walmart's inspection program was flawed. They sought damages as third party beneficiaries of the supplier contracts, and on a variety of negligence theories, as well as unjust enrichment.

Upon dismissal of their complaint in district court, the employees appealed to the Ninth Circuit. The Ninth Circuit affirmed. The primary rationale was that the employees had no employment relationship with Walmart merely because of Walmart's right to inspect the workplace. Walmart exercised no day-to-day control over the workers.

The case is Doe v. Walmart and the opinion is here.

Ninth Circuit OKs Preemptive Decertification

Remember Countrywide? They had external home loan consultants, or HLCs, whom they classified as "outside sales" exempt. A couple of HLCs filed a class action. Countrywide filed a motion to decertify the class before plaintiffs moved for certification. The trial court granted Countrywide's motion, essentially refusing to certify the class. The Ninth Circuit affirmed:

We first address Plaintiffs’ argument that a defense motion to deny class certification “brought outside the context of a plaintiff’s motion actually seeking certification is procedurally improper per se.” Although we have not previously addressed this argument directly, we conclude that Rule 23 does not preclude a defendant from bringing a “preemptive” motion to deny certification.

The court then upheld the trial court's decision not to certify the class. For the second time in one day (see my post on Wells Fargo here), the court rejected the notion that a uniform policy of classifying certain employees as exempt was enough to certify the class.

The case is Vinole v. Countrywide Home Loans and the opinion is here.

Ninth Circuit Vacates Class Certification

Wells Fargo treated a class of loan specialists as exempt from overtime. The district court certified the class action. Although there were a number of factors requiring the court to make an individual inquiry regarding the employees' duties, the court decided that Wells' policy of classifying as exempt all employees performing the given job was enough to justify certification of the class.

The Ninth Circuit disagreed:

Whether a [uniform exemption] policy is in place or not, courts must still ask where the individual employees actually spent their time. As one court succinctly explained, “[t]he fact that an employer classifies all or most of a particular class of employees as exempt does not eliminate the need to make a factual determination as to whether class members are actually performing similar duties.” Campbell, 253 F.R.D. at 603. In short, Wells Fargo’s uniform exemption policy says little about the main concern in the predominance inquiry: the balance between individual and common issues. As such, we hold that the district court abused its discretion in relying on that policy to the near exclusion of other factors relevant to the predominance inquiry.

The case is Mevorah v. Wells Fargo Home Mtg. and the opinion is here.

Court of Appeal Kills Class Action Settlement

The Court of Appeal was not impressed with a $2 million wage and hour class action settlement. So, it vacated the judgment and sent it back to the trial court for further evaluation.

During a wage and hour class action, the parties conducted discovery, including production of thousands of pages of documents and the depositions of the class members. Then, they attended a mediation for a full day and reached a settlement. As is typical, the parties developed a comprehensive settlement agreement, and the plaintiffs filed a motion for approval of the settlement. About 20 of 2340 class members objected to the settlement. But the trial court found the settlement was reasonable and approved the settlement. The objectors appealed.

On review, the Court of Appeal concluded:

the order approving the settlement must be vacated because the trial court lacked sufficient information to make an informed evaluation of the fairness of the settlement. This was due to the court‟s apparent reliance on counsel‟s evaluation of the class‟s overtime claim as having “absolutely no” value, without regard to the objectors‟ claim that counsel‟s evaluation was based on an allegedly “staggering mistake of law.” While the court need not determine the ultimate legal merit of a claim, it is obliged to determine, at a minimum, whether a legitimate controversy exists on a legal point, so that it has some basis for assessing whether the parties‟ evaluation of the case is within the “ballpark” of reasonableness. We further conclude that the court abused its discretion in finding that the $25,000 enhancements for Clark and Gaines were fair and reasonable, and that it erred in awarding costs greater than the maximum amount specified in the notice given to the class.

The interesting aspect of this case is that the parties appeared to have made significant efforts to detail their justification for the settlement. The opinion explains the law regarding how courts should evaluate class action settlements, and what the parties are required to do to obtain the court's approval.

The case is Clark v. American Residential Services and the opinion is here.

FLSA - Federal Minimum Wage Going Up 7/24/09

Happy July 4!
The California state minimum wage is $8.00 (even higher for some employers subject to "living wage" ordinances, and in some localities like San Francisco). So, you may not care that the federal minimum wage is going up to $7.25 per hour on July 24, 2009. U.S. DOL's minimum wage page is here. Multi-state employers, heads up!

Court of Appeal: Wrongful Termination Alone Insufficient for Punitive Damages Liability

Scott sued her employer, Phoenix Schools, for wrongful termination in violation of public policy. A jury awarded her damages, including punitive damages. The Court of Appeal upheld the verdict for wrongful termination and the compensatory damages, but reversed on the punitive damages claim:

Thus, in order to sustain the punitive damages award, the evidence must leave no substantial doubt that Phoenix engaged in despicable conduct, or conduct intended to cause injury to Scott. “‘Something more than the mere commission of a tort is always required for punitive damages. There must be circumstances of aggravation or outrage, such as spite or “malice,” or a fraudulent or evil motive on the part of the defendant, or such a conscious and deliberate disregard of the interests of others that his conduct may be called wilful or wanton.’ [Citation.]” (Taylor v. Superior Court (1979) 24 Cal.3d 890, 894-895, italics omitted.) The only evidence of wrongful conduct directed toward Scott was her termination for an improper reason. This evidence was insufficient to support a finding of despicable conduct, because such action is not vile, base or contemptible.

So, a wrongful termination in violation of public policy, without additional evidence of malice, is not enough to sustain an award of punitive damages.

The case is Scott v. Phoenix Schools and the opinion is here.

Classmember's Claim of Inadequate Notice Fails

One for the plaintiff's class action bar.... Ron Matorana was a class member in a wage and hour class action against Allstate. Under a settlement, he was entitled to $65,000. But he didn't file a claim form. The settlement papers were approved by the court as fair and reasonable. Matorana, though, received nothing. He claimed he was ill during the notice period and was inattentive to the deadlines in the notice of the settlement he received.

So, he sued class counsel for malpractice, as well as Allstate, for failing to remind him adequately to file a claim form. The trial court said no. Court of Appeal? No sale.

Allstate owed Matorana no duty to follow up at all, so he had no basis for suing Allstate. The malpractice claim against his lawyers was without merit too.

Matorana argued that the notice procedure was inadequate, because it did not contain a provision requiring counsel to check up on class members who did not file claims. That argument was barred because the class procedures were deemed fair and reasonable by the trial court in the class action lawsuit. As such, a challenge to that finding was barred by the doctrine of collateral estoppel.

He also claimed that class counsel had a duty to follow up when he did not submit the form, although not required under the settlement agreement. (Collective "gulp" from the plaintiff's bar).

Not to worry. The court of appeal disagreed. Although class counsel owed Matorana a duty of care, that duty did not include contacting all class members who did not file claim forms. As the court pointed out, if class counsel were required to deal with every class member individually, that would undermine the purpose of a mass-mailed settlement notice approved by the court as fair and consistent with due process. On the other hand, if counsel misrepresented the dates or interfered with filing a claim that conceivably could have given rise to some liability.

The case is Matorana v. Marlin & Saltzman and the opinion is here.

California Supreme Court Rejects Sexual Harassment and Intentional Infliction Claims

The California Supreme Court decided a non-employment case that will have employment law ripple effects.

Suzan Hughes was the divorced widow of Mark Hughes, founder of Herbalife. Mark left a trust of $350 million to his son Alex. Suzan was Alex's guardian. One of the trustees was Christopher Pair, then CEO of Herbalife. The trustees and Suzan had a tumultuous relationship and much litigation. At one point, Pair apparently indicated interest in having a sexual relationship with Hughes. He made some offensive and crude remarks to her regarding his desires. He may have suggested that if she slept with him, he would approve an expenditure of $80,000 for a month's rental on a beach house in Malibu, for Alex (natch).

So, Hughes sued Pair under Civil Code section 51.9, which prohibits sexual harassment outside the employment context by certain vendors / suppliers in various professional business relationships, such as doctors, lawyers, accountants, and trustees.

The lower courts and the Supreme Court agreed that the lewd and crude conduct was not sufficient to constitute "sexual harassment" To get there, the Supreme Court expressly held that harassment under 51.9 is analyzed exactly the same as under the Fair Employment and Housing Act (and Title VII). So, this case is relevant to employment. Of note, because harassment must be "pervasive" or "severe," it will be tough to prove a violation of section 51.9 based on occasional interactions with a covered business' employees. (Normally, one will interact in the workplace more frequently than with a third party.)

The Court also held that Hughes' claim for intentional infliction of emotional distress was barred because the alleged conduct was not sufficient extreme and outrageous, and because Hughes and not proved she suffered "severe" emotional distress.

The opinion is Hughes v. Pair and the opinion is here.

Supreme Court: Fear of Disparate Impact Litigation Does Not Justify Disparate Treatment

Ricci v. DeStefano may be the most eagerly anticipated decision this Term. But that doesn't have anything to do with the case itself. It's because the opinion under review was written by Sonia Sotomayor, nominated for a seat on the High Court. he Sotomayor fans / foes did not get a decisive victory from the Supremes.


The Court decided that New Haven, Connecticut violated Title VII by throwing out a firefighter's promotion examination on the ground that White firefighters passed the test far more frequently than Black firefighters. The city feared a disparate impact lawsuit from unsuccessful minority applicants because the test results were skewed along racial lines. The Second Circuit had upheld the city's action.

The Supreme Court (5-4) held that refusing to certify the test on the basis of the successful examinees' race constituted disparate treatment discrimination under Title VII. The Court then considered whether avoiding disparate impact litigation was a valid defense. Mere fear of a lawsuit is not sufficient. Rather, to justify the action, the city would have to have a "strong basis in evidence" that "the test was deficient and that discarding the results is necessary to avoid violating the disparate-impact provision."

The Court also addressed the probability that the Black firefighters would sue for disparate impact discrimination. The Court noted that the test appeared to be "job-related and consistent with business necessity," a defense to the claim. In addition, the Court suggested that its decision would insulate the city from liability because throwing the test results out would constitute disparate treatment.

Justice Scalia concurred to point out there is tension between disparate impact claims under Title VII and equal protection law, the resolution of which would have to wait for a later date. Justice Alito also concurred with the majority opinion. He pointed out that the city's decision not to certify the test results may have had more to do with "racial politics" - pressure from activists - than a fear of disparate impact litigation.

Justice Ginsburg's dissent focused on the long history of minority exclusion from the New Haven ranks of firefighters, particularly in senior positions. The dissent held that it is permissible to make a race-based decision to remedy a disparate impact where, as in the case before it, there was "good cause" to find the test flawed.

The case is Ricci v. DeStefano and the opinion is here.

Court of Appeal Upholds Attorney's Fees Award in Bad Faith Trade Secrets Litigation

If you sue a former employee for violating the Trade Secrets Act, you have to have a case. That means you have, at minimum, (1) a bona fide trade secret and (2) evidence of actual or threatened "misappropriation" of the trade secret. If you are missing evidence of one or more elements, and you're just suing a competitor, it can be an expensive mistake. That's what FLIR Systems, Inc. found out when it sued former employees who were trying to set up a competing business.

Here are the facts from the opinion:

Indigo manufactures and sells microbolometers. A microbolometer is a device used in connection with infrared cameras, night vision, and thermal imaging. A significant portion of Indigo's technology was created by respondent William Parrish. FLIR manufactures and sells infrared cameras, night vision, and thermal imaging systems that use microbolometers. In 2004, FLIR purchased Indigo for approximately $185 million, acquiring Indigo's patents, technology, and intellectual property. Parish and Fitzgibbons were shareholders and officers of Indigo before the company was sold.
After the sale, they continued working at Indigo.

In 2005, respondents decided to start a new company to mass produce bolometers
and gave notice that they would quit Indigo on or about January 6, 2006. The new company was based on a business plan (Thermicon) developed by Fitzgibbons in 1998 and 1999 when he was self-employed.

Before leaving Indigo, respondents discussed allowing appellants to participate in
Thermicon. Respondents proposed outsourcing bolometer production to a third party. The production startup time would be quick, assuming respondents could acquire technology licenses and intellectual property from a third party. Respondents offered FLIR a non-controlling interest in Thermicon. FLIR rejected the offer and wished respondents success in the new endeavor.

In early 2006, respondents entered into negotiations with Raytheon Company to acquire licensing, technology, and manufacturing facilities for Thermicon. Respondents assured appellants they would not misappropriate Indigo's trade secrets and that the new company would use an intellectual property filter similar to the one used at Indigo to prevent the misuse of trade secrets.

Fearful that the new business would undermine FLIR's market, appellants sued for
injunctive relief and damages on June 15, 2006. The action was premised on the theory that respondents could not mass produce low-cost microbolometers based on the Thermicon time line without misappropriating trade secrets.

Upon learning of the lawsuit, Raytheon Company terminated business discussions with respondents. On August 15, 2006, respondents advised appellants that they
were not going forward with the new business.

But FLIR sought an injunction against its former employees precluding them from setting up a new business in which they would engage in the same business as FLIR. The trial court found, and the Court of Appeal agreed, the injunction claim at least implicitly was based on the theory that former employees would "inevitably" use or disclose trade secrets in setting up a new venture. Unfortunately for FLIR, the inevitable disclosure doctrine is not recognized in California.

So, this case is about whether attorney's fees should be awarded in favor of the former employees. The fees were over $1 million, with over $200k more in costs.

In trade secret cases, the defendant can recover fees if the court in its discretion finds the plaintiff prosecuted a claim in bad faith. The standard for bad faith requires proof of two elements: "(1) objective speciousness of the claim, and (2) subjective bad faith in bringing or maintaining the action, i.e., for an improper purpose. "

Here, the "objective speciousness" was premising the action on the inevitable disclosure doctrine. the "subjective bad faith" was established by evidence that FLIR brought the claim to stop a potential competitor from opening up shop. The court of appeal discussed a number of additional factors that supported bad faith, including a settlement demand with irrelevant conditions, the failure to dismiss the claim once it was obvious it lacked merit, and a number of other facts that should be guidance for the bar.

The case is FLIR Systems, Inc. v. Parrish and the opinion is here.

U.S. Supreme Court: Plaintiffs Must Prove "But-For" Causation in Federal Age Discrimination Claims

So, the federal Age Discrimination in Employment Act does not permit "mixed motive" jury instructions. That is because the plaintiff's burden of proof is to always show that age was THE cause of a challenged adverse action. Unlike Title VII and California's FEHA, the ADEA does not permit the plaintiff to merely prove that a discriminatory motive was just one of many. Big case under the ADEA, but it will have no real effect on California age discrimination litigation under FEHA.

Here are the facts from the opinion:

Jack Gross began working for respondent FBL Financial Group, Inc. (FBL), in 1971. As of 2001, Gross held the position of claims administration director. But in 2003, when he was 54 years old, Gross was reassigned to the position of claims project coordinator. At that same time, FBL transferred many of Gross’ job responsibilities to a newly created position—claims administration manager. That position was given to Lisa Kneeskern, who had previously been supervised by Gross and who was then in her early forties. Although Gross (in his new position) and Kneeskern received the same compensation, Gross considered the reassignment a demotion because of FBL’s reallocation of his former job responsibilities to Kneeskern.

Gross filed suit . . . alleging that his reassignment to the position of claims project coordinator violated the ADEA, which makes it unlawful for an employer to take adverse action against an employee "because of such individual’s age." 29 U. S. C. §623(a). The case proceeded to trial, where Gross introduced evidence suggesting that his reassignment was based at least in part on his age. FBL defended its decision on the grounds that Gross’ reassignment was part of a corporate restructuring and that Gross’ new position was better suited to his skills. . . .

The courts below wrestled with the proper standard of proof, assuming that Title VII's frameworks and analyses equally applied to the ADEA. The Supreme Court, which accepted review of the case to determine the proper time to give a "mixed motive" instruction in an ADEA case, answered: Never.

The Court's 5-4 majority reasoned that the ADEA statute is worded differently from Title VII, and that Congress passed a law amending Title VII to allow "mixed motive" cases, but did not simultaneously amend the ADEA. So, to sum up:

We hold that a plaintiff bringing a disparate-treatment claim pursuant to the ADEA must prove, by a preponderance of the evidence, that age was the "but-for" cause of the challenged adverse employment action. The burden of persuasion does not shift to the employer to show that it would have taken the action regardless of age, even when a plaintiff has produced some evidence that age was one motivating factor in that decision.

The dissent argued strenuously that the Court should not have reached the question that it decided because it was not presented for review. Then the dissenters, in two opinions, would have held that the language in the ADEA did not require "but-for" causation, and that courts had used Title VII precedent to interpret the ADEA's causation standards.

Congress can overturn this decision by simply incorporating Title VII's causation standards into the ADEA, or by simply adding "age" to Title VII and ending the separate statutory schemes. The majority pointed out Congress has taken up Title VII and ADEA amendments before without harmonizing the causation standards. I guess we'll find out soon enough if Congress omitted that amendment intentionally.

The case is Gross v. FBL Fin. Servs. and the opinion is here.

HAPPY 3D BIRTHDAY TO US!

Yep, it's that time of year when we issue a self-congratulatory Happy Birthday! As the venerable and respected advocates for less fortunate wine coolers, Bartles & Jaymes (LLP) once said, "Thanks for your support. "

And this means that next week will be the third anniversary of this blog! (Unsubscribe now -before the obligatory "Happy Anniversary to WNIEL" post).

Oh, and if that weren't enough, we just won a 3 year old trade secrets case! If you haven't sent us an appropriately lavish gift by now...

Thanks again everybody. Oh and I'll be posting on cases and employment law and stuff this weekend.

Greg

California Supreme Court LOVES litigation

The California Supreme Court continued its streak of pro-litigation decisions today. What am I talking about? The recent "Tobacco Cases," - expanding the availability of unfair business practice class actions, the anti-arbitration decisions, the pro-class action certification opinions, the Court's common theme lately seems to be - lawsuits good! Too bad the courts are struggling for funds to hear all these cases, there are few disincentives to bring frivolous litigation, and businesses already on shaky financial ground can't afford to be in court. OK, down off the soapbox.

Anyway, in this most recent installment, the California high court considered certified questions from the Ninth Circuit Court of Appeals, including whether proof of intentional discrimination is a required element of claims brought under the Unruh Civil Rights Act. The Unruh Act is the civil rights law that protects the public from discrimination in places of public accommodation. It's the principal state law used in disability access cases. Money damages are available for violations, making the Unruh Act more interesting than laws permitting only injunctions.

This is not an employment law case per se. But many employers operate businesses that are subject to the Unruh Act (retail, restaurants hospitals, etc.) . So, I thought I would mention this case.

The Unruh Act says that a violation of Title III of the ADA (prohibiting discriminating in public accommodations by failure to make facilities accessible) is also a violation of the Unruh Act. The Court decided that because the ADA does not require intentional discrimination in access cases, neither did the Unruh Act. (The rest of the Unruh Act, prohibiting discrimination on a variety of bases, does require intentional discrimination, though, which is why the Supreme Court had to decide the case).

So, disability access litigation is alive and well! The case is Munson v. Del Taco, and the opinion is here.

Court of Appeal: No Post Termination Commissions for You

Here are the facts as stated by the court:

Defendant hired plaintiff as a sales representative on October 4, 1999. On that date, the parties entered a written employment agreement, which provided (among other things) that: (1) plaintiff was responsible for web-hosting sales; (2) plaintiff‟s starting salary was $24,000 per year, plus commissions of 4 percent "on all direct initial sales"; (3) defendant "will be eligible for commission pay as set forth in this [document], so long as [plaintiff] remains employed with the Company as a Sales Representative"; and (4) the employment agreement "may be amended only by a written agreement executed by each of the parties hereto."

In April 2001, defendant promoted plaintiff to "Channel Manager." The parties entered a new oral agreement that provided (among other things) that: (1) plaintiff‟s salary was increased to $75,000 per year, and (2) plaintiff would receive commissions of "„20% of the up front costs‟ revenues on all accounts brought in by [plaintiff] or through [plaintiff‟s] contacts or efforts."

So, the plaintiff was later fired and sought commissions for a transaction that occurred after he left, but which was (at least according to him) was "through plaintiff's contacts or efforts."

The court made short work of the plaintiff's argument that he was entitled to post-termination commissions. On plaintiff's breach of contract claim, the court held:


We agree with defendant that, on its face, the italicized language is reasonably susceptible to only one interpretation—that once plaintiff ceased to be employed by defendant, he would no longer be eligible for commission pay. While plaintiff could have relied on extrinsic evidence (if there were such evidence) to suggest an alternative meaning of this provision, he did not do so. (Compare Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1358 ["[T]his extrinsic evidence of trade usage exposed a latent ambiguity in the contract language and presented an alter[n]-ative interpretation to which the term „gross receipts‟ was reasonably susceptible in the circumstances."].) Accordingly, we conclude as a matter of law that the written employment agreement precludes plaintiff from collecting additional commissions post-termination.

On the plaintiff's claim under the Labor Code, the court said that although commissions are wages:

for purposes of enforcing the provisions of the Labor Code, "[t]he right of a salesperson or any other person to a commission depends on the terms of the contract for compensation." (Koehl v. Verio, Inc. (2006) 142 Cal.App.4th 1313, 1330; see also Steinhebel, at p. 705 ["contractual terms must be met before an employee is entitled to a commission"].) Accordingly, plaintiff‟s right to commissions "must be governed by the provisions of the [employment agreement]." (Steinhebel, at p. 705.) We have already concluded that, pursuant to the plain language of the written employment agreement, plaintiff was not entitled to any further commissions after he was terminated. Accordingly, defendant‟s failure to pay such commissions cannot constitute a violation of the Labor Code.

The court did not consider whether the commission contract was "unconscionable" because it was not pleaded. So, that door remains open in commission cases. However, the court also did not consider the question of whether commissions were "earned" before termination and therefore should have been paid. Presumably, that issue was not argued by the plaintiff. If your plaintiff makes this argument, this case could be distinguishable.

Finally, there is the argument that the employer fired the employee to avoid paying unpaid commissions. But the plaintiff waived that argument too. So, because this case was not as vigorously litigated as it might have been, be careful before you rely on it too heavily. On the other hand, the courts will enforce straightforward commission plans that contain contingencies on the right to payment, such as continued employment.

The case is Nein v. Hostpro, Inc. and the opinion is here.

DGV

Court of Appeal: Labor Code Provisions Don't Apply to Public Entities Unless They Expressly Are Made Applicable

The court of appeal held that Labor Code sections 510 (overtime) and 512 (meal periods) do not apply to government entities because the Legislature did not expressly say they were applicable. AB 60, the bill codified in the 500's of the Lab. Code, has a provision applying some of its provisions to a narrow class of government entities. But not these provisions, and not against this agency. Therefore, the Arvin-Edison Water Storage District's demurrer to a wage and hour class action was upheld on appeal.

The most interesting argument was that Wage Order 17, applicable to "Miscellaneous" employees, brought a water district within the scope of the wage orders, daily overtime, and meal periods. Nope. The intent of Wage Order 17, the court reasoned, was to include employees within some new industry or occupation not contemplated before. But water districts have been around for a long time.

The court also held that sections 201-203, addressing timing of final pay and waiting time penalties, did not apply to a water district. That's because section 220 exempts government entities, including "other municipal corporations." Water districts are "other municipal corporations" under prior case law.

This means that water districts, like other government entities, are subject only to the federal FLSA, unless a state wage and hour law expressly applies. Perhaps our state and local governments will save some money defending against these class actions now, and slightly shrink their incredible deficits. ::::Off soapbox::::

This case is Johnson v. Arvin-Edison Water Storage Dist. and the opinion is here.

DGV

Court of Appeal Stiffs Baristas

Remember that time when the Starbucks Baristas won $86,000,000 because the shift supervisors took their tips? That was awesome.

[Sorry, I like Chris Farley. Sue me. I'll SLAPP you.]

Anyway, some time ago, we wrote about that huge Starbucks verdict over this tip pooling issue here. Then came the flood of tip pooling cases this winter and spring, discussed here and here. The Supreme Court is working on at least one of the cases here.

And now, the court of appeal just made real the Starbucks plaintiffs' worst nightmare: they reversed the monster $86,000,000.00-ish judgment quicker than as you can say tall no-whip-mocha with foam. As if I would ever say that.

The court held that the tips were placed in a community box for all service-related employees to share. Therefore, the court reasoned, the tip pooling statute did not even apply and the company was free to share tips with the service leads. The managers and assistant managers did not share in the tips.

So, easy come, easy go. We will see if the Supreme Court agrees to take up this case as well.

The case is Chau v. Starbucks and the opinion is here.

DGV

Small Employers Alert: AB 23 - Cal COBRA Amendment

Small employers - take note! Governor Schwarzenegger signed AB 23, which implements the federal COBRA amendments contained in the "stimulus" bill (ARRA) and applies it to small employers covered by Cal-COBRA. This is an "urgency statute" that took effect on May 12, when it was signed into law.

Is your head spinning? Mine too. We're a small employer, too.

Well, the good news is most small employers rely on their health plans to distribute Cal-COBRA notices. So, just check with your insurers and brokers about this, mmmkay? I hope they will have this covered.

In case they don't - The new law will require notices to be sent to anyone having a qualifying event between 9/1/08 and May 12, 2009 ASAP (May 26, even). The notices explain eligibility for premium discounts under ARRA and give those who did not elect Cal-COBRA a second chance to do so.

The premium discounts offered to Cal-COBRA-eligible employees will result in tax deductions taken by the insurance companies in the case of Cal-COBRA. There will be verification of Cal-COBRA qualifying events to ensure those electing Cal-COBRA and seeking premium discounts are eligible under ARRA.

Incidentally, if you've missed all the hullabaloo about ARRA and the COBRA amendments, you can catch up here.

Court of Appeal: Arbitrate DLSE Wage Claim

So, can an employer require employees to bring wage claims in arbitration instead of at the Division of Labor Standards Enforcement? If the arbitration agreement is otherwise drafted properly, Yes.

As explained by the court,

Frank Moreno is a former employee of Sonic, which owns and operates an automobile dealership. As a condition of his employment with Sonic, Moreno signed a predispute agreement that required both parties to submit their employment disputes to "binding arbitration under the Federal Arbitration Act, in conformity with the procedures of the California Arbitration Act (Cal. Code Civ. Proc. sec. 1280 et seq. . . .)." By its terms, the arbitration agreement applied to "all disputes that may arise out of the employment context . . . that either [party] may have against the other which would otherwise require or allow resort to any court or other governmental dispute resolution forum[,] . . . whether based on tort, contract, statutory, or equitable law, or otherwise." At some point, Moreno left his position with Sonic. In December 2006, Moreno filed an administrative wage claim with the Labor Commissioner for unpaid
vacation pay pursuant to section 98 et seq. Moreno alleged that he was entitled
to unpaid "[v]acation wages for 63 days earned 7/15/02 to 7/15/06 at the rate of
$441.29 per day."

So, why was the agreement enforceable even against the Labor Commissioner? The court of appeal decided that there was nothing precluding the substitution of the arbitrator for the deputy labor commissioner. The plaintiff argued that arbitration would not include the special stautory provisions regarding the de novo appeal to superior court after the hearing. But the court was unpersuaded. The court also found that the agreement complied with the protections of the California Supreme Court's decision in Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83. The court did not analyze the agreement's provisions, though. So, we have to assume that this agreement was sufficiently "mutual," provided for the employer to bear the unique costs of arbitration, etc.

The case is Sonic-Calabassas A, Inc. v. Moreno, and the opinion is here.

California Court of Appeal: "Me Too" Declarations Admissible

"Me too" evidence is when a plaintiff attempts to prove discrimination by showing that other employees have suffered discrimination. It can come in the form of live testimony at trial, or declarations in opposition to a motion for summary judgment.

Back in 2008, the Supreme Court of the U.S. held that "me too" evidence was neither categorically admissible nor inadmissible. We posted about that here.

California's Evidence Code is similar to the Federal Rules of Evidence in a number of respects. The Court of Appeal recently decided that co-employees' declarations claiming similar discrimination was admissible to defeat a motion for summary judgment.

Basically, the plaintiff, Dewandra Johnson, claimed discrimination against her because of her pregnancy. The employer, United Cerebral Palsy / Spastic Children's Foundation etc., claimed it fired her because she falsified time records. The Court of Appeal, reversing summary judgment in favor of the employer, found several issues from which the jury could determine that the real reason was discrimination. These evidentiary submissions included declarations from co-workers that claimed the same managers who fired the plaintiff had trumped up reasons for discharging them on the basis of pregnancy. Here's what the court said:

5. Declarations from Other Employees Also Constitute Substantial Evidence That
Requires Reversal of the Summary Judgment
The challenged "me to[o]" declarations that plaintiff included in her opposition to defendant‟s motion for summary judgment constitute substantial evidence requiring reversal of the judgment. Former employees of defendant stated in their declarations that (1) they too were fired by defendant after they became pregnant, (2) they know of someone who was fired by defendant because she was pregnant, (3) they resigned
because Jimenez made their work stressful after they notified her they were trying to become pregnant, or (4) they know of occasions when employees who were
dishonest or cited for dishonesty, were not fired by defendant. These employees
worked at the same facility where plaintiff worked, they were supervised by the
same people that supervised plaintiff (Jimenez and Sandgren), and their supervisors were, in turn, supervised by Jones. This is substantial evidence sufficient to raise a triable issue of material fact as to why defendant fired plaintiff.

The Court of Appeal then surveyed the case law supporting admission of this evidence to show pretext, concluding:

The evidence sets out factual scenarios related by former employees of the defendant that are sufficiently similar to the one presented by the plaintiff
concerning her own discharge by defendant, and the probative value of the
evidence clearly outweighs any prejudice that would be suffered by defendant by
its admission. Dissimilarities between the facts related in the other employees‟ declarations and the facts asserted by plaintiff with regard to her own case go to the weight of the evidence, not its admissibility.

So, the case turns on the similarity between the plaintiff's claims and her co-workers'. Had the co-workers' evidence been less similar, the court might have decided their admissibility a different way.

The case is JOHNSON v. UNITED CEREBRAL PALSY/SPASTIC CHILDREN‟S FOUNDATION OF LOS ANGELES AND VENTURA COUNTIES, and the opinion is here.

DFEH Issues 2008 Annual Report

The California Department of Fair Employment and Housing enforces California's Fair Employment and Housing Act, the anti-discrimination and medical leave law. The agency just issued its annual report for 2008, which you can find here. It's graphic-heavy and mercifully short!

Of note, the DFEH noted discrimination complaints were up nearly 20% over 2007. The agency took in about 20,000 discrimination charges, almost 19,000 of which alleged employment (rather than housing) discrimination.

How does that break down? The most common form of discrimination alleged? Disability (about a third of the charges filed). Retaliation was right behind disability. Race, sexual harassment, and age discrimination constituted about 20% each of the total.

DFEH settled about 960 cases, for about $9.5 million in payments from employers and landlords to complainants.

Finally, the report highlighted the new automated charge filing system, and the new automated right to sue system. They're also working on intake filing by telephone, which should result in a lot more charges.

The best way to avoid a charge is prevention. Besides a solid policy and training, communication with employees and an effective system for complaints are the best way to prevent claims to third parties like the DFEH.

DGV

U.S. Supreme Court: Preganancy Discrimination Act Not Retroactive

AT&T's old pension plan used to provide that employees on pregnancy disability leave did not receive the same service credit as employees on leave for other disabilities. Just before Congress enacted the Preganancy Discrimination Act, in 1978, AT&T modified its service credit calculations prospectively, but still calculated pre-PDA service under its pre-PDA rules. Before the PDA, AT&T's calculations were legal under Supreme Court precedent interpreting Title VII.

Four AT&T employees sued AT&T, claiming that perpetuating the calculation of service credit violated the PDA because their pension benefits were reduced as a result of the pre-PDA calculation. The EEOC joined in, as did the Communication Workers' Union. The district court and Ninth Circuit agreed with the Plaintiffs.

However, the Supreme Court, on a 7-2 vote, reversed. The Court's decision, penned by soon-retiring Justice Souter, turned on a number of reasons, the most significant of which are:
- the prior calculation was a "seniority system" exempt from Title VII (pre-PDA);
- the calculation was considered lawful under Supreme Court precent, General Elec. Co. v. Gilbert, 429 U. S. 125 (1976); therefore, AT&T could not have intentionally discriminated by adopting the old system;
- the PDA was not retroactive;
- the Lilly Ledbetter Fair Pay Act did not save her claim because the underlying pre-PDA decision was not itself discriminatory.

Justice Stevens joined the majority, but also wrote a concurrence noting he was bound by the pre-PDA Supreme Court opinion, General Elec. Co. v. Gilbert, 429 U. S. 125 (1976), although he dissented in that case.

Justices Ginsburg and Breyer dissented. The dissent traced a history of discrimination against pregnancy in the workplace. Acknowleding that the PDA was not retroactive, the dissent in essence argued that because Gilbert was SO wrongly decided, it should not affect the decision in the present case. Here's the essence of the dissent:

The PDA does not require redress for past discrimination. It does not
oblige employers to make women whole for the compensation denied them when,
prior to the Act,they were placed on pregnancy leave, often while still ready, willing, and able to work, and with no secure right to return to their jobs after childbirth.[fn] But the PDA does protect women, from and after April 1979, when the Act became fully effective, against repetition or continuation of pregnancy-based disadvantageous treatment. Congress interred Gilbert more than 30 years ago, but the Court today allows that wrong decision still to hold sway. The plaintiffs (now respondents) in this action will receive, for the rest of their lives, lower pension benefits than colleagues who worked for AT&T no longer than they did. They will experience this discrimination not simply because of the adverse action to which they were subjected pre-PDA. Rather, they are harmed today because AT&T has refused fully to heed the PDA’s core command: Hereafter, for "all employment-related purposes," disadvantageous treatment "on the basis of pregnancy, childbirth, or related medical conditions" must cease. 42 U. S. C. §2000e(k) (emphasis added). I would hold that AT&T committed a current violation of Title VII when, post-PDA, it did not totally discontinue reliance
upon a pension calculation premised on the notion that pregnancy-based
classifications display no gender bias.

The case is AT&T Corp. v. Hulteen, and the opinion is here.

Court of Appeal: Employee's Obligations re Reasonable Accommodation

Carmine Scotch worked as an instructor for The Art Institute of California - Orange County. He had HIV. The institute's accreditation standards require instructors to have certain certification and education credentials / degrees. They allow some instructors to work towards those credentials after hire.

In 2004, the institute's management prepared for accreditation audits by identifying instructors lacking the education credentials required to maintain accreditation, including Scotch. By the end of 2005, Scotch had still not enrolled in a master's program. The institute even agreed to pay for degrees obtained at a local university.

Scotch received a poor performance review in early 2006. He disputed it, claiming it was retaliation for a leave he took during the previous winter. He also disclosed to HR that he had HIV.

By mid-2006, there was a decline in enrollment. Some instructors were laid off; others were reduced to part-time. Because the institute had more instructors than work, it decided to assign only instructors with masters degrees to upper-level courses. Therefore, Scotch's hours were reduced (along with other instructors'). Ultimately, Scotch resigned.

Scotch sued for refusal to accommodate, disability discrimination, failure to engage in the interactive process and wrongful termination. The Court of Appeal affirmed the Superior Court's grant of summary judgment on all causes of action.

Most of the opinion is not new law. The court found that the course load was reduced for legitimate reasons, and that Scotch did not demonstrate pretext. But this opinion is interesting because of the court's analysis of the accommodation claim. Scotch argued that he should have been assigned a full course load despite his failure to achieve the masters degree as a reasonable accommodation. The court found:

His proposed accommodation is not reasonable under the definition we have adopted because it is not a “modification or adjustment to the workplace” necessary to enable him to perform the essential functions of his position. Unlike the employee in Jensen, Scotch was not requesting assignment from a position he could not manage to one he could. Instead, Scotch explained the limitations created by his disability were that he needed to avoid stress and he could not pursue a master‟s degree while teaching full time and fulfilling other professional development requirements—limitations addressed by AIC‟s accommodation. Scotch‟s request of priority in assignment of lower division courses does not accommodate those limitations and was unnecessary to enable him to perform the essential functions of his position.

The opinion also addresses the "interactive process." The court found that the institute did not initiate a meeting before reducing the hours and that, perhaps, a jury would find that it should have. However, the court also found that the failure to have the meeting did not require a trial. That is because the employee must identify a potential accommodation that would have been effective to recover on the cause of action:

To prevail on a claim under section 12940, subdivision (n) for failure to engage in the interactive process, an employee must identify a reasonable accommodation that would have been available at the time the interactive process should have occurred. An employee cannot necessarily be expected to identify and request all possible accommodations during the interactive process itself because "„"[e]mployees do not have at their disposal the extensive information concerning possible alternative positions or possible accommodations which employers have. . . ."‟" (Wysinger, supra, 157 Cal.App.4th at p. 425.) However . . . once the parties have engaged in the litigation process, to prevail, the employee must be able to identify an available accommodation the interactive process should have produced: "Section 12940[, subdivision ](n), which requires proof of failure to engage in the interactive process, is the appropriate cause of action where the employee is unable to identify a specific, available reasonable accommodation while in the workplace and the employer fails to engage in a good faith interactive process to help identify one, but the employee is
able to identify a specific, available reasonable accommodation through the litigation process." (Nadaf-Rahrov, supra, 166 Cal.App.4th at p. 984.)

The case is Scotch v. Art Inst. of Orange Cty. and the opinion is here.

California Supreme Court to Review Section 203 Waiting Time Penalties

The statute of limitations for a penalty is usually one year under California law. But, Labor Code Section 203 says that the statute of limitations for "waiting time penalties" is the same as the limitations period for the underlying wage claim. So, if the underlying wage claim is three years (such as unpaid overtime), then the statute of limitations for late payment of those wages at termination is also three years.

But, what happens if the underlying wages are paid already and an employee just wants to recover penalties in a civil lawsuit? There IS no underlying claim for wages in that case. So, the court of appeal reasoned in Pineda v. Bank of Am., that the one-year statute of limitations should apply in cases where there is no accompanying claim for unpaid wages.

The court in Pineda also clarified that the unfair competition law's four year statute does not apply to waiting time penalties, since the UCL ordinarily only applies to "restitution" of the plaintiff's property, and waiting time penalties are not the employee's property.

The California Supreme Court just accepted review of Pineda on both issues discussed above. The docket is here. We posted about the court of appeal's opinion here.

Ninth Circuit Asks CA Supremes for Guidance on Wage and Hour

The Ninth Circuit has before it three cases involving pharmaceutical sales representatives. These folks visit with doctors and give them information on medications. The Ninth Circuit wants to know if these employees count as "outside salespersons" under California law. So, they asked the California Supreme Court for an opinion:

1. The Industrial Welfare Commission’s Wage Orders 1-2001 and 4-2001 define “outside salesperson” to mean “any person, 18 years of age or over, who customarily and regularly works more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.” 8 Cal. Code Regs., tit. 8, §§ 11010, subd. 2(J); 11040, subd. 2(M). Does a pharmaceutical sales representative (PSR) qualify as an “outside salesperson” under this definition, if the PSR spends more than half the working time away from the employer’s place of business and personally interacts with doctors and hospitals on behalf of drug companies for the purpose of increasing individual doctors’ prescriptions of specific drugs?

If the sales representatives don't qualify as outside salespersons, because they don't take orders or actually sell the medications, the court wants to know if they qualify as "administrative" employees:

2. In the alternative, Wage Order 4-2001 defines a person employed in an
administrative capacity as a person whose duties and responsibilities involve (among other things) “[t]he performance of office or non-manual work directly related to management policies or general business operations of his/her employer or his employer’s customers” and “[w]ho customarily and regularly exercises discretion and independent judgment.” Cal. Code Regs., tit. 8 § 11040, subd. 1(A)(2)(a)(I), 1(A)(2)(b). Is a PSR, as described above, involved in duties and responsibilities that meet these requirements

The Ninth Circuit seeks guidance on the administrative test because California case law is sparse on what it means to "exercise discretion and independent judgment" for the administrative exemption, and whether the PSRs are involved in "office or non-manual work directly related ot management policies or general business operations" of Bayer's customers. The court appears to believe that California law on outside salespersons differs from the federal test under the FLSA such that reliance on FLSA cases would be of "limited" assistance.

The Supreme Court does not have to answer the questions. If the Court chooses not to, then the case will return to the Ninth Circuit for a prediction on how the Supreme Court would rule. Otherwise, this case could provide needed guidance in this area of wage and hour law.

The case is D'Este v. Bayer Corporation and the opinion/request for answers is here.

California Supreme Court Takes Tips

(Or at least they accept tip pooling cases for review. ) What's tip pooling? We blogged about it here and wrote an article here. Yeah, we're on it.

Who knew tip pooling was the new meal break? There have been about four recent appellate decisions on tip pools in recent months. The Supreme Court decided to have its say, accepting review in Lu v. Hawaiian Gardens. We'll see if they grant and hold the rest of them or leave one on the books for guidance to the bar while the Lu review is pending.

DGV

Court of Appeal: Release Bars Employee's Class Action

Watkins and Brown sued Wachovia Bank for mis-classification as exempt, as well as for individual wrongful termination and wage claims. There was a lot of litigation over arbitration, discovery and the like.

Brown ultimately settled her claims and signed a release, which covered all claims, including disputed claims for overtime. The trial court granted summary judgment against her, holding she no longer could participate in the class action. On the same day, the court denied the plaintiffs' motion for class certification of the wage claims.

Watkins settled her claims and signed a release as well. However, she purported to reserve the right to press any "class claims," and to receive an enhanced payment if the class claims were successful. She also reserved the right to appeal the denial of class certification.

On appeal, Brown argued that her release did not encompass claims for unpaid wages and that she was free to have signed the general release, but still maintain her wage claim. Relying on the recent decision in Chindarah v. Pick Up Stix, covered here, the court of appeal held that a release may properly include disputed claims for wages.

Then, the court turned to Watkins. The court held that Watkins could not preserve her right to appeal since she had signed a general release. Because parties cannot confer appellate jurisdiction and a court of appeal will not issue an opinion about a moot claim, the court dismissed the appeal. That left no appeal of the denial of class certification and, maybe, some annoyed absent class members?

The court of appeal was careful to distinguish what are called "pick off" cases. In those cases, the defendant pays a class representative all that s/he claims is due and then seeks dismissal of the action against that plaintiff. The plaintiff can stay in the case if s/he has an adequate economic interest in remaining in the case, such as the interest in attorneys' fees. But the court squarely held that a plaintiff accepting a voluntary settlement of all claims is not picked off and, therefore, not entitled to maintain a class action:

We believe that it is illogical to import the law governing "pick off" cases into the context of a voluntary settlement. Often, a plaintiff brings an action as a class action precisely because the attorney‟s fees involved in bringing the action individually would exceed the value of the any judgment the plaintiff could obtain individually. (Roper, supra, 445 U.S. at p. 338, fn. 9.) In such a situation, a "pick off" settlement, which gives the plaintiff only the relatively small amount sought as damages, may be inadequate to cover the substantial attorney‟s fees incurred in pursuing the litigation. Thus, the plaintiff who has been involuntarily picked off has not obtained satisfactory
relief, and is therefore permitted to continue pursuing the class litigation
until complete relief is received. This conclusion is supported by policy considerations which seek to prevent a defendant from avoiding class liability by picking off individual plaintiffs.

This is to be distinguished from the case of a voluntarily settling plaintiff. In such a case, the plaintiff has accepted an amount the plaintiff believes is sufficient to make the plaintiff whole. By voluntarily settling, the plaintiff has agreed to accept the offered sum in full satisfaction of the plaintiff‟s claim against the defendant. There are no public policy interests implicated by a settlement voluntarily accepted.

* * *

Applied to this case, it is apparent that Watkins‟s appeal must be dismissed. She has voluntarily released her wage claim against Wachovia in exchange for a $51,000 payment. While she attempted to reserve her right to pursue her "class claim," her "class claim" is simply a procedural device by which she pursued her substantive claim for overtime wages. Having settled her substantive claim, the class claim disappears, and her appeal of the denial of class certification must be dismissed. Watkins cannot salvage her right to appeal by asserting an economic interest in class certification in terms of a right to shift her attorney‟s fees to the class, if successful. If the class obtains a judgment or settlement, such recovery would belong to the class. Having voluntarily settled, she is, by her own choice, no longer a member of the class and cannot share in any such recovery.

The opinion is Watkins v. Wachovia Corporation and the opinion is here.

Alert the Media! Arbitration Agreement Enforced

As stated by the Court of Appeal,

The arbitration provision, contained in a separate paragraph initialed by Roman, provided, "I hereby agree to submit to binding arbitration all disputes and claims arising out of the submission of this application. I further agree, in the event that I am hired by the company, that all disputes that cannot be resolved by informal internal resolution[1] which might arise out of my employment with the company, whether during or after that employment, will be submitted to binding arbitration. I agree that such arbitration shall be conducted under the rules of the American Arbitration Association. This application contains the entire agreement between the parties with regard to dispute resolution, and there are no other agreements as to dispute resolution, either oral or written."

So, the first thing that jumps to mind is that a court would say it wasn't "mutual," in that it does not say that the Company will submit all disputes to arbitration. Forgive me my cynicism, but the courts seem to find any way possible to deny enforcement of these puppies.

Not this time. The court determined that there was no one-sidedness and that both parties would have to arbitrate all claims. The court had an interesting discussion of canons of construction of contracts contained in the Civil Code supporting enforceability.

The plaintiff also argued that the employer's propounding some paper discovery and even filing a motion to compel the plaintiff's deposition was a waiver. But no:

Although Roman incurred litigation expenses in serving and filing objections to
discovery requests and opposing the demurrer and motion to compel her deposition, those expenses are insufficient, by themselves, to support a finding of waiver: "[W]aiver does not occur by mere participation in litigation"‟ if there has been no judicial litigation of the merits of arbitrable issues" and no prejudice. (Saint Agnes, supra, 31 Cal.4th at p. 1203.) "Because merely participating in litigation, by itself, does not result in a waiver, courts will not find prejudice where the party opposing arbitration shows only that it incurred court costs and legal expenses." (Ibid.; see also Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1197 [expense of responding to motions or other preliminary pleadings is not type of prejudice that bars later petition to compel arbitration].) The trial court did not err in impliedly rejecting Roman‟s waiver argument.

So, there you have it, an enforceable arbitration agreement. Take a picture. The case is Roman v. Superior Court (Flo-Kem), and the opinion is here.

Court of Appeal: No Privacy on Myspace

Myspace, Facebook, Linkedin, etc. are fertile sources of information about employees and job applicants. The phenomenon of otherwise private individuals airing out their grievances, sharing personal information, etc. continues unabated. The phenomenon of the same individuals' shock and surprise that people actually read their stuff and hold it against them continues as well.

In a non-employment matter, the Court of Appeal addressed whether an essay on myspace was private such that republishing it in a newspaper without the author's permission constituted an invasion of privacy. Umm no.

Moreno was from the small town of Coalinga. After she left town, she wrote an essay about her disdain for her hometown. She neglected to consider that folks who remained in Coalinga might get offended. Her principal forwarded the posting to the local newspaper, which published it as a Letter to the Editor. And of course, although Moreno's last name is not on her myspace page, the principal helpfully supplied it.

Now Moreno also forgot that her family still lived in Coalinga, and operated a small business there. The fans of Coalinga were miffed by Moreno's letter, and drove the family out of business and out of town. She chose to sue the newspaper and principal rather than herself. No word whether her family sued her.

The Court of Appeal, upholding the trial court, held that when you post on myspace, it's not "private." As such there is no invasion of "privacy" when you use the posted information or disclose it to others. Without a private fact, there is no tort of invasion of privacy.

Interestingly, the Court of Appeal also held, albeit in an unpublished portion of the decision, that Ms. Moreno could proceed against the defendants for intentional infliction of emotional distress, possibly because of the fact that the principal intentionally supplied the posting to the newspaper out of spite? No clue. Simply reading the information and relying on it on the job may or may not supply the requisite "outrageous conduct" required for IIED. My bet is" not."

So, at least based on this case, if you put your private information out on the INtRaw3Bs, your employer is not invading your privacy by reading it. The case is Moreno v. Hanford Sentinel and the opinion is here.

DGV

Another I-9 Reminder

All of you well-educated, information-saturated folks know the new I-9 Form is effective 4/3, right? OK, then.

This one has the 6/30/09 expiration date, just like the old one. But it also has the critical 2/2/09 revision date (visible in the lower right-hand corner of the form.) Looks like you'll have to replace these new forms, too. (The expiration date is near! Alert the media!) So, you can look forward to still more newsletters and blogs nagging you about this critical issue facing employers. If you need one of these new forms, find it here.

U.S. Supreme Court: Union May Agree to Arbitration of Age Discrimination Claims

In New York City, there is a multi-employer association of building management that negotiates with a large union over building workers' wages, hours and other terms of employment. The union contract provided for arbitration of discrimination claims as follows:

NO DISCRIMINATION. There shall be no discrimination against any present or
future employee by reason of race, creed, color, age, disability, national origin, sex, union membership, or any other characteristic protected by law, including, but not limited to,claims made pursuant to Title VII of the Civil Rights Act, the Americans with Disabilities Act, the Age Discrimination in Employment Act, the New York State Human Rights Law, the New York City Human Rights Code, . . . or any other similar laws, rules, or regulations. All such claims shall be subject to the grievance and arbitration procedures (Articles V and VI) as the sole and exclusive remedy for violations.Arbitrators shall apply appropriate law in rendering decisions based upon claims of discrimination.

So, this is a clear agreement to arbitrate. But can a union agree with an employer that individuals' claims must be arbitrated, even though the individuals have not personally agreed to do so?

Yep. The Court decided, 5-4, that the arbitration clause was fully enforceable. To get there, the majority decided two issues. First, the Court noted that unions and employers have broad discretion to agree on terms to be included in collective bargaining agreements. Unions are the employees' designated bargaining representatives and may bargain away rights (such as to sue in lieu of arbitration) in exchange for other concessions by management.

As a result, the only way the above contractual provision could be invalid was if the ADEA prohibited mandatory arbitration of discrimination claims. But the Court already had decided that the ADEA contains nothing precluding mandatory arbitration. Hence, the Court upheld the language in the CBA:

Examination of the two federal statutes at issue in this case, therefore, yields a straightforward answer to the question presented: The NLRA provided the Union and the RAB with statutory authority to collectively bargain for arbitration of workplace discrimination claims, and Congress did not terminate that authority with respect to federal age-discrimination claims in the ADEA. Accordingly, there is no legal basis for the Court to strike down the arbitration clause in this CBA, which was freely negotiated by the Union and the RAB, and which clearly and unmistakably requires respondents to arbitrate the age discrimination claims at issue in this appeal.

The Court also refused to rule that mandatory arbitration was a waiver of substantive rights without the employees' consent. The Court made clear it does not consider arbitration in lieu of court to be a substantive change, but rather merely a change of forum.

Four justices dissented in two opinions, arguing that prior precedent precluded the majority's result. Justice Souter admitted the majority's conclusion "at least could be considered" if it weren't for precedent that, in the dissent's view, should control the question.

Anyway, this is all very interesting to students of stare decisis and Supreme Court watchers. But for you, gentle reader, all that matters is that Union contracts can require mandatory arbitration of discrimination claims, if the clause in the contract is "clear and unmistakable."

What also matters is that Congress is moving to ban arbitration of employment discrimination lawsuits, this time with a clear Democratic majority and a Democratic president. So, the odds of this case surviving Congressional action are much lower than they were a few years ago.

The opinion is 14 PENN PLAZA LLC v. PYETT and the opinion is here.

U.S. Supreme Court Upholds Idaho Law Re Union Political Activities Checkoff

I know I'm posting late on this, but I have a strong need to have full coverage of the U.S. Supreme Court's employment law opinions, even the ERISA cases. I hope I didn't inconvenience my devoted followers, and the copycats who don't read the advance sheets themselves .... (Hi!)

This one is a labor / First Amendment crossover. A union claimed Idaho law, prohibiting deductions from employees' pay for union political action funds, is unconstitutional in violation of the First Amendment. The Court disagreed and upheld Idaho law.

Here's the issue and the Court's resolution, as framed by the Court itself:

Under Idaho law, a public employee may elect to have a portion of his wages
deducted by his employer and remitted to his union to pay union dues. He may not, however, choose to have an amount deducted and remitted to the union’s political action committee, because Idaho law prohibits payroll deductions for political activities. A group of unions representing Idaho public employees challenged this limitation. They conceded that the limitation was valid as applied at the state level, but argued that it violated their First Amendment rights when applied to county, municipal, school district, and other local public employers.

We do not agree. The First Amendment prohibits government from “abridging the freedom of speech”; it does not confer an affirmative right to use government payroll mechanisms for the purpose of obtaining funds for expression. Idaho’s law does not restrict political speech, but rather declines to promote that speech by allowing public employee checkoffs for political activities. Such a decision is reasonable in light of the State’s interest in avoiding the appearance that carrying out the public’s business is tainted by partisan political activity. That interest extends to government at the local as well as state level, and nothing in the First Amendment prevents a State from determining that its political subdivisions may not provide payroll deductions for political activities.

So, there you have it. The case is Ysursa v. Pocatello Ed. Assn. and the opinion is here.

Another Court of Appeal Decision on Tip Pooling

Did lawyers file a whole bunch of class actions on tip pooling at about the same time a year or two ago? Apparently so. Several judicial opinions have now emerged. They're not good for the plaintiffs.

We recently posted about Budrow v. Dave & Buster's here. There, the court decided that a restaurant's requirement that cocktail waitrons tip out a bartender was lawful.
Now, in Etheridge v. Reins International California, Inc. opinion here, the court of appeal reached the same conclusion, albeit with a slightly different formulation. Tip pooling, the court held, is fine when the tips are doled out to employees in the "chain of service." It is still forbidden to involve managers / supervisors in tip pools. But the bussers, bar backs, and hosts can breathe again.

Another Arbitration Agreement Bites the Crust

er... Dust, too.

Western Pizza owns some Domino's franchises. Their arbitration agreement had a class action waiver (illegal). It also had an arbitration selection procedure specifying a certain "dispute resolution service" that had only one arbitrator employed. So, that kind of took the surprise out of who would conduct the arbitration. The court struck down the arbitration agreement as unconscionable. Not a surprise given the current state of arbitration case law.

Interestingly, though, the court of appeal held that the company's "small claims" procedure, permitting relaxed discovery, evidence, and hearing procedures for claims worth less than $50,000. The court noted that such things are normal in arbitration anyway. Also, the court did not find unconscionable the agreement's silence on discovery procedures and no requirement of a written award, holding these were "implied" in the agreement under Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83.

The case is Sanchez v. Western Pizza Enterprises, Inc. and the opinion is here.

Court of Appeal Holds Statements Regarding Termination Were Not Defamatory "Per Se"

Slander per se means that a false statement is actionable without proof of actual damages. In California, the law defines the types of slander that count as "per se," which include a statement that:

[¶] 1. Charges any person with crime, or with having been indicted, convicted, or punished for crime; [¶] 2. Imputes in him the present existence of an infectious, contagious, or loathsome disease; [¶] 3. Tends directly to injure him in respect to his office, profession, trade or business, either by imputing to him general disqualification in those respects which the office or other occupation peculiarly requires, or by imputing something with reference to his office, profession, trade, or business that has a natural tendency to lessen its profits; [¶] 4. Imputes to him impotence or a want of chastity . . .

Mike Regalia was a senior executive. When he was fired, the senior management said that he demanded a "finders fee" or "commission" on a sale without a justification, and that people would not work for him and had threatened to leave. He sued for, among other things, defamation. A jury decided he had been slandered and awarded him $750,000 for damage to his reputation without proof of actual economic loss.

The Court of Appeal disagreed. It is the court's job to decide if a statement is slanderous "per se" or if proof of damages is required (called slander per quod). Here's the court's analysis:

A person can make a claim for money that is rejected as not being justified, and still not be viewed as having committed an act that reflects negatively on that person. Thus a statement about such a claim does not necessarily directly injure him in his profession, trade or business (Correia v. Santos, supra, 191 Cal.App.2d at p. 852) so as to fit within subdivision (3) of Civil Code section 46. (See Gang v. Hughes (9th Cir. 1954) 218 F.2d 432 [alleged statements that a plaintiff‟s attorney refused to settle a case until he was paid and that he was paid because he demanded immediate payment not slander or libel per se].) Likewise, the statement that Regalia was fired because other employees would not work for him and would leave if he remained employed does not, on its face, clearly fall within subdivision (3) of Civil Code section 46. That one or more employees do not want to work for someone, without more, again, does not necessarily reflect adversely on the person. The employee or employees might not want to work for a person because of the person‟s work ethic or rectitude, or legitimate business policies.

Managers have the right to explain to employees why they have discharged someone. There are good business reasons to do so, such as to inform employees what performance standards govern employment. If statements such as the above were actionable as slander per se, no employer would ever explain why someone was no longer employed unless it wished to risk liability without proof of damages. Employees, on the other hand, are protected from false statements if they are actually injured. So, the court struck a reasonable balance here it seems to me.

This case, however, reinforces the need to be factual when explaining someone's departure. Had they called the ex-employee a "thief" or an "incompetent" manager, that might have been a different story. And neutral references are still the safest policy.

The case is The Nethercutt Collection v. Regalia and the opinion is here.

New COBRA Notices Available

Employers covered by COBRA have to comply with the new COBRA requirements included in the "ARRA" stimulus bill. We wrote an article about this here, and we posted here.

The US Department of Labor has issued model notices to aid compliance. Those are here.

DGV

California FEHC Compares ADA, ADAAA and FEHA

The California Fair Employment and Housing Commission issued a handy chart comparing the original Americans with Disabilities Act, the 2008 amendments (ADAAA), and the Fair Employment and Housing Act's coverage of individuals with disabilities. Here is the chart.

California FEHC Compares New FMLA Regulations with CFRA/PDL

The California Fair Employment and Housing Commission issued a helpful comparison chart covering the new FMLA regulations and their effect on California's Family Rights Act and Pregnancy Disability Leave law. Here it is.

Court of Appeal Clarifies California's Tip Pooling Law

If you have worked in a restaurant, then you know. Most restaurants require waitrons (servers) to "tip out" busboys, bartenders, runners, hosts, and/or others involved in the chain of service. If you gain the reputation for stiffing the busboy, bartender, etc. (under-tipping), you will be punished by no water, wrong drink orders, forgotten bread for your table, etc. So, smart wait staff tips out correctly.
In California, though, there is a statute addressing the practice of "tip pooling." The primary purpose of the law is to prevent management from taking a dip into the tip pool, as it were.
Some folks believe that tips by law are retained only by the server who collects it, or who engages in "direct table service."
The Court of Appeal put that interpretation to rest in Budrow v. Dave and Buster's. There, a cocktail waiter objected to tipping out the bartender. No wonder he lasted a month, or three months as he argued.
Anyway, the opinion is here. I'll bet you some side work that the Justices themselves or the court staff pulled a few doubles in their day.

GINA Regulations Coming

The EEOC has proposed regulations implementing and interpreting the Genetic Information Nondiscrimination Act of 2008 (GINA). The draft covers definitions of terms used in the law, what constitutes discrimination, how to protect genetic information in employers' possession, and MORE!

The EEOC is inviting the public to comment on the proposed regulations. If you want to access through the EEOC's own website, it's not posted as of this writing. But it will appear here. As of now, you can view the document here.

Thanks to Ross Runkel for reporting this before it happened.

DGV