Ninth Circuit: Employee Who Threatens to Kill Co-Workers Not "Qualified Individual with Disability"

Timothy Mayo was a welder. He made some specific threats to kill certain supervisors at his employer, PCC Structurals, Inc.  Co-workers complained.  The company sent him home.  The police visited him and he checked into a hospital.  The company terminated his employment.

Mayo sued under Oregon's version of the ADA, which is modeled under the federal statute. The 9th circuit reviewed the employer's successful motion for summary judgment.

The court decided that a person who makes violent threats against co-workers cannot claim protection under disability discrimination laws:

Even if Mayo were disabled (which we assume for this appeal), he cannot show that he was qualified at the time of his discharge. An essential function of almost every job is the ability to appropriately handle stress and interact with others. See Williams v. Motorola, Inc., 303 F.3d 1284, 1290 (11th Cir. 2002). And while an employee can be qualified despite adverse reactions to stress, he is not qualified when that stress leads him to threaten to kill his co-workers in chilling detail and on multiple occasions (here, at least five times). This vastly disproportionate reaction demonstrated that Mayo could not perform an “essential function” of his job, and was not a “qualified individual.” This is true regardless of whether Mayo’s threats stemmed from his major depressive disorder. Cf. Newland v. Dalton, 81 F.3d 904, 906 (9th Cir. 1996) (“Attempting to fire a weapon at individuals is the kind of egregious and criminal conduct which employees are responsible for regardless of any disability.”).

The court was careful to limit its holding to serious threats of violence or harm, in a footnote:

We emphasize that we only address the extreme facts before us in this case: an employee who makes serious and credible threats of violence toward his co-workers. We do not suggest that off-handed expressions of frustration or inappropriate jokes necessarily render an employee not qualified. Nor do we imply that employees who are simply rude, gruff, or unpleasant fall in the same category as Mayo. See U.S. Equal Emp. Opportunity Comm’n, supra, at *15 (advising that an “anti-social” employee with a “psychiatric disability” can be a “qualified individual,” even if he is “abrupt and rude”).

The court also distinguished its line of cases in which it has excused "conduct resulting from a disability":

This ruling is consistent with our cases holding that “conduct resulting from a disability is considered to be part of the disability, rather than a separate basis for termination.” Humphrey v. Mem’l Hosps. Ass’n, 239 F.3d 1128, 1139–40 (9th Cir. 2001); see also Gambini v. Total Renal Care, Inc., 486 F.3d 1087, 1094–95 (9th Cir. 2007); Dark v. Curry County, 451 F.3d 1078, 1084 (9th Cir. 2006). Unlike in Humphrey, Gambini, and Dark, we do not need to consider whether PCC has offered a legitimate, nondiscriminatory reason for terminating Mayo, as he has failed to establish a prima facie case at step one of the McDonnell Douglas framework.

Only Gambini involved hostile action by the employee.  And the court pointed out that the employer in that case did not argue that Gambini was not a "qualified individual" on appeal.

Summing up, after recognizing the serious problems of mental illness in society, the court remarked:

we disagree with Mayo that employers must simply cross their fingers and hope that violent threats ring hollow. All too often Americans suffer the tragic consequences of disgruntled employees targeting and killing their co-workers. While the ADA and Oregon disability law protect important individual rights, they do not require employers to play dice with the lives of their workforce. We thus conclude that PCC’s actions in this case were lawful.

This case is Mayo v. PCC Structurals, Inc. and the opinion is here. 

U.S. DOL Issues Administrator Interpretation Re Independent Contractors

The U.S. Department of Labor issues "Administrator Interpretations" now instead of opinion letters. In the past, the DOL would respond to individual employers' or  other constituents' questions about an FLSA issue.  The DOL would offer its opinion about the specific situation and disclaim that it broadly applied to other factual contexts, etc.

But in 2010, the DOL started issuing "Administrator Interpretations." These are not tied to any particular request for advice.  Rather, the Wage-Hour Administrator would pick a topic and offer an interpretation of an existing regulation.  Courts do not give these interpretations the same deference as actual regulations. But they are considered.  And the U.S. Supreme Court recently upheld the practice, discussed here.

With that background, you are ready to read the DOL's latest "Administrator Interpretation."  The agency has weighed in on the test for whether someone is an independent contractor or employee.  As you will see, in Administrator Interpretation 2015-1, the Administrator makes clear the DOL's enforcement position.  Here is the conclusion, verbatim:

In sum, most workers are employees under the FLSA’s broad definitions. The very broad definition of employment under the FLSA as “to suffer or permit to work” and the Act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor. The factors should not be analyzed mechanically or in a vacuum, and no single factor, including control, should be over-emphasized. Instead, each factor should be considered in light of the ultimate determination of whether the worker is really in business for him or herself (and thus is an independent contractor) or is economically dependent on the employer (and thus is its employee). The factors should be used as guides to answer that ultimate question of economic dependence. The correct classification of workers as employees or independent contractors has critical implications for the legal protections that workers receive, particularly when misclassification occurs in industries employing low wage workers.

(emphasis mine).

The Interpretation reaches that conclusion by analyzing the federal "economic realities" test for whether a worker is economically dependent on the employer (and therefore an employee) or in business for him or herself.  It should be noted that this economic realities test differs from the "right of control" test that California courts use, although there is overlap.  However, the Interpretation opines that the right to control is just one factor and that the economic realities test is actually broader, in that it sweeps more workers into employee status.   That is because, the Interpretation provides, the "economic realities" doctrine explains whom the employer "suffers or permits" to work, which is the definition of "employ" under the Fair Labor Standards Act.

The Administrator goes through familiar economic realities factors such as:
 - Is the work performed an integral part of the business?  (If so, employee)
 - Does the worker's managerial skill affect his / her opportunity for profit / loss (if so, contractor)
 - What is the nature of the worker's "investment" vs. the employer's investment relative to the work?
 - Does the work require special skill or initiative? (If so, contractor)
 - Is the relationship permanent or indefinite (if so, employee)
 - What is the nature of employer control.

As you will see, the Administrator emphasizes that no one factor is determinative.  The overarching issue is whether, based on the totality of the circumstances, the worker is in business for him or herself, or is economically dependent on the employer.  However, if the Administrator's views of the test carry the day in court, there will be far fewer independent contractors out there.

The Administrator Interpretation, No. 2015-1 is here. 

California Governor Signs Bill Making Request for Reasonable Accommodation Grounds for Retaliation Claim Under FEHA

The Courts of Appeal have held that an employee's requesting reasonable accommodation is not a "protected activity" for which a retaliation claim will lie under the Fair Employment and Housing Act. (See, for example, Rope v. Auto-Chlor, discussed here).  That is because protected activity was (previously) defined as "opposing" some unlawful practice, or participation in an investigation or proceeding involving FEHA-based claims.  A request for accommodation is not "opposing" an unlawful practice, so it did not fall within the previous definition.

Not to worry. The Legislature just added to the list of protected activities an employee's request for accommodation, whether or not it is granted.  So, when an employer denies reasonable accommodation, that was and is separately actionable. Now, the employee likely will assert a retaliation claim as well, claiming that the denial was in retaliation for the employee's making the request.  

May the employer lawfully deny an accommodation because it's not "reasonable" or because the employee is not a "qualified individual," but still be liable for retaliation? We'll see how the courts react.

The new law is AB 987, text here.

Court of Appeal: OK for Employers to Withhold Taxes on Lost Wages Verdict / Settlement

When an employee wins a wrongful termination lawsuit, or settles a case, part or all of the recovery usually will be compensation for lost wages.  After a verdict, though, the court enters a judgment.  Usually interest accrues from the date of the judgment, and continues to accrue unless the judgment is "satisfied."  Additionally, employees may enforce the judgment with collection proceedings.

Employers must withhold taxes from wages, even wages recovered during a lawsuit.  If the employer does so an pays the "net" wage loss, after taxes, is that sufficient to satisfy a judgment?  For years, the answer to that question in California was "no."  At least, that's what one court of appeal had held. The employer would have to "gross up" the amount to include the witthholdings, a significant overpayment, or it would have to pay the gross sum and issue a 1099 to the employee, which could result in under-withholding penalties.

Well, another court of appeal has weighed in, and has now held that employers may satisfy a judgment by paying the net sum, after required tax withholding.

In the current case, Cifuentes recovered lost wages against Costco.  Costco withheld taxes from the recovery and sought a "satisfaction of judgment" ruling from the trial court. The court denied the motion, bound by the prior decision I mentioned, which is Lisec v. United Airlines, Inc. (1992) 10 Cal.App.4th 1500.

Costco appealed, and the court of appeal agreed with Costco that Lisec was wrongly decided.

When Costco paid the judgment, it had two alternatives. It could follow Lisec and risk liability to the IRS and other taxing authorities for the amount of tax it failed to withhold plus penalties. Or it could follow the prevailing federal view and risk a judicial declaration that the judgment is not satisfied. We conclude it chose correctly. Costco's potential exposure for failing to withhold the payroll taxes outweighed the inconvenience to Cifuentes of seeking a refund for the excess withholding.
* * * 
The IRC requires that taxes be withheld from wages because it is the most reliable means of assuring that they are paid. (See Baral v. United States (2000) 528 U.S. 431, 436-437.) By adopting the prevailing federal view, we ensure that California employers who withhold taxes from awards of lost wages are not penalized "for fulfilling [their] legal duty." (Noel, supra, 697 F.3d at p. 212.) Moreover, our decision does not leave plaintiff employees without an adequate remedy. They may seek a refund from the taxing authorities for any amounts withheld in excess of their tax obligation. (Rivera, supra, 430 F.3d at p. 1260.) As observed in Thomas v. County of Fairfax (E.D. Va. 1991) 758 F.Supp. 353, 367, footnote 26, "[c]ourts do not disagree . . . that tax authorities must receive their due, and that neither plaintiffs nor defendants should receive windfalls." 

So, this decision creates a split in the courts of appeal, which could result in California Supreme Court review.  Or the Sixth District could re-examine Lisec.  We will have to see.

In the meantime, this is a good case for justifying withholding taxes whether after trial or as a result of settlement. 

The case is Cifuentes v. Costco Corporation and the opinion is here. 

California Legislature Changes Paid Sick Leave Law, Effective Immediately

Governor Brown signed AB 304 - Here, which amends California's paid sick leave law effective immediately.  Here are the highlights:

Change to Labor Code section 246(a) - clarifies that an eligible employee is one who has worked for the same employer within California for at least 30 days.  The new provision also excludes "retired annuitants" (certain public sector retirees) from the definition of employee.

Change to section 246(b) accrual options. This amendment allows the employer greater flexibility regarding how employees earn the minimum paid sick leave:

(3) An employer may use a different accrual method, other than providing one hour per every 30 hours worked, provided that the accrual is on a regular basis so that an employee has no less than 24 hours of accrued sick leave or paid time off by the 120th calendar day of employment or each calendar year, or in each 12-month period.

(4) An employer may satisfy the accrual requirements of this section by providing not less than 24 hours or three days of paid sick leave that is available to the employee to use by the completion of his or her 120th calendar day of employment.

Change to section 246(e), which allows for PTO or sick policies in effect before January 1, 2015, or other equivalent policies that satisfy the law's requirements.  A grandfathered policy has to have provided at least one day/8 hours of sick leave by the 90th day of employment ad 3 days/24 hours by the ninth month.

But if employers changed their existing policy after January 1, 2015, the grandfathering provision does not apply. Instead, the employer has to comply with the accrual method in section 246(b) or "front load" 3 days of paid sick leave at the beginning of each 12 month period.

(e) An employer is not required to provide additional paid sick days pursuant to this section if the employer has a paid leave policy or paid time off policy, the employer makes available an amount of leave applicable to employees that may be used for the same purposes and under the same conditions as specified in this section, and the policy satisfies one of the following:

(1) Satisfies the accrual, carry over, and use requirements of this section.

(2) Provided paid sick leave or paid time off to a class of employees before January 1, 2015, pursuant to a sick leave policy or paid time off policy that used an accrual method different than providing one hour per 30 hours worked, provided that the accrual is on a regular basis so that an employee, including an employee hired into that class after January 1, 2015, has no less than one day or eight hours of accrued sick leave or paid time off within three months of employment of each calendar year, or each 12-month period, and the employee was eligible to earn at least three days or 24 hours of sick leave or paid time off within nine months of employment. If an employer modifies the accrual method used in the policy it had in place prior to January 1, 2015, the employer shall comply with any accrual method set forth in subdivision (b) or provide the full amount of leave at the beginning of each year of employment, calendar year, or 12-month period. This section does not prohibit the employer from increasing the accrual amount or rate for a class of employees covered by this subdivision.

Section 246(h) allows for employers that grant unlimited vacation / sick leave to include the words "unlimited" on the pay stub to satisfy the wage statement requirement.

Section 246(k) prescribes options for employers to calculate the "pay" for sick leave under this law:

(k) For the purposes of this section, an employer shall calculate paid sick leave using any of the following calculations:

(1) Paid sick time for nonexempt employees shall be calculated in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek.

(2) Paid sick time for nonexempt employees shall be calculated by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.

(3) Paid sick time for exempt employees shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time.

Section 247.5 clarifies that, although employers must keep records of sick leave taken, the employer does not have to inquire why someone took paid time off.   As such, the employer is not liable for failure to accurately keep records when, for example,  it has a PTO policy and the employee does not announce the purpose of the PTO.

Those are the big amendments to the law.  They take effect immediately.  Employers that change their sick leave rules / policies as a result of these amendments should ensure they comply with the appropriate notice requirements!

Be careful out there.

U.S. DOL Proposes Revisions to Some FLSA Exemptions' Minimum Salaries and More

The announcement is only 285 pages, and you can read the entire Notice of Proposed Rulemaking Here.   The actual regulations are about 9 pages beginning on page 286 of the PDF.

I know you're reading headlines focusing on the salary test for exempt workers under the FLSA.   Yes, indeed the DOL proposes to raise that salary threshold for the exempt executive, administrative and artistic / learned professional exemptions.  That proposal is a salary of $921 / week or a minimum salary of $47,892 per year (unless you're in Samoa).  Here's the proposed general provision, a revision to 29 CFR 541.600:

To qualify as an exempt executive, administrative or professional employee under section 13(a)(1) of the Act, an employee must be compensated on a salary basis as of [EFFECTIVE DATE OF FINAL RULE] at a rate per week of not less than $921 (or $774 per week, if employed in American Samoa by employers other than the Federal government), exclusive of board, lodging or other facilities. As of [DATE TBD] on each subsequent year, such employee must be compensated on a salary basis at a rate per week of not less than the updated salary rate published annually by the Secretary in the Federal Register at least 60 days earlier (with the rate for American Samoa to be calculated at 84 percent of the updated salary rate, provided that when the highest industry minimum wage for American Samoa equals the minimum wage under 29 U.S.C. 206(a)(1), exempt employees employed in all industries in American Samoa shall be paid the full salary rate), exclusive of board, lodging or other facilities.

The proposal includes a way to increase the base salary without passing new regulations or laws. Under the proposal, the minimum salary will go up each year based on an announcement by the Secretary of Labor, to occur 60 days before the change. The change will be based on a calculation the DOL has not decided upon yet.  It will either rely on the "CPI-U" inflation index, or by adjusting the salary basis to maintain pace with actual wages paid to salaried workers.

The proposal retains the "highly compensated" exemption standard, which relaxes the duties test. But the "highly compensated" salary will increase to $122,148, again indexed in future years.

There will also be an hourly "computer exemption" rate of $27.63 for those employees who can otherwise satisfy the "computer" exemption.

The proposed regulations include explanations of how the salary test may be met, as well as language stating that additional hourly pay, bonuses, commissions, etc. above the minimum salary will not defeat the exemptions.

But wait, there's more.  The proposed regulations are all about salary.  But the DOL in its Notice is also "seeking input" on whether to change the "duties" tests for the exemption.  That is, the DOL is actively considering adopting California's standards regarding the white-collar exemption duties test.  California law, as you know, measures time spent on exempt duties and discourages "working managers" who "pitch in."

You don't believe me?  Sure you do. But here's an excerpt of the DOL's announcement regarding the duties test:

While the Department is not proposing specific regulatory changes at this time, the Department is seeking additional information on the duties tests for consideration in the Final Rule. Specifically, the Department seeks comments on the following issues:

A. What, if any, changes should be made to the duties tests?

B. Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be?

C. Should the Department look to the State of California’s law (requiring that 50 percent of an employee’s time be spent exclusively on work that is the employee’s primary duty) as a model? Is some other threshold that is less than 50 percent of an employee’s time worked a better indicator of the realities of the workplace today?

D. Does the single standard duties test for each exemption category appropriately distinguish between exempt and nonexempt employees? Should the Department reconsider our decision to eliminate the long/short duties tests structure?

E. Is the concurrent duties regulation for executive employees (allowing the performance of both exempt and nonexempt duties concurrently) working appropriately or does it need to be modified to avoid sweeping nonexempt employees into the exemption? Alternatively, should there be a limitation on the amount of nonexempt work? To what extent are exempt lower-level executive employees performing nonexempt work?

If DOL follows through with this proposal, it will  - not hyperbole - drastically change wage hour law in states outside California. Those of you who know anything about California employment law, you know what will happen. For starters, there will have to be many, many conversions of now-exempt employees to non-exempt, resulting in huge overtime liability going forward, at the new, inflated wages caused by inflated minimum wage law. 

And second, for those employers that do not convert, FLSA collective actions will ensue like you have never seen before.  

These regulations are just a first step and may be revised, particularly based on comments the DOL receives. If you'd like to leave comments, the linked Notice provides instructions:

ADDRESSES: You may submit comments, identified by Regulatory Information Number (RIN) 1235-AA11, by either of the following methods: Electronic Comments: Submit comments through the Federal eRulemaking Portal http://www.regulations.gov. Follow the instructions for submitting comments. Mail: Address written submissions to Mary Ziegler, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, N.W., Washington, D.C. 20210. Instructions: Please submit only one copy of your comments by only one method. All submissions must include the agency name and RIN, identified above, for this rulemaking. Please be advised that comments received will become a matter of public record and will be posted without change to http://www.regulations.gov, including any personal information provided. All comments must be received by 11:59 p.m. on the date indicated for consideration in this rulemaking. Commenters should transmit comments early to ensure timely receipt prior to the close of the comment period as the Department continues to experience delays in the receipt of mail in our area. For additional information on submitting comments and the rulemaking process, see the “Public Participation” section of this document. For questions concerning the interpretation and enforcement of labor standards related to the FLSA, individuals may contact the Wage and Hour Division (WHD) local district offices (see contact information below). Docket: For access to the docket to read background documents or comments, go to the Federal eRulemaking Portal at http://www.regulations.gov.

It will be interesting to see if the DOL can issued these regulations before the November 2016 election. If they can't, it will be interesting to see what the new president / DOL secretary says about this issue. 

Stay tuned....

Supreme Court Holds Tax Subsidies Available Under Affordable Care Act to Those Who Buy Insurance on Federal Exchange

Our blog is 9 years old!  Our Firm is, not coincidentally, celebrating its 9th anniversary as well. Thank you for reading!  

To celebrate, I will post about King v. Burwell, opinion here, the Supreme Court's latest ruling upholding the Affordable Care Act (aka Obamacare, PPACA, etc.).  The Court saved one of the key provisions of the Act, 6-3, in a statutory interpretation case.  Chief Justice Roberts authored the majority opinion, writing for himself, and Justices Kennedy, Sotomayor, Kagan, Ginsburg, and Breyer. 

Whatever you think of the ACA, this is a good opinion to read because it explains in simple terms how the law works, why it was designed the way it was, and what the dispute was in King v. Burwell.   

Here's the overview of the Act in the Court's words. I insert emphasis:

First, the Act adopts the guaranteed issue and community rating requirements. The Act provides that “each health insurance issuer that offers health insurance coverage in the individual . . . market in a State must accept every . . . individual in the State that applies for such coverage.” 42 U. S. C. §300gg–1(a). The Act also bars insurers from charging higher premiums on the basis of a person’s health. §300gg.

Second, the Act generally requires individuals to maintain health insurance coverage or make a payment to the IRS. 26 U. S. C. §5000A. Congress recognized that, without an incentive, “many individuals would wait to purchase health insurance until they needed care.” 42 U. S. C. §18091(2)(I). So Congress adopted a coverage requirement to “minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums.” Ibid. In Congress’s view, that coverage requirement was “essential to creating effective health insurance markets.” Ibid. Congress also provided an exemption from the coverage requirement for anyone who has to spend more than eight percent of his income on health insurance. 26 U. S. C. §§5000A(e)(1)(A), (e)(1)(B)(ii).

Third, the Act seeks to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 percent and 400 percent of the federal poverty line. §36B. Individuals who meet the Act’s requirements may purchase insurance with the tax credits, which are provided in advance directly to the individual’s insurer. 42 U. S. C. §§18081, 18082.

So, there are three principal components to the ACA that work closely together:

Congress found that the guaranteed issue and community rating requirements would not work without the coverage requirement. §18091(2)(I). And the coverage requirement would not work without the tax credits. The reason is that, without the tax credits, the cost of buying insurance would exceed eight percent of income for a large number of individuals, which would exempt them from the coverage requirement.

Next, the ACA created the system of "exchanges" where consumers could shop for and buy the insurance:

In addition to those three reforms, the Act requires the creation of an “Exchange” in each State where people can shop for insurance, usually online. 42 U. S. C. §18031(b)(1). An Exchange may be created in one of two ways. First, the Act provides that “[e]ach State shall . . . establish an American Health Benefit Exchange . . . for the State.” Ibid. Second, if a State nonetheless chooses not to establish its own Exchange, the Act provides that the Secretary of Health and Human Services “shall . . . establish and operate such Exchange within the State.” §18041(c)(1).

Now you know just about everything you might want to know about the 2000 page law.  The Supreme Court already upheld the law a couple of years ago.  So, what was the issue in King v. Burwell?  Glad you asked:

The issue in this case is whether the Act’s tax credits are available in States that have a Federal Exchange rather than a State Exchange. The Act initially provides that tax credits “shall be allowed” for any “applicable taxpayer.” 26 U. S. C. §36B(a). The Act then provides that the amount of the tax credit depends in part on whether the taxpayer has enrolled in an insurance plan through “an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act [hereinafter 42 U. S. C. §18031].” 26 U. S. C. §§36B(b)–(c) (emphasis added).

So, some states have their own exchanges for insurance shoppers, such as "Covered California" here in the Golden State.  Other states rely on the federal exchange.   The ACA's tax credit language, though, says that the law's tax credits depend on the taxpayer's membership in an "Exchange established by the state."  Does that include the federal exchange?

Yes, said the IRS.  The IRS issued a regulation in which it said that an "Exchange established by the State" would include the federal exchange (presumably because the state decided to rely on the federal exchange as its "established" Exchange.)

The Court, though, did not defer to the IRS's interpretation. Rather, the Court held that the statute itself authorized the tax credits regardless of whether the taxpayer purchased insurance on a state or federal exchange.  To do so, the Court's majority engages in a lengthy analysis and explanation of why a federal exchange counts as a state exchange.  It's in the opinion, and you may almost be convinced.  So much for calling balls and strikes, CJ.    Anyway:

The upshot of all this is the phrase “an Exchange established by the State under [42 U. S. C. §18031]” is properly viewed as ambiguous. The phrase may be limited in its reach to State Exchanges. But it is also possible that the phrase refers to all Exchanges—both State and Federal—at least for purposes of the tax credits. If a State chooses not to follow the directive in Section 18031 that it establish an Exchange, the Act tells the Secretary to establish “such Exchange.” §18041. And by using the words “such Exchange,” the Act indicates that State and Federal Exchanges should be the same. But State and Federal Exchanges would differ in a fundamental way if tax credits were available only on State Exchanges—one type of Exchange would help make insurance more afford- able by providing billions of dollars to the States’ citizens; the other type of Exchange would not.

By the way, if you think I'm cynical, you're right. But the Court sort of acknowledged that it was doing some gymnastics to save the law:

Petitioners’ arguments about the plain meaning of Section 36B are strong. But while the meaning of the phrase “an Exchange established by the State under [42 U. S. C. §18031]” may seem plain “when viewed in isolation,” such a reading turns out to be “untenable in light of [the statute] as a whole.” Department of Revenue of Ore. v. ACF Industries, Inc., 510 U. S. 332, 343 (1994). In this instance, the context and structure of the Act compel us to depart from what would otherwise be the most natural reading of the pertinent statutory phrase.

And (emphasis mine):

Reliance on context and structure in statutory interpretation is a “subtle business, calling for great wariness lest what professes to be mere rendering becomes creation and attempted interpretation of legislation becomes legislation itself.” Palmer v. Massachusetts, 308 U. S. 79, 83 (1939). For the reasons we have given, however, such reliance is appropriate in this case, and leads us to conclude that Section 36B allows tax credits for insurance purchased on any Exchange created under the Act. Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.

***

In a democracy, the power to make the law rests with those chosen by the people. Our role is more confined—“to say what the law is.” Marbury v. Madison, 1 Cranch 137, 177 (1803). That is easier in some cases than in others. But in every case we must respect the role of the Legislature, and take care not to undo what it has done. A fair reading of legislation demands a fair understanding of the legislative plan.

Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. Section 36B can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.

Justices Scalia, Thomas and Alito dissented.  Justice Scalia explains that this decision has little to do with statutory construction or the Court's role:

This case requires us to decide whether someone who buys insurance on a [federal exchange] gets tax credits. You would think the answer would be obvious—so obvious there would hardly be a need for the Supreme Court to hear a case about it. In order to receive any money under §36B, an individual must enroll in an insurance plan through an “Exchange established by the State.” The Secretary of Health and Human Services is not a State. So an Exchange established by the Secretary is not an Exchange established by the State—which means people who buy health insurance through such an Exchange get no money under §36B.

* * *

Words no longer have meaning if an Exchange that is not established by a State is “established by the State.” It is hard to come up with a clearer way to limit tax credits to state Exchanges than to use the words “established by the State.” And it is hard to come up with a reason to include the words “by the State” other than the purpose of limiting credits to state Exchanges.  * * * *  

Under all the usual rules of interpretation, in short, the Government should lose this case. But normal rules of interpretation seem always to yield to the overriding principle of the present Court: The Affordable Care Act must be saved. 

And it was, 6-3.

Court of Appeal: Claimed Inability to Work With Particular Supervisor Need Not Be Accommodated

An employee clashes with her manager, takes a medical leave of absence for "stress," receives repeated extensions, and her doctor says she can come back to work, but only under a new manager.  Heard that one before?   That's what Higgins-Williams v. Sutter Medical Foundation is about.

The plaintiff-employee took CFRA/FMLA leave initially. Then she exhausted it and returned to work. Her manager immediately gave her a negative evaluation. The regional manager, Perry, began to single plaintiff out for negative treatment, such as being curt with plaintiff while being friendly with others. Then plaintiff's boss accused the plaintiff of being irresponsible with her badge and Perry allegedly grabbed her arm.  The plaintiff had a "panic attack," and did not return to work again.

Sutter granted a series of extended absences as temporary accommodations.  Plaintiff's doctor continued to insist that she could return to work under a new supervisor and perform her duties without restriction.  The doctor then certified that plaintiff could return to work in her original department, but on light duty.  The doctor would not commit to a return to work date when the plaintiff could perform her essential functions with or without an accommodation (that did not include a new supervisor).

Sutter then drew the line:

On January 24, 2011, Sutter informed plaintiff (1) that Dr. Chen had stated on January 6, 2011, that plaintiff could not return to work then, but that plaintiff wanted to return on March 1, 2011, on light duty in the Connecting to Work Program; (2) that Dr. Chen did not provide any information as to if or when plaintiff would be able to return to her clinical assistant position; (3) that there was no information to support a conclusion that additional leave as an accommodation would effectuate plaintiff‟s return as a clinical assistant; and (4) that if plaintiff did not provide such information by January 31, 2011, her employment would be terminated February 1, 2011.

Plaintiff and her doctor apparently did not get the gist of this communication.

On January 28, 2011, Dr. Chen informed Sutter that plaintiff was not medically cleared to return to work at that point, and that plaintiff would continue her regimen of psychotherapy and medications. In her deposition, plaintiff testified she did not feel she could have returned to work in the Shared Services Department with regional manager Perry or supervisor Prince on February 1, 2011. Plaintiff also testified at her deposition
that at the time of her termination, she "was willing to try‟ to return to work on March 1, 2011, in the Shared Services Department under manager Perry.

Sutter then terminated the plaintiff's employment on February 1, 2011.

So, the plaintiff sued for disability discrimination, retaliation, failure to prevent, and denial of accommodation under the Fair Employment and Housing Act.  The Court of Appeal affirmed the trial court's grant of summary judgment.

The basis for the Court of Appeal's decision is significant.  The Court reaffirmed previous case law in which the court held that inability to work for a particular supervisor is not a covered disability:

An employee's inability to work under a particular supervisor because of anxiety and stress related to the supervisor‟s standard oversight of the employee‟s job performance does not constitute a disability under FEHA. (Hobson v. Raychem Corp. (1999) 73 Cal.App.4th 614, 628 (Hobson) [“the inability to perform one particular job, or to work under a particular supervisor, does not constitute a qualified disability” under FEHA (italics added)]; see Weiler v. Household Finance Corp. (7th Cir. 1996) 101 F.3d 519, 522, 524-525 [both Hobson and Weiler apply the narrower federal test of disability of “substantially limits” a major life activity, rather than the broader California test of simply “limits”; Hobson was disapproved on this point in Colmenares v. Braemar Country Club, Inc. (2003) 29 Cal.4th 1019, 1031, fn. 6] (Colmenares).)

As stated above, the Court of Appeal acknowledged that the Hobson decision applied a less employee-friendly definition of disability. But the Court then held that even under the current formulation, inability to work for the current supervisor is not a disability, because it does not "limit" the major life activity of working.

The Court then held that because the plaintiff did not have a disability, she could not succeed under her claims for common law wrongful termination, denial of accommodation or failure to engage in the interactive process.

Of note, the Court of Appeal remanded the case to the trial court regarding its award of costs to Sutter.  Costs no longer are awarded to prevailing defendants as a matter of right in FEHA cases, following the California Supreme Court's decision in Williams v. Chino Valley Independent Fire Dist. (2015) 61 Cal.4th 97 (discussed here). 

This case is Higgins-Williams v. Sutter Med. Foundation, and the opinion is here.

U.S. Supreme Court: Employer's Motivation Rather than Knowledge Is Key to Liability Under Title VII

Samantha Elauf applied to work for Abercrombie & Fitch.  She wore a headscarf during the application process.  A&F has in place a no-headgear "look" policy.   The hiring managers determined that her head scarf would violate that policy.

At least one hiring manager suspected that Elauf wore the headscarf as a religious practice.  She so informed the district manager, who decided that the scarf would violate the "look" policy and that she would not be hired.

No one asked Elauf if the scarf was a religious practice, or investigated whether she would work without it.  No one sought to determine if allowing the scare would be an accommodation for a religious practice, or whether flexing the policy would be an undue hardship.  Apparently seeking to avoid these issues, they just turned her down for the job.

The EEOC sued on Elauf's behalf.   The dispute before the court boiled down to whether the Company could be liable for intentional discrimination when it did not know Ms. Elauf wore the scarf for religious reasons, but at least one manager surmised that there was a religious connection to her garb.  The district court had granted summary judgment in favor of the EEOC.  But the court of appeals reversed and granted summary judgment in favor of A&F.

Justice Scalia, writing for a majority of 7, decided that A&F could violate Title VII without actual knowledge that a religious practice was at issue.  Rather, for the Court, the issue was the motivation of the hiring managers.

First, the Court noted that under Title VII (as opposed to the ADA), the only claims available are disparate treatment or disparate impact. Therefore, "denial of religious accommodation" alone is not a claim under Title VII.   That being the case, the plaintiff can win only by proving that the company's failure to hire (or other adverse action) is motivated by an illegal criterion:

The disparate-treatment provision forbids employers to: (1) “fail . . . to hire” an applicant (2) “because of ” (3) “such individual’s . . . religion” (which includes his religious practice). Here, of course, Abercrombie (1) failed to hire Elauf. The parties concede that (if Elauf sincerely believes that her religion so requires) Elauf’s wearing of a head- scarf is (3) a “religious practice.” All that remains is whether she was not hired (2) “because of” her religious practice.

 *  *  *

the intentional discrimination provision prohibits certain motives, regardless of the state of the actor’s knowledge. Motive and knowledge are separate concepts. An employer who has actual knowledge of the need for an accommodation does not violate Title VII by refusing to hire an applicant if avoiding that accommodation is not his motive. Conversely, an employer who acts with the motive of avoiding accommodation may violate Title VII even if he has no more than an unsubstantiated suspicion that accommodation would be needed.

Thus, the rule for disparate-treatment claims based on a failure to accommodate a religious practice is straightforward: An employer may not make an applicant’s religious practice, confirmed or otherwise, a factor in employment decisions. For example, suppose that an employer thinks (though he does not know for certain) that a job applicant may be an orthodox Jew who will observe the Sabbath, and thus be unable to work on Saturdays. If the applicant actually requires an accommodation of that religious practice, and the employer’s desire to avoid the prospective accommodation is a motivating factor in his decision, the employer violates Title VII.

Let us remember that this case involves a question of fact: did the company deny employment "because" she was Muslim and might seek a relaxing of the look rule?  There was evidence of that motivation in the record.  Therefore, the Court's only ruling was that the court of appeals should not have granted summary judgment. It remains to be seen if a jury would find that A&F denied employment motivated by the possibility of religious accommodation, or because they don't hire anyone with a headscarf.  Given the hiring manager's articulated suspicion, this one is not likely to go the employer's way.

This case opens up employers to claims that are based on "perceived" religious practice.  That is the employer can be wrong and still be held liable. Motivation is almost never provable before trial.  

This case also establishes that under Title VII, the employee would have to prove the motivation.  That is the employee has to prove the employer denied employment because it did not wish to accommodate the applicant. 

This case could have been avoided had management simply asked the applicant if she could abide by the look policy if hired.  That's a perfectly legal question. Then the applicant could have said "I need to wear a scarf as a religious practice."  At that point, the company would be faced with two options: accommodate, or claim undue burden. In most cases, a relaxation of a dress code can be a form of accommodation.  

Justice Thomas and Alito wrote separate concurrences in the judgment. Both believed the circuit court should not have granted summary judgment in favor of A&F, and correctly so.  But neither agreed with the majority opinion's rationale.  Justice Thomas felt that the case was one of disparate impact discrimination, seeming to ignore the evidence of unlawful bias by the hiring manager.  Justice Alito appears to claim that the case was one of reasonable accommodation law rather than intentional discrimination, i.e., failure to hire.  (Amateur Justice Valenza says they're both incorrect).

This case is EEOC v. Abercrombie & Fitch and the opinion is here. 

Supreme Court: Plan Fiduciaries Have a Continuing Obligation to Monitor Investment Prudence

WARNING: Do not read this while operating machinery or driving, if you are pregnant, or might become pregnant.   Yes, it's an ERISA case.  But it will keep your plan administrator up at night.

The Supreme Court considered whether claims against a retirement plan's fiduciaries were time barred. The plaintiffs claimed that the value of their retirement plan accounts decreased because the plan purchased "retail" mutual funds, rather than "institutional" class funds, which have lower expense ratios.

The Ninth Circuit held that the claims were untimely under ERISA's six-year statute of limitations.  The court of appeals believed the statute of limitations ran because the administrator selected the more expensive funds more than six years before the plaintiffs filed the lawsuit.

The Supreme Court, unanimously, reversed.  The high Court found that the claims were timely because they implicated whether the trustees prudently managed the funds during the limitations period, by monitoring whether the investments were adequate, or by failing to do so.  As such, the Court decided that regardless of the timing of the selection of the funds, the failure to adequately monitor the investments could form the basis of a timely claim.  Here's the money quote:

The Ninth Circuit did not recognize that under trust law a fiduciary is required to conduct a regular review of its investment with the nature and timing of the review contingent on the circumstances. Of course, after the Ninth Circuit considers trust-law principles, it is possible that it will conclude that respondents did indeed conduct the sort of review that a prudent fiduciary would have conducted absent a significant change in circumstances. 

An ERISA fiduciary must discharge his responsibility “with the care, skill, prudence, and diligence” that a pru- dent person “acting in a like capacity and familiar with such matters” would use. §1104(a)(1); see also Fifth Third Bancorp v. Dudenhoeffer, 573 U. S. ___ (2014). We have often noted that an ERISA fiduciary’s duty is “derived from the common law of trusts.” Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc., 472 U. S. 559, 570 (1985). In determining the con- tours of an ERISA fiduciary’s duty, courts often must look to the law of trusts. We are aware of no reason why the Ninth Circuit should not do so here.

Under trust law, a trustee has a continuing duty to monitor trust investments and remove imprudent ones. This continuing duty exists separate and apart from the trustee’s duty to exercise prudence in selecting investments at the outset.

So, employers must ensure that the plan administrators are adequately monitoring investment options to satisfy their fiduciary duties.  Poor management and supervision claims likely will not grow stale over time given this ruling.

The case is Tibble v. Edison International and the opinion is here.

Court of Appeal Holds Truckers Entitled to Hearing on Whether Federal Arbitration Act Applies

The Federal Arbitration Act preempts state law that would preclude arbitration of claims. California has such a law, which prohibits arbitration of wage claims.  See Lab. Code section 229.  So, if the FAA applies, it preempts that law. The U.S. Supreme Court has so held. 

The FAA contains an exemption, however.  Per the court of appeal:

Specifically, section 1 provides (in relevant part) that nothing in the FAA “shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” (9 U.S.C. § 1.) The United States Supreme Court interpreted this language in Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105 [121 S.Ct. 1302, 149 L.Ed.2d 234], reversing the lower court’s ruling that had held the section 1 exemption from the FAA applicable to all contracts of employment. The better reading of the law, the Supreme Court held, is that Section 1 exempts only “contracts of employment of transportation workers”—meaning “workers actually engaged in the movement of goods in interstate commerce.” (Id. at pp. 106, 112, 119.)

In this case, the plaintiffs are truckers, who claimed they were mis-classified as independent contractors.  The trial court did not hold a hearing on whether the FAA applied to them.  The plaintiffs argued they had "contracts of employment" and were "transportation workers" in interstate commerce.

To have  "contracts of employment," possibly falling outside the FAA's coverage, the truckers would have to be "employees," not independent contractors.  But the trial court would not consider that argument, and instead focused on whether the agreements were unconscionable.

The court of appeal decided that the trial court should have held a hearing regarding the applicability of the FAA, because if it did not apply, the truckers could not be compelled to arbitrate their wage-hour claims.

Petitioners were (and are) entitled to the court’s determination whether their agreements are contracts of employment for transportation workers engaged in interstate commerce, within the meaning of the FAA’s section 1 exemption as interpreted by the Supreme Court in Circuit City Stores, Inc. v. Adams, supra, 532 U.S. 105. That law, if it applies, would exempt their agreements from the FAA’s requirement that their arbitration agreements must be enforced. There is a strong policy in favor of enforcing agreements to arbitrate, and under the FAA. “‘Questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration.’” (Armijo v. Prudential Ins. Co. of America (10th Cir. 1995) 72 F.3d 793, 797, quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. (1985) 473 U.S. 614, 626 [105 S.Ct. 3346, 87 L.Ed.2d 444]; see also Moses H. Cone Memorial Hospital v. Mercury Construction Corp., supra, 460 U.S. at p. 25 [103 S.Ct. 927, 74 L.Ed.2d 765].) Nevertheless, “there is no policy compelling persons to accept arbitration of controversies . . . which no statute has made arbitrable.” (Freeman v. State Farm Mut. Auto. Ins. Co. (1975) 14 Cal.3d 473, 481.)

This case applies only to transportation workers.  However, it also reminds us to ensure that one cannot take the applicability of the FAA for granted when filing Petitions to compel arbitration. 

This case is Garcia v. Superior Court and the opinion is here.

Court of Appeal Explains Limits on Discovery of Third Party Employees' Information in PAGA Claim

The plaintiff in a "representative action" asserted under the Private Attorney General Act (PAGA) claimed Marshall's (the retailer) denied him meal and rest breaks, accurate wage statements, etc.  That's when you are making an individual claim for your own damages, but will try to recover PAGA-authorized penalties on behalf of others whom you prove were wronged.

Based on his complaint alone, the plaintiff sought the names and other contact information about all employees statewide.  The trial court granted an order allowing a store-wide roster. The plaintiffs sought a writ from the court of appeal to obtain the statewide information.

The court of appeal denied the writ and issued an opinion. The court explained two reasons why the plaintiff was not entitled to contact information of everyone based only on the allegations in the complaint.

First, there was no showing that the plaintiff had any knowledge of practices occurring at other stores.  The plaintiff therefore could not argue, "I need the names to see if there's anything unlawful going on in other stores so I can expand my case."

Here are some important excerpts from that discussion:

A party seeking to compel discovery must therefore “set forth specific facts showing good cause justifying the discovery sought . . . .” (Code Civ. Proc., § 2031.310, subd. (b)(1); see Calcor Space Facility, Inc. v. Superior Court, supra, 53 at p. 223.) To establish good cause, a discovery proponent must identify a disputed fact that is of consequence in the action and explain how the discovery sought will tend in reason to prove or disprove that fact or lead to other evidence that will tend to prove or disprove the fact.

* * *
Plaintiff’s proposed procedure, which contemplates jumping into extensive statewide discovery based only on the bare allegations of one local individual having no knowledge of the defendant’s statewide practices would be a classic use of discovery tools to wage litigation rather than facilitate it. We conclude bare allegations unsupported by any reason to believe a defendant’s conduct extends statewide furnishes no good cause for statewide discovery.

So, yes, discovery is broader than admissibility at trial. But the information one seeks in discovery should bear a reasonable relationship to the facts one is seeking to prove as part of the case.  

The second reason the court denied the information is because of employees' right to privacy.  The plaintiff argued it would use an "opt-out" procedure, where all employees would be sent a letter and be allowed to opt-out of having their contact information shared.  The Court of Appeal was not having it, in part because the plaintiff had no good cause to seek the informant in the first place:

we conclude Marshalls’ employees’ privacy interests outweigh plaintiff’s need to discover their identity at this time. Those interests begin with the employees’ right to be free from unwanted attention and perhaps fear of retaliation from an employer. On the other hand, plaintiff’s need for the discovery at this time is practically nonexistent. His first task will be to establish he was himself subjected to violations of the Labor Code. As he has not yet sat for deposition, this task remains unfulfilled. The trial court could reasonably conclude that the second task will be to establish Marshalls’ employment practices are uniform throughout the company, which might be accomplished by reference to a policy manual or perhaps deposition of a corporate officer. The trial court could reasonably conclude that only then will plaintiff be able to set forth facts justifying statewide discovery.

The courts will not lightly bestow statewide discovery power to a litigant who has only a parochial claim. Here, the trial court’s measured approach to discovery was reasonable. Therefore, plaintiff’s petition is denied.

For those readers who are lawyers, there's a nice summary of discovery standards and privacy law in this opinion. But I didn't want to make the post too long.  Trust me. If this one stays on the books, you can update your form files.

This case is Williams v. Superior Court and the opinion is here.  

Ninth Circuit Upholds Dispute Resolution Policy in Handbook As Enforceable Arbitration Agreement

Especially in California, an arbitration agreement practically has to be written in pencil. Getting an arbitration agreement to conform with all the new court decisions feels like nailing jello to a wall. Herding cats.  Hitting a moving target.  You get the picture.

So, from an administrative standpoint, it's much easier to have an arbitration agreement that can be amended from time to time and simply distributed via handbook revision, along with an acknowledgment of receipt.  There are limits on doing so, such as adequate notice of a change and the implied covenant of good faith and fair dealing that would apply to any contract. 

But some may question whether a policy in a handbook is an enforceable "agreement" to arbitrate at all.  The Ninth Circuit thought so in Ashbey v. Archstone Prop. Mgmt.  Opinion here.

Ashbey signed the following acknowledgement (at least twice) during his employment.

I acknowledge that I have received directions as to how I may access the Archstone Company Policy Manual, including the Dispute Resolution Policy. I understand that Archstone can administer, interpret, discontinue, supplement, amend or withdraw any of the employment and personnel policies and procedures set forth in this Company Policy Manual. I understand that it is my responsibility to understand the Archstone Company Policy Manual, including the Dispute Resolution Policy, and to adhere to all of the policies contained herein.

The Dispute Resolution Policy stated:

This Policy is governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. . . . Except as it otherwise provides, this Policy is intended to apply to the resolution of disputes that otherwise would be resolved in a court of law, and therefore this Policy requires all such disputes between Employee and the Company to be resolved only by an arbitrator through final and binding arbitration and not by way of court or jury trial. . . . This Policy also applies, without limitation, to disputes arising out of the employment relationship or the termination thereof including, without limitation, disputes over . . . harassment and claims arising under the . . . Civil Rights Act of 1964 . . . and all other state statutory and common law claims. 

Ashley argued that the acknowledgment and policy were ineffective to waive his right to a jury trial on his federal Title VII claim and analogous state law claim for discrimination. He claimed that his waiver was not knowing and voluntary because the receipt did not contain the Dispute Resolution policy. The court of appeals disagreed:

the Acknowledgment here explicitly notified Ashbey the Manual contained a Dispute Resolution Policy, and it did so in two places. And Ashbey expressly agreed “to adhere” to the Manual and the Dispute Resolution Policy. That the Acknowledgment did not list the terms of the Policy is not fatal to the Policy’s enforcement. The full text of the Policy was at Ashbey’s fingertips; he acknowledged he had received directions on how to access both the Manual and the Dispute Resolution Policy contained in the Manual. Anyone who reviewed the Dispute Resolution Policy would immediately realize he was “entering into an agreement to waive a specific statutory remedy afforded him by a civil rights statute.” Nelson, 119 F.3d at 762. The Dispute Resolution Policy was not ambiguous on that point: (1) the policy stated it “is governed by the Federal Arbitration Act”; (2) the policy stated that “all . . . disputes between Employee and the Company [are] to be resolved only by an arbitrator through final and binding arbitration and not by way of court or jury trial”; and (3) the policy stated it “applies, without limitation, to disputes arising out of the employment relationship . . . including, without limitation, disputes over . . . harassment and claims arising under the . . . Civil Rights Act of 1964.”

So, the Court held that the policy was knowing and voluntary.  

In a companion, unpublished decision, the court also held that the policy contained in the handbook was enforceable as an agreement under California unconscionability law.  The court noted that policies can be enforceable as contracts, even when incorporated into the signed acknowledgment.  The court also found that the attorney's fees and other provisions were satisfactory. 

The analysis relies on California opinions and is useful for crafting these types of arbitration agreements. So, although unpublished, it will be useful.  That unpublished opinion is here. 

California Supreme Court: Winning Employers in Discrimination Lawsuits Lose Automatic Right to Recover Costs of Suit

The general rule is that a winning litigant is entitled to recover costs of suit. These can include deposition transcripts, filing fees, witness fees, subpoena fees, and more.  I know this because it says so right here in Civil Procedure Code section 1032:

(b) Except as otherwise expressly provided by statute, a prevailing party is entitled as a matter of right to recover costs in any action or proceeding.

But attorney's fees are not considered costs and are not recoverable unless a statute so provides.

The Fair Employment and Housing Act contains a provision in Govt Code section 12965(b) allowing prevailing parties to recover attorney's fees and costs:

In civil actions brought under this section, the court, in its discretion, may award to the prevailing party, including the department, reasonable attorney's fees and costs, including expert witness fees.

The courts have long interpreted this section to say that employees normally are entitled to attorney's fees if they win their lawsuit. But, employers do not recover attorney's fees unless the plaintiff's case was frivolous, groundless, or without foundation.  I know, the statute does not make that distinction. But that's been the rule since the 1970's, at least under federal law.  California courts have followed this rule for many years.  The theory is that allowing employer-defendants to recover attorney's fees in all cases would dissuade people from suing for discrimination, harassment and retaliation.

But what of litigation costs?  Does Govt Code section 12965(b), quoted above, "expressly provide"  for an exception to the general rule set forth in Civil Proc. Code section 1032? 

Yes.  Yes it does.  That's what the California Supreme Court unanimously held in Williams v. Chino Valley Ind. Fire Dist., opinion here.  In a nutshell, the Court held:

We conclude Government Code section 12965, subdivision (b), governs cost awards in FEHA actions, allowing trial courts discretion in awards of both attorney fees and costs to prevailing FEHA parties. We further conclude that in awarding attorney fees and costs, the trial court‘s discretion is bounded by the rule of Christiansburg; an unsuccessful FEHA plaintiff should not be ordered to pay the defendant‘s fees or costs unless the plaintiff brought or continued litigating the action without an objective basis for believing it had potential merit. 

Many cases do not go to trial or get resolved via motion for summary judgment.  Therefore, there are only a small percentage of cases in which the defendant is entitled to recover its "costs." 

But this case has wider implications.  The potential for an award of costs is an incentive to plaintiffs to settle weak cases.  This holding guts that incentive.  Courts now must apply the same standard to costs as they do to attorney's fees.  It's not easy to persuade a court to award attorney's fees.  Plaintiffs and their lawyers will take into account that the employer will have a tough time obtaining an award of costs. Therefore, they may hold out for larger settlements or refuse to settle altogether. 

This case also makes it less likely that a weak case will be dismissed for a waiver of costs, which is a way for a plaintiff to settle a bad case.  The offer of a waiver of costs can have real consequences if costs are recoverable as a matter of right. For example, if an employer wins summary judgment, it may offer to settle for a waiver of costs if the plaintiff forgoes appeal. Now, that offer is less valuable. 

Finally, this case will make it more burdensome and expensive for defendants who prevail and then seek costs. It also will cause new burdens for trial courts.  Defendants no longer will be able to file a simple memorandum of costs at the end of a case.  Instead, they will have to file a motion to convince the court that the plaintiff's case was frivolous, unreasonable or without foundation.  Presumably, that motion will have to be based on evidence, such as deposition transcripts.  Those motions cost money to prepare, creating a further disincentive to filing them.  The trial court will then have to take the time to review these motions and make rulings. And then the courts of appeal may have to review the orders on appeal.

This ruling is great for plaintiffs with weak cases.  But not so great for employers facing huge defense costs that wish to pay a settlement rather than risk losing at trial or incurring further legal bills.

Again, the opinion in Williams v. Chino Valley Ind. Fire Dist. is here.  

Have a nice day!

  

California Supreme Court Takes Up Important Rest Period Case:

I posted about Augustus v. ABM here.  The California Supreme Court has granted review of the case. That means this published decision no longer is citable, unfortunately.   It also means that the Supreme Court will decide what a "rest period" means.  Must the employer relieve the employee of all duty, as the plaintiff argued?  Or is it enough to be refraining from work, but subject to be called back to work if needed?   Or something else?  We will keep you posted.

This could be the "Brinker" of rest period cases.  Here's hoping we don't have to wait as long as we did for Brinker!

U.S. Supreme Court: Courts Have the Power to Review EEOC's Conciliation Efforts

The Supreme Court unanimously held that the Equal Employment Opportunity Commission's duty to "conciliate" after finding reasonable cause is reviewable in court.

The EEOC typically investigates "charges," administrative complaints filed by individuals alleging discrimination or harassment or retaliation.  If EEOC decides there is no "reasonable cause" to find a violation of Title VII, the ADA, etc., it issues a "no cause" finding and a "right to sue" letter.

But when the agency decides there IS reasonable cause to believe a violation has occurred, then it proceeds with an effort to remedy the situation. That can be via "conciliation" - e.g., a settlement proposal, mediation, etc. If that fails the EEOC can sue or issue a eight-to-sue letter.

The conciliation process is required by law.  But what happens if the employer believes the EEOC has not attempted to do so?  That's what the supreme Court considered in  Mach Mining, LLC v. EEOC.  Justice Kagan, writing for the unanimous court, explained:

This case began when a woman filed a charge with the EEOC claiming that petitioner Mach Mining, LLC, had refused to hire her as a coal miner because of her sex. The Commission investigated the allegation and found reasonable cause to believe that Mach Mining had discriminated against the complainant, along with a class of women who had similarly applied for mining jobs. See App. 15. In a letter announcing that determination, the EEOC invited both the company and the complainant to participate in “informal methods” of dispute resolution, promising that a Commission representative would soon “contact [them] to begin the conciliation process.” Id., at 16. The record does not disclose what happened next. But about a year later, the Commission sent Mach Mining a second letter, stating that “such conciliation efforts as are required by law have occurred and have been unsuccessful” and that any further efforts would be “futile.” Id., at 18–19.

The EEOC then sued Mach Mining in federal district court alleging sex discrimination in hiring. The Commission’s complaint maintained that “[a]ll conditions precedent to the institution of this lawsuit”—including an attempt to end the challenged practice through conciliation—“ha[d] been fulfilled.” Id., at 22. In its answer, Mach Mining contested that statement, asserting that the EEOC had failed to “conciliat[e] in good faith” prior to filing suit. Id., at 30.

So, the EEOC moved for summary judgment against Mach Mining on the conciliation issue, arguing that the quality of its efforts are not reviewable by a court.  The district court disagreed; the Seventh Circuit ruled in favor of the EEOC.

The Supreme Court held as follows:

1.  Courts indeed have the power to review the EEOC's efforts to conciliate. Therefore, the court rejected the EEOC's argument that it had unreviewable discretion to determine what is adequate.

2.  EEOC's letter showing that it found reasonable cause and planned to conciliate, and a later letter stating conciliation has failed is insufficient evidence of conciliation.  EEOC must provide notice to the employer of what the violation is claimed to be, and must provide a court with an affidavit that it attempted conciliation. If the employer offers credible evidence contradicting EEOC's claim, the court may do fact-finding into that limited issue.

3.  If the district court finds in favor of the employer - that the EEOC did not conciliate adequately - then it is to stay the action and order the EEOC to conciliate.

So, thanks for reading this far.  As you probably figured out, this case will have little impact on employers and employment litigation.  First, the EEOC finds reasonable cause in few cases.  Second, the failure to conciliate at best is remedied with an order to conciliate, not dismissal of the lawsuit. And third, EEOC rarely sues employers, filing lawsuits in just a small percentage of cases in which it finds cause.  Fourth, this case has no bearing on state agencies and their charges, such as the Department of Fair Employment and Housing in California.

So, that's Mach Mining, LLC v. EEOC. The opinion is here. 

Court of Appeal: Exhaust Administrative Remedies Before Filing Suit Under Former Labor Code Section 1102.5

Labor Code Section 1102.5 is California's general "whistle blower" law. Here is the current version, in pertinent part.

(b) An employer, or any person acting on behalf of the employer,
shall not retaliate against an employee for disclosing information,
or because the employer believes that the employee disclosed or may
disclose information, to a government or law enforcement agency, to a
person with authority over the employee or another employee who has
the authority to investigate, discover, or correct the violation or
noncompliance, or for providing information to, or testifying before,
any public body conducting an investigation, hearing, or inquiry, if
the employee has reasonable cause to believe that the information
discloses a violation of state or federal statute, or a violation of
or noncompliance with a local, state, or federal rule or regulation,
regardless of whether disclosing the information is part of the
employee's job duties.

(c) An employer, or any person acting on behalf of the employer,shall not retaliate against an employee for refusing to participate in an activity that would result in a violation of state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation.

As per the Court of Appeal in Gallup v. Superior Court of Nevada County,

Section 1102.5 is silent regarding administrative remedies, but another section of the Labor Code, section 98.7, subdivision (a), provides in part: “Any person who believes that he or she has been discharged or otherwise discriminated against in violation of any law under the jurisdiction of the Labor Commissioner may file a complaint with the division within six months after the occurrence of the violation.”

Some courts had decided that before proceeding under section 1102.5, a plaintiff had to file a claim with the Labor Commissioner, exhausting these administrative remedies before proceeding under the statute. In a new statute, effective January 1, 2014, the Legislature clarified that one does not have to do so.

But what about pre-1/1/2014?  That's what the Court of Appeal addressed in this Gallup case.  The plaintiff was a court employee, who served as a family law mediator. She claims retaliation after she raised some concerns with family law court procedures.

After Gallup filed suit, the defendant court demurred to her complaint, arguing she did not exhaust administrative remedies before the Labor Commissioner per Labor Code section 98.7, quoted above. The trial court overruled the demurer, relying on Lloyd v. County of Los Angeles (2009) 172 Cal.App.4th 320, a court of appeal decision that held exhaustion was not required.  Gallup then took her case to trial and won.

On appeal, the employer argued that the trial court erred by failing to sustain the demurrer because Gallup did not exhaust her administrative remedies. The Court of Appeal agreed, rejecting the Lloyd court's holding.

The Court held that the 1/1/14 amendments were not retroactive.  The Court also decided that Lloyd was wrongly decided in light of the California Supreme Court's holding in Campbell v. Regents of University of California (2005) 35 Cal.4th 311.  In Campbell, the California Supreme Court held that exhaustion of the UC's internal remedies were required before proceeding under section 1102.5 .

The Court here also noted that its decision here conflicts with Satyadi v. West Contra Cost Healthcare Dist. (2014) 232 Cal.App.4th 1022, which held that exhaustion was not required and that the Legislature's recent statute is merely "clarification" of existing law and retroactive.  But the Gallup Court disagreed with Satyadi. 

Bottom line is that Gallup won her jury trial, but then lost her case because she was not entitled to that trial in the first place.  It may be that the Supreme Court must decide whether Satyadi or Gallup is correct.  Or the Court may decide that these cases have limited shelf-life, because cases filed after 1/1/2014 are clearly subject to the new statute.

What's the point of all this, you ask? If you have a pending lawsuit that includes a section 1102.5 claim, which was filed before January 1, 2014, you may wish to test whether the 1/1/2014 revision to the statute applies to your case. If it does not, the employee plaintiff may be out of court if he or she did not timely exhaust with the Labor Commissioner.  You're welcome!  However, those cases filed after 1/1/2014 are out of luck on the exhaustion argument.

This case is Gallup v. Superior Court of Nevada County and the opinion is here.

U.S. Supreme Court Upholds U.S. DOL's "Administrator Interpretations"

In 2010, the U.S. Department of Labor began issuing "Administrator Interpretations."  These are analyses of regulations that are broader and more comprehensive than the traditional opinion letters that DOL used to issue. The opinion letters generally were targeted to respond to requests made by individual stakeholders, often employers.  The Administrator Interpretations contain the DOL's view on how its regulations apply generally, not in response to a particular set of facts.

The DOL issued three of these in 2010, of which two remain published on its website. (Here)  These two address the definition of "clothes" under part of the Portal-to-Portal Act and whether mortgage loan officers qualify as "exempt" under the Fair Labor Standards Act.  In 2014, the DOL issued two more interpretations concerning home health care workers.

On the issue of mortgage loans officers, the DOL has changed its views several times in opinion letters over the years.  The 2010 Administrator Interpretation opines that mortgage loan officers are non-exempt.  Here.  That is because they primarily sell, and salespersons are not exempt under the "administrative test."

It has been argued that the Administrator Interpretations are actually in the nature of regulations, rather than opinion letters.  As such, the argument goes, they cannot be issued without going through the formalities of the federal Administrative Procedure Act.  That Act requires the agency to issue proposed regulations, followed by notice and comment by the public.  

There has also been a dispute as to whether an agency's "flip-flopping" or reversal of a prior interpretation is akin to a regulation, requiring APA procedures.  The Court of Appeals for the District of Columbia Circuit had held that when the DOL issues an interpretation that contradicts prior interpretations it is making what is in effect a new or amended regulation.

The U.S. Supreme Court in Perez v. Mortgage Bankers Association upheld the right of the DOL to issue these Administrator Interpretations without going through the APA requirements.   The Court disapproved the DC Circuit's approach and held that the Administrative Procedure Act does not require "notice and comment" procedures when the agency interprets its own regulations.

First, the APA does not require procedural safeguards with respect to agency interpretations generally.  But what is the difference between an interpretation and new rule?  Here is what the Court said:

the critical feature of interpretive rules is that they are “issued by an agency to advise the public of the agency’s construction of the statutes and rules which it administers.” Shalala v. Guernsey Memorial Hospital, 514 U. S. 87, 99 (1995) (internal quotation marks omitted). The absence of a notice-and-comment obligation makes the process of issuing interpretive rules comparatively easier for agencies than issuing legislative rules. But that convenience comes at a price: Interpretive rules “do not have the force and effect of law and are not accorded that weight in the adjudicatory process.” Ibid.

The Supreme Court rejected the Mortgage Bankers Association's argument that the DOL's decision to reverse course is analogous to amending the regulation.   The Court also refused to address the argument that the Administrator Interpretation was in fact a "legislative rule" or regulation rather than an interpretation of an existing rule.  That is because, the Court wrote, the parties had not litigated the case under that theory.

All nine justices rejected the D.C. Circuit's approach. But three justices pointed out in concurrences and partial dissents that the majority's decision allowed too much discretion in the administrative agencies' power to interpret their own regulations.  These justices based their objections not on the Administrative Procedure Act, but on the constitution's separation of powers.  Those arguments did not carry the day in this case.  However, the three justices signaled a willingness to walk back some older precedents on the power of administrative agencies.

What does this all mean?
- the DOL will continue to be allowed to issue Administrator Interpretations
- Administrator Interpretations may be attacked as inconsistent with the underlying regulation, but under a very deferential standard of review by the courts.
- The courts do not have to give deference to an Administrator Interpretation the same way that it must give deference to a regulation, particularly when the interpretation is inconsistent over time.
- Mortgage loan officers are probably non-exempt under the FLSA for now and the reasonably foreseeable future.

This case is Perez v. Mortgage Bankers Association and the opinion is here. 

P.S. I wrote about the first three Administrative Interpretations here.  The Supreme Court issued its ruling on the definition of clothes in Sandifer v. U.S. Steel, which I wrote about here.

U.S. Supreme Court Explains Burdens in Pregnancy Discrimination Cases

The Supreme Court analyzed the federal Pregnancy Discrimination Act, which amended Title VII of the Civil Rights Act of 1964.  The Court in an opinion written by Justice Breyer on behalf of himself and five more justices, analyzed how pregnant employees can prove discrimination in cases where they cannot do their jobs, but claim other employees were provided accommodations not afforded to the pregnant workers.

The facts are as follows, per the Court:

Peggy Young, worked as a part-time driver for the respondent, United Parcel Service (UPS). Her responsibilities included pickup and delivery of packages that had arrived by air carrier the previous night. In 2006, after suffering several miscarriages, she became pregnant. Her doctor told her that she should not lift more than 20 pounds during the first 20 weeks of her pregnancy or more than 10 pounds thereafter. App. 580. UPS required drivers like Young to be able to lift parcels weighing up to 70 pounds (and up to 150 pounds with assistance). Id., at 578. UPS told Young she could not work while under a lifting restriction. Young consequently stayed home with- out pay during most of the time she was pregnant and eventually lost her employee medical coverage.

Young's theory of discrimination was

that her co-workers were willing to help her with heavy packages. She also said that UPS accommodated other drivers who were “similar in their . . . inability to work.” She accordingly concluded that UPS must accommodate her as well.

UPS, on the other hand, 

responded that the “other persons” whom it had accommodated were (1) drivers who had become disabled on the job, (2) those who had lost their Department of Transportation (DOT) certifications, and (3) those who suffered from a disability covered by the Americans with Disabilities Act of 1990 (ADA), 104 Stat. 327, 42 U. S. C. §12101 et seq. UPS said that, since Young did not fall within any of those categories, it had not discriminated against Young on the basis of pregnancy but had treated her just as it treated all “other” relevant “persons.”

So, Young sued. Her federal claim under the Pregnancy Disability Act required the Court to interpret this language:

“women affected by pregnancy, childbirth, or related medical conditions shall be treated the same for all employment-related purposes . . . as other persons not so affected but similar in their ability or inability to work....”

The Court rejected the plaintiff's argument that the employer must provide pregnant employees the same accommodations it provides to any other worker, even if some nonpregnant workers would not receive that accommodation. For example, the plaintiff sought to invalidate policies that provide accommodations only to employees with industrial injuries. Here's what the court wrote:

We doubt that Congress intended to grant pregnant workers an unconditional most-favored-nation status. The language of the statute does not require that unqualified reading. The second clause, when referring to nonpregnant persons with similar disabilities, uses the open-ended term “other persons.” It does not say that the employer must treat pregnant employees the “same” as “any other persons” (who are similar in their ability or inability to work), nor does it otherwise specify which other persons Congress had in mind.

So, how can a plaintiff prevail in a pregnancy discrimination lawsuit involving denial of accommodation?  The Court answered.  First -

plaintiff alleging that the denial of an accommodation constituted disparate treatment under the Pregnancy Discrimination Act’s second clause may make out a prima facie case by showing, as in McDonnell Douglas, that she belongs to the protected class, that she sought accommodation, that the employer did not accommodate her, and that the employer did accommodate others “Similar in their ability or inability to work.”

Then it's the employer's turn - 

The employer may then seek to justify its refusal to accommodate the plaintiff by relying on “legitimate, nondiscriminatory” reasons for denying her accommodation. 411 U. S., at 802. But, consistent with the Act’s basic objective, that reason normally cannot consist simply of a claim that it is more expensive or less convenient to add pregnant women to the category of those (“similar in their ability or inability to work”) whom the employer accommodates. 

And finally - the employee will have to prove pretext to prevail. The Court offered some advice for plaintiffs -

If the employer offers an apparently “legitimate, non- discriminatory” reason for its actions, the plaintiff may in turn show that the employer’s proffered reasons are in fact pretextual. We believe that the plaintiff may reach a jury on this issue by providing sufficient evidence that the employer’s policies impose a significant burden on pregnant workers, and that the employer’s “legitimate, nondiscriminatory” reasons are not sufficiently strong to justify the burden, but rather—when considered along with the burden imposed—give rise to an inference of intentional discrimination.

The plaintiff can create a genuine issue of material fact as to whether a significant burden exists by providing evidence that the employer accommodates a large percentage of nonpregnant workers while failing to accommodate a large percentage of pregnant workers. Here, for example, if the facts are as Young says they are, she can show that UPS accommodates most nonpregnant employees with lifting limitations while categorically failing to accommodate pregnant employees with lifting limitations. Young might also add that the fact that UPS has multiple policies that accommodate nonpregnant employees with lifting restrictions suggests that its reasons for failing to accommodate pregnant employees with lifting restrictions are not sufficiently strong—to the point that a jury could find that its reasons for failing to accommodate pregnant employees give rise to an inference of intentional discrimination.

So, this case calls into question light duty and other accommodation policies that would categorically exclude pregnant employees.  But it does not outright invalidate them.  The Court's explanation of pretext is strange.  The Court wants a jury to decide whether the employer's explanation for a policy is not "sufficiently strong" to justify the burden on pregnant employees.  So, the Court IS sitting as a "super-personnel department" now?

Finally, in 2014, the EEOC issued Enforcement Guidance broadly interpreting the Pregnancy Disability Act's provisions.  The EEOC apparently issued these regulations after the Court granted review of this case.   The Court was not amused:

we have long held that “the rulings, interpretations and opinions” of an agency charged with the mission of enforcing a particular statute, “while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.” Skidmore v. Swift & Co., 323 U. S. 134, 140 (1944). See Brief for United States as Amicus Curiae 26.

But we have also held that the “weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors that give it power to persuade, if lacking power to control.” Skidmore, supra, at 140. These qualifications are relevant here and severely limit the EEOC’s July 2014 guidance’s special power to persuade. 

We come to this conclusion not because of any agency lack of “experience” or “informed judgment.” Rather, the difficulties are those of timing, “consistency,” and “thoroughness” of “consideration.” The EEOC promulgated its 2014 guidelines only recently, after this Court had granted certiorari in this case. In these circumstances, it is fair to say that the EEOC’s current guidelines take a position about which the EEOC’s previous guidelines were silent. And that position is inconsistent with positions for which the Government has long advocated. . . . Nor does the EEOC explain the basis of its latest guidance.  Does it read the statute, for example, as embodying a most-favored-nation status? Why has it now taken a position contrary to the litigation position the Government previously took? Without further explanation, we cannot rely significantly on the EEOC’s determination. 

Ouch.

So, the Court sent the case down to the circuit court for examination of its decision upholding summary judgment in favor of UPS.

In dissent, Justice Scalia, along with Thomas and Kennedy, argued that the pregnancy discrimination provision is the same as the prohibition of sex discrimination.  The dissent accused the majority of making up a mushy test that had no basis in the text of the law. And the dissent writes that the majority conflated the concept of disparate treatment and disparate impact. 

This case is Young v. United Parcel Service, Inc. and the opinion is here.