U.S. Supreme Court Protects Public Sector Employee's First Amendment Rights

Central Alabama Community College hired Edward Lane to be Director of Community Intensive Training for Youth (CITY).  After learning CITY had budget problems, he audited the program’s expenses.  During the audit, Lane found out Schmitz, an Alabama state representative, was on the CITY payroll, but not working.  Lane pressed the issue, demanding Schmitz report to work.  She refused.  Lane fired Schmitz.

Schmitz took offense that Lane would try to save the tax payers some money by firing someone collecting a salary for not doing any work.   She allegedly told another employee she would seek retribution against Lane and that she would see to it that his agency would not receive favor from the legislature.  The FBI became involved, and Schmitz was later convicted of corruption charges.   Lane testified under oath before a grand jury and at trial, under subpoena.

Meanwhile, the CITY agency continued its budget woes.  Lane's boss, Franks, later laid off Lane and another probationary employee.  Lane sued Franks under 42 U.S.C. 1983 for violation of his civil rights (First Amendment right to testify without retaliation, among other things).  He sued Franks in his "official capacity" as a substitute for the state, and in his individual capacity.

But the lower courts held that Lane was not entitled to First Amendment protection because the testimony he haves were related to his official duties.  Precedents establish that when government employees speak within the course of their duties, the First Amendment provides minimal protection, because of the employer's interest in orderly operation of its work place. 

The U.S. Supreme Court accepted the case to determine if the First Amendment protects employees who provide testimony under oath on matters that concern the job site.  The Court unanimously held that it does, thereby giving Lane a retaliation claim against Franks in his "official capacity" as a representative of the state.  (Lane sought reinstatement and equitable relief against Franks in his official capacity).  

From the Court's unanimous opinion:

Truthful testimony under oath by a public employee outside the scope of his ordinary job duties is speech as a citizen for First Amendment purposes. That is so even when the testimony relates to his public employment or concerns information learned during that employment.

The Court also held:

The content of Lane’s testimony—corruption in a public program and misuse of state funds—obviously involves a matter of significant public concern.

The Court also held that the government did not have an adequate justification to tip the balance in its favor:

an employee’s sworn testimony is not categorically entitled to First Amendment protection simply because it is speech as a citizen on a matter of public concern. Under Pickering, if an employee speaks as a citizen on a matter of public concern, the next question is whether the government had “an adequate justification for treating the employee differently from any other member of the public” based on thegovernment’s needs as an employer. * * * 

Here, the employer’s side of the Pickering scale is entirely empty: Respondents do not assert, and cannot demonstrate, any government interest that tips the balance in their favor. There is no evidence, for example, that Lane’s testimony at Schmitz’ trials was false or erroneous or that Lane unnecessarily disclosed any sensitive, confidential,or privileged information while testifying . . . .  

So, Lane's case against the state could proceed via his suit against Franks in his "official capacity."  But the Court also held that the lawsuit against Franks personally would be barred by "qualified immunity.":

Qualified immunity “gives government officials breathing room to make reasonable but mistaken judgments about open legal questions.” Ashcroft v. al-Kidd, 563 U. S. ___, ___ (2011) (slip op., at 12). Under this doctrine, courts may not award damages against a government official in his personal capacity unless “the official violated a statutory or constitutional right,” and “the right was ‘clearlyestablished’ at the time of the challenged conduct.” * * * 

The relevant question for qualified immunity purposes is this: Could Franks reasonably have believed, at the time he fired Lane, that a government employer could fire an employee on account of testimony the employee gave, under oath and outside the scope of his ordinary job responsibilities? Eleventh Circuit precedent did not preclude Franks from reasonably holding that belief. And no decision of this Court was sufficiently clear to cast doubt on the controlling Eleventh Circuit precedent. * * * *

So, Lane's official capacity case was returned to the lower courts.  Franks is off the hook personally.

This case is Lane v. Franks and the opinion is here.

Happy 8th Anniversary Shaw Valenza LLP

Shaw Valenza and this blog celebrate our 8th anniversary today. 8 years is a long flash in the pan.  We wouldn't be here if it wasn't for our great team, our fantastic clients, and our exclusive club of readers.  That's you.  So, thank you all!

Thank you, too, to the Legislature, agencies, and courts for keeping us busy.

Finally, thank you Jennifer Brown Shaw, the best employment lawyer, partner, and friend one could hope to have.

DGV 6/19/2014

Court of Appeal: Extortion Is Not a Legally Protected Pre-Litigation Demand

From the Court of Appeal's opinion:

Jerome Stenehjem sued his former employer, Akon, Inc., and Surya Sareen, Akon‘s president and chief executive officer, for defamation, among other causes of action. Sareen countersued for civil extortion. Sareen alleged in an amended cross-complaint (Cross-Complaint) that Stenehjem (1) had asserted, through his counsel, a prelitigation claim for defamation; and (2) had later, while representing himself, made a written threat by e-mail to file a false criminal complaint against Sareen unless he paid Stenehjem monies to settle his defamation claim. Stenehjem‘s e-mail demand mentioned a potential qui tam suit; alluded to accounting documents created by Stenehjem at Sareen‘s specific direction, and referred to potential involvement of the United States Attorney General, Department of Justice, and Department of Defense. Sareen alleged that Stenehjem‘s demand constituted extortion in violation of criminal laws.

Shorter:  Stenehjem is Akon's ex employee. Akon is the employer.  Sareen is Akon's CEO.  Stenehjem  claims wrongful discharge, defamation, etc.  His lawyer tries to demand over $600,000 in settlement. Akon, the former employer, repeatedly tells him to jump in the lake.

Then, Stenehjem discontinues his relationship with his lawyer and sends the following email to Akon's lawyer, McDonnell:

Dear Mr. McDonnell, [¶] Although you have been quite firm and I feel un-professional in your response to my request to discuss the matter of my wrongful termination and the defamation claim I know is valid face to face, I take your comments about this being a Bogus claim very personnelly [sic]. I at no time wanted to cause any un-neccessay [sic] or long court procedings [sic] to hinder Akon or Mr. Sareen from continuing to doing bussiness [sic] as usual. As Akon‘s attorney I leave it in your hands to get the facts from Mr. Sareen and Dick Sanders in regards to a contract review by the aduitor [sic] Wayne Vartek and the documents I created on orders from Mr. Sareen regarding BOM‘s and purchase orders for three DLVA‘s under contract aduit [sic]. Mr. Sareen went into great detail about the reasons and figures which he had me write down in my notebook required in the BOM documentation he asked me to provide. [¶] I never wanted this to become a long and expensive process let alone involve the United States Attorney General, the Department of Justice or the DOD. Other then [sic] the wrongful termination I have never held any ill feeling towards Akon or Mr. Sareen. I also never wanted to enrich a bunch of bottom feeding attorneys such as yourself and the ones I have been meeting with. With that said I advise you to forward this to Mr. Sareen, act in good faith as his attorney and decide if this is the manner in which you want to continue responding in [sic]. [¶] In closing please inform your client I do not wish to make a Federal case out of this or create any unneccessary [sic] stress on Mr. Sareen or any Akon employees. Please remind Mr. Sareen of his statement that ―when I am wrong I will be the first to admit it and appoligize [sic.]‖ [I]t is still my desire to resolve this matter face to face and with no involvement of the courts and a bunch of attorneys serving there [sic] own self interests. [¶] I am extending my hand and this offer to meet one last time because of my disgust with the idea of enriching a large group of bottom feeding attorneys such as you and the ones advising me. It is not my first choice to procede [sic] with the Qui Tam option but the choice of a group of attorneys looking for the biggest payout they can get with the least effort and expense. I have yet to sign an agreement with the Lawyer out of Los Angeles who specializes in Qui Tam suits but he has reviewed my statement, investigated the facts, talked to former Akon employees, and wants to fly up to sign an agreement and formalize my statement. [¶] I was always honest with Mr. Sareen[;] hence my disclosure of the pending actions and my extension of one last opportunity to settle this in a gentlemens [sic] manner, shake hands and put this matter behind us. If you are acting [sic] in his best interests you will forward this letter to Mr. Sareen and respond in a civil and professional manner and not in the manner which you so un-professionally replied previously. [¶] Sincerely, Jerry Stenehjem‖

(emphasis mine)

In essence, Stenehjem attempted to gain advantage in his own civil suit by threatening Akon with a "qui tam" or false claims suit, the involvement o the government, etc., unless Akon settled with Stehehjem.

Akon, bless 'em, then sued Stenehjem for extortion.  Actually, Akon filed a cross-complaint to Stenehjem's complaint for defamation etc.  In response to the cross-complaint, Stenehjem filed a motion to strike that extortion claim as a "SLAPP" or "Strategic Lawsuit Against Public Participation."

The trial court granted the motion to strike, deciding that Stenehjem's email was protected pre-litigation speech.  But the Court of Appeal reversed the trial court.  It held that Akon's lawsuit would go forward against Stenehjem because his e-mail was indeed extortion.  Extortion is not protected speech.

It is important to consider the context under which the e-mail was sent. This backdrop included Stenehjem‘s initial settlement demand through counsel of $675,000; McDonnell‘s repeated statements that Stenehjem‘s claims had no merit; and McDonnell‘s having previously rebuffed any idea of settling the claims. McDonnell: (1) advised Stenehjem‘s attorney, Heymann, six months earlier that the claims were ―meritless‖ and that the only way Stenehjem would receive any monetary payment was by obtaining a judgment against Defendants; (2) told Heymann, in response to the latter‘s overtures regarding mediation of the dispute, that Akon would not mediate the matter and would not ―waste any more time on pointless settlement discussions‖; and (3) responded to Stenehjem‘s personal e-mail of June 23, 2011, in which Stenehjem had sought ―to settlethis matter by direct negotiation,‖ by stating that ―AKON is not interested in spending any time on any further settlement discussions of your bogus claims.‖13 Stenehjem in his August e-mail is therefore characterizing as unprofessional McDonnell‘s consistent position that Stenehjem‘s claims were unmeritorious and that his clients would pay no money to settle them.

*  *  *

We conclude that Stenehjem‘s August e-mail constituted extortion as a matter of law. It threatened to expose Sareen to federal authorities for alleged violations of the False Claims Act unless he negotiated a settlement of Stenehjem‘s private claims. Even were it true that Sareen had in fact committed acts violating the False Claims Act—and there is no evidence to support this, since Stenehjem filed no declarations in connection with the motion other than his attorney‘s fee declaration—this is ―irrelevant‖ to whether the threatened disclosure was extortion. (Flatley, supra, 39 Cal.4th at p. 330.) And it is of no consequence that the e-mail did not specifically identify the crime of which Stenehjem intended to accuse Sareen. (Flatley, at p. 331; Mendoza, supra, 215 Cal.App.4th at p. 806.)

* * *  

Furthermore, the alleged criminal activity that Stenehjem threatened to expose in a qui tam action was ―entirely unrelated to any alleged injury suffered by‖ Stenehjem as alleged in his defamation and wrongful termination claims. (Flatley, supra, 39 Cal.4th at pp. 330-331.)

Bottom line -  plaintiffs, you cannot attempt to leverage your own weak cases by threatening to expand claims to unrelated matters.  If you do, that could be extortion, for which you could be held liable.  I hope a few of my adversaries read this.  I've heard threats like this during my own lawsuits.

This case is Stenehjem v. Sareen and the opinion is here.

Court of Appeal: Employer Must Litigate Exhaustion of Remedies in FEHA Cases and More

Kim v. Konad USA Distribution, Inc. is an opinion about a sexual harassment / wrongful termination claim against a small employer and its owner.  No, Beavis, the accused harasser's name is not Whang Dong.  OK, yes it is.

Anyway, the opinion concerns some procedural issues, so I won't review the facts, which are pretty bad.  You can review the opinion here.

The plaintiff in a Fair Employment and Housing Act case must "exhaust" administrative remedies by filing an administrative complaint with the Department of Fair Employment and Housing, and by obtaining a right to sue letter.  The agency has reduced this obligation to filing a boiler-plate form online and receiving an immediate right to sue letter.   But the filing is still mandatory.

If the employer believes the administrative complaint is not filed, or inadequate to cover the claims in the lawsuit, the employer may raise that issue before trial via motion for summary judgment, demurrer, or judgment on the pleadings.  But, the Court of Appeal decided, the employer cannot wait until the end of a trial to seek dismissal of a claim under the Fair Employment and Housing Act on the basis that an employee failed to exhaust her administrative remedies:

If a defendant timely presents the issue of whether a FEHA plaintiff has properly presented all claims to the DFEH, a court must decide the merits of this question. (Keiffer, supra, 65 Cal.App.4th at p. 900.) But “‘it would be grossly unfair to allow a defendant to ignore this potential procedural defense at a time when facts and memories were fresh and put a plaintiff to the time and expense of a full trial, knowing it could assert the failure to exhaust administrative remedies if it received an adverse [judgment].’” (Ibid.; see also Mokler, supra, 157 Cal.App.4th at p. 136 [defendant waived exhaustion defense by “waiting to raise exhaustion until after a full trial on the merits”].)

We therefore disagree with defendants’ underlying premise that exhaustion of administrative remedies affects the fundamental subject matter jurisdiction of the court. Prior to submission of the case for decision, defendants did not request dismissal of the FEHA causes of action based on plaintiff’s failure to exhaust.

The Court of Appeal also addressed the defendants' separate argument that the plaintiff did not establish 5 or more employees worked for the employer, which would establish coverage by the statute.  The employer argued on appeal that a common law wrongful termination claim would not be viable if it had fewer than five employees. 

But the plaintiff was suing for sexual harassment as well. Sexual harassment requires only one employee.  Plaintiff claimed she was forced to quit due to the sexual harassment.  Therefore, she argued the public policy applied to the employer, even though it was too small to be held liable for discriminatory or retaliatory termination under the FEHA.

The Court of Appeal decided the plaintiff had the better argument:

all employers (not just those with five or more employees) accused of harassment (based on sex or some other classification listed in Gov. Code, § 12940, subd. (j)(1)) are subject to a FEHA harassment claim. Likewise, because plaintiff’s common law claim is based on sexual harassment, the applicable FEHA public policy applies to employers with less than five employees.

Again, you can read Kim v. Konad USA Distribution, Inc. here.

California Supreme Court's Class Action Decision in Duran

Employees and employers alike have awaited the California Supreme Court's opinion in Duran v. U.S. Bank Natl Assoc. for some time.  Our little firm submitted an "amicus curiae" brief on behalf of the California Chamber of Commerce, supporting the employer (available here).  And, we're happy to say, the Court saw things our way, not that we are taking credit. #humblebrag.

That said, as the California Supreme Court is wont to do lately, the Court left a lot open to interpretation and further litigation.  There are some guidelines, but no bright line rules.  So, let's see what we have ....

Duran and the class were loan officers. USB classified them as outside sales, who are exempt if they spend more than 50% of their time outside the office making sales.

Per the Court:

After certifying a class of 260 plaintiffs, the trial court devised a plan to determine the extent of USB’s liability to all class members by extrapolating from a random sample. In the first phase of trial, the court heard testimony about the work habits of 21 plaintiffs. USB was not permitted to introduce evidence about the work habits of any plaintiff outside this sample. Nevertheless, based on testimony from the small sample group, the trial court found that the entire class had been misclassified. After the second phase of trial, which focused on testimony from statisticians, the court extrapolated the average amount of overtime reported by the sample group to the class as a whole, resulting in a verdict of approximately $15 million and an average recovery of over $57,000 per person.

You don't hear about many class action trials.  In fact, this was one of the only cases in California history to go to trial on an exemption case.  The trial court, apparently believing 260 class members should not be testifying about their duties, selected 21 people, at random, to testify.  Then, statisticians testified how much overtime the 260 people worked to calculate their damages.

So, about 240 employees did not testify about their duties or their time worked at all. US Bank had this notion that it should be able to prove employees are exempt by using any employee or manager's testimony, and that any employee who did not deserve overtime should not be paid based on a statistical extrapolation.  The trial court would not allow any such testimony.

The Court of Appeal agreed with US Bank, holding that the plaintiff's statistical proof of liability violated USB's entitlement to due process of law.  As such, the Court reversed the $15 million judgment.

The Supreme Court upheld the Court of Appeal in full, unanimously. So, this case will be sent back to the trial court for a new trial, and a new fight over class certification.  The Supreme Court did not rule on the constitutional "due process" issue.   The Court also did not draw any bright line rules about whether statistical evidence is appropriate at the liability phase.  But the Court strongly criticized the superior court's methods, and there is very helpful language for employers.  There is some helpful language for the plaintiff's bar too.

Here are the main takeaways with supporting quotes:

1.  Courts must consider not just whether there are common questions, but also whether it is feasible to try those common questions in one proceeding:

In the misclassification context, as in other types of cases, trial courts deciding whether to certify a class must consider not just whether common questions exist, but also whether it will be feasible to try the case as a class action. Depending on the nature of the claimed exemption and the facts of a particular case, a misclassification claim has the potential to raise numerous individual questions that may be difficult, or even impossible, to litigate on a classwide basis. Class certification is appropriate only if these individual questions can be managed with an appropriate trial plan.

2.  The issue of "manageability" is a co-equal and separate issue from whether common questions predominate.  Manageability goes to whether the class action is "superior" to individual lawsuits:

Although predominance of common issues is often a major factor in a certification analysis, it is not the only consideration. In certifying a class action, the court must also conclude that litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently. ... In wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting. (Brinker, at p. 1033; Dailey v. Sears, Roebuck & Co. (2013) 214 Cal.App.4th 974, 989.)

* * *

Trial courts must pay careful attention to manageability when deciding whether to certify a class action. In considering whether a class action is a superior device for resolving a controversy, the manageability of individual issues is just as important as the existence of common questions uniting the proposed class.

3.  Class certification in wage-hour cases alleging misclassification will depend on whether individual questions predominate as to the liability for overtime, not the amount of overtime pay due:

Defenses that raise individual questions about the calculation of damages generally do not defeat certification. (Sav-On, supra, 34 Cal.4th at p. 334.) However, a defense in which liability itself is predicated on factual questions specific to individual claimants poses a much greater challenge to manageability. This distinction is important. As we observed in City of San Jose v. Superior Court, supra, 12 Cal.3d at page 463: “Only in an extraordinary situation would a class action be justified where, subsequent to the class judgment, the members would be required to individually prove not only damages but also liability.”

4.  Class certification is more likely to be appropriate in cases where the job is highly standardized, and if the corporate policy uniformly requires overtime work:

Where standardized job duties or other policies result in employees uniformly spending most of their time on nonexempt work, class treatment may be appropriate even if the case involves an exemption that typically entails fact-specific individual inquiries.

5.  Statistical proof cannot establish liability without additional "glue" binding a class together.  Courts should consider whether statistical proof is a viable way of handling individual issues at the certification stage:

if sufficient common questions exist to support class certification, it may be possible to manage individual issues through the use of surveys and statistical sampling. Statistical methods cannot entirely substitute for common proof, however. There must be some glue that binds class members together apart from statistical evidence. . . .

If statistical evidence will comprise part of the proof on class action claims, the court should consider at the certification stage whether a trial plan has been developed to address its use. A trial plan describing the statistical proof a party anticipates will weigh in favor of granting class certification if it shows how individual issues can be managed at trial. Rather than accepting assurances that a statistical plan will eventually be developed, trial courts would be well advised to obtain such a plan before deciding to certify a class action. In any event, decertification must be ordered whenever a trial plan proves unworkable.

And

While representative testimony and sampling may sometimes be appropriate tools for managing individual issues in a class action, these statistical methods cannot so completely undermine a defendant’s right to present relevant evidence.

And, this language, which casts some doubt on how there can be statistical proof of liability in mis-classification cases that are fact intensive:

We need not reach a sweeping conclusion as to whether or when sampling should be available as a tool for proving liability in a class action. It suffices to note that any class action trial plan, including those involving statistical methods of proof, must allow the defendant to litigate its affirmative defenses. If a defense depends upon questions individual to each class member, the statistical model must be designed to accommodate these case-specific deviations. If statistical methods are ultimately incompatible with the nature of the plaintiffs’ claims or the defendant’s defenses, resort to statistical proof may not be appropriate. Procedural innovation must conform to the substantive rights of the parties.

6.   The employer's "blanket" classification of a group of employees as exempt is not sufficient to justify certification of a class based on common questions.

7.  The way to defeat certification remains by demonstrating that individual issues will swamp the common ones.

. . . USB’s exemption defense raised a host of individual issues. While common issues among class members may have been sufficient to satisfy the predominance prong for certification, the trial court also had to determine that these individual issues could be effectively managed in the ensuing litigation. (See Brinker, supra, 53 Cal.4th at p. 1054 (conc. opn. of Werdegar, J.); Sav-On, supra, 34 Cal.4th at p. 334.) Here, the certification order was necessarily provisional in that it was subject to development of a trial plan that would manage the individual issues surrounding the outside salesperson exemption.

In general, when a trial plan incorporates representative testimony and random sampling, a preliminary assessment should be done to determine the level of variability in the class. (See post, at p. 40.) If the variability is too great, individual issues are more likely to swamp common ones and render the class action unmanageable. No such assessment was done here. With no sensitivity to variability in the class, the court forced the case through trial with a flawed statistical plan that did not manage but instead ignored individual issues.

8.  The trial of a class action must allow for litigation of affirmative defenses.  Therefore, courts evaluating certification must weigh that litigation in deciding the manageability issue.  If a court does not make this finding at the certification stage, the certification is reversed:

Although courts enjoy great latitude in structuring trials, and we have encouraged the use of innovative procedures, any trial must allow for the litigation of affirmative defenses, even in a class action case where the defense touches upon individual issues. As we will explain, the trial plan here unreasonably prevented USB from supporting its affirmative defense. Accordingly, the class judgment must be reversed. The trial court is of course free to entertain a new certification motion on remand, but if it decides to proceed with a class action it must apply the guidelines set out here.

* * * 

the trial court could not abridge USB’s presentation of an exemption defense simply because that defense was cumbersome to litigate in a class action. Under Code of Civil Procedure section 382, just as under the federal rules, “a class cannot be certified on the premise that [the defendant] will not be entitled to litigate its statutory defenses to individual claims.” (Wal-Mart Stores, Inc. v. Dukes (2011) 564 U.S. __, __ [131 S.Ct. 2541, 2561].) These principles derive from both class action rules and principles of due process. (See Lindsey v. Normet (1972) 405 U.S. 56, 66; Philip Morris USA v. Williams, (2007) 549 U.S. 346, 353.)

9.  Classwide liability in misclassification cases is possible, but just got harder:

This is not to say that an employer’s liability for misclassification may never be decided on a classwide basis. A class action trial may determine that an employer is liable to an entire class for misclassification if it is shown that the employer had a consistently applied policy or uniform job requirements and expectations contrary to a Labor Code exemption, or if it knowingly encouraged a uniform de facto practice inconsistent with the exemption.

10. Statistical proof may be allowed to prove damages. However, estimates of damages cannot be based on overtime that was worked by those employees found to be exempt. That alone creates a major impediment to class-wide trials in misclassification cases.

So, I'm sure others will have more to say.  But this is a lot.  Although the Supreme Court's unanimous opinion is not definitive about the use of sampling and statistics for liability, the Court has left only a narrow gap in the door.

This case is Duran v. U.S. Bank Nat. Assn. and the opinion is here.

Cal. Court of Appeal Applies Avoidable Consequences Defense to Discrimination Claim

This case illustrates the benefit of a good internal complaint procedure.  Employers may rely on effective "grievance" or "open door" policies to reduce potential liability, particularly when employees rush to court without first relying on them.

Rosenfeld, a teacher, sued her employer, a school, for age discrimination. She claimed she was forced out by having her hours cut.  However, the school showed there was a decline in enrollment, and that it would have offered her the same hours in the year following her resignation.

At trial, the school argued that Rosenfeld's failure to use the school's internal complaint procedure should work to cut off her damages, based on an "avoidable consequences" theory.   That is a state law defense that says your recovery may be reduced by your failure to reasonably avoid harm.  The California Supreme Court applied this defense to a sexual harassment case (State Dept. of Health Servs. v. Superior Court), rejecting the more employer-friendly federal standard.

Quoting the Supreme Court opinion, the Court of Appeal explained the defense:

State Department of Health Services held “that in a FEHA action against an employer for hostile environment sexual harassment by a supervisor, an employer may plead and prove a defense based on the avoidable consequences doctrine. In this particular context, the defense has three elements: (1) the employer took reasonable steps to prevent and correct workplace sexual harassment; (2) the employee unreasonably failed to use the preventive and corrective measures that the employer provided; and (3) reasonable use of the employer’s procedures would have prevented at least some of the harm that the employee suffered. [¶] This defense will allow the employer to escape liability for those damages, and only those damages, that the employee more likely than not could have prevented with reasonable effort and without undue risk, expense, or humiliation, by taking advantage of the employer’s internal complaint procedures appropriately designed to prevent and eliminate sexual harassment.” (State Department of Health Services, supra, 31 Cal.4th at p. 1044, italics added.)

Here, the Court of Appeal held that the trial court properly admitted the school's defense in the context of a discrimination claim, rather than a harassment claim:

the trial court properly allowed Heschel to present evidence that Rosenfeld failed to pursue the internal grievance procedure which could have prevented at least some of Rosenfeld’s damages. [fn 6] [n.6]As indicated, the evidence showed that shortly after Rosenfeld submitted her letter of resignation, five more teaching hours became available, so that Rosenfeld could have taught 15 hours per week, instead of 10 hours. Therefore, had Rosenfeld pursued the internal grievance procedure, she would have taught the same number of hours during the 2007-2008 school year that she taught the year before.

This opinion also includes a good discussion of the difference between disparate treatment and disparate impact.  The plaintiff tried to try the case based on a "disparate impact" theory, arguing the school's new criteria for evaluating teachers had a disparate impact on older teachers.  But the trial court excluded this effort because the plaintiff had been treating the case as "disparate treatment" - intentional discrimination - all along.   Quoting from a Ninth Circuit decision, Coleman v. Quaker Oats, (9th Cir. 2000) 232 F.3d 1271, The Court of Appeal rejected the argument that a FEHA claim can be proved by either method without any previous notice to the defendant (in the complaint):

allowing the plaintiffs “to proceed with their disparate impact theory after the close of discovery would prejudice [defendant] Quaker. A complaint guides the parties’ discovery, putting the defendant on notice of the evidence it needs to adduce in order to defend against the plaintiff’s allegations. A disparate impact theory, lacking the requirement that the plaintiff prove intent and focusing on statistical analyses, requires that the defendant develop entirely different defenses, including the job relatedness of the challenged business practice or its business necessity. Neither of these are necessary to defend against a disparate treatment theory. This case illustrates the problem. At no time prior to summary judgment did [plaintiffs] identify which facially neutral Quaker employment practice they challenged as having a discriminatory impact. . . . The lack of notice on this issue central to the cause of action makes it difficult, if not impossible, for Quaker to know how to defend itself. After having focused on intentional discrimination in their complaint and during discovery, the employees cannot turn around and surprise the company at the summary judgment stage on the theory that an allegation of disparate treatment in the complaint is sufficient to encompass a disparate impact theory of liability.” (Coleman, supra, 232 F.3d at pp. 1292-1293, italics added.)

This case is Rosenfeld v. Abraham Joshua Heschel Day School, Inc. and the opinion is here. 

Court of Appeal: Employer Not Responsible for Off-the-Clock Work

Kaiser won summary judgment against an employee who claimed he was working off the clock, contrary to Kaiser policy and procedures for reporting time worked.

To recover on a claim for unpaid work time, the employee must prove that the employer knew or should  have known (via the exercise of reasonable care) that the employee was working off the clock. That is called "actual" or "constructive" knowledge.  This court distinguished between "should" have known and "could" have known.  That is, it is not enough for the employee to argue that the employer somewhere had enough data to infer that an employee was working off the clock. Quoting analogous federal authorities interpreting the federal Fair Labor Standards Act, the Court of Appeal explained:

In Forrester v. Roth’s I.G.A. Foodliner, Inc. (9th Cir. 1981) 646 F.2d 413, the court held that “where an employer has no knowledge that an employee is engaging in overtime work and that employee fails to notify the employer or deliberately prevents the employer from acquiring knowledge of the overtime work, the employer’s failure to pay for the overtime hours is not a violation of § 207.” (646 F.2d at p. 414.) “An employer must have an opportunity to comply with the provisions of the FLSA. This is not to say that an employer may escape responsibility by negligently maintaining records required by the FLSA, or by deliberately turning its back on a situation. However, where the acts of an employee prevent an employer from acquiring knowledge, here of alleged uncompensated overtime hours, the employer cannot be said to have suffered or permitted the employee to work in violation of § 207(a).” (Id. at pp. 414-415; see also, e.g., Kellar v. Summit Seating, Inc. (7th Cir. 2011) 664 F.3d 169, 176-178; cf. Brown v. Scriptpro, LLC (10th Cir. 2012) 700 F.3d 1222, 1230-1231.) This qualification was implicitly endorsed by our Supreme Court in a different context (Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 585 [“ ‘ “[T]he words ‘suffer’ and ‘permit’ as used in the statute mean ‘with the knowledge of the employer.’ ” ’ ”]

Here is what the plaintiff-employee testified to:

Jong acknowledged that he “knew of Kaiser’s written policy that OPMs should be clocked in whenever they were working,” that he was always paid for time he recorded on Kaiser’s recording system, including overtime hours, that he was instructed he was eligible to work and be paid for overtime hours, that there was never an occasion when he requested approval to work overtime that was denied and there were occasions when he worked and was paid overtime even though he did not seek pre-approval, that he was not told by any of his managers or supervisors or any other Kaiser management personnel that he should perform work before he clocked in or after he clocked out or otherwise work off-the-clock,1 and that he signed the attestation form and understood it was an attestation that he would not work off-the clock.

The plaintiff tried to get around that testimony by arguing that Kaiser knew he was working off the clock - or should have known - because other employees dong the same job testified that they were working off the clock; sort of "me-too" wage hour evidence.

Agreeing with the trial court, the Court of Appeal held that "me too" evidence was irrelevant:

Under these admitted circumstances, evidence that Kaiser was aware that many OPMs worked more than 40 hours a week before being reclassified would not support a finding that after the reclassification Kaiser knew or should have known that Jong was not correctly reporting his hours.

The Court of Appeal also rejected the plaintiff's argument that Kaiser "should have known" the plaintiff was working off the clock because the "alarm code" records showed he was reporting to work before his shift started, and activated the alarm code long after he punched out.

We again find the trial court’s reason for rejecting the sufficiency of this evidence to be persuasive: “[E]ven assuming that the availability of such data could otherwise meet the ‘should have known’ requirement, as opposed to ‘could have known’ [citation], the alarm data does not show what Jong was doing during the time between disarming the alarm and clocking in, or between checking out and arming the alarm.” While the summary judgment papers may have contained evidence that Jong was working whenever the alarm was off, that information was not before Kaiser when paying Jong and Kaiser could reasonably believe that he did not begin or end work except as he reported.

So, although this case involves an individual employee's summary judgment loss, this case is going to help in class action cases involving off the clock work.  The court will not accept the premise that other employees' testimony that a job took them more than 40 hours to perform proves that it takes more than 40 hours to perform ALL class members' job duties. 

There are good take-aways for employers prevention efforts here, as well.  It is key to have a written policy prohibiting off-the-clock work.  Employers also should have employees acknowledge, in writing, and perhaps under penalty of perjury, that they accurately report hours worked.  It is helpful, too, to have proof of paying overtime when work is reported. 

This case is Jong v. Kaiser Foundation Health Plan, Inc. and the opinion is here. 

Quick Reminder: California Employers Must Update Minimum Wage Posters

The California minimum wage goes up on 7/1/14 to $9.00 per hour.
Get your new poster here.

Remember, the exempt minimum salary for executives, administrative and professional workers will go up to $37,440, or $3120 per month.  So, make sure any exempt employee earning less than those minimums gets a raise!

Have a good holiday weekend!

California Court of Appeal: Certify 'Em All!

The California Supreme Court has to clarify class action standards again.  If there were any doubt, the Court of Appeal's decision in Hall v. Rite Aid, opinion here, seals it.  Strong words, I know.  But read on and you'll see what I mean.

In Hall,  the Rite-Aid cashiers sued because they claim they were denied "suitable seating" under the California wage orders:

Kristin Hall filed this action, on behalf of herself and similarly situated persons, alleging defendant Rite Aid Corporation did not provide seats to employees while the employees were operating cash registers at Rite Aid check-out counters in violation of section 14 of Wage Order 7-2001 (section 14) (Cal. Code Regs., tit. 8, § 11070(14)), promulgated by California's Industrial Welfare Commission (IWC). Section 14 requires an employer to provide employees with suitable seats "when the nature of the work reasonably permits the use of seats." (Cal. Code Regs., tit. 8, § 11070(14)(A).)

Hall moved for class certification arguing the following:

(1) all Cashier/Clerks are covered by the same job description and have similar job duties, including check-out work; (2) on average, Cashier/Clerks spend a 4 majority of their hours working at the register; (3) most check-out work (which largely involves scanning and bagging merchandise, processing payments, and handing the bags and receipt to the customer) can be done while seated, but Rite Aid required its Cashier/Clerks to stand while performing check-out work; and (4) Rite Aid's standard counter configurations could accommodate a seat with minimal modifications.

Rite-Aid pointed out in opposition to class certification:

(1) its stores differed in size, sales volume, number of Cashier/Clerks, and sales counter configurations; (2) when Cashier/Clerks are not performing check-out counter work they are tasked with duties that varied among the stores; and (3) the percentage of time each Cashier/Clerk spent behind the check-out counter varied from 2 percent to 99 percent (with an average of about 42 percent) and the time spent on stockroom or floor duties was equally varied. Rite Aid's evidence also showed that, even when performing duties at the check-out counter, the distance Cashier/Clerks had to move away from the register (to retrieve controlled items such as tobacco and liquor) varied depending on the specific configuration of each store, and they often or very often performed tasks requiring them to lift, bend, twist, lean over, or move around while working at the check-out register. Because of the variety of tasks, 69 percent of surveyed Cashier/Clerks reported they spent at least half their time moving behind the counter, and 31 percent reported they spent at least 3/4 of their time moving behind the counter.

So, do common issues predominate (making class certification appropriate)?  Or do individual issues predominate, making class certification inappropriate?  To answer this question, don't you have to know what the "nature of the work" means under the Wage Order?  You would have to know whether the common issues, if decided in the plaintiff's favor, would lead to victory for the plaintiff, wouldn't you?  For example, don't you need to know whether suitable seating is required even if significant parts of the job involve moving around?

That's what the trial court did. It looked at the term "nature of the work," and decided that the variances in employees duties made it impossible to generalize on a class wide basis.

Specifically, it concluded, contrary to Hall's postulated theory, that section 14 does not mandate the provision of suitable seats when the nature of a substantial task within an employee's range of duties would reasonably permit the use of seats, but instead mandates the provision of suitable seats only when the nature of an employee's work as a whole would reasonably permit the use of seats. Based on that construction of section 14, the trial court concluded decertification was proper because individual issues as to each class member's "job as a whole" would predominate over common questions.

Wrong, said the Court of Appeal.

Our review of Brinker, which is binding on this court (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450), compels the conclusion the trial court erroneously based its decertification order on its assessment of the merits of Hall's claim rather than on the theory of liability advanced by Hall.

The Court went even further:

Rite Aid asserts the trial court properly reached the merits of (and correctly rejected) Hall's theory of liability when it ruled on the decertification motion because Brinker cannot be read to permit a plaintiff to "invent a class action by proposing an incorrect rule of law and arguing, 'If my rule is right, I win on a class basis.' "

* * *

We read Brinker to hold that, at the class certification stage, as long as the plaintiff's posited theory of liability is amenable to resolution on a class-wide basis, the court should certify the action for class treatment even if the plaintiff's theory is ultimately incorrect at its substantive level, because such an approach relieves the defendant of the jeopardy of serial class actions and, once the defendant demonstrates the posited theory is substantively flawed, the defendant "obtain[s] the preclusive benefits of such victories against an entire class and not just a named plaintiff." (Brinker, supra, 53 Cal.4th at pp. 1034, 1033.) For these reasons, Brinker has concluded "[i]t is far better from a fairness perspective to determine class certification independent of threshold questions disposing of the merits, [because] defendants who prevail on those merits, equally with those who lose on the merits" (id. at p. 1034) have the benefits of their substantive legal victory applied to the class as a whole.

So, the Court of Appeal now held that trial courts must rely virtually exclusively on whether the plaintiff's "theory" presents common questions.  But a class action is not a lawsuit to prove a plaintiff's theory.  It's a lawsuit to prove something illegal happened to a group.   As the U.S.  Supreme Court put it in the Wal-Mart v. Dukes case,

That common contention, moreover, must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.

Frankly, the California Supreme Court in Brinker also did not go as far as the Court of Appeal in Hall.  In Brinker, the Supreme Court recognized:

Presented with a class certification motion, a trial court must examine the plaintiff's theory of recovery, assess the nature of the legal and factual disputes likely to be presented, and decide whether individual or common issues predominate. To the extent the propriety of certification depends upon disputed threshold legal or factual questions, a court may, and indeed must, resolve them.

The Hall court even quoted this language - repeatedly - but appeared to have ignored its significance.

Let's put the Hall court's holding into practice with a (rather extreme) example:  Let's say a plaintiff files a class action that alleges:   the Defendant law firm has a policy of requiring its lawyers  to wear red ties. Therefore, the law firm  misclassified the lawyers as exempt from overtime.  Under the Hall decision, the class must be certified, because under the plaintiff's "theory," the red-tie policy is common to all members of the class and can be resolved on a class wide basis.  True, but answering that common question proves nothing. The red-tie policy will not determine the employees' exempt status.  Lawyers are exempt because they are licensed professionals.  The legal standard for who is exempt does not take into consideration tie color.  Therefore, red ties and the policy requiring them to have red ties are common, but have no bearing on the relevant legal issue.

Four thoughts. First, the Court of Appeal's theory is an abdication of the trial court's role to protect defendants from unmeritorious class actions as a gatekeeper.  Certify now, ask questions later is no way to ensure due process.  When certification happens, cases settle out of fear.

Second, the Court of Appeal's suggestion that defendants can rely on summary judgment motions and motions for judgment on the pleadings to defeat unmeritorious class actions is cold comfort.  Anyone who litigates in state court lastly knows that the odds of winning summary judgment are low, even in the best of cases  And losing summary judgment is not appealable.  If there's anything less likely than winning summary judgment, it is obtaining writ review of summary judgment rulings.  Perhaps the courts of appeal will consider more writs. But that remains to be seen.  As for judgment on the pleadings, they are based on the four-corners of the complaint.  The plaintiffs' bar is capable of developing a complaint that will survive a motion for judgment on the pleadings.

Third thought:  Easy certification means that attorneys' fees for class actions will climb precipitously, as will employer commitment to discovery and depositions. Depending on how the Supreme Court rules in the upcoming Duran case, class action litigation may end up focusing on expert witnesses and motions for summary judgment. Or mediation.

Fourth thought:  When the legal theory is frivolous, despite the commonality of factual issues, Defendants will have to strongly consider motions for sanctions under Civ. Proc. Code section 128.7 to stop class action claims that simply have no substantive merit.  Those motions are granted less frequently than summary judgment motions.  But perhaps when the stakes are this high, superior courts will begin taking these motions more seriously.

So, I know this is a long post, but if your company or clients face class actions, this case is a game-changer.  Perhaps the Supreme Court will take it up. I'm hoping Rite-Aid is preparing its Petition for Review.

DGV

Court of Appeal: Arbitrator Can Decide Unconscionability

Here's a case that could favor employment arbitration in California.  If it stays on the books.  The Court of Appeal held that an arbitration agreement lawfully delegated to the arbitrator the responsibility to determine if the arbitration agreement was enforceable.  That is, the arbitrator, not the court, would decide if the agreement is unconscionable.

In a nutshell, as stated by the Court:

Several years after she was hired, Lourdes Tiri signed an agreement with her employer, Lucky Chances, Inc., requiring disputes between them to be resolved by arbitration. In one of the provisions, the parties agreed to delegate questions about the enforceability of the agreement to the arbitrator, instead of a court. Tiri was subsequently fired, and she filed a complaint in superior court for wrongful discharge. Lucky Chances petitioned to compel arbitration, but the trial court denied the petition on the basis that the arbitration agreement was unconscionable and therefore unenforceable.

Lucky Chances appeals the court’s order denying arbitration. We hold that the trial court lacked the authority to rule on the enforceability of the agreement because the parties’ delegation of this authority to the arbitrator was clear and is not revocable under state law. Accordingly, we reverse.

What-what-what?  Read on.

The arbitration agreement contained this language:

The agreement also includes an explicit provision that delegates to the arbitrator issues regarding the agreement’s enforceability: “The Arbitrator, and not any federal, state, or local court or agency, shall have the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including, but not limited to, any claim that all or any part of this Agreement is void or voidable.” 

As the court noted, that is a delegation clause, which grants the arbitrator the jurisdiction to determine  whether the arbitration agreement is enforceable.  In the absence of that sort of clause, a court determines whether there is a valid agreement, including whether the agreement is "unconscionable."
As you know if you're reading this, in California, there is a lot of litigation in court over that issue.

Here's why the delegation clause is important. The trial court denied the employer's motion to compel arbitration?  Why?  1) the agreement was "take it or leave it," i.e., procedurally unconscionable and 2) the employer did not attach the AAA arbitration rules, even though it cited the website where they must be found.  Those two facts rendered the agreement "unconscionable," a word that has been stretched into meaninglessness.  It used to mean something like "so one-sided as to shock the judicial consciousness," but now it simply means "not exactly perfect."

The court of appeal made some important rulings. First, the court recognized its decision would be the same under California's or the federal arbitration acts.  Second, the court explained that the court may consider challenges to the delegation clause itself, but not to the enforceability of the agreement to arbitrate as a whole.

Third, the court explained that a delegation clause is enforceable if (1) it is clear and unmistakable (2) if the clause itself is not void because of some defense applicable to any contract (fraud, duress, unconscionability).

The court found the language above was clear and unmistakable.  The employee argued that the clause was unconscionable.  The court of appeal found it was procedurally unconscionable (because it was "take it or leave it.").  But the court also found no reason that a delegation clause automatically is substantively unconscionable.  And there was nothing about this delegation clause that rendered it one-sided or non-mutual. Therefore, it was not unconscionable as a whole.

Of course, the arbitrator is free to rule on whether the agreement as a whole is unconscionable. So, there may still be litigation over such agreements. But they will be in arbitration.  If this ruling stands, it will certainly make arbitration agreements easier to enforce without court litigation.

This case is Tiri v. Lucky Chances, Inc. and the opinion is here.

California Court of Appeal: Fitness for Duty OK after Reinstatement from FMLA Leave

Susan White was an investigator for the LA County District Attorney. She makes a number of errors and acted erratically over the course of several months.  She was making her co-workers nervous about her judgment. She was in a dangerous job, sometimes involving arrest warrants and the like.  She had problems giving testimony at trials, resulting in a defense lawyer filing perjury charges against her.

In 2011, White sought a month of medical leave for her own health condition: her mental health problems.  She provided medical certification and the DA approved her leave under the Federal Family and Medical Leave Act. The court's opinion does not mention the California Family Rights Act.   

Stop me if you've heard this before.  As it turned out, White's doctor was a little overly optimistic about the duration of leave. He extended and extended the leave until the FMLA period expired. The 12 weeks of FMLA were up in August. 

White's doctor finally wrote that she could return to work in September 2011.   The County approved the extended leave.  Then, in September, the County reinstated White to her job, but assigned her to paid leave at home. They had to investigate the misconduct alleged against her before she left. 

The County also required White to attend a fitness for duty examination.  White refused to attend, claiming that the FMLA required her to be reinstated without anything other than her health care provider's certification. 

White sought an injunction against the district attorney, who had sought her medical examination. The trial court granted the injunction, but the Court of Appeal reversed. 

The appellate court said that the County was required to reinstate White to her job upon expiration of the leave based only on her own doctor's certification.  But the court said that the County did just that.

The fitness for duty was to occur after the reinstatement.  White argued that requiring her to undergo this examination was tantamount to interference with her FMLA rights. But the court of appeal was having none of it. 

The court held the County was justified under the ADA to conduct a fitness for duty examination that was job-related and consistent with business necessity. Here, White had engaged in odd behavior in a job requiring good judgment to avoid serious injuries or death.  There was little doubt that the County had the right to examine her under the ADA.  

Here is the money quote:

There is a second reason we reject White’s arguments . . . that a single health care provider’s opinion (i.e., that of the employee’s health care provider) that an employee can return to work from a particular illness or disability is conclusive, and cannot subsequently be questioned by the employer in a FFDE. Public policy rebels at such a thought. The FMLA itself acknowledges that medical professionals can disagree on whether an employee’s serious health condition renders the employee unable to work; it provides for a second opinion on whether an employee qualifies for FMLA leave (29 U.S.C. § 2613(c)) and a third opinion if the first and second opinions are not in agreement (29 U.S.C. § 2614(d)). As such, it is unlikely that Congress intended an employee’s health care provider’s opinion to be conclusive on the employee’s fitness for work. Instead, the FMLA should be interpreted to render the employee’s health care provider’s opinion conclusive on the issue of whether the employee should be immediately returned to work, but to permit the employer to thereafter require a FFDE, if it has a basis to question the employee’s health care provider’s opinion.

So, takeaways:

- reinstate to the original position first; then request the examination

- have an objective reason to doubt the medical certification's clearance to return to work.

- ensure a medical fitness for duty complies with the ADA and FEHA's prohibitions against unlawful medical inquiries.

- if an employee's leave request comes during an employer's investigation into potential misconduct, it is ok to follow through with the investigation when the leave is over.

This case is White v. County of LA and the opinion is here. 

California Chamber's Job Killer List - Employment Law

Contrary to what you may think, the California Legislature has not finished perfecting the laws governing the California workplace.  But, they persevere.

Our friends at the California Chamber of Commerce track the bills  they affectionately call "job killers."   Sure, more employment laws might drive up costs, reduce competition, increase unemployment, and increase prices.  Never you mind that. These bills give me more to complain advise employers about in the months to come.  And more lawsuits are sure to follow.  So, these bills really are  job creators.  For lawyers.

The Chamber's list of pending California employment law job killers are summarized here.  The description is the Chamber's. You can read the bill and check its status by clicking the links.

Please note:  1.  This is not a complete list of pending employment bills; only the California Chamber's job-killer list.  2. These bills are still wending their way through the Legislature. So, they could fail to pass or the Governor might not sign them even if they do pass.  

• AB 1522 (Gonzalez; D-San Diego) Paid Sick Leave — Increases employer mandates by requiring all employers, large and small, to provide all employees in California with paid sick leave, and threatens employers with statutory penalties as well as litigation for alleged violations.

• AB 2604 (Brown; D-San Bernardino) Exposes Employers to Disproportionate Workers’ Compensation Penalties — Dramatically increases penalties and costs for delayed payments and will result in disproportionate penalty awards that are significantly greater than the amount of the delayed payment.

• SB 935 (Leno; D-San Francisco) Minimum Wage — Unfairly increases employer costs by increasing the minimum wage to $13 by 2017 and then increased thereafter according to the Consumer Price Index.

• AB 2416 (Stone; D-Scotts Valley) Unproven Wage Liens — Creates a dangerous and unfair precedent in the wage and hour arena by allowing employees to file liens on an employer’s real or personal property, or property where work was performed, based upon alleged yet unproven wage claims.

• AB 2617 (Weber; D-San Diego) Interference with Arbitration Agreements and Settlement Agreements— Unfairly prohibits the enforcement of arbitration agreements or pre-litigation settlement agreements that require the individual to waive their right to pursue a civil action for the alleged violation of civil rights.

• SB 404 (Jackson; D-Santa Barbara) Expansion of Discrimination Litigation — Makes it virtually impossible for employers to manage their employees and exposes them to a higher risk of litigation by expanding the Fair Employment and Housing Act to include a protected classification for any person who is, perceived to be, or associated with an individual who provides medical or supervisory care to a listed family member.

There are several other job-killers not directly related to employment law. The entire list of job killer bills is here.

U.S. Supreme Court: Severance is Wages; California Employers Take Note

Quality Stores laid off many employees as part of a bankruptcy. The Company paid severance, duly withheld taxes, and duly reported the severance on employees' W-2 forms.  Then the Company sought a refund of the "FICA" taxes paid on behalf of employees (and presumably the employer's portion of the FICA paid as well).

Everyone with a paycheck knows that FICA is a mandatory withholding from employees' paychecks, which goes towards funding social security.  "FICA" is the Federal Insurance Contributions Act.  As explained by the Court:

FICA taxes “wages” paid by an employer or received by an employee “with respect to employment.” 26 U. S. C. §§3101(a), (b), 3111(a), (b) . . . . FICA defines “wages” as “all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash.” §3121(a). The term “employment” encompasses “any service, of whatever nature, performed . . . by an employee for the person employing him.” §3121(b).

So, that's a broad definition.  Does it include severance payments to laid off employees?  Yes, said the Court.  (Unanimous opinion, except Justice Kagan was recused):

Under this definition, and as a matter of plain meaning, severance payments made to terminated employees are“remuneration for employment.” Severance payments are,of course, “remuneration,” and common sense dictates that employees receive the payments “for employment.” Severance payments are made to employees only. It would be contrary to common usage to describe as a severancepayment remuneration provided to someone who has not worked for the employer. Severance payments are made in consideration for employment—for a “service . . . performed” by “an employee for the person employing him,”per FICA’s definition of the term “employment.” Ibid.

(emphasis mine).

Caveat for California employers: 

Some severance plans are covered by ERISA.  If so, then federal law governs the payment  of severance, the timing, and the conditions.  However, the Division of Labor Standards Enforcement may decide that a severance claim is not subject to ERISA. The DLSE will consider whether there is a plan in place, the discretion involved in calculating the eligibility and formula for payment, and other factors. 

If ERISA does not apply, California law may consider severance to be in the form of a deferred payment of wages.  Wages must be paid timely under California law. 

Employers should therefore ensure that they pay severance when it is earned in accordance with the contract (severance agreement or plan).  For example, if ERISA does not apply, a promise to pay a lump sum severance, without any conditions such as the signing of a release, may require payment on the date of termination.  

On the other hand, if the employer requires the employee to sign a release to "earn" the severance, then the severance is not due until earned.  (That is another good reason to require signing a release before severance is earned.)

This case is U.S. v. Quality Stores, Inc. and the opinion is here.

Court of Appeal: Employers Cannot Shorten Statutes of Limitations in FEHA Discrimination Cases

The employment relationship is contractual (e.g., I'll work for you and you will pay me).  Statutes of limitations generally can be shortened by contract, even in California.  Now forget all of these general rules. An agreement shortening the California Fair Employment and Housing Act's statute of limitations is void, said the Court of Appeal in Ellis v. U.S. Security Associates.

Ashley Ellis sued her employer and manager for sexual harassment, retaliation and failure to prevent discrimination / harassment / retaliation under the Fair Employment and Housing Act.  She agreed in her employment application to bring any claim against the employer within six months, notwithstanding any law to the contrary.

The trial court enforced the provision. The Court of Appeal reversed.  The Court was particularly concerned that the six-month statute would impede the Fair Employment and Housing Act's administrative charge process.  (By statute, the employee has a year from the discriminatory event to file a charge with the Department of Fair Employment and Housing, and then a year from the end of the administrative process to file a lawsuit.  The DFEH itself has a year to investigate.)  The six-month limitation would limit the DFEH's ability to investigate, which the court found troubling.

So, the Court went about distinguishing and casting aside contrary authority in other jurisdictions and other legal contexts to hold that limiting the statute of limitations in FEHA cases to six months is unenforceable as "unreasonable and contrary to public policy."

We do not know what the Court would have done if the employer had limited to six months the time to file the administrative charge with the DFEH (instead of the year employees normally are allowed), or if the employer had limited to six months the time to file a lawsuit from the receipt of the "right-to-sue letter."  Perhaps a court will address a more generous statute of limitations in a later case.  For now, though, employers who shorten limitations periods should carve out FEHA-based claims.

The case is Ellis v. U.S. Security Associates and the opinion is here.

9th Circuit: Employer's Credit for Paid Overtime Calculated Week by Week

So, the Ninth Circuit decided that Los Angeles mis-classified certain employees as "engaged in fire protection."  Under the FLSA, those "fire protection" employees are due overtime only after 212 hours worked in a 28-day work period (or 204 hours worked in a 27-day period).  Employees who are not "engaged in fire protection" are due the normal overtime pay for work > 40 hours in a workweek (unless another exemption applied).

These county fire dispatchers and air paramedic employees worked standard hours of 9 X 24 hour shifts in a 27 day work period, or 216 hours.  So, because they were mis-classified, overtime is due each workweek for each hour worked > 40.

Anyway, I know most of you are not running a city or fire protection operations and are not concerned with the above. But wait.  There's more.

After the district court found in favor of the employees, the parties disagreed on how to calculate the overtime due. LA argued that it was entitled to offset overtime already paid, as it was paying employees for the hours worked > 204 in a 27-day work period.

For example, under the normal rule, if an employee worked  60 hours per week for 4 weeks, that would be 20 hours per week of overtime, times 4 weeks = 80 hours of overtime premium pay due.   Under the exemption for fire protection, the overtime due for 240 hours worked in 28 days would be approximately 36 hours.  (Assuming 28 instead of 27 days).  So, big liability.

The city argued that it dutifully had been paying overtime for > 204 hours in the 27 day period Therefore, the city argued, it should be liable only for overtime hours not already paid for during that same 27-day period.  Meaning, the overtime paid during the entire work period would be offset against what was still owing.  The city  argued in the alternative it should be given  an offset for all overtime paid in the three year period of the lawsuit, with the amount paid credited against the total overtime owed.

No, said the Ninth Circuit.  The employer would be allowed to credit / offset overtime only for the workweek in which the overtime was paid.

Under the FLSA, 29 U.S.C. § 207(h)(2), an employer may credit overtime payments already made to employees against overtime payments owed to them under the FLSA. The statute, however, does not specify the method to be used to calculate these overtime payments. The statute simply states that “[e]xtra compensation . . . shall be creditable toward overtime compensation payable pursuant to this section.” 29 U.S.C. § 207(h)(2).

* * *

The district court correctly applied a week-by-week approach. Section 207(a) sets forth the basic overtime standard, set at forty hours in a seven-day workweek and time and one-half for overtime. To determine the overtime owed for each workweek, the total hours worked over forty is multiplied by one and one-half the regular rate. Then, under § 207(h), the overtime already paid by the employer is determined and credited against the overtime owed. While § 207(h) does not state whether credits must be determined on a workweek basis, it must still be read within the context of the overtime due under § 207(a), which is calculated on a workweek basis. Under this reading, compensation already paid for work done within one workweek should not be transferrable and offset against overtime due in another workweek. This makes sense because Plaintiffs are owed what they should have been paid had the City obeyed the law.

This decision adds to a split in the circuit courts.  The Supreme Court eventually may decide this issue. Until then, in the Ninth Circuit, employers will not be able to offset overtime already paid, except on a work week by workweek basis.

Although this is an FLSA case, California wage-hour laws track the FLSA unless there's a reason in the California law to depart from federal law.  In this instance, California courts are likely to follow the FLSA on this point, because it is the calculation method that is most generous to employees.

This case is Haro v.  City of Los Angeles and the opinion is here. 

CA Supreme Court Will Answer Ninth Circuit's Suitable Seating Questions

We wrote an article about the California wage orders' "suitable seating" requirement here.

We blogged about the Ninth Circuit's certified questions to the California Supreme Court here. 

Turns out the California Supreme Court just agreed to answer the 9th Circuit's questions.  You can sign up to follow the case here.

The questions presented are: For purposes of IWC Wage Order 4-2001 § 14(A) and IWC Wage Order 7-2001 § 14(A), "(1) Does the phrase 'nature of the work' refer to an individual task or duty that an employee performs during the course of his or her workday, or should courts construe 'nature of the work' holistically and evaluate the entire range of an employee's duties? (a) If the courts should construe 'nature of the work' holistically, should the courts consider the entire range of an employee's duties if more than half of an employee's time is spent performing tasks that reasonably allow the use of a seat?

(2) When determining whether the nature of the work 'reasonably permits' the use of a seat, should courts consider any or all of the following: the employer's business judgment as to whether the employee should stand, the physical layout of the workplace, or the physical characteristics of the employee? 

(3) If an employer has not provided any seat, does a plaintiff need to prove what would constitute 'suitable seats' to show the employer has violated Section 14(A)?

We'll keep you posted....

U.S. Supreme Court: The Sarbanes-Oxley Act's Retaliation Protection

Extends to private companies' employees.

Remember Enron?  Me neither.  That was one stock I somehow failed to buy.  And it was before the iPad .Anyway, those of you who do remember know that Enron resulted in a big financial mess.  There were Enron employees who attempted to uncover the fraud the management was perpetrated. They suffered retaliation by Enron's management.  Allegedly. Employees of Enron's auditors and lawyers who tried to blow the whistle on corrupt Enron managers. But these employees experienced retaliation by their employers as well. (Allegedly).

So, after the Enron debacle, Congress passed the Sarbanes-Oxley Act which, in part, protects whistleblowers from retaliation for reporting fraud by public companies.

As it turns out, mutual funds are public companies and, therefore, covered by SOX. But they typically have no employees.  Mutual funds hire private companies to act as "investment advisers." The advisers have the employees. The funds just hold the stocks, bonds, etc.

So, Lawson worked for an "adviser" to a mutual fund, which was a privately held company.  She allegedly complained about certain mutual fund accounting practices she believed were illegal.
The question for the Supreme Court in Lawson v. FMR LLC was whether the SOX anti-retaliation provision applies only to the employees of the publicly traded company (the mutual fund itself).  Or, did the anti-retaliation protections also apply to employees of non-publcly traded companies who blow the whistle on public corporation fraud (Lawson's employer, the investment advisor).

The Supreme Court decided to extend protections to non-public companies.

The prohibited retaliatory measures enumerated in §1514A(a)—discharge, demotion, suspension, threats, harassment, or discrimination in the terms and conditions of employment—are commonly actions an employer takes against its own employees. Contractors are not ordinarily positioned to take adverse actions against employees of the public company with whom they contract. FMR’s interpretation of §1514A, therefore, would shrink to insignificance the provision’s ban on retaliation by contractors.The dissent embraces FMR’s “narrower” construction. See post, at 2, 3, 4, 7.

The dissent (Sotomayor, Kennedy, and Alito) opined that the whistleblower protections apply only to the employees of the public employer, not to employees of the private companies who may "contract" with the public company.

This is Lawson v. FMR LLC and the opinion is here.

President Calls on DOL to Revise Exemption Regulations

He doesn't expressly say how:

I hereby direct you to propose revisions to modernize and streamline the existing overtime regulations. In doing so, you shall consider how the regulations could be revised to update existing protections consistent with the intent of the Act; address the changing nature of the workplace; and simplify the regulations to make them easier for both workers and businesses to understand and apply.

The memorandum is here.

So, what will this mean to employers?  The White House's  "Fact Sheet" about the memorandum, which is longer and more detailed than the memo itself, provides some clues:

Workers who are paid hourly wages or who earn below a certain salary are generally protected by overtime regulations, while those above the threshold who perform executive, professional or administrative duties are not. That threshold has failed to keep up with inflation, only being updated twice in the last 40 years and leaving millions of low-paid, salaried workers without these basic protections. Specifically: 

In 1975 the Department of Labor set the threshold below which white collar workers were entitled to overtime pay at $250 per week.
In 2004 that threshold was set at $455 per week (the equivalent of $561 in today's dollars). 

This is below today’s poverty line for a worker supporting a family of four, and well below 1975 levels in inflation adjusted terms. 

Today, only 12 percent of salaried workers fall below the threshold that would guarantee them overtime and minimum wage protections (compared with 18 percent in 2004 and 65 percent in 1975). Many of the remaining 88 percent of salaried workers are ineligible for these protections because they fall within the white collar exemptions. Many recognize that these regulations are outdated, which is why states like New York and California have set higher salary thresholds.

If you haven't heard, the administration is pushing hard to raise the minimum wage to $10.10 per hour, which is equivalent to a full time salary of $21,008 or so.  (They have not invented a pajama boy for the minimum wage - yet- but they're still pretty committed.)  Under the current regulations, the salary basis minimum is just over $23,000.  So, raising the salary basis threshold is another way of raising the "minimum wage," at least for those workers who qualify as "exempt" under federal law.

As for the duties tests, the DOL revised them in 2004, which addressed some outdated regulations and terms.  The DOL also simplified certain exempt tests, particularly when workers earned more tha $100,000 per year.  So "simplification" must mean "tougher exemptions." For example, the executive exemption might be changed to require supervision of more than the current two employees.  The administrative exemption could be reserved to senior administrative employees with greater discretion.  The professional exemption might be revised to include the salary test (hi, contract lawyers).  The duties test could be turned into a quantitative measure of time spent on exempt work (a la California) rather than a qualitative test.  Etc.

So, by now, some of you may be concerned that these regulations are going to happen and soon. The press and seminar sellers write articles etc. as though this is just around the corner.   I don't think any changes are nigh, or imminent, even.

First, it will take years to draft, vet, re-draft, re-vet, and finally promulgate these regulations.  Because that's how the DOL issues regulations.  Second, although it is true that this administration has issued gobs of regulations, it also has failed to issue others (Hi, NLRB poster, NLRB quickie election rules, etc.).   Third, I hear there's an election in 2016.  The outcome could affect whether and to what extent any proposed changes are implemented.  Even the 2014 election could shift the winds.  Who knows?

Finally, as the White House memo points out, California employers already must apply exemptions that are much stricter than federal law.  So, don't expect much impact on California employers' practices unless the DOL regulations are incredibly onerous.

Feel better?  Go look at pajama boy again.

9th Circuit - Employee Can Opt out of FMLA, Even at Her Peril

Maria Escriba found out her dad was ill in Guatemala.  She told her bosses at Foster Poultry Farms that her father was sick.  But she asked to use two weeks'  vacation time to visit. She did not request FMLA leave.  She said "no" when the company asked her if she needed more than two weeks' vacation time.  She took more than two weeks off anyway. She was discharged under the no-call / no-show policy.

Her argument was that she did not have to request FMLA leave.  The employer should have designated all her time off as FMLA time, protecting her from discharge.   She exhausted the vacation time, did not request FMLA leave, did not ask for an extension, did not have her husband ask for an extension (although he worked for the same employer), and so, was no-call no show.  Even the union figured she'd be fired.  The union was right.

Escriba then sued under FMLA and analogous California law, the California Family Rights Act.
The district court let her claims go to the jury. After a "short" deliberation, the jury found for the employer.  The key issue at trial and on appeal was whether Escriba's time off qualified as FMLA, even though she declined FMLA.   The Court analyzed the issue:

Holding that simply referencing an FMLA-qualifying reason triggers FMLA protections would place employers like Foster Farms in an untenable situation if the employee’s stated desire is not to take FMLA leave. The employer could find itself open to liability for forcing FMLA leave on the unwilling employee. See, e.g., Wysong v. Dow Chem. Co., 503 F.3d 441, 449 (6th Cir. 2007) (noting that “[a]n involuntary-leave claim,” alleging that an “employer forces an employee to take FMLA leave,” is “really a type of
interference claim”). We thus conclude that an employee can affirmatively decline to use FMLA leave, even if the underlying reason for seeking the leave would have invoked FMLA protection. See, e.g., Ridings v. Riverside Med. Ctr.537 F.3d 755, 769 n.3 (7th Cir. 2008) (“If an employee does not wish to take FMLA leave but continues to be absent from work, then the employee must have a reason for the absence that is acceptable under the employer’s policies, otherwise termination is justified.” (emphasis added)).

The Court also upheld the jury's conclusion that Escriba indeed declined to use FMLA. There was evidence at trial that she wanted to preserve her FMLA entitlement. And she knew the ropes, apparently, because she had sought FMLA leave on 15 previous occasions

there is substantial evidence that Escriba elected not to take FMLA leave. After Linda Mendoza’s initial meeting with Escriba on November 19, 2007, Mendoza met with Escriba and an interpreter, twice asking if Escriba needed more time in Guatemala. Escriba twice answered “no.” Mendoza testified that she then told Escriba to visit the Human Resources Department if she later decided to request more than two weeks of leave.

This decision is good for employees, too.  For example, if a pregnant employee wishes to use vacation to care for a parent so she can preserve 12 weeks of FMLA for baby bonding, should she be able to do so?  See?

This case is Escriba v. Foster Poultry Farms, Inc. and the opinion is here. 

California Court of Appeal SLAPPs Claim for Breach of Settlement Agreement

Perhaps you have read about the EEOC's recent lawsuits attacking severance agreements as allegedly containing illegal provisions, because they impede the EEOC's work. The EEOC is challenging everything from "cooperation clauses," to general releases that broadly preclude the releasing employee from bringing future claims.  You know, in exchange for money.   Here's an example of what the EEOC is doing.  If the EEOC wins,  and they don't win all of these efforts to radically change the law via agency internal policy and litigation rather than legislation (Hi, credit check lawsuits), many standard releases will have to be modified.

Yes, the above discussion is related to why I asked you here today.  Somewhat. The California Court of Appeal just found that an employer's lawsuit against a union for breach of settlement agreement should be stricken because the lawsuit was a Strategic Lawsuit Against Public Participation.   The court's ruling in part is based on a conclusion that the parties' non-cooperation agreement was not enforceable.

The United Farmworkers Union settled one of two pending unfair labor practice charges with a company called D'Arrigo Bros. of California.

On February 18, 2011, UFW's attorney sent D'Arrigo's counsel a letter purporting to "memorialize the UFW's agreement." In the letter UFW acknowledged that it had obtained dismissal of the second ULP, and it promised not to refile this charge "and/or the substantive allegations at a later date." . . . UFW therefore agrees that said Objection Five will in fact be dismissed in its entirety or that, in the event the Executive Secretary for any reason declines to dismiss all or any of it prior to a hearing, UFW will timely act to withdraw its declarations and argument regarding Objection Five and will not present any evidence thereon in the objection process; and will continue to advise (in writing, on the record) the Executive Secretary, General Counsel, and/or assigned administrative law judge that UFW wants Objection Five entirely dismissed; and that UFW will not pursue, nor assist [in] pursuing, Objection Five in any fashion whatsoever."

Then, during proceedings on the remaining unfair labor practice charge, D'Arrigo believed the UFW breached the above agreement and cooperated with the Agrigultural Labor Relations Board's general counsel.

D'Arrigo sued the UFW for breaching the settlement agreement.  The UFW filed a motion to strike the D'Arrigo lawsuit under California's anti-SLAPP law.  The UFW's basis for the motion was that D'Arrigo's claim was really a lawsuit designed to retaliate against UFW for cooperating with the ALRB's proceedings in the matter that was not settled.

The Court of Appeal held that UFW should win the anti-SLAPP motion, resulting in dismissal of D'Arrigo's lawsuit.    Of note, the Court held that D'Arrigo's basis for asserting breach of contract - that the UFW violated an agreement not to cooperate with the ALRB - was unenforceable:

we agree with UFW—and with the General Counsel as amicus curiae-- that any interpretation of the stipulated language to prohibit UFW from cooperating with [the general counsel] in his investigation and prosecution of the first ULP charge must be rejected as contrary to the public policy inherent in the ALRA.

*  *  * 

Moreover, the [employer's] ability to guarantee the silence of witnesses by means of a legally enforceable private agreement does not comport with either the spirit or the stated purpose of the ALRA." 

That purpose is clearly stated in Labor Code section 1140.2: "[T]o encourage and protect the right of agricultural employees to full freedom of association, self-organization, and designation of representatives of their own choosing, to negotiate the terms and conditions of their employment, and to be free from the interference, restraint, or coercion of employers . . . ." This public interest is not advanced if private agreements between employer and employee are allowed to obstruct the General Counsel's prosecution of complaints. (Cf. E.E.O.C. v. Astra U.S.A., Inc. (1st Cir. 1996) 94 F.3d 738, 744-745 [settlement provision prohibiting employee from assisting EEOC in its investigation of sexual harassment charges against employer is void as against public policy].)

So, another trend in employment law appears to be increased scrutiny of releases.  Employers should ensure they know what they are bargaining for when they settle claims.  Absolute confidentiality is not realistic. Neither is a promise never to participate or cooperate in a future proceeding.  Employers should not pay settlements or separation pay expecting to fully achieve these goals.   That said, there are ways to draft agreements to comply with the limitations.   At least there used to be. We'll have to see what happens in the EEOC's litigation.

This case is D'Arrigo Bros. of California v. United Farmworkers of Am.  and the opinion is here.

To Compel Arbitration Under Federal Arbitration Act, Employer Must Prove It Applies

Lab. Code section 229 is a California law that expressly precludes arbitration of certain wage-hour claims.

229. Actions to enforce the provisions of this article for the collection of due and unpaid wages claimed by an individual may be maintained without regard to the existence of any private agreement to arbitrate.

Of course that law is preempted by the Federal Arbitration Act. The U.S. Supreme Court has said as much. 

The catch is that preemption applies only if the Federal Arbitration Act applies to the agreement to arbitrate.  The Federal Arbitration Act applies only to arbitration agreements made by employers in "interstate commerce."  So, technically, the employer looking to enforce an arbitration agreement in spite of section 229 has to establish FAA jurisdiction, or section 229 will apply and no wage claim arbitration will be permitted.

When Martin Lane sued Francis Capital Management over wage-hour and other issues, Francis petitioned to compel arbitration.  Lane invoked Labor Code section 229, arguing it precluded arbitration.  The Court of Appeal decided Francis did not establish it was subject to the Federal Arbitration Act:

Seeking to avoid application of section 229 to Lane's third cause of action, FCM contends that in the instant case, section 229 was preempted by the FAA. {Slip Opn. Page 13} (See Perry v. Thomas (1987) 482 U.S. 483, 492 [where FAA applies, it preempts section 229].) In the trial court, FCM's only mention of FAA preemption came in a footnote, and the court's rejection of the argument was predicated on FCM's failure to develop a factual record in support of preemption. Assuming the argument was preserved for appeal, we agree that FCM neither sought to nor succeeded in presenting facts sufficient to support a finding of FAA preemption.

So, lawyers, do not assume that a court will find that an employer is involved in "interstate commerce" within the meaning of the Federal Arbitration Act.  

Anyway, this case seems like it's anti-arbitration, but it's not.  The court rejected the trial court's conclusion that the arbitration agreement was void because it did not attach the American Arbitration Association's rules.  The court also held that section 229 applied to just one of the causes of action and the others would be arbitrated.   The court obviously can sense the winds of change in arbitration law. (The California Supreme Court will rule on the continuing viability of its arbitration jurisprudence within the next four months).

This case is Lane v. Francis Capital Management and the opinion is here.