INSTITUTE FOR CORPORATE COUNSEL

March 15, 2002

SURVEY OF RECENT DEVELOPMENTS IN
CALIFORNIA EMPLOYMENT LAW

Donna M. Mezias

Preston Gates Ellis LLP

San Francisco, California

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TABLE OF CONTENTS

I.CONTINUING VIOLATIONS DOCTRINE UNDER FEHA...... 1

II.UNLAWFUL HARASSMENT...... 2

A.Availability of Faragher / Ellerth Defense Under FEHA...... 2

B.“Staring” as Sexual Harassment...... 3

C.Same Sex Harassment...... 3

D.Evidence of Retaliation...... 4

E.Individual Liability for Harassment...... 4

III.DISABILITY DISCRIMINATION...... 4

A.2001 FEHA Amendments Expanded California Disability Law Beyond ADA Requirements 4

B.Retroactivity of FEHA Amendments to Definition of Disability...... 6

IV.AWARD OF ATTORNEY’S FEES TO PREVAILING DEFENDANT UNDER FEHA 6

V.CONSTRUCTIVE DISCHARGE...... 7

VI.AT WILL EMPLOYMENT...... 7

VII.COVENANTS NOT TO COMPETE...... 8

A.Termination for Refusal to Sign Illegal Non-Compete Constitutes Tortious Discharge in Violation of Public Policy 8

B.Choice of Law and Severability Clauses Will Not Save Employment Agreements With Illegal Non-Compete Clauses 9

VIII.ARBITRATION...... 9

A.Minimum Requirements for Mandatory Arbitration of FEHA Claims....10

B.Application of Armendariz to Non-Statutory Claims...... 10

C.Retroactive Application of Armendariz...... 10

D.Severability of Unconscionable Arbitration Provisions...... 10

E.No Agreement to Arbitrate Where Arbitration Agreement in Employee Handbook Not Signed By Employee 11

IX.WAGE AND HOUR ISSUES...... 11

A.California’s Salary Basis Test...... 11

B.Stringent Application of Administrative Exemption...... 11

C.Overtime Claims Under California’s Unfair Business Practices Statute...12

X.WORKERS’ COMPENSATION...... 12

A.Release Obtained in Workers’ Compensation Proceeding Bars Subsequent Sex Discrimination Claim 12

B.Exception to Exclusivity for Injury Due to Co-Worker’s Aggression Requires Proof of Intent to Injure 12

XI.OTHER LEGISLATIVE DEVELOPMENTS...... 13

A.Amendments to California Investigative Consumer Reporting Agencies Act 13

B.Domestic Partner Provisions...... 14

C.Victims of Domestic Violence Employment Leave Act...... 15

D.Lactation Accommodation...... 16

E.Confidentiality of Social Security Numbers...... 16

F.Prohibition of English Only Work Rules...... 17

G.Applicants’ and Employees’ Off Duty Conduct...... 17

H.Application of FEHA To Religious Corporations...... 17

XII.SIGNIFICANT CASES PENDING BEFORE CALIFORNIA SUPREME COURT 18

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SURVEY OF RECENT DEVELOPMENTS IN
CALIFORNIA EMPLOYMENT LAW

I.CONTINUING VIOLATIONS DOCTRINE UNDER FEHA

In Richards v. CH2M Hill, Inc., 26 Cal. 4th 798, 823 (August 23, 2001), the California Supreme Court adopted a new standard for determining whether unlawful discriminatory or harassing conduct which occurs outside the normal one-year statute of limitations period may be considered part of a continuing violation of the Fair Employment & Housing Act (“FEHA”). In Richards, a disability discrimination case, the plaintiff, a civil engineer with multiple sclerosis, sued her employer for failing to accommodate her disability and for an allegedly hostile work environment. She presented evidence of her employer’s alleged failure to accommodate her dating back five years and the trial court allowed the jury to consider damages for the entire period.

The Supreme Court rejected the employer’s contention that it could not be held liable for actions occurring more than one year prior to plaintiff’s complaint, holding that an employer may be liable for acts occurring outside the statute of limitations if:

(1)the acts are sufficiently similar in nature to those occurring within the limitations period;

(2)the acts occurred with reasonable frequency; and

(3)the acts have not acquired a “degree of permanence” – that is, it has not become obvious that further informal efforts to resolve the issue would be futile.

The Supreme Court addressed the employer’s concerns of unlimited liability by suggesting that the employer can commence the running of the limitations period by “making clear to the employee in a definitive manner that it will not be granting [the employee’s accommodation] requests.”

One issue left open by the Supreme Court’s opinion is whether and how the Richards test will be applied to cases involving separate decisions that allegedly manifest a pattern of discrimination, e.g., repeated failures to promote or increase salary. In addition, the court declined to address the question of whether an employee may seek damages for back pay when he/she resigns and there has been no constructive discharge. (Richards had dropped her claim for constructive discharge in the trial court but was allowed to seek back pay damages.)

In Birschtein v. New United Motor Mfg., Inc., 92 Cal. App. 4th 994 (October 9, 2001), the California Court of Appeal applied the Richards continuing violations test to a sexual harassment case and determined that the acts of harassment occurring outside the limitations period were tolled since they were part of an ongoing or continuous course of harassment.

II.UNLAWFUL HARASSMENT

A.Availability of Faragher / Ellerth Defense Under FEHA

In Department of Health Services v. Superior Court, 113 Cal. Rptr. 2d 878, (November 19, 2001), review granted, (February 13, 2002),[1] the California Court of Appeal (Third District) held that employers will be strictly liable for harassing conduct by supervisors, even where the employer did not know, and did not have reason to know, of the supervisor's harassing conduct. Under federal law, employers may defend supervisor harassment claims by demonstrating that the employer exercised reasonable care to prevent and promptly correct the harassing behavior, and that the plaintiff employee unreasonably failed to take advantage of the corrective or preventive opportunities provided by the employer, or otherwise failed to avoid the harm. See Burlington Industries, Inc. v. Ellerth, 524 U.S. 742 (1998); Faragher v. City of Boca Raton, 524 U.S. 775 (1998).

In a significant departure from the U.S. Supreme Court’s reasoning in the Faragher and Ellerth cases, the California Court of Appeal held that this affirmative defense is not available to employers for claims brought under FEHA. The case was recently accepted for review by the California Supreme Court.

The plaintiff in the case alleged that she had suffered ongoing sexual harassment by her supervisor though she did not report this conduct to management for over two years. The employer presented evidence that it had circulated an employee manual describing its policy against sexual harassment and its complaint procedures, and provided sexual harassment training for its employees. When management finally became aware of the situation, it properly investigated the conduct and disciplined the supervisor. The court held, however, that the employer's lack of knowledge regarding the harassment, its attempts to prevent such conduct, and its corrective actions after learning of the harassing conduct did not constitute an affirmative defense to the employer's liability for the harassment.

B.“Staring” as Sexual Harassment

In Birschtein v. New United Motor Mfg., Inc., 92 Cal. App. 4th 994 (October 9, 2001), the California Court of Appeal ruled that an employee who alleged that a co-worker began a campaign of “staring” at her after she complained to management about his unwelcome sexual advances may proceed with a claim for sexual harassment under FEHA. The plaintiff worked on an assembly line at the defendant’s automotive manufacturing plant. Forklift drivers delivered parts to the assembly line several times a day. One of the drivers asked the plaintiff out on dates several times, which she declined, and made sexual comments to her. After the plaintiff complained to management, the forklift driver stopped speaking to her, but would drive by her work area very slowly several times a day and stare at her. Sometimes he sat in his forklift behind a pillar and stared at her for five to ten minutes at a time. The plaintiff complained again, but management concluded that the forklift driver’s “staring” did not warrant discipline.

Reversing summary judgment in favor of the employer, the Court of Appeal held that the forklift driver’s conduct could constitute actionable sexual harassment. Citing Accardi v. Superior Court, 17 Cal. App. 4th 341 (1993), the court emphasized that sexual harassment need not involve sexual conduct; intimidation and hostility based on gender may constitute sexual harassment. Since the “staring” allegedly began in response to the plaintiff’s complaints of unwelcome sexual comments and requests for dates, there was sufficient evidence that the conduct was retaliatory and part of an overall pattern of harassment for the plaintiff to proceed to trial.

C.Same Sex Harassment

In Valdez v. Clayton Industries, Inc., 107 Cal. Rptr. 2d 15 (May 8, 2001), review granted (August 8, 2001), the California Court of Appeal reversed summary judgment for the employer where the plaintiff, a male employee, alleged that a male co-worker had made repeated sexual comments to him, that management did nothing about his complaints, and that his subsequent termination was retaliatory.

The court cited Mogilefsky v. Superior Court, 20 Cal. App. 4th 1409 (2001), in holding that FEHA prohibits same sex harassment without an inquiry into the harasser’s sexual orientation since the claim focuses on whether the victim has been the subject of harassment, not the motivation of the harasser. The Valdez case has been accepted for review by the California Supreme Court.

D.Evidence of Retaliation

In Valdez v. Clayton Industries, Inc., supra, the court rejected the employer’s argument that the plaintiff employee could not establish that his termination was in retaliation for his complaints about alleged harassment. The court reasoned that the evidence that the plaintiff had complained to his supervisor and other management about the harassment and requested a transfer, that his complaints and request were ignored, and that his supervisor had selected him for termination despite a competent performance record was sufficient circumstantial evidence of retaliatory intent to overcome summary judgment. As noted above, this case has been accepted for review by the California Supreme Court.

E.Individual Liability for Harassment

Effective January 2001, A.B. 1856 amended the Fair Employment & Housing Act adding a new provision regarding individual liability for unlawful harassment. Section 12940(j)(3) provides that employees who engage in unlawful harassment may be personally liable regardless of whether the company is liable. This includes non-supervisory co-workers and overrules the California Supreme Court’s 1999 decision in Carrisales v. Dept. of Corrections, 21 Cal. 4th 1132 (1999) (non-supervisory
co-workers are not personally liable for harassment under FEHA).

Note also Winarto v. Toshiba America Electronics Components, Inc., 274 F.3d 1276 (9th Cir. 2001), holding that an individual supervisor may be liable for retaliation under FEHA, citing Page v. Superior Court, 31 Cal. App. 3d 1206 (1995), a case decided prior to the California Supreme Court’s decision in Reno v. Baird, 18 Cal. 4th 640 (1998) (no individual manager liability for discrimination claims under FEHA).

III.DISABILITY DISCRIMINATION

A.2001 FEHA Amendments Expanded California Disability Law Beyond ADA Requirements

Effective January 1, 2001, California’s Fair Employment and Housing Act (“FEHA”) was amended to provide broader protections to employees with disabilities. Government Code Section 12926.1. The amendments include a broader definition of “disability,” an express declaration that the California statute is intended to extend beyond the Americans With Disabilities Act (“ADA”), and specified new unlawful employment practices arising from certain pre-employment and post-employment inquiries. As a result, California disability law now differs substantially from federal law. The most significant changes include the following:

  • A "disability" is now defined as a mental or physical condition that “limits” a major life activity by making achievement of that life activity “difficult.” Cal. Gov. Code § 12926(k). It need not “substantially” limit a major life activity, as required under the ADA.
  • The FEHA broadly construes the term “major life activities.” In contrast to the ADA where the inability to “work” must implicate a broad class of jobs in a given field, the FEHA deems “working” to include one particular job as well as a class or broad range of jobs.
  • Whether a condition limits a major life activity under the FEHA is to be determined without regard to mitigating measures such as medication, assistive devices or reasonable accommodation that may effectively treat or alleviate the condition. This is also different from federal law – see Sutton v. United Airlines, 527 U.S. 471 (1999), (mitigating measures must be taken into account when judging whether person is disabled under ADA).
  • The following conditions are specifically included in the definitions of physical and mental disabilities, without regard to whether the condition is chronic or merely episodic: HIV/AIDS, hepatitis, epilepsy, seizure disorder, diabetes, clinical depression, bipolar disorder, multiple sclerosis, and heart disease. The following are specifically excluded from the definition of mental disability: sexual behavior disorders, compulsive gambling, kleptomania, pyromania, or psychoactive substance abuse disorders resulting from the current unlawful use of controlled substances or other drugs.
  • It is an unlawful business practice for an employer to fail to engage in a timely, good faith interactive process with the employee or applicant to determine effective reasonable accommodations, if any, in response to a request for an accommodation by an employee or applicant with a known disability or medical condition.
  • The amendments also clarify that it is unlawful for an employer to engage in any medical, psychological or disability-related inquiry of any applicant or employee, except that the employer may inquire into the applicant’s ability to perform job-related functions and may respond to the applicant’s request for a reasonable accommodation.

B.Retroactivity of FEHA Amendments to Definition of Disability

Two California appellate cases have come to opposite conclusions as to whether the definition of disability provided in Government Code Section 12926.1 should have retroactive effect.

Colemnares v. Braemar Country Club, Inc., 107 Cal. Rptr. 2d 719 (May 31, 2001), review granted (August 22, 2001), the court held that the amendment to the statutory definition of “disability” in FEHA does not have retroactive application to a case filed in 1997.

In Wittkopf v. County of Los Angeles, 109 Cal. Rptr. 2d 543 (July 24, 2001), review granted (October 10, 2001), the court held that the amendments to the definition of disability must be applied retroactively because they did “not effect a radical change in California disability civil rights law,” and were mere clarifications of already existing law.

The California Supreme Court has granted review of both decisions.

IV.AWARD OF ATTORNEY’S FEES TO PREVAILING DEFENDANT UNDER FEHA

In Rosenman v. Christensen, Miller, Fink, Jacobs, Glaser, Wiel & Shapiro, 91 Cal.App.4th 859 (August 21, 2001), the California Court of Appeal clarified the standard for awarding attorney’s fees to a prevailing defendant in a FEHA case. Under the fee-shifting provisions of FEHA, a successful plaintiff is typically awarded reasonable attorney’s fees for prosecuting his/her claims. The court applied a strict standard for an award of fees to a prevailing defendant. Citing an earlier Court of Appeal decision, Cummings v. Benco Building Services, 11 Cal. App. 4th 1383 (1992), and using the criteria applied in Title VII cases by the U.S. Supreme Court in Christiansburg Garment Co. v. EEOC, 434 U.S. 412 (1978), the court held that a prevailing defendant may not collect attorney’s fees only if the trial court finds that the plaintiff’s action was frivolous, unreasonable, or without foundation.

In this case, the court found the plaintiff’s claim was not frivolous, relying in part on the fact that two of the jurors had voted for her. The court also relied on the fact that the plaintiff had survived a motion for summary judgment and a motion for nonsuit, but emphasized that the trial court’s denial of such motions will not automatically bar an award of attorney’s fees to the defendant. The court further emphasized that the trial court must make written findings to support an award of fees to a prevailing defendant based on these criteria, including the plaintiff’s ability to pay the fees awarded.

V.CONSTRUCTIVE DISCHARGE

In Thompson v. Tracor Flight Systems, Inc., 86 Cal. App. 4th 1156 (February 2, 2001), the Court of Appeal held that a manager’s screaming episodes could constitute intolerable working conditions forcing an employee to resign. The plaintiff, a Hispanic woman and the director of human resources, alleged that every time she suggested something to the general manager, it became a “screaming issue.” She began to avoid the manager and started having headaches, stomach problems, insomnia and other health problems. At one point, the manager asked plaintiff whether there was a “wetback” they could hire to fill an open position. During a dispute over this issue, the manager was yelling and trembling and plaintiff believed he might hit her. Plaintiff then resigned.

Plaintiff asserted claims for sex, race and ancestry discrimination and retaliation for engaging in protected activity. The Court of Appeal affirmed the jury’s verdict rejecting her sex and national origin discrimination claims, but finding that she was subject to adverse employment action because she engaged in protected activity. Specifically, the court ruled that the jury could find constructive discharge on these facts.

Also note Starzynski v. Capital Public Radio, Inc., 88 Cal. App. 4th 33 (March 29, 2001) (applying Turner v. Anheuser-Busch, Inc., 7 Cal. 4th 1238 (1994), court held plaintiff’s claim for constructive discharge was defective since plaintiff failed to show termination was wrongful).

VI.AT WILL EMPLOYMENT

In Starzynski v. Capital Public Radio, Inc., 88 Cal. App. 4th 33 (March 29, 2001), the court affirmed summary judgment in favor of the employer on claims for breach of an implied contract to terminate only for good cause and breach of the covenant of good faith and fair dealing. The plaintiff had signed an employment agreement stating that his employment was at will and that this status could only be modified by action of the employer’s board of directors. Thus, the plaintiff’s allegations that his supervisor had reassured him that he could not be terminated if his performance was satisfactory could not create an implied in fact contract not to terminate except for good cause.
The court distinguished Wagner v. Glendale Adventist Medical Center, 216 Cal. App. 3d 1379 (1989) (subsequent oral assurances of continued employment modified at will language in employment agreement), on the ground that the agreement in Wagner did not limit the way in which the at will provision could be modified. The court, citing Guz v. Bechtel National, Inc., 24 Cal. 4th 317 (2000), also rejected plaintiff’s claim for breach of the covenant of good faith and fair dealing noting that the covenant cannot impose substantive terms and conditions in conflict with the express terms of the agreement.

VII.COVENANTS NOT TO COMPETE

A.Termination for Refusal to Sign Illegal Non-Compete Constitutes Tortious Discharge in Violation of Public Policy