The following summarizesthe significant California employment law developments since our last newsletter.[*]
Top 10 Employment Law Developments
California employment law had many significant legislative and case law changes and in the past year. This article discusses the top 10 changes that most profoundly reshaped the California employment law landscape:
1.Proposition 64 (Bus. & Prof. Code § 17200 modification). Proposition 64, is an initiative passed by California voters in November that amends the Unfair Competition Law (UCL) (Bus & PC §§17200-17209) effective January 1, 2005. With Governor Schwarzenegger’s support, the business community accomplished what it had unsuccessfully attempted in prior years. This proposition seek eliminate perceived abuses with California’s Unfair Business Practice Act (Bus. & Prof. Code § 17200). The appellate courts have yet to decide that issue.
Before Proposition 64 a UCL complaint could be brought by any “board, officer, person, corporation or association or by any person acting for the interests of itself, its members or the general public.” With the passage of Proposition 64, the italicized language has been deleted and the following language inserted: “who has suffered injury in fact and has lost money or property.” With the amendments that a plaintiff may only pursue representative claims on behalf of others if he or she meets the “standing requirements of Section 17204” and complies with CCP §382. The importance of this proposition is demonstrated by the amount of litigation that has already been generated to establish whether or not this new law will impact pending cases.
COMMENT: This legislative change has eliminated a valuable litigation tool from plaintiffs’ arsenals. First, plaintiffs can no longer stretch the statute of limitations for various business torts and statutory violations by adding an Unfair Business Practices (UBP) with is 4 year statute of limitations to their complaint. Second, plaintiffs won’t be able to seek injunctive relief with what ever damages they are pursuing. Third, UBP claims can no longer enhance the impact of class actions. For these reasons, we have placed this development at the top of this year’s list of important employment law changes.
2.Sav-On Drugstores Inc. v. Superior Court(2004) 34 Cal.4th 319, 17 Cal.Rptr.3d 906. (This case was earlier reviewed in 26 CLR 5 (10/04), with comments). The California Supreme Court reinstated a trial court certification order for a class of Sav-On managers and assistant managers. The class involved managers who worked in approximately 300 California stores and who ever classified by Sav-On as exempt Employees. The Supreme Court found that “the trial Court had not abused its discretion in certifying the class because Plaintiffs had presented “substantial” evidence that common issues predominated over individual issues. Substantial evidence means that the evidence is “of ponderable legal significance – reasonable in nature and of solid value.” The opinion emphasized that trial courts have broad discretion to determine whether certification is appropriate.
COMMENT: The certification battle is often the most crucial one in the war. Some trumpet this case as the California Supreme Court’s liberalization of the certification process. Others simply characterize it as a predictable application of the general rules of class certification to employment classification cases. Whichever slant one adopts, the case shows that California courts will give some latitude to plaintiffs seeking class certification in overtime cases.
Furthermore the case clarifies that an employee’s classification depends on the tasks performed and not titles or labels. The Court reaffirmed one bit of good news for employers: The trial court can decertify a class if “unanticipated or unmanageable individual issues doe arise. But the case seems to suggest that in overtime cases, classes will be presumed to be certifiable unless a strong showing of divergent questions of law or fact exist. The Court noted a clear public policy exists to encourage the use of class actions to avoid and to provide small claimants with an affordable way to redress their claims
The “manager” title is a valuable incentive tool for employers. The label instills a sense of responsibility and is often given in lieu of compensation. But, employers must use care with blanket job classifications such as manager. Employers should audit positions having the “manager” title to make sure that personnel are not spending over 50% of their time on “non-managerial” functions. The Sav-on decision along with recent changes to the FLSA regulations (discussed below) make it even more important that employers conduct routine audits of the positions which they’ve classified as exempt.
3.American Jobs Creation Act of 2004 (Section 703). As part of the American Jobs Creation Act of 2004 (Pub L 108-357, 118 Stat 1418), Congress amended IRC §62 to end the Internal Revenue Service's "double taxation" of attorney fee awards in suits claiming unlawful discrimination.
Its unusual for plaintiffs and defendants to support the same legislation but that happened there. Through this legislation, plaintiffs have an incentive to pursue employment actions and defendants have an incentive to reach reasonable settlements once these cases that have been filed. For that reason we have made this legislation the third most important development in employment law this year. The legislation is prospective and does not impact prior settlements.
Coincidentally, the United States Supreme Court is reviewing two cases from the Ninth Circuit which may further impact this area: Commissioner of the IRS v. Banks and Commissioner v. Banaitis. Critics have charged that the AJCA did not go far enough and that these cases may reach some of the issues not addressed by this legislation. For instance, should litigants be required to pay taxes on amounts used for attorneys’ fees in one year where there is a recovery in later years?
4.Mandatory Sexual Harassment Training (CGC 12950.1). This legislation requires California employers, with 50 or more employees, to provide sexual harassment training to all supervisory employees. In general, the law requires that employers (1) conduct two hours of training for all supervisory employees by January 1, 2006 (unless the employer has provided such training after January 1, 2003); and (2) provide sexual harassment training to each supervisory employee once every two years, after January 1, 2006. The act provides that there is not automatic liability of an employer if an individual does not receive training. Conversely, an employer’s compliance with the provisions of the statute does not automatically insulate the employer from liability. The requirements establish minimum thresholds for training and education, but employers certainly may provide training beyond that.
COMMENT: There may be a silver lining for employers. Prior law required employers to take “all reasonable steps to prevent” sexual harassment. It was an open question what “all reasonable steps” meant. Now, employers may be able to argue that the requirements identified in this statute define what constitutes “reasonable steps” (although mere compliance with these requirements does not automatically insulate employers from liability). Conversely, plaintiffs in small companies will no doubt argue that if the minimum sexual harassment training has not been conducted, and sexual harassment occurs, this statute will undoubtedly provide authority for plaintiffs to obtain recovery for a violation of this statute.
The statute provides that the training be conducted by a qualified individual knowledgeable about the subject matter. Employment attorneys and HR professionals should qualify.
Employers are advised to use sexual harassment training sessions to discuss other EEO issues. The principles applicable to sexual harassment apply equally well to race, age, disabilities, sexual orientation and other protected classifications. Once the time and effort have been put into scheduling and preparing for sexual harassment training, employers would do well to expand that training to cover the other conduct that can lead to liability under the discrimination laws.
5.The New FLSA Regulations: This past year the Department of Labor completed the revisions to the Fair Labor Standards Act (FLSA) regulations. The regulations set minimum standards and help simplify employer obligations under federal labor laws. The highlights are as follows: (1) The minimum salary for exempt employees is now $455 per week; $23,660 annually (previously the minimum was $155/week); (2) Employers can deny overtime to “highly compensated employees” who (a) earn at least $100,000 annually, including at least $455 weekly, (b) perform office or non-manual work and (c) customarily and regularly perform one or more exempt responsibilities. (3) Employers can suspend exempt employees for workplace misconduct in one-day increments without destroying their exempt status. (4) “Safe harbor” provision limits liability for employers who rectify improper deductions from exempt employees’ pay. (5) There are partial lists of jobs that will generally be considered (a) exempt and (b) non-exempt.
Remember that FLSA does not regulate other aspects of employment. For instance, it does not mandate a certain frequency of pay. Employers are required to pay non-exempt employees time and a half their regular rate for hours worked in excess of 40 hours/week but it does not require employers to pay premium rates for working on holidays, weekends or a “night shift.” FLSA does not require an employer to pay severance pay, time off for sickness, holidays, vacations, jury duty, PTO or military service. And FLSA doesn’t require employers to give employees meal or rest periods, no matter how long their shift is (although state law may require that).
The FLSA will have limited impact on employees governed by California law. The reason for this is that California’s overtime rules are more restrictive (i.e., more difficult for employers to establish an “exempt” status) than federal law. California generally uses three tests to determine whether an employee can be excluded from overtime pay: (1) the worker must be paid a salary, not an hourly wage; (2) the salary must be at least $2340 per month; and (3) the worker has to spend at least half of his or her time in professional or administrative duties. (FSLA regulations should be consulted for more definitive evidence.) A worker who does not meet all three tests is entitled to overtime for hours worked beyond eight hours per day or 40 hours per week. For example, a retail manager might be paid a salary exceeding $2340 per month, but if he or she spent at least half of the time performing non-exempt duties, such as running cash register or stocking shelves, California law requires payment of overtime.
6.Reeves v. Hanlon. (This case was reported in 26 CLR 5, 10/04.) Two individuals worked for the Reeves law firm. One became a partner in 1998. Defendants resigned in 1999 without giving notice. Upon leaving, they persuaded several employees to leave with them; persuaded several clients to leave the firm and come with them; destroyed computer files and data, took with them confidential information on over 2000 clients and refused to leave status reports or other information on matters or deadlines on which they were working. In all, they took six employees and 144 clients to their new firm. Plaintiff law firm sued for intentional interference with contract, interference with potential business opportunity, destruction of corporate property and misappropriation of confidential information. The trial court found defendants’ conduct to be unlawful and awarded over $180,000 against defendants’ new law firm and another $20,000 against defendants individually.
COMMENT: This case makes our top ten list because it opens the door to litigation where an employee leaves a firm/company to work for a competitor. California has a strong public policy against non-compete agreements and similar restrictive covenants. The state also presumes that employment is at at-will (so that an employee can leave at any time they choose). Where the departing employee (or new employer) engages in illegal acts designed to harm the former employer’s business, liability may result.
The critical question will be whether there is any independent “wrongful” conduct beyond the departure and solicitation. That term was defined by the California Supreme Court case (some years ago), in the context; interference with economic advantage. In general, the “wrongful” act must be unlawful under some independent law or policy. Mere disloyalty, deception or other conduct which does not qualify as “wrongful” will not allow plaintiffs to avoid California policy in favor of at-will employment or against non-compete agreements.
7.General Dynamics v. Cline (previously reported at 16 CLR 2, 4/04). In this case, the U.S. Supreme Court held that the ADEA does not cover “reverse age discrimination,” i.e., discrimination against younger workers who are still in the protected class. The court upheld a retirement health benefits policy that made benefits available only to workers, age 50 and up.
COMMENT: The court allowed discrimination in favor of a subcategory of the protected class (i.e., workers 50 years and older). Conversely, the court allowed discrimination against a subset of the protected class (workers 40-50 years old).
In a related development, the California Court of Appeals held that a 72-year-old cab driver “temporarily discharged” because the company’s auto insurance excluded coverage for employees over 70, could proceed with an age-discrimination claim. Enlow v. Salem Keizer Yellow Cab Co. And the employer could not invoke financial hardship, related to an outside vendor’s policies.
In sum, Cline and Enlow increase the protection afforded to older workers. It is lawful to discriminate in their favor. The financial constraints imposed by outside influences cannot be invoked as a reason to discriminate against older workers.
8.Reeves v. Safeway (previously report at 26 CLR 5, 10/04). A California court of appeal decided “whether an employer may be liable for a retaliatory discharge where a supervisor who initiates disciplinary proceedings and acts with retaliatory animus, but the ultimate decision to discharge plaintiff is made by a manager with no knowledge that the worker engaged in protected activities?” In Reeves, manager A received a sexual harassment complaint from plaintiff and later assigned manager B to investigate an unrelated complaint against plaintiff. The unrelated claim investigation by manager B resulted in plaintiff’s discharge. Still, the appellate court found a sufficient nexus between the termination decision and plaintiff’s initial sexual harassment complaint, that the matter could proceed to jury trial.
COMMENT: This case signals an expansion of liability for retaliation – an amorphous claim that is already difficult to defend against. Arguably, through retaliation claims, individuals gain greater protection that through the primary laws which they invoke leading to the retaliation. Some say, the laws of retaliation and whistle-blowing unduly reward and protect complainers and snitches to a greater extent than victims of the direct violation of the underlying laws. As a result, employers are required to treat employees complaining of public policy violations with far greater care than non-complaining employees. The net effect is that the complainers wind up with greater job security than workers who simply do their job without complaining.
This case defies common sense. If the disciplining manager was unaware of the protected activity, how could he have been retaliating against the protected activity? This case allows a plaintiff to follow a trail from the disciplining manager back to another manager who may have heard the protected complaint. Do we really need to go to these extremes to protect complainers?
9.Huffman v. Interstate Brands (previously reported in 26 CLR 4, 8/04). Plaintiff was demoted and sued his employer for age discrimination in violation of the Fair Employment And Housing Act (FEHA). At trial, the court permitted evidence of plaintiffs post-demotion knee injury (and knee replacement surgery) to show the emotional distress that he suffered after his demotion. Further, the defendant was required to prove that it did not act in a discriminatory manner when it demoted plaintiff. Following a verdict for the plaintiff, defendant appealed. The appellate court found that the discrimination must be “substantial factor” in a subsequent industrial injury; not a slight or theoretical defect in producing the injury as the Court’s instruction had suggested.
COMMENT: This case limits a plaintiff’s ability to use indirect causation to get around the workers’ compensation bar. That is, to link an on-the-job injury to discriminatory conduct (thereby avoiding the workers' compensation exclusive remedy bar) plaintiff must demonstrate a direct connection between the discrimination and the injury. Intervening acts unrelated to discrimination will sever the causal connection and disallow recovery. This case is an important fortification of the workers' compensation exclusive remedy bar. A contrary result would have opened the door for plaintiffs to seek recovery for job-related physical injury following an allegedly discriminatory act.
10.Private Attorney General Act (CGC 2699). This law was enacted then changed during the past year. Originally, this law (also known as the “bounty hunter law”) gave employees the right to sue employers for virtually any Labor Code violation. And incredibly, the employee did not have to establish actual harm or damage. Also, for those Labor Code sections that did not currently have a penalty provision, the Act established a $100 penalty for the first violation and $200 penalties for each subsequent violation. The employee could have pursued claims on their own behalf or on behalf of current or former employees. Further, employees could sue as private attorney generals to enforce provisions that were previously enforced exclusively by the State Labor Commissioner and his Department of Labor Standards Enforcement.