2008 MASTER Handout - CA Employment Law Update (00072738).DOC

Gattuso v. Harte-Hanks Shoppers, Inc., 42 Cal. 4th 554 (2007)

EMPLOYERS MAY USE LUMP-SUM PAYMENTS TO

COMPENSATE EMPLOYEES FOR WORK-RELATED EXPENSES

In Gattuso v. Harte-Hanks Shoppers, Inc., the California Supreme Court held that employers may use a lump-sum method to reimburse employees for work-related expenses, as long as (1) the amount paid is sufficient to fully reimburse employees for the expenses they necessarily incur, and (2) the reimbursement is accounted for separately from their regular income. Although on its face this opinion appears to be a victory for employers, in reality it does not represent a significant change in California wage and hour law.

California Labor Code section 2802 requires that employers indemnify their employees for all expenses they necessarily incur in the discharge of their duties. This issue often arises in the context of outside salespersons or others who must use their personal vehicles for work purposes. It can be difficult and burdensome to calculate actual vehicle expenses, since such expenses include fuel, maintenance, repairs, insurance, registration, and depreciation. For this reason, employers have developed methods to approximate vehicle expenses and meet their reimbursement obligations.

The most common method is to use a reimbursement formula based on miles traveled. Using this approach, the employee need only keep a record of the number of miles driven on-the-job, and submit that information to the employer. The California Department of Labor Standards Enforcement (DLSE) has expressed its opinion that the mileage reimbursement method is presumptively valid and satisfies the employer’s obligation under Labor Code section 2802 if the employer uses the regularly updated Internal Revenue Service (IRS) reimbursement rate in calculating its expense reimbursements for work-related use of employee vehicles.

Another option for approximating mileage reimbursements is to pay the employee a fixed amount as an automobile expense reimbursement. This “lump-sum” method is often referred to by employers as “per diems” or “car allowances.” The amount of the lump-sum payment is typically based on the employer's understanding of the employee’s job duties, including the number of miles the employee typically or routinely must drive to perform those duties.

Gattuso v. Harte-Hanks Shoppers, Inc.

Harte-Hanks is an advertising company that prepares and distributes booklets (such as the PennySaver) across California. Harte-Hanks employs both outside and inside sales employees. Unlike inside sales employees (who contact customers by telephone), outside sales employees are required to drive their own vehicles in the field to contact customers to make sales.

Harte-Hanks does not separately reimburse outside sales employees for their automobile expenses. Instead, Harte-Hanks takes the position that it satisfies its obligation to compensate its outside sales employees for vehicle expenses, as required by Labor Code section 2802, by paying them higher base salaries and commission rates than it pays to inside sales employees.

At issue in Gattuso was whether Harte-Hanks could reimburse its outside sales force for vehicle expenses using this “lump-sum” method (i.e., giving the outside sales employees a higher base salary and/or commission rate to approximate vehicle costs). In summary, the Gattuso court held that Labor Code section 2802 does not prohibit an employer’s use of a lump-sum method to reimburse employees for work-related expenses, as long as (1) the amount paid is sufficient to fully reimburse employees for the actual expenses they necessarily incur, and (2) the reimbursement is accounted for separately from their regular income.

Two caveats are central to the court’s decision. Although lump-sum payments are lawful, an employee is still permitted to challenge the lump-sum payment as being insufficient under Labor Code section 2802 by comparing the lump-sum payment with the amount that would be payable under either the actual expense method or the mileage reimbursement method. If the comparison reveals that the lump-sum is inadequate, the employer is obligated to make up the difference.

Additionally, if an employer combines wages and expense reimbursements in a single enhanced employee compensation payment (i.e., higher base salary or commissions for outside sales employees), the employer must be able to articulate the method or formula used to identify the amount of the combined employee compensation payment that is intended to provide expense reimbursement.

The fundamental lesson of Gattuso is that employers who use lump-sum payments or “enhanced compensation” to reimburse employees have no safe harbor. If, as is likely, the lump-sum payment does not adequately compensate employees for their actual vehicle costs, the employer is in violation of Labor Code section 2802.

Gattuso is also noteworthy from a procedural standpoint. Both the trial and appellate courts declined to certify Gattuso as a class action, stating that “the determination of whether there was a meeting of the minds and whether reimbursement was reasonable necessarily requires an individualized inquiry as to each outside sales representative.” This was a significant victory for Harte-Hanks — avoiding the time and expense of class action litigation in favor of individual claims by those outside sales employees who felt they were underpaid. Unfortunately, the California Supreme Court reversed and remanded the case to the trial court to consider the following issues:

(1) Did Harte-Hanks adopt a practice or policy of reimbursing outside sales representatives for automobile expenses by paying them higher commission rates and base salaries than it paid to inside sales representatives?

(2) If so, did it establish a method to apportion the enhanced compensation payments between compensation for labor performed and expense reimbursement?

(3) If so, was the amount paid for expense reimbursement sufficient to fully reimburse the employees for the automobile expenses they reasonably and necessarily incurred?

Reading between these lines, the three questions appear calculated to point out the “commonality” of the outside sales employees’ claims, and encourage the trial court to certify the class action. Although the trial court has not yet ruled on this issue, it appears likely that Harte-Hanks will be forced to defend its mileage reimbursement practices in the context of a class action.

Practical Tips

As mentioned above, Gattuso does not represent a significant change in California law. Although the Supreme Court does authorize employers to adopt lump-sum payment policies to reimburse employees for vehicle expenses, it also makes it clear that such policies will be subject to scrutiny and legal challenge. At the end of the day, the law remains the same: employers are obligated to reimburse each individual employee for all vehicle expenses they necessarily incur in the discharge of their duties. The presumptively accurate IRS mileage reimbursement is the obvious and most practical method to approximate this otherwise burdensome calculation.

Employers are advised to review their existing reimbursement policies with legal counsel or experienced HR professionals. Any employer that currently uses a method other than payment of the IRS mileage rate to reimburse employees for vehicle expenses should consult with legal counsel to ensure employees are being reimbursed for all actual costs associated with performing their job duties.

Gentry v. Circuit City Stores, Inc., 42 Cal. 4th 443 (2007)

CIRCUIT CITY CANNOT ENFORCE CLASS ARBITRATION WAIVER TO
PREVENT WAGE AND HOUR CLASS ACTION

In Gentry v. Circuit City Stores, Inc., the California Supreme Court reversed a lower court ruling enforcing Circuit City’s arbitration agreement, which included a waiver of the right to class arbitration. The Gentry decision all but forecloses the use of class arbitration waivers in arbitration agreements covering employment-related claims.

In 2002, plaintiff Robert Gentry filed a class action lawsuit against Circuit City, alleging various wage and hour violations. Circuit City moved to dismiss the court case and compel arbitration on the grounds that Gentry had executed a binding agreement during his term of employment that required arbitration of all employment-related claims. The arbitration agreement executed by Gentry contained a class arbitration “waiver” prohibiting the consolidation of employment-related claims into class actions. The arbitration agreement contained limitations on recoverable damages, attorneys’ fees and costs, as well as a shortened statute of limitations on employment claims. The arbitration agreement also included a 30 day “opt out” form, which gave employees the option to revoke the agreement within 30 days of its execution. The plaintiff in Gentry did not exercise this option.

The lower court granted Circuit City’s motion to compel arbitration. In so doing, the lower court rejected the plaintiff’s argument that Circuit City’s arbitration agreement was unconscionable because it limited employees’ substantive and procedural rights, including the right to seek class-based relief. The Supreme Court reversed the lower court’s ruling, and remanded the case for reconsideration in light of the principles announced in its decision.

Turning first to the issue of class arbitration waivers, the court offered several reasons why such waivers are inherently “unconscionable.” The court explained that “when … a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider … the modest size of the potential individual recovery, the potential for retaliation against members of the class, the fact that absent members of the class may be ill informed about their rights, and other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration. If it concludes, based on these factors, that a class arbitration is likely to be a significantly more effective practical means of vindicating the rights of the affected employees than individual litigation or arbitration, and finds that the disallowance of the class action will likely lead to a less comprehensive enforcement of overtime laws for the employees alleged to be affected by the employer’s violations, it must invalidate the class arbitration waiver to ensure that these employees can vindicate [their] unwaivable rights in an arbitration forum.”

In the second part of the Gentry decision, the court explained that other aspects of Circuit City’s arbitration agreement raised issues of both substantive and procedural unconscionability. Citing its recent decision in Little v. Auto Stiegler, Inc., (2003) 29 Cal. 4th 1064, the court noted that arbitration agreements covering employment-related claims must meet the following standards:

· The arbitration agreement cannot limit damages normally available by statute

· There must be discovery sufficient to adequately arbitrate the statutory claim

· The agreement must require a written arbitration decision and judicial review sufficient to ensure the arbitrators comply with the requirements of the statute

· The employer must ‘pay all types of costs that are unique to arbitration’

The Gentry court questioned the validity of Circuit City’s arbitration agreement on several of these grounds. The court commented on the “additional significant disadvantages that this particular arbitration agreement had compared to litigation.”

According to the court, these were: “First, the agreement provided for a one-year statute of limitations as opposed to the three-year statute for recovering overtime wages and a four-year statute of limitations for the unfair competition claim… Second, the agreement provided a limitation of remedies to backpay ‘only up to one year from the point at which the [employee] knew or should have known of the events giving rise to the alleged violation of the law,’ whereas an employee filing suit could potentially recover backpay for a three-year period from the date the cause of action actually accrued. Third, the agreement imposed a maximum of $5,000 in punitive damages. Although exemplary damages are not available in overtime suits . . . Circuit City’s agreement applied to ‘any and all employment-related legal disputes,’ including violation of the FEHA and discharges in violation of public policy, for which punitive damages without any such limitation would be available. Fourth, the agreement contained a provision that parties will ‘generally’ be liable for their own attorney fees, with the arbitrator having the ‘discretion’ to award the employee attorney fees, as opposed to [Labor Code §1194’s] provision that a prevailing employee ‘is entitled to’ reasonable attorney fees and costs.

Practical Tips

Although Gentry does not expressly invalidate all class arbitration waivers, the court’s decision makes it clear that such provisions will rarely, if ever, be enforced. According to the Los Angeles Times, Circuit City “expects that when the Superior Court considers this case in light of the Supreme Court's new decision, it will once again fully enforce [its] arbitration agreement.” Most observers interpret Circuit City’s comments as either spin or denial. In all likelihood, Gentry appears to mark the end of class arbitration waivers in employment agreements.

To the extent that Gentry contains any good news for California employers, the court does recognize the viability of properly drafted arbitration agreements that do not bar class actions and that meet other legal requirements. Employers currently utilizing arbitration agreements that cover employment-related claims are advised to consult with employment law counsel, and to review their arbitration policies for compliance with the Gentry requirements.

Prachasaisoradej v. Ralphs Grocery Co., 42 Cal. 4th 217 (2007)

PROFIT-BASED INCENTIVE COMPENSATION PLAN
DOES NOT VIOLATE CALIFORNIA LAW

In Prachasaisoradej v. Ralphs Grocery Company, the California Supreme Court held that an incentive compensation plan based on the employer's net profits (i.e., subtracting operating expenses from revenues) did not constitute an unlawful wage deduction under California law. The Prachasaisoradej decision is a significant victory for California employers, as it validates employee compensation plans designed to reward employees for increasing the employer’s net profits.

California Labor Code §221 provides that an employer may not “collect or receive from an employee any part of wages theretofore paid by said employer to said employee.” Over the years, California courts have interpreted Labor Code §221 “to prohibit deductions from an employee's wages for cash shortages, breakage, loss of equipment, and other business losses that may result from the employee's simple negligence.” Hudgins v. Nieman Marcus Group, Inc., 34 Cal.App.4th 1109, 1118 (1995). The rationale for this rule is that employees should not be “insurers of the employer's business losses,” and thus should not be subjected to unpredictable deductions from their “wages” for losses due to factors beyond their control. Hudgins, supra, 34 Cal.App.4th at 1123.

Prachasaisoradej v. Ralphs Grocery Company

The plaintiff in Prachasaisoradej argued that the “incentive compensation plan” offered by Ralphs Grocery Company (Ralphs) violated Labor Code §221. Under the Ralphs plan, certain employees were eligible to receive supplemental compensation calculated based upon the profitability of particular stores. This incentive compensation was in addition to the regular pay the employees received. Ralphs calculated “profits” by subtracting the store’s expenses from gross revenues. Store expenses used in the calculation included workers’ compensation costs, cash shortages, damaged or lost merchandise, and tort claims by non-employees.

The plaintiff claimed that reducing an employee’s incentive compensation by such expenses amounted to an unlawful wage deduction in violation of Labor Code §221. The California Supreme Court rejected the plaintiff’s argument. In so doing, the court explained that all of Ralphs’ employees were paid a predictable amount of compensation — whether an hourly wage or salary — that was not subject to deduction based on store expenses. All employees who participated in the incentive compensation plan understood from the outset that any incentive compensation they might receive depended upon a calculation of profitability that would include store expenses (workers’ compensation, cash shortages, and damaged or lost merchandise). It was only after the calculation of profits under the plan that the employees would know the amount of their supplemental compensation.

The Supreme Court distinguished this method of accounting for expenses from earlier cases, such as Hudgins, supra. In the earlier cases, employees were expecting to be paid a specific wage, but the wage was “directly reduced by the full dollar value of merchandise and cash losses, as determined by the employer, and regardless of employee fault. The employer thus defrayed its merchandise and cash losses by charging them, dollar for dollar, against its liability for wages.” In contrast, Ralph’s incentive compensation plan did not promise any specific wage other than a portion of profits that could only be determined after expenses were deducted. “Thus, employees suffered neither a prohibited recapture of compensation already offered, promised, or paid, nor an uncertain or unanticipated deduction from expected wages. And because they attained no interest or entitlement in any supplementary compensation other than that finally calculated under the [incentive compensation plan], they made no forced ‘contribution,’ direct or indirect, from their own resources to reimburse Ralphs for costs the law requires the employer to bear alone.” In sum, the court found that Ralphs was not shifting its business losses to employees, but rather used its incentive compensation plan to “determine if there remained any profit to split with its employees” in addition to their normal wages.

Practical Tips

The Supreme Court’s decision makes it clear that employers can create profit-based compensation plans without running afoul of Labor Code § 221. Employer may still find it difficult, however, to distinguish between valid profit-based compensation plans, on the one hand, and improper deductions from earned wages, on the other hand. Employers are advised to review any profit-based compensation plan with an experienced employment law attorney.

Green v. State of California, 42 Cal. 4th 254 (2007)

DISABILITY DISCRIMINATION PLAINTIFF MUST PROVE
ABILITY TO PERFORM ESSENTIAL JOB FUNCTIONS

In Green v. State of California, the California Supreme Court recently held that an employee who sues for disability discrimination under the California Fair Employment and Housing Act (FEHA) bears the burden of proof that he or she is able to perform the essential functions of the job.

The federal Americans with Disabilities Act (ADA) expressly requires that the plaintiff in a disability discrimination case prove that he or she is a “qualified individual” who can perform all essential job duties. See 42 U.S.C. §12112(a). In contrast, the statutory language of California’s FEHA is unclear as to whether the employer or the employee has the burden of proof on this issue. As a result, some courts have required that the employee prove he or she is “qualified” as an essential element of the case,[2] while others have held that the employer must establish the employee is “not qualified” as an affirmative defense. This might seem like a minor technical issue, but it can have a significant impact on the outcome of FEHA disability cases; the party bearing the burden of proving whether, or to what extent, an employee is qualified to perform essential job functions is always at a disadvantage.

Green v. State of California

Plaintiff Dwight Green worked for the California Department of Corrections (CDC) as a stationary engineer. In 1990, he was diagnosed with hepatitis C. From 1990 until 1997, the plaintiff did not have any work restrictions because of the illness, nor did he lose any time from work. In 1997, the plaintiff's physician began a new treatment regimen, which resulted in fatigue, difficulty sleeping, and headaches and body aches. The plaintiff's physician requested, and the plaintiff received, a light duty assignment. After several months, the plaintiff returned to full duty and otherwise performed the essential functions of his job.

In June 1999, the plaintiff injured his back on the job. In November 1999, due to the plaintiff's continuing medical restrictions, the CDC placed the plaintiff on disability leave. In July 2000, the plaintiff returned to work cleared for full duty.

When the plaintiff returned to work, the CDC undertook a new review of his file, and found the prior 1997 light duty-only restriction related to the plaintiff's hepatitis C. Based on this report, the CDC determined that the plaintiff should not have been cleared to return to full duty. Ultimately, the CDC told the plaintiff that, based on work restrictions contained in the 1997 medical report, he could not return to work. With this understanding, the plaintiff initially decided to take disability retirement.

In November 2000, the plaintiff changed his mind and sought permission to return to work. The CDC denied the request, and the plaintiff filed a lawsuit alleging disability discrimination under the FEHA. The plaintiff prevailed at trial, and the jury awarded almost $600,000 in economic damages and $2 million in non-economic damages. On appeal, the court of appeal affirmed the judgment in Green's favor. In so doing, the court also upheld the trial court’s legal ruling that, under FEHA, the employer bears the burden of proving that its employee is unable to perform the essential duties of the job, with or without reasonable accommodation.

The California Supreme Court disagreed and held that the burden of proof is on the plaintiff to show that he or she is a qualified individual under FEHA (i.e., that he or she can perform the "essential" functions of the job with or without "reasonable accommodation"). In reaching its decision, the Supreme Court noted that California’s FEHA is modeled after the ADA, and that the ADA places the initial burden on the employee to prove that he or she is a “qualified individual with a disability.” After reviewing the language of the FEHA, the Supreme Court concluded that a similar rule was required by state law. Specifically, the court determined that the FEHA “makes it clear that drawing distinctions on the basis of physical or mental disability is not forbidden discrimination in itself. Rather, drafting these distinctions is prohibited only if the adverse employment action occurs because of a disability and the disability would not prevent the employee from performing the essential duties of the job, at least not with reasonable accommodation. Therefore, in order to establish that a defendant employer has discriminated on the basis of disability in violation of the FEHA, the plaintiff employee bears the burden of providing he or she was able to do the job, with or without reasonable accommodation.”

Practical Tips

Although Green is welcome news for California employers (and defense lawyers), important issues still remain unsettled. For example, the Supreme Court does not clarify the standard for a "disability" under FEHA — which has been interpreted as being much less stringent than the standard under the ADA. Similarly, the court avoids discussion of the standard for distinguishing "essential" job functions from marginal ones — a challenge for employers in evaluating all employee disability issues. Nor does the court help employers walk the line between “reasonable” and “unreasonable” accommodations.

For all of these reasons, employers should continue to tread carefully in this area, and should seek assistance from experienced human resources professionals in handling all disability issues. A prudent HR policy should include:

· Written job descriptions that accurately reflect essential job functions;

· Exit procedures to review termination decisions for compliance with disability laws; and

· Written procedures for handling requests for accommodation

· A legal process for obtaining and reviewing medical information

· A consistent approach to evaluating potential accommodations, and monitoring accommodations that are implemented.

Franklin v. The Monadnock Co., 151 Cal. App. 4th 252 (2007)

EMPLOYEE IS PROTECTED FROM DISCHARGE FOR MAKING
A COMPLAINT ABOUT THREATS OF WORKPLACE VIOLENCE

In Franklin v. The Monadnock Company, a California appellate court held that the public interest in a “safe workplace” and a “crime-free” workplace protects an employee from discharge for making complaints about an employee who threatens him or her with physical violence.

Under California Labor Code § 2922, the employment relationship is presumed to be terminable “at-will.” Absent a contractual provision or statutory requirement to the contrary, either the employer or the employee may terminate the employment relationship at any time, with or without notice, for any reason.

Over the years, the legislature and the courts have carved out numerous exceptions to the at-will employment doctrine. One of these exceptions arises when an employee is terminated for “performing an act that public policy would encourage, or for refusing to do something that public policy would condemn.” Gannt v. Sentry Insurance, 1 Cal. 4th 1083 (1992). In Stevenson v. Superior Court, 16 Cal. 4th 880 (1997), the California Supreme Court outlined the requirements of this “public policy” exception: First, the policy must be supported by either constitutional or statutory provisions. Second, the policy must be “public” in the sense that it “inures to the benefit of the public” rather than serving merely the interests of the individual. Third, the policy must have been articulated at the time of the discharge. Fourth, the policy must be “fundamental” and “substantial.” Stevenson, supra, 15 Cal. 4th at 889-890.

Franklin v. The Monadnock Company

Calvin Franklin worked as a “heat treater” at a small parts manufacturing plant. A co-worker named Richard Ventura allegedly made threats against Franklin and three other employees, stating that he would “have them killed.” Franklin and the others reported Ventura’s alleged threats to the employer’s Human Resources Department (HR), but the employer did not take any action. A week later, Ventura allegedly attempted to stab Franklin with a metal screwdriver. Franklin filed a police report stating that “his safety, as well as that of his co-workers, was being endangered” by Ventura. According to Franklin, the employer then terminated his employment because of his “internal” complaints to HR and his “external” complaints to the police department.

Franklin filed a lawsuit alleging, among other things, that the employer terminated him in violation of the “public policy” requiring an employer to provide a “safe workplace” and a “crime-free workplace.” The employer filed a demurrer (the California equivalent of a motion to dismiss the complaint) challenging whether Franklin could state a valid wrongful termination claim on these facts.

The court held that the allegations of Franklin’s complaint, taken as true, would support a cause of action for wrongful termination in violation “public policy.” Specifically, the court determined that California’s statutes, when read together, establish a fundamental “public policy requiring employers to provide a safe and secure workplace, including a requirement that an employer take reasonable steps to address credible threats of violence in the workplace.” As sources for this public policy, the court cited California Labor Code §§ 6400 et seq. (occupational safety statutes); California Code of Civil Procedure § 527.8 (giving employers the ability to seek workplace violence restraining orders on behalf of employees); and California Penal Code § 422 (criminalizing certain threats of violence). Because Franklin alleged that he articulated this fundamental public policy at the time of his termination, the court had little difficulty concluding that his complaint was sufficient to state a valid wrongful termination claim.

Practical Tips

The reasoning of Franklin is subject to debate, since the court could not identify any specific constitutional or statutory provision that requires an employer to prevent workplace violence. As a practical matter, however, the court’s decision in Franklin — that an employer cannot terminate an employee for complaining about workplace violence — makes common sense and should not come as a surprise to California employers. Employers should take all complaints of workplace violence seriously, and should not penalize any employee for raising such issues with managers, HR professionals or law enforcement.

The broader language of Franklin stating that employers are required to “provide a safe and secure workplace, including a requirement that an employer take reasonable steps to address credible threats of violence in the workplace” should also be taken seriously. Employers should audit their employee handbooks to ensure that the topic of workplace violence is adequately addressed and that employees have a clear understanding of their reporting options. Employers should also train supervisors and managers to spot workplace violence issues and bring them to the attention of HR professionals.

Finally, employers should understand that workplace violence is among the most delicate issues in the workplace, and that the consequences of mishandling workplace violence can be tragic. Employers should intervene immediately, but carefully, and should consult experienced HR professionals and employment counsel at every step of the decision-making process.

Ledbetter v. Good Year Tire & Rubber Co., 127 S. Ct. 2162 (2007)

EMPLOYEE CANNOT SUE UNDER TITLE VII BASED ON THE
CONTINUING EFFECT OF PAST PAY DISCRIMINATION

In Ledbetter v. Good Year Tire & Rubber Company, Inc., the United States Supreme Court held that federal gender discrimination laws do not permit employees to sue for pay discrimination that occurred several years in the past.

In a 5-4 decision, the court stated that a pay-setting decision is a “discrete act of discrimination,” and that a plaintiff seeking to sue based on such a discrete act in violation of federal law must do so within the limitations period (either 180 or 300 days, depending on the state). The court rejected the plaintiff’s continuing violation theory, stating that the “current effects” of past pay-setting decisions (i.e., a lower salary than similarly- situated male employees) “could not breathe life into prior, uncharged discrimination.”

Title VII of the Civil Rights Act of 1964 (Title VII) prohibits various forms of employment discrimination, including sex-based discrimination in employee compensation. 42 U.S.C. § 2000e-2(a)(1). If an employee elects to sue under Title VII, the employee must first file a timely charge with the Equal Employment Opportunity Commission (EEOC). The limitations period is either 180 or 300 days, depending on the state. (Note: 300 days in California).

Ledbetter v. Goodyear Tire

The plaintiff in Ledbetter worked for Goodyear Tire and Rubber Company in Alabama from 1979-1998. In July 1998, she filed an EEOC charge of discrimination. Ledbetter retired in November 1998, and shortly thereafter filed a Title VII lawsuit alleging, among other things, pay discrimination in violation of federal law.

At trial, the jury found that Ledbetter received “poor evaluations because of her sex” on various occasions during her 20 years of employment. As a result, Ledbetter’s pay “was not increased as much as it would have been if she had been evaluated fairly.” The jury also found that discrimination in pay-setting decisions “continued to affect the amount of her pay throughout her employment.” Importantly, however, Ledbetter offered no evidence of a discriminatory pay-setting decision after September 26, 1997 — that is, within the EEOC filing period.

On these facts, the court determined that Ledbetter could not state a viable Title VII pay discrimination claim. A discriminatory pay-setting decision is a “discrete” unlawful act, and a Title VII claim premised on such a discrete act must be brought within the statutory limitations period. Because the discriminatory acts alleged by Ledbetter all occurred more than 180 days prior the date she filed her EEOC charge, her Title VII claim was barred by the statute of limitations.

In reaching this conclusion, the Ledbetter court considered and rejected the plaintiff’s “paycheck accrual” theory, under which each new paycheck would trigger a new EEOC charging period because it “carried forward intentionally discriminatory disparities from prior years.” The court stated that “Ledbetter should have filed an EEOC charge within 180 days after each allegedly discriminatory pay decision was made and communicated to her. She did not do so, and the paychecks that were issued to her during the 180 days prior to the filing of her EEOC charge do not provide a basis for overcoming that prior failure.” Instead, citing its own decision in United Airlines, Inc. v. Evans, 431 U.S. 553 (1977), the court concluded that “[a] discriminatory act which is not made the basis for a timely charge … is merely an unfortunate event in history which has no present legal consequences.”

Practical Tips

Ledbetter is the latest in a series of cases decided by the United States Supreme Court that limit the scope and application of Title VII protections. While Ledbetter is certainly a victory for employers, keep in mind that it only applies to Title VII claims.

Ledbetter does not necessarily impact claims asserted against California employers under the California Fair Employment and Housing Act (FEHA). California courts have generally read the provisions of the FEHA as providing more expansive employee protections than Title VII. Consequently, although the California courts have not addressed this issue yet, there is a possibility that California courts will adopt a “paycheck accrual” rule similar to the plaintiff’s argument in Ledbetter. See Richards v. CH2M Hill, 26 Cal. 4th 798 (2001) (applying an expansive “continuing violation” theory to allow the plaintiff to bring claims otherwise time-barred by the FEHA).

For now, California employers should not rely on Ledbetter in addressing pay discrimination issues. Employers should continue to audit their pay-setting policies, and Human Resources Managers should carefully investigate employee complaints of past and present pay discrimination. Employers should also consult with experienced legal counsel before rejecting any pay discrimination claim on the grounds that the complaint is untimely.

Gambini v. Total Renal Care, Inc., 486 F.3d 1087 (9th Cir. 2007)

BI-POLAR EMPLOYEE’S PROFANE OUTBURSTS

MAY BE PROTECTED BY DISABILITY LAWS

In Gambini v. Total Renal Care, Inc., the Ninth Circuit Court of Appeals recently held that a bi-polar woman terminated after a “flourish of several profanities” directed at supervisors during a performance evaluation may prevail in a disability discrimination claim under Washington law.

The Gambini court relied on prior Americans with Disabilities Act (ADA) decisions to conclude that firing an employee for misconduct caused by a disability is the same as firing an employee for having a disability. This case illustrates the risk of liability for employers who discipline or terminate employees for violating workplace standards of behavior if their conduct results from a disability.

Under Washington law (as with comparable provisions of the ADA and the California Fair Employment and Housing Act (FEHA)), it is unlawful for an employer to terminate an otherwise qualified individual because of the employee’s disability. An otherwise qualified individual with a disability is someone who, with or without reasonable accommodation, can perform the essential functions of the job. Even if the employee is otherwise qualified, however, the employer is permitted in some cases to terminate an employee if accommodation would constitute an “undue burden,” or if the employee poses a “direct threat” to the health and safety of others in the workplace. See generally 42 U.S.C. §§12111-12113 (ADA).

Gambini v. Total Renal Care

The plaintiff in Gambini was a contract clerk at a dialysis company. Gambini had been diagnosed with bi-polar disorder, and had discussed her psychiatric condition and medications with several members of the employer’s management team.

Gambini’s managers were concerned about her job performance. The managers scheduled a meeting, and delivered a “written performance improvement plan” for Gambini’s review. When Gambini finished reading the document, she “threw it across the desk and in a flourish of several profanities expressed her opinion that it was both unfair and unwarranted. Before slamming the door on her way out, Gambini hurled several choice profanities at [her immediate supervisor]” . . . Gambini was later observed “kicking and throwing things at her cubicle.” She left work the next day and filed the paperwork for medical leave under the Family and Medical Leave Act (FMLA). Three days later, the employer notified Gambini that it had terminated her employment due to her inappropriate behavior at the performance meeting.

Gambini filed a lawsuit alleging, among other things, that she was an otherwise qualified individual who was improperly terminated “because of” her disability in violation of Washington law. The employer argued that it had not terminated Gambini “because of” her disability. Rather, she had been terminated due to the profane outbursts she directed at her supervisors. The court determined, however, that it could not separate Gambini’s conduct from the underlying disability. Specifically, the court held that if a jury found Gambini’s conduct “was caused by or was part of her disability, it could then find that one of the ‘substantial reasons’ she was fired was her bi-polar condition.” In other words, firing an employee for misconduct caused by a disability is functionally the same as firing an employee for having a disability.

The one bright spot for employers — the court upheld judgment in favor of the employer on Gambini’s FMLA claim. Although the FMLA generally confers a right to reinstatement for an employee who takes up to 12 workweeks of leave in a 12 month period for a serious medical condition such as bi-polar disorder, the employer “may still terminate an employee during her leave if the employer would have made the same decision had the employee not taken leave.” 29 U.S.C. §2614(a). Because the employer offered “unrefuted evidence that it would have terminated Gambini for her conduct regardless of whether she had taken her FMLA leave,” judgment for the employer was proper.

Practical Tips

The reasoning of Gambini may be sound, but its application is challenging for employers. This is particularly true in California, where nearly any physical or mental impairment qualifies as a legal disability. Using the Gambini standard, employers must carefully consider whether employee misconduct may be attributable to a known mental or physical condition before taking disciplinary action. If a potential disability is involved, the employer will need to engage in an interactive process to determine whether the employee’s misconduct can be addressed through reasonable accommodation.

There are, of course, limits to the types of behavior an employer can or should accommodate. An employee must be able to perform all essential job functions (which includes the ability to get along with co-workers) once accommodation is provided. For some employees, there may not be a reasonable accommodation that will permit the performance of all essential job functions.

Additionally, in some cases employers may rely on “undue hardship” as a defense to providing a particular accommodation, or assert the right to terminate an employee who poses a “direct threat” to the health and safety of co-workers. These are extremely technical legal defenses, however, that require the careful analysis of experienced Human Resources Managers and employment counsel.

Faust v. Cal. Portland Cement Co., 150 Cal. App. 4th 864 (2007)

EMPLOYERS MUST NOTIFY EMPLOYEES

OF THEIR RIGHTS UNDER CFRA

Faust v. California Portland Cement Company illustrates the importance of providing adequate notice to employees of their right to medical leave under the California Family Rights Act (CFRA). In Faust, the court held that the employer’s failure to explain CFRA requirements to an injured worker precluded any argument that the worker failed to provide sufficient documentation to support the need for a CFRA-qualified leave of absence.

Generally, the CFRA requires an employer of 50 or more persons to provide employees with up to 12 workweeks of leave in any 12-month period for qualified family and medical reasons. An employer subject to the CFRA is required to notify its employees of their right to request CFRA leave. The employer is also required to provide its employees with “reasonable advance notice” of any notice requirements it may adopt. 2 Cal. Code of Regs. § 7297.4.

An employee is not required to expressly assert rights under CFRA to trigger the employer’s CFRA obligations. The employee need only provide verbal notice sufficient to make the employer aware of the employee’s need for CFRA-qualifying leave. Once the employee has provided such notice, it is the employer’s obligation to inquire further if additional information is necessary to determine whether the requested leave is for a CFRA-qualifying reason.

Faust v. California Portland Cement Company

The plaintiff in Faust left work claiming stress and anxiety due to alleged poor treatment by co-workers after he “blew the whistle” on co-worker illegal activities. At the conclusion of a 30-day psychiatric program, Faust sought treatment from a chiropractor for severe lower back pain. Faust submitted a medical certification from his chiropractor indicating he was “unable to perform his regular duties.”

After receiving the documentation from the chiropractor, the employer’s Human Resources Manager attempted to contact Faust to discuss the information provided. Faust’s wife returned the employer’s calls, stating that Faust was “too stressed out” to speak. Faust’s wife offered to address the employer’s questions, and suggested that the employer contact the chiropractor or workers’ compensation attorney if it needed any additional information. The employer chose not to speak to any of these third parties due to employee privacy concerns.

Instead, the employer’s HR Manager sent Faust a letter advising that the chiropractor’s certification was inadequate because: (a) the chiropractor did not appear qualified to provide a CFRA certification; and (b) the certification stated Faust could not perform “regular duties,” but did not place him “off work.” The employer gave Faust a week to respond and, when he failed to do so, terminated Faust for “insubordination.” Faust, in turn, sued the employer on several theories, including failure to provide CFRA leave and retaliation in violation of the CFRA.

The employer argued that it was relieved of its obligation to provide CFRA leave because Faust failed to provide adequate information to establish that the leave was CFRA-qualified. The court disagreed. The key fact, according to the court, was the employer’s failure to provide its employee with notice of CFRA rights once the employee provided notice sufficient to establish the need for a CFRA-qualifying leave. The court emphasized that an employer must refrain from taking adverse action against any employee for failure to substantiate a CFRA-qualifying leave if the employer itself failed to furnish the employee with adequate notice of his or her rights under CFRA.

The court was also convinced that Faust was not responsible for the failure of communication at the heart of the case. The court did not reject the employer’s contention that it could not speak with Faust’s wife or medical provider due to privacy concerns. The court avoided the issue, however, by stating that the employer should have obtained further information from the workers’ compensation attorney.

Practical Tips

Faust reminds California employers to always:

· Post and regularly audit all legally required employee notices, including the notice of employee rights to family and medical leave under CFRA; and,

· Notify employees, in writing, of their rights and obligations under CFRA as soon as the employer learns of facts that might support a CFRA-qualified leave of absence.

Human Resources Managers should train all supervisors to recognize potential CFRA-qualifying leave requests and refer all CFRA matters directly to HR. Experienced HR management is essential to protect California employers against the inconsistent and erroneous decisions that are inevitably made by supervisors who are not familiar with the CFRA requirements.

HR Managers should develop clear and consistent CFRA policies, including template CFRA letters providing employees with specific information about their rights and obligations to provide supplemental documentation. CFRA policies and template letters should be developed and audited with the assistance of legal counsel.

Finally, employers should consult with counsel in situations, such as Faust, in which an employee insists on communicating with the employer through a spouse, medical provider or other “representative.” Because employee privacy laws limit the extent to which an employer may discuss an employee’s personnel information with any third party, HR Managers should tread carefully in this area.

U.S. v. Ziegler, 497 F.3d 890 (9th Cir. 2007)

EMPLOYER PROVIDED VALID AUTHORIZATION FOR
FBI SEARCH OF EMPLOYEE WORKSTATION AND COMPUTER

A recent Ninth Circuit Court of Appeals case illustrates the limitations on employee privacy rights in the workplace. In U.S. v. Ziegler, the court held that law enforcement agencies were permitted to search an employee’s workstation and retrieve incriminating child pornography based on consent given by the employer. In so doing, the court relied on the employer’s handbook, which advised employees that their computers were subject to monitoring. Ziegler provides important guidance on how to implement privacy policies that maximize protection for those employers that choose to cooperate with law enforcement and allow searches of employee computers and workstations.

The Fourth Amendment to the United States Constitution is implicated whenever federal authorities search a place (or an item) in which a person has a legitimate expectation of privacy. This expectation of privacy exists if the person has a subjective expectation of privacy that is also objectively reasonable under the circumstances. If a legitimate expectation of privacy exists, federal authorities are typically prohibited from conducting any search unless and until the search is authorized by a valid search warrant.

An exception to this rule applies where valid consent is obtained by federal authorities. Of particular importance to employers, valid “consent” to a search may be obtained from a third party who possesses common authority over a place or item the authorities want to search. The rationale for the “common authority” rule is that the person who shares access to a place or item assumes the risk that another person with a right of access might permit the common area to be searched.

U.S. v. Ziegler

Brian Ziegler was the Director of Operations for Frontline Processing — an internet payment processing company. During routine monitoring of internet usage, a Frontline IT employee noticed that the computer in Ziegler’s office had accessed child-pornographic websites. After making this discovery, the IT department placed a monitor on Ziegler's computer to “spot check” his downloaded files and uncovered several images of child pornography. Frontline reported these findings to the FBI. On instructions from a FBI agent, Frontline employees then obtained a key to Ziegler's private office, entered the office, opened his computer's outer casing, and made two copies of the hard drive.

Frontline voluntarily turned over Ziegler's computer tower and the copies of Ziegler’s hard drive to the FBI. Forensic examiners at the FBI discovered many images of child pornography. Shortly thereafter, a federal grand jury handed down a three count indictment against Ziegler for receipt and possession of child pornography.

In the criminal proceedings, Ziegler filed a motion to suppress the evidence obtained from the search of his workplace computer. Ziegler argued that the FBI lacked a warranted, and thus violated the Fourth Amendment by directing the Frontline employees to enter his private office and search his computer. The trial court denied the motion, finding that Ziegler had no reasonable expectation of privacy in the files he accessed on the Internet. Ziegler appealed the ruling.

The Ninth Circuit first addressed the issue of whether Ziegler had a legitimate expectation of privacy in the areas searched or the objects seized. On the question of subjective expectation of privacy, the court quickly concluded that Ziegler’s use of a password on his computer and a lock on his private office door was sufficient, as a matter of law, to establish his expectations. Turning to objective considerations, the court concluded that Ziegler, as a non-governmental employee, also had an objective expectation of privacy in his office. In reaching this result, the court relied heavily on the U.S. Supreme Court decision in Mancusi v. DeForte, which held that a union employee had a legitimate expectation of privacy in the contents of records that he stored in an office, even though he shared the office with several other union officials. Comparing Ziegler’s case to the facts of Mancusi, the court felt “compelled” to recognize Ziegler’s objective expectation of privacy, since Ziegler’s office was not shared by co-workers, and access to his office was restricted to those with access to the master key.

After concluding that Ziegler had a reasonable expectation of privacy in his office, the court analyzed whether the FBI conducted an “unreasonable” search and seizure when it directed Frontline employees to entered Ziegler’s office and copy his hard drive.

The Ninth Circuit held that no “unreasonable” search occurred on the facts of Ziegler because Frontline voluntarily provided valid consent to the search. As explained by the court, “even where a private employee retains an expectation that his private office will not be the subject of an unreasonable government search, such interest may be subject to the possibility of an employer's consent to a search of the premises which it owns.” The court pointed out that Frontline could give valid consent to a search of the contents of the hard drive of Ziegler's workplace computer because the computer remained within the control of the employer.

Significantly, although use of Ziegler’s computer was subject to an individual log-in, IT employees "had complete administrative access to anybody's machine." Frontline had also installed a program to monitor internet traffic from within the company to ensure that no employee visited objectionable or unprofessional websites. Monitoring was routine. Perhaps most importantly, Frontline employees “were apprised of the company's monitoring efforts through training and an employment manual, and they were told that the computers were company-owned and not to be used for activities of a personal nature.” On these facts, Ziegler could not reasonably have expected that the computer was his personal property, free from control by his employer. Instead, the contents of his hard drive were “work-related items that contained business information and which were provided to, or created by, the employee in the context of the business relationship.” For this reason, the court concluded that Frontline’s voluntary consent was sufficient to validate the FBI’s search, and affirmed the trial court’s ruling.

Practical Tips

Ziegler stands for the proposition that employers can voluntarily cooperate with law enforcement and provide access to employee workstations, so long as the employer apprises its employees that office space and work computers are routinely monitored and subject to search for objectionable or unprofessional material.

It is worth noting, however, that the Ziegler decision generated a heated dissenting opinion that questioned whether the employer’s internal monitoring policies constituted “express authorization to consent to a warrantless physical entry into the employees' locked offices by criminal law enforcement agents to seize a computer.” The dissent argued that “settled law” requires that third-party consent to a search must be premised on either: (1) express authorization by the first party, or (2) mutual use and joint access by the third party. Over the next few years, employers can expect a series of cases refining the contours of the “consent” and “common authority” rules.

Employers are advised to audit their employee handbooks, internet usage and e-mail policies to maximize the employer’s right t