California Labor Defense Lawyer & Attorney : Van Vleck Turner & Zaller Law Firm : Employment Litigators : Serving Los Angeles, San Diego, San Jose

The California Supreme Court issued its ruling today in Jones v. The Lodge At Torrey Pines.  The Court held:

In Reno v. Baird (1998) 18 Cal.4th 640 (Reno), we held that, although an employer may be held liable for discrimination under the California Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.), nonemployer individuals are not personally liable for that discrimination. In this case, we must decide whether the FEHA makes individuals personally liable for retaliation. We conclude that the same rule applies to actions for retaliation that applies to actions for discrimination: The employer, but not nonemployer individuals, may be held liable.

The opinion can be read here.

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The California Supreme Court announced today that on Monday, March 3, 2008, it will issue an opinion in Jones (Scott) v. The Lodge At Torrey Pines Partnership. 

The issue in this case is whether an individual be held personally liable for retaliation under the California Fair Employment and Housing Act (Gov. Code, § 12900 et seq.).  We will post the opinion and hopefully have some time to include some analysis about the case on Monday.

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In Harrington v. Payroll Entertainment Services, Inc. (2008) __ Cal.App.4th __, Plaintiff brought suit against his employer for $44.63 in unpaid overtime, which was eventually settled for $10,500. After the settlement, the plaintiff (read the plaintiff’s lawyer) asked the trial court for about $46,000 for his attorneys’ fees. According to plaintiff, five lawyers and one paralegal worked on this case, with one lawyer billing 55.6 hours at $525 per hour, and another billing 67.15 hours at $275 per hour. The trial court denied the motion, and the plaintiff (read the plaintiff’s lawyer) appealed on the ground that he has a statutory right to recover his reasonable fees. The appellate court agreed, but in a scathing opinion only provided plaintiff $500 for his “reasonable” fees.

The appellate court stated:

It is as plain to us as it was to the trial court that, from the outset, this was a dispute about $44.63 and that it was not viable as a class action. It is equally plain that Harrington was underpaid as the result of an honest mistake made in reliance on a formula provided by his union, not based on any willful or knowingly wrongful conduct by PESI. (Cf. § 203.) At the risk of understatement, there is no way on earth this case justified the hours purportedly billed by Harrington’s lawyers.

We decline Harrington’s invitation to remand the matter to the trial court for its determination of a fee. The record is sufficient to allow us to make that determination, thereby saving the parties the additional fees and costs they would incur in refreshing the trial court’s recollection about this case, and avoiding any further expenditure of judicial resources. Given the nature of the dispute, the amount of the settlement, and the record on appeal, we are satisfied that the trial court could not reasonably award an amount in excess of $500, and thus fix the fee at that amount. (See PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1096; compare Chavez v. City of Los Angeles (2008) ___ Cal.App.4th ___ (Feb. 22, 2008, B192375).)

The opinion can be read here.

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Today, the Court will hear argument in Gomez-Perez v. Potter, on whether the Age Discrimination in Employment Act bars retaliation by public employers for the filing of age discrimination complaints.  For more information about the facts of the case, click here.

On Wednesday, the Court is scheduled to hear oral argument in CBOCS West v. Humphries, on whether a race retaliation claim can be brought under 42 U.S.C. § 1981 (Section 1981).  Section 1981 provides that any “person within the jurisdiction of the United States” has the same right to “make and enforce” contracts, regardless of their skin color.  Section 1981 protects parties to a contract (both at the time of formation and post-formation).  The argument arises that Section 1981 applies to aspects of the employment relationship because that relationship is considered contractual, but courts have not defined to what extent this protection exists in the employment context.  Employees who have not filed a lawsuits within the time limits proscribed by Title VII (which allows for retaliation claims), often revert to Section 1981 in order to keep their claim alive. 

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As employment litigators, we are finding ourselves dealing more and more with Internet related issues, such as an employer’s right to monitor employees’ computer usage, and an employee’s privacy rights to information posted on the Internet. A recent case, Krinsky v. Doe 6, __ Cal.App.4th ___ (Feb. 6, 2008), (click here for the opinion) dealt with the issue whether someone who posts anonymously on the Internet can protect his or her identity under the First Amendment. While not directly related to employment law, the ruling's effects could be felt by companies and should be read by anyone dealing with human resource issues in California.

Lisa Krinsky, a corporate officer of a Florida company, SFBC International, Inc., filed a lawsuit against 10 unknown individuals for defamation and intentional interference of contractual relations. She claimed the 10 unknown individuals (sued as Does 1-10) posted scathing attacks about her and her company on Yahoo!’s message board. Krinsky attempted to discover the identity of 10 of the pseudonymous posters by serving a subpoena on the custodian of records of the message-board host, Yahoo!, Inc. (Yahoo!) in Sunnyvale, California.

Yahoo! notified Defendant “Doe 6” that it would comply with the subpoena in 15 days unless a motion to quash or other legal objection was filed. Doe 6 then moved in California superior court to quash the subpoena on the grounds that (1) plaintiff had failed to state a claim sufficient to overcome his First Amendment rights for either defamation or interference with a contractual or business relationship, and (2) plaintiff's request for injunctive relief was an invalid prior restraint. Doe 6 moved to quash the subpoena in California in an attempt to hide his identity, but the trial court denied the motion. Doe 6 appealed this decision, contending that he had a First Amendment right to speak anonymously on the Internet.

The appellate court discussed the fact that there is never really true anonymity on the Internet. Moreover, Yahoo! warns users that their identities can be traced, and that it will reveal their identities if legally required to do so. The parties in the case agreed that the enforceability of the subpoena should be determined by weighing Doe 6's First Amendment right to speak anonymously against plaintiff's interest in discovering Doe 6’s identity in order to pursue her claim.

The appellate court’s decision ultimately turned on the issue whether the statements posted by the defendant were in fact defamatory. The analysis begins with examining whether plaintiff can establish with supporting evidence that a libelous statement has been made. If plaintiff can establish this, then the writer’s message has no First Amendment protections.

The California appeals court, in applying Florida defamation legal standards due to the fact that this is where the Plaintiff filed the underlying case, stated:

A publication is libelous per se in Florida "if, when considered alone without innuendo: (1) it charges that a person has committed an infamous crime; (2) it charges a person with having an infectious disease; (3) it tends to subject one to hatred, distrust, ridicule, contempt, or disgrace; or (4) it tends to injure one in his trade or profession. Plaintiff maintains that Doe 6 implied that she was dishonest by calling her a "crook" and asserted that she had a "fake medical degree," thereby accusing plaintiff of being dishonest or at least of engaging in conduct incompatible with her employment. He also subjected her to ridicule and disgrace and damaged her reputation by stating that she had "poor feminine hygiene."
(citations and footnote omitted)

After examining the statements posted on the Yahoo! message board, the court found that the statements were not defamatory:

We likewise conclude that the language of Doe 6's posts, together with the surrounding circumstances -- including the recent public attention to SFBC's practices and the entire "SFCC" message-board discussion over a two-month period -- compels the conclusion that the statements of which plaintiff complains are not actionable. Rather, they fall into the category of crude, satirical hyperbole which, while reflecting the immaturity of the speaker, constitute protected opinion under the First Amendment.

As to plaintiff’s interference with contractual/business relationships claim, the appellate court held that this also failed:

As to Doe 6, it is clear from the pleading that the business tort alleged in the interference cause of action is based entirely on the "defamatory remarks" that were protected speech under the First Amendment. Casting the defamation claim in terms of interference with a business relationship does not save plaintiff's cause of action.

The appellate court concluded:

We thus conclude that Doe 6's online messages, while unquestionably offensive and demeaning to plaintiff, did not constitute assertions of actual fact and therefore were not actionable under Florida's defamation law. Because plaintiff stated no viable cause of action that overcame Doe 6's First Amendment right to speak anonymously, the subpoena to discover his identity should have been quashed. (fn. Omitted)

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Last week, the California Supreme Court held that it is not a violation of California law for an employer to terminate an employee who tests positive for marijuana, even though the employee was prescribed the marijuana for medical purposes under California’ Compassionate Use Act of 1996.

The conflict in Ross v. Ragingwire Telecommunications, Inc. was between California's Compassionate Use Act, (which gives a person who uses marijuana for medical purposes on a physician’s recommendation a defense to certain state criminal charges and permission to possess the drug) and Federal law (which prohibits the drug’s possession, even by medical users). The employer in this case terminated plaintiff’s employment based on a positive test for marijuana even through the plaintiff provided a doctor’s note explaining that he was prescribed marijuana to alleviate back pains. 

The Supreme Court explained that the employer's decision to terminate plaintiff was not illegal:

Nothing in the text or history of the Compassionate Use Act suggests the voters intended the measure to address the respective rights and duties of employers and employees. Under California law, an employer may require preemployment drug tests and take illegal drug use into consideration in making employment decisions. (Loder v. City of Glendale (1997) 14 Cal.4th 846, 882-883.)

Plaintiff’s position might have merit if the Compassionate Use Act gave marijuana the same status as any legal prescription drug. But the act’s effect is not so broad. No state law could completely legalize marijuana for medical purposes because the drug remains illegal under federal law (21 U.S.C. §§ 812, 844(a)), even for medical users (see Gonzales v. Raich, supra, 545 U.S. 1, 26-29; United States v. Oakland Cannabis Buyers’ Cooperative, supra, 532 U.S. 483, 491-495). Instead of attempting the impossible, as we shall explain, California’s voters merely exempted medical users and their primary caregivers from criminal liability under two specifically designated state statutes. Nothing in the text or history of the Compassionate Use Act suggests the voters intended the measure to address the respective rights and obligations of employers and employees.

The Court also provided that a reasonable accommodation, as required under California’s FEHA, does not include an employer’s permission to use illegal drugs:

The FEHA does not require employers to accommodate the use of illegal drugs. The point is perhaps too obvious to have generated appellate litigation, but we recognized it implicitly in Loder v. City of Glendale, supra, 14 Cal.4th 846 (Loder). Among the questions before us in Loder was whether an employer could require prospective employees to undergo testing for illegal drugs and alcohol, and whether the employer could have access to the test results, without violating California’s Confidentiality of Medical Information Act (Civ. Code, § 56 et seq.). We determined that an employer could lawfully do both. In reaching this conclusion, we relied on a regulation adopted under the authority of the FEHA (Cal. Code Regs., tit. 2, § 7294.0, subd. (d); see Gov. Code, § 12935, subd. (a)) that permits an employer to condition an offer of employment on the results of a medical examination. (Loder, at p. 865; see also id. at pp. 861-862.) We held that such an examination may include drug testing and, in so holding, necessarily recognized that employers may deny employment to persons who test positive for illegal drugs. The employer, we explained, was “seeking information that [was] relevant to its hiring decision and that it legitimately may ascertain.” (Id. at p. 883, fn. 15.) We determined the employer’s interest was legitimate “[i]n light of the well-documented problems that are associated with the abuse of drugs and alcohol by employees — increased absenteeism, diminished productivity, greater health costs, increased safety problems and potential liability to third parties, and more frequent turnover . . . .” (Id. at p. 882, fn. omitted.) We also noted that the plaintiff in that case had “cite[d] no authority indicating that an employer may not reject a job applicant if it lawfully discovers that the applicant currently is using illegal drugs or engaging in excessive consumption of alcohol.” (Id. at p. 883, fn. 15.) The employer’s legitimate concern about the use of illegal drugs also led us in Loder to reject the claim that preemployment drug testing violated job applicants’ state constitutional right to privacy. (Id. at pp. 887-898; see Cal. Const., art. I, § 1.)

(footnote omitted).

The Plaintiff also alleged a cause of action for wrongful termination in violation of public policy. Generally, at-will employees can terminate or be terminated from their job at any time, but an employer cannot terminate an employee for reasons that violate a fundamental public policy of the state. The Court rejected plaintiff’s position that there was a fundamental public policy that permitted him to use medical marijuana and be under its influence while at work. “Nothing in the [Compassionate Use Act’s] text or history indicates the voters intended to articulate any policy concerning marijuana in the employment context, let alone a fundamental public policy requiring employers to accommodate marijuana use by employees."

The opinion can be viewed at the Court’s website (WRD) (PDF).

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On January 15, 2008, the Court of Appeal in Puerto v. Superior Court (Wild Oats) [PDF] [Word], concluded that an opt-in notice established by the trial court as a process to obtain witnesses' residential contact information "unduly hampered" plaintiffs' in conducting discovery.

In October 2006, Plaintiffs filed suit against Wild Oats alleging they were misclassified as exempt employees, and are seeking recovery for overtime compensation, compensate for all hours worked, and unfair business practices.

Plaintiffs served written discovery on Wild Oats that included Form Interrogatory No. 12.1, which requested that Wild Oats: “State the name, ADDRESS, and telephone number of each individual: [¶] (a) who witnessed the INCIDENT or the events occurring immediately before or after the INCIDENT; [¶] (b) who made any statement at the scene of the INCIDENT; [¶] (c) who heard any statements made about the INCIDENT by any individual at the scene; and [¶] (d) who YOU OR ANYONE ACTING ON YOUR BEHALF claim has knowledge of the INCIDENT (except for expert witnesses covered by Code of Civil Procedure section 2034).”

Wild Oats disclosed between 2600 and 3000 names and positions in the responses to Interrogatory No. 12.1.  However, Wild Oats withheld the individuals’ residential telephone numbers and addresses, citing privacy rights on behalf of the individuals listed.

After plaintiffs brought a motion to compel disclosure of the individuals’ contact information, the trial court approved a process by which a third party administrator would send a letter to each of the individuals informing them of plaintiffs’ request for their contact information. The letter contained an opt-in provision that stated, “The court has ordered the parties to send this letter to you so that you may decide whether or not you wish to disclose this information to the Plaintiffs’ attorneys. If you consent to the disclosure of your contact information, please complete and return the enclosed postcard to the Third-Party-Administrator . . . .”

The Court of Appeal found that the trial court’s use of the opt-in procedure was an abuse of discretion that exceeded the protections necessary to safeguard the legitimate privacy interests in the addresses and telephone numbers of the witnesses. The Court of Appeal stated:

While the trial court here implicitly found that a serious invasion of privacy would result unless an opt-in notice was used, we believe that conclusion is unsupported by facts or law. Here, just as in Pioneer, the requested information, while personal, is not particularly sensitive, as it is merely contact information, not medical or financial details, political affiliations, sexual relationships, or personnel information. [citations] This is basic civil discovery. These individuals have been identified by Wild Oats as witnesses. Nothing could be more ordinary in discovery than finding out the location of identified witnesses so that they may be contacted and additional investigation performed. [citation] As the Supreme Court pointed out in Pioneer, the information sought by the petitioners here—the location of witnesses—is generally discoverable, and it is neither unduly personal nor overly intrusive. [citation] In some respects, the potential intrusion here is even less significant than that in Pioneer, because here the requested disclosure does not involve individuals’ identities, which had already been disclosed by Wild Oats prior to the filing of the motion to compel. There simply is no evidence that disclosure of the contact information for these already-identified witnesses is a transgression of the witnesses’ privacy that is “sufficiently serious in [its] nature, scope, and actual or potential impact to constitute an egregious breach of the social norms underlying the privacy right.” [citation]

It is important to note that the court also recognized that the employer has a duty to protect employee’s contact information and “[s]hould any individual identified as a witness later feel that there has been an unnecessary invasion of his or her privacy, this will become an issue between the employee and [the employer], not the employee and [plaintiffs].”

The Court of Appeal did, however, still leaves open alternative discovery avenues to limit public disclosure of employee contact information:

This is not to say that the trial court was without the ability to enter a protective order limiting the dissemination of the witnesses’ contact information: Certainly the trial court may require that the information be kept confidential by the petitioners and not be disclosed except to their agents as needed in the course of investigating and pursuing the litigation. Moreover, should the trial court find that the record evidences discovery abuse warranting a protective order as to the manner and means of contacting witnesses, the trial court always retains the discretion to impose such an order.

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Apart from being an informative warning about some tactics used by car dealerships to increase the price paid by consumers by using “legs” or “payment packing” techniques, the court’s opinion in Casella v. Southwest Dealer Services, Inc. also analyzed when parties may recover their attorney fees in litigation.

As a general rule, in the United States each party bears the costs their own attorney’s fees. However, this general rule can be modified if a statute allows for prevailing parties to recover attorney’s fees or by a contractual agreement by the parties.

In Casella v. Southwest Dealer Services, the following attorney fee provision was at issue:

If any legal action arises under this Agreement or by reason of any asserted breach of it, the prevailing party shall be entitled to recover all costs and expenses, including reasonable attorney’s fees, incurred in enforcing or attempting to enforce any of the terms, covenants or conditions, including costs incurred prior to commencement of legal action, and all costs and expenses, including reasonable attorney’s fees, incurred in any appeal from an action brought to enforce any of the terms, covenants or conditions.

Casella’s lawsuit was based on tort claims for wrongful termination in violation of public policy, fraud, and violation of Labor Code section 970. He did not allege a breach of the employment contract. The court interpreted the attorney’s fee provision as being very narrow:

In this case, the attorney fees provision starts out broadly, using the phrase “[i]f any legal action arises under this Agreement”…. [And then] the provision then narrows in scope, limiting the recovery of reasonable attorney fees to those “incurred in enforcing or attempting to enforce any of the terms, covenants or conditions,” including reasonable attorney fees “incurred in any appeal from an action brought to enforce any of the terms, covenants or conditions.”

Therefore, the court held that “[s]uch tort claims do not seek to enforce the employment agreement. Section 1717, subdivision (a) of the Civil Code “makes clear that a tort claim does not ‘enforce’ a contract. That statute expressly refers to, and therefore governs, ‘attorney’s fees . . . which are incurred to enforce th[e] contract.’ Because section 1717 does not encompass tort claims [citations], it follows that tort claims do not ‘enforce’ a contract.” (citing Exxess Electronixx, 64 Cal.App.4th at p. 709.) Because the employment contact did not provide for recovery of attorney’s fees for tort claims, plaintiff’s claim for attorney’s fees failed.

However, the plaintiff was awarded $12,500, a small portion of his attorney’s fee claim. This was due to the fact that after plaintiff filed the lawsuit, the defendant brought a Cross-Complaint against the plaintiff for breach of contract under the employment agreement. The defendant eventually withdrew this claim prior to trial, which made plaintiff the prevailing party on the claim.  Therefore, the court awarded plaintiff the pro-rata costs he incurred in defending this the breach of contract claim.

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In Kakani v. Oracle, 2007 WL 1793774 (N.D.Cal. 2007), Judge Alsop of the Northern District of California denied approval of a proposed class settlement agreement. In doing so, he cast doubt on so-called “claims made” or “reversionary” settlement agreements that are commonly used to settle wage and hour class actions.

Class action settlement agreements must be reviewed and approved by the court to ensure that the settlement is “fair and reasonable” to the absent class members. In recent years class action settlements typically provide a release of all class claims and also set forth a maximum amount that may be recovered by the class. All class members are given notice by mail of the settlement terms. However, for any individual class member to claim his or her portion of the settlement he or she must complete and return a written claim form. Any portion of the settlement which is not claimed in this fashion will “revert” back to the employer. Significantly the fees awarded to class counsel under such agreements are generally calculated based on a percentage (usually about 25%) of the gross settlement amount, before any reversion to the employer.
In Oracle, Judge Alsop held that this settlement model was inherently unfair to the many class members that inevitably fail to file claim forms and thereby receive no consideration for the release of their legal claims. The Court further held that such agreements were likely to over-compensate class counsel by basing their fees on settlement amounts that may ultimately go unclaimed by the class.

While Oracle is merely a district court decision, and is not binding on other trial courts, Judge Alsop’s analysis has already had a tremendous influence on both federal and state courts throughout California. In the future, class settlements are much more likely to be “non-reversionary” – i.e., the entire settlement amount must be distributed to class members and may not revert to the employer.

By altering the economic incentives of the various participants, this change will have a profound and far reaching effect on class action litigation in California. This shift will likely create an unusual alignment of winners and losers:

The Losers: Class Counsel and Employers.
Employers are economic “losers” under the emerging Oracle settlement model because they will be unable to retain the unclaimed portion of the settlement amount, which often amounts to 30-50% of the total settlement. Moreover, in return for this higher price of settlement, employers are also likely to receive a less expansive release of liability.
Class counsel are also “losers” because they must base their court-approved contingency fee on the amount actually recovered, rather than the amount theoretically available to the class. To justify their fee class counsel will thus feel compelled to hold out for more money, work up the case more extensively, and settle later in the action.

The Winners: Defense Counsel and Absent Class Members.
Class action defense counsel will likely receive more work in the aftermath of Oracle, because class actions are likely to be litigated longer prior to settlement, thereby generating higher hourly fees.

Absent class members will likely receive more money on average in any particular class settlement, as post-Oracle settlements will allow them to receive compensation regardless whether they submit valid timely claim forms.

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The California Supreme Court granted review of Harris v. Superior Court.  As previously posted about here, the only legal issue reviewed by the lower appellate court was the proper construction and application of the single phrase limiting exempt administrative duties to those that are “directly related to management policies or general business operations.”  The lower court dealt a serious blow to the viability of the administrative exemption for all employers in California and the Supreme Court may have granted review in order to give at least some life back to the administrative exemption.

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You may have read some of our posts (here for example) about the EEOC’s recent losses and/or dressing downs by the courts. Well, the hits keep on coming, and now it is the U.S. Supreme Court chastising the EEOC for the way it conducts business. 

Ross Runkel at the Employment Law Blog notes that while the issue in front of the Supreme Court in Federal Express v. Holowecki was a simple one, the oral arguments “turned into a judicial pile-on, seeing which Justice could be the most critical of the way the EEOC does business.”

Ross further commented:

I'll give the award to Justice Scalia. When the government's lawyer stood up to talk, the lawyer didn't get past his formal introduction before Justice Scalia jumped on him.

"JUSTICE SCALIA: Mr. Heytens, let me tell you going in that my -- my main concern in this case, however the decision comes out, is to do something that will require the EEOC to get its act in order, because this is nonsense: These regulations that are contradicted by forms; this failure to give notice, but it's okay because it's a charge anyway.

"This whole situation can be traceable back to the agency, and I -- whoever ends up bearing the burden of it, it's the agency's fault, and this scheme has to be revised."

Hopefully the U.S. Supreme Court’s comments knock some sense back into the agency – but we are not holding our breaths.

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In Gattuso v. Harte-Hanks, the California Supreme Court shed some light on the relatively unexamined issue by the courts of expense reimbursement. At issue in the case was whether Harte-Hanks could reimburse its outside sales force for mileage by paying a higher “lump sum” in the form of wages and/or commissions, as opposed to paying a specified sum for each mile driven. The Supreme Court ultimately held that employers may reimburse employees under the lump sum method, but also provided an excellent examination of:

• Employer's obligations under alternative methods of reimbursing employees for expenses,
  
• Who bears the burden of proof when challenging the reimbursement amount (short answer: the employee - as explained below),
  
• Whether employers and employees can independently negotiate an expense reimbursement amount (short answer: yes, and this amount does not have to be the IRS mileage rate), and
  
• What a court needs to consider in determining whether expenses incurred by the employee were “reasonable” and, therefore, reimbursable (short answer: this is a individualized analysis for each employee).
  

1.      Reimbursement Method One: Actual Expense Method

The Court first examined the actual expense method that employers can utilized in reimbursing employees for business costs. The Court held that the actual expense method is the most accurate, but it is also the most burdensome for both the employer and the employee. The actual expenses of using an employee’s personal automobile for business purposes include: fuel, maintenance, repairs, insurance, registration, and depreciation. 

To calculate the reimbursement amount using the actual expense method the employee must keep detailed and accurate records of amounts spent in each of these categories. Calculation of depreciation will require information about the automobile’s purchase price and resale value (or lease costs). In addition, the employee must keep records of the information needed to apportion those expenses between business and personal use. This is generally done by recording the miles driven for business and personal use.  Then the employee submits this information for the employer to calculate the reimbursement due. 

2.      Method Two: Mileage Reimbursement Method

The Court recognized that employers may simplify calculating the amount owed to an employee by paying an amount based on a “total mileage driven."  The Court recognized that the mileage rate agreed to between the employer and employee is “merely an approximation of actual expenses” and is less accurate than the actual expense method. Therefore, the employee may challenge the amount of reimbursement. However, if the employee challenges the amount reimbursed, the employee bears the burden to show how the “amount that the employer has paid is less than the actual expenses that the employee has necessarily incurred for work-required automobile use (as calculated using the actual expense method), the employer must make up the difference.” 

Therefore, the employee must prove his case by producing the records of: fuel, maintenance, repairs, and depreciation, among other items as discussed above under the actual expense method. This analysis involves what the employee actually spends, and whether the expenses were “reasonable." This is a very difficult hurdle to overcome as the records required to meet the burden of proof under Gattuso need to be very detailed. In addition, the Court all but said that in determining what is “reasonable” requires an individualized review by the judge, which supports the argument that these types of cases are not appropriate for class-wide treatment.

The Court also held that the reimbursement rate can be negotiated by parties as long as it fully reimburses the employee, and the amount does not have to be set at the IRS mileage rate, which is contrary to the DLSE’s opinion (I guess depending on which opinion letter you read). The Court stated:

We agree that, as with other terms and conditions of employment, a mileage rate for automobile expense reimbursement may be a subject of negotiation and agreement between employer and employee. Under section 2804, however, any agreement made by the employee is null and void insofar as it waives the employee’s rights to full expense reimbursement under section 2802. 

3.      Method Three: Lump Sum Payment

Under this method, the employee need not submit any information to the employer about work-required miles driven or automobile expenses incurred. The employer merely pays a fixed amount for automobile expense reimbursement. The Court stated that these type of lump sum payments are often labeled per diems, car allowances, and gas stipends. 

In permitting lump sum expense reimbursement payments, the Court held:

We agree with Harte-Hanks, and also with the trial court and the Court of Appeal, that section 2802 does not prohibit an employer’s use of a lump-sum method to reimburse employees for work-required automobile expenses, provided that the amount paid is sufficient to provide full reimbursement for actual expenses necessarily incurred. 

The Court made it clear that employers paying a lump sum amount, however, have the extra burden to separately identify the amounts that represent payment for labor performed and the amounts that represent reimbursement for business expenses.

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The California Supreme Court announced today that it will be issuing a decision on November 5 at 10:00 a.m. in the closely watched mileage reimbursement case.  The Supreme Court issued the following notice:

GATTUSO (FRANK) v. HARTE-HANKS SHOPPERS, INC.
S139555 (B172647; Los Angeles County Superior Court – BC247419)
Argued in San Francisco 9-06-07

This case includes the following issue: May an employer comply with its duty under Labor Code section 2802 to indemnify its employees for expenses they necessarily incur in the discharge of their duties by paying the employees increased wages or commissions instead of reimbursing them for their actual expenses?

Opinion(s) in the above case(s) will be filed on:

Thursday, November 5, 2007 at 10:00 a.m.

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The Fourth Appellate District today issued its much-anticipated decision in Brinker Restaurant v. Superior Court (Hohnbaum). The case had come to the appellate court via a grant of writ review following the trial court’s certification of a class of approximately 60,000 employees who were seeking compensation for “missed” meal and rest breaks.

Meal Periods
The big issue in Brinker was how to interpret the word “provide” when construing Labor Code section 512’s directive to “provide” a 30-minute meal period to employees. Does an employer meet its obligation by simply allowing its employees to take the statutory meal period if they wish to? Or must the employer effectively “force” its workers to take the unpaid break and be strictly liable for penalties if they refuse? Or is there perhaps some middle ground between a completely optional meal period and one that is completely mandatory?

For those who wanted a definitive resolution, Brinker was definitely a disappointment. First, the decision is unpublished, and hence un-citable as precedent. Second, the appellate court ducked the main issue and sent the case back to the trial court with directions to make a determination of its own regarding the scope of the duty. (The trial court had also ducked the issue by certifying the class without deciding exactly what elements the plaintiffs would have to prove).

Rest Breaks
The Brinker opinion does, however, contain a useful discussion of the separate statutory duty to “authorize and permit” rest breaks, which all parties agreed are generally waivable by employees. The court first disposed of some rather strained statutory interpretations by the plaintiffs as to when rest breaks must be provided during a shift. The Court then determined that – given that rest periods are waivable – it was necessarily an abuse of discretion for the trial court to have certified a rest period class. As the Court explained:

[B]ecause (as the parties acknowledge) Brinker’s hourly employees may waive their rest breaks, and thus Brinker is not obligated to ensure that that its employees take those breaks, any showing on a class basis that plaintiffs or other members of the proposed class missed rest breaks or took shortened rest breaks would not necessarily establish, without further individualized proof, that Brinker violated the provisions of [Labor Code] section 226.7, subdivision (a) and IWC Wage Order No. 5 as plaintiffs allege in the complaint.

The interesting part of this holding is that it reversed certification despite recognizing that the trial court’s decision is entitled to “great deference on appeal.”

This aspect of the ruling also illustrates why the stakes are so high in construing the duty to “provide” meal periods. If the duty is only to provide an optional, waivable meal break it would follow that the same result should apply – and meal period claims would likewise be un-certifiable as a matter of law in most cases.

Petitions to publish the opinion will presumably be filed shortly and we’ll post again if there is any change in the opinion’s current status as non-citable authority.

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Appellate arguments were made recently in the case Brinker v. Superior Court (Hohnbaum). One issue that is being closely watched by all wage and hour attorneys raised in the appeal is whether the term “provide” in Labor Code § 512 requires employers to force employees to take meal breaks or whether employers only need to offer meal breaks to employees (similar to the "authorize and permit" requirement for rest breaks).

California Labor Code § 512(a) states:

An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee. An employer may not employ an employee for a work period of more than 10 hours per day without providing the employee with a second meal period of not less than 30 minutes, except that if the total hours worked is no more than 12 hours, the second meal period may be waived by mutual consent of the employer and the employee only if the first meal period was not waived.

This distinction argued in Brinker is critical in meal and rest break class actions. If the appellate court holds that Labor Code § 512 imputes a requirement on employers to force employees to take their meal and rest breaks, plaintiffs will have an easier argument that meal and rest break cases are subject to class certification. On the other hand, if the court holds that employers only need to make meal breaks available for employees, then class certification would be much harder to achieve because the court would have to make an individual inquiry into whether each employee could have taken a meal break and voluntarily waived it, or if the employee was forced to forego the break.

Courts that have reviewed this issue have reached differing conclusions about the meaning of the term “provide” in § 512. One court, in Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, held that “employers have ‘an affirmative obligation to ensure that workers are actually relieved of all duty.’” Id. at 962 - 963 (citing Dept. of Industrial Relations, DLSE, Opinion Letter 2002.01.28, p. 1.). However, another California federal district court held employers are only required to offer meal breaks. White v. Starbucks, Corp., (N. D. Cal. July 2, 2007) 497 F.Supp.2d 1080, 2007 WL 1952975. The court refused to follow the DLSE opinion letter relied upon in Cicairos, and stated:

In the absence of controlling California Supreme Court precedent, the court is Erie-bound to apply the law as it believes that court would do under the circumstances. See Wyler Summit Partnership v. Turner Broadcasting System, Inc., 135 F.3d 658, 663 (9th Cir.1998). The interpretation that White advances-making employers ensurers of meal breaks-would be impossible to implement for significant sectors of the mercantile industry (and other industries) in which large employers may have hundreds or thousands of employees working multiple shifts. Accordingly, the court concludes that the California Supreme Court, if faced with this issue, would require only that an employer offer meal breaks, without forcing employers actively to ensure that workers are taking these breaks. In short, the employee must show that he was forced to forego his meal breaks as opposed to merely showing that he did not take them regardless of the reason.

The California Labor & Employment Defense Blog will post about the appellate court’s ruling in Brinker v. Superior Court once it is issued.

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The Supreme Court's opinion in Gentry v. Superior Court (which can be read here) was issued this morning.

Based on a very quick review of the opinion, it appears that the Court has pushed the issue back to the trial courts and provides instruction to the trial courts to make the determination regarding the enforceability of class action waivers based on a number of factors.  The Court states:

Nonetheless, when it is alleged that an employer has systematically denied proper overtime pay to a class of employees and a class action is requested notwithstanding an arbitration agreement that contains a class arbitration waiver, the trial court must consider the factors discussed above: 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.” (Little, supra, 29 Cal.4th at p. 1077.) The kind of inquiry a trial court must make is similar to the one it already makes to determine whether class actions are appropriate. “[T]rial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action . . . .” (Linder v. Thrifty Oil, Co., supra, 23 Cal.4th at p. 435.) Class arbitration must still also meet the “community of interest” requirement for all class actions, consisting of three factors:  “(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.” (Sav-On Drug Stores, supra, 34 Cal.4th at p. 326.)

We will definitely post more analysis on the ruling once we have some time to digest the opinion further.

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The California Supreme Court will be issuing its opinion in Gentry v. Superior Court this morning.  This case is a landmark labor and employment case deciding if an arbitration agreement entered into between an employer and an employee is enforceable when the employee agrees not to participate in class action lawsuits brought against the employer. 

We attended the oral arguments before the Supreme Court back in June, and our thoughts on the arguments can be read here.  While we have our normal workload today, we will try to have at least some analysis posted today, and if time permits possibly a podcast discussing the case posted by Monday. 

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The California Supreme Court ruled in employers' favor this week by holding that an employee alleging disability discrimination has the burden of proof to show that he or she can perform the essential functions of the job with or without reasonable accommodation. The case, Green v. State of California, clarified that it is the employee who must make this showing in order to prove disability discrimination and that the employer does not have to affirmatively prove that the plaintiff was unqualified in order to avoid liability. 

The Court stated:

[W]e disagree with the statement of defendant’s burden of proof adopted by the Court of Appeal and advocated by plaintiff here. Instead, we conclude that the Legislature has placed the burden on a plaintiff to show that he or she is a qualified individual under the FEHA (i.e., that he or she can perform the essential functions of the job with or without reasonable accommodation). As explained further below, legislative intent, case law, and legislative history support defendant’s position—a view that also finds support in Evidence Code section 500, which requires a plaintiff to prove each fact essential to the claim for relief he or she is asserting.

However, employers should still approach this subject very carefully. For example, an employer is required to explore with the employee all possible means of reasonably accommodating a person prior to rejecting the person for a job or making any employment related decision.  The accommodation may arise from a mitigating measure, such as medication taken for the primary disability.  An accommodation is reasonable if it does not impose an undue hardship on the employer’s business.  Reasonable accommodation can include, but is not limited to, changing job duties or work hours, providing leave, relocating the work area, and/or providing mechanical or electrical aids.  

Human resource professionals, in-house counsel and/or business owners in California should take a few minutes to review the DFEH’s website for an employer's general obligations in regards to disabled employees, particularly the following helpful documents:

• Disability Under the Fair Employment & Housing Act: What you should know about the law. 

[This is a good resource to refresh the basic requirements of California law, including, what is required by the interactive process, what constitutes an undue hardship and what questions may be asked of an applicant or employee about his or her ability to perform the job.]

• Employment Discrimination Based on Disability  

[This is a brief two page pamphlet published by the DFEH summarizing the law.]

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The recent Harris v. Superior Court opinion dealt with that most-litigated species of employee – the California claims adjuster. And the only legal issue on appeal was the proper construction and application of the single phrase limiting exempt administrative duties to those that are “directly related to management policies or general business operations.” Nevertheless, the case deals a serious blow to the viability of the administrative exemption for all employers in California. 

The Court began its analysis by surveying the exemption language of the California Wage Orders, federal regulations under the Fair Labor Standards Act and the substantial body of state and federal case law. I won’t retrace the tortuous semantic analysis that follows. Suffice it to say, however, that the majority concluded that the so-called “administrative/production” dichotomy is the correct test to apply. 

Many of the federal courts that originally developed and applied the “dichotomy” terminology considered it to be as a mere guidepost or analytical tool. But Harris elevates the distinction to the status of a legal litmus test for determining who may be exempt. At the same time it elevated the status of the “dichotomy” test, it also made the test far more restrictive. Indeed, according to the majority’s vision of the workplace, the vast majority of white collar employees will always qualify only as mere “production” workers because they inevitably spend their time on “day-to-day” business rather than determining how the business should operate “at the level of management policy or general operations.” 

As applied to the adjusters at issue in the case, the Court held that they could not be exempt because the work they did, although clearly sophisticated and important, was deemed to be a frequent part of the employer’s core business.

The undisputed facts show that plaintiffs are primarily engaged in work that falls on the production side of the dichotomy, namely, the day-to-day tasks involved in adjusting individual claims. They investigate and estimate claims, make coverage determinations, set reserves, negotiate settlements, make settlement recommendations for claims beyond their settlement authority, identify potential fraud, and so forth. None of that work is carried on at the level of management policy or general operations. Rather, it is all part of the day-to-day operation of defendants' business.

Moreover, the Court also took pains to emphasize that the test should not depend on the nature of the employer’s business but rather on the level at which the employee operates.

[T]he phrase “ administrative/production worker dichotomy” is misleading. Properly understood, the dichotomy is not between workers engaged in “ production” (e.g., factory workers) and workers engaged in “ administration”  (e.g., office workers). Rather, it is between office or nonmanual work that is at the level of policy or general operations and office or nonmanual work that is not. Thus, any office or nonmanual work that is not at the level of policy or general operations constitutes production work for purposes of the dichotomy, regardless of how loosely or intimately the work is connected with producing the employer's product.

The Harris decision thus represents a severe restriction on the use of the administrative exemption in California. Moreover, employers must remember that the “administrative/production worker dichotomy” discussed in Harris is merely one of the elements that must be satisfied. For example, it is also the employer’s burden to establish that the employee “customarily and regularly exercises discretion and independent judgment” and performs under only “general supervision.” 

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The California Supreme Court announced today that it will hear oral arguments in GATTUSO v. HARTE HANKS SHOPPERS, (Case No. S139555) on Thursday, September 6, 2007, at 9:00 a.m., in San Francisco. 

As according to the California Supreme Court, the issue in the case is whether "an employer complies with its duty under Labor Code section 2802 to indemnify its employees for expenses they necessarily incur in the discharge of their duties by paying the employees increased wages or commissions instead of reimbursing them for their actual expenses."

In simpler terms, the case will address whether employers can agree to pay employees a higher rate of pay in order to compensate employees for business expenses they incur during their job, as opposed to reimbursing the employee for each expense as it occurs.  We have seen a large increase in wage and hour cases alleging violation of Labor Code Section 2802, and hopefully the Supreme Court will provide some guidance for California employers on this issue. 

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Any company that has had to defend a case against the EEOC knows of the special aggravation associated with litigation against the Federal Government. Unlike private litigants, who are motivated primarily by money, the EEOC often pursues political, ideological or bureaucratic agendas that can seem downright baffling to private sector lawyers. For example, the EEOC will often pursue claims that the supposed “victim” does not even wish to pursue – the EEOC lost a case recently against Universal where the individual on behalf who the EEOC was litigating the case settled out of court privately, but the EEOC still litigated the case.  Read more about the EEOC's loss here. 

Furthermore, as noted recently by Judge Frederick J. Martone of the Federal District Court of Arizona (who had distinguished career on Arizona’s Supreme Court prior to being appointed to Federal Court) in E.E.O.C. v. Serrano's Mexican Restaurants, LLC, that the EEOC should not utilize press releases as a litigation tool – a common practice by the EEOC. Judge Martone stated:

Our denial of the defendant’s motion is not an expression of our view on the underlying merits or the propriety of the EEOC in using press releases as part of its approach to litigation. Lawyers have a professional obligation to avoid extrajudicial statements that may prejudice a proceeding, see ER 3.6, and an obligation to be truthful in statements to others, see ER 4.1. LRCiv 83.2(d). There is a big difference between promoting the public’s right to know through keeping proceedings public, on the one hand, see Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122 (9th Cir. 2003), and affirmatively issuing press releases, on the other. The United States, and its employees, have a special duty not to injure the reputations of its citizens. Nor should it use press releases as a bargaining tool in litigation.

Judge Martone’s comments are refreshing for employers and individuals who have had to litigate cases against the EEOC and to provide some good language for parties disputing the EEOC’s usual practice of issuing press releases upon settling a case. Hopefully many more judges in the Ninth Circuit follow Judge Martone’s example. 

[Hat tip to Jottings By An Employment Lawyer.]

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Diane Pfadenhauer at Strategic HR Lawyer has an excellent post about the recent Sixth Circuit case Thomas v. Miller. The court in Thomas held that even though an employer may have less than 20 employees, it may be subject to COBRA requirements if the employer has used “conduct or language amounting to a representation” that an employee is entitled to COBRA benefits. Diane reminds employers to carefully draft their policies to ensure that the policy does not apply to employee who may otherwise be exempt from the law at issue.

I see this occur often in regards to California specific laws. For example, California Labor Code section 230 provides certain protections to victims of domestic violence or sexual assault. Employers cannot discriminate against employees who must take time off to seek a temporary restraining order or other injunctive relief to ensure the health or safety of the employee and/or his or her child. If an employer has 25 or more employees, however, the employer is prohibited from discharging, discriminating, or retaliating against an employee who is a victim of domestic violence or sexual assault and who takes time off to seek medical attention and a list of other services. Often times small employers assume this second requirement pertains to them and incorporate it into their policies without noticing that they are not covered by this law.

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We attended the oral arguments yesterday in Gentry v. Superior Court.  Kimberly Kralowec, the author of the UCL Practitioner was kind enough to post our initial analysis on the oral arguments in Gentry v. Superior Court. 

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At issue in the case of Ledbetter v. Goodyear Tire & Rubber, was whether Ledbetter had filed her employment discrimination case (alleging she was paid less than male coworkers) with the EEOC within 180 days "after the alleged unlawful employment practice occurred” as required by Federal law. The Court, in a 5-4 ruling held that Ledbetter had not filed the complaint with the EEOC in a timely manner, therefore barring her claim. 

As Orin Kerr notes at the Volokh Conspiracy, “Ledbetter worked for Goodyear for about ten years, and after she retired in 1998 she sued Goodyear for giving her low raises on account of her gender throughout the term of her employment. Goodyear responded that under federal law she could only sue for any discrimination within the last 180 days, and that no discrimination occurred within the 180-day window.” 

Ledbetter argued that the Court should apply a type of continuing violations doctrine to her situation. Under such a theory, Ledbetter argued that the first discriminatory act (receiving a lower than deserved raise because of her gender) continued with each additional pay raise because pay raises are cumulative over time. Therefore, she alleged that even though she had no evidence that her pay raises during the applicable 180 day time period to file a suit were discriminatory, the original discrimination continued into this time period.  

The Court disagreed with Ledbetter’s argument and held that employees must bring a claim within 180 days of the actual discriminatory act, which in this case was the actual discriminatory pay raise. The dissenting Justices argued that often times employees do not know other employees pay rates, and employees discriminated against may not discover this information until well after the discrimination, therefore it would be unfair to apply the strict 180 day filing period to these types of cases.

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The California Supreme Court is scheduled to hear oral arguments in two cases that will have large ramifications for California employers. 

On Tuesday, June 5, 2007 the Supreme Court will hear oral arguments in GENTRY v. SUPERIOR COURT (CIRCUIT CITY STORES).

The issue being heard by the Court in Gentry is:

This case presents issues regarding the enforceability of an arbitration provision that prohibits employee class actions in litigation concerning alleged violations of California's wage and hour laws.

On Wednesday, June 6, 2007, the Supreme Court will hear oral arguments in PRACHASAISORADEJ v. RALPHS GROCERY. The issue being heard by the Court in Ralph’s is:

Does an employee bonus plan based on a profit figure that is reduced by a store's expenses, including the cost of workers compensation insurance and cash and inventory losses, violate (a) Business and Professions Code section 17200, (b) Labor Code sections 221, 400 through 410, or 3751, or (c) California Code of Regulations, title 8, section 11070?

The Supreme Court will have a written opinion within 90 days after the oral arguments. I plan on attending the oral arguments for Gentry, and will provide more analysis about the cases within the next few weeks leading up to and immediately after the oral arguments. 

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The U. S. Department of Labor’s Wage and Hour Division website provides a self assessment tool for restaurants that employ minors. The assessment covers common violations of the Fair Labor Standards Act (FLSA ). Restaurant owners should note that this assessment does not cover California state law items. The assessment covers items that the DOL found in the past to be some of the most common problems encountered in restaurants, and therefore, are likely issues a DOL investigator will look for in a restaurant.

Here is a list of a few of the items covered in the assessment:

Do any workers under 18 years of age do the following:
1. Operate or clean power-driven meat slicers or other meat processing machines?

2. Operate or clean any power-driven dough mixer or other bakery machines?

3. Operate, load, or unload scrap papers baler or paper box compactors?

4. Drive a motor-vehicle on the job?

Do any workers under 16 years of age do the following:
5. Cook?

6. Bake?

7. Clean cooking equipment or handle hot oil or grease?

8. Load or unload goods from a truck or conveyor?

9. Work inside a freezer or meat cooler?

10. Operate power-driven bread slicers or bagel slicers?

11. Operate any power-driven equipment?

12. Work from ladders?

13. Work during school hours?

14. Work before 7:00 a.m. on any day?

15. Work past 7:00 p.m. between Labor Day and June 1?

16. Work past 9:00 p.m. between June 1 and Labor Day?

17. Work more than 3 hours on a school day, including Fridays?

18. Work more than 8 hours on any day?

19. Work more than 18 hours in any week when school was in session?

20. Work more than 40 hours in any week when school was not in session?

21. Do you employ any workers who are less than 14 years of age?

22. Do you fail to maintain in your records a date of birth for every employee under 19 years of age?

Click here to take the entire assessment. At the end of the assessment, there is a rules summary that explains an employer’s responsibility under the FLSA for the issues on the assessment.

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