Federal Regulatory and Agency Update

Department of Labor Investigation Leads to Almost $6M In Unpaid Overtime and Damages

On August 5, 2014, the Department of Labor announced that as a result of its investigation, LinkedIn Corp. paid $3,346,195 in overtime back wages and $2,509,646 in liquidated damages to 359 former and current employees working at company branches in California, Illinois, Nebraska and New York. The investigation by the U.S. Department of Labor's Wage and Hour Division found that LinkedIn was in violation of the overtime and record-keeping provisions of the Fair Labor Standards Act, including employees working “off the clock” hours.   Pursuant to the investigation LinkedIn entered into an enhanced compliance agreement with the department that includes compliance training, policy distribution and education, prohibiting off-the-clock work to all nonexempt employees and their managers, manager training, and continuing to educate its employees that there would be no retaliation for complaints by employees. 

EEOC and Ministry of Foreign Affairs of the United Mexican States Sign MOU Regarding Rights in Employment

On August 29, 2014 the EEOC signed a national Memorandum of Understanding with the Ministry of Foreign Affairs of the United Mexican States designed to “further strengthen their collaborative efforts to provide immigrant, migrant and otherwise vulnerable Mexican workers and their employers with guidance and information and access to education relative to their rights and responsibilities under the laws enforced by the EEOC.”

Federal Case Update

Officer’s ADHD Not Sufficiently Limiting to Constitute Disability Under ADA

An employee worked for many years as a police officer for the employer.  The employee’s supervisors felt the employee was a good officer, and he received favorable performance reviews and a promotion to sergeant despite concerns about his interpersonal style and ability to get along with others.  Although his supervisors considered him a good officer, the employee had significant difficulties getting along with his co-workers.  Co-workers and subordinates described him as (among other things) “tyrannical,” “belittling,” “demeaning,” “threatening,” “arrogant,” and “vindictive.”  The employee was eventually fired for his unacceptable behavior toward co-workers and subordinates. The employee argued that his ADHD was a disability that interfered with the major life activities of working and interacting with others.

The Ninth Circuit Court of Appeals reviewed and reversed the trial court’s denial of the employer’s motion for summary judgment.  The court rejected the employee’s argument that his ADHD interfered with the major life activity of working, noting that he was reasonably successful as an officer and had developed coping mechanisms for his ADHD that allowed him to have a relatively successful career as an officer, including his promotion to sergeant.   The court also rejected the employee’s argument that his ADHD interfered with the major life activity of interacting with others.  The court noted that although “interacting with others” is a major life activity, and people suffer from conditions like agoraphobia or severe anxiety or OCD disorders that prevent those people from living a normal life, and essentially leave them housebound.  The court found that in this instance, employee had a problem getting along with others, not interacting with others, essentially noting that simply being very disagreeable or unlikeable is not a disabling condition under the ADA.  The court also observed that employee was able to behave appropriately with his superiors and members of the community while performing his job, and his interpersonal problems existed almost exclusively with co-workers and subordinates.  According to the court, the selective nature of the exhibition of his symptoms pointed to employee simply being unlikeable, not disabled.

(Weaving v. City of Hillsboro (9th Cir. 2014) 763 F.3d 1106.)

Ninth Circuit Holds Alleged Retaliatory Actions Must Be Viewed in Context

Employee was a Dispatch Supervisor for the County of Riverside and an active member of the local union. The employee claimed the employer (County) retaliated against her for making comments about the status of the collective bargaining negotiations that were protected by the First Amendment. The employee was not terminated but offered thirty other instances of alleged retaliation, including, transferring her involuntarily, conducting internal investigations of her, removing her from a higher-paid community college teaching assignment, prohibiting her from using break time to travel between work sites thereby requiring her to use unpaid time for work travel, rescinding a previously approved vacation, and removing her from an unpaid position with the uniform committee.

The district court granted summary judgment for the employer finding the employee had failed to meet her burden. While the district court analyzed the employee’s claims regarding involuntary transfers and internal investigations, it dismissed the remaining incidents finding them to be “petty workplace gripes” that could not be considered retaliatory adverse employment actions.

The ninth circuit disagreed with the district court’s approach, emphasizing that alleged retaliatory actions, even seemingly innocuous ones, must be viewed in context. The court explained the evidenced suggested “some of these actions were taken as part of a more general campaign and hence might in context have greater materiality than when viewed in isolation.”

While this was a First Amendment retaliation case which focused on whether the alleged retaliatory actions were reasonably likely to deter an employee from engaging in protected speech, the court’s reasoning could be used in other retaliation cases such as those brought under Title VII.  Notably, California courts have previously applied similar reasoning to FEHA cases.

(Thomas v. County of Riverside (9th Cir. 2014) 763 F.3d 1167.)

Ninth Circuit Finds FedEx Delivery Drivers to Be Employees Under California’s Right to Control Test

In a certified class action, FedEx drivers claimed they were improperly classified as independent contractors and sought damages for unpaid wages, reimbursement for business expenses and associated penalties. The district court entered summary judgment in favor of FedEx, finding FedEx properly considered them to be independent contractors in light of the entrepreneurial opportunities afforded by the arrangement, i.e. the ability to own and operate businesses and profit accordingly.

The ninth circuit reversed summary judgment in favor of FedEx and ordered the district court to enter summary judgment in favor of the certified class finding they were employees as a matter of law under California’s right-to-control test. The ninth circuit held FedEx unambiguously controls the manner and means by which the drivers complete their jobs. For example, FedEx controlled the appearance of the drivers and their vehicles, the times the drivers could work and how and when packages are delivered. The court also rejected FedEx’s argument it provided the drivers with “entrepreneurial opportunities” by giving them the ability to operate multiple routes and hire employees because this could only be done with FedEx’s consent.

(Alexander, et al. v. FedEx Ground Package System, Inc. (9th Cir. 2014) — F.3d —, 2014 U.S. App. LEXIS 16585.)

California Case Update

Health Care Worker Claiming Retaliation under Health and Safety Code section 1278.5 Entitled to a Jury Trial

A health care employee filed a lawsuit against her former employer claiming it wrongfully terminated her employment in violation of public policy and retaliated against her in violation of Health and Safety Code section 1278.5.  With respect to her second cause of action under Health and Safety Code section 1278.5, the employee sought compensatory, emotional distress and punitive damages along with attorney fees, statutory civil penalties and costs.  The employee did not seek reinstatement.

At the eve of trial, the trial court permitted a jury trial for the employee’s wrongful termination claim but denied a jury trial on her second cause of action finding her statutory claim “purely equitable”.  The employee filed a petition for writ of mandate challenging the denial of a jury trial.  The appellate court granted the employee’s petition holding that since the statute was amended to include remedies available in both law and equity, this inferred the legislature’s intent to confer an employee’s right to a jury trial.  The appellate court further held that Article I, section 16 of the California Constitution also confirmed the employee’s right to a jury trial because the “gist” of her claim was a statutory violation for which the employee sought monetary compensation.

(Shaw v. Superior Court (2014) 229 Cal. App. 4th 12.)

Employee Allegedly Terminated for Complaining About Fraud Against the Company May State a Claim for Wrongful Termination in Violation of Public Policy

The employee worked at a car dealership and alleged he was terminated for complaining to his superiors that his supervisor and coworkers were submitting fraudulent warranty claims to the manufacturer for reimbursement.  The employee alleged a claim for wrongful termination in violation of public policy, contending the employer’s conduct implicated the statutes of theft (Pen. Code §§ 484, 487) and fraud (Civ. Code §§ 1572, 1709).

To state a claim for wrongful termination in violation of public policy, the underlying public policy must be (1) supported by either constitutional or statutory provisions, (2) inure to the benefit of the public, (3) have been articulated at the time of the discharge, and (4) be fundamental and substantial.  The trial court sustained a demurrer as to the employee’s wrongful termination claim, finding that internal complaints about fraud against the company affects only the private interests of the employer, and does not inure to the benefit of the public.   The court of appeals reversed, holding that an employee may state a claim for wrongful termination where he is allegedly terminated for complaining or refusing to participate in a crime against his employer, as this serves not only the interests of the employer, but also the fundamental public interest in a workplace free from crime.

(Yau v. Santa Margarita Ford, Inc. (2014) 229 Cal. App. 4th 144.)

Employers Must Reimburse Employees for Mandatory Use of a Personal Cell Phone for Work-Related Calls, Regardless of the Details of the Employee’s Cell Phone Plan, Whether the Phone Bill Is Paid by a Third Person and Whether the Employee Changed Plans to Accommodate Work-Related Cell Phone Usage

A customer service manager filed a putative class action on behalf of 1500 service managers seeking reimbursement for using personal cell phones for work-related calls, alleging violations of California Labor Code section 2802, Business and Professions Code section 17200  and California Labor Code section 2699 (the Private Attorneys General Act of 2004).  The trial court denied class certification based on lack of commonality holding that each class member’s cell phone plan will have to be examined in order to determine whether an expense was incurred for business use.  The court of appeal reversed, holding that if an employee is required to make work-related calls on a personal cell phone, then he or she is incurring an expense for purposes of section 2802.  It does not matter whether the employee’s personal cell phone bill is paid for by a third party (i.e., family member or friend) or whether the employee changed plans to accommodate worked-related cell phone usage. Also, the details of the employee’s cell phone plan do not factor into the liability analysis.

In reconsidering the class certification motion, the court of appeal instructed the trial court to apply the principles set forth in Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1 to the degree that the class representative proposes to use statistical sampling evidence to establish either liability or damages.

(Cochran v. Schwan's Home Service, Inc. (2014) 228 Cal. App. 4th 1137.)

Prompt Payment Requirements under Labor Code Sections 202 and 203 Apply to Employee Who Retires

A retired deputy attorney general filed a class action lawsuit against the State of California and the California State Controller’s Office, seeking waiting time penalties under Labor Code section 203 for the failure to comply with the prompt payment requirements of Labor Code section 202.  The State of California and the California State Controller’s Office filed a demurrer, contending that the employee failed to state a claim for a violation of section 202 and there was no basis for penalties under section 203 because she retired, rather than “quit,” which is the relevant descriptive word used in the statute.  They also claimed that neither the State of California nor the California State Controller’s Office was the employee’s employer; rather, she was employed by the Department of Justice.  The trial court sustained the demurrer without leave to amend, finding that section 203 does not authorize penalties for employees who have retired.  The employee appealed the judgment of dismissal.

The court of appeal held that the term “quits” in sections 202 and 203 includes all employees who quit, whether to retire or for a different reason, and these employees constitute a single group under the statutory scheme.  Therefore, the court reversed the judgment as to the State of California.   However, because the court of appeal held that it was unnecessary to name the California State Controller’s Office as a defendant, the court affirmed the judgment of dismissal as to the controller’s office.

(McLean v. State (2014) 228 Cal. App. 4th 1500.)

Arbitration Clause in Employment Application Sufficient to Compel Arbitration

In connection with an application for employment, the employee initialed a provision which stated all employment-related disputes must be resolved by binding arbitration. The provision did not contain the entire arbitration policy, the policy was not attached to the application and a copy was not provided to the employee at the time she completed the application.

After her termination several years later, the employee filed a lawsuit in superior court. The employer moved to compel arbitration under the provision acknowledged by the employee in her employment application. The court denied the motion finding (1) there was no signed arbitration agreement; (2) the agreement was procedurally unconscionable because it was provided on a “take it or leave it basis”; and (3) the agreement was substantively unconscionable because it did not allow for the selection of a neutral arbitrator and required the employee to advance fifty percent of the arbitration fees.

The court of appeal reversed the trial court’s finding and directed the court to grant the motion to compel arbitration. First, the court found the employer was entitled to enforce the agreement to arbitrate because the arbitration clause in the employment application, standing alone, was sufficient to establish the parties agreed to arbitrate their employment-related disputes. However, since the employment application did not contain the contents of the arbitration policy itself, the court declined to enforce the policy offered by the employer and instead found the matter should proceed in accordance with the procedures set forth in the California Arbitration Act and applicable case law, thus negating any potential arguments regarding conscionability.

(Cruise v. Kroger Co. (2014) 229 Cal. App. 4th 215.)

Denial of Class Certification Improper Because Court Assumed Validity of Affirmative Defenses in Making Ruling

Employees filed a class action against their employer alleging they were not properly paid for “on call time” during their employment as chauffeurs for the employer.  The putative class consisted of 53 current and former employees.  Two weeks before the employees filed their motion for class certification and in connection with their opposition to the motion for class certification, the employer produced releases (several in exchange for $5.00) and arbitration agreements signed (most of them months before the class certification motion was filed) by all but nine of the putative class members.  The employees asked the lower court for additional time to conduct discovery in light of the employer’s improper failure to produce the arbitration agreements and releases during discovery, and several other discovery abuses by the employer.  The lower court denied the request for additional time, and denied the motion for class certification based on lack of numerosity, observing that there were only nine class members left since all the others had signed releases or arbitration agreements.

The court of appeal reversed, finding that the lower court abused its discretion by refusing to grant the employees more time for discovery in light of the employer’s obvious discovery abuses.  Additionally, the court of appeal ruled that the lower court improperly considered the merits of the case in ruling on the motion for class certification.  The court of appeal found that the lower court, in finding there were only nine potential class members, essentially ruled in favor of the employer on its affirmative defenses of release and arbitration agreements.  The lower court improperly considered the merits of the case, and deprived the employees of due process by not permitting them to litigate the merits of the affirmative defenses through a challenge to the validity of the arbitration agreements, or other potential attacks to employer’s defenses based on the releases and arbitration agreements it obtained after the lawsuit had been filed.

(Hendershot v. Ready to Roll Transportation, Inc. (2014) 228 Cal. App. 4th 1213.)

Franchisor Who Lacked Control Over Hiring, Discipline and Firing of Franchisee’s Employees Is Not Liable for Workplace Harassment Allegedly Inflicted by One Franchisee Employee While Supervising Another Franchisee Employee

A male supervisor employed by a franchisee allegedly subjected a female subordinate to sexual harassment at the franchisee’s pizza store.  The victim sued the franchisor, along with the alleged harasser and franchisee.  She claimed that because the franchisor was the “employer” of persons working for the franchisee, and because the franchisee was the “agent” of the franchisor, the franchisor could be held vicariously liable for the harasser’s alleged FEHA violation.

The trial court granted summary judgment for the franchisor on the ground the requisite employment and agency relationships did not exist.  The court of appeal disagreed, reversing the judgment in favor of the franchisor.  The California Supreme Court granted review to address the novel question of whether a franchisor stood in an employment or agency relationship with the franchisee and its employees for purposes of holding it vicariously liable for workplace injuries allegedly inflicted by one employee of a franchisee while supervising another employee of the franchisee.   Reversing the court of appeal’s decision overturning the grant of summary judgment in the franchisor’s favor, the Court held that the answer would be found in the inherent nature of the franchise relationship and the franchisor’s exercise of general “control” over the “means and manner” of the franchisee’s operations.  The imposition and enforcement of a uniform marketing and operational plan could not automatically saddle the franchisor with responsibility for employees of the franchisee who injure each other on the job.  Rather, to be liable the franchisor must exhibit the traditionally understood characteristics of an “employer;” i.e., the franchisor had retained or assumed a general right of control over hiring, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee’s employees.  (See Vernon v. State of California (2004) 116 Cal.App.4th 114, 124 [considering “the ‘totality of circumstances’ that reflect upon the nature of the work relationship of the parties”].)

Here, the franchisor prescribed standards and procedures involving pizza-making and delivery, general store operations, and brand image.  These standards were vigorously enforced through representatives of the franchisor who inspected franchised stores.  However, the franchisee made day-to-day decisions involving the hiring, supervision, and disciplining of his employees.  The employee testified that after the franchisee hired her, she followed his policy and reported the alleged sexual harassment to him.  The franchisee suspended the offender.  Nothing contractually required or allowed the franchisor to intrude on this process.  Further, the franchisee neither imposed discipline consistent with his own personnel policies, declined to follow the ad hoc advice of the franchisor’s representative, and neither expected nor sustained any sanction for doing so.

(Patterson v. Domino's Pizza, LLC (2014) 60 Cal. 4th 474.)