California

As discussed in last month’s newsletter, the 2009 legislative year produced very few meaningful employment bills, and most pundits predict the same for 2010 given the ongoing budget crisis and because it is an election year. Nonetheless, we will continue to monitor key legislative developments, including the following recently introduced bills:

CFRA Leave for Pandemics (AB 1666)

California’s Family Rights Act (CFRA) permits eligible employees to take up to twelve workweeks of leave for family care and medical leave, including for “serious health conditions.” This bill would expand CFRA’s definition of “serious health condition” to include illnesses contracted by the employee that have been declared a national or state emergency pandemic. This just-introduced bill has been referred to the Labor and Employment committee in the Assembly.

CFRA Leave to Care for Siblings (AB 1667)

CFRA currently permits eligible employees to take up to twelve workweeks of leave to care for the employee’s parent, spouse, or child who has a serious work condition. This bill would permit an employee to take CFRA leave to care for a “sibling” (as defined in the Welfare and Institutions Code) who has a serious health condition. This just-introduced bill has been referred to the Labor and Employment committee in the Assembly.

AGENCY

California

Department of Industrial Relations Issues Determination Narrowly Interpreting the “Actively Seeking Capital or Business” Exception to Cal-WARN Act’s Notice Requirements

California’s version of the WARN Act (Labor Code section 1400 et seq.) generally requires employers to provide 60 days notice of a mass layoff, relocation or shutdown or face civil penalties. Labor Code section 1402.5 provides an exception to the employee notification requirement provided: (1) at the time the notice would have been required, the employer was actively seeking capital or business; (2) the capital or business sought, if obtained, would have enabled the employer to avoid or postpone the relocation or termination; and (3) the employer reasonably and in good faith believed that giving the advance notice required under Cal-WARN would have precluded the employer from obtaining the needed capital or business.

In January 2010, the Department of Industrial Relations (DIR) determined that this exception does not apply when the employer is seeking to sell the business, as opposed to seeking the investment of additional capital. In this case, the employer attempted to sell the business and after these efforts fell through, it shut its doors laying off 230 employees without providing any advance notice. The DIR noted that while no California courts have interpreted Labor Code section 1402.5, multiple federal courts have interpreted the federal equivalent provision (the so-called “faltering company exception”) and uniformly held that the sale of a business does not constitute “actively seeking capital or business.” Relying upon these federal authorities, the DIR noted Labor Code section 1402.5 does not identify the “sale” of a business as an exception to the general rule requiring notice, and there was no evidence the California legislature or the Congress (in enacting the federal version) intended it to apply to the “sale” situation.

The DIR also noted that even if the sale of business would satisfy the first prong of the “seeking capital or business” exception, the employer provided insufficient evidence that providing the notice would have precluded the employer from securing a purchaser (the third element needed). The full text of this DIR Determination is available at www.dir.ca.gov/dlse/Cal-WARNAct-Insnyc.pdf.

Federal

Updated Model COBRA Notices Now Available

As discussed in last month’s update, the federal government has extended the COBRA premium subsidy, with the eligibility period extended until February 28, 2010, and the coverage period extended from nine months to 15 months. The Department of Labor has published updated model notices for employers’ use on its website.. Specifically, the DOL has posted an “Updated General Notice,” a “Premium Assistance Extension Notice” and an “Updated Alternative Notice.” Copies of these updated notices, along with detailed information concerning when and how to use these notices, can be accessed at www.dol.gov/ebsa /COBRAmodelnotice.html.

EEOC Publishes Enforcement and Litigation Statistics

The EEOC has published its Enforcement and Litigation Statistics reflecting the number of individual charges filed from 1997 through 2009. This chart, which reflects the breakdown of charges filed cumulatively and in each individual protected category (e.g., race, age, etc.), is posted atwww.eeoc.gov/eeoc/statistics/enforcement/charges.cfm. Notably, 93,277 charges were filed in 2009, representing only a minimal decrease from 2008, and a substantially higher number than the 75,428 charges filed in 2005. While the number of charges for sex, race and disability remained relatively steady, the EEOC has witnessed a material increase in filings of age and retaliation charges with retaliation claims now representing the highest percentage of charges filed.

JUDICIAL

California

California Supreme Court Permits Material Reduction or Outright Denial of FEHA Attorneys’ Fees Where Amount Recovered Is Less Than Could Have Been Recovered in a Limited Civil Case

After five years litigating a FEHA discrimination case but receiving only an $11,500 jury verdict, the plaintiff requested $870,935.50 in attorney’s fees. The trial court denied the entire fees’ request, citing Code of Civil Procedure section 1033 which provides the court discretion to deny attorneys’ fees when the amount recovered is less than what could have been recovered in a limited civil case ($25,000 or less). On appeal, plaintiff argued section 1033 did not apply to FEHA claims and that under FEHA’s attorney fees provision (Government Code section 12965), a prevailing plaintiff must be awarded reasonable attorney fees unless special circumstances would render it unjust.

The California Supreme Court upheld the denial of fees, noting that there is no conflict between section 1033 and FEHA’s attorney fee provision. Rather, in exercising its discretion under section 1033 in a FEHA case, the court should consider the policies and objectives of the FEHA to determine whether denying attorney fees is consistent with those policies and objectives. If so, a plaintiff’s failure to take advantage of the time and cost saving features of the limited civil case procedures may be considered a special circumstance that would render a fee award unjust. The Court noted the only claim plaintiff recovered damages on did not have any broad public impact which would justify a large attorney fee award despite a small damages award, and the successful claim was unrelated to the unsuccessful claims meaning he should not recover fees for time spent litigating the unsuccessful claims. The Court additionally found the request for $870,935.50 was so grossly inflated that this fact alone was sufficient to deny awarding attorney fees altogether. (Chavez v. City of Los Angeles (2010) __ Cal.4th __, 2010 Cal.LEXIS 110.)

California State University Applied Incorrect Standard in Determining Whether Employee’s Whistle-blowing Complaint was Made in Good Faith

A coach filed an internal administrative complaint with his university employer alleging he was retaliated against in violation of the California Whistleblower Protection Act for revealing the head football coach’s alleged public drunkenness. The University investigated and concluded that while the employee’s report of the head coach’s alleged public intoxication factored into the decision to remove his football-related duties, the whistleblower statute did not apply because the report was based on hearsay and innuendo and, thus, was not made in “good faith.”

The California court of appeal concluded the employer applied the wrong standard in evaluating whether the employee’s retaliation claims were made in good faith. The appellate court noted that the proper inquiry is whether the complaining party believed the allegations were true or had reason to believe they were true, not whether the report was based solely upon events within personal knowledge. (Ohton v. Cal. State Univ. of San Diego (2010) __Cal.App.4th __, 2010 Cal.App.LEXIS 25.)

Court Invalidates Contract Provision Shortening Statute of Limitation on Wage and Hour Claims and Finds Sales People Not Exempt Administrative Employees

Plaintiff account executives sued their employer for its alleged failure to comply with Labor Code provisions pertaining to overtime compensation, commissions, meal periods, and itemized wage statements. The employer asserted plaintiffs’ claims were time-barred because not filed within six months of their termination as required by their employment agreement’s “limitation on claims” provision shortening to six months the statute of limitations for such claims. The trial court granted summary judgment in the plaintiffs’ favor finding this shortening of the statute of limitations was unenforceable. At trial, the court also tried first the employer’s contention these employees were exempt under the administrative exemption, and after listening to the employer’s evidence, the court plaintiffs’ motion for judgment holding that plaintiffs were not exempt.

The California Court of Appeal affirmed each of the trial court’s rulings. First, the court found that the wage and hour laws protect unwaivable statutory rights supported by strong public policy, and thus the provision in plaintiffs’ employment agreements purporting to shorten the limitations were unenforceable. Second, the court held the employer was not denied its right to a jury because the employer did not object to the court deciding the exemption defense and after the court made its ruling, the parties stipulated to resolve any remaining issues rather than try them to a jury. Finally, the appellate court upheld the trial court’s determination that plaintiffs were not exempt employees because they did not perform work “directly related to management policies or general business operations of [the employer or its customers].” Instead, these plaintiffs’ duties as account executives primarily consisted of sales work such as selling services, or soliciting clients for their employer. (Pellegrino v. Robert Half Intl., Inc. (2010) __ Cal.App.4th __; 2010 Cal.App.LEXIS 104.)

Federal

Court Cannot Deny a Motion for Class Certification on Grounds that Plaintiffs’ Underlying Legal Theory Might Fail

Employees filed a class action suit alleging the employer improperly forced them to take “on duty” meal periods because they were not allowed to leave their work stations during meal periods and were subject to interruptions to which they had to respond. The district court denied employees’ motion for class certification, holding the employees could not establish that a class action was a superior method of adjudicating the case. The district court reasoned that if the employees’ “on duty” meal period legal theory failed, the court would be faced with individualized trials on each class member’s meal period claim. The Ninth Circuit Court of Appeals reversed, holding that the mere possibility that a plaintiff might be unable to prove his allegations is not a basis for declining to certify a class which otherwise satisfies the class action requirements under Rule 23 of the Federal Rules of Civil Procedure. (United Steel, Paper & Forestry, Rubber, Manufacturing Energy, Allied Industrial & Service Workers International Union et al. v. ConocoPhillips Co. (9th Cir. 2010) ___ F.3d ___, 2010 U.S.App.LEXIS 238.)

Seventh Circuit Holds Motivating Factor Causation Standard Inapplicable under the ADA

A critical issue in employment litigation is the applicable causation standard; specifically whether a plaintiff must prove a protected criterion was “a” motivating factor (one factor among several) in the challenged decision, or “the” determinative factor (that the employer would not have made the decision “but for” the protected criterion). As amended in 1991, Title VII imposes liability upon the employer if a protected criterion was a “motivating factor,” but also authorizes a partial defense if the employer proves it would have made the same decision in the absence of the illegal motive (a so-called “mixed motive” defense). In 2009, the United States Supreme Court held in Gross v. FBL Financial Services (2009) 129 S.Ct. 2343, that Title VII’s “motivating factor” standard was inapplicable to age discrimination claims under the ADEA. Rather, ADEA claimants must prove that age is the “but for” or “determinative factor” to establish the employer’s liability.

Applying Gross’ statutory analysis, the Seventh Circuit Court of Appeals has similarly held that Title VII’s “motivating factor” causation standard is inapplicable in Americans with Disabilities Act (ADA) cases. Rather, an ADA plaintiff must demonstrate his or her employer would not have terminated him “but for” his or her actual or perceived disability. Applying this standard, the seventh circuit ruled in the employer’s favor finding that although the employer considered the employee’s disability in its termination decision, it would have made the same decision notwithstanding this disability. Highlighting the significance of this causation standard, the circuit court noted the employee would have prevailed under Title VII’s motivating factor standard, but not under the “but for” standard reaffirmed in Gross. (Serwatka v. Rockwell Automation, Inc. (7th Cir. 2010) ___ F.3d ___, 2010 U.S.App.LEXIS 948.)

NOTE: the United States Congress is already considering legislation to effectively nullify the Court’s decision in Gross, and it is anticipated similar legislation may be proposed regarding Serwatka. It is presently unclear what effect Gross and Serwatka will have for California employers. On the one hand, California’s jury instructions reflect Title VII’s “motivating reason” causation standard, but FEHA’s language retains the “because of” causation standard thatGross and Serwatka suggest requires a “but for” causation standard.

Emotional Distress Resulting from Title VII Retaliation Not Tax Exempt

A frequently negotiated term in employment settlement agreements involves the taxability of the settlement payment and whether the employer will agree to characterize the settlement in a particular manner to render it exempt from the employee’s income calculations. In this Title VII retaliation case, the parties settled for $175,000 and their agreement specifically provided that the payment was for “emotional distress” and “not as wages or back pay.” After the employee/plaintiff failed to report these settlement proceeds on her income tax, the Internal Revenue Service issued a deficiency which wound up in tax court.

The tax court ruled in the IRS’ favor that the settlement amount constituted gross income notwithstanding the parties’ characterization in the settlement agreement. The court noted that the “personal physical injury” exclusion from income is narrowly construed and applies only where the underlying cause of inaction is (1) based in tort or tort-type rights and (2) the proceeds must be damages based on account of personal physical injury or physical sickness. The tax court noted that it is the nature of the claim not the parties’ characterization in the settlement agreement that controls. Applying 1996 Tax Code amendments, the court reiterated that emotional distress damages resulting from non-physical injury, including from retaliation, are not excludable from income. (Wells v. Commission of Internal Revenue (Tax Ct. 2010) T.C. Memo 2010-5, 2010 Tax Ct. Memo. LEXIS 4.)