Tuesday, February 11, 2014

A CALIFORNIA COURT OF APPEAL INTERPRETS THE SELDOM-USED “CONSTRUCTIVE VOLUNTARY QUIT” DOCTRINE



            On February 10, 2014, the Court of Appeal of the State of California, Second Appellate District, issued its opinion in Kelley v. California Unemployment Insurance Appeals Board (2014) ___ Cal.App.4th ___, 2014 Cal. App. LEXIS 128 (Feb. 10, 2014), holding that the plaintiff-employee, Stephanie Kelley, had not “constructively voluntarily quit” as contended by her employer, real party in interest-appellant Merle Norman Cosmetics, Inc., and therefore was eligible for unemployment benefits.

I.          FACTS

            In 2010, Stephanie Kelley went on a stress leave from her job as marketing director for Merle Norman Cosmetics, her employer, one month after filing a claim with the California Department of Fair Employment and Housing, which alleged that she was retaliated against for reporting ongoing sexual harassment.  Kelley was cleared by her physician to return to work in November 2010.  Prior to returning to work, Kelley’s attorney emailed the employer concerning certain “assurances” Kelley wanted before she returned to work. [[1]]   The employer would not agree to the requested assurances. [[2]]   Merle Norman noted it had already offered a severance package but invited Kelley to submit a further settlement proposal.  Kelley responded with a $300,000 settlement demand.  Finally, asserting that Merle Norman did not agree to the conditions Kelley had set for return to work, the employer terminated her.

II.        FACTS/PROCEDURE

            Kelley applied for unemployment benefits.  The employer contended she was ineligible under the seldom-used “constructive voluntary quit” doctrine, because Kelley insisted on conditions the employer was not obligated to satisfy.  The California Employment Development Department (“EDD”) agreed and denied Kelley’s claim for benefits.  The decision was reversed on appeal to an administrative law judge.  The California Unemployment Insurance Department disagreed and reinstated the EDD’s denial of Kelley’s claim. 

III.       THE CALIFORNIA SUPERIOR COURT FOUND THAT KELLEY DID NOT “CONSTRUCTIVELY VOLUNTARILY QUIT”

            Kelley brought an administrative mandate action to the California Superior Court.  The trial court found that Kelley had not constructively voluntarily quit.  The court characterized the emails from Kelley’s counsel as “requests” and not “ultimatums” or “conditions.”  The employer, the court stated, was not placed in a position where its only reasonable alternative was to fire Kelley.  It should have waited until the date Kelley was due to return to see whether she showed up for work.  Employer Merle Norman appealed the adverse ruling.

IV.       THE COURT OF APPEAL AFFIRMED THE SUPERIOR COURT RULING

            The Court of Appeal affirmed the superior court’s ruling.  In so doing, the court analyzed the eligibility standards for unemployment benefits.  There exists a presumption that an employee has been discharged for reasons other than misconduct and not to have voluntarily left employment without good cause unless the employer provides written notice to the contrary, with facts sufficient to overcome the presumption.  Both misconduct and voluntary resignation, the court noted, render an employee ineligible for benefits.  An otherwise involuntary discharge, in contrast, renders an employee eligible for unemployment benefits.

            In affirming the trial court, the appellate court interpreted EDD’s regulation that defines when a voluntary leaving of work occurs. [[3]]  Under Regulation 1256-1(b), an employee leaves work voluntarily “when the employee is the moving party causing his or her unemployment.”  In contrast, an employee involuntarily leaves work “when the employer is the moving party in causing the unemployment of an employee at a time when the employee is able and willing to continue working.”  (Regulation 1256-1(c).)  Regulation 1256-1(f) provides that even when an employee is discharged by the employer, the employee may be deemed to have left work voluntarily under the doctrine of “constructive voluntary leaving.”  This occurs when the employee is the moving party and engages in a voluntary act or course of conduct which leaves the employer no reasonable alternative but to discharge the employee and the employee knows or reasonably should know would result in his or her unemployment.[4]  (Ibid.) 

            Analyzing the facts, the Court of Appeal determined that Kelley had made no demands or conditions, merely requests.  It characterized the exchange of emails as “pre-litigation poker” (that is, an unbinding type of preliminary negotiations), which did not rise to the level of demands or conditions that would invoke the constructive voluntary quit doctrine.  Merle Norman was the moving party in the termination, not Kelley, the court held, and she was therefore entitled to unemployment benefits.

V.        KELLEY’S APPLICATION TO WRONGFUL EMPLOYMENT DISCHARGE LAW

           Employers and Employees:  Kelley is instructive concerning whether an employee has voluntarily resigned and is thus ineligible for unemployment benefits or has been involuntarily discharged and, therefore, is eligible for benefits. 

            However, the case has application to the broader area of civil lawsuits involving alleged “constructive discharge” from employment.  Generally speaking, a constructive discharge occurs when the conditions of employment become so intolerable that a reasonable person would resign rather than continue to work under the conditions.  Traditional examples of constructive discharge include an employee who resigns after the employer has moved the employee’s office from the company facility to a storage facility or when an employee has resigned when threatened with being blacklisted if the employee doesn’t quit. 

            Kelley does not address constructive discharge in civil lawsuits.  However, companies should be aware of the lesson from Kelley:  Honestly judge who the “moving party” is -- employer or employee.  If the driving force is the conduct of the employer, and such conduct is egregious or unlawful, a resignation may be found by a court in a civil lawsuit to be not voluntary and a “constructive discharge.“  Such a finding transforms a seemingly voluntary resignation into a firing. 

            The damages that flow from a constructive discharge lawsuit include lost income for present and future income for the contract period or in the case of an “at will” employee for a period the jury determines to be the reasonable length of employment. The employee’s attorney will always look for other egregious conduct that will permit the employee to sue for tort damages; that is; damages for severe physical and emotional distress and an award of punitive damages.  As in Kelley, a constructive discharge case may have underlying claims for employment discrimination or harassment under state and federal anti-discrimination statutes, which would entitle an employee to an award of attorney’s fees and costs if the case is successful.  Finally, the employee may also include a claim for unpaid wages – for example, failure to timely pay last paycheck or vacation, sick and/or personal time off (PTO) -- for which attorney’s fees and costs and statutory penalties are awardable to the employee.  Waiting time penalties provide for payment of the employee’s daily wage by the employer for up to 30 days.   

           Employer Defendants:   An employer defendant in a wrongful discharge case may plead the constructive voluntary quit doctrine as an affirmative defense to overcome "good cause" where a good or substantial reason is necessary to terminate an employee.  Under the authority of Kelley, a moving party employee who forces the termination may be barred from recovery, because he or she has made an unreasonable demand that has caused the employer to terminate the individual.

NOTE:  This Alert is designed to provide a summary of the case entitled Kelley v. California Unemployment Insurance Appeals Board.  It is not intended to, nor does it, offer solutions to individual problems.  Employees and employers with specific questions should consult legal counsel.

Kenneth J. Sargoy, Esq. provides assistance and representation in connection with employment matters.  Questions involving this case as well as other employment issues may be directed to Mr. Sargoy, telephone toll free (855) 235-1488 or (310) 472-7113, to his email at ken@sargoylaw.com, or via his website at www.sargoylaw.com.   THIS EMPLOYMENT ALERT IS CLASSIFIED AS A NEWSLETTER AND CONSTITUTES ADVERTISING MATERIAL UNDER APPLICABLE RULES OF PROFESSIONAL CONDUCT.


[1]              The assurances requested in a first email were:  (1) a written job description; (2) a written statement of goals and objectives; (3) written confirmation of Kelley’s job title, duties, pay, and benefits; and (4) the status of her earlier request for vacation during the Christmas holiday period.  A second email from Kelley’s counsel sought written confirmation that Kelley would not be retaliated against for her previous complaints and reporting of sexual harassment.  The second email further stated that a Merle Norman executive had found a replacement for Kelley, would take her back to work, but would dismiss Kelley after she returned.  The email cautioned that if this were true, it was constitute further evidence of retaliation.            
[2]              The employer replied to the requested assurances that Kelley should meet with her supervisors on her return to work to discuss job duties and responsibilities, assured counsel that Merle Norman would not retaliate and would not tolerate such behavior, and that the allegation of dismissal purportedly made by an executive was false and slanderous. 
[3]              The EDD regulation is set forth at California Code of Regulations, title 22, section 1256-1.  It defines “voluntary leaving of work” under California Unemployment Insurance Code section 1256.  The Unemployment Insurance Code governs unemployment benefits.  It was enacted to provide “benefits for persons unemployed through no fault of their own [in order to] reduce involuntary unemployment and the suffering caused thereby to a minimum.”  (Unemp. Ins. Code, § 100.)
[4]              Regulation 1256-1 provides three examples which would invoke the constructive voluntary quit doctrine despite the fact that the employee was actually discharged by the employer:  (1) a truck driver who lose his driver’s license; (2) an employee who refuses to join a union or pay his union dues; and (3) a cannery worker on a Monday through Saturday schedule who suddenly refuses to work on Saturdays.


Sunday, January 5, 2014

TEN NEW CALIFORNIA WAGE AND HOUR LAWS FOR 2014 THAT AFFECT EMPLOYERS DOING BUSINESS IN CALIFORNIA



1.         MINIMUM WAGE IN CALIFORNIA TO INCREASE TO $9.00 AND $10.00 OVER TWO-YEAR PERIOD  
Effective July 1, 2014, the minimum wage for all industries will be nine dollars ($9) per hour, and on and after January 1, 2016, the minimum wage for all industries increases to $10 per hour.  (Cal. Lab. Code, § 1182.12)

2.         “DOMESTIC EMPLOYEES” ENTITLED TO OVERTIME

Effective January 1, 2014, “domestic employees” are entitled to payment of overtime at the rate of one and one-half (1 ½) times the employee’s hourly wage for work over nine (9) hours per workday or over 45 hours per workweek.  (Cal. Lab. Code, § 1450, et seq.) 

“Domestic work” means services related to the care of persons in private households.  Domestic work occupations include childcare providers, caregivers of people with disabilities, sick, convalescing, or elderly persons, house cleaners, housekeepers, maids, and other household occupations.  Domestic work does not include care of persons in facilities providing board or lodging in addition to medical, nursing, convalescent, aged, or child care, including, but not limited to, residential care facilities for the elderly.

“Domestic work employee” means an individual who performs domestic work and includes live-in domestic work employees and personal attendants. Domestic work employee does not include any person who is the parent, grandparent, spouse, sibling, child, or legally adopted child of the domestic work employer or any person under the age of 18 who is employed as a babysitter for a minor child in the domestic employee’s home or as a casual baby sitter for a minor child in the domestic employer’s home.

“Domestic work employer” means a person, including corporate officers or executives, who directly or indirectly, or through an agent or any other person, including through the services of a third-party employer, temporary service, or staffing agency or similar entity, employs or exercises control over the wages, hours, or working conditions of a domestic work employee.  Domestic work employer does not include certain employment agencies, persons identified as exempt by statute, and licensed health care facilities.

3.         “LIQUIDATED DAMAGES ” AGAINST EMPLOYERS FOR FAILURE TO PAY MINIMUM WAGES    

Former law subjected an employer who paid less than the minimum wage to pay a civil penalty and restitution of wages to the employee.  California Labor Code section 1194.2, effective January 1, 2014, expands the payment and restitution provision to also subject the employer to payment of liquidated damages in an amount equal to the wages unlawfully unpaid for actions brought under Labor Code §§ 98, 1193.6, 1194, or 1197.1.  The new law expressly provides that liquidated damages are not authorized for failure to pay overtime compensation. 

4.         WAGE EXEMPTION FOR EMPLOYERS OF MINORS UNDER ARTISTIC EMPLOYMENT CONTRACTS 

Former law required employers of minors employed under artistic employment contracts (including actors, dancers, musicians, comedians, singers, stunt-persons, voice-over artists, or sports players) to set aside 15% of the minor’s gross earnings in trust for the benefit of the minor. 
  
Effective, January 1, 2014, employers of minors are exempted from setting aside 15% of the minor’s gross earnings in trust for minors providing services as extras, background performers, or in similar capacities.  (Cal. Fam. Code, §§ 6750(b)(3), 6752.)  

5.         GARMENT MANUFACTURERS SUBJECT TO CIVIL PENALTIES

California Labor Code section 2676.55, effective January 1, 2014, subjects garment manufacturers who fail to display their name, address, and garment manufacturing registration number on the front entrance of the business to a civil penalty of $100 for each calendar day the business violates this law and $200 for each calendar day for any subsequent violation.

6.         CREATION OF LIEN ON EMPLOYER’S PROPERTY FOR LABOR COMMISSIONER FINAL ORDERS

California Labor Code section 98.2,subdivision (g), amended and effective January 1, 2014, provides for creation of lien upon an order of the Labor Commissioner becoming final.  The lien may be recorded in any California county in which an employer’s property may be located. The lien continues on the employer’s real property until satisfied or released, or for 10 years if not satisfied or released. 

7.         CAR WASH EMPLOYERS BOND INCREASED TO $150,000

California Labor Code section 2055, effective January 1, 2014, requires employers of car washers to obtain a surety bond issued by a surety company admitted to do business in California for not less than $150,000.  The employer is required to file a copy of the bond with the commissioner. 

The previous amount of the surety bond had been $15,000.

8.         ONE-HOUR ADDITIONAL PAY IF EMPLOYER REQUIRES EMPLOYEE TO WORK DURING “COOLDOWN” RECOVERY PERIOD

Former law prohibited an employer from requiring an employee to work during any meal or rest period mandated California Wage Orders and established a penalty of one hour of the employee’s regular rate of pay for each violation.

Cal. Labor Code section 226.7, effective January 1, 2014, expands the no-work- during-meal-or-rest-period rule to include “recovery periods.”  Recovery period is defined as a “cooldown” period afforded an employee to prevent heat illness.    

The law now prohibits an employer from requiring an employee to work during any meal or rest or recovery period.  Violation of the law subjects the employer to a penalty of one hour additional pay at the employee’s regular rate.

9.         ATTORNEY’S FEES AND COSTS AWARDABLE TO EMPLOYER ONLY IF EMPLOYEE WAGE CLAIM IS FILED IN “BAD FAITH”

Former law required a court in any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions, to award reasonable attorney’s fees and costs to the prevailing party if any party to the action requested attorney’s fees and costs upon the initiation of the action.

California Labor Code section 218.5, amended and effective January 1, 2014, now provides that if the prevailing party is not the employee, an award of attorney’s fees and costs shall be awarded only upon a finding by the court that the employee brought the court action in bad faith.

10.       EMPLOYER’S FAILURE TO REMIT PAYROLL TAXES OR OTHER WITHHOLDINGS PUNISHABLE AS FELONY OR MISDEMEANOR 

The former law made it a crime for an employer to fail to make agreed-upon payments to health and welfare funds, pension funds, or various benefit plans, with violations punishable as a felony if the amount unpaid exceeded $500 and as a misdemeanor if the amount was less than $500.

California Labor Code section 227, amended and effective January 1, 2014, has been expanded to include failure to remit withheld payroll taxes:  If an employer withholds wages pursuant to any state, local, or federal law, and willfully or with fraudulent intent fails to remit the withholdings to the proper agency, the violation is punishable as a felony if the amount is more than $500 and misdemeanor if less than $500.  

NOTE:  This Alert is designed to provide a summary of new laws for 2014 regulating wages and hours for employees, employers, and businesses doing business in California.  It does not include all new laws or set forth new laws in their entirety; nor does it provide potential defenses to enforcement or offer solutions to individual problems.  Employees and employers with specific questions should consult legal counsel.

Kenneth J. Sargoy, Esq. provides assistance and representation in connection with employment matters.  Questions involving these new wage and hour laws as well as other employment issues may be directed to Mr. Sargoy, telephone toll free (855) 235-1488 or (310) 472-7113, or to his email at ken@sargoylaw.com.  THIS EMPLOYMENT ALERT IS CLASSIFIED AS A NEWSLETTER AND CONSTITUTES ADVERTISING MATERIAL UNDER APPLICABLE RULES OF PROFESSIONAL CONDUCT.

Thursday, July 25, 2013

EMPLOYMENT ALERT: EMPLOYERS WHO FAIL TO PAY OVERTIME RISK SERIOUS CONSEQUENCES

I.    THE BASIC OVERTIME LAW

    California law requires payment of overtime to non-exempt workers in two situations: *

    (1)    Daily overtime at the rate of one and one-half times the employee’s hourly pay is required for all work in excess of eight hours per day.  In addition, daily overtime at the rate of two times hourly pay is required for all work in excess of 12 hours per day.

    (2)    California law requires weekly overtime at the rate of one and one-half times the employee’s hourly pay for each hour worked in excess of 40 hours each week.

*    NOTE:   This Alert sets forth the general rules regarding overtime law and claims in California.  Exceptions exist which are not the subject of this Alert.     

II.    CLAIMS ARISING FROM A TYPICAL OVERTIME CASE
A.    THE CASE MAY BE FILED WITH THE LABOR COMMISSIONER OR DIRECTLY IN THE SUPERIOR COURT.

    (1)    The case may be filed with the California Division of Labor Standards Enforcement, the state agency with power to enforce California’s labor laws, commonly referred to as the Labor Commissioner.  The Labor Commissioner has access to all California workplaces and employee records, is required to investigate all wage complaints, and depending on the issues raised may schedule a conference between the parties or a “Berman” hearing on the wage complaint or both; or

    (2)    The overtime case may be filed directly in Superior Court where a judge or a jury will hear the case.  The case may include other employment-claims such as wrongful termination, employment discrimination, employment harassment, etc., if applicable. **  

**    NOTE:   There are exceptions to this general rule which are beyond the scope of this Alert.

    B.    TYPICAL CLAIMS IN AN OVERTIME CASE

    (1)    If filed with the Labor Commissioner, a typical overtime claim will include:

        (a)    Demand to Pay Overtime Wages not paid by the employer at the applicable rate (1 ½ times hourly rate for each hour worked in excess of eight (8) hours in a day and 40 hours in a week, and two (2) times hourly rate in excess of 12 hours worked in a day.)

            For example, an employee’s hourly rate is $10 and normal work-week is 40 hours.  If s/he works 10 hours on Monday; 8 hours on Tuesday, 13 hours on Wednesday, 8 hours on Thursday and Friday, and 4 hours on Saturday, the employee is entitled to the following overtime pay:

    Day       Hrs Worked  OT Hrs  How OT Calculated      Amt of Daily Wages
    Monday       10                   2        2 @ $15 = $30             $80 + $ 30 OT = $110
    Tuesday         8                   0        N.A.                              $80
    Wednesday  13                   5        4 @ $15 = $60; 1@ / $20 $80 + 60 + 20 = $160
    Thursday       8                   0        N.A.                               $80
    Friday            8                   0        N.A.                               $80
    Saturday        4                   4        4 hrs @$15 = $60         $60

    Under the above scenario, this employee, who worked 51 hours for the week, would be entitled to gross wages for the week of $570, based on the following:

            •    24 straight-time hours;
            •    10 overtime hours @ 1 ½ times hourly rate (2 for Monday, 4 for Wednesday, and 4 for Saturday); and 
            •    1 overtime hour @ 2 times hourly rate for Wednesday.

    Multiply the above scenario by several weeks, months, or even a few years.  In my experience, failure to pay OT rarely occurs for only one week and may affect similarly situated employees, creating the basis of a class action lawsuit.  An OT lawsuit may be filed in court after an employee leaves employment.  The statute of limitations (the time in which an OT action must be filed in court) is 3 years.  (Cal. Code Civ. Proc. § 338 (liability created by statute other than penalty or forfeiture).)  California Labor Code §§ 1194 and 1198 form the statutory basis. 

        (b)    Liquidated Damages for Failure to Pay Overtime Wages in an amount equal to the amount of overtime that employer failed to pay.  (29 U.S.C. § 216(b).)  Thus: If the employer paid no OT wages in the above example, the employer would have to pay an additional amount for failure to pay any wages at all for the overtime worked, as follows:

            •    $ 20 for Monday;
            •    $ 80 for Wednesday; and
            •    $ 60 for Saturday

        (c)    Waiting Time Penalty for failure to pay all wages owed upon termination of employee by employer or within 72 hours following resignation of employment by employee at the rate of the employee’s daily rate of pay for 30 days.  (Cal. Labor Code § 203.)  Under the above scenario, assuming the employee’s daily pay is $80, the employer may be liable for waiting time penalties in the amount of $2,400 ($80 per day x 30 days).

        (d)    Failure to Provide Accurate Wage Statements:   For a knowing and intentional  failure by an employer to provide an accurate wage statement, an employee is entitled to recover the greater of all actual damages or $50 for the initial pay period violation and $100 for each subsequent violation up to a maximum award of $4,000, plus reasonable attorney’s fees and costs.  (See Cal. Labor Code § 226.)

    (2)    If filed in the Superior Court, a typical overtime case may include all of the following:

        (a)    All of the claims and damages listed above;
        (b)    Reasonable attorney’s fees and costs of suit;
        (c)    Liquidated damages for failure to pay overtime in violation of federal law in an amount equal to the unpaid overtime wages;
        (d)    Minimum Wage claim (i.e., if no overtime paid, computed hourly rate may be less than minimum wage) (Cal. Labor Code §§ 1194 (minimum wages) 1194.2 (liquidated damages (equal amount) for failure to pay minimum wage); 
        (e)    Additional common law and statutory claims involving wrongful termination from employment, employment discrimination and harassment, fraud, and other claims which can be filed in a Superior Court case but not a Labor Commissioner proceeding; and
        (f)    Damages for the claims set forth in (2)(e), above, including, without limitation: 
           
            -1-    Payment of lost back wages and front pay continuing for a reasonable time depending upon a finding by the judge or jury;
            -2-    Medical, psychiatric, psychotherapy bills, and the like;
            -3-    Damages for pain and suffering;
            -4-    Damages for severe emotional distress (often Post Traumatic Stress Disorder (PTSD); and
            -5-    Punitive Damages.

    NOTE:  This Alert is designed to provide a summary of general information.  It does not set forth the entire scope of an action for overtime wages; nor does it offer solutions to individual problems.  Employees and employers with specific overtime questions should consult legal counsel. 

    Kenneth J. Sargoy, Esq. provides assistance and representation in connection with employment matters.  Questions involving overtime laws as well as other employment issues may be directed to Kenneth J. Sargoy, Esq., telephone toll free (855) 235-1488 or (310) 472-7113 or to his e-mail, ken@sargoylaw.com. 
   THIS EMPLOYMENT ALERT IS CLASSIFIED AS A NEWSLETTER AND CONSTITUTES ADVERTISING MATERIAL UNDER APPLICABLE RULES OF PROFESSIONAL CONDUCT.

Thursday, July 11, 2013

U.S. SUPREME COURT ISSUES TWO "EMPLOYER FRIENDLY" DECISIONS



HOLDINGS

            In University of Texas Southwestern Medical Center v. Nassar, 570 U.S. ___ (2013), 2013 WL 3155234 (June 24, 2013), the U.S. Supreme Court held that Title VII Retaliation claims must be proven by the higher “but for” causation standard, and not the lesser “motivating factor” test.

            In Vance v. Ball State University, 570 U.S. ___ (2013), 2013 WL 3155228 (June 24, 2013), the Supreme Court limited the definition of “supervisor,” holding that an employee is a supervisor for purposes of vicarious liability under Title VII if he or she is empowered by the employer to take “tangible employment actions” against the plaintiff. Tangible employment actions include “hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.”   

I.

UNIVERSITY OF TEXAS SOUTHWESTERN MEDICAL CENTER v. NASSAR:  PLAINTIFFS IN TITLE VII RETALIATION CASES MUST SHOW “BUT FOR” CAUSATION

            In University of Texas Southwestern Medical Center v. Nassar, 570 U.S. ____, 2013 WL 3155234 (June 24, 2013), Dr. Nassar, a physician of middle eastern descent sued his employer for constructive wrongful discharge under Title VII of the Civil Rights Act of 1964 (“Title VII”) (42 U.S.C. § 2000e, et seq.), alleging that because of racial and religious harassment by a superior, Dr. Levine, his employment as a faculty member and staff physician became so intolerable he was forced to resign.  The physician further alleged retaliation on the grounds that the hospital withdrew its offer of a faculty position at an affiliated hospital because he complained of harassment.  

            At trial, the jury found for the physician on both claims, awarding him more than $400,000 in back pay and over $3,000,000 in compensatory damages.  The District Court reduced the award of compensatory damages to the Title VII statutory limit of $300,000.

                On appeal, the Fifth District Court of Appeals vacated the constructive discharge verdict, concluding that there was insufficient evidence to support the claim.  The Court affirmed the retaliation claim on the theory that retaliation claims brought under 42 U.S.C. § 2000e-3(a) require the same showing as claims of status-based discrimination under Section 2000e-2(a) – namely, that retaliation was a motivating factor in the hospital’s adverse employment action of withdrawing the offer to hire Dr. Nassar to the  faculty position. 

            The Supreme Court reversed, holding that Title VII retaliation claims must be proven according to the traditional tort “but for” causation standard, and not the lesser “motivating” or “substantial factor” test.  In reaching its decision, the Court reviewed traditional principles of tort law that require a plaintiff to show that the alleged harm would not have occurred in “the absence of” or “but for” the defendant's conduct.  The Court analogized the burden of proof to be applied in Nassar to the Court’s recent age discrimination decision, Gross v. FBL Financial Services, Inc. (2009) 557 U.S. 167, decided under the Age Discrimination in Employment Act of 1967 (“ADEA”)  Gross held that “but for” is the proper standard of proof in ADEA cases, the Court explained, due to the fact that the ADEA’s statutory language states it is an unlawful employment practice, among other acts, to “refuse to hire” or “terminate” an employee “because of” age.  The “but for” causation standard, the Court reasoned, is functionally equivalent to the ADEA’s causation standard.  Further comparing Title VII to the Americans with Disabilities Act of 1990 (“ADA”), the Court further explained that the ADA uses the terms “because” and “on account of” to prove retaliation under the ADA’s express anti-retaliation provision.  With these comparisons, the Court concluded that the “but for” causation standard is synonymous with the “because” and “on account of” language of both the ADEA and ADA.  Adding that a lesser standard could contribute to the filing of frivolous claims, which would siphon resources from efforts by employers, administrative agencies, and courts to combat workplace harassment, the Court remanded the case for further proceedings consistent with it holding that the “but for” causation standard is the proper standard of proof in Title VII retaliation cases.     

NASSAR’S IMPACT IN CALIFORNIA

            Certainly Nassar is good news for employers across the nation.  However, the ruling should have less of an impact in California than in other states, because in California, employees usually sue employers under the state’s Fair Employment and Housing Act (Cal. Gov’t Code §§ 12900, et seq.) (“FEHA”), specifically Sections 12940(a) (discrimination) and 12940(h) (retaliation).  The FEHA causation standard, by statute, requires that a plaintiff in a retaliation case need only prove that “retaliatory animus was at least a ‘substantial or motivating factor’ in the adverse employment decision.”  (emphasis supplied.)  (George v. Cal. Unemployment Ins. Appeals Bd. (2009) 179 Cal.App.4th 1475, 1492; Cf. Harris v. City of Santa Monica (2013) 56 Cal.4th 203 (substantial motivating factor test to be applied in pregnancy discrimination case).) Accordingly, the lesser “substantial” or “motivating” standard of proof will be applied when FEHA claims are brought in cases filed in California Superior Court or U.S. District Court.   

II.

VANCE v. BALL STATE UNIVERSITY: 
SUPREME COURT NARROWS THE DEFINITION OF “SUPERVISOR” IN TITLE VII ACTIONS, LIMITING EMPLOYER VICARIOUS LIABILITY

            In Vance v. Ball State University, 570 U.S. ___ (2013), 2013 WL 3155228 (June 24, 2013), an African-American woman, Maetta Vance, sued her employer, Ball State University, alleging that a white employee, Saundra Davis, created a racially hostile work environment in violation of Title VII.  The District Court granted summary judgment for the university employer on the grounds that Ball State was not vicariously liable for the actions of Davis, because Davis, who could not take tangible employment actions against Vance, was not a supervisor.   The Court of Appeals for the Seventh Circuit affirmed.

            The Supreme Court decided the question:  Who qualifies as a “supervisor” in a Title VII claim for workplace harassment?  It traced Title VII’s prohibition of a hostile work environment so pervasive that it alters an employee’s terms and conditions of employment.  The Court reiterated the rule that an employer will be held strictly liable where the hostile work environment is caused by the employee’s supervisor because it is agency relationship that aids the harasser’s tortious misconduct, and that an employer that negligently fails to rid the workplace of unlawful discrimination – whether the harasser is a supervisor or co-worker - will always be liable.[1]  The Court rejected the broad definition of “supervisor” proffered by Vance and used by some lower courts that a supervisor is an employee who has the power to “direct” another’s work, even though he or she lacks the power to make tangible employment decisions.  The Court contrasted co-workers who can inflict psychological injuries by creating a hostile environment but cannot dock pay or demote a worker with an employee – a supervisor – who has the power to cause direct economic harm against another employee.  From this distinction, the Court announced its narrow definition of a supervisor:  An employee is a “supervisor” for purposes of vicarious liability under Title VII if he or she is empowered by the employer to take “tangible employment actions” against the plaintiff.  Such tangible employment actions constitute the power to significantly alter an employee’s employment status and include “hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.”  

VANCE’S IMPACT

            Vance clarifies the definition of “supervisor” under Title VII federal anti-discrimination cases and narrows the situations in which employers will be vicariously (and strictly) liable for a hostile work environment.  The decision should also make summary judgment somewhat easier to obtain for employers in Title VII actions.  However, the definition of “supervisor” is more expansive under the FEHA than in Vance.  The FEHA, at California Government Code section 12926, subdivision (s), includes in its definition of supervisor the “responsibility to direct [employees]”[2] in addition to the criteria announced in Vance. This broader definition, which was expressly rejected by the Supreme Court in Vance is authorized by statute in California, and should serve to limit the impact of Vance in this state. 


III.

WHAT EMPLOYERS SHOULD DO

            First, following the noteworthy decisions in Nassar and Vance, employers should review workplace policies and job descriptions to bring them within the parameters of the rulings.  As noted, because the FEHA provides a more expansive definition of “supervisor” than Vance, amending job descriptions to comport with the Vance decision will not protect against lawsuits brought under the FEHA.  However, it is always good practice to review policies in light of important changes in the law.

            Second, timely and accurate documentation of improper workplace conduct (such as harassment) can help defend against workplace lawsuits.  The documentation should accurately set forth the facts of the occurrence(s) and all employer reason(s) for discipline.   

            Note:  Employment Discrimination, Retaliation, Wrongful Termination Litigation and the institution of applicable workplace policies is complicated.  This Alert is designed to provide a summary of two new U.S. Supreme Court decisions with analysis by Kenneth J. Sargoy, Esq.  It does not offer solutions to individual problems.  Employees and employers with specific questions concerning employment discrimination, retaliation, and wrongful termination issues and questions should consult legal counsel. 
            Kenneth J. Sargoy, Esq. provides counseling and representation in connection with employment matters.  Questions about employment litigation as well as other employment matters may be directed to Kenneth J. Sargoy, telephone toll free (855) 235-1488 or (310) 472-7113 or to his e-mail, ken@sargoylaw.com.   

THIS EMPLOYMENT ALERT IS CLASSIFIED A NEWSLETTER AND CONSTITUTES ADVERTISING MATERIAL UNDER APPLICABLE RULES OF PROFESSIONAL CONDUCT.


[1]               This blog does not address an employer’s affirmative defense to strict (vicarious) liability for the acts of a supervisor, because Vance focused on the factors that would elevate an employee to the status of supervisor.  “[I]f no tangible employment action is taken, the employer may escape liability by establishing, as an affirmative defense, that (1) the employer exercised reasonable care to prevent and correct any harassing behavior and (2) that the plaintiff unreasonably failed to take advantage of the preventive or corrective opportunities that the employer provided.”
   
[2]               The FEHA, at California Government Code § 12926(s), sets forth the definition of a “supervisor”:

                     “’Supervisor’ means any individual having the authority, in the interest of the employer, to hire, transfer, suspend, layoff, recall, promote, discharge, assign, reward, or discipline other employees, or the authority to direct them, or to adjust their grievances, or effectively to recommend that action, if, in connection with the foregoing, the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”  (emphasis supplied.) 


Tuesday, July 2, 2013

TRADE SECRET PROTECTION FOR CALIFORNIA COMPANIES


A.      WHAT IS A TRADE SECRET?

A trade secret is business information not protected or protectable by patent, copyright, or trademark that:
·         is not generally known to the public;
·         has independent economic value to the holder; and
·         is the subject of reasonable efforts to maintain its secrecy
and consists of the following:
·         technical information such as formulas; plans, designs, or patterns; processes; methods and techniques; computer software; and negative information (i.e., results or research that didn’t work); or
·         business information   such as financial information prior to public release; cost and pricing information; internal market analyses or forecasts; customer lists; marketing or advertising plans, and other information (a) not known to competitors that (b) would take competitors time and money to independently develop.  (Cal. Civ. Code § 3426.1(d); Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1452.)

For example, a “confidential customer list” often has independent economic value because its disclosure would allow a competitor to solicit customers who have shown a willingness to use a unique type of service or product as opposed to persons who might not be as interested.  (Morlife, Inc. v. Perry (1997) 56 Cal.App.4th 1514, 1522.)  Further, cost and pricing information, profit margins, pricing concessions, promotional discounts, payment terms, advertising and marketing strategy, and manufacturing technologies can be a trade secret.  (Whyte v. Schlage Lock Co., supra, 101 Cal.App.4th at 1456-57.)

B.      WHAT ARE THE CONSEQUENCES FOR MISAPPROPRIATION OF A TRADE SECRET?

If the business information satisfies the above criteria, it is a trade secret and anyone who misappropriates the information will be enjoined from further use and may be liable for compensatory damages, punitive damages, unjust enrichment, royalties and attorney’s fees as well as criminally liable under various state and federal criminal statutes.  (Cal. Civ. Code §§ 3426.2, 3426.3, 3426.4 (setting forth damages under Cal. Law); see Cal. Pen. Code § 499c (theft of trade secrets); 18 U.S.C. §§ 1831 – 1839 (Economic Espionage Act).)  

C.      HOW CAN A COMPANY PROTECT ITS TRADE SECRETS?

A Company can protect its trade secrets through efforts that are “reasonable under the circumstances.”
 ·         Reasonable efforts to protect trade secrets include:
·         limiting access to the information (e.g., locked files; computer access codes and passwords);
·         always escorting visitors on company premises;
·         continually informing employees through memoranda, labeling and confidentiality agreements what       information the company considers to be a trade secret;
·         conducting exit conferences to remind employees of non-disclosure/confidentiality agreements and that such agreements remain in effect post termination;
·         marking documents “Confidential” on each page;
·         limiting access to software programs;
·         using identification badges to prevent unauthorized personnel from entering certain areas;
·         utilizing security guards;
·         using closed circuit cameras with television monitors;
·         including policy statement of confidentiality in employment handbooks and personnel policies;  
·         making sure employees return of all documents and software at termination;
·         Notifying the employee and new employer about your concerns of inevitable trade secret disclosure; and
·         Reviewing telephone and computer records to determine if an employee may have disclosed trade secrets or confidential information to a competitor.
·         Confidentiality/Non-disclosure agreements prohibiting the company’s trade secrets or confidential information to be used by an employee after termination are generally enforceable in California.  (ReadyLink Healthcare v. Cotton (2005) 126 Cal.App.4th 1006, 1018.) 
·         In many states, courts will enforce agreements not to compete if they are reasonable and limited as to duration and geographical scope.  (Modern Controls, Inc. v. Andreadakis, 578 F.2d 1264, 1267-68 (8th Cir. 1978), but not in California.  Agreements not to compete are unenforceable.  (Cal. Bus. & Prof. Code § 16600 (“[E]very contract by which anyone is restrained from engaging in lawful profession, trade, or business of any kind is to that extent void.”)

·         Non-solicitation agreements (of customers) may be enforceable if thecustomer list” is determined to be a trade secret.  (Retirement Group v. Galante (2009) 176 Cal.App.4th 1226, 1239-40 (unfair competition to misuse trade secret information).  There is authority to the contrary, however.  (Dowell v. Biosense Webster, Inc. (2010) (non-solicitation clause void where not narrowly tailored to the protection of trade secrets). 
·         Employment agreements, employee handbooks, and personnel policies should state that customer lists and identities of customers will provide a competitive advantage if such information is not known outside the company.  If a customer list qualifies as a trade secret, the company should consider including the following language in non-solicitation provisions:  During his/her employment with the Company and following termination of his/her employment with the Company, Employee shall not directly or indirectly solicit Company customers whose identities have become known to Employee in the course and scope of his/her employment.”

D.      HOW CAN A COMPANY PROTECT ITSELF FROM TRADE SECRET LIABILITY TO OTHER COMPANIES?
          Companies that hire or “raid” employees from competitors may be liable for misuse of the former employer’s trade secrets.  Here are a few tips to avoid problem situations.  
  • Do not solicit a competitor’s employees. 
  • Advertise positions in appropriate publications and let employees initiate contact with your business.
  • Do not request employment agencies to recruit employees from a single competitor.
  • Do not use a competitor’s trade secrets in your business.  Even if your new employee did not have a trade secrets agreement with his/her former employer, the employee may still violate trade secrets protection by disclosing or using the trade secret in your business.
  • Ask a prospective employee if he/she is subject to a non-competition, non-solicitation, or trade secrets agreement.  If so, review the agreement.  Determine whether your company can hire the person without breaching the agreement(s).
Trade secret protection is complicated.  This Alert is designed to provide a summary of general information.  It does not address the entire scope of trade secrets law.  Further, it does not offer solutions to individual problems.  Employers and employees with specific questions concerning trade secrets issues should consult legal counsel.

Kenneth J. Sargoy, Esq. provides counseling and representation in connection with employment matters.  Questions about trade secrets as well as other employment matters may be directed to Kenneth J. Sargoy, Esq., telephone toll free (855) 235-1488 or (310) 472-7113 or to his e-mail, ken@sargoylaw.com.   

THIS ALERT IS A NEWSLETTER AND MAY CONSTITUTE ADVERTISING UNDER APPLICABLE RULES OF PROFESSIONAL CONDUCT.