In a decision that many employers have been waiting for since the Ninth Circuit’s decision certifying a class of approximately 1.5 million women, the U.S. Supreme Court has rejected class action certification in “one of the most expansive class actions ever.” See Wal-Mart Stores v. Dukes, No. 10-277 (June 20, 2011). The case involved allegations of gender discrimination in pay and promotion decisions in violation of Title VII of the Civil Rights Act of 1964 made on behalf of all current and former female employees of Wal-Mart, estimated to number as many as 1.5 million. Reversing a Ninth Circuit decision that upheld the class certification, the Supreme Court found the lower courts had misapplied the federal rules governing the circumstances in which class certification should be accorded and the availability of damages as an incident of class injunctive or declaratory relief.

The plaintiffs alleged that Wal-Mart permits local managers to use broad discretion in making decisions regarding pay and promotion, that managers employ their own subjective criteria in making those decisions disproportionately in favor of men, and that Wal-Mart was aware of these results. In essence, the plaintiffs alleged that Wal-Mart’s “corporate culture” permitted bias against women to affect managers’ discretionary decisions regarding pay and promotion.

In a decision written by Justice Antonin Scalia, the Supreme Court disagreed with the lower courts’ conclusion that the plaintiffs had satisfied the class action requirements in Rule 23(a) and Rule 23(b)(2) of the Federal Rules of Civil Procedure. Justice Scalia observed at the outset that class actions are an “exception” to the general rule that litigation may be maintained only by named parties. While the courts’ role in keeping such actions within proper bounds may lead to class certification analyses touching the merits of the substantive claims, such overlap “cannot be helped,” he said, and must not cause courts to refrain from a “rigorous analysis” of whether plaintiffs have met the class certification standards. 

The case is significant in light of the recent increase in class actions based on protected categories in California. See a more detailed analysis by Jackson Lewis at "Supreme Court Reverses Certification of Nationwide Class of 1.5 Million Female Workers"

In 2009, companies who classified certain unlicensed accountants, engineers and other professions as exempt from overtime under the California Learned Professional Exemption were dealt a broadside by a federal District Court when it held that unlicensed accountants were categorically ineligible for the Learned Professional Exemption. The decision lead to numerous employers revaluating the Learned Professional Exemption involving certain positions and it likely triggered significant exempt status litigation in California. See Campbell v. PricewaterhouseCoopers, LLP, 602 F. Supp. 2d 1163, 1185 (E.D. Cal. 2009).

On June 15, 2011, the Ninth Circuit reversed, in part, and remanded the lower court’s controversial decision and breathed new life into the California Learned Professional Exemption. See Campbell v. PricewaterhouseCoopers LLP, 9th Cir., No. 09-16370, 6/15/11.

The case involves approximately two-thousand unlicensed junior accountants at PricewaterhouseCoopers LLP. The court found that unlicensed accountants were not categorically barred from being classified as exempt from overtime based on the Learned Professional Exemption. The Court held that the employer could present evidence to establish the exemption to a jury.

 

Although not likely to receive as much attention, the Ninth Circuit also remanded to the jury certain important questions regarding the Administrative Exemption. For example, the jury must review whether the audit work performed by the junior accountants could be classified as work of “substantial importance” to the management of the clients’ operations. The issue of whether work is of a “substantial importance” under the Administrative Exemption is a critical element under the exemption which many employers struggle with interpreting. As a result, employers may also receive additional help in clarifying a problematic area under the Administrative Exemption. The Court noted:

 

While we recognize Plaintiffs are on the low end of PwC’s hierarchy, we see no authority that would bar their audit work from meeting this test as a matter of law. The former federal regulations incorporated by the administrative exemption include several examples of administratively exempt white collar employees, including tax consultants, wage-rate analysts, analytical statisticians, claim agents, and “many others.” Id. § 541.205(c)(3), (5). In contrast, the examples of nonexempt employees are predominately clerical—bookkeepers, secretaries, messengers, and other “clerks of various kinds.” Id. § 541.205(c)(1)-(2). Whether Plaintiffs are more comparable to the former category or the latter will depend on how the jury resolves the numerous factual disputes discussed above . . .

 

This case represents a well timed victory for employers with the end of the story still to be written by the jury which has the job to deliberate the factual issues in the case. However, employers should consult with their legal counsel regarding the implications, if any, of this decision for their organizations.

Rest and meal period cases continue to make headlines in California while employers await the California Supreme Court’s decision in Brinker Restaurant v. S. C., (review granted Oct. 22, 2008 (Brinker), and Brinkley v. Public Storage, (review granted Jan. 14, 2009 (Brinkley)).

In another positive decision for employers, the Second Appellate District Court upheld the lower court’s decision to deny class certification with respect to meal and rest break, Labor Code 203 penalties, and inaccurate itemized wage statement claims against Lamps Plus, Inc., et al. (“Lamps Plus”) on May 10, 2011. See, Lamps Plus Overtime Cases (CA2/8 B220954 5/10/11). The Court ruled that employers are not required to force employees to take meal periods. Rather, the employer should provide the employee an opportunity to take their meal periods. The Court held:

Consistent with the purpose of requiring employers to provide employees with meal breaks, the Labor Code and the IWC use mandatory language precluding employers from pressuring employees to skip breaks, declining to schedule breaks, or establishing a work environment discouraging or preventing employees from taking such breaks. (See, e.g., Lab. Code, § 226.7, subd. (a) [“No employer shall require any employee to work during any meal or rest period . . .”].) This mandatory language does not mean employers must ensure employees take meal breaks. Rather, employers must only provide breaks, meaning, make them available. Our interpretation of the meal break requirement is supported by the definition of the word “provide” as used in Labor Code sections 226.7, subdivision (b), and 512, subdivision (a) (“providing”), as well as California Code of Regulations, title 8, section 11070, subdivisions 11 and 12. (See fns. 5 & 6, ante.) “Provide” means “to supply or make available.” (Webster‟s Tenth Collegiate Dictionary (1993) p. 937.) The language regarding rest breaks is more permissive. An employer need only “authorize and permit” rest breaks. (Cal. Code Regs., tit. 8, § 11070, subd. 12, italics added.)

 

In addition to Brinker and Brinkley cases, there are several additional meal and rest break cases pending before the California Supreme Court. Employers should continue to monitor these cases with the hope the Supreme Court will finally provide some clarity regarding the debate over the State’s meal and rest period laws.

While courts have generally avoided finding members of management individually liable for claims of discrimination under California Fair Employment and Housing Act (“FEHA”) and the California Family Rights Act (“CFRA”), plaintiff attorneys have attempted several different tactics to achieve this end especially where the employer is owned by a sole shareholder. In Leek et. al. v. Cooper, No. C061510 and C063152 (3rd Appellate District April 15, 2011), the Court held that whether a sole shareholder is liable as an employer for discrimination under the FEHA and the CFRA  should be determined by using the alter ego doctrine. 

Plaintiffs alleged that Jay Cooper (“Cooper”), the sole shareholder of a company, was liable for age discrimination as their employer since individuals are not personally liable for discrimination under FEHA or CFRA.  To show he was an employer, Plaintiffs argued the Court should considering using such analysis as: (1) a test similar to determining if an individual is an employee or independent contractor; (2) whether a shareholder is an employee under the Americans with Disabilities Act; and/or (3) whether two corporations should be considered a single employer. The Court rejected the Plaintiff’s arguments. The Court held that when seeking to hold a shareholder liable as the employer under the FEHA and the CFRA, the alter ego test is the appropriate test, not whether the sole shareholder exercises control over employees. In this case, the Court upheld summary judgement for the employer and found insufficent evidence to establish the sole shareholder as the alter ego of the employer.

The Ninth Circuit held today that the whistleblower provision of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A(a)(1) (“SOX”), protects employees of publicly-traded companies who disclose certain information to three recipients: (1) federal regulatory and law enforcement agencies; (2) Congress; and, (3) employee supervisors. These three recipients are specifically enumerated in the law. The Court held that “leaks to the media are not protected.” See, Tides v. Boeing Co., 9th Cir., No. 10-35238, (5/3/11)

The plaintiffs alleged that their disclosures of perceived SOX violations to a newspaper were protected under § 1514A(a)(1) because reports to the media may inevitably “cause information to be provided” to Congress, federal law enforcement or regulatory agencies. The Ninth Circuit refused to adopt such an inevitable disclosure doctrine under SOX. Rather, the Court relied on the plain language of the statute when it wrote:

If Congress wanted to protect reports to the media under § 1514A(a)(1), it could have listed the media as one of the entities to which protected reports may be made.

The decision is a victory for publically-traded employers since plaintiffs’ arguments could have lead to a significant expansion of SOX. Employers should continue to monitor the case to see if the Ninth Circuit’s decision will be appealed.

Continuing to uphold the enforcement of arbitration agreements, the U.S. Supreme Court has struck down the California courts’ refusal to enforce class action waivers in consumer arbitration agreements on the ground that the state law is preempted by the Federal Arbitration Act. AT&T Mobility LLC v. Concepcion, No. 09-893 (Apr. 27, 2011). The ruling would appear to apply to arbitration agreements in the employment context as well. The Court reversed the decision of the Ninth Circuit Court of Appeals, which had held that AT&T’s arbitration clause was unconscionable and unenforceable under California law.

Although AT&T Mobility involved a consumer contract, the principles and rationale of the decision appear to be fully applicable to arbitration clauses in employment contracts. Based on the Supreme Court’s decision in Concepcion, it would appear that such clauses are valid and enforceable.  Employers who utilize arbitration agreements should seek legal advice in the preparation of class action waiver provisions and for the drafting of arbitration clauses generally. Employers that do not utilize arbitration may want to consider whether such a policy is right for them and, if so, what type of alternative dispute resolution program would work for their organization. For a detailed analysis, please see Supreme Court Strikes Down California’s Prohibition of Class Action Waivers in Arbitration Agreements

An employer who is strategic and proactive in California wage and hour compliance can avoid hundreds of thousands of dollars in potential liabilities and defense costs. For example, there is significant litigation regarding employment applications in California especially the limitations regarding criminal convictions set forth at California Labor Code Section 432.7, et seq. and Section 432.8. Look at the course of events involving an employer’s employment application which failed to properly exclude inquiries regarding certain marijuana convictions more than 2 years old.

Three individuals brought a class action against Starbucks Corporation (“Starbucks”) alleging more than $26 million in statutory penalties on behalf of an estimated 135,000 job applicants based on Starbuck’s employment application. In Starbucks Corp. v. Superior Court (2008) 168 Cal.App.4th 1436, the court held plaintiffs did not have standing to represent the proposed class because none had any marijuana convictions to disclose.

Subsequently, a court permitted plaintiffs to file a first amended complaint to include only job applicants with marijuana convictions and permitted class counsel to conduct further discovery to find a “suitable” class representative. Incredibly, Starbucks was ordered to review applications until it identified job applicants with prior marijuana convictions and then was ordered to disclose their names to class counsel. The employer appealed the discovery order. On April 25, 2011, the Fourth Appellate District Court reversed the discovery order since the order violates the “reform legislation the class action purports to enforce” – to avoid disclosure of certain marijuana convictions. See, Starbucks Corp. v. Super. Ct. (CA4/3 G043650 4/25/11)

In light of this chain of events, employers should consider being proactive and strategic by reviewing your employment application, forms and handbooks for California law.

A recent California Appellate Court upheld an employer’s right to terminate an employee for misconduct involving violent acts or threats of violence even if caused by a disability under the California Fair Employment and Housing Act (“FEHA”). In Wills v. Superior Court., No. G043054 (4th Appellate District April 13, 2011), the Court dismissed the employee’s disability discrimination claim against Orange County Superior Court (“OC”). Linda Wills (“Wills”), the employee, suffered from bipolar disorder. At one point during her employment, Wills allegedly had a severe manic episode and threatened employees that they would be on her kill list. A short time later, Wills’ was provided a leave of absence. During the leave, she allegedly sent coworkers ring tones that included threatening statements and also sent threatening emails. 

The Court dismissed the cause of action for disability discrimination because OC provided a legitimate non-discriminatory reason for its actions. The Court held that an employee may be terminated for disability-caused misconduct involving threats of violence or violence against a coworker. It found that this strikes the appropriate balance between the employer’s duty not to discriminate based on disability and at the same time provide a safe working environment.

The Court distinguished the Ninth Circuit case of Gambini v. Total Renal Care, Inc. (9th Cir. 2007) 486 F. 3d 1087, where the Ninth Circuit held that conduct cause by a disability is part of the disability and cannot be a separate basis to terminate an employee.  In Gambini, the plaintiff was terminated because her outbursts generally frightened coworkers.  The Appellate Court  distinguished Gambini  case by noting that the plaintiff in that case was not terminated for making threats but for frightening coworkers.  Employers should be mindful of this difference.  It will be interesting to see if the California Appellate Court’s refinement of the much criticized Ninth Circuit Decision in Gambini will withstand possible appeal by the plaintiff.

California Department of Fair Employment and Housing (DFEH) Director Phyllis W. Cheng, speaking at the Jackson Lewis LLP-sponsored Association of Corporate Counsel (ACC) Labor and Employment Committee Meeting on Feb. 22, 2011, told the gathering of business lawyers that the agency would continue to pursue high-impact cases of “systemic discrimination” under the Fair Employment and Housing Act (FEHA) and the California Family Rights Act (CFRA) as a means of leveraging its resources in a time of government austerity.

The DFEH established a Special Investigation Unit to pursue such cases potentially through class actions and multi-plaintiff  litigation. According to Cheng, the DFEH has transformed itself under the state’s fiscal crisis measures to become more effective and efficient. Doing more with less, Cheng said the DFEH now targets “systemic discrimination” with case grading, special investigations, group and class actions, mediation, and education.

Employers who operate in California face unique challenges. California continues to expand the rights of employees. Even well-intentioned employers, for lack of appropriate guidance, can find themselves at risk for violations of the law.  As Cheng eloquently stated, the lessons are clear for employers: “Complying with workplace laws is good for business and productivity." For more information, see   Calif.’s Canary In The Employment Mine Shaft

As a perquisite to file a civil lawsuit under the California Fair Employment & Housing Act ("FEHA"), a current or former employee must file a charge of discrimination with the Department of Fair Employment and Housing ("DFEH") within one year of the alleged adverse act. Gov’t Code § 12960(c). If the DFEH chooses not to pursue a claim on behalf of the aggrieved employee or the employee requests to pursue his or her civil remedies without the DFEH’s assistance, the DFEH will issue a right-to-sue notice. The right-to-sue notice entitles the employee to bring a civil suit against the employer within one year. The question is whether the statute of limitations to file a civil suit is triggered upon issuance or receipt of the right-to-sue notice? A California appellate court recently answered this question.

In Hall v. Goodwill Industries of California, 193 Cal. App. 4th 718 (2011), a former employee filed a charge of discrimination with the DFEH and received an immediate right-to-sue notice. The employee became incapacitated during the period after the DFEH issued his right-to-sue notice, and was allegedly unaware that the DFEH sent the notice until almost a year later. He filed a civil complaint one year after the DFEH sent the right-to-sue notice, but less than one year after receipt of the right-to-sue notice.  Interpreting the plain language of Government Code section 12965(b), the appellate court confirmed that the date of issuance—not the date of receipt—triggers the running of the statute of limitations to file a civil complaint.　

Notably, the appellate court’s interpretation of the statute of limitations under FEHA is different from federal interpretations of a similar, but not identical, statute of limitations under Title VII. Under Title VII, a civil lawsuit must be filed 90 days after receipt of the right-to-sue letter.