JULY 2001

I.
LEGISLATIVE UPDATE

The following bills are currently pending in the California Legislature, or are awaiting signature of Governor Davis:

• AB 1635 (Vargas): AB 1635 would provide employees the right to obtain a copy of their personnel file, while allowing employers to charge up to ten cents per page for copying. The bill has passed the Assembly and the Senate and has now been enrolled to Governor Davis.

• AB 1676 (Committee on Labor and Employment): This bill would require the Labor Commissioner to maintain a statewide database of labor standards violations. The bill passed out of the Assembly and is now before the Senate.

• AB 800 (Wesson): AB 800 would provide a new basis for employment discrimination lawsuits if an employer adopts or enforces a policy that limits or prohibits the use of any language in the workplace, unless very specific requirements are met. AB 800 is currently being reviewed in the Senate Appropriations Committee.

• AB 1649 (Goldberg): This bill would make California the second state to have a statute establishing "gender identity" as a basis of an employment discrimination lawsuit. AB 1649 would impact employers with five or more workers. The bill is currently being reviewed in the Senate.

• SB 1197 (Romero): SB 1197 would prohibit employers who maintain an absence control policy from counting sick leave used to attend to an illness of a child, parent, or spouse as a basis for discipline against an employee. The bill is being reviewed in Assembly Committee.

II.
JUDICIAL UPDATE

United States Supreme Court to Review the Continuing Violation Doctrine

In National Railroad Passenger Corp. v. Morgan, Abner Morgan's suit against National Railroad ("the Employer") claimed several Title VII violations, including a racially hostile work environment. The trial court granted partial summary judgment in favor of the Employer, holding that it could not be liable for conduct occurring prior to the applicable 300-day limitation period. Title VII's limitation period of 300 days limits a company's liability to unlawful conduct occurring within the 300 days prior to the filing of an EEOC charge.

Morgan filed a charge with the EEOC on February 27, 1995, so the critical statutory limitations date was May 3, 1994 – 300 days earlier. The trial court allowed the jury to consider pre-limitations period conduct solely for "background or context," but did not allow such conduct to be the basis for liability. The Ninth Circuit, however, applied the continuing violation theory holding that "pre-limitations period conduct should have been presented to the jury not merely as background information, but also for the purposes of liability." The Supreme Court should issue its decision regarding the breadth of the continuing violation doctrine by June 2002.

United States Supreme Court to Decide Whether Employer Must Notify Employee that Leave is FMLA Designated

In Ragsdale v. Wolverine Worldwide, Traci Ragsdale began her employment with Wolverine on March 17, 1995. She was diagnosed with cancer in February 1996 and requested medical leave from Wolverine on February 21, 1996. Wolverine granted her request, and medical leave commenced on that date. Wolverine's leave policy allowed employees with six months of service to take leave for up to seven months. The leave policy required employees on leave to submit requests for extension of leave every 30 days. Wolverine did not notify Ragsdale of her leave eligibility under the FMLA or her right to have leave designated as FMLA leave.

On September 20, 1996, Ragsdale's employment was terminated because she had exhausted her seven months of company-provided leave and was unable to return to work. On September 25, 1996, Ragsdale returned to Wolverine and requested additional FMLA leave. She was informed that she had requested and utilized all of her available leave.

Ragsdale filed suit against Wolverine under the FMLA, relying on Department of Labor regulations providing that unless the employer prospectively designates company leave as FMLA leave, the 12-week FMLA leave entitlement does not begin to run. The district court granted summary judgment in favor of Wolverine, holding that the DOL regulations were based on an erroneous interpretation of the FMLA and could not be enforced. The Eighth Circuit affirmed the holding, noting that congressional intent behind the FMLA simply mandated a minimum of 12 weeks of leave for employees. The Eighth Circuit further opined that the FMLA should not be interpreted to construct a trap for unwary employers who had already provided 12 or more weeks of leave for their employees. The U.S. Supreme Court granted certiorari to review the Eighth Circuit's decision. Again, a decision should be issued by June 2002.

Misclassification of Employees Results in $90,000,000 Verdict

This month, an Alameda County superior court jury awarded $90,000,000 for payment of overtime wages to a group of Farmers Insurance Exchange claims adjusters who the company had misclassified as being exempt from overtime. Penalties, interest, and attorneys' fees could increase the cost to the company to as much as $120,000,000.

Farmers had designated some 2,402 claims adjusters as exempt salaried employees (under the administrative exemption) and did not pay them overtime. The evidence at trial revealed that the typical claims adjuster earned approximately $30,000 per year and worked about 50 hours per week. The jury found that the job duties of the adjusters did not satisfy the criteria for classification as exempt employees (i.e., the employees did not spend at least half of their time engaged in duties that were managerial, intellectual, or creative in nature, and/or that they did not use their discretion and independent judgment during at least one-half of their working time). Farmers plans to appeal the verdict.

This verdict constitutes yet another strong reminder that misclassification of employees – even if done so in good faith – can subject employers to significant, and in some cases devastating, liability. KLINEDINST encourages all employers to periodically review their roster of employees to ensure that all workers are properly classified.

If you would like to discuss these or any other employment law matters, please do not hesitate to contact any member of Klinedinst's Employment Law Department.