DECEMBER 2001

I.
LEGISLATIVE/REGULATORY UPDATE

Exempt Employees Pay Rules

The Industrial Welfare Commission ("IWC") took a major step forward in resolving employer concerns over exempt employee salary deductions. The IWC clarified that businesses in California should continue to follow the federal rules concerning exempt employees' salary deductions.

This past summer, an opinion letter was released that attempted to significantly revise California's enforcement policy concerning salary deductions by requiring payment of a full month's salary for any month in which an exempt employee works any amount of time. The IWC, however, recently confirmed that California will continue to follow the federal Fair Labor Standards Act regulation concerning exempt worker salary deductions. Historically, California has followed the federal salary basis test, which provides that deductions may be made from an exempt employee's salary when the employee performs no work at all for an entire week, or under other specified circumstances.

Employers Must Update Posters for 2002

Updated employment posters must be posted by California employers starting January 1, 2002. The most noticeable change from previous posters is the state minimum wage poster which reflects an increase in the minimum wage from $6.25 to $6.75. The state "Harassment or Discrimination in Employment is Prohibited by Law" poster has also been modified to reflect California's new law limiting English-only policies. A change to the state workers' compensation poster sets forth the employer's insurance carrier's address so that injured employees may submit claims if the employer fails to do so.

Other poster changes include minor revisions to the Cal/OSHA poster, a reformatted "Time Off for Voting" poster, and a technical correction to the Family Leave Notice. Please feel free to contact any of the firm's employment law attorneys for assistance in obtaining the 2002 employment posters.

EEOC Assists Employers with Emergency Evacuation Procedures

The United States Equal Employment Opportunity Commission ("EEOC") recently posted a new section to its website. The new section is designed to assist employers who are developing or re-evaluating emergency evacuation procedures. All employers should consider implementing a comprehensive emergency evacuation plan that provides prompt and effective assistance to individuals with disabilities.

The EEOC document explains how employers may identify individuals who require assistance and how much medical information employers may obtain. The document also explains to whom employers may provide information about an employee's medical condition and need for assistance.

II.
JUDICIAL UPDATE

Sexual Harassment Defense Unavailable Under California Law

A California court of appeal recently held that a federal sexual harassment defense is not available to employers sued for sexual harassment under the California Fair Employment and Housing Act ("FEHA"). In Department of Health Services v. Superior Court, an employee of the Department of Health Services sued claiming sexual harassment and sex discrimination under FEHA. The Department of Health Services argued that a defense outlined by the United States Supreme Court in 1998 should be applied to FEHA claims. Under this test (known primarily as the Burlington/Faragher affirmative defense), an employer can avoid liability for sexual harassment by a supervisor if:

(1) The employer did not take any tangible, adverse job action (such as termination or demotion) against the employee;

(2) The employer exercised reasonable care to prevent harassment and to correct harassment episodes; and

(3) The employee unreasonably failed to take advantage of the employer's preventive or corrective policies or opportunities or otherwise failed to avoid harm.

The Burlington/Faragher decisions were landmarks, conferring significant protection to employers who demonstrate a commitment to maintaining harassment and discrimination-free workplaces. The defense, however, was applied to federal claims under Title VII. Even though a recent federal Ninth Circuit decision held that the same defense should apply under California's FEHA, no California court had directly ruled on the issue, and it remained open.

The California court of appeal based in Sacramento recently ruled that the Burlington/Faragher defense does not apply to state/FEHA sexual harassment claims. The court ruled that California law clearly holds that an employer will be "strictly liable" for the harassing conduct of its supervisors, even if the employer was not aware of the improper conduct. Thus, it appears California employers sued under FEHA cannot rely on the Burlington/Faragher defense to avoid liability for the actions of their supervisors.

Wrongful Termination Claims Stated for Termination
Based Upon Refusal to Sign Employer's Non-Compete Covenant

In Walia v. Aetna, a California court of appeal held that a wrongful termination suit may be pursued when an employee is discharged for refusing to sign an employer's non-compete agreement. Anita Walia ("the Employee") sued Aetna ("the Employer") for wrongful termination in violation of public policy. The evidence at trial established that the Employee had been rated as having a "very good" job performance. During a merger, the Employer sought to compel all of its employees to sign a "non-compete and confidentiality agreement" ("the Agreement"). The Employee refused to sign the Agreement. Thereafter, the Employee was fired for "failure to meet the requirements of [her] position." The Employer's policy prohibited its current and former employees from working for "any competitor of the Company engaged in healthcare business" for a period of six months in the state which the Employee worked for the Employer or from working within a 50 mile radius of the sales territory the Employee had previously covered for the Employer.

At trial, the jury was convinced that the Employee was terminated for refusing to sign the Agreement, and awarded the Employee $54,312 in compensatory damages, $125,000 in emotional distress damages, and $1,080,000 in punitive damages.

On appeal, the Employer argued that its agreement did not violate California Business & Professions Code section 16600 and, further, that the termination for refusing to sign the Agreement did not violate public policy because any such policy was neither articulated at the time of her discharge nor fundamental and substantial. The appellate court disagreed, citing Business & Professions Code section 16600 which provides "[E]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." The court found that the Agreement prohibited the Employee from working in her chosen profession, that of a salesperson, for most employers in the healthcare industry. The court condemned the Employer's broad restrictions, and found that the termination for failure to sign the Agreement violated California's public policy against non-compete agreements. Therefore, the jury verdict in favor of the Employee was affirmed.

United States Supreme Court Reviews Seniority Plans and Disability Laws

The United States Supreme Court is currently reviewing the Americans With Disabilities Act, the 1990 federal law that forbids job discrimination against disabled individuals and requires employers to offer reasonable accommodations to disabled people who are otherwise qualified to perform jobs they hold or seek. In US Airways, Inc. v. Barnett, the issue before the Court is whether the ADA requires an employer to reassign a disabled employee to a position as a "reasonable accommodation," even though another employee is entitled to hold the position under the employer's established seniority system. In US Airways, the employee had asked for a transfer after hurting his back loading baggage at the San Francisco International Airport. He was given a job in the mail room, but employees with more seniority later requested the same position. Under the employer's seniority rules, the more senior employees could bump the more junior, injured employee to a less desirable job. The employee sued under the ADA, and the Ninth Circuit Court of Appeals held that employers cannot use the seniority system to avoid seeking solutions for disabled employees. It is unclear how any ruling would affect policies established during company bargaining with unions or how it would impact California employers subject to more stringent disability laws under the FEHA. A decision is expected by June 2002.

United States Supreme Court to Clarify Rights of Older Workers in Age Discrimination Claims

The United States Supreme Court agreed this month to decide whether older employees may use a civil rights lawsuit to claim that company layoffs targeted them more heavily than younger workers. The Court agreed to hear an appeal from Florida utility workers in Adams v. Florida Power Corp. who claimed that company layoffs disproportionately impacted older workers. In a class action lawsuit filed by former Florida Power employees who were 40 or older when fired as part of company reorganizations in the early 1990's, the employees claimed that they were fired because the company wanted to "change its image" and reduce its cost for salaries and pensions. The plaintiffs alleged that more than 70% of the laid-off workers were forty or older.

Federal appeals courts are divided on the question of whether employees may claim age discrimination based on the premise that an employer's actions had a disparate impact on older workers. Other civil rights lawsuits, such as those alleging other types of discrimination in housing or hiring, frequently use a disparate impact theory. Such suits are common because it is easier for plaintiffs to show the effects of discrimination on a certain group than it is to prove that the discrimination was intentional from the start.

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.

We wish you a happy holiday season and a healthy and happy 2002.