DECEMBER 2002

I. LEGISLATIVE/REGULATORY UPDATE
Pending Legislation

New Federal Laws

With the close of California's legislative session and the focus on the elections in Washington D.C., little legislative activity has occurred. However, two minor employment-related bills were signed into law by President George W. Bush. First, the Jobs for Veterans Act (H.R. 4015) provides incentives for states to raise the quality of veterans' job training and placement services. The law directs the U.S. secretary of labor to create a national employment rate for veterans. The second bill, H.R. 5542, transfers the responsibility for administering benefits available under federal law from the Social Security Administration to the Labor Department.

Withholding Rules for Employee Stock Options and Bonuses

California's Employment Development Department ("EDD") recently announced its plan to postpone until January 1, 2003 the implementation of a higher tax withholding applicable to employee stock options and bonuses. AB 2065 (Oropeza) would have required employers to withhold a different amount of California personal income tax on bonuses and stock options awarded to employees retroactive to January 1, 2002. The EDD, however, agreed to delay enforcement of the regulation until next year. To obtain additional information on personal income tax withholdings, visit the EDD's website at www.edd.ca.gov.

II. JUDICIAL UPDATE

Court Rejects Employee's Discrimination Investigation Stress Claim

In Northrop Grumman Corp. v. Workers' Compensation Appeals Board (2002) 127 Cal.Rptr.2d 285, a California court of appeal rejected a workers' compensation stress claim filed by a supervisor who was investigated and found innocent of workplace discrimination. Northrop Grumman Corp. ("the Employer") employed Robert Graves ("the Employee") to train employees. The Employee was accused of discriminating against a trainee. An investigation ensued, which included interviews with employees and a review of training documents. The evidence did not confirm the charge of racial discrimination, but did uncover evidence of the Employee's failure to report time away from work and his inadequate supervision of trainees. As a result, the Employee was given a final warning and three-day suspension.

The Employee filed a workers' compensation claim, complaining of the stress caused by the investigation and alleged post-investigation harassment by his supervisor. The workers' compensation judge found that the Employee had a compensable psychiatric injury arising out of a false accusation of racial prejudice and the subsequent harassment by his supervisor. The judge awarded the Employee permanent disability and future medical expenses. The Workers' Compensation Appeals Board ("WCAB") agreed, and the Employer appealed.

The court rejected the WCAB decision. The court observed that California Labor Code sections 3208.3(a)(3) and 3208.3(h) state that a psychiatric injury is not compensable if 35% to 40% of all causes of the injury were lawful, nondiscriminatory, good faith personnel actions. This exception was created to furnish employers a degree of freedom in making regular and routine personnel decisions. When presented with a race discrimination charge, the Employer was obligated by state and federal law to investigate. Thus, the Employer conducted a lawful, nondiscriminatory, good faith personnel action. The court sent the case back to the WCAB to determine whether the lawful, nondiscriminatory, good faith personnel action was less than 35% of the cause of the injury.

This is a positive ruling for California employers because the court recognized the limited scope of compensability for psychiatric injuries. Also, the Northrop decision reminds employers to investigate all employee claims of unlawful discrimination or harassment, without fearing that the accused employee will recover workers' compensation benefits or file a discrimination or defamation lawsuit. Assuming the investigation is conducted properly, the "good faith personnel action" defense will generally apply not only to workers' compensation cases but also to other claims.

Attorneys' Fees for Labor Commissioner Appeals

In Smith v. Rae-Venter Law Group, Timothy Smith ("the Employee") filed a claim with California's Division of Labor Standards Enforcement (commonly referred to as the "labor commissioner") against Rae-Venter Law Group ("the Employer") for vacation pay, unreimbursed business expenses, and unpaid bonuses. He was awarded $8,878.57 for vacation pay and expenses, but was denied the $12,000 bonus. The Employee appealed to the superior court. The court awarded the same amount as the labor commissioner, except for a small amount of interest.

The Employer filed a motion for $32,000 in costs and attorney's fees, arguing that a party is "unsuccessful" on appeal if the award received in superior court is not more favorable to the appealing party than that granted by the labor commissioner.

The California Supreme Court concurred with the Employer. Thus, in the instance when the employee is the appealing party, if the superior court's award is not greater than that granted by the labor commissioner, he or she could be required to pay the employer's costs and attorney's fees. Likewise, if the employer appeals and the superior court award is equal to or greater than that made by the labor commissioner, the employer can be required to pay the employee's costs and attorney's fees.

In reaching this decision, the Supreme Court overruled prior court decisions holding that an employer is unsuccessful on appeal if the court awards anything to the employee, even if less than the labor commissioner's decision. The Supreme Court reasoned that the new rule would provide a more effective deterrent to frivolous appeals and be equally applicable whether the employer or the employee brings the appeal.

Therefore, the Court's decision in Smith encourages employers to carefully prepare and present defenses to an employee's wage claim in hearings before a labor commissioner hearing officer. Further, when evaluating appeals, an employer should consider the potential liability to the labor commissioner or opposing counsel for costs and attorney's fees when deciding whether to appeal an adverse labor commissioner decision. Finally, to avoid any potential liabilities, employers should comply with all state and federal minimum wage, overtime, and wage payment laws.

Military Reservist Granted Absolute Right to Reemployment

In Jordan v. Air Products and Chemicals, Inc. (C.D.Cal. 2002) 225 F.Supp.2d 1206, a federal district court judge in California held that an employer violated the Uniform Services Employment and Reemployment Rights Act (USERRA) by failing to reemploy an employee after he returned from military service. According to the court, the USERRA creates an unqualified right to reemployment for those who satisfy its duration and notice requirements.

Marvin Jordan ("the Employee") worked as a gasoline loader at Air Products and Chemicals, Inc. ("the Employer"). Before and during his employment, he was a member of the U.S. Naval Reserve. The Employee gave notice to his employer that he would require a military leave of absence from July 31 - August 17, 2000. When he returned to work on August 21, 2000, however, the Employee learned that his employment had been terminated. He then sued the Employer under USERRA.

The USERRA protects the rights of service members to reemployment after an absence necessitated by their duties in the uniformed services. This protection extends to members of the armed services who (1) properly notify their employer of the need for protected leave, (2) take a cumulative absence of not more than five years, and (3) properly reapply or report back to work.

The Employer argued that the Employee was required to prove not only a failure to reemploy but also that his military service was a " motivating factor" in the termination of his employment. The court disagreed, holding that since the Employee was a covered member of the uniformed services who gave proper notice of the leave and had taken a cumulative leave of less than five years, the Employer was required to reemploy him on his return from active duty. Once re-employed, the Employer could terminate his employment so long as the decision was not motivated by his participation in the armed forces.

Klinedinst Symposium to Cover New Employment Laws

This year has resulted in several new laws and cases which will have a significant impact on California employers in the years to come. Several new laws will take effect early next year. Don't get left behind. All new laws and trends will be reviewed in our annual Employment Law Symposium on January 16, 2003. Additional details and registration information are available by clicking here.

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.

Want to Automatically Receive These Monthly Updates?