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AUGUST 2003 I. LEGISLATIVE/REGULATORY
UPDATE Pending California Legislation The Governor has until October 12, 2003 to sign or veto bills sent by the Legislature, which will adjourn its session on September 12, 2003. AB 223 (Diaz) alters attorney’s fee payments for appeals of wage and hour decisions by the Labor Commissioner. AB 223 has been signed into law by Governor Davis and will be codified at Labor Code Section 98.2. Either the employer or employee may appeal the decision of the Labor Commissioner to a trial court for a hearing de novo. If an appeal is taken, and the party seeking review is unsuccessful, current statutory law requires the trial court to assess costs and reasonable attorney’s fees against the party who filed the appeal. Cases interpreting this law have held that the appealing party is unsuccessful unless the court judgment is more favorable to the appealing party than the Labor Commissioner’s award. AB 223 now provides that an employee is successful so long as the employee recovers a judgment in his or her favor. The bill specifically overturns the California Supreme Court’s decision in Smith v. Rae-Venter Law Group (2002) 29 Cal.4th 345. Under AB 223, even if a court decreases the amount of the Labor Commissioner’s monetary award, as long as it is one penny or more, the employer must pay the employee’s reasonable attorney’s fees. AB 76 (Corbett) holds employers liable for the harassment of any employee by any person, including clients, customers, delivery personnel, or other service providers. AB 76 is currently before the Senate Appropriations Committee. SB 796 (Dunn) would add a 25% civil penalty against employers for Labor Code violations, as well as requiring employers to pay the employee’s reasonable attorney’s fees and costs. AB 796 is in the Assembly Appropriations Committee. AB 274 (Koretz) creates a rebuttable presumption that employer actions are retaliatory if an employee has exercised any rights under the Labor Code in the previous 60 days. The bill would require employers to prove by a preponderance of the evidence that their employment-based actions were not retaliatory. AB 274 is awaiting action on the Senate floor.
The Fair and Accurate Credit Transaction Act (H.R. 2622) was approved by the House Committee on Financial Services. The proposed legislation includes the reauthorization of the Fair Credit Reporting Act (“FCRA”) and contains measures that would ensure the accuracy of personal credit reports and increase protections from identity theft. The bill also would make changes to FCRA’s Title VI in an effort to remove obstacles to workplace investigations created in 1999 when the Federal Trade Commission issued what is now known as the “Vail Opinion Letter.” The Vail Opinion Letter stated that FCRA notification and disclosure requirements applied whenever employers hired third-party organizations to investigate allegations of workplace sexual harassment. H.R. 2622, as passed by the committee, would amend Title VI of FCRA to exclude any investigation “involving the suspected misconduct relating to employment” from the definition of a consumer report. The bill, however, would require an employer to provide an investigation summary, excluding specific sources of the information, if the results of the investigation lead an employer to take disciplinary action against the employee. The bill should come up for debate before the full House in early September, when Congress returns from its month-long summer recess. A Senate version of the FCRA reauthorization bill has not been introduced.
As of July 15, 2003, the filing requirements for Form EEO-1 have changed. The Form EEO-1 is a report filed with the Equal Employment Opportunity Commission (“EEOC”), mandated by Title VII of the Civil Rights Act of 1967, as amended by the Equal Employment Opportunity Act of 1972. The Act mandates that employers report the racial and gender compositions of their workforces by specific job categories. All employers located in the 50 states and the District of Columbia who have at least 100 employees are required to file Form EEO-1 annually with the EEOC. Federal government contractors and first-tier subcontractors with as few as 50 employees and $50,000 contracts must file as well. Reports must be filed by September 30,
2003. Employment figures from any pay period in the third quarter, July
through September, may be used.
Some employers who have been granted permission to use year-end employment
figures in the past may still do so. First-time filers can find a registration form online at the EEOC’s web site. When this is submitted, the EEOC will issue a company number, and filers can log into the system at www.eeoc.gov/eeo1survey/ and fill out the Form EEO-1.
The determination of whether a worker is an independent contractor or an employee may have serious consequences for any employer. If the worker is an employee, the employer will face a host of legal obligations including, wage and hour requirements, payroll tax, unemployment insurance, workers’ compensation, and leave of absence rules. The Internal Revenue Service (“IRS”) and the California Employment Development Department (“EDD”) have developed forms that employers may utilize to seek determinations regarding a worker’s status under employment tax laws. The IRS form is Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. The EDD form is Form DE 1870, Determination of Employment Work Status for Purposes of State of California Employment Taxes and Personal Income Tax Withholding.
II. JUDICIAL UPDATE
The Ninth U.S. Circuit Court of Appeals has ruled that an arbitration agreement forcing Circuit City employees to litigate their disputes in private arbitration forums rather than in public courts was substantively and procedurally unconscionable. It was the third time the Ninth Circuit has rejected a version of Circuit City’s mandatory arbitration contract in the past 18 months. In Circuit City Stores v. Mantor, the court noted that the company’s 2001 version of the contract was virtually the same as the 1998 version that the court struck down in May of this year in Ingle v. Circuit City Stores. “Circuit City has modified and improved its arbitration agreement to comport with our holding regarding limitations on available remedies,” wrote the court. “But the substantively unconscionable provisions concerning the statute of limitations, class actions, cost-splitting and Circuit City’s unilateral power to modify or terminate the agreement remain in the version of the agreement we review in this case.” The Ninth Circuit has twice upheld the company’s arbitration agreements, in a pair of cases cited in Mantor: Circuit City Stores v. Najd and Circuit City Stores v. Ahmed. Moreover, Circuit City was victorious in Circuit City Stores v. Adams, in which the U.S. Supreme Court ruled that employment arbitration agreements are enforceable under the Federal Arbitration Act. The arbitration contract in Adams was struck down, however, on remand by the Ninth Circuit, which held that the agreement was unconscionable under California state law because it did not provide a “modicum of bilaterality.” In Mantor, the court deemed the agreement both substantively and procedurally unconscionable. In addition to the objectionable provisions in the contract, Circuit City managers had failed to provide Paul Mantor with a real opportunity to opt out. “A meaningful opportunity to negotiate or reject the terms of a contract must mean something more than an empty choice,” wrote the court. “In light of Circuit City’s insistence that Mantor sign the arbitration agreement + under pain of forfeiting his future with the company + the fact that in 1995 Mantor was presented with an opt-out form does not save the agreement from being oppressive.”
The Ninth U.S. Circuit Court of Appeals has held that an employer must make an individualized assessment of an employee’s ability to do essential functions of the job before excluding individuals from employment as a direct threat to his or her own health or safety under the Americans with Disabilities Act (“ADA”). On remand from the U.S. Supreme Court, the Ninth Circuit held in Echazabal v Chevron USA, Inc. that a company doctor’s subjective belief that an individual’s medical condition posed a direct threat to the individual’s own health or safety was insufficient to validate the employer’s refusal to hire that person. An employer can defend against an ADA claim by establishing that an individual’s health condition poses a threat to the health or safety of other employees. According to Equal Employment Opportunity Commission regulations that interpret the ADA, the decision that an individual poses a direct threat must be based on reasonable medical judgment that relies on the most current medical knowledge and/or the best available objective evidence, and must be based on an individualized assessment of the person’s abilities to safely perform the essential functions of the job. In 2000, the Ninth Circuit held that the direct threat defense in an ADA discrimination action does not include threats to the employee’s own health. The Ninth Circuit’s decision was reversed last year when the Supreme Court reviewed the case and held that the direct threat defense includes threats to the employee’s own health. The high court then sent the case back to the Ninth Circuit to determine whether the requirements of the direct threat defense were met. Mario Echazabal (“the Employee”) had worked at Chevron’s (“the Employer”) oil refinery in El Segundo, California, as a maintenance contractor for more than 20 years. Sometime in 1992 or after, the Employee was diagnosed with asymptomatic, chronic active hepatitis C. In 1995, the Employer offered the Employee a job at the refinery subject to passing a pre-employment physical examination. After the examination, the Employer withdrew the offer based on its determination that working in the particular area would damage the Employee’s liver and put his health at risk. The Employer also asked the maintenance contractor to remove the Employee from the contract group working at the refinery. The Ninth Circuit held that the regulations obligated the Employer to do more than consider generalized statements of potential harm. The Employer had to consider the severity, imminence, and potential likelihood of harm, and had the burden of demonstrating at least a significant risk of substantial harm. The Employer’s doctor’s statement would not preclude a reasonable juror from concluding that the Employer failed to make the required assessment. To resolve this and other issues also involving fact questions for the jury, the Ninth Circuit reversed the trial court’s grant of summary judgment and sent the case back for trial. Employers should carefully review the process by which applicants are medically evaluated to ensure that the assessments are made on an individualized basis, using the most current medical knowledge and the best objective information available.
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.
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