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JUNE 2004 I. LEGISLATIVE/REGULATORY
UPDATE Governor Arnold Schwarzenegger’s budget proposes that 75% of all punitive damage awards in California be awarded to the state. Currently, such awards are conveyed to the person who files the lawsuit (and his/her attorneys). Schwarzenegger predicts that this change would add $450 million annually to the state’s coffers. Whether this proposal harms or benefits
employers is not certain. It could make it easier to resolve lawsuits
filed by disgruntled employees, who would no longer be able to count on
huge punitive damage awards to increase the risks of a jury trial. On
the other hand, a jury given the power to take money from a corporate
defendant and give it to the state might have a self-interest in a large
punitive damage award.
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The U.S. Department of Labor’s (“DOL”) final overtime regulations were issued on April 23, 2004, but remain under attack. Senate Democrats have successfully attached an amendment blocking the new overtime regulations to the Jumpstart Our Business Strength (“JOBS”) Act. Whether the amendment will be attached to the final version of the JOBS Act submitted for President Bush’s signature remains to be seen. The amendment provides that “any portion of the final rule that exempts from overtime pay any employee who would not be exempt under the old regulations shall have no force or effect, and the portion of the old regulations that would prevent such employee from being exempt shall remain in effect.” Basically, the amendment is supposed to prevent any employee who is entitled to overtime under the old regulations from being denied overtime pay under the new regulations. The concern with the amendment is that it provides no guidance as to how it should be applied, and is a breeding ground for litigation. In spite of the attachment of the amendment to the JOBS Act, it is highly unlikely that the overtime regulations will be overturned. The JOBS Act must still be voted on by the House and signed by the President before it becomes law. Any differences between the House and Senate versions of the bill would need to be reconciled, and it is considered unlikely that the amendment will survive the process. Remember, though, that California has its own laws governing overtime exemptions. Accordingly, the new DOL regulations, with or without the amendment, will likely not apply to private California employers. |
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The California Assembly has approved a bill (AB 2317) that would increase the penalties for employers who violate California’s prohibition against gender bias in pay for employees who perform jobs of equal skill, effort, and responsibility. Under current law, employees who suffer pay discrimination can sue to recover the wage differential plus an equal amount of liquidated damages, as well as attorney’s fees and interest. The new measure would increase the liquidated damages to three times the wages recovered, or five times the wages recovered if the violation was willful. The measure is now under consideration in the State Senate.
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II. JUDICIAL UPDATE The Supreme Court Applies the Ellerth/Faragher Defense to Constructive Discharge Claims Generally, an employer is strictly liable for sexual harassment committed by a supervisor. However, in 1998, the United States Supreme Court established what has become known as the Ellerth/Faragher defense. This defense allows an employer to avoid liability in sexual harassment cases brought under federal law if it can show that:
Since the creation of the Ellerth/Faragher defense, lower courts have disagreed as to whether a “constructive discharge” (which occurs when a plaintiff resigns due to intolerable harassment) constitutes a “tangible employment action” and precludes employers from invoking the defense. In Pennsylvania State Police v. Suders, the Supreme Court resolved this disagreement, ruling that Nancy Drew Suders (“the Employee”), who quit her job as a communications operator for the Pennsylvania State Police, had raised enough issues to bring a lawsuit. The Employee filed a federal lawsuit in 1998, charging that three supervisors subjected her to an intolerable barrage of sexual harassment that ceased only when she resigned. She said the harassment included a supervisor making sexually explicit comments every time she walked into his office and another grabbing his genitals and making obscene gestures several times a shift. A federal trial judge dismissed the action, opining that the Employee had not taken advantage of her Employer’s internal anti-harassment procedures because she complained two days before she quit. A federal appeals court reversed that ruling, holding that employees who are forced to quit because of sexual harassment have a right to sue and that employers can be automatically held liable for the harassment. In Suders, the Supreme Court held that a constructive discharge does not constitute a “tangible employment action” unless a supervisor’s “official act of the enterprise” caused the constructive discharge. The Court gave two examples of how this “official act” criterion is to apply. Where a plaintiff claims constructive discharge based on a supervisor’s repeated sexual comments and sexual assault, the employer can assert the Ellerth/Faragher defense. This is because the supervisor’s behavior involved no official acts. Where a plaintiff claims constructive discharge based on a supervisor’s sexual harassment that culminated in transferring plaintiff to a less desirable job position, the employer cannot assert the Ellerth/Faragher defense because the transfer constitutes an “official act.” Suders confirms that employers may be rewarded under federal law for their efforts to prevent harassment, even if the harassment was severe enough to cause the plaintiff’s resignation. Thus, employers should remain vigilant in implementing and communicating effective anti-harassment policies. While Suders confirms that the defense is not available when harassment takes the form of an “official act,” training and education about harassment is still critical to help employers avoid situations that can lead to these dangerous, strict liability claims. Although Suders will have a direct impact on claims brought under federal law, its effect on state law claims is not yet known, because under California law employers remain strictly liable for all harassment committed by supervisors, subject only to damages limitations based on Department of Health Services v. Superior Court (2003) 31 Cal.4th 1026. |
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In Jones v. R. R. Donnelley & Sons Co., the United States Supreme Court ruled that employees have four years to file employment discrimination claims under the Civil Rights Act of 1866 (42 U.S.C. 1981), a federal anti-discrimination law. Section 1981(a) prohibits racial discrimination in the making and enforcing of contracts. The decision opines that federal law, rather than the state personal injury statute of limitations, applies to such cases. Because Section 1981 does not itself define within what period of time a person has to file a lawsuit, federal courts have historically applied the personal injury statute of limitations of the state in which the suit was filed. In California, personal injury claims must be filed within two years of the occurrence. In 1990, Congress passed a federal “catch-all” statute of limitations applicable to all claims created by new legislation passed by Congress after that date. The Supreme Court determined that the four-year period applies to section 1981 claims because Congress amended the 1866 civil rights law in 1991. Accordingly, the Supreme Court found that plaintiffs had four years to file their hostile work environment, wrongful termination, and failure-to-transfer claims pursuant to this statute. Although most claims in California will likely be filed under the Fair Employment and Housing Act, it is wise to keep all records required for the defense of a discrimination lawsuit for at least four years.
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Title VII of the Civil Rights Act of 1964 prohibits racial discrimination, including creating a hostile work environment for someone based on his/her race. McGinest v. GTE (9th Cir. 2004) 360 F.3d 1103 illustrates what the law considers a hostile work environment for purposes of racial harassment and discrimination. George McGinest (“the Employee”), a 23-year African-American employee of GTE Service Corp. (“the Employer”), claimed that the Employer created or was aware of a hostile work environment and failed to remedy it. He claimed that he was not paid overtime for similar work performed by non African-Americans, and was exposed to racist graffiti, racial insults, and taunts. To succeed with a hostile work environment claim, the Employee needed to show it was reasonable to conclude that the workplace was hostile, and that the harassment he suffered was severe or pervasive enough to alter the conditions of his employment. A lower court dismissed the Employee’s claim, primarily on the ground that the harassment was “sporadic” and for the most part remedied by the Employer. The Ninth Circuit reversed the decision, however, noting that the cumulative effect of the alleged harassment is what constitutes a hostile work environment, and that the racial insults and graffiti were extreme and involved both supervisors and co-workers. Also crucial to the Ninth Circuit’s decision was the Employer’s inadequate response to the harassment. It is not enough to show that the Employer responded on an event-by-event basis; rather, the court looked at the Employer’s response as a whole in deciding whether it responded adequately to the presence of workplace harassment. Remedial action must be designed not only to prevent future conduct by the specific harasser, but also to prevent future conduct by other potential harassers. In order to prevent similar litigation, employers should publish strongly worded anti-harassment and anti-discrimination policies and train all employees on what the policies mean; create a zero tolerance atmosphere in which racial jokes, slurs, or epithets are never allowed; inform managers that they can be held personally liable for acts of harassment; immediately respond to all allegations of harassment and discrimination; create an open-door policy for handling complaints; make certain employees know that there will be no retaliation for complaining of harassment or discrimination; remedy harassment and discrimination with an eye toward preventing future acts: reiterate policies; hold corporate meetings emphasizing zero tolerance; and re-train employees.
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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