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AUGUST 2004 I. LEGISLATIVE/REGULATORY
UPDATE As part of the state budget agreement, the legislature overhauled SB 796 (codified at Labor Code section 2699) by passing SB 1809 (Dunn), which took effect immediately after signed by Governor Schwarzenegger. Since January 1, 2004, over 65 lawsuits have been filed claiming penalties under the Labor Code Private Attorneys General Act of 2004 (SB 796), more commonly known as the “Sue Your Boss” Law. SB 796 allows current or former employees, on behalf of themselves and all other aggrieved employees, to sue their employer for violating any provision of the Labor Code. Where penalties were not already specified for such violations, the law imposed a $100 penalty for each aggrieved employee for the initial violation, and a $200 penalty for each aggrieved employee per pay period for each subsequent violation. These penalties were to be distributed 50% to the General Fund, 25% to the Labor and Workplace Development Agency, and 25% to the employee. In addition, a successful plaintiff may recover reasonable attorneys’ fees and costs. SB 1809 now modifies compliance with statutory prelawsuit procedures. The appropriate procedure is based upon the alleged Labor Code violation. SB 1809 sets forth an extensive list of Labor Code provisions which, if not complied with, would give rise to a claim for a “serious” violation. If an employee wishes to file suit based on a “serious” violation, the employee must first provide written notice (by certified mail) of the violation to the Labor and Workforce Development Agency and the employer. The Labor and Workforce Development Agency then has the opportunity to conduct its own investigation and issue a citation, if warranted. Only if the Labor and Workforce Development Agency fails to act or issue a citation may the employee file a civil lawsuit. For all Labor Code violations not deemed “serious,” prior to filing a civil suit, an employee must first give written notice to the Labor and Workforce Development Agency and the employer. The employer then has 33 days to cure the alleged violation. If the violation is cured, no civil action seeking SB 796 penalties may be filed. If the violation is not timely cured, the employee may file a civil suit. If the employee disputes the employer’s position that the violation was cured, the employee may appeal to the Labor and Workforce Development Agency, and then to superior court. An employer may avail itself of the notice and cure provisions up to three times in a 12-month period for the same violation. SB 1809 also sets forth a separate procedure for alleged violations of the Labor Code relating to occupational health and safety (Cal-OSHA), other than those provisions deemed “serious” as set forth above. In such circumstances, the employee must first give written notice to the Division of Occupational Safety and Health (“DOSH”) and the employer. DOSH must investigate the alleged violation. If DOSH issues a citation, a civil action may not be filed. If DOSH fails to issue a citation and the employee disputes the decision, the employee may challenge the decision in superior court. If DOSH fails to timely investigate the alleged violation, the notice and cure provisions previously described apply. Finally, SB 1809 requires superior court review for any proposed settlement of alleged safety violations. SB 1809 makes several other important revisions to SB 796. Perhaps most importantly, a superior court judge is now explicitly permitted to award less than the prescribed penalty amounts if, based on the facts, to do otherwise would result in an award that is “unjust, arbitrary and oppressive, or confiscatory.” The superior court must also now review and approve any penalties sought as part of a proposed settlement regarding claims under SB 796. Another key provision is the retroactive application of SB 1809 on all pending cases filed since January 1, 2004. The new law also states that no action may be brought under SB 796 for any violation of a posting, notice, agency reporting, or filing requirement of the Labor Code, except where the filing or reporting requirement involves mandatory payroll or workplace injury reporting. In addition, the new law repeals Labor Code section 431, which required employers to file with the Division of Labor Standards Enforcement a blank copy of any job application that employees or applicants are required to sign. SB 1809 also revises the penalty distribution so that 75% goes to the Labor and Workforce Development Agency and 25% goes to the employee. |
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II. JUDICIAL UPDATE Supreme Court Rewinds “Friends” Litigation The final episode of the NBC television sitcom “Friends” aired in May, but the show is destined to live on in the legal system as part of a potentially precedent-setting lawsuit over workplace harassment. The California Supreme Court unanimously granted review of Lyle v. Warner Brothers Television Productions, filed by Amaani Lyle, a former writers’ assistant who claimed that vulgar jokes and crass behavior by the show’s writers subjected her to a hostile work environment. Lyle claimed racial and sexual harassment, while the writers argued that their words and actions were part of the creative process. In the lawsuit, the show’s writers argued that “creative necessity” justified talking about female cast members in a sexual way, and making sexually explicit drawings. A court of appeal called that argument unique and possibly legitimate, ruling that a jury should decide whether the actions constitute harassment. “To the extent defendants can establish the recounting of sexual exploits, real and imagined, the making of lewd gestures and the displaying of crude pictures denigrating women was within ‘the scope of necessary job performance’ and not engaged in for purely personal gratification or out of meanness or bigotry or other personal motives.” The court wrote, “defendants may be able to show their conduct should not be viewed as harassment.” In petitioning for review, the attorneys for Warner Brothers Television Productions warned that letting jurors decide whether sexual discussions in the development of scripts were justified could “chill speech” in many workplaces. In granting review, the Supreme Court instructed the attorneys to argue whether “sexually coarse and vulgar language in the workplace” constitutes harassment under California’s Fair Employment and Housing Act (“FEHA”). The court also sought debate about whether FEHA liability in such cases violates free-speech rights. |
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Employee Entitled to Truth in Recruitment While employment-at-will is the general rule in California, the Legislature and courts have modified the rule in a variety of ways. In Agosta v. N. Arthur Astor, et al., a California appeals court held that a written at-will statement does not absolve an employer who misrepresents employment terms. In Agosta, Astor Broadcast Group (“the Employer”) recruited Len Agosta (“the Employee”) from a job with another broadcasting company. The Employee rejected the Employer’s initial offer to work as general sales manager for a radio station because he wanted a bigger assignment and a more generous compensation package. Following negotiations, during which the Employee explained his financial needs and expectations for the position, the Employer expanded the job to include managing a second radio station. It also enhanced the compensation package to meet the Employee’s requirements. The Employer presented the revised employment offer in writing, which did not address the length of employment but did contain a statement of the Employer’s at-will employment policy. Three weeks later, the Employer reneged and terminated the Employee’s employment. It offered to employ the Employee as sales manager for one of the two stations on terms less favorable than the initial offer the Employee rejected. The Employee refused, and sued the Employer for misrepresentation, fraud, and breach of the obligation to treat employees fairly and in good faith. The Employer argued that the suit be dismissed, because its offer contained a clear statement of employment at-will. The court refused to dismiss the Employee’s claims for misrepresentation and fraud. The court held that at-will employment does not permit an employer to induce a candidate to quit a job and accept new employment based on promises the new employer does not intend to keep. The court said that the Employee is entitled to a trial and, if successful in proving misrepresentation, to damages resulting from the loss of his previous employment. The court dismissed the claim for breach of the fairness obligation, which related to the Employer’s obligations once employment begun. This was limited by the at-will relationship. In order to prevent similar liability, employers should: not exaggerate when making offers of employment; require that all employment offers be in writing and come from one source within the company; tell applicants that employment offers can only be made in writing and that applicants may not rely on any verbal statements or promises; include a statement of the at-will employment policy in written offers of employment and in appropriate places in the employee handbook; and include in any offer letter and in employee handbooks a statement that the terms and conditions of employment may be altered at any time within the sole discretion of management. |
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In Leo’s Associates, Inc. v. Department of Industrial Relations, the State Compensation Insurance Fund (“SCIF”) warned Leo’s Associates (“the Employer”) that its workers’ compensation insurance would be cancelled on November 7, 2000 because the Employer failed to file payroll reports and pay its workers’ compensation insurance premiums. The Employer subsequently sent SCIF the payroll reports, but made only partial payment on its premium. By January 5, 2001, the Employer had paid its premiums in full, and in early February, SCIF sent the company a notice that it had withdrawn the November 7, 2000 cancellation and confirmed coverage without lapse. However, at about midnight on January 26, 2001, a deputy labor commissioner arrived at company offices asking to see proof of workers’ compensation coverage. When the Employer’s officials could not provide proof, the deputy labor commissioner issued a stop order requiring the Employer to cease operations and pay an $18,000 penalty. The Employer appealed the penalty, arguing that SCIF had reinstated coverage retroactively. At trial, SCIF described the status of the Employer’s coverage on January 26th as “pending.” While there was no cancellation as far as employee claims were concerned, there was a lapse in coverage. SCIF had provided the Employer with sufficient advance notice of impending cancellation, and the Employer failed to satisfy its premium obligation. The California appeals court affirmed the penalty because coverage was not in effect at the time of the inspection and stop order. In order to prevent similar penalties, employers should: take seriously any notice of cancellation from the workers’ compensation carrier; provide payroll data and premium payments to the insurer on a timely basis; post the required workers’ compensation poster, including the details of workers’ compensation insurance coverage; and keep a current copy of the certificate of coverage available for review by state inspectors. |
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A mandatory arbitration clause in an employment contract may be voided because it is unconscionable - even when the employee’s lawyer approved it. In Nyulassy v. Lockheed Martin Corp., the appellate court’s unanimous decision in an employee’s complaint over his demotion by Lockheed Martin Corporation (“the Employer”) further maps the employment contract landscape for California employers and employees. “The mandatory arbitration clause in the employment agreement here is substantively unconscionable because it lacks any degree of mutuality, imposes upon plaintiff a prearbitration resolution procedure controlled by defendant and severely limits the time within which plaintiff may demand arbitration to vindicate his rights,” the court opined. The decision allows quality assurance engineer Fred Nyulassy (“the Employee”) to proceed with his wrongful demotion lawsuit in superior court. The Employer allegedly demoted the Employee in retaliation for his complaints to department managers that the aerospace company planned to ship to the federal government a defective high-altitude wind gauge called a profiler. The Employer’s lawyers invoked a mandatory arbitration clause the Employee had signed when he settled an earlier suit with the Employer’s predecessor companies, Western Development Labs and Loral Aerospace Corporation. But the appellate panel ruled that the clause was unenforceable in view of the state Supreme Court’s holding in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000), which sets limits on mandatory arbitration agreements. Specifically, the panel faulted the Employer’s arbitration clause because it required the Employee to discuss his disputes with superiors before binding arbitration could take place. “While on its face this provision may present a laudable mechanism for resolving employment disputes informally, it connotes a less benign goal,” the court wrote. It “suggests that defendant would receive a ‘free peek’ at plaintiff’s case, thereby obtaining an advantage if and when plaintiff were to later demand arbitration.” The court found that the clause was also unfair because it gave the Employee just 180 days to assert a claim instead of the time permitted by the statute of limitations in the state’s Code of Civil Procedure. And, according to the court, even though the Employee’s lawyer approved the agreement, it was still unacceptable because it was non-negotiable: “[t]hus, on the facts presented here, we are not prepared to say that the mere fact that plaintiff was represented by counsel in the negotiation and execution of the employment agreement prevents him for later asserting that the agreement is unconscionable.”
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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