MARCH 2005

I. LEGISLATIVE/REGULATORY UPDATE
Pending Legislation

President Signs Class Action Fairness Act

On February 18, 2005, President Bush signed the Class Action Fairness Act of 2005 ("the Act"). The new law is designed to redress some of the abuses of the current class action procedure by making it easier to remove many multistate class actions to federal court (thus limiting plaintiffs’ ability to “forum shop”) and imposing certain notice requirements on class action settlements. The law also provides that attorney fee awards in cases in which coupons are awarded instead of cash payments are limited to a percentage of the coupons actually redeemed.

The Act provides that federal courts will have original jurisdiction of any class action when

1. the matter in controversy exceeds $5,000,000, and
2. any class member is a citizen of a state different from any defendant

The federal court may decline to exercise jurisdiction over any class in which greater than one-third, but fewer than two-thirds, of the class members and the primary defendant are citizens of the state in which the action was originally filed. The statute specifies the factors the court should consider in determining whether to decline to exercise jurisdiction.

Under the Act, a federal court must decline to exercise jurisdiction over class actions that involve primarily localized controversies. The law identifies the factors to be considered in making this determination, including cases in which the primary defendants are state officials or government entities, and matters in which the number of members of all proposed plaintiff classes is less than 100.

The Act also imposes specific requirements for the calculation of contingent fees and other fees in class action settlements that provide for the recovery of coupons to class members. It also provides that a court may only approve a proposed class action settlement that requires class members to pay sums to class counsel that would result in a net loss to the class member if the court makes a written determination that nonmonetary benefits to the class members substantially outweigh the monetary loss.

The Act defines class actions as civil actions filed in federal district court under Rule 23 of the Federal Rules of Civil Procedure or any civil action removed to federal district court that was originally filed in state court under a state statute or rule of judicial procedure authorizing an action to be brought by one or more representatives as a class action.

The law became effective on the date of enactment, which was February 18, 2005, and applies to employment-related class actions, among others. The impact of the Act remains to be seen; we will continue to keep you updated as case law in this area develops.

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New Military Leave Law Requirements

The Uniformed Services Employment and Re-employment Rights Act of 1994 (“USERRA”) governs military leaves of absence and provides job protection, benefits, and rights of reinstatement to employees who are absent from work due to service in the uniformed services.

On December 10, 2004, President George W. Bush signed the Veterans Benefits Improvement Act of 2004. The law has two implications for employers:

• employers must post a new employee notice describing rights, benefits and obligations under USERRA; and
  
• continuation of health coverage must be extended from 18 to 24 months.

The U.S. Department of Labor issued the final version of the employee poster on March 10, 2005, the deadline specified by Congress to produce the final notice (not the date by which employers must display it). The poster should be displayed within a reasonable time after it became available. The poster may be viewed at the Department of Labor website, or by clicking here.

II. JUDICIAL UPDATE

State Courts Issue Conflicting Rulings on Proposition 64

Last November, California’s electorate passed Proposition 64, an initiative designed to limit “unfair business practice” lawsuits. Under the new law, only those who actually suffer injury can file a claim. The courts of appeal are split on the issue of whether the law applies to suits already filed when the law was passed.

California’s Business and Professions Code prohibits unfair competition, including “any unlawful, unfair or fraudulent business act or practice.” Courts have determined that the unfair competition law “covers a wide range of conduct,” including many employment claims. Before November 3, 2004, the unfair competition law authorized a wide array of actions; lawsuits could be filed “by any person acting for the interests of itself, its members, or the general public.”

In Californians for Disability Rights v. Mervyn’s, a non-profit corporation sued Mervyn’s claiming that it denied store access to persons with mobility disabilities. The trial court ruled in Mervyn’s favor and the non-profit corporation appealed. While the appeal was pending, Proposition 64 was passed. Proposition 64 limited unfair business practices suits to “any person who has suffered injury in fact and has lost money or property as a result of such unfair competition.” Mervyn’s asked the appellate court to dismiss the appeal. It argued that Proposition 64’s changes apply to pending actions and mandate the dismissal. The court of appeal, first appellate district, rejected the contention of retroactivity reasoning that the proposition had no express declaration of retrospective application.

However, two different courts of appeal (the second and the fourth appellate districts), in cases entitled Benson v. Kwikset Corporation and Branick v. Downey Savings and Loan Association ruled that Proposition 64 is retroactive. The California Supreme Court will have to make the final decision regarding retroactivity.

Prejudicial Expert Testimony Requires Reversal

In Kotla v. Regents of the University of California, Dee Kotla (“the Employee”) received a jury verdict of $1 million, which the trial judge reduced to $745,000 against her former employer, Lawrence Livermore Labs (“the Employer”). A court of appeal has reversed the verdict and sent the case back to trial.

The Employee had her deposition taken in connection with another employee’s sexual harassment lawsuit. In that deposition, she testified that she performed work outside the lab for a company called Spectrum Consulting. Soon after the deposition, the Employer investigated the Employee’s computer files and found a folder titled “Spectrum.” The Employer was concerned that the Employee used its computers for her outside personal purposes. After an investigation, the Employer terminated her employment. The Employee subsequently sued the Employer on the theory that her termination violated the antiretaliation provision of California’s Fair Employment and Housing Act (“FEHA”).

At trial, the Employee’s attorney tried to have Dr. Jay Finkelman (“the Expert”), an industrial psychologist and human resources professor, testify that the Employer retaliated against the Employee because she testified in favor of the first employee’s sexual harassment lawsuit. The court prohibited such testimony, but allowed the Expert to opine “that certain facts in evidence were ‘indications’ or ‘evidence’ of a retaliatory motive.” The court of appeal sent the case to a new trial because, among other reasons, the Expert’s testimony was prejudicial. The court did not completely rule out expert testimony in FEHA cases. Indeed, it suggested that testimony “that an employee’s discharge was grossly disproportionate to punishment meted out to similarly situated employees, or that the employer significantly deviated from its ordinary personnel procedures might will be relevant to support an inference of retaliation.”

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.