California Employment Law Update : Labor and Employment Lawyers & Attorneys : Proskauer Rose Law Firm : Wage & Hour Laws, Disability, Workplace Safety

Falkowski v. Imation Corp., 132 Cal. App. 4th 499 (2005)

Plaintiffs in this class action were employees of Cemax- Icon, Inc., a closely held company in the medical information management business. This litigation arose after Imation Corporation, a publicly traded company, acquired Cemax, which became a subsidiary of Imation. At the time of the merger, Imation replaced the employees’ Cemax employee stock options with options to purchase Imation stock, but a year later, Imation sold Cemax to Eastman Kodak and cancelled all of the employees’ unexercised Imation stock option rights. The employees alleged that because at all times they remained employees of Cemax, which continued in operation as a corporate entity after the merger, the cancellation of their option rights constituted a breach of contract. The Court of Appeal affirmed summary judgment in favor of Imation on the ground that it would not have served Imation’s business purposes to allow the employees of one of its former subsidiaries to exercise stock options after the sale of the subsidiary to another company. Cf. Daly v. Yessne, 131 Cal. App. 4th 52 (2005) (board of directors permitted to establish fair market value for repurchase of former employee’s stock).

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Brown v. Department of Corrections, 132 Cal. App. 4th 520 (2005)

Kevin Brown, a correctional officer at the High Desert Prison, alleged a violation of Labor Code § 1102.5 (the whistleblower statute) and of Government Code § 8547.8 (a similar whistleblower statute applicable to state employees), arising from statements made by the Department’s inspector general to law enforcement officials requesting official action in response to suspected threats of violence that Brown had made to the inspector general. The trial court sustained defendants’ demurrer to the complaint on the ground that defendants had an absolute privilege to report Brown’s apparent criminal threats of violence to law enforcement officials. The Court of Appeal affirmed the judgment in defendants’ favor.

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Conley v. Pacific Gas & Elec., 131 Cal. App. 4th 260 (2005)

Two senior new business representatives and two engineers of PG&E filed this class-action lawsuit, alleging that they and others had been improperly classified as exempt employees under federal and state overtime law. Plaintiffs challenged PG&E’s policy of making deductions from exempt employees’ vacation-leave accruals for partial-day absences on the ground that such deductions constituted a reduction in the amount of compensation they received based on the quantity of work they performed. The trial court denied plaintiffs’ class certification motion in its entirety, and the Court of Appeal affirmed. The appellate court held that plaintiffs did not have a viable legal theory to support the claims of their proposed “salary basis” class: “In sum, we find nothing in California law that precludes employers from following the federal rule that permits them to require the use of vacation leave for partial-day absences without causing otherwise exempt employees to become non-exempt under the salary basis test.” Cf. Cleveland v. City of Los Angeles, 420 F.3d 891 (9th Cir. 2005) (FLSA exemption relating to fireprotection activities does not apply to dual-function paramedics); Huntington Memorial Hosp. v. Superior Court, 131 Cal. App. 4th 893 (2005) (hospital nurses who received short-shift differential for certain hours may be entitled to overtime pay).

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Cintas Corp., 344 NLRB No. 118 (June 30, 2005)

Cintas Corporation, which, among other things, designs and manufactures corporate uniforms, maintained a provision in its employee handbook stating that it honors the confidentiality of its clients, their business plans, partners, new business efforts, customers, accounting and financial matters. Included among the types of behavior that could result in disciplinary action was “violating a confidence or unauthorized release of confidential information.” The employees’ union asserted that these rules violated the National Labor Relations Act since they could reasonably be construed by employees to restrict discussion of wages and other terms and conditions of employment with their fellow employees and with the union. The NLRB agreed and ordered Cintas to rescind the challenged language from its employee handbook, notify each employee in writing of the rescission and post a notice to employees to the same effect. See also Guardsmark, LLC, 344 NLRB No. 97 (June 7, 2005) (employer could not maintain a rule prohibiting employees from complaining to customers about the terms and conditions of their employment or from solicitation and distribution of literature while in uniform); cf. Chamber of Commerce v. Lockyer, 422 F.3d 973 (9th Cir. 2005) (California statute barring employers from spending “state funds” on union-related speech is preempted by federal law).

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Diaz v. Gates, 420 F.3d 897, 2005 WL 1949879 (9th Cir. 2005) (en banc)

David Diaz sued Daryl Gates, Willie Williams, Bernard Parks and many others, alleging violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) as a result of damages he allegedly suffered from police misconduct associated with the LAPD Rampart scandal. One of the elements of a RICO claim is that the plaintiff must prove that he or she suffered injury to business or property. Diaz alleged that he had suffered economic harm in the form of lost employment and employment opportunities and that he was rendered unable to pursue gainful employment while defending himself against unjust charges and while being unjustly incarcerated. The district court granted defendants’ motion to dismiss on the ground that Diaz had failed to allege that he had been deprived of business or property within the meaning of the statute. A panel of the Ninth Circuit originally affirmed the judgment, but following review en banc, the Court reversed the district court’s judgment based in part upon “intervening case law.”

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Advanced Modular Sputtering, Inc. v. Superior Court, 132 Cal. App. 4th 826 (2005)

Within four years of being laid off from their jobs at Sputtered Films, Sergey Mishin and Rose Stuart-Curran started their own company (Advanced Modular Sputtering), which became a competitor of Sputtered. In its lawsuit against AMS, Sputtered alleged that Mishin and Curran had misappropriated its trade secrets in order to develop a competing “knock off” machine. In response to AMS’s motion for protective order, the trial court barred Sputtered from commencing discovery until it had identified with “reasonable particularity” the trade secret that was allegedly misappropriated. Cal. Code Civ. Proc. § 2019.210. The Court of Appeal held that the statutory requirement that the trade secret be identified before discovery can commence is not limited to discovery involving a Uniform Trade Secrets Act claim, but extends to related causes of action as well. The Court concluded, however, that Sputtered had adequately identified the trade secret in this case: “Where, as here, credible experts declare that they are capable of understanding the designation and of distinguishing the alleged trade secrets from information already known to persons in the field, the designation should…be considered adequate to permit discovery to commence.”

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Green v. State of Cal., 132 Cal. App. 4th 97 (2005)

Dwight Green worked as a stationary engineer at a state correctional facility for over 12 years before he was involuntarily placed on disability retirement. A jury found that in failing to provide Green reasonable accommodation for his Hepatitis C condition, the state discriminated against him on the basis of his disability in violation of the FEHA. The jury awarded Green approximately $600,000 in economic damages and $2 million in non-economic damages. The Court of Appeal affirmed the judgment and rejected the state’s argument that Green was required to prove that he was qualified to perform the essential duties of the job in question; instead, the Court held that it was the employer’s burden to prove that the employee was incapable of performing such duties with reasonable accommodation. The Court further held that the “business necessity” defense is inapplicable in a disparate treatment case such as this and that the “bona fide occupational qualification” defense was inapplicable on the facts of this case. Cf. Knight v. Hayward Unified School Dist., 132 Cal. App. 4th 121 (2005) (employer’s failure to provide insurance coverage for in vitro fertilization did not constitute disability discrimination); Louis v. U.S. Dep’t of Labor, 419 F.3d 970 (9th Cir. 2005) (federal employee was not entitled to disability workers’ compensation records from DOL that were prepared in anticipation of litigation); EEOC v. UPS, 424 F.3d 1060 (9th Cir. 2005) (UPS properly denied driving positions to employees with monocular vision based on FEHA’s “safety-of-others” defense).

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Ross v. Ragingwire Telecommunications, Inc., 132 Cal. App. 4th 590 (2005)

In accordance with the Compassionate Use Act of 1996 (Proposition 215), Gary Ross had a physician’s recommendation to use marijuana for his chronic back pain. Ragingwire offered Ross a job as a lead systems administrator subject to his passing a drug test, which he failed when he tested positive for THC (the active chemical found in marijuana). Ragingwire terminated Ross’s employment because he failed the drug test. Ross sued Ragingwire for disability discrimination (on the theory that marijuana use is a reasonable accommodation for his back pain), wrongful termination in violation of public policy and breach of contract. The Court of Appeal affirmed dismissal on demurrer of Ross’s complaint, holding that an employer need not accommodate a disability by allowing an employee to use a drug that is illegal under federal if not state law. Similarly, the Court held there was good cause as a matter of law to terminate Ross’s employment.

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Yanowitz v. L’Oréal USA, Inc., 36 Cal. 4th 1028 (2005)

Elysa Yanowitz, a regional sales manager for L’Oréal USA, Inc., alleged that after refusing to carry out an order from a male supervisor to terminate the employment of a female sales associate who was not sufficiently sexually attractive, Yanowitz was subjected to hostile adverse treatment, resulting in her leaving the company. Among other things, Yanowitz alleged that L’Oréal’s actions constituted unlawful retaliation under the California Fair Employment and Housing Act (FEHA). The California Supreme Court ruled in favor of Yanowitz and held that the court of appeal properly reversed the summary judgment that had been granted in favor of L’Oréal. Specifically, the Supreme Court held that an employee’s refusal to follow a supervisor’s order that the employee reasonably believes to be discriminatory constitutes protected activity under the FEHA even if the employee does not specifically state to the supervisor her belief that the order is discriminatory. The Court further held that the proper standard for defining an adverse employment action is the “materiality” test (i.e., the adverse action must materially affect the terms or conditions of employment) and that the “continuing violation” doctrine should be applied in determining when the applicable statute of limitations began to run. See also Horsford v. Board of Trustees, 132 Cal. App. 4th 359 (2005) (applying the “materiality” test in a race discrimination case); Porter v. California Dep’t of Corrections, 419 F.3d 885 (9th Cir. 2005) (applying the “continuing violation” doctrine to sexual harassment and retaliation claims arising under Title VII).

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Miller v. Department of Corrections, 36 Cal. 4th 446 (2005)

Edna Miller and Frances Mackey, two former employees of the Valley State Prison for Women, alleged the warden accorded unwarranted favorable treatment to three female employees with whom he was having sexual affairs and that such conduct constituted sexual harassment (in the form of a hostile environment) against Miller and Mackey in violation of the FEHA. Plaintiffs alleged that when they complained, they were subjected to unlawful retaliation. The California Supreme Court ruled in favor of Miller and Mackey, holding that “an employee may establish an actionable claim of sexual harassment under the FEHA by demonstrating that widespread sexual favoritism was severe or pervasive enough to alter his or her working conditions and create a hostile environment.” Cf. EEOC v. National Educ. Ass’n, 422 F.3d 840, 2005 WL 2106164 (9th Cir. Sept. 2, 2005) (male supervisor’s “screaming and yelling” and physical intimidation of both male and female employees may have constituted sexual harassment of the latter); Dominguez-Curry v. Nevada Transp. Dep’t, 424 F.3d 1027 (9th Cir. 2005) (summary judgment for employer reversed where there was sufficient evidence of hostile environment).

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Jeld-Wen, Inc. v. Superior Court, 131 Cal. App. 4th 853 (2005)

In this wrongful death action arising from a motor vehicle collision, the decedent’s survivors sued Jeld-Wen and its employee Hector Solis on various negligence theories, including a claim that Jeld-Wen had negligently entrusted the vehicle to Solis. Jeld-Wen moved for summary adjudication of the negligent entrustment claim on the ground that it had already admitted its vicarious liability for the acts of Solis. The Court of Appeal agreed with Jeld-Wen and granted its petition for a writ of mandate ordering that its summary adjudication motion be granted.

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El-Hakem v. BJY, Inc., 415 F.3d 1068 (9th Cir. 2005)

Mamdouh El-Hakem sued his employer, BJY, Inc., and its CEO for employment discrimination and wrongful termination arising from the CEO’s repeated references to him as “Manny” (over the employee’s objection). The CEO contended that a “Western” name would increase El-Hakem’s chances for success and would be more acceptable to BJY’s clientele. The Ninth Circuit affirmed the judgment (following a jury trial) in favor of El-Hakem on the ground that although the CEO’s conduct was not especially severe, there was “unrefuted evidence of its frequency and pervasiveness,” thus creating a “work environment racially hostile to a reasonable Arab.” The Ninth Circuit affirmed the district court’s judgment holding BJY liable for the CEO’s actions on the ground that the CEO had been acting in the scope of his employment at all pertinent times. Cf. Galdamez v. Potter, 415 F.3d 1015 (9th Cir. 2005) (employer may be liable for failing to investigate and remedy harassment of employee by customers).

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Leegin Creative Leather Prods., Inc. v. Diaz, 131 Cal. App. 4th 1517 (2005)

Leegin Creative Leather Products, Inc. filed a civil fraud complaint against one of its employees after it learned that the employee had filed a false workers’ compensation claim against the company. Leegin alleged that it had been damaged by the filing of the false claim because its insurance premiums and reserves would be automatically increased. The employee responded by filing a special motion to strike Leegin’s complaint pursuant to the anti-SLAPP statute, alleging that Leegin’s action would have a “chilling effect” on her constitutional right to seek redress for her alleged injuries through the workers’ compensation system. The trial court granted the employee’s motion to strike and awarded her attorney’s fees and costs, and the Court of Appeal affirmed the judgment. The appellate court held that Leegin had failed to demonstrate a probability that it would prevail on the merits of its fraud claim since Leegin could not establish either that it had justifiably relied upon the employee’s allegedly fraudulent workers’ compensation claim or that it had been damaged thereby. The Court observed that there is a statutory remedy within the workers’ compensation framework (Labor Code Section 3761) of which an employer can avail itself in the event that it has actual knowledge of facts that would tend to disprove any aspect of the employee’s claim and that there are civil and criminal sanctions that can result from presenting a fraudulent workers’ compensation claim. Cf. Terry v. Davis Community Church, 131 Cal. App. 4th 1534 (2005) (defamation action filed by church youth group leaders regarding accusations of inappropriate conduct with a group member were properly stricken under anti-SLAPP statute where the accusations related to a public issue and were true, related to a protected opinion or were privileged).

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Peralta v. Hispanic Business, Inc., 419 F.3d 1064 (9th Cir. 2005)

Carmen Peralta worked as a special events manager for Hispanic Business, Inc. (HBI). Between January 1, 1999 and July 2000, HBI provided a long-term disability (LTD) insurance policy to its employees, including Peralta. In July 2000, HBI cancelled the LTD policy; in October 2000, Peralta was injured in an automobile accident in which she suffered serious injuries. When Peralta attempted to make a claim for LTD benefits after the accident, she learned that the policy had been cancelled. Peralta sued HBI for breach of fiduciary duty under ERISA for its failure to give adequate notice of the cancellation of the LTD policy. The district court granted HBI’s motion for summary judgment, which the Ninth Circuit affirmed. The Court held that although HBI had failed to provide Peralta with timely notice of the termination of her benefits under the LTD policy, she could not recover monetary damages since there was no evidence that HBI actively and deliberately misled her.

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People v. Jiang, 131 Cal. App. 4th 1027 (2005)

Weibin Jiang was arrested and charged with committing sexual offenses against an acquaintance. While he was out on bail, Jiang prepared numerous password-protected documents for his attorneys, which he saved in a folder labeled “Attorney” on his employer-issued laptop computer. The prosecutor obtained the documents by subpoenaing them from the employer (Cadence Design Systems) and argued that Jiang had no reasonable expectation of privacy in the documents. At the outset of his employment, Jiang signed an “Employee Proprietary Information and Inventions Agreement” by which he expressly acknowledged that he had no expectation of privacy in “any property situated on the Company’s premises and/or owned by the Company.” Nevertheless, the Court of Appeal held that Jiang had a reasonable expectation of privacy in the documents: “Nothing in the agreement defendant signed would have suggested to a reasonable person that Cadence would make any effort to gain access to information in documents on an employee’s Cadence-issued computer that were clearly segregated as personal and password-protected.”

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Reynolds v. Bement, 36 Cal. 4th 1075 (2005)

Steven Reynolds, a former manager for Earl Scheib Inc., brought this class-action lawsuit against the individual shop managers and assistant shop managers of Earl Scheib, an automobile painting business. Reynolds alleged that defendants misclassified him and other employees as exempt employees, thus depriving them of statutory overtime compensation. The managers demurred to the complaint on the ground that California law insulates them from individual liability for economic harm that Reynolds’ employer (Earl Scheib Inc.) may have caused. The California Supreme Court concluded that neither the applicable wageand- hour statutes nor common law principles could be construed to impose liability on individual corporate agents for the acts of the employer.

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