California Employment Law Update

L.A. Jury Delivers Mother of All Verdicts – $464 Million to Two Employees!

As we have previously reported, jury verdicts in employment cases have continued to skyrocket in recent months, and there is no sign they are leveling off. Late last week, a Los Angeles Superior Court jury awarded a total of over $464 million ($440 million of which was in punitive damages) in a two-plaintiff retaliation case. This verdict is more than double any previous amount ever awarded and clearly qualifies as the largest verdict of its kind since the Fall of the Roman Empire.

The plaintiffs alleged they were retaliated against for making complaints about sexual and racial harassment in the workplace, directed at them and other coworkers, leading to their being pushed out of the company.

One plaintiff brought complaints to management about the alleged sexual harassment of two female employees, and claimed he was constructively discharged after being subjected to retaliatory complaints and investigations from other supervisors.  The other plaintiff made anonymous complaints to the internal ethics hotline about the racial and sexual harassment of both himself and other coworkers.

After a two-month trial, the jury awarded one plaintiff $22.4 million in compensatory damages and $400 million in punitive damages and awarded the other plaintiff $2 million in compensatory damages and $40 million in punitive damages.

This latest verdict comes on the heels of a judge reducing another huge December 2021 verdict from a Los Angeles Superior Court jury (which we wrote about here) that awarded $5.4 million in compensatory damages and $150 million in punitive damages to a fired insurance company executive who alleged discrimination and retaliation. The judge ordered a reduction in the verdict to $18.95 million in punitive damages (or, in the alternative, a new damages trial) on the grounds that the prior verdict involved an impermissible double recovery ($75 million each from two Farmers Insurance entities) and a presumably unconstitutional ratio of punitive damages to compensatory damages (a ratio exceeding 9 or 10-to-1 is presumed to be excessive and unconstitutional, and the ratio in that case was 28-to-1).

Only time will tell if this $464 million verdict stands, but we will continue to monitor the case and provide updates as developments occur. In the meantime, our advice to employers worried about these gargantuan verdicts remains the same: ARBITRATE!

Several State “Job Killer” Bills Move One Step Closer to Passage

As covered previously here, the California Chamber of Commerce (“Chamber”) once again has identified a handful of “job killer” bills making their way through the legislative process.  This year’s crop of proposed legislation would, among other things, inflate employer data reporting requirements and further expand the scope of the Fair Employment and Housing Act (“FEHA”).  Several of these recently introduced bills already have passed one of the two houses of California’s legislature and, now, move on to a vote in the second house.  These bills include:

Data Reporting and Publication

  • SB 1162 (Limón; D-Goleta) Publication of Pay Data – requires that private employers with 100 or more employees submit a pay data report to the Department of Fair Employment and Housing (“DFEH”) and imposes civil penalties against employers who fail to do so.  SB 1162 also requires that the DFEH publish the pay data report on a public website.  In addition, SB 1162 requires that employers with 15 or more employees include the pay scale for each position in any job postings.

Expansion of the FEHA

  • AB 2188 (Quirk; D-Hayward) Cannabis Use & Employment Discrimination – makes it unlawful for an employer to discriminate against a person in hiring, termination, or any term or condition of employment, or otherwise penalize a person, based on use of cannabis off the job and away from the workplace.  AB 2188 includes a narrow carve-out for workers in the building and construction trades, and makes clear that it does not preempt state or federal laws requiring employees to be tested for controlled substances.  In addition, AB 2188 prohibits the use of traditional (accurate) marijuana tests, such as urine and hair testing.

Labor Relations

  • AB 2183 (Stone; D-Scotts Valley) Agricultural Labor Relations – changes union election procedures for agricultural employees by essentially eliminating a secret ballot election and replacing it with the submission of representation cards signed by over 50% of the employees.  AB 2183 also limits employers’ ability to challenge the submitted ballot cards, forcing employers to post a bond, and includes a presumption of retaliation if an employer disciplines, suspends, demotes, lays off, terminates, or otherwise takes adverse action against a worker during a labor organization’s representation ballot card campaign.

States of Emergency

  • SB 1044 (Durazo; D-Los Angeles) State of Emergency – prohibits employers from taking or threatening adverse action against any employee for refusing to report to or leaving work “because the employee feels unsafe.”  This bill does not apply to a narrow set of employees, including first responders and others called upon to aid in emergency response.  SB 1044 also prohibits employers from limiting employees’ use of mobile phones or other communication devices in such an event, if the employee wishes to communicate about their safety, seek emergency assistance, or assess the situation.

Workers’ Compensation

  • SB 213 (Cortese; D-San Jose) Workers’ Compensation Expansion of Presumption of Injury – creates a rebuttable presumption that infectious diseases (including COVID-19), cancer, musculoskeletal injuries, post-traumatic stress disorder, and respiratory diseases arose out of work for any hospital employee who provides direct patient care, increasing workers’ compensation costs for public and private hospitals.  In addition, the bill extends these presumptions for specified periods after an employee’s employment ends.

We will continue tracking the progress of these bills as they move through the Legislature and/or are signed by the Governor.

May 2022 California Employment Law Notes

We invite you to review our newly-posted May 2022 California Employment Law Notes, a comprehensive review of the latest and most significant developments in California employment law. The highlights include:

View PDF

Employee with Mild Symptoms of COVID-19 Was Not “Disabled” Under California Law

In Michelle Roman v. Hertz Local Edition Corp., a United States District Court Judge for the Southern District of California granted summary judgment in favor of Hertz, and against former employee Michelle Roman, whose employment was terminated after she contracted COVID.  Roman claimed that her job should have been protected by the California Fair Employment and Housing Act (FEHA) while she suffered from mild symptoms of COVID.  Hertz terminated Roman’s employment after she came to work sick, which violated company policy.  The Court held that because Roman’s COVID symptoms were mild and temporary, they did not qualify as a “disability” under FEHA.  Therefore, FEHA did not protect Roman’s job from termination.

Roman worked as a manager for Hertz in National City, California.  During 2020, Roman received training from the company about COVID protocols, including that employees showing signs of COVID should not be admitted into the workplace.  Despite this training, Roman showed up at work for two days while experiencing mild symptoms of COVID, such as “super mild body aches,” fatigue, and pain in her hips and back that was “killing her.”  Roman did not believe that her symptoms were sufficiently severe to be caused by COVID.  Nevertheless, she took a COVID test to be sure.

The next day while at work, Roman learned that she had tested positive for COVID.  She informed her manager of the news and was immediately sent home.  After quarantining for two weeks, and receiving a negative COVID test, Roman tried to return to work, but instead was fired by Hertz for previously coming to work with symptoms of COVID, which violated company policy.

The basis for Roman’s lawsuit against Hertz was that because she became infected with COVID, she suffered from a disability.  Employees with a disability are entitled to protection against discriminatory and adverse actions under FEHA, as well as a reasonable accommodation.  To determine the definition of “disability,” the Court reviewed Cal. Code Regs. Tit. 2, §11065(d)(9)(B), which provides that a disability does not include conditions that are mild, do not limit a major life activity, and have little to no residual effects.  The regulation further provides that the common cold, seasonal or common influenza, muscle aches, soreness, and non-migraine headaches do not qualify as a disability.  Because Roman’s COVID symptoms were mild and did not linger, the Court found that she did not have a disability under FEHA and, therefore, she was not protected from termination.

In an important caveat, the Court noted that although many cases of COVID most resemble cold like symptoms, some cases are much more severe, with long duration, which “would easily qualify as a FEHA disability.”  Similarly, the California Department of Fair Employment and Housing guidelines provide “whether illness related to COVID rises to the level of a disability (as opposed to a typical seasonal illness such as the flu) is a fact based determination.”  The Court further noted that “long COVID” “may well fall within FEHA’s definition of disability.”

If an employee contracts COVID, and experiences severe and/or long-lasting symptoms, the employee may have a “disability” as that term is defined by applicable law.  As with any other disability, the employer would then have an obligation to engage in the interactive process, provide the employee with a reasonable accommodation, as necessary, and ensure that the employee is not discriminated or retaliated against because of his or her disability.  However, if the employee’s COVID symptoms are mild and of short duration, the employer has no obligation to engage in any of these activities, and the employee’s job may not be protected.

Netflix “Sees What’s Next” with New Policy Addressing Employee Activism

In a significant change of course among major employers, Netflix recently made several modifications to its employee culture memo, which is now called “Netflix Culture – Seeking Excellence.”

Among other things, Netflix inserted a section on “Artistic Expression.”  In it, the company acknowledges that “[e]ntertaining the world is an amazing opportunity and also a challenge because viewers have very different tastes and points of view. So we offer a wide variety of TV shows and movies, some of which can be provocative.”  The memo goes on, “[d]epending on your role, you may need to work on titles you perceive to be harmful.  If you’d find it hard to support our content breadth, Netflix may not be the best place for you.”

This change stands in stark contrast to the position of many other employers which, in the recent past, have been relatively deferential to employees’ opinions regarding corporate decisions and actions vis-à-vis controversial social and political issues.

Some news outlets have suggested this policy change may be in response to the backlash Netflix received from some of its employees after the release of the recent Dave Chappelle comedy special “The Closer.”

Notably, Netflix also added sections regarding employees treating all information as confidential, its commitment to philanthropy (by doubling donations to charity), and its representation-focused drive to see “a variety of stories and people on screen.”

Finally, Netflix changed the name of the “Real Values” section to instead be called “Valued Behaviors.”  Now, this section lists the following as “valued behaviors”: judgment; selflessness; courage; communication; inclusion; integrity; passion; innovation; and curiosity.  The characteristics underlying these categories include things like spending Netflix members’ money wisely, seeking to “understand members’ changing tastes and desires,” and recognizing “we all have biases” while working to counteract them.

This memo was released shortly before it was reported Netflix notified approximately 150 full-time employees—roughly 2% of its US workforce—and 70 part-time employees of their pending termination.  Most of the terminated employees are based in the United States.  Certain news outlets have noted that these terminations and culture changes coincide with Netflix’s cancelling production for several youth-focused “woke” programs, including Wings of Fire, Antiracist Baby, Stamped: Racism, Antiracism and You, and With Kind Regards from Kindergarten.  Netflix stated these lay-offs are due to “slowing revenue growth” and “business needs” rather than individual performance.

California Supreme Court Rules Meal and Rest Break Premiums Constitute “Wages” Potentially Triggering Penalties for Violations

In a much anticipated ruling, on May 23, 2022, the California Supreme Court issued its decision in Naranjo et al. v. Spectrum Security Services, IncPreviously, the Court of Appeal held that unpaid premium payments for meal period violations did not entitle employees to additional penalties for either inaccurate wage statements or failure to timely pay wages upon separation of employment.  The Court of Appeal also held that unpaid premium wages for meal break violations accrued prejudgment interest at the rate of seven percent.

In reviewing the Court of Appeal’s decision, the following issues were before the Supreme Court:

(1) Does a failure to pay premium payments for meal and rest period violations gives rise to derivative penalties for inaccurate wage statements (Labor Code sections 226) and failure to timely pay wages upon separation of employment (Labor Code section 203)?; and

(2) What is the appropriate prejudgment interest rate for unpaid meal and rest period premium payments owed under Labor Code section 226.7?

On the first issue, the Supreme Court reversed the Court of Appeal’s decision and ruled that premium payments owed under Labor Code section 226.7 constitute “wages.”  Thus, employers must report these premium payments on employee wage statements and must timely pay employees for these premium payments upon separation of employment or risk incurring penalties under Labor Code sections 203 and 226.

The Supreme Court reasoned that “[a]lthough the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break, it also compensates for the work the employee performed during the break period…The extra pay thus constitutes wages subject to the same timing and reporting rules as other forms of compensation for work.”

On the second issue, the Supreme Court agreed with the Court of Appeal and held that unpaid premium wages for meal break violations accrued prejudgment interest at the rate of seven percent.

Following this decision, in an effort to avoid Labor Code penalties, employers should double check employee wage statements to ensure meal and rest period premium payments are accounted for and ensure that final wage payments include any meal and rest period premium payments.

We will continue to monitor the Naranjo decision and provide any relevant updates.

California “Women on Boards” Law Ruled Unconstitutional, but California Will Appeal

Last Friday, the Los Angeles Superior Court in Crest et al. v. Padilla (“Crest”) held that Senate Bill 826 (“SB 826”), also known as the “Women on Boards” law, is unconstitutional.  The lawsuit challenging the law was brought by DC-based nonprofit Judicial Watch on behalf of California taxpayers.  Earlier this week, the state announced that it would appeal the decision.

SB 826, which Governor Jerry Brown signed in 2018, mandates that publicly held corporations headquartered in California (even if incorporated elsewhere) have a minimum number of female directors on their Boards of Directors, with at least three female directors if the corporation has at least six directors in total.  While violations of this law are punishable by fines of up to $300,000, the state has not fined a company under this law.

In Crest, the Court found that SB 826 violates the state constitution’s Equal Protection Clause by treating groups of people differently based on sex.  Because the California state constitution requires that laws that differentiate based on sex must survive “strict scrutiny” review, the challenged law must not only serve a compelling government interest but also be “narrowly tailored” to that interest.  This means that the state must show that there is no way to achieve its stated goals without differentiating based on suspect classifications.

The Court found the state’s justifications for the law were unpersuasive, including the state’s reliance on studies showing that more women on corporate boards improve corporate performance and boost the state economy.  The Court noted alternative steps the state could take to improve the state’s economy without discriminating based on sex, and thus SB 826 could not be narrowly tailored for that purpose.

This decision follows on the heels of a California court’s ruling striking down as unconstitutional under the Equal Protection Clause a similar law that required corporations headquartered in California to have at least one minority or LGBTQ+ director on their boards.

This decision may also impact judicial review of a Nasdaq rule, approved by the Securities and Exchange Commission, that will require companies listed on Nasdaq’s exchange to have at least one female director and at least one director “who self-identifies as one or more of the following: Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, or Two or More Races or Ethnicities” or as LGBTQ+, or explain why they do not.  The Nasdaq rule is currently facing a legal challenge in the Fifth Circuit in the form of a petition for review filed by the Alliance for Fair Board Recruitment.

We will continue to monitor the Crest decision and provide any relevant updates.

Nothing Escapes Inflation, Including California’s Minimum Wage

California’s minimum wage currently is double its federal counterpart.  And, it’s going to keep climbing.  Late last week, Gov. Newsom announced that the Golden State’s minimum wage will increase to $15.50 for all employers (regardless of size), effective January 1, 2023.  Employers have inflation to thank for this latest hike.

California currently mandates a minimum wage of $15 per hour for employers with 26 or more employees, and $14 per hour for smaller employers.  The minimum wage was set to increase to $15 per hour for all employers, regardless of size, beginning January 1, 2023—a $1 per hour increase for small employers.  Now, that number will be $15.50 per hour regardless of employer size.

How did we get here?  The answer is a 2016 statute signed into law by former Gov. Jerry Brown, Senate Bill 3 (“SB 3”).  SB 3, which amended sections 245.5, 246, and 1182.12 of the Labor Code, set forth a plan to gradually increase the statewide minimum wage to $15 per hour over the past six years.  SB 3 also included a provision requiring an automatic increase in the minimum wage of up to 3.5% to account for any increase in inflation over 7%, as determined by the Consumer Price Index.  This provision is the cause of the latest increase.

Some localities in California, including the City of Los Angeles, are mandating even greater increases.  This July, the minimum wage in Los Angeles will rise to $16.04 per hour for all covered employees.  Meanwhile, in Berkeley and San Francisco, the minimum wage will increase to $16.99, among the highest in the nation, effective July 1, 2022.

California Safety Board Updates COVID-19 Emergency Temporary Standards

California’s Occupational Safety and Health Standards Board has voted for the third time to readopt and revise the Cal/OSHA COVID-19 Emergency Temporary Standards (“ETS”), which lay out guidelines for testing, masking, and other COVID-19 prevention measures for employers to follow with respect to their employees and workspaces.  The most recent ETS took effect on May 6.  Most of the changes will have little impact on current practice but are still instructive.

The major changes from the previous iteration of the ETS are as follows:

  • Elimination of Distinction Between Employees Who Are and Are Not “Fully Vaccinated.” In perhaps the most significant change, the new ETS delete all differentiation based on vaccination status.  This flattening has a number of repercussions, including:
    • Employers must now provide respirators upon request to all employees, not just those who are unvaccinated.
    • Employers must now provide face coverings to and ensure that they are worn, when required, by all employees, not just those who are unvaccinated.
      • However, in another change, this obligation to provide and wear face coverings applies now only to exposed employees in the event of a COVID-19 outbreak or when required by order of the California Department of Public Health (“CDPH”), not at all times.
    • All employees who cannot, when required, wear face coverings or a non-restrictive alternative for medical reasons must undergo weekly testing, on paid time and at no cost to the employee, even if they are fully vaccinated.
    • COVID-19 prevention measures are now required for all employer-provided housing and transportation, even if the housing or vehicle is occupied solely by fully vaccinated employees.
      • Among these prevention measures is that employers are now required to provide training on effective use of face coverings for employees who use employer-provided housing or transportation.
    • In the event of a COVID-19 outbreak at work, employers must provide tests to all employees in the exposed group, even those who are fully vaccinated.
  • Elimination of Objects or Surfaces from Definition of Hazard. In line with an increasing body of study that COVID-19 transmission is far more likely through the air than through surfaces, the revised ETS eliminate “objects or surfaces that may be contaminated” from the definition of “COVID-19 hazard.”
    • The new guidelines also remove the requirement that employers maintain a strict cleaning and disinfecting regimen in their workplaces as well as in employer-provided housing and transportation.
    • Finally, in the event of a COVID-19 outbreak, the revised ETS no longer require employees to be boxed off by “cleanable solid partitions” in environments where six feet of social distance is not possible.
  • New Return-to-Work Guidelines. The previous iteration of the ETS laid out strict requirements for the circumstances under which “COVID-19 cases” (i.e., people who have either tested positive with, been diagnosed with, or are subject to an isolation order regarding COVID-19) and “close contacts” to COVID-19 cases were permitted to return to the workplace.  The new ETS revamp these requirements as follows:
    • COVID-19 cases who are asymptomatic or whose symptoms are “resolving” (it is unclear what this means) may return to work 5 days after their symptom onset or first positive test and 24 hours after a fever, if the employee had one, came down without medication, so long as the employee tests negative on that fifth day.
      • Employers need not require this negative test, but in that case the employee must wait 10 instead of 5 days after symptom onset or first positive test before returning.
    • COVID-19 cases whose symptoms are “not resolving” (it is unclear what this means) may return to work only if (1) symptoms begin resolving or 10 days have passed from symptom onset and (2) 24 hours have passed since a fever came down without medication.
    • All returning COVID-19 cases, regardless of symptoms, must wear a face covering for 10 days since either their symptom onset or first positive test.
    • In a bright spot, the new ETS loosen the requirements for an acceptable COVID-19 test.  Previously, a test had to be observed by either the employer or a health proctor.  Self-administered and self-read tests now are acceptable so long as the employee can provide independent verification of the results, such as a time-stamped photograph.
    • The previous ETS also had detailed requirements for when “close contacts” to a COVID-19 case were permitted to return to work.  The new ETS delete those requirements and instead direct employers merely to “review current CDPH guidance” and develop their own policies for preventing COVID-19 transmission with respect to these employees.
      • The new ETS do require that in the event of a COVID-19 outbreak in the workplace, close contacts must test negative following the contact or otherwise follow the ETS’ return-to-work criteria starting from the date of contact.
    • In the event of a “major” (20 or more cases within an exposed group) COVID-19 outbreak, testing is now required of all exposed employees.  Exposed employees who do not undergo testing must follow the ETS’ return-to-work guidelines starting from the date the outbreak began.
    • Finally, the new ETS carve out a new category of cases in “Returned Cases,” defined as a case who returns to work and remains symptom-free after their return.
      • An employee is only characterized as a Returned Case for the first 90 days after either their initial onset of symptoms or their first positive test if they were asymptomatic.
      • Employers are not required to provide testing to Returned Cases except in the event of a major outbreak.
    • Relaxed Masking Requirements. As stated above, the new ETS do not strictly require employees to wear face coverings at all times when indoors, only when ordered by CDPH and, in the event of an outbreak, among exposed employees.
      • Similarly, employees are no longer strictly required to wear masks at all times inside employer-provided vehicles—employers instead must “implement face covering polices that effectively eliminate or minimize transmission.”
      • The ETS’ definition of “face covering” has also been amended to remove the “light test”—i.e., that an acceptable face covering cannot let light pass through when held up to a light source.

Per Governor Newsom’s Executive Order N-84-20, where the ETS’ exclusion periods exceed those issued by CDPH guidance, the CDPH periods will control.  We encourage employers to familiarize themselves with this latest guidance and will be sure to monitor any updates.

Judge Reduces $137 Million Race Harassment Verdict Against Tesla to $15 Million

A federal court judge pared down last year’s jaw-dropping $137 million damages award against Tesla in a racial bias lawsuit.  As covered previously here, a San Francisco federal court jury awarded $6.9 million in emotional distress damages and $130 million in punitive damages to a Black former elevator operator who worked at Tesla’s Fremont facility for approximately one year before quitting his employment in 2016.  On April 13, 2022, the judge granted Tesla’s motion for a reduction in the amount of damages in part and denied Tesla’s motion for judgment as a matter of law that it is not liable.  The judge explained in his order: “Great deference is owed to the jury’s verdict, but after careful review of the record, I conclude that the award of compensatory damages was excessive.”

Specifically, the judge reduced the emotional distress damages to $1.5 million, the highest award supported by the evidence, as compared to the $300,000 for which Tesla advocated.  With an eye toward United States Supreme Court precedent imposing constitutional limitations on punitive damages awards, the judge reduced the punitive damages to $13.5 million—nine times the amount of compensatory damages—as opposed to the one-to-one ratio Tesla proposed.  While the judge described the jury’s award as “unconstitutionally large,” he rejected the argument that no punitive damages are warranted.  The court granted the highest possible ratio of punitive damages (9:1) under the United States Supreme Court’s guidance that it is unlikely awards exceeding a single-digit ratio between punitive and compensatory damages will satisfy due process.

The former Tesla employee may not accept the reduced damages and instead request a new trial on damages – and Tesla presumably will appeal to the Ninth Circuit as well.  As we’ve noted before here, here, and here, this case well exemplifies the advantages of arbitration for employers and employees alike—arbitration offers increased speed, finality, cost-efficiency, and predictability, which are all absent in a jury trial like this one.  We will continue to monitor this case and provide any relevant updates.

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