NLRB Ruling Requires Employers to Revise Expansive Arbitration Policies

Many California employers have adopted mandatory arbitration policies in an attempt to better manage the risks arising out of employee lawsuits.  The case law in this area is still developing, however, and employers should periodically review their policies to ensure that they are up to date.  A recent decision of the National Labor Relations Board ("Board") underscores this point.

In U-Haul Co. of California, the Board held that an arbitration policy in U-Haul's employee handbook requiring employees to arbitrate all types of employment-related disputes violated the National Labor Relations Act ("NLRA").  U-Haul's arbitration policy contained broad language mandating arbitration of "all disputes arising out of an employee's employment … or the termination of that employment" and covered claims for "wrongful termination of employment, breach of contract, fraud, employment discrimination … and any other legal or equitable claims and causes of action recognized by local, state or federal law or regulations."

The Board found that the expansive scope of the arbitration policy encompassed claims arising under the NLRA and could reasonably be read by employees as requiring them to arbitrate unfair labor practice disputes as opposed to filing charges with the Board.  Because filing unfair labor practice charges with the Board is a protected activity under the NLRA, an employee cannot be forced to arbitrate such claims. 

There was no evidence that U-Haul's policy had actually deterred any U-Haul employee from filing an unfair labor practice charge with the Board.  Nonetheless, the Board found that the arbitration policy, on its face, violated the NLRA because of its potential deterrent effect.

U-Haul's liability hinged on the fact that its arbitration policy did not include specific language exempting claims arising under the NLRA.  Accordingly, in light of the Board's U-Haul decision, employers are encouraged to review their arbitration policies to ensure the presence of such exclusionary language.  Other specified exclusions include workers' compensation claims and other claims where arbitration is prohibited as a matter of law.

The Match Game:  Names and Social Security Numbers

Employers often are confused about their legal obligations -- and potential liability -- when they receive a letter from the Social Security Administration ("SSA") stating that there is a mismatch between an employee's name and social security number.  For example, does a mismatch letter put the employer on notice that such an employee may be an unauthorized alien and create employer liability under the immigration laws?  Thanks to the Department of Homeland Security ("DHS"), help may be on the way.

DHS recently published a proposed rule regarding how employers should respond to the SSA's mismatch letters.  The proposed rule provides that an employer who takes certain steps upon receipt of a mismatch letter will not be deemed to have constructive knowledge that the employee is an unauthorized worker.  These steps are as follows:

1. Within 14 days of receiving the mismatch notification, the employer should: (i) check its records to determine whether the discrepancy results from a clerical error and, if so, contact the SSA regarding the corrected information; or (ii) if no such error is found, the employer should ask the employee to confirm that the employer's records are correct and, if so, direct the employee to contact the local SSA or DHS office to try and fix the problem.

2. If the employee does not return with new or corrected information within 60 days of the employer's receipt of the mismatch letter, the employer then has 3 days to complete a new I-9 form.  The new I-9 form cannot use the same social security account number or alien number that is the subject of the mismatch letter. 

The proposed rule states that if the worker is unable to present documentation to complete a new I-9 form, the employer must choose between taking action to terminate the employee or facing the risk that DHS may find that the employer had constructive knowledge that the employee was an unauthorized alien and, therefore, in violation of the Immigration and Nationality Act.

The proposed rules are open for comment until August 14, 2006, and some changes are likely.  Employers should exercise caution before taking adverse action based on a SSA mismatch letter because such action could give rise to liability, including unfair labor practice charges and retaliation or discrimination claims.  

FEHC Adopts Modified Proposed Regulations on Sexual Harassment Training

On June 20, 2006, the Fair Employment and Housing Commission ("FEHC") adopted modified proposed regulations interpreting California Government Code section 12950, which requires sexual harassment training of supervisors who work for employers with 50 or more employees.  Supervisors must receive two hours of training every two years, and new supervisors must be trained within six months of assuming a supervisory position.  These regulations modify the FEHC's original December 16, 2005, proposed regulations. 

Some key aspects of the modified regulations are as follows:

• 50 or more employees: There is no requirement that the 50 employees work at the same location or all work or reside in California.

• Individual Tracking of Two-Year Period:  The two-year period is measured by tracking the training of each supervisor, measured two years from the date of completion of the last training of the individual supervisor.

• Trainer's Qualifications: The trainer must be knowledgeable about federal and state laws regarding discrimination, retaliation and harassment. Trainers must use hypotheticals or examples and obtain involvement from participants through questions, problem solving and quizzes.  Instruction must include skill-building activities and numerous hypothetical scenarios and discussion questions. 

• Webinars:  Webinars (defined as Internet-based seminars) are permissible provided they are taught by a qualified trainer and transmitted over the Internet in real time. A Webinar must be structured to demonstrate that the supervisor participated in the training and must provide the supervisors an opportunity to ask questions, to have them answered, and otherwise to seek guidance and assistance from the trainer.

• E-learning:  E-learning programs (defined as computer-based training whose content is written, reviewed and approved by a qualified trainer) must provide directions on how supervisors can contact trainers or educators regarding questions, and a response must be received within two business days of the question being asked.

• Record Keeping Requirements:  An employer must document the harassment training including the name of the supervisor trained, the date of the training, the type of the training, and the name of the trainer. Records must be maintained for two years.

The proposed regulations are not yet final.  The public may submit written comments to the FEHC through July 21, 2006.  At its next meeting, currently scheduled for August 29, 2006, the FEHC will decide whether to adopt the modified regulations or make further revisions. 

How Punitive Can Punitive Damages Be?

The threat of large punitive damages awards in employment cases has long been daunting to employers and simultaneously enticing to employee litigants.  In recent years, California juries have imposed punitive damages awards in employment cases that are exponentially more than a successful plaintiff's actual damages.  Indeed, the threat of exorbitant punitive damages awards has been viewed by many as one of the leading causes of the increase in employment cases and the impetus for many employers to settle cases, even those in which the plaintiff has suffered only small actual damages.  A recent California Court of Appeal decision, however, has signaled an effort to rein in excessive punitive damages awards.

In Gober v. Ralphs Grocery Company, 137 Cal.App.4th 204 (March 1, 2006), the California Court of Appeal held that punitive damages of $30 million -- 54 times the actual damages awarded to the plaintiffs in a sexual harassment case -- was excessive and violated the company's due process rights.  The plaintiffs claimed that their store director engaged in inappropriate touching, used profanity, made inappropriate comments concerning their sex lives, and threw objects at them.  The jury found that Ralphs failed to take reasonable steps to protect plaintiffs and ultimately awarded damages ranging from $50,000 to $200,000 per plaintiff.  The jury also awarded $5 million in punitive damages to each of the six plaintiffs. 

In its ruling, the court of appeal considered the three "guideposts" set out by the U.S. Supreme Court in State Farm Mutual Auto Ins. Co. v. Campbell, 538 U.S. 408 (2003), and followed by the California Supreme Court in Simon v. San Paolo U.S. Holdings Co., Inc., 35 Cal.4th 1159 (2005), to determine the maximum constitutionally-permissible punitive damages award.  Those guideposts are (1) the degree of reprehensibility of defendant's conduct, (2) the disparity between punitive damages and the actual or potential harm suffered by plaintiff, and (3) the disparity between the punitive damages awarded and the amount of statutory civil penalties which could be imposed for comparable conduct.  The court of appeal in Gober found "only a modest degree of reprehensibility" in Ralphs' conduct and great disparity between the harm suffered by plaintiffs and the amount of the punitive award, which it suggested warranted a ceiling on punitive damages of six times the compensatory damages.

While the decision is narrow and does not impose a specific mathematical cap on punitive damages, it should be received as welcome news by employers.  Coming on the heels of the U.S. Supreme Court's pronouncement in Campbell and the California Supreme Court's decision in Simon, Gober may signal a trend by the courts to limit excessive punitive damages awards.  The California Supreme Court has declined to review the Court of Appeal's decision in Gober.

Supreme Court Adopts More Liberal Standard for Title VII Retaliation Claims

In a recent 9-0 decision, the U.S. Supreme Court expanded the rights of employees seeking to bring retaliation claims under Title VII of the Civil Rights Act ("Title VII").  In order to prevail on a retaliation claim, an employee must prove that he suffered an adverse employment action in retaliation for complaining about unlawful discrimination or harassment.  In Burlington Northern & Santa Fe Railway Co. v. White, Case No. 05-529 (June 22, 2006), the Court resolved a split between the federal Circuit Courts of Appeal regarding what constitutes an "adverse employment action." 

Some Circuits have held that a retaliation plaintiff must show that the alleged retaliatory conduct impacted the employee's "compensation, terms, conditions, or privileges of employment."  Other Circuits historically have applied a broader standard and held that the retaliation plaintiff must only show that because of the employer's retaliatory actions, a "reasonable person" would have been dissuaded from exercising his Title VII rights.  The Court sided with the latter Circuits finding that the language of Title VII and the purpose behind its anti-retaliation provisions support a broader formulation of "adverse employment action." 

The plaintiff in Burlington Northern, Sheila White, was initially hired as a "track laborer"-- a position involving numerous physically-demanding tasks.  Shortly after she was hired, White was assigned to drive a forklift -- a less physically demanding job.  Approximately three months after she started driving the forklift, White complained to company officials that her immediate supervisor had made insulting and inappropriate gender-related comments to her in front of her male co-workers.  After an investigation, the company suspended White's supervisor for 10 days and ordered him to attend sexual harassment training.  At the same time, however, White was removed from her forklift duties and reassigned to other less desirable track laborer tasks.  White's compensation remained the same.

White filed a complaint with the U.S. Equal Employment Opportunity Commission ("EEOC") alleging that the reassignment of her duties constituted gender-based discrimination and retaliation for having complained about her supervisor.  Subsequently, White had a verbal disagreement with her immediate supervisor and was suspended for insubordination.  After White invoked the company's internal grievance procedure, it was concluded that White had not been insubordinate and she was reinstated with full back pay for the 37 days of her suspension.  Thereafter, White sued the company alleging unlawful retaliation under Title VII based on the reassignment of her job duties and suspension without pay.

A jury eventually found in White's favor and concluded that both the changing of her job duties and her suspension constituted unlawful retaliation.  On appeal, the full Sixth Circuit, sitting en banc, upheld the jury's findings but disagreed as to the proper standard to apply to retaliation claims.  The Sixth Circuit majority concluded that to establish actionable retaliation, an employee must prove that he suffered an adverse employment action that materially affected the terms and conditions of employment (e.g., a termination, demotion, change in pay, etc.).  Other members of the court concluded, as have other Circuits, that a retaliation plaintiff need only prove adverse treatment based on a retaliatory motive which would have the effect of dissuading a reasonable person in the plaintiff's circumstances from making or supporting a charge of discrimination.  The Court subsequently granted review to resolve this distinction.

After reviewing the language of Title VII, the Court concluded that the anti-retaliation provision of Title VII provides broad protection for employees and held that a retaliation plaintiff must only show that a reasonable employee would have found the challenged action "materially adverse."  The Court explained that "materially adverse" means that the action might dissuade a reasonable employee from making or supporting a charge of discrimination.  This can include actions that are not directly related to the terms and conditions of employment.  The Court, however, emphasized that it is important to separate petty slights, trivial harms, and minor annoyances from actionable significant injuries.

Under this standard, the Court held that there was sufficient evidence in this case to support the jury's verdict regarding White's reassignment and her suspension without pay.  With respect to White's reassignment, because White's reassigned duties were more arduous and dirtier, the reassignment could have the effect of deterring a reasonable employee from making a charge of discrimination.  Similarly, with respect to White's indefinite suspension without pay, the suspension could have the effect of deterring the filing of a discrimination complaint (regardless of whether White received back pay) because being forced to live without pay for an indefinite period of time is a hardship. 

As a result of the Burlington Northern decision, employers could likely see a significant increase in the number of Title VII retaliation claims they face.  Employers may also find it more difficult to defeat some retaliation claims on summary judgment because these cases will now involve a more fact-specific review.  In light of the Burlington Northern decision, employers are encouraged to revisit their procedures for protecting employees from retaliation.

California Supreme Court -- "The Check is Not in the Mail"

California Labor Code section 201 provides that if an employer "discharges" an employee, wages earned and unpaid at the time of discharge are due and payable immediately.  Under Labor Code section 203, an employer's willful failure to pay wages to a "discharged" employee in accordance with section 201 subjects the employer to waiting time penalties of up to 30 days wages.  The issue before the California Supreme Court in Smith v. Superior Court (L'Oreal USA Inc.) S129476 (July 10, 2006), was the meaning of the term "discharge" and whether it applies to employees who are released without being terminated after completing short-term assignments. 

In Smith, L'Oreal hired a model for one day's work and agreed to pay her $500 for the day.  The employee sued for fraud, breach of contract and other claims after L'Oreal waited more than 60 days to send a check to her.  The employee included a $15,000 claim for Labor Code section 203 waiting time penalties ($500 a day x 30 days). 

L'Oreal argued that the former employee could not seek section 203 waiting time penalties because she was not "discharged."  According to L'Oreal, only workers fired for cause fall under section 201.  The California Supreme Court disagreed, finding that the "plain purpose of sections 201 and 203 is to compel the immediate payment of earned wages upon a discharge . . . [and] a discharge is commonly understood as referring both to an involuntary termination from an ongoing employment relationship and to a release of an employee after completion of a specified job assignment or duration of time."

California's Fair Employment and Housing Act now requires that employers with more than 50 employees provide sexual harassment training to all supervisors by January 1, 2006. The new law requires a minimum of two hours of training every two years, commencing in 2005, for all employees with any supervisory or managerial authority over other workers. THE INITIAL TRAINING MUST BE COMPLETED BY JANUARY 1, 2006.

The new law specifically requires that the anti-harassment training be presented in an interactive format by an instructor with knowledge and expertise in the prevention of harassment, discrimination and retaliation. Our firm's Labor and Employment Department is highly qualified to perform this training, and we are available to assist you in complying with these new statutory requirements.