• Sexually Vulgar Language -- Friendly or Hostile? A Matter of Context
• Home Court Advantage? Don't Bank On It
• Companies Doing Business In California Must Ask: Who's Listening?
• Big Mac Gets Attacked - And Survives
• Taxation Of Emotional Distress Damages Held Unconstitutional
• Take Charge of Chargebacks

SEXUALLY VULGAR LANGUAGE -- FRIENDLY OR HOSTILE? A MATTER OF CONTEXT

In a high-profile decision involving the popular television show Friends, the California Supreme Court held that the use of sexually coarse and vulgar language, standing alone, did not violate the Fair Employment and Housing Act's ("FEHA") prohibition against harassment because of sex. (Lyle v. Warner Brothers Television Productions (April 2006).) The case involved a female writers' assistant (Lyle) who sued the television show alleging that she was subjected to an unlawful hostile work environment because of sex based on the graphic sexual discussions and crude sexual jokes that took place in the writers' room, primarily by three male writers.

In her job interview, Lyle had been forewarned that the show dealt with sexual matters and she would hear sexual jokes and discussions. Although Lyle told her interviewers that such language would not bother her, she later argued in her lawsuit that the writers "sorely understated" the actual climate of the writers' room.

In rejecting Lyle's hostile work environment claim, the Court emphasized that to establish a claim of sexual harassment, Lyle had to show that the conduct complained of was not merely sexual in nature, but that it had the purpose or effect of treating one gender differently than the other. As the Court explained, "there is no dispute that sexually coarse and vulgar language was used regularly in the Friends writers' room. But the use of sexually coarse and vulgar language in the workplace is not actionable per se. . . . It is the disparate treatment of an employee on the basis of sex -- not the mere discussion of sex or use of vulgar language -- that is the essence of a sexual harassment claim."

In evaluating Lyle's claim, the Court placed great emphasis on the context of the statements, stating that "the circumstance that this was a creative workplace focused on generating scripts for an adult-oriented comedy show featuring sexual themes is significant in assessing the existence of triable issues of facts regarding whether the writers' sexual antics and coarse sexual talk were aimed at plaintiff or at women in general, whether plaintiff and other women were singled out to see and hear what happened, and whether the conduct was otherwise motivated by plaintiff's gender." Significant factors for the Court were that the conduct was not directed at Lyle and was undertaken in group sessions with both male and female participants, all of whom generated material for the show. Based on this, the Court concluded that Lyle could not establish that "members of one sex were exposed to disadvantageous terms or conditions of employment to which members of the other sex were not exposed" and, therefore, could not make out a claim of sexual harassment.

Although the Friends decision is favorable to employers, given the Court's emphasis on the particular facts of the case, its impact on future cases involving sexual harassment claims is unknown. For this reason, employers are encouraged to closely monitor workplace conduct to ensure a workplace free of conduct that could be construed as sexual harassment.

HOME COURT ADVANTAGE? DON'T BANK ON IT

Employees who have to pay a fee or incur a delay in getting their paychecks cashed because the checks are written on an out-of-state bank may be able to bring a class action lawsuit against their employer. California Labor Code § 212(a)(1) prohibits payment of wages by check unless the check is:

"negotiable and payable in cash, on demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument."

Recently, Dollar Tree Stores was sued by employees in a class action for allegedly violating this Labor Code provision. (Fleming v. Dollar Tree Stores (March 2006).) Dollar Tree's payroll checks were drawn on Wachovia Bank, which has locations in various states, but none in California.

Dollar Tree attempted, without success, to have the case dismissed. According to the court, because Dollar Tree's employees had to incur fees or waiting time to get their checks cashed, the case could go forward to trial. Given a possible penalty of $100 for the first violation and $200 for subsequent violations, the fact that Dollar Tree issued over 100,000 paychecks per year, and a 4-year statute of limitations on the claims at issue, some have estimated Dollar Tree's potential liability to be in the tens of millions of dollars.

The Dollar Tree case is a strong warning to employers who issue paychecks on an out-of-state bank. Although the most direct way to address this potential issue is to have paychecks issued by a bank in California, employers may also consider the following alternatives, which were endorsed by the Dollar Tree court: (1) the employer can arrange with California banks to pay the fees which normally would be paid by the employees; (2) the employer can cash its employees' checks at one of the employer's locations; or (3) the employer can retain a check cashing service for its employees.

COMPANIES DOING BUSINESS IN CALIFORNIA MUST ASK: WHO'S LISTENING?

The California Supreme Court recently concluded that an out-of-state employer cannot record telephone calls with California residents unless it complies with California's privacy laws. Those laws require all parties to consent to such a recording. In Kearney v. Salomon Smith Barney, Inc. (2006), two California employees of WorldCom filed a class action lawsuit against the brokerage firm Salomon Smith Barney ("SSB") whose Atlanta, Georgia, office handled financial matters for WorldCom employees. The California WorldCom employees claimed that SSB secretly recorded their telephone calls in violation of California Penal Code Section 632, which prohibits recording "confidential communications" without all parties' consent to the conversation. A "confidential communication" is one in which either party has an objectively reasonable expectation that the conversation is not being overheard or recorded. In contrast to California law, Georgia law requires that only one party to a confidential communication consent to its recording. This is true in many other states outside of California as well. The California Supreme Court held that California law should apply because of the important interest in protecting residents' privacy rights.

In light of the decision in Kearney, employers should instruct all out-of-state employees that it is illegal to record calls with a California resident unless the consent of all parties is obtained. This is true regardless of the purpose of the recording, such as to monitor quality. Compliance in this area is important, as criminal fines of up to $10,000 and one year in prison can be imposed, in addition to the risk of civil litigation by the individual being recorded.

BIG MAC GETS ATTACKED – AND SURVIVES

Several recent court cases, most involving well-known national companies, have invalidated releases executed as part of those companies' restructuring and layoff programs. The result has been to resurrect significant age discrimination lawsuits against those employers.

One example of this is Kruchowski v. The Weyerhaeuser Co. (May 2006), a Tenth Circuit Court of Appeals decision. In Kruchowski, the employer had terminated a number of employees as part of a reduction-in-force ("RIF"). Each employee signed a release of claims in order to obtain a financial severance package. Included among the released claims were federal and state age discrimination claims. Despite signing releases, a number of employees later sued the employer for age discrimination, arguing that the releases they signed did not comply with the Older Workers Benefit Protection Act ("OWBPA"). The court agreed.

The OWBPA requires, among other things, that in a group reduction (defined as two or more employees), terminated employees be informed of: (1) the precise "decisional unit" involved – that is, the class, unit or group of persons considered for termination; (2) the "eligibility" factors that were used to determine who from the decisional unit was selected for termination; and (3) the ages of those persons from the decisional unit who were and were not selected for termination. According to the court in Kruchowski, the absence of even one of the OWBPA's requirements invalidates the entire waiver. Because the court found that the waivers at issue failed to identify the precise decisional unit, it concluded that the releases executed by the employees were not valid or enforceable as to federal age discrimination claims.

Another recent example of the courts' close scrutiny of the technical OWBPA requirements is Syverson v. IBM (August 31, 2006), in which the Ninth Circuit Court of Appeals invalidated IBM's age discrimination claim releases because they were unclear and confusing. The OWBPA requires that waivers be written in "a manner calculated to be understood by the average individual." The court held that IBM's release did not meet this test, and it therefore permitted the employees to pursue their age discrimination lawsuit against the company.

In Burlison v. McDonald's Corp. (July 11, 2006)¸ the Eleventh Circuit Court of Appeals evaluated the validity of McDonald's' age discrimination release under the OWBPA. McDonald's had terminated a number of employees in conjunction with a nationwide RIF. McDonald's offered its terminated employees severance pay packages in return for signed waivers releasing any claims they might have against the company.

The issue before the court was whether McDonald's had properly identified the "decisional unit." McDonald's provided region-specific information sheets of the age and job titles of those subject to the RIF. The employees, however, argued that McDonald's misrepresented the "decisional unit" insofar as the decisional unit should have been all McDonald's employees nationwide who were subject to the RIF, not just those working in their region. Fortunately for McDonald's – and for employers in general – the court rejected the employees' arguments. It concluded that the OWBPA's informational requirements are limited to the decisional unit that applies to the discharged employees, not to employees nationwide.

The clear lesson from these recent cases is that group release agreements are not "one size fits all." In fact, they must be carefully tailored to the specific termination program underway. We strongly recommend that employment law counsel review all such agreements because even a single technical misstep could invalidate the waiver and open the door to age discrimination lawsuits the employer thought had been effectively released.

TAXATION OF EMOTIONAL DISTRESS DAMAGES HELD UNCONSTITUTIONAL

Recently, the U.S. Court of Appeals for the District of Columbia held that the taxation of non-economic damages for emotional distress and loss of reputation in an employment case was unconstitutional. (Murphy v. United States (August 2006).) Marrita Murphy sued her former employer for "blacklisting" her and providing potential employers with unfavorable references in violation of various whistleblower statutes after she complained of environmental hazards. Murphy was awarded damages for emotional distress and for injury to her professional reputation. She paid federal taxes on the award and later sought a refund from the Internal Revenue Service ("IRS"). When the IRS denied her request for a refund, she brought suit against the IRS and the United States to recover the income taxes paid on her award for emotional distress and loss of reputation damages.

The court held that compensatory damages for a non-physical injury are not "income" under the Sixteenth Amendment (which permits taxation of "income") where, as in this case, such compensation is unrelated to lost wages or earnings. The court concluded that Murphy's award for her nonphysical injuries, emotional distress and loss of reputation, was intended to make her emotionally and reputationally whole and was not intended to compensate her for lost wages or taxable earnings. According to the court, because Murphy's award could not be considered "income," its taxation was unconstitutional.

The decision will have an interesting effect on the litigation and settlement of future employment cases, with employers potentially arguing that they can settle for less while still providing the plaintiff with the same "take home" amount.


TAKE CHARGE OF CHARGEBACKS

In Koehl v. Verio (September 2006), the California Court of Appeal showed its willingness to approve commission chargeback arrangements, (i.e., recovery of excess commission advances) if the commission policies are clear and agreed to in writing. In Verio, three former salespersons filed a class action lawsuit for recovery of chargebacks, which they claimed to be wages. The court rejected the salespersons' claims and affirmed that an employer may advance commissions to employees and enter into agreements to charge back for advances that are in excess of future commissions. Recent cases like Verio have helped define how a lawful commission chargeback plan can be drafted. Importantly, chargeback policies should document the employee's consent, set forth the requirements that must be met before a commission is earned, and seek recovery of commission advances only from future commissions, not from base pay.