Another Crack in the Community Tip Jar -- Lu v. Hawaiian Gardens Casino, Inc.

Back in June of 2009, I wrote about the Starbucks tipping case. Some rascally class action attorneys had won a huge payday, claiming that Starbucks was violating the sanctity of the community tip jar. You see, Labor Code section 351 states that no "employer or agent" shall take any part of the gratuity "left for an employee by a patron." An "agent" is defined by section 350(d) as anyone who can hire or fire, or who controls the acts of the employees."

The attorneys managed to convince a Superior Court Judge in San Diego that when Starbucks permitted "supervisors" (you know, the ones that make 25 cents an hour more because they’ve been there the longest) to take a cut of the community tips, that violated section 351. The judge awarded $105 million in damages for this outrage. Since Starbucks would need to sell like a hundred Caramel Macchiatos to cover that, it appealed.

The Court of Appeal said, "hold the foam." The flaw in the logic is obvious (understanding that I always have perfect 20-20 hindsight with court decisions).  When I sit down at a restaurant, enjoy my meal and the service, and then leave a tip, I am leaving a tip for my specific server. However, when I order a latte at a Starbucks and drop my change into the tip jar, who am I tipping? I'm certainly not intending to tip only the barista. At that point, I don’t even know who is going to prepare my beverage (or even if it will be tip worthy). It is probably far more likely that I'm tipping the friendly cashier that accurately took my order and retrieved my scone. Or perhaps my intent was to tip the person that cleaned the washroom where I washed my hands before stepping up to the counter. As you can see, in the case of a community tip jar, we can never truly know who generated the tip, so it makes much more sense to assume that it is my intent to tip everyone working there, who have all joined to make this such a special coffee experience, from the supervisors down. Hell, I wouldn’t even mind if the owners took a cut, because after all they are the ones that hired the fine people who cleaned the restroom, who took my order, who retrieved my scone and who made the Venti, whole milk, extra hot latte that Aaron drank. 

Indeed, the Court of Appeal concluded that the purpose behind section 351 was not so much to quibble about splitting up the tips, but rather to "prevent a fraud on the tipping public" by prohibiting an employer from giving a tip left for a server to someone not intended by the tipper. There is no such fraud with the Starbucks tip jar.

Today, the California Supreme Court put another crack in the ol’ tip jar. In Lu v. Hawaiian Gardens Casino, Inc., former dealer Louie Hung Kwei Lu sued the casino, claiming its policy of requiring dealers to segregate 15 or 20 percent of their tips and pay them into a community tipping pool violated the statute. Lu launched his action before I had written my Starbucks article, so without the benefit of that wisdom, he felt it was unfair that a percentage of "his" tips were being distributed to various service workers, including the people who brought him his chips, host, floor people and concierges. But in Lu’s defense, a dealer's situation is slightly different than the community tip jar at Starbucks.  When someone gives a tip to a dealer, he or she is usually thanking the dealer for a good hand.  It is far more likely that tip is intended for and directed at the dealer, not the people who support him.  Thus, under the reasoning of the Starbucks case, splitting the dealer's tip would be a fraud on the tipping public.

But the Supreme Court dealt Lu a bust hand, upholding the ruling of the Court of Appeal.  It gave no thought to the intent of the tipper, but instead decided that Labor Code section 351 does not provide a private cause of action for violation of that section. Rather, the penalties for violating the statute are built in. Section 351 provides that an employer who violates section 351 is guilty of a misdemeanor, and can be fined or even imprisoned. The statute does not also permit doubling down with private actions by the employees themselves.

But Lu, or at least others who follow, did win the side pot.  While the Supreme Court held that there is no private action under section 351, the court noted there would be nothing preventing a claim under some other theory, such as common law conversion (the civil law equivalent of theft).

Just How Badly Do You Need to Fire that Employee?

Can you say, "appearance of impropriety"?

On a regular basis, I get calls from companies that apparently found it essential to terminate an employee that had just announced she was pregnant, or one who had just requested a leave under the Family Medical Leave Act, or another who just filed a Workers Compensation claim, etc.  In all cases, the employers swore to me that the termination had nothing to do with the pregnancy, FMLA request or Workers Comp claim, and I'm convinced that they were sincere.

You see, unscrupulous employees who know how to work the system will take actions to create the appearance of a wrongful termination when they know the ax is about to fall.  Sometimes it is blatant to the point of being laughable.  I was recently involved in a case where the employee, when summoned to her supervisor's office to discuss a major infraction, took a detour to Human Resources to claim sexual harassment.  She didn't have much time to think up a story, so she reported that the sexual harassment she had suffered was seeing her supervisor hug another female employee -- a year earlier -- when that employee's mother had died.  Silly yes, but that didn't keep her from claiming that her subsequent termination was retaliation for reporting this unforgivable "sexual harassment."

As an employer, you need to know that the deck is stacked against you if an employment claim goes to the jury.  Most jurors do not know about at-will employment, and go into the trial with the preconceived notion that an employer must have good cause to fire an employee.  Of course the judge will instruct the jury on the law of at-will employment, but if the jurors hear that you fired an employee for anything less than murder and/or mayhem, right after the employee, say, filed a workers compensation claim, you will be fighting an uphill battle.

The recent court decision of Crawford v. Metropolitan Government of Nashville and Davidson County provides a perfect example of, "what was the employer thinking?"  There, the plaintiff employee was questioned about whether she had witnessed sexual harassment by a certain supervisor.  She had never volunteered any information, but when specifically asked, she related two instances she had witnessed.  Two other employees gave similar accounts. 

All three employees were terminated after reporting what they had seen.  Crawford sued for wrongful termination on a theory of retaliation, but the case was thrown out by the District Court on the grounds that she had not instigated any sort of investigation, but had merely answered questions.  The Court of Appeals agreed, but the Supreme Court reversed the decision and sent the case back for trial.  The Supreme Court correctly held (in my opinion) that reporting what she had seen was sufficient to bring her under the anti-retaliation provisions of Title VII.  Back in the trial court, Crawford won $1.5 million in damages. 

Clearly something was rotten in Nashville, and it certainly appears that justice prevailed.  But the case illustrates the hubris of some employers.  Don't engage in this type of behavior, of course, but also be aware of any facts that make it look like you are engaging in this type of behavior.  Do you really need to terminate that employee who is out on a disability claim?  Do you really need to terminate that employee that just broke off her affair with the boss?  If his or her work performance is that bad, then document it along with any future infractions.  If the employee is beyond redemption, their performance will justify the termination on a later, not so inopportune day.  If not, then maybe the employee was not as bad as you thought, and you will have avoided trying to explain your way around some very bad circumstances.  Some may view this as caving, but I view it as a pragmatic recognition that when it comes to a trial for wrongful termination, sometimes perception is reality. 

For more information about the Crawford decision, read the excellent summary provided by attorney Ellen Simon here.

Employment Lawyers Warn Against Glowing Reviews on LinkedIn

Corporate employment lawyers can be real buzzkills.  I'm reminded of the early days of the Internet when the corporate types were warning all us lawyers to take down our websites because they crossed state lines and therefore constituted the unlicensed practice of law in other states.  Now, when everyone is hot on social networking through sites such as LinkedIn, the employment lawyers warn of dire consequences if employers post nice comments about their workers. 

You see, when an employee is terminated and a lawyer is looking for a way to claim it was wrongful, they look first to the job evaluations and any awards and accolades.  If it can be shown that the employee walked on water, then obviously there was no reason to fire the employee and the termination must have been based on some nefarious reason, such as discrimination.

Sadly, a company's compassion can get it in trouble.  A company is forced to terminate an employee due to downsizing, so to give his job search a little boost it creates a recommendation for the employee's LinkedIn profile.  An employment lawyer will spin that by arguing that at the very moment the employee was being terminated, the company was saying glowing things about him.  When interviewed by, Philadelphia lawyer Carlyn Plump had this to say about that:

"Just don't do it," Plump said. "Generally, my advice is that I think employers are often better served by merely stating dates of employment, positions with the company and salary, and staying away from much more because there are so many potential ramifications if they say something."  She added: "If they say something negative, there could be a lawsuit. If they say something positive, there could be a lawsuit."   The entire article can be found here.

My philosophy?  It's not all about avoiding lawsuits.  Employers should not be fearful to heap some praise on good and faithful employees just because others file frivolous suits.  In any event, for an unfortunate number of plaintiff's attorneys, wrongful termination actions are a form of legalized extortion.  They will sue regardless of the merits of the case, hoping for a "cost-of-defense" settlement, and the fact that you said something nice about the employee on LinkedIn will not be the deciding factor.

City Requests Social Site Information from Applicants

It’s long been the case that employers check out the social websites of potential applicants to see the real nature of the people they are considering hiring. But trying to view an applicant’s MySpace listing, for example, can be problematic because there might be multiple listings under a given name, and the listing may be not be available for public viewing.

City officials in Bozeman Montana have decided to stop being sneaky about the whole process. When applying for a job there, applicants will find the following question on the employment form:

"Please list any and all current personal or business Web sites, web pages or memberships on any Internet-based chat rooms, social clubs or forums, to include, but not limited to: Facebook, Google, Yahoo,, MySpace, etc." The form also asks for the user names and passwords for all the requested sites.

Of course, organizations such as the ACLU are all up in arms, claiming privacy violations, but the desire of the City is understandable. As has been reported here and at my Internet Defamation Blog, people sometimes reveal amazing things in their blogs. I’ve reported a case involving a nurse and another involving a teacher where their blogs revealed some seriously dark sides and the employees suffered job actions as a result.  No one balks when an applicant for the police department is seriously vetted, including reviews of banking records and interviews with friends and former employers. It should not be surprising, therefore, that a city would want access to this truly revealing information.

I offer no opinion on the matter, beyond to say there is just something troublesome about a government agency wanting personal access codes. However, it is also a bit disingenuous to claim an invasion of privacy when the employer is seeking only information that the applicant has chosen to publicly publish. In essence, any objecting applicant is saying that they have the right to reveal only the face they choose to reveal, and that the employer is not entitled to see the face that is shown to others.

Incidentally, the City says that applicants can refuse to provide the requested information, and that will not be held against them. 

UPDATE:  Responding to the public outcry, the City of Bozeman backpedaled -- slightly.  In a press release, the City Manager announced that the City, for the time being, would not request user names and passwords from job applicants.  Conspicuous in its absence is any mention that the city will stop requesting information regarding non-password protected sites, or that it will not review those sites. 

Again, I think it was a bit much to request user names and passwords, but I applaud the City of Bozeman for being so upfront about the fact that, as an employer, it will seek out these social sites as a part of its background check.

Appeal Court Says, "Hold the Foam" on Starbucks Tipping Case

Some plaintiffs attorneys received a huge pay cut today, after the California Court of Appeal reversed an $105 million judgment against Starbucks.

The case involved the ever-present tip jar that sits by the register at your favorite Starbucks. It is the procedure of Starbucks, like most every other business that has a tip jar, to split up the tips among all those that were working, including the “supervisors.” As we analyze this case, keep in mind that a “supervisor” at a Starbucks is most likely just another barista that has been there slightly longer than the other baristas, and as a result is put in charge. It’s not like this is someone at the corporate office.

Enter California Labor Code section 351, which states that no “employer or agent” shall take any part of the gratuity “left for an employee by a patron.” An “agent” is defined by section 350(d) as anyone who can hire or fire, or who controls the acts of the employees.”

These rascally class action attorneys thought they had Starbucks by the beans. First they created a somewhat fictional perception of the role of the “supervisors” and spent a great deal of time in the case arguing that they were agents of the employer because they directed the conduct of the other employees. From that viewpoint, it was easy to claim that Starbucks had violated section 351 by including the supervisors in the tip distribution. Judge Patricia Cowett in San Diego Superior Court must have skipped her coffee that day and bought that reasoning and awarded the class of 100,000 baristas $86.7 million, which grew to $105 million with interest.

But the Court of Appeal said, “hold the foam.” The flaw in the logic is obvious (understanding that I always have perfect 20-20 hindsight with court decisions). When I sit down at a restaurant, enjoy my meal and the service, and then leave a tip, I am leaving a tip for my specific server. However, when I order a latte at a Starbucks and drop my change into the tip jar, who am I tipping?  I'm certainly not intending to tip only the barista.  At that point, I don’t even know who is going to prepare my beverage (or even if it will be tip worthy).  It is probably far more likely that I'm tipping the friendly cashier that accurately took my order and retrieved my scone.  Or perhaps my intent was to tip the person that cleaned the washroom where I washed my hands before stepping up to the counter.  As you can see, in the case of a community tip jar, we can never truly know who generated the tip, so it makes much more sense to assume that it is my intent to tip everyone working there, who have all joined to make this such a special coffee experience, from the supervisors down. Indeed, the Court of Appeal concluded that the purpose behind section 351 was to “prevent a fraud on the tipping public” by prohibiting an employer from giving a tip left for a server to someone not intended by the tipper. There is no such fraud with the Starbucks tip jar.

Further, the “supervisors” are not “agents” of the employer in the sense meant by section 350. The supervisors are not there to grab the tips on behalf of a greedy Starbucks organization; they are just more experienced baristas, probably earning 50 cents per hour more and completely entitled to share in those tips.

The ruling of the Court of Appeal reversed the judgment. 

Another Court Holds that Driving is Not a Major Life Activity

For there to be a successful claim of disability discrimination against an employer, there must first be a determination that the employee is, in fact, disabled.  Under the Americans With Disabilities Act (ADA), a medical condition can be deemed a disability causes an impairment of a "major life activity."  Many disability claims therefore turn on the interpretation of what is a "major life activity."

Such was the issue in the 7th Circuit case of Winsley v. Cook County.  Plaintiff in that case was a nurse, and her position required that she drive to the homes of the patients.  For medical reasons, the plaintiff became unable to drive, accept to and from work.  The County could not continue to employer her with that restriction, and she claimed that was disability discrimination.

On a motion for summary judgment, the trial court concluded, and the District Court agreed, that driving is not a major life activity.  The court noted that activities recognized as major life activities by the Equal Employment Opportunity Commission (EEOC) "are so important to everyday life that almost anyone would consider himself limited in a material way if he could not perform them."  The court concluded, however, that "this is not the case with driving."  The court noted that the 2nd, 10th and 11th Circuits have all reached the same conclusion.

As you can see, the determination of what is a "major life activity" can be very nuanced.  Most of us would feel very limited if we could not drive, but the law looks more at the body than the activity.  For example, if a medical condition made it difficult to sit for periods of time, the court might find that to be a sufficient impairment.  But translating that inability to some external activity such as driving is less likely to pass muster.

Twitter Comments Can Land Businesses in Court

Twitter comments (along with others) have now become the basis for an Internet defamation lawsuit.

Courtney Love, always a class act, has been posting “tweets” about fashion designer Dawn Simorangkir, also known as Boudoir Queen.  Simorangkir claims that Love failed to pay money that was owed to her.  Love claims otherwise, and refered to Simorangkir as a “nasty lying hosebag thief”, as well as accusing her of being a drug addict and a prostitute, according to the Associated Press.

Assuming the comments were false, the statements are clearly defamatory, but the case will still present some interesting issues if it ever makes it to trial.  Defamation is always about reputation, and defamatory remarks do not always translate to loss of reputation.  Given the context of the statements and the person making them, will anyone believe that Simorangkir is guilty of the acts claimed by Love?

Lesson for all businesses:  Are your employees "twittering" or sending instant messages from their computers at work?  Plaintiff attorneys look for the deep pocket, and if an employee sends a defamatory tweet from an office computer, you can bet your company will be named in the action.  One way to protect the company is to make such conduct outside the scope of employment, and it is only outside the scope of emploment if the company has a written and enforced policy against using company computers for such purposes.

Can Businesses Terminate Employees for Blog Posts?

The Internet, through social websites and blogs, offers fertile ground for employers that want to run an informal background check on current and prospective employees. And, since everything eventually ends up in court, the actions taken when something unacceptable is found during such a background check provide new issues for lawyers who deal with free speech and defamation.

Happier Days at the Nursing SchoolTake the case of Nina Yoder. She was expelled by the University of Louisville's nursing school because of her Internet postings. Yoder has now sued the university, alleging that the expulsion violated her First Amendment rights.

The nursing school expelled Nina Yoder on March 2, saying her MySpace postings "regarding patient activities and identification as a University of Louisville School of Nursing student violates the nursing honor code which you pledged to uphold," according to a copy of her dismissal letter, which was attached to the suit.

In her blog postings, copies of which she attached to her own complaint, Yoder makes caustic comments about Christians and blacks. I attempted to go to the website to make my own determination about the appropriateness of her comments, but she appears to have taken down her MySpace page.

According to an article posted at, the nursing school is upset because some of Yoder’s postings are about specific patients (although they are not mentioned by name). In one of her postings, she wrote about a birth she witnessed: "Out came a wrinkly bluish creature, all Picasso-like and weird, ugly as hell ... screeching and waving its tentacles in the air." I’m not sure a patient would want the miracle of her child’s birth described in that way by someone who should, like any medical professional, respect her privacy, but I can also see that as a failed attempt to humorously describe what she had seen.

But there was far more. The school officials were probably equally unimpressed when Yoder wrote about how the nursing school is in downtown Louisville, adjoining an area "inhabited by humanoids who have an IQ of 10 and whose needs and actions are basically instinctive. As in, all they do is ––––, eat, –––– and kill each other." She did, however, graciously concede, "OK, maybe I am generalizing yet again."

As discussed in a prior blog posting, Yoder and her supporters are using the "there’s so much trash on the Internet you can’t hold my trash against me" defense. As Yoder wrote in her petition requesting reinstatement to the nursing program, "If profanity was grounds for dismissal for the School of Nursing, the nursing school would go bankrupt."  Her petition to the school for reinstatement can be seen here.

The court has not yet set a hearing date on Yoder’s request that the nursing school be ordered to reinstate her. We’ll know then if the trash defense worked.  The standards are different in the academic arena than in the employment context. Under California’s at-will presumption, an employer would generally be safe terminating an employee for something said on a blog, but California’s Constitution affords more free speech protections than even the First Amendment, so tread carefully. For a more detailed analysis of employees and blogs, see You Write What You’re Told.

[UPDATE]  Thanks to Web Savy Med Student for providing me with an update on this case.  I was unable to find the court's ruling, but according to Web Savy and other sources, Yoder took the case to court and was reinstated to the nursing school.  The court dodged any free speech issues, and instead decided the matter strictly on the honor code.  Although her comments were "objectively distasteful", according to the court those comments did not deal with her profession and did not violate any confidentiality since the patient could not be identified.

Top Five Employee Suits

The EEOC recently identified the five most commonly filed employee suits, which are:

sex discrimination and harassment (30.1 percent);

retaliation (22.2 percent);

race discrimination (13.5 percent);

disability discrimination (12.8 percent); and

age discrimination (8.2 percent).

Sadly, many such cases are fomented by plaintiffs’ attorneys who don’t properly advise their clients. Never mind that in a huge number of cases there is not a scintilla of evidence that the termination was based on discrimination, it is enough that the employee belonged to a protected class. In most cases the employer ponies up some cost of defense settlement amount to avoid the uncertainty of trial.

Thus, no one can advise you how to keep your employees from pursuing legal action, but my first post on this site still remains solid advice on how to ultimately prevail if you decide to go the distance.

Stimulus Package Includes COBRA Health Insurance Subsidies

Before getting to today’s topic, I’m going to once again shout into the wind as I have for years that employers providing health insurance for employees was never a good idea.  The conceptual flaw is apparent.  Providing health insurance as a benefit puts a third party between the two real parties to the contract.  The doctor is no longer in contract privity with his or her patient.  When a patient is spending real dollars for health care, they have an incentive to bargain down the price.  When uncle employer is paying, the sky’s the limit, and health care prices soar.  The result is what we see today.  Strikes are more often over health insurance than worker safety or pay, and when an employee is fired, the cost of maintaining the insurance under COBRA has grown too high.  Employers can still offer health benefits, but it should be in the form of a monthly payment.  “Here’s $500 a month for health insurance.  Whatever you don’t spend, you can keep.”  If that approach had been used, the push to offer health care at lower prices would have been far more intense than HMOs negotiating fees.

Which leads me to the issue at hand.  The latest stimulus plan includes a COBRA subsidy for employees laid off between September 1, 2008 and December 31, 2009.  If you have an employee that declined COBRA coverage after September 1, 2008, you must notify the employee of this subsidy.  There is a needs test, but it’s pretty high – a maximum of $125,000 annual income for singles, $250,000 for couples.  The employee can draw the subsidy for no more than nine months.

Incidentally, in line with what I said in my opening rant, many terminated employees call my office wanting to pursue wrongful termination actions, motivated most by the fear of losing their health insurance.  They rail against the ridiculous cost of the COBRA plan, unaware that was the price their employer was paying.  Often as not, they are unaware that they don’t need that COBRA coverage.  COBRA only makes sense if the terminated employee is going to be uninsurable due to a pre-existing condition.  Admittedly, something as simple as taking heartburn medication will constitute a pre-existing condition, but make certain your former employee knows that if they do not have such a condition, it will be far cheaper to get a bare bones bridge policy until they find another employer that is making the mistake of providing health insurance.

Ninth Circuit has Second Thoughts About Labor Law Decision

The Ninth Circuit has called for a take-back.  In November the court decided and I reported that out-of-state employees are subject to California labor laws for any work performed in the state.  That case involved instructors who traveled to various states, including California, to teach classes on software.

This week the Ninth Circuit withdrew its published decision in Sullivan v. Oracle, and asked the California Supreme Court for guidance on specified issues presented by the case.  One of those questions was:

“Does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?”

We’ll have to wait to see if the Supremes agree to answer the question.

Following Wage Laws is Cheaper than Trying to Beat Them

Television networks and production companies behind some of the biggest names in reality programming - including "The Bachelor" and "Trading Spouses" - agreed on Wednesday to pay $4 million to writers and editors who claimed in a lawsuit they routinely worked 12-hour days or longer without overtime pay or meal breaks.

The settlement, three years in the making, covers an estimated 400 reality show employees who worked on programs for FOX, ABC, CBS, Turner Broadcasting System and the WB Broadcasting Network, among others. The nonunion workers, known as "story development employees," claimed supervisors made them turn in blank time cards or fill out their hours weeks in advance and always doled out the same weekly pay regardless of hours worked. 

Lessons for all businesses:

Following the law ends up being cheaper than trying to bend it.  We get calls every week involving businesses that were caught trying to game the overtime and wage rules. All I can do is shake my head when I hear the imaginative way the employer thought they would beat the labor laws as to overtime and wages. In one case, a retailer created an entry level "intern" position for new salespeople, paying them just $200 per week for full time work.  The employer was certain that because these were not "real" employees, the wage laws didn't apply and they could be paid less than minimum wage.  In another case, an elder care company thought it could pay its night shift employees for just eight hours even though they were working 12-hour shifts by telling them they should sleep four out of the 12 hours. These creative approaches often work in the short term because there are always people willing to work for less than the law requires. But that same employee will suddenly turn very strict on the law, right about the time he or she is fired. Then the company ends up paying all the past wages and overtime (up to three years!) plus heavy penalties and attorney fees.


Traveling Employees May be Subject to Labor Laws of Different States

A recent decision shows that hiring an out-of-state employee can create a maze of labor laws for a company.

Oracle Corporation hired three individuals (plaintiffs) to train customers to use Oracle software.  Although Oracle is a California corporation, it hired these plaintiffs in their home states with employment terms specific to their home states' labor laws.  Plaintiffs, residents of Colorado and Arizona, traveled away from their cities of domicile to "teach" for Oracle, and were classified as workers not entitled to compensation for overtime work under federal or California law.  Although only a fraction of the time spent teaching took place in California, they sought damages under California's Labor Code for failure to pay overtime.  The district court granted summary judgment to Oracle on the labor claims, finding California law did not apply to nonresidents who worked primarily in other states. 

The Court of Appeals disagreed and reversed.  Under California's choice-of-law rules, a court is required to compare California law to the applicable law of other states and to weigh each state's interest in having its own law applied.  Here, the competing laws were "materially different," with California's being the most advantageous to the employee.  California also had the stronger interest in having its law applied.  California's Labor Code thus governed work performed in California by residents of Colorado and Arizona.  Because the Labor Code applied to work by nonresidents in California, the court's grant of summary judgment on plaintiffs' first two claims was reversed.  The court did conclude, however, that plaintiffs were only entitled to overtime on the hours worked in California.

While decisions such as this can seem over reaching, they are often necessary to keep some employers from gaming the system.  On the one hand, it would seem reasonable that a company should be able to hire someone in another state and pay that person pursuant to that state's laws.  If that job involves travel, it is onerous to expect an employer to keep track of the laws of every state to determine if a different pay scale applies when the employee travels there.  If an employee agrees to work for, say, $25 an hour, how does that agreement somehow change when the employee crosses a state line?

But now look at it from the standpoint of companies attempting to game the system.  If California companies decide that the labor laws of Arizona are more advantageous, you can bet it won't be long until one or more of them creates a system where the employees are hired in Arizona and then sent to California on "temporary assignments." 

Changes to ADA Important to Know

The Americans with Disabilities Act (ADA), though well intended, has created innumerable interpretations by the courts and legal minefields for employers.  The ADA Amendments Act of 2008 is expected to clear up some of the confusion, but will no doubt create its own set of problems.

Here is a concise summary of the ADA Amendments Act of 2008.

Deviant Employees Protected from Termination

As you know, Megan's Law set up a website that lists registered sex offenders.  Before extending an offer of employment, one might think that checking that website would be a quick way to make sure a sex offender is not being hired, especially if the job involves contact with children.  One would be wrong.

California is an at-will employment state, meaning that employers can terminate employees for any reason or no reason at all. Although there are statutory exceptions prohibiting employers from taking adverse employment action on the basis of race, gender, and other protected groups, a loophole in Megan’s Law serves to make sex offenders a protected group giving them rights that other employees do not have.

Sex offenders are filing claims for wrongful termination, utilizing Megan’s Law as the legal grounds to secure and retain employment. The Megan’s Law Statute, set forth in California Penal Code Section 290.46, states that a person is authorized to use information disclosed pursuant to the statute -- that a person is a registered sex offender --  "only to protect a person at risk."  California Penal Code § 290.46(1).  The statute specifically "prohibits, except as authorized to protect a person at risk or pursuant to another provision of law, the use of any information that is disclosed through the statute for purposed related to any of the following:

(A) Health insurance.
(B) Insurance.
(C) Loans.
(D) Credit.
(E) Employment.
(F) Education, scholarships, or fellowships.
(G) Housing or accommodations.
(H) Benefits, privileges, or services provided by any business
establishment.  (California Penal Code § 290.46(2)(A-H).

In other words, California employers may not discriminate in employment of an employee on the basis of his or her status as a registered sex offender, if such status is discovered through the Megan’s Law website, unless it is to protect a person at risk or pursuant to some other provision of law.  One such provision of law is Labor Code section 432.7, which addresses what questions an employer can ask an employment applicant.  Labor Code section 432.7 allows an employer to ask and use the fact of a "conviction" in determining any condition of employment; however, legal practice guides have interpreted it to apply only to hiring.  As such, California employers may discriminate in "hiring" sex offenders if that information comes from a questions about convictions.  However, if the employer fails to ask whether the applicant has any convictions, and later discovers through the Megan’s law website that its employee is a registered sex offender, the employer is liable for wrongful termination if it terminates the sex offender employee based on that information.

This serves to put the employer in an unenviable position: it may be held liable for the sex offender employee’s negligent conduct (for instance, if the sex offender employee physically abuses a co-worker) or face a claim by the sex offender employee for wrongful termination if it fires said employee.

Further, it is nonsensical that an employer can learn this information through other sources (i.e. public records search) and legally terminate the employee on that basis, yet is liable if obtained on the Megan’s Law website.  I suppose an employment attorney could suggest to clients that they check the Megan website to see if the employee is listed as a sex offender, and if so, then find the same information from some other source so the termination or rejection would not be based on what was found on the Megan site.  But that would circumvent the absurd result intended by our fine Legislature that sex offenders receive special protections, and I would never suggest such a thing.

Employer Loses Communication Privilege if ill-will is Shown

California Civil Code Section 47 affords certain privileges that protect a person from liability, even if he speaks or writes something that would otherwise be defamatory. Civil Code section 47, subdivision (c), provides that a communication is privileged if it is made "without malice, to a person interested therein, (1) by one who is also interested...." Trial courts, anxious to clear their dockets, sometimes read far too much into this simple statute, and find a privilege in cases the statute was never intended to cover.

In Mamou v. Trendwest Resorts, Inc., an employee brought action against his employer, alleging national origin discrimination, retaliation, and defamation. The Superior Court, Santa Clara County, granted Trendwest’s motion for summary adjudication, and employee appealed.

The defamation claim was based on Mamou’s assertion that Trendwest had told other employees that he was starting his own competing business, and had used Trendwest information for that purpose. This would be both illegal and unethical, and therefore qualifies as defamation. However, the trial court found that the communications were covered by Section 47, and on that basis granted Trendwest’s motion for summary judgment, thereby dismissing Mamou’s case.

Application of the Section 47 privilege, as with any conditional privilege in defamation law, involves a two-step inquiry. The first question is whether the factual predicate for the privilege was present-whether, in traditional terms, the "occasion" was "privileged." (Taus v. Loftus.)  At trial the defendant bears the burden of proof on this question.  If he succeeds, the burden shifts to the plaintiff to show that the statement was made with malice.

For purposes of a statutory qualified privilege, "[t]he malice referred to ... is actual malice or malice in fact, that is, a state of mind arising from hatred or ill will, evidencing a willingness to vex, annoy or injure another person.  The factual issue is whether the publication was so motivated.  ‘Thus the privilege is lost if the publication is motivated by hatred or ill will toward plaintiff, or by any cause other than the desire to protect the interest for the protection of which the privilege is given’." (Agarwal v. Johnson.)

The Court of Appeal found that a jury could easily find that the statements by Trendwest personnel were motivated by ill will towards plaintiff.  Mamou alleged that one was hostile toward him as a member of the "Syrian regime" some members of Trendwest management had, inferentially, undertaken to purge.  A jury would be entitled to find that these feelings would naturally engender spite and ill will toward Mamou, and that this was what motivated Trendwest personnel to make the statements Mamou claimed were defamatory.

This was just one example, but the Court of Appeal concluded that it was enough for Mamou to show evidence of a single triable issue of fact. Since he obviously did, the trial court erred by granting summary judgment on the defamation cause of action.

The analysis is somewhat circular, and sometimes escapes trial courts. Inter-office communications about an employee may well be privileged under Section 47. Say, for example, an employer believes that an employee stole from the company, and fires the employee on that basis.  Thereafter, when asked why the employee was fired, the employer tells other employees that he had stolen from he company. If the employee sues for defamation, and can prove that he never stole from the company, would he prevail?  Probably not, because in this hypothetical the employer genuinely believed that the employee was guilty.  With no showing of malice, the Section 47 privilege applies.

But where the situation gets more complicated is when the employee is claiming that the defamation itself is the evidence of the ill-will constituting malice. If in our hypothetical there was no basis for the employer to believe that plaintiff was responsible for the theft, then telling that story may be sufficient showing of malice. This is a distinction that is sometimes difficult to get through to the trial court.

Employment Agreements Can Limit Time for Action

By law, an employee has one year to file an action with the Department of Fair Employment and Housing (DFEH) if he is claiming discrimination.  But what if an employment agreement contains an arbitration provision, and that agreement also provides that the notice of arbitration must be served within one year?  Is that provision invalid since it could interfere with State law?

That was the issue presented in Pearson Dental Supplies, Inc. v Superior Court (Turcios). Plaintiff signed an arbitration agreement, but when he felt he was the victim of age discrimination, he filed a complaint with the DFEH.  After the DFEH closed the file and issued the "right-to-sue letter," the plaintiff filed an action in Superior Court.  Defendant employer argued that the case was barred by the arbitration provision, and since plaintiff had failed to make the arbitration claim within one year, he had waived any right to sue.

The Court of Appeal agreed, and ruled that under these specific facts the employee's age discrimination claim was barred for failing to make a demand for arbitration.

Moral of the story?  If your company has decided to utilize arbitration agreements, be sure to insert a deadline for filing such claims.  Your company is best served by speed in employment claims, as opposed to trying to justify an employment decision years later.  An employee has a year to file a claim with the DFEH, which typically takes nine months to investigate the claim and issue a right-to-sue letter (if the employee has not retained counsel and asked for the right-to-sue letter to be fast tracked).  Then, the employee has another year to file the action in court.  All told, almost three years can pass before the action is filed in court.  By inserting a time limitation in your arbitration  agreement, you can be assured such cases will present themselves for decision within one year.

The Supremes Open Small Window to Arbitration Appeals

The very purpose of contractual arbitration is to avoid the courts.  Therefore, the courts have long held that there is no right of appeal from an arbitrator's award; any decision is final and binding.  The only exceptions are where the arbitrator clearly exceeds his authority or had a conflict of interest.  In the recent decision of Cable Connections, Inc. v. DirecTV, Inc., the California Supreme Court applied a contract interpretation that recognizes one more basis for appeal from an arbitrator's award.  The courts have refused to honor appeal rights in arbitration agreements that call for the right of appeal on the merits of the case.

In Cable Connections, the agreement between the parties provided for binding arbitration, but contained the unusual language that "the arbitrators shall not have the power to commit errors of law or legal reasoning, and the award my be vacated or corrected on appeal to a court of competent jurisdiction for any such error."  Thus, the agreement does not permit a review on the merits, but does allow for an appeal to question the arbitrator's interpretation of the law.

The Supreme Court had no problem with that approach, and even went so far as to state that the language of the arbitration agreement would not need to be as clear as the one before it to confer such a right of appeal on the law.

You may be asking yourself, why would anyone want to proceed in this manner?  After all, if the point of arbitration is to avoid court, why build in a right of appeal?  The answer is that binding arbitration without the right of appeal can be very scary, and some want to plot a middle course.

In one case my client agreed to submit a case we were pursing in court to non-binding arbitration.  We went before the arbitrator, and after the matter was concluded and the parties were leaving, the arbitrator asked the defendant if my client had ever made certain disclosures.  The defendant lied and denied that she had received such disclosures.  I objected to this impromptu questioning and asked the arbitrator to resume the arbitration so that my client could testify on the point he had raised.  The arbitrator responded that would not be necessary, because defendant had never raised the disclosure issue, and therefore his decision would have nothing to do with what defendant had just said.

A few weeks later we received the arbitrator's decision, wherein he found for defendant based entirely on the alleged lack of disclosure.  Since this was non-binding, I simply rejected the award and proceeded to trial, where we handily prevailed.  This case showed me, however, how arbitrary an arbitrator's award can be, and why binding arbitration can be risky. 

Large companies have also learned this lesson, and reason that if they throw in an opening for appeal, it is more likely to inure to the company's benefit than the other side's.  Even if it means the occasional appeal, at least the issues will be limited to the law.  A major motivation for large companies in selecting arbitration is to keep cases away emotional juries, and that is accomplished even with an appeal provision.

Mandatory Sick Leave Law Temporarily Shelved

In its continuing effort to drive businesses out of California, the State Assembly had proposed and passed AB 2716 (authored by Assemblywoman Fiona Ma, D-SF).  This law would have required ALL businesses in California to offer paid sick leave for all employees, whether part-time or full-time.

For now, that proposal has been shelved by the Senate Appropriations Committee, which discovered that the bill would be very costly to state government.  The current state budget will not withstand such an addition, but Ma says she will reintroduce the proposal next year. Some have estimated that the proposal would have cost California 370,000 jobs.

Because of a law already passed in California, the new proposal would have gone far beyond simply paying an employee to stay home with the flu.  Labor Code section 233 provides that if an employer affords paid sick leave to its employees, it must also permit the employees to take off for what has been called “kin care”.  Specifically, in addition to taking days for their own illnesses, employees also get to call in sick to “attend to an illness of a child, parent, spouse or domestic partner.”

Pay Close Attention to Your Employee Handbook (Part 2)

We last discussed the unintended impact employee handbooks can have on at-will employment. There are also innumerable examples where seemingly boilerplate statements in a handbook dramatically defeated the intent.

In one instance, an employee handbook provided that employees could be asked to submit to a drug test if the employer had reasonable cause to expect drug use. This is really just a recitation of the law on drug testing, which is tolerant of random drug tests, but requires a higher standard for Employee Handbooktargeted testing. What the employer meant was that it would follow the law, utilizing random tests, but only using testing an individual with cause. However, the court interpreted the provision to mean that employees could only be tested with reasonable cause. Kraslawsky v. Upper Deck Co. (1997) 56 Cal.App.4th 1142.

And the changes do not end there. In another case, an employee at a car dealership drove one of the cars to lunch, and rear-ended another driver, causing injury. The dealership tried to avoid liability by claiming that the lunch run was outside the employee’s course and scope of employment. As evidence, the employer pointed to the employee handbook, which prohibited the "unauthorized" use of cars from the lot, and claimed that it had never authorized such use. However, the same handbook provided a list of what was prohibited, and did not include using the cars for trips to lunch. The court held that there was therefore nothing in the handbook that prohibited what the employee had done. Taylor v. Roseville Toyota, Inc. (2006) 138 Cal.App.4th 994. Thus, a poorly written handbook actually reached out beyond the company’s own employees and created liability as to third parties.

Employee handbooks are useful tools, but they require close inspection from all angles to make certain they are not having an unintended result.

Don't Shoot Your Business in the Foot With Your Employee Handbook

Most employers and human resource directors are familiar with the concept of at-will employment, but may not know the statutory basis. In California, at-will presumption comes from a short and simple Labor Code. Section 2922 provides:

“An employment, having no specified term, may be terminated at the will of either party on notice to the other. Employment for a specified term means an employment for a period greater than one month.”

A contract that is for a specific term is by definition not an at-will agreement. If you hire an employee under a one-year contract, then you have agreed to employ that person for one year. You thus need cause to fire the employee prior to the expiration of the contract. Terminating without cause would be a breach of the agreement.

Any employee that does not have a contract for a specified term is thus presumed to be at-will. An employer does not need a contract stating that the employee is at-will or even a document signed by the employee acknowledging he is at-will. At-will employment is the default, absent a contract to the contrary. The mistake employers make is to do something to defeat the at-will presumption, and employee handbooks are fertile ground for such mistakes.

The pendulum swings with judicial interpretations of employee handbooks. At one time, employee handbooks were the bread and butter of employment attorneys, who used them to create employment contracts that defeated the at-will presumption. If the handbook provided for a disciplinary process, and the employee relied on that representation, it was argued that an implied contract had been created by the handbook. So, if the handbook provided that no employee would be terminated without first receiving a written warning, then it was a breach of the agreement if the employee was fired with no warning. Businesses responded by printing on page one of their handbooks that the handbook was not an agreement, and that the company was not required to follow its own policies.

That approach is effective only to a point. The courts are mindful and open to the mixed message argument. A classic misstep involves creating a probationary period. If your handbook states that an employee is probationary for their first 90 days at the company, then what do they become on day 91? The classic meaning of “probation” is a test period, where the employee can be fired without cause. Be definition, then, after that 90 days, cause will be required.

It is not enough that your employee handbook states that all employees are at-will, and that it is not at agreement, if there are still internal inconsistencies. After all, if your handbook states that employees can be terminated without cause, and then goes on to set forth what constitutes cause for termination, why should the first statement be elevated over the latter? You and/or your attorney should review every clause and make certain they are all consistent and achieve the intended result.

Next time, a few more handbook provisions that have tripped-up employers.

California Supreme Court Rejects Virtually All Non-Competition Agreements

This is an extremely important Supreme Court decision for any California company contemplating the use of non-compete agreements.  I've put together a lengthy article that puts this entire area of the law in context.  I'll begin with a summary, but if you need more, click the "continue reading" link below for the entire analysis.

In a ruling long awaited by the employment law sector, the California Supreme Court effectively rejected the use of most non-competition agreements in California.

In Edwards v. Arthur Andersen, S147190, the unanimous court held that Business and Professions Code § 16600 gives California workers great freedom to switch jobs, to compete against old employers and to solicit former clients. "In sum, following the Legislature, this court generally condemns noncompetition agreements," Justice Ming Chin wrote. "Under the statute's plain meaning, therefore, an employer cannot by contract restrain a former employee from engaging in his or her profession, trade, or business unless the agreement falls within one of the exceptions to the rule."

Although the business litigation attorneys at Morris & Stone have long advised that this ruling was coming, this ruling finally creates a brighter line distinction by the state’s highest court. Any non-compete agreements that don't fall under one of the statutory exemptions are void.  Previously there was still a potential loophole by which a non-compete agreement could be found enforceable. The Federal Ninth Circuit had ruled that section 16600 contained a “narrow restraint” exception that allowed companies to use non-compete agreements so long as the pacts only restricted "a small or limited part" of their employees' future ability to work.

In Edwards, accounting firm Arthur Andersen argued that the Ninth Circuit’s “narrow restraint” exception validated the company's non-competition agreement, which tax manager Raymond Edwards signed in 1997. In 2002, following upheavals at Arthur Andersen, banking corporation HSBC offered Edwards a job on the condition that he and Arthur Andersen terminate his non-compete contract. Edwards refused to sign the termination agreement because it required him to give up all future legal claims. Arthur Anderson had recently been indicted in connection with the Enron debacle, and Edwards was justifiably concerned that if he was later pulled into the controversy, he might be giving up any indemnity claims against Arthur Anderson if he signed the termination agreement. Arthur Andersen fired Edwards for his refusal to sign the termination agreement, and HSBC rescinded its job offer. Edwards sued both companies for interfering with his career.

"Contrary to Andersen's belief, however, California courts have not embraced the Ninth Circuit's narrow-restraint exception," Justice Chin wrote. "We reject Andersen's contention that we should adopt a narrow-restraint exception to §16600 and leave it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under §16600."

Unfortunately, the Supreme Court, in a footnote, declined to address a trade-secret exception to §16600. The most common dispute when an employee goes to work for a competitor is the issue of clients. The former employer will claim that the client list is a trade-secret, and therefore the employee cannot call on those clients. The employee will claim that there is nothing special about the clients. These competing claims can seriously impact the employability of that employee, because prospective employers do not want to have to worry about who is being solicited by their employees. This decision will place great emphasis on California's Uniform Trade Secrets Act, a statute that gives employers the right to protect certain company information, including client lists.

Continue Reading...

Are Individual Defendants, or Simply the Employer Entity, Liale for Wages and Penalties Arising from Labor Code Violations?

Three individual defendants owned three garment manufacturing companies that experienced financial difficulties, leaving them unable to meet payrolls.  During this period of time, the individual owners told employees to continue working until their company, Win Corporations, could meet payroll.  When employees complained of unpaid wages, the Dept. of Labor filed suit, closed Wins Corporations, and seized its assets.  The California Labor Commission then sought to hold the individual defendants personally liable for unpaid wages owed the employees. 

The Trial Court ruled in favor of Wins Corporations. The California Appeals Court affirmed, holding that while the Industrial Welfare Commission Wage Order relevant to the garment industry defines “employer” as the one who “exercises control” over employees’ wages, hours or working conditions, Reynolds v. Brement precluded application of the definition to Wins Corporations alleged Labor Code Violations because its failure to pay the employees wages must be interpreted under the common law definition of “employer.”  Under the common law definition of employer, defendants were not personally liable for the wages and penalties since defendants did not require that the employees work for them personally or take their money directly.

Update on Enforceability of Mandatory Arbitration Clauses in the Context of Employment Law

While arbitration successfully reduced lengthy litigation and enabled employers to avoid unpredictable juries, in recent years the doctrine of unconscionability has placed potential limitations on the enforceability of arbitration agreements.  Forcing an employee to sign an arbitration agreement may render it procedurally unconscionable.  Employers have responded by allowing the employee to “opt out” of the agreement.  While the 9th Circuit Court of appeals has repeatedly upheld arbitration agreements as long as the employee had a meaningful opportunity to “opt out,” a recent California Supreme Court ruling has confused this issue by refusing to enforce an arbitration agreement despite the employee’s ability to “opt out.” Gentry v. Superior Court, 42 al. 4th 443 (2007).

The Gentry Court also blurred the distinction between procedural and substantive unconscionability.  Pursuant to Gentry, an employer should provide the employee with the choice to accept or reject the arbitration agreement without overt or subtle pressure and, if the employee accepts the agreement, require the employee to affirmatively “opt in” (i.e. to sign it).  Further, because Gentry blurs the line between procedural and substantive unconscionability, the employer must be sure to remove all unfair provisions or the court may not enforce the arbitration agreement at all, $even if the employee has opted in.

A recent California Court of Appeal decision held an arbitration agreement unconscionable, despite a provision providing the arbitrator the exclusive authority to determine enforceability of the arbitration agreement.  Ontiveros v. DHL Express (USA) Inc., C.A. 1st/2 No. A114848, June 30, 2008. A t the time employee Gina Ontiveros was hired by Airbourne Express, she was provided with a binder of employment materials which included an arbitration agreement.  She was advised she needed to sign it in order to start her new position, but was not provided any real time to review the documents she was provided or signed.  The arbitration agreement provided that it covered all claims between the parties and that she gave her right to a jury trial.

Airbourne Express was subsequently acquired by DHL Express Inc., and Ontiveros remained an employee of DHL Express.  Ontiveros filed a complaint for sexual harassment in 2005.  DHL filed a motion to compel arbitration, but the trial court denied it holding that the arbitration agreement was unenforceable because, inter alia, the clause providing that the arbitrator must decide disputes relating to applicability, enforceability or formation of the agreement is not sufficient to require the Court to compel arbitration if the contract is unconscionable.  The Trial Court found that it is required, as a threshold issue, to determine whether the arbitration contract is unconscionable, despite any provision requiring arbitration of issues relating to enforceability.  The Trial Court then held that the agreement was unconscionable because the employee did not even know she had signed an arbitration agreement until after she filed suit and, further, the agreement was an adhesion contract in that the employee did not have the opportunity to review it or negotiate it.

The California Court of Appeals affirmed, stating that the reasoning and holding of the court, in Bruni v. Dideon, 160 Cal. App. 4th 1272 (2008) and Murphy v. Check ‘n Go of California, Inc., 156 Cal. App. 4th 138 (2007), supports the Trial Court’s conclusion that it had the authority to determine the unconscionability issues raised by the employee.  The Court of Appeal also affirmed the trial court’s ruling that the arbitration agreement was unconscionable.  Ontiveros v. DHL Express (USA) Inc., C.A. 1st/2 No. A114848, June 30, 2008.

The Ever-Changing Meal Break Issue

Recently, the 4th District Court of Appeal struck down class status for approximately 60,000 California restaurant workers who sued over rest and meal breaks.  This ruling is the first time an appeals court has defined the legal requirements for employee rest and meal breaks.  The Appellate Court concluded that while employers cannot discourage or keep employees from taking rest periods, “they need only provide, not ensure, that rest periods and meal breaks are taken;” employers must only authorize and permit rest breaks during a set time, but they do not have to occur in the middle of the work period; employers are not required to provide a meal break for every five consecutive hours worked (instead employees may take their first meal break right away, and the second meal period need not occur within five hours of the end of the first five hour period but is due only after 10 hours of total work, even if the first meal period occurs very early in the shift); and employers can be held liable for employees working off the clock only if the employer know or should have known the employees were doing so. The Appellate Court further concluded that “the off-the-clock claims are also not amendable to class treatment as individual issues predominate” on the issue of whether an employer forced employees to work off the clock, whether the employer changed the time records, and whether the employer knew or should have known that employees were working off the clock.  Brinker Restaurant Corp. v. Sup. Ct. of San Diego County, D049331.