Labor Employment Law Blog

A Company's Shifting Reasons For An Employment Decision Can Hurt The Company's Defense

A San Diego federal district court recently provided guidance on what constitutes an "adverse employment action" and how an employer's shifting reasons for its actions may affect a discrimination case. In Coyne v. County of San Diego, the plaintiff, an employee, sued her employer for discrimination and retaliation in violation of Title VII and the California Fair Employment and Housing Act. The plaintiff claimed that she was transferred to a lateral position in a different division because of her gender and because she actively supported the gender discrimination claims of other employees. The County filed a motion for summary judgment. The parties conceded that the plaintiff had engaged in protected activity. The issues were whether the transfer constituted a materially adverse employment action and whether the transfer was justified by legitimate non-discriminatory reasons.

]]> The district court explained that an adverse employment action is an action that materially affects the terms, conditions, or privileges of employment. The question is viewed from an objective perspective. Relatively minor actions that are reasonably likely to simply anger or upset an employee do not constitute an adverse action. An adverse employment action is adverse treatment that is reasonably likely to impair a reasonable employee’s job performance or prospects for advancement or promotion. An adverse action is material if it is reasonably likely to deter an employee from engaging in protected activity. Depending on the circumstances, lateral transfers, unfavorable job references, and changes in work schedules may constitute adverse employment actions.

In analyzing the facts, the district court concluded that that a jury should decide whether the transfer constituted an adverse employment action. First, assignment to the new division was perceived by the County's employees as less prestigious, unfavorable and, at times, punitive. Second, the transfer interfered with the plaintiff’s ability to care for her disabled son because it lengthened her commute. The County knew that the plaintiff needed to care for her disabled son and that her current assignment was more conducive to that need.

Because the plaintiff met her burden of proving a prima facie case of retaliation, the burden shifted to the County to offer a legitimate nondiscriminatory reason. The County offered more than one legitimate non-discriminatory reason for the transfer. The plaintiff, however, offered evidence that the County's reason for the transfer shifted over time from one reason to another. The court concluded that the shift from one reason to another was sufficient to create an issue of fact for a jury whether the non-discriminatory reasons offered by the County were pretexts for unlawful discrimination and retaliation. Accordingly, the court denied the County's motion for summary judgment.

This case is a reminder to employers to give the honest reason for an employment action at the beginning, and not allow supervisors to give differing and conflicting reasons as time goes on.

Breakfast With Your Labor Lawyer - Spring 2010

What's Happening and When in 2010

Last year brought many changes in labor and employment law. Expect more of the same in 2010. Join our experienced attorneys for an informative breakfast discussing all of the hot topics that will affect you and your employees:

]]> My head hurts... the new laws in effect in 2010:

Alternative workweek schedule amendments
New Cal-COBRA notice requirements
New wage withholding tables
Workers' compensation coverage for third-party torts
Increased workers' compensation penalties
Limits on employer's ability to rescind medical treatment authorization
No increase in computer professional salary for exemption purposes

Them again? What the Division of Labor Standards Enforcement is up to:

Vacation/sick leave developments
Salary Basis test

You mean there's more? Additional topics include:

NLRB Update
Social Media/Networking/Privacy Advice and Issues: Your company and Facebook, Twitter, and "Astroturfing"
Caregivers' Leave under the FMLA
Independent Contractors and the Rehabilitation Act
New rules concerning non-compete agreements
What is looming on the horizon?

And many more cutting-edge developments in labor and employment law, including wage and hour class actions.

Registration & Materials $50

Registration and Breakfast 7:30 a.m. – 8:00 a.m.
Program 8:00 a.m. – 10:30 a.m.

LOCATIONS, DATES & SPEAKERS

ORANGE COUNTY
March 2, 2010
Westin South Coast Plaza
686 Anton Boulevard, Costa Mesa, CA 92626
Speakers: Greg Labate and Matthew Sonne
RSVP

LOS ANGELES/DOWNTOWN
March 9, 2010
Sheppard, Mullin, Richter & Hampton LLP
333 South Hope Street, 48th Floor, Los Angeles, CA 90071
Speakers: Geoffrey DeBoskey and Jennifer Zargarof
RSVP

SILICON VALLEY
March 11, 2010
Sheppard, Mullin, Richter & Hampton LLP
990 Marsh Road, Menlo Park, CA 94025
Speakers: Jennifer Redmond and Adam Tullman
RSVP

LOS ANGELES/CENTURY CITY
March 11, 2010
Sheppard, Mullin, Richter & Hampton LLP
1901 Avenue of the Stars, Suite 1600, Los Angeles, CA 90067
Speakers: Geoffrey DeBoskey and Ronda Jamgotchian
RSVP

LA JOLLA
March 17, 2010
Hyatt Regency La Jolla
3777 La Jolla Village Drive, San Diego, CA 92122
Speakers: David Chidlaw, Carole Ross, and Matthew McConnell
RSVP

SANTA BARBARA
March 23, 2010
The Santa Barbara Club
1105 Chapala Street, Santa Barbara, CA 93101
Speakers: Jeffrey Dinkin and Aaron Heisler
RSVP

SAN DIEGO
March 25, 2010
San Diego Marriott Mission Valley
8757 Rio San Diego Drive, San Diego, CA 92108
Speakers: Bill Whelan, Samantha Hardy, and Hali Henderson
RSVP

SAN FRANCISCO
March 31, 2010
Sheppard, Mullin, Richter & Hampton LLP
Four Embarcadero Center, 17th Floor, San Francisco, CA 94111
Speakers: Deborah Martin and Julie Wong
RSVP

Questions? Please contact us for more information: Melissa Omphroy, (415) 774-2997 - momphroy@sheppardmullin.com

HRCI Credit: This program is pending approval for 2.5 hours toward PHR and SPHR recertification through the Human Resource Certification Institute (HRCI).

MCLE Credit: This activity complies with standards for Minimum Continuing Legal Education prescribed by the California State Bar and is approved for 2.5 hours of MCLE credit. Sheppard, Mullin, Richter & Hampton LLP is a State Bar of California approved MCLE provider.

Employment Agreement Shortening Statute of Limitation Is Invalid

In Maria Pellegrino, et al. v. Robert Half International, Inc., the plaintiffs were former employees who sued for unpaid overtime, violation of meal and rest period rules, failure to pay commissions, and failure to provide accurate pay stubs. Each of the employees had signed an employment agreement providing that no claims against the company shall be valid if asserted more than six months after the employee’s termination. The employment agreement also provided that each employee expressly waived any statute of limitation to the contrary. The company asserted that the employees’ claims were time barred because they filed their lawsuit more than six months after termination. The employees argued that the contractual provision truncating the time frame in which to sue was invalid.

]]> In certain situations, California law allows parties to agree to shorten the time period in which to sue. Whether a shortened time period is permitted depends upon the types of claims and rights involved as well as the reasonableness of the time period. The rights at issue in this lawsuit were all supported by strong public policy. The statutes regarding overtime, meal and rest periods, timely payment of commissions and pay stubs were designed to protect employees and the general public. Laws that are designed to benefit the public, as opposed to laws that merely benefit an individual, cannot be set aside in a private agreement between employer and employee. In addition, the six month time period in the employment agreement was substantially shorter than the time frame in which the employees would ordinarily be able to sue under the applicable statutes of limitation.

Enforcing the shortened limitation period provision would result in barring legitimate, unwaivable statutory claims by employees who failed to discover the employer’s error within six months of termination. The court, therefore, concluded that the contractual provision shortening the time to sue unlawfully restricted the employees’ ability to vindicate their statutory rights. The court refused to enforce the contractual provision shortening the limitations period to six months after termination because it was contrary to public policy.

Breakfast With Your Labor Lawyer - Spring 2010

]]> My head hurts... the new laws in effect in 2010:

Alternative workweek schedule amendments
New Cal-COBRA notice requirements
New wage withholding tables
Workers' compensation coverage for third-party torts
Increased workers' compensation penalties
Limits on employer's ability to rescind medical treatment authorization
No increase in computer professional salary for exemption purposes

Them again? What the Division of Labor Standards Enforcement is up to:

Vacation/sick leave developments
Salary Basis test

You mean there's more? Additional topics include:

NLRB Update
Social Media/Networking/Privacy Advice and Issues: Your company and Facebook, Twitter, and "Astroturfing"
Caregivers' Leave under the FMLA
Independent Contractors and the Rehabilitation Act
New rules concerning non-compete agreements
What is looming on the horizon?

The New York State Department Of Labor Issues Guidelines, Instructions and Model Notices For New York's Notice of Pay Law

On October 26, 2009, Section 195.1 of the New York Labor Law took effect. Section 195.1 requires New York employers to notify employees in writing at the time that that they are hired of their rate of pay and of their regular pay day. Further, if the employee is covered by a provision of the applicable federal or state overtime laws, then the notice must also inform each employee of his/her overtime rate.

]]> Shortly thereafter, the New York State Department of Labor (“NYSDOL”) issued guidelines and a form that it initially required New York employers to use in order to comply with Section 195.1. However, the form raised more questions than it answered. As a result, the NYSDOL received numerous questions from New York employers regarding the applicability of the form to various types of employees.

In response to such questions, the NYSDOL has issued new guidelines, instructions and a multitude of model notices for employers to use. Pursuant to the new guidelines, employers are still required to provide new employees with written notice of their rate of pay, regular pay day and overtime rate (if applicable) at the time such employees are hired. Employers must have the employee sign a statement acknowledging receipt of the written notice and the employer must keep the signed notice for six years. The guidelines also contain additional information regarding the information an employer must provide to commissioned salespersons and farm employees.

The guidelines can be found at: http://www.labor.state.ny.us/formsdocs/wp/LS52.pdf

The NYSDOL has also issued a number of model notices for employers to consider when attempting to comply with Section 195.1. Specifically, the NYSDOL has created model notices for, among others:

(a) Employees being paid at a single hourly rate, which can be found at http://www.labor.state.ny.us/formsdocs/wp/LS54.pdf

(b) Employees being paid at multiple hourly rates, which can be found at http://www.labor.state.ny.us/formsdocs/wp/LS55.pdf

(c) Employees paid a weekly rate or a salary for a fixed number of hours, which can be found at http://www.labor.state.ny.us/formsdocs/wp/LS56.pdf

(d) Employees paid a salary for varying hours, day rate, piece rate, flat rate or other non-hourly pay, which can be found at http://www.labor.state.ny.us/formsdocs/wp/LS57.pdf and

(e) Employees who are exempt from applicable overtime provisions, which can be found at http://www.labor.state.ny.us/formsdocs/wp/LS59.pdf

The NYSDOL’s instructions for its model notices can be found at: http://www.labor.state.ny.us/formsdocs/wp/LS53.pdf

Significantly, the NYSDOL no longer requires employers to use its model notices. Employers can use their own notices as long as the notices provide the employee with the required information, the employee is given a copy and the employee signs an acknowledgement of receipt, which the employer keeps for six years.

Employers should note that the NYSDOL’s instructions for its model notices requires employers to identify the overtime exemption that is being applied to employees who are classified as exempt from overtime. Employers must be careful when providing such information as it may create additional concerns for such employers down the road.

Employers May Only Have to Pay Proportional Fees If They Lose

In Chavez v. City of Los Angeles, the California Supreme Court held that a court has the discretion to award a plaintiff seeking attorneys’ fees for the underlying litigation only a fair portion of the amount sought.

]]> In November 1989, Defendant City of Los Angeles (“City”) hired Plaintiff Robert Chavez as a police officer in the Los Angeles Police Department (“Department”). In 1996, he was accused of stealing payroll checks. The Department concluded that Chavez was not responsible for the stolen checks after investigating the issue. A few years later, in 1999, the Department began an investigation of Chavez’s conduct in an incident during which Chavez had responded to a silent alarm at a laundromat. Chavez left work on stress leave a little over a month later and was absent for almost a year before he returned to work. When he returned on March 10, 2000, he was served with a written notice that the Department intended to suspend him for five days for neglect of duty during the laundromat incident. A couple of weeks later, Chavez requested a transfer. One of his supervisors approved his request, but the approval was later rescinded. Nevertheless, in October 2000, Chavez was transferred from the Department’s 77th Street Division to its Southwest Division, where he resumed patrol duties.

In various litigation proceedings beginning in 1998, Chavez sued the City and others, asserting claims of employment discrimination, harassment, and retaliation in violation of California’s Fair Employment and Housing Act (“FEHA”); violation of civil rights; nuisance; trespass; inverse condemnation; invasion of privacy; and loss of consortium (as to his wife). He also claimed employment discrimination on the bases of race and perceived mental disability. After a tortured litigation history—including two cases in Los Angeles County Superior Court, one case in federal District Court, and time spent on an appeal to the Ninth Circuit—that spanned five years, Chavez succeeded on only one claim: He was awarded $11,500.00 when a jury found that the temporary rescission of Chavez’s transfer order was in retaliation for his assertion of “his other, ultimately unsuccessful FEHA claims. All of the other claims were dismissed or found to be lacking in merit.” In litigating all of the claims, Chavez’s lawyers calculated that they had provided services for Chavez worth $870,935.50.

Under California law, a party who wins a statutory discrimination or retaliation case (the “prevailing” party) can make the other party pay for some of its litigation costs, which can include attorneys’ fees. However, for cases that plaintiffs could have reasonably classified as “limited civil actions”—that is, actions where the plaintiff may be awarded under $25,000.00—but did not, courts have the discretion to deny an award of costs to the prevailing plaintiff. Limited civil actions, in accordance with the small dollar amounts at stake, apply more limited procedures than other actions and are thus more cost-effective for the parties. By allowing courts to deny attorneys’ fees to a wrongly classified action even where the plaintiff prevails, the law encourages plaintiffs to correctly classify their lawsuits at the beginning of a case.

Chavez’s case is a perfect example of this situation. Although Chavez was awarded only $11,500.00 in damages—well within the “limited civil action” rubric—Chavez’s lawyers had not classified his lawsuits as “limited.” With the full panoply of litigation procedures available to them, they went all out in pursuing Chavez’s claims and in so doing incurred fees allegedly worth over 75 times ($870,935.50) what the lawsuit was ultimately worth ($11,500.00). They sought to recover all of these fees from the City, claiming that Chavez was entitled to them as the prevailing party.

The Supreme Court rejected these claims. It held that the rule regarding the court’s discretion in awarding fees applied to FEHA cases and, “in light of plaintiff’s minimal success and grossly inflated attorney fee request [in this particular case], the trial court did not abuse its discretion in denying attorney fees.” It further elaborated, “If a plaintiff has prevailed on some claims but not others, fees are not awarded for time spent litigating claims unrelated to the successful claims, and the trial court should award only that amount of fees that is reasonable in relation to the results obtained.” In other words, courts have the power to rule that a current or former employee cannot pursue exaggerated and overreaching FEHA lawsuits and then make the employer pay for all of the costs the employee racked up just because there was merit to a relatively small number of the claims. This ruling does not relieve employers of liability for their mistakes, but it encourages courts to make employers pay no more than an amount that is commensurate with those mistakes and discourages plaintiff's attorneys from prolonging cases simply to inflate their request for fees.

New Standard Mileage Rate for 2010

Every year, the Internal Revenue Service releases an optional standard mileage rate. Employers often use this standard to calculate the amount they will reimburse employees for using a personal vehicle in the scope of their employment.

]]> Even if employers supply their own vehicles, they can apply this rate to calculate the allowable deduction for the business use of a vehicle for Federal income tax purposes. As of January 1, 2010, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) was set to 50 cents per mile for business miles driven. Reflecting generally lower transportation costs, the rate is a 5-cent reduction from last year's rate.

United States Supreme Court Grants Review of Employee Privacy/Text-Messaging Case

On December 14, 2009, the United States Supreme Court granted review in the case of Quon v. Arch Wireless Operating and The Ontario Police Department, 529 F.3d. 892 (9th Cir. 2008). In this case, the Ninth Circuit Court of Appeal held that the City of Ontario violated the Fourth Amendment and California constitutional privacy rights of the SWAT team member and the officers he texted when, as part of an overage audit, Management read transcripts of the messages the officer sent on his City-issued pager.

]]> As a reminder, in Quon, the Ninth Circuit ruled against the City despite the City's written “Computer Usage, Internet, and E-mail Policy,” which stated that use of those devices was limited to city business only and that employees were to have no expectation of privacy when using those devices. Here, the problem was that a lieutenant told employees that text messages would not be audited as long as employees paid any overage charges incurred, and the employees argued that they had relied on this statement. The Ninth Circuit held that the lieutenant's oral agreement not to audit the messages trumped the written policy, thereby creating a reasonable expectation of privacy by the employees and any other individuals who sent messages to the employees. The Ninth Circuit further held that the City’s review of the text messages was not reasonable in its scope as there were less intrusive means to audit overages.

The questions presented to the United State Supreme Court for review are:

(1) Whether a SWAT team member has a reasonable expectation of privacy in text messages transmitted on his SWAT pager, where the police department has an official no-privacy policy but a non-policymaking lieutenant announced an informal policy of allowing some personal use of the pagers.

(2) Whether the Ninth Circuit violated the Supreme Court’s prior Fourth Amendment cases and created a conflict among the appellate courts by analyzing whether the police department could have used “less intrusive methods” of reviewing text messages transmitted by a SWAT team member on his SWAT pager.

(3) Whether individuals who send text messages to a SWAT team member’s SWAT pager have a reasonable expectation that their messages will be free from review by the recipient’s government employer.

Regardless of its outcome, this case serves as a reminder to employers to ensure that not only are employee handbooks updated, but that they are also being strictly followed by managers.

Public Policy Protects An Employee From Termination For Making A Good Faith But Mistaken Claim To Overtime

This week, a California Court of Appeal found that the plaintiff employee was entitled to a full trial on his wrongful termination claim, concluding that California public policy in favor of the employer's duty to pay overtime wages protects an employee from termination for a mistaken but good faith claim to overtime wages.

]]> As the facts are set out in the Court's opinion, and with the advantage of hindsight, one can speculate that both the employee and the Company believed they were doing the right thing. The plaintiff, Manuel Barbosa, started working at IMPCO as a carburetor assembler. At the time of his termination, he worked as a "cell leader" supervising up to eight other carburetor assemblers.

Barbosa testified that two of the employees in his cell told him they were missing two hours of overtime. After he talked with them, Barbosa thought he also was missing two hours of overtime. Barbosa talked to the Payroll Administrator and she directed him to get approval for the overtime from his supervisor.

Barbosa spoke to his supervisor and told him that he and the other employees in his cell were each missing two hours of overtime. The supervisor said he would approve the missing hours because he "just trusted [Barbosa's] call at that time."

The Payroll Administrator got the supervisor's verbal approval and paid all the employees in Barbosa's cell for two extra hours of overtime. The Payroll Administrator nevertheless thought that something was amiss. The Company had had occasional problems with the prior time clock system, but a new system had been installed the month before and it had been working correctly with no complaints. So the Payroll Administrator spoke to the Human Resources Manager, who ran the report from the scans at the security entrance gate and compared that report with the timecard report. The gate report showed that Barbosa and the others could not have worked the overtime that Barbosa claimed.

Barbosa was called to a meeting with his supervisor, the Payroll Administrator, the Human Resources Manager, and the Operations Manager. After being shown the gate report, Barbosa said that he must have been confused and that he was relying on what the other employees had told him.

When Barbosa got the paycheck that included the extra overtime, he went to the Payroll Department and offered to pay the money back. The Payroll Administrator told him she could not change anything and sent him to Human Resources, where he again offered to pay the money back. Subsequently, Barbosa was terminated, being told that he was being terminated for cheating the Company. The Payroll Administrator testified that Barbosa was terminated for falsifying time records.

Barbosa conceded he was mistaken about his claim to unpaid overtime but contended that his claim was based on a reasonable good faith belief that he was entitled to it. He argued that he presented sufficient evidence to support his claim and the jury should be able to decide whether his claim was made in good faith and whether IMPCO terminated him for making that claim or for falsifying timecards. The Court agreed.

The lesson from this case for employers is that an employee's good faith but mistaken belief is protected from employer retaliation in the whistle blowing context. An employee need not prove actual violation of law. The employee may have a viable claim if the employer fired him or her for reporting "reasonably based suspicions" of illegal activity. As long as the employee makes the complaint in good faith, it does not matter for purposes of a wrongful termination action whether the employee identifies an actual violation of law. When an employee exercises his or her statutory right to overtime wages out of a reasonable belief that he or she is entitled to it, notwithstanding the later discovery that he or she is wrong, the employee cannot be fired in retaliation for making the claim.

How a jury ultimately decides this particular case remains to be seen. The lesson for employers is to carefully evaluate any termination in light of the Court's guidance to avoid having to go to trial in the first place.

The California Supreme Court Upholds The Attorney-Client Privilege

On November 30, 2009, the California Supreme Court issued its ruling in the matter of Costco Wholesale Corporation v. Superior Court (Randall), S163335, upholding the protection afforded confidential attorney-client communications and affirming the sanctity of the attorney-client relationship. The decision vacated a trial court ruling which ordered that a redacted attorney opinion letter to the client be produced to opposing counsel.

]]> In June 2000, Costco Wholesale Corporation ("Costco") retained counsel to provide legal advice on whether warehouse managers were exempt from California's wage and overtime laws. Costco's counsel produced a 22-page opinion letter based in part on facts from interviews with two warehouse managers. Costco, counsel and the managers all understood and agreed that the communications and opinion letter would remain confidential.

Several years later, a class action lawsuit was filed against Costco alleging that some warehouse managers were misclassified as "exempt" employees from 1999 to 2001 resulting in Costco's failure to pay overtime wages. During the discovery process, the plaintiffs sought to compel the opinion letter. Costco objected arguing attorney-client privilege and attorney work product doctrine. Plaintiffs argued that the letter contained non-privileged information (e.g., the facts gathered from the interviews) and that Costco had placed the contents of the letter in issue, thereby waiving the privilege.

The trial court, over Costco's objection, ordered a discovery referee to conduct an in camera review of the opinion letter to determine the merits of Costco's attorney-client privilege and attorney work product doctrine claims. Following an in camera review, the referee produced a version of the letter which redacted "attorney client communications and/or the type of attorney observations, impressions and opinions plainly protected as work product." However, the referee declined to redact "factual information about various employees' job responsibilities" asserting that such statements obtained in attorney interviews of corporate employee witnesses generally are not protected by the corporation's attorney-client privilege and do not become cloaked with the privilege by reason of having been incorporated into a later communication between the attorney and the client. The referee further found that Costco's counsel, while interviewing the two warehouse managers, had acted as a fact finder not an attorney. The trial court, without ruling on plaintiffs' assertion that Costco had waived the privilege by placing the contents of the letter at issue, adopted the findings and conclusions of the referee and ordered Costco to produce a version of the letter in the same form as recommended and redacted by the referee.

Costco petitioned the Court of Appeal for a writ of mandate which was denied. Without ruling on the merits of the trial court's discovery order or its decision to refer the opinion letter to the referee for an in camera review, the appellate court concluded that Costco had not demonstrated that disclosure of the unredacted portions of the letter would cause irreparable harm in the action, explaining that the unredacted text simply referred to factual matters easily discoverable by other means.

The Supreme Court reversed the Court of Appeal's ruling and vacated the trial court's order, finding that the attorney-client privilege attached to the opinion letter in its entirety, irrespective of the letter's content. Relying upon Mitchell v. Superior Court, 37 Cal.3d 591, 600 (1984), the Court ruled that even if the factual material cited in an opinion letter is not protected by the attorney-client privilege and may be discoverable by other means, a party may not compel disclosure of the opinion letter. The privilege attaches to any legal advice given in the course of an attorney-client relationship and bars discovery of the communication irrespective of whether it includes non-privileged material.

In addition, the Supreme Court stated that Evidence Code section 915 prohibits a requirement that disclosure of the information claimed to be privileged be made to the court. The Court further stated that no provision of Evidence Code section 915 permits in camera disclosure of such information, and that the courts have no power to limit a legislative creation by recognizing implied exceptions. Concern that a party may be able to prevent discovery of relevant information serves as no justification for inferring an exception to Evidence Code section 915. Because the privilege protects a transmission irrespective of its content, there should be no need to examine the content in order to rule on a claim of privilege. See Cornish v. Superior Court, 209 Cal.App.3d 467, 480 (1989).

Lastly, and contrary to the Court of Appeal's holding, the Supreme Court declared that a party seeking extraordinary relief from a discovery order that wrongfully invades the attorney-client relationship need not also establish that its case will be harmed by the disclosure of the evidence. The Court declared that the fundamental purpose of the attorney-client privilege is the preservation of the confidential relationship between attorney and client, and the primary harm in the discovery of privileged material is the disruption of that relationship, not the risk that parties seeking discovery may obtain information to which they are not entitled. Costco was entitled to relief because the trial court's order threatened the confidential attorney-client relationship.

The Costco decision affirms the legislative protection afforded confidential communications between clients and their counsel so as to promote full and open discussion of the facts and strategies surrounding individual legal matters. However, clients and counsel seeking to invoke the attorney-client privilege must ensure that the communication was made for the purpose of legal representation, and not any other purpose. While this decision protects communications containing legal advice to clients, a determination regarding the dominant purpose of the communication arguably remains on case-by-case basis.

DLSE Issues Opinion Permitting Employer Deductions of Vacation and/or Sick Leave for Absences of Less Than Four Hours

On November 23, 2009, the Chief Counsel of the California Department of Industrial Relations' Division of Labor Standards Enforcement (DLSE) issued an opinion letter stating that employers may deduct vacation and sick leave for exempt employees’ partial-day absences of less than four hours as long as consistent with the employer's express policies. In addition, the DLSE opined an employer may deduct a combination of vacation leave and sick leave for a partial-day absence.

]]> An employer may deduct from an exempt employee's salary only if the employee is absent due to illness or personal reasons for an entire work day. An employer may not deduct the pay of an exempt employee for a partial-day absence. Nevertheless, an employer may require exempt employees to use vacation leave or sick leave for partial-day absences. (See Conley v. Pac. Gas & Elec. (2005) 131 Cal.App.4th 260 ["Conley"]; see also "Court Finds California Employers Can Require Exempt Employees To Use Vacation Time For Partial Day Absences" posted on the Sheppard Mullin Labor & Employment Law Blog on July 21, 2005.) The DLSE interpreted both Conley and federal law to conclude an employer may require employees to use personal leave for partial-day absences in any increment consistent with the employer's express policies.

In one of the scenarios presented to the DLSE, an employee worked two hours in a workday, was absent for the remaining six hours, and had six hours of accrued vacation leave. The employer's policy permitted deductions from vacation leave in one-hour increments. The DLSE concluded that the employer may pay the employee for the entire work day for the two hours of work and deduct six hours from the employee's vacation leave.

The DLSE added that an employer may deduct a combination of vacation leave and sick leave when one or the other is insufficient to compensate for the entirety of the absence, and that combining leaves is permissible under the employer’s policies. The DLSE found no "prohibition against combining the two types of leave" for a partial-day absence. The policy presented to the DLSE allowed employees to use vacation leave for illness if the employees exhausted their sick leave.

In another scenario presented to the DLSE, an employee was absent for eight hours due to illness. The employee had five hours of available sick leave and two hours of accrued vacation leave. The DLSE concluded that the company was permitted to reduce the employee’s leave banks (for a total of seven hours) without jeopardizing the employee's exempt status as long as the company paid the employee's full salary for the additional hour.

Employers should keep in mind that DLSE opinion letters do not have the force and effect of binding precedent. In other words, courts are not required to follow the opinion letters. Courts may, however, find DLSE opinion letters persuasive when interpreting California law. For the full opinion, visit the DLSE's webpage and click on Letter No. 2009.11.23.

California Court Of Appeal Doubts Viability Of "Trade Secrets" Exception For Covenants Not To Compete

In Pacesetter, Inc. v. Biosense Webster, Inc., the California Court of Appeal for the Second Appellate District found that a non-competition clause contained in Biosense Webster, Inc.’s (“Biosense”) Employee Secrecy, Non-Competition and Non-Solicitation Agreements (“Agreements”) was void as a matter of law under Section 16600 of the California Business and Professions Code (“Code”)(California's prohibition against restraint of trade) and that its use violated Section 17200 of the Code (California’s Unfair Competition Law). Biosense attempted to argue that the non-competition clause was enforceable because it fell under the so-called trade secret exception to covenants not to compete. This argument was rejected by the court, however, because the clause was not narrowly tailored to protect trade secrets.

]]> St. Jude Medical Center, S.C., Inc. and Pacesetter, Inc., both subsidiaries of St. Jude Medical, Inc. (collectively “St. Jude”), along with three St. Jude employees who were formerly employed by Biosense, sued Biosense to enjoin it from enforcing the non-competition clause contained in the employees’ Agreements. Following St. Jude’s hiring of several Biosense employees, Biosense sent a letter demanding that St. Jude cease its “unlawful raiding” of Biosense’s employees. The letter stated that the employees had covenants not to compete that precluded their employment with St. Jude and their use of confidential and trade secret information relating to the business and personnel of Biosense.

The non-competition clause in the Agreements prevented the employees, for a specified period following their employment with Biosense, from rendering services, directly or indirectly, to any competitor where the services “could enhance the use or marketability” of a competing product by using confidential information to which the employee had access during his or her employment with Biosense. Biosense argued that the clause was narrowly tailored to protect trade secrets and confidential information because it was only triggered when the former employees’ services for a competitor implicate the use of confidential information. The court summarily rejected this argument as contrary to a plain reading of the clause and expressed its doubts as to the continued existence of a trade secrets exception to covenants not to compete. The court went on to say that, even if such an exception did exist, it would not apply in this case because the clause at issue was not sufficiently narrowly tailored to the protection of trade secrets.

The court also reaffirmed that, where there is conduct that actually violates the Uniform Trade Secrets Act or California’s Unfair Competition Law, the proper avenue for relief would be to seek an injunction under one of those statutes. Such conduct is enjoinable, however, because it is an independent violation of these statutes, not because it falls within an exception to Section 16600.

ICE Announces 1,000 New Workplace I-9 Audits

On November 19, 2009, U.S. Immigration and Customs Enforcement (ICE) Assistant Secretary John Morton announced the issuance of Notices of Inspection to 1,000 U.S. employers and business owners whose hiring records (Forms I-9) ICE plans to audit. Compared to previous years, this is a tremendous increase in ICE's effort to actively deter unlawful employment practices and to uncover illegal alien workers. These workplace audits have already led to significant fines and debarment to the employers, as well as detention and deportation of illegal workers.

]]> U.S. employers should review their I-9 policies and internal records to ensure compliance with federal employment verification laws.

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Ninth Circuit Extends Rehabilitation Act to Independent Contractors

On November 19, 2009, the Ninth Circuit handed down its opinion in Fleming v. Yuma Regional Medical Center, 07-16427. The court faced the difficult task of interpreting the interplay between Section 504 of the Rehabilitation Act (29 U.S.C. § 794) and Title I of the Americans with Disabilities Act. The Sixth and Eighth Circuits had previously held that the Rehabilitation Act incorporated Title I in its entirety, requiring an employer-employee relationship as a prerequisite to suing for discrimination. On the other hand, the Tenth Circuit had disagreed, and only incorporated the "standards" of Title I, allowing independent contractors to sue even without an employment relationship. In Fleming, the Ninth Circuit agreed with the Tenth Circuit, and held that the Rehabilitation Act would indeed cover claims by an independent contractor notwithstanding the lack of an employer-employee relationship.

]]> In Fleming, the Yuma Regional Medical Center denied an anesthesiologist suffering from Sickle Cell Anemia a contract. The doctor sued under the Rehabilitation Act, which provides that "[n]o otherwise qualified individual with a disability…shall, solely by reason of her or his disability, be excluded from the participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance." 29 U.S.C. § 794(a). The hospital defended, arguing that because the doctor was an independent contractor, he had no standing to sue for discrimination.

The court found for the doctor, holding that Section 504 incorporated only the standards of Title I of the ADA, and did not incorporate Title I's requirement of an employment relationship. First, the court noted that the scope of the ADA is far narrower than that of the Rehabilitation Act. The Rehabilitation Act covers any "otherwise qualified individual" who has been discriminated against. This is in contrast to the ADA, which only prohibits discrimination against those qualified individuals in an employment context. Second, the court noted that Congress, in writing Section 504, did not use any language of incorporation when referring to the ADA, but rather only referred to Title I's "standards." This led to the third point, that without express authorization from Congress, the court cannot simply restrict the scope of the broader Rehabilitation Act to match that of the more restrictive ADA. Fourth, incorporating Title I in its entirety would cause substantial duplication between the Rehabilitation Act and the ADA. The creation of two parallel schemes in each of the acts, according to the Fleming court, "counsels against finding that Congress created one scheme and then displaced it with a second, duplicative scheme."

Fleming dramatically changes the landscape for employers in the Ninth Circuit which are covered by the Rehabilitation Act. Now, independent contractors may sue the entities that hire them for discrimination under the Rehabilitation Act even though they are not actual employees.

Family and Medical Leave Act Further Helps Military Families

In late October, President Obama signed into law a bill that increases protections for families of military personnel who wish to take leave from work under the Family and Medical Leave Act of 1993 ("FMLA"). The new amendments expand on changes implemented less than a year ago requiring that certain employers provide unpaid leave for qualifying family members of military personnel:

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Leave for an Exigency: An employee may take leave because of a qualifying exigency arising out of the fact that the spouse, son, daughter, or parent of the employee is on covered active duty. Such exigencies include the need to arrange for alternative childcare, to attend official military ceremonies, and to attend counseling. Prior to the new amendments, this kind of leave was available only to employees whose family members were in the Reserves or the National Guard. The new amendments have expanded the FMLA to include employees whose family members are in the regular Armed Forces. The amendments further specify that the military family member must be deployed or deploying to a foreign country for the employee to qualify for leave.

Leave for Serious Injury or Illness: An employee may take leave to care for a servicemember with a serious injury or illness incurred by the servicemember in the line of duty while on active duty. Before the amendments, the ill or injured servicemember had to be a current member of the Armed Forces (including the National Guard and Reserves). The amendments have now expanded coverage to employees whose family member is a veteran, so long as the veteran was a member of the Armed Forces in the preceding five years. The definition of serious injury or illness was also expanded to include conditions that predate a servicemember's active duty and that were aggravated by active duty.

Employers should look out for a revised FMLA poster as well as regulations by the Secretary of Labor that further explain these amendments. In the meantime, they should change their policies and forms to reflect the changes and act in good faith in providing leave under these new circumstances.