Lawsuits claiming harassment, discrimination or retaliation are expensive to defend. In an effort to resolve equal employment opportunity (EEO) issues before they become legal liabilities, most employers have developed and implemented procedures for dealing with internal EEO complaints. These internal procedures often involve a multi-step process used to evaluate whether the conduct at issue violates the organization’s policy and identify solutions to prevent inappropriate conduct from continuing.

Of course, an employer’s internal grievance procedure is not the only option for resolving EEO concerns. Employees also may file a complaint with California’s Department of Fair Employment and Housing (DFEH) or the federal Equal Employment Opportunity Commission (EEOC), the agencies authorized to investigate and remedy violations of the Fair Employment and Housing Act (FEHA) and Title VII of the Civil Rights Act, respectively. So long as the employee files a complaint or charge within the required statutory time period, the employee has the option of allowing the DFEH/EEOC to investigate and make a determination as to whether the employer violated the law, or requesting a “right-to-sue” letter and proceeding directly to court.

When an employee decides to utilize the employer’s internal complaint procedures, certain questions arise. Is it necessary to exhaust the internal procedure before seeking relief from the DFEH/EEOC and/or the courts? Also, how does using the internal procedure affect the statutory time period for the employee to pursue administrative relief and/or court action? Two recent court decisions answer these questions: Ahmadi-Kashani v. Regents (the California Court of Appeal) and McDonald v. Antelope Valley Community College District (the California Supreme Court).

Employees Not Required to Exhaust the Employer’s Internal Complaint Procedure

Earlier this year, in Ahmadi-Kashani v. Regents, the California Court of Appeal determined that employees are not required to utilize an employer’s internal EEO procedure before receiving a right-to-sue letter from the DFEH and pursuing a claim against the employer. In a previous case, Schifando v. City of Los Angeles, the California Supreme Court held that an employee who chose to participate in the employer’s internal procedure had to see that procedure through to its completion and exhaust any judicial review process before pursuing a claim with the DFEH. The court in Ahmadi-Kashani decided that this rule applies only if the employer’s internal procedure provided the employee with a “quasi-judicial” hearing.

In Ahmadi-Kashani, the employee abandoned the employer’s grievance procedure after the second steps in a four-step process. The employer argued the employee was barred from filing a civil suit because she did not participate in Step 3 of the procedure (Step 4 consisted of binding arbitration only the employer could initiate). Step 2 included a meeting between the employee and an employer representative to discuss the employee’s concerns. The written policy regarding Step 2 suggested that the employee would have an opportunity to prove her case during this stage of the proceedings. However, the employee was not sworn in, could not conduct cross-examination, could not question third-party witnesses, and could not submit evidence during the proceeding. In addition, there was no transcript or other recording of the meeting, and the employee was not permitted to question the accused. In fact, no one questioned the accused, and although he was present during the meeting, he never spoke.

In light of these facts, the court concluded that the employer’s internal procedure did not represent a hearing of any kind, let alone a “quasi-judicial” hearing. Because the procedure was more cooperative than adjudicative, the employee was not required to utilize it before pursuing other relief.

FEHA Statute of Limitations “Tolled” During Internal Complaint Procedure

In McDonald v. Antelope Valley Community College District, three employees of the Antelope Valley Community College District (District), including Sylvia Brown, filed a lawsuit alleging racial harassment, racial discrimination, and retaliation. Brown began working for the District in 1998. In 1999, she applied for a new position (Database Administrator) for which the District did not interview her. In 2000, the same position became open and Brown applied. Again, she did not receive an interview. In January 2001, after Brown complained that she was not interviewed because of her race, the District granted her an interview, but did not offer her the position.

In October 2001, Brown complained about the hiring process to the Vice Chancellor of Human Resources. She subsequently filed a formal complaint with the Chancellor’s Office in November 2001. The District advised Brown at that time that the internal procedure did not preclude her from filing a DFEH complaint. The District hired a private investigator to examine Brown’s allegations. The investigator, the Board of Trustees and the Chancellor’s Office all concluded her allegations were unsubstantiated.

On October 11, 2002, more than 18 months after the District failed to hire her for the Database Administrator position, Brown filed her complaint with the DFEH. She received a right-to-sue letter on October 24, 2002, and filed suit against the District one year later.

In the civil proceeding, the District argued that the case should be dismissed because none of the employees, including Brown, filed a timely complaint with the DFEH (within one year from the date of the last alleged act of discrimination). The trial court agreed, relying in large part on the fact that the District told the employees they could pursue administrative relief from the DFEH contemporaneously with utilizing the District’s internal procedures. The Court of Appeal reversed as to two of the employees (including Brown), but affirmed the trial court’s decision as to the third. The Supreme Court granted the District’s petition for review as to Brown. The only issue before the Court was whether Brown’s voluntary use of the District’s internal EEO procedures equitably tolled (i.e., delayed) the one-year statute of limitations applicable to DFEH complaints.

The Court ruled in Brown’s favor, holding that if an internal complaint procedure provides the employer sufficient notice of the employee’s claims to allow the employer to gather and preserve evidence in its defense, the policy behind the statute of limitations is satisfied. In other words, the statute of limitations was “tolled” during the District’s administrative proceedings and the one-year period did not begin to run when the District failed to hire her for the Database Administrator position.

In reaching its decision, the Court explained that three conditions must be met for equitable tolling to apply: (1) appropriate notice to the employer; (2) lack of prejudice to the employer; and (3) reasonable and good faith conduct by the employee. According to the Court, the employee must file the internal complaint within the limitations period (within one year of the last alleged “bad” act) and against the same party or parties the employee later sues. In addition, the claims in the internal procedure must be similar to or the same as the claims in the lawsuit such that the employer’s initial investigation will assist in its defense in the litigation (i.e., the employer will not be prejudiced by the tolling of the statute). Finally, while the Court did not define exactly what it meant by “good faith and reasonable conduct,” the employee must file the lawsuit within a reasonable time period after the internal process is completed.

The Court rejected the District’s arguments that equitable tolling should not apply because the District’s internal process was voluntary and Brown filed her DFEH complaint before the internal process was complete. Because the District had adequate notice of Brown’s complaint and the opportunity to investigate and preserve evidence for its later defense, and Brown acted reasonably and in good faith in electing to pursue her internal remedies before filing a complaint with the DFEH, the Court decided that equitable tolling was appropriate to avoid the “technical forfeiture” of Brown’s claim.

Conclusion

The Ahmadi-Kashani and McDonald decisions provide some important guidance to employers regarding their internal EEO complaint procedures. First, while employers should do everything possible to encourage the use of their internal procedures, absent the implementation of a “quasi-judicial” process, employees cannot be required to file internal complaints before seeking an administrative remedy or right-to-sue letter.

In addition, McDonald makes clear than an employee must initiate the internal complaint process within one year of the alleged EEO violation to avoid the statute of limitations under the FEHA. However, other issues remain undecided. For example, the Court did not fully explain the “prejudice” element of its analysis. How similar do the internal complaint and the DFEH complaint have to be? Also, the Court did not provide a definitive rule regarding how much time may pass between the conclusion of the internal process and the employee’s filing of a DFEH complaint. The Court merely stated that the employee must file the DFEH complaint within “a short time” after the tolling period ends. This vague standard inevitably will lead to more litigation.

Despite these open questions, employers should ensure they fully document any internal EEO complaint process. It will be critical to be able to demonstrate the issues raised during the process and the details of any investigation initiated as a result of the complaint. In addition, the employee should be promptly informed when the internal process procedure is concluded to avoid any debates regarding when the statute of limitations began to run.