The California Supreme Court decided significant employment law cases since our last review in 2009. The Court’s opinions address a number of topics of interest to employers: wage and hour law, harassment, arbitration agreements, attorney-client privilege, and the significance of “stray remarks.” However, the Court also left many issues for lawyers to wrangle with in the future. We summarize below the recently decided cases.

Lu v. Hawaiian Gardens Casino, Inc. (Aug. 9, 2010)

Labor Code section 351 specifies: “Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.” This law has led to lawsuits involving “tip pooling,” in which, for example, waiters file lawsuits over being required to split tips with dishwashers and bussers.

The Lu case involved dealers in a card room. The Supreme Court considered whether Labor Code Section 351 created a private cause of action under which an employee could file a lawsuit. The answer was “no”; employees cannot file lawsuits directly under Section 351. The court noted plaintiffs may file lawsuits for money they lost under a “conversion” theory, or for “unfair competition” under Business and Professions Code Section 17200). What’s the difference? Conversion and Section 17200 claims do not allow for recovery of penalties or attorney’s fees. Provided they properly exhaust administrative remedies, employees likely can pursue these remedies under the Labor Code’s Private Attorney General Act, Labor Code Sections 2698 et seq. Lu did not directly address the question of whether an employer can require its employees to share tips amongst themselves.

Reid v. Google (Aug. 5, 2010)

In Reid v. Google, the Supreme Court addressed an age discrimination claim under California’s Fair Employment and Housing Act. Reid was hired as an engineering manager in 2002. Staff joked about him being “an old fuddy duddy,” and said that his CD-jewel-case name plate should be replaced with an LP album jacket. The decision-makers who separated Reid cited difficult-to-measure criteria such as his “obsolete” ideas, his “slow,” “fuzzy” and “lethargic” performance, his lack of a “sense of urgency,” and his not being a good “cultural fit.” E-mails discussing the termination referred to adopting a position that there was “no place” for Reid in the company, and questioning whether a judge might think Google acted “harshly” if the company discharged him without severance pay.

Relying on a line of federal cases, Google argued that Reid’s only evidence of discrimination consisted of “stray remarks,” unrelated to the decision to terminate him or the decision-makers. Overturning the trial court’s summary judgment, the Supreme Court held that trial was required. The court rejected the application of a blanket “stray remarks” rule, holding that discriminatory comments must be considered along with the entire record to determine the existence of a triable factual issue.

The Supreme Court also ruled that the trial court has an obligation to rule on objections to evidence presented during summary judgment proceedings. However, if a trial court does not rule on the objections, they are preserved for appellate review.

Martinez v. Combs, 48 Cal. 4th 35 (2010)

Plaintiffs were pickers who did not receive all their wages for strawberries picked during the 2000 season. The plaintiffs worked for a grower named Munoz. He sold the strawberries to the defendants (packing and distributing companies), which had longstanding business and personal relationships with Munoz.

Munoz became unable to pay the plaintiffs for work in his fields. When the employees stopped picking for Munoz, he convinced them to come back to work by promising to pay as soon as he got money from the defendants. Munoz then went bankrupt, so the workers sued the distributors for wages.

The Supreme Court decided that because the distributors had no responsibility for hiring, firing, training, or disciplining any of the plaintiffs, the defendants were not “employers” who could be sued for back wages. In short, buying strawberries from the grower did not make the distributor the employer of the workers who picked them.

Pearson Dental Supplies v. Superior Court (Turcios), 48 Cal. 4th 665 (2010)

The usual rule is that arbitrators’ decisions cannot be vacated simply because they are wrong. Arbitration is supposed to streamline the litigation process and result in final decisions that are not appealable as of right. But in this case, the arbitrator incorrectly calculated the date the statute of limitations applied in a case brought under the Fair Employment and Housing Act (FEHA). He summarily dismissed the case and refused to hold an evidentiary hearing. The Supreme Court gave the employee a do-over because the arbitrator’s decision was so obviously incorrect and denied the employee of a hearing of any kind.

Chavez v. City of Los Angeles, 47 Cal. 4th 970 (2010)

California courts have “Limited Jurisdiction” for cases in which less than $25,000 is at issue, and “Unlimited Jurisdiction” for larger cases. Chavez sued for discrimination and retaliation under the FEHA and filed his case an Unlimited Jurisdiction case. A jury awarded him $11,500. His lawyer then submitted a bill for $870,935.50 in attorney’s fees.

The Superior Court denied the attorney’s fees, citing a section of the Code of Civil Procedure that limits fee awards in cases worth less than $25,000 incorrectly filed in Unlimited Jurisdiction. The Supreme Court affirmed the Superior Court, holding that the Code of Civil Procedure can limit attorney’s fees despite the FEHA’s strong public policy in favor of attorney’s fees to prevailing plaintiffs.

McCarther v. Pacific Telesis Group, 48 Cal. 4th 104 (2010)

California’s “kin care” law, Labor Code Section 233, requires employers to let employees use sick leave in “an amount not less than the sick leave that would be accrued during six months at the employee’s then current rate of entitlement” to care for dependents, if the employer grants sick leave. But, at least as of now, no state law requires employers to give sick leave.

Pacific Telesis allowed employees to take virtually “unlimited” time off for illness, but no sick leave accrued into “leave banks.” Because no leave “accrues” during six months, employees were not legally entitled to use any leave for “kin care” under the Labor Code.

Roby v. McKesson, 47 Cal. 4th 686 (2009)

Roby was a troubled employee of a large pharmaceutical company. Her medication caused her to scratch herself until she had scabs covering her arms and body odor. Her supervisor was openly uncomfortable with Roby, did not say “hello” to her in the mornings, and assigned her to answer phones during office parties.

Roby was eventually terminated under McKesson’s absence policy. She sued for discrimination and harassment under the FEHA. The Court of Appeal held that personnel actions, like being assigned to answer phones, could state a discrimination case, but not a harassment case. The Supreme Court reversed, holding that a harassment case is based on the employer “sending a message” to the plaintiff, and even a series of minor personnel actions can send a harassing message when coupled with abusive conduct.

The Court also considered the punitive damages awarded against McKesson. Roby’s supervisor was responsible for just four employees out of 20,000. So she was not a “managing agent” who could impute to McKesson the reprehensible conduct required for a punitive damages award. The harm attributable to McKesson itself was not “highly reprehensible” because it resulted only from the impersonal application of an attendance policy. Under those circumstances, the Supreme Court reasoned, punitive damages could be no larger than the actual damages suffered.

Costco Wholesale Corp. v. Superior Court (Randall) 47 Cal. 4th 725 (2009)

Costco retained a lawyer to audit its payroll. Employees sued claiming that Costco probably knew they were misclassified as exempt, and asked to see the lawyer’s audit during discovery. Costco objected on the basis of attorney-client privilege.

The trial court ordered production of the letter, with privileged advice redacted. The Supreme Court reversed. While facts are never privileged (a litigant cannot conceal a fact by sharing it with an attorney), communications always are (what a litigant discussed with its attorney can never be revealed, even if they discussed things that were not secret).

Schachter v. Citigroup, Inc. 47 Cal. 4th 610 (2009)

This case considered a stock option plan that allowed employees to purchase discounted shares that vested later, but only if the employees remained with the company. Schachter voluntarily resigned before the shares vested. Schachter and a class of former employees who put part of their salaries into a stock purchase plan complained that they lost wages under the plan. The Supreme Court disagreed, upholding a bonus plan that requires employees to remain employed for a certain period of time.

Hernandez v. Hillsides, Inc., 47 Cal. 4th 272 (2009)

Hillsides runs a home for abused and neglected children. A manager set up a hidden camera in an effort to discover who was viewing pornography on Hillsides’ computers during the night shift. Two employees sued when they discovered the camera was hidden in their office. The trial court held the employees did not have an expectation of privacy in a not-very-private office (unlike, say, a restroom or a hotel room), and could not sue. The Court of Appeal reversed, saying that it was reasonable to expect privacy in an office with a door that closes. The Supreme Court ruled that employees can expect privacy in an office. However, the circumstances were such that the employees’ privacy rights were not violated because Hillsides’ actions were sufficiently justified.

Pending Cases:

Below are some important cases still pending before the Court:

• International Association of Firefighters v. Public Employee Relations Board: The court will decide if a decision by the Public Employee Relations Board (which enforces collective bargaining rights in the public sector) not to issue a complaint under the Meyers-Milias-Brown Act is subject to judicial review. This case also addresses fiscal reasons for layoffs of firefighters.
• Brinker Restaurant Corp. v. Superior Court and Brinkley v. Public Storage Inc.: These highly anticipated cases present related issues concerning whether an employer has duty to require meal and rest breaks to non-exempt workers, or whether the Labor Code is satisfied merely by allowing employees to take breaks if they chose to do so.
• Harris v. Superior Court (Liberty Mutual) and Pellegrino v. Robert Half Int’l: The court will decide whether claims adjusters employed by insurance companies fall within the “administrative exemption.”
• Harris v. City of Santa Monica: At issue in this case is the employer’s burden of proof when an employee claims she lost her job because of poor performance (a legal reason) and because she was pregnant (an illegal reason) (so called “mixed motive” cases).
• Pineda v. Bank of America: The court will decide the statute of limitations on a suit for labor code penalties if the employee does not claim unpaid wages and whether the Unfair Competition Law (Business and Professions Code section 17200) applies to such a claim.
• California Grocers Ass’n v. City of Los Angeles: At issue in this case is whether a local ordinance may require grocery stores to retain employees after a change of ownership.

Conclusion

Keeping up with employment law developments is a full-time job. The California Supreme Court continues to take an active role in the workplace. To stay on the right side of the law, employers must carefully review how these court decisions affect their policies. The California Supreme Court’s decisions are just one source of new legal developments. Employers also must pay attention to lower courts’ rulings, federal courts’ opinions, and new statutes and regulations as well.