The California Supreme Court decided several significant employment law cases since our last summary in August 2006. The Court’s opinions address a number of topics, from employment at will to class actions. The Court also has accepted review of several decisions that could be blockbusters in the months to come. We summarize below the recently decided cases and those that remain pending.

Cases Decided

Californians for Disability Rights v. Mervyns, 39 Cal. 4th 223 (2006)

California’s “unfair competition” law (“UCL”) permits lawsuits based on “unfair,” “unlawful,” or “deceptive” business practices. For years, professional plaintiffs filed lawsuits without having to prove they personally were injured. In 2004, the voters passed Proposition 64, limiting access to the UCL to those who have suffered injury in fact. In the Mervyns matter, the Court clarified that the initiative applied to cases pending when Proposition 64 passed.

Dore v. Arnold Worldwide, 39 Cal. 4th 384 (2006)

Arnold Worldwide offered Brook Dore employment in an offer letter. The letter said employment was “at will,” but then explained that “at will” meant only that his employment could be terminated “at any time.” The Court of Appeal found ambiguity in this explanation, because the definition did not expressly cover the reasons Dore could be fired. The Supreme Court reversed, essentially holding that “at will” means “at will,” and that the “any time” language created no ambiguity. The Court also said that Dore’s fraud claim could not survive, because he could not reasonably rely on alleged statements contrary to employment at will.

Pioneer Electronics (USA), Inc. v. Superior Court (Olmstead), 40 Cal. 4th 360 (2007)

This opinion is not based on employment law per se. However, it significantly impacts employment class actions. The Supreme Court held that in response to a plaintiff’s discovery requests, the defendant does not have to obtain a third party’s affirmative consent before releasing the third party’s personal information (such as his or her address and telephone number). The Court approved an “opt-out” procedure used by the lower court, under which the third party was merely notified of the pending disclosure. The third party was responsible to affirmatively refuse disclosure. In a later decision, the Court of Appeal in Belaire-West Landscape, Inc. v. Superior Court, 149 Cal. App. 4th 554, (2007), relied on Pioneer in holding that employers must disclose employees’ names and addresses to a plaintiff’s lawyer in a wage-and-hour class action.

Murphy v. Kenneth Cole Prods., 40 Cal. 4th 1094 (2007)

Murphy sued Kenneth Cole for a variety of wage and hour claims, on behalf of himself and a class of Kenneth Cole managers. Among Murphy’s claims was that he and the class were denied legally compliant meal periods and rest breaks. He sought an hour’s pay for each missed meal period and another hour’s pay for missed rest breaks. Several of the courts of appeal have split on whether the extra hour’s pay was a “penalty” or a premium wage, like overtime. The answer to that question profoundly affected potential liability, as the statute of limitations is one year for penalties, but up to four years for wages. Additionally, penalties are available for unpaid wages, but not for unpaid penalties. In this decision, the Supreme Court unanimously decided that meal and rest period premiums are wages, not penalties. As a result, the potential liability changed from merely “huge” to “staggering.”

Siebel v. Mittlesteadt, 41 Cal. 4th 735 (2007)

Debra Christoffers sued Siebel Systems, its former CEO, Thomas Siebel, and other individuals for a variety of employment law claims. Many of these claims could not be asserted against individual managers as a matter of settled law. After Mr. Siebel prevailed on the claims asserted against him as an individual, he sued Christoffers’ attorneys for malicious prosecution. At the same time, Christoffers prevailed on part of her claim against the company. While that case was on appeal, all parties settled.

The trial court dismissed Siebel’s malicious prosecution claim because he settled the underlying action. The court reasoned that he did not win a favorable judgment, an essential part of a malicious prosecution claim. The Court of Appeal reversed, reinstating Siebel’s lawsuit. The California Supreme Court unanimously upheld the Court of Appeal, allowing Siebel’s malicious prosecution claim to proceed.

Prachasaisoradej v. Ralphs Grocery Co., Inc., __ Cal.4th ___ (Aug. 23, 2007)

Ralphs Grocery includes profitability bonuses as part of its compensation. The calculation of net profit naturally includes expenses such as breakage due to negligence and workers’ compensation costs. California statutes provide that employers may not directly deduct breakage or workers’ compensation costs from wages. Based on this authority and prior court decisions interpreting, the Court of Appeal here held that employers cannot include such costs even in the formula used to calculate the bonus. In the words of the Supreme Court, the bonus plan “was not illegal . . . simply because, pursuant to normal concepts of profitability, ordinary business expenses, such as storewide workers’ compensation costs, and storewide cash and merchandise losses, were figured in, along with such other store expenses as the electric bill and the cost of goods sold, to determine the store’s profit . . . .”

Green v. California, ___ Cal.4th ___ (August 23, 2007).

Dwight Green worked in maintenance at a California prison. After contracting Hepatitis C and hurting his back in an unrelated injury, he was unable to perform his duties. The State put him on temporary “light duty,” consistent with its policies. However, Green was unable to return to full duty. The state therefore discharged him. Green sued and won a multi-million dollar verdict. California argued that Green was unable to perform the essential functions of his job with or without reasonable accommodation. But the Court of Appeal decided that it was the state’s burden to prove that Green was unable to do so, and the state failed to do so.

Even under a body of law as dynamic as disability discrimination law, it has been long settled that an employee has the burden of showing that he or she can perform the essential functions of his or her job with or without reasonable accommodation. The federal Americans with Disabilities Act expressly provides as much. The Fair Employment and Housing Act (FEHA) provides that an employer does not violate FEHA if the employee cannot perform his or her essential job functions regardless of accommodation.

But whose burden of proof is it under FEHA to show the employee is able to perform? That is what the Supreme Court decided in Green. The Court held that there was nothing in the statute shifting the burden of proof to the employer. Therefore, consistent with the ADA and the weight of California authorities, the employee must show he or she is a “qualified” individual with a disability in order to make out a prima facie case of employment discrimination.

Gentry v. Superior Court (Circuit City Stores, Inc.), __Cal.4th. ___ (August 30, 2007)

Finally, the Supreme Court decided in Gentry v. Superior Court that class action waivers contained in employment arbitration agreements usually are not valid. The Court previously held in Discover Bank v. Superior Court 36 Cal.4th 148 (2005) that such waivers in consumer agreements are unconscionable and invalid. Circuit City had attempted to ensure that its employees bound by arbitration agreements were limited to arbitrating only their own claims, not class actions on behalf of others. However, unlike in Discover Bank, Circuit City gave its employees 30 days to “opt out” of its arbitration program. And the potential damages involved in employment claims were much higher than in the typical consumer class action against a credit card company and the like.

The Supreme Court decided that Gentry could proceed with his class action arbitration, severing the unlawful class action waiver. However, the Court remanded the case for a determination of whether the arbitration agreement itself was lawful. In doing so, the Court rejected Circuit City’s argument that the “opt out” rendered the agreement exempt from “unconscionability” analysis under California law.

Pending Cases

The California Supreme Court has a number of employment law cases pending on a variety of subjects that will be important to California employers. These include:

• Gattuso v. Harte-Hanks Shoppers, Inc. (whether employers are permitted to pay additional wages rather than reimburse employees for expenses under California. Labor Code section 2802);
• Lonicki v. Sutter Health (whether an employee able to perform a similar job for another employer may take protected medical leave under the California Family Rights Act);
• Ross v. RagingWire Telecommunications, Inc. (whether the FEHA requires accommodation of medical marijuana use);
• Williams v. Genentech (the case was being held pending the resolution of Green v. California, discussed above);
• Edwards v. Arthur Andersen (whether a non-competition agreement between an employer and an employee that prohibits the employee from performing services for former clients invalid under Business and Professions Code section 16600, and related issues);
• Hernandez v. Hillsides (may employees assert a cause of action for invasion of privacy when their employer installed a hidden surveillance camera in the office to investigate whether someone was using an office computer for improper purposes);
• Konig v. U-Haul Company (the case was being held pending the resolution of Gentry v. Superior Court, discussed above);
• Spielbauer v. County of Santa Clara (if a public employee exercises his or her Fifth Amendment right against self-incrimination in a public employer’s investigation of the employee’s conduct, must the public employer offer immunity from prosecution before it can dismiss the employee for refusing to answer questions asked in connection with the investigation?); and
• Jones v. Lodge at Torrey Pines (whether an individual be held personally liable for retaliation under the FEHA).

Conclusion

As shown by the expanded list of pending cases, the California Supreme Court has taken an active interest in employment law cases. These decisions will shape California employment law for years to come. However, most of the law in this area is created by statutes, regulations, administrative agencies, and lower court decisions. Therefore, employers must take steps to remain current on these “lower profile” developments.