Employment Law -- Aug 28, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

Employer Liable for Employee’s Drunken Car Accident – After He Got Home

According to a recent California appellate court decision, an employer can be liable for an employee who drank too much at a company party, made it home safely, and then killed a man in a drunk driving accident after he left his house again.

“It is irrelevant that foreseeable effects of the employee’s negligent conduct (here, the car accident) occurred at a time the employee was no longer acting within the scope of his or her employment,” the court ruled.

Michael Landri was a bartender at the Marriott Del Mar Hotel. He attended the hotel’s annual holiday party in December 2009, beginning his celebration with a beer and a shot of Jack Daniels at home. He also filled a five-ounce flask with Jack Daniels and took it with him to the party, held at the hotel.

At the party, one of the managers acted as a bartender. She filled Landri’s flask on at least one occasion. Another employee drove a group to Landri’s house. Roughly 20 minutes later (and not having consumed any more alcohol) Landri left his house to drive another coworker home. En route, while driving over 100 mph, he rear-ended another car, killing the driver. Landri had a 0.16 blood alcohol level. He pleaded guilty to gross vehicular manslaughter and was sentenced to six years in prison.

The deceased’s parents brought suit against Landri and Marriott. A trial court judge granted summary judgment to the hotel.

But the appellate court reversed.

Marriott’s respondeat superior liability followed the risk created by the intoxication, the court said, no matter where it proximately caused harm. Because he became intoxicated at an employee-sponsored party that benefited Marriott, he was acting within the scope of his employment and the employer could be liable.

The court reviewed two divergent doctrines of liability from different jurisdictions addressing similar factual scenarios. In Arizona, Illinois, and Kansas, the court noted, an employer is liable only if the accident itself occurs at a time when the employee is acting within the scope of his or her employment.

Another group of states – including Hawaii, Oregon, and Washington – have found it sufficient, for respondeat superior liability purposes, that the alcohol consumption occurred within the scope of employment.

Aligning California with the latter position, the appellate court said its decision was also in accord with state precedent. “[E]xisting California case law clearly establishes that an employer may be found liable for its employee’s torts as long as the proximate cause of the injury occurred within the scope of employment,” the court wrote. “It is irrelevant that foreseeable effects of the employee’s negligent conduct occurred at a time the employee was no longer acting within the scope of his or her employment.”

Turning to the specific facts of the case, the court determined that a reasonable trier of fact could find that Landri was acting within the scope of his employment when he became intoxicated at the party. The consumption of alcoholic beverages by employees at the hotel “was a customary incident to the employment relationship,” the court said. Employees were allowed to finish alcohol left over after parties while on shift, taste new drinks or have drinks purchased for them; at the party, managers served hard alcohol and did shots with employees.

Marriott also benefited from the party because it furthered employer-employee relations and improved employee morale, the court noted.

Marriott argued that allowing it to be liable under the facts of the case would open the doors to broad potential liability for employers. Its responsibility as a result of serving alcohol at the party, it asserted, should have ended when Landri arrived at his home safely.

The panel rejected that contention. “[A] trier of fact could conclude that the proximate cause of the accident, Landri’s intoxication, occurred within the scope of Landri’s employment,” the court said. “[W]e focus on the act on which vicarious liability is based and not on when the act results in injury.”

No reasonable justification exists for “cutting off an employer’s potential liability as a matter of law simply because an employee reaches home,” the court added. Instead, “the employer’s potential liability under these circumstances continues until the risk that was created within the scope of the employee’s employment dissipates.”

To read the decision in Purton v. Marriott International, click here.

Why it matters: The Purton decision opens employers up to potentially broad liability under the court’s analysis, focusing the scope of employment “on the act on which vicarious liability is based and not on when the act results in injury.” Marriott argued that the decision would judicially legislate new law that employees drinking at an employer function must be escorted home and kept there by escort, in violation of personal privacy and liberties, for employers to avoid liability. “Not so,” the court said. The employer “created the risk of harm at its party by allowing an employee to consume alcohol to the point of intoxication.” The court added that Marriott could have lessened its risk by enforcing a drink-ticket policy, serving drinks for only a limited time period, serving food or instituting a policy prohibiting smuggled alcohol. “Alternatively, it could have eliminated the risk by forbidding alcohol.” After the court’s decision, many employers may choose the last option to similarly eliminate the risk of liability. “[I]f a commercial enterprise chooses to allow its employees to consume alcoholic beverages for the benefit of the enterprise, fairness requires that the enterprise should bear the burden of injuries proximately caused by the employees’ consumption,” the court concluded.

New in State Legislatures: Sexual Desire Not Required in California Harassment Suits; Pennsylvania Considers Sexual Orientation Protection

With the signature of Gov. Jerry Brown, California has enacted an amendment to the state’s employment discrimination laws that clarifies that sexual harassment does not need to be motivated by sexual desire.

The clarification – which takes effect Jan. 1, 2014 – comes in response to a 2011 decision from an appellate court in Kelley v. The Conco Cos., 192 Cal. App. 4th 191. That case involved a homosexual male apprentice ironworker who was harassed by his male supervisor and coworkers with sexually demeaning comments and gestures. Even though the court found that he was subject to harassment, it granted the employer’s motion for summary judgment because Kelley failed to establish that his supervisor was gay or harbored sexual feelings for him.

Senate Bill 292, which amends the Fair Employment and Housing Act (FEHA), “ensures that all Californians who are sexually harassed will receive the wide range of protections under existing law,” Senator Ellen M. Corbett, who sponsored the legislation, said in a statement. Specifically, Section 12940(j)(4)(C) of the FEHA now includes the sentence “Sexually harassing conduct need not be motivated by sexual desire.”

Legislators in Pennsylvania also recently turned their attention to state discrimination laws, with a bipartisan bill introduced that would add “sexual orientation, gender identity or expression” to the list of protected classes under that state’s Human Relations Act.

As defined, “sexual orientation” means “actual or perceived heterosexuality, homosexuality or bisexuality” and “gender identity or expression” means “actual or perceived gender identity, appearance, behavior, expression or physical characteristics whether or not associated with an individual’s assigned sex at birth.” According to one of the bill’s sponsors, Sen. Patrick Browne (R-Lehigh), the legislation would keep the state “competitive in attracting business and talent.”

To read California Senate Bill 292, click here

To read Pennsylvania Senate Bill 300, click here

Why it matters: California’s SB 292 overturns the Kelley decision and clarifies that a plaintiff is not required to prove that an alleged harasser was motivated by sexual intent or desire. In a sexual harassment suit the focus is not on the intent of the alleged harasser but on the employee’s allegations of a hostile work environment. Pennsylvania’s proposed legislation, if passed, would make it the 22nd state (plus Washington, D.C., and various municipalities) to have enacted protection for gender identity or sexual orientation.

Same Focus, Different Case: NLRB Strikes Down Confidentiality Provisions in Various Employment Documents

Continuing its focus on confidentiality provisions, an Administrative Law Judge of the National Labor Relations Board struck a confidentiality provision from American Red Cross Blood Services’ employment agreement, finding that the company’s policy was overbroad and infringed upon the rights of employees under Section 7 of the National Labor Relations Act.

The case challenged several American Red Cross rules and policies, including those addressing confidentiality, found in the “Confidential Information and Intellectual Property Agreement” or CIIPA, the employee handbook, and the code of conduct.

The CIIPA defined “confidential information” as information relating to a broad variety of categories, including Red Cross’s financial, regulatory, personnel or operational matters, clients, customers, suppliers, and donors. Employees agreed not to “use or disclose, for my benefit or others’ benefit, either during or after employment any confidential information.”

A savings clause was included, which added, “I acknowledge and agree that this agreement does not deny any rights provided under the National Labor Relations Act to engage in concerted activity, including but not limited to collective bargaining.”

Facing a challenge that the CIIPA facially violated employees’ rights, the Red Cross argued that the confidentiality provisions should be read in the context of the entire document as well as the handbook and code of conduct. Read as a whole, employees would not believe their rights were limited because the “overall thrust” of the CIIPA focused on the ownership and disclosure of intellectual property, the employer said.

But ALJ Mark Carissimi struck the provision, finding that the broad definitions in the CIIPA “would be reasonably understood by employees to prohibit the disclosure of information including wages and terms and conditions of employment to other employees or to nonemployees, such as union representatives.”

As it is clearly established that employees have a Section 7 right to discuss wages and terms and conditions of employment among themselves and with individuals outside of their employer, Carissimi found the confidentiality provision facially overbroad.

Significantly, the ALJ found that the savings clause was essentially useless, as employers are not permitted to specifically prohibit protected employee activity and then “seek to escape the consequences of the specific prohibition by a general reference to rights protected by law.”

“[S]uch a disclaimer does not make lawful the content of a provision that unlawfully prohibits Section 7 activity,” he wrote. The savings clause “arguably would cancel the unlawfully broad language, but only if employees are knowledgeable enough to know that the Act permits employees to discuss terms and conditions of employment with each other and individuals outside of their employer.”

Carissimi said employees would “decide to comply with the [Red Cross’s] unlawfully broad restriction on their Section 7 rights, rather than undertaking the task of determining the exact nature of those rights and then attempting to assert those rights under the savings clause.”

Because the CIIPA, the employee handbook, and the code of conduct overlap – and the other two documents did not define “confidentiality” differently – Carissimi found all of them to be facially overbroad and in violation of the NLRA.

He ordered the Red Cross to immediately cease and desist from maintaining the confidentiality provisions, provide all employees with inserts for the rescinded unlawful rules or publish and distribute the documents without the unlawful rules included, and provide notice to employees of the changes, both via postings and electronically.

To read the decision in American Red Cross Blood Services, click here.

Why it matters: The ALJ’s decision is the latest in a line of cases from the Board addressing confidentiality provisions. Last year the Board held, in Banner Health Systems, that a company violated the NLRA by imposing a policy requiring confidentiality from all employees as a matter of course during internal investigations. That decision was followed by an Advice Memorandum from the NLRB’s Office of the General Counsel earlier this year to Verso Paper, which declared that employers may not maintain a blanket rule requiring confidentiality during employee investigations. The language struck down in this decision is relatively common language utilized in the corporate world to protect against unfair competition activities. The takeaway for employers: “confidentiality” is a trigger word for the NLRB and caution should be used when crafting such provisions in any form of employment agreement to keep the coverage as clear and narrow as possible. As the ALJ noted in the Red Cross decision, “the Board has consistently held that broadly defined confidentiality rules prohibiting the dissemination of information similar to the rules involved here” violate Section 8 of the NLRA.

6th Circuit: FLSA Rights Cannot be Waived by Contract

An employee who agreed to a six-month limitations period to bring suits against the company as part of her employment agreement did not waive the three-year statute of limitations under the Fair Labor Standards Act, the 6th U.S. Circuit Court of Appeals recently held, reversing dismissal of the suit.

FedEx employee Margaret Boaz filed suit against the company alleging violations of the FLSA and the Equal Pay Act, seeking overtime compensation and the difference between the amount she was paid and the amount the company paid her male predecessor.

FedEx moved to dismiss, arguing that Boaz’s suit was time-barred. The company relied on a provision in her employment agreement, which stated: “To the extent the law allows an employee to bring legal action against Federal Express Corporation, I agree to bring that complaint within the time prescribed by law or 6 months from the date of the event forming the basis of my lawsuit, whichever expires first.”

Because Boaz received her last allegedly illegal check on June 30, 2008, but did not file suit until April 2009, FedEx argued that her suit was untimely because more than six months had passed. A trial court agreed and granted FedEx’s motion to dismiss.

But the 6th Circuit reversed.

The U.S. Supreme Court has expressed concern about employers circumventing the Act’s requirements by allowing employees to waive their rights, the three-judge panel noted, holding that employees may not prospectively or retrospectively waive their FLSA rights to minimum wages, overtime, or liquidated damages.

Boaz accrued an FLSA claim every time FedEx issued her an allegedly illegal paycheck, and the six-month limitations period imposed by the agreement – if enforced – would operate as a waiver of those rights. Because the Supreme Court has said that an employment agreement cannot operate to deprive employees of such rights, “the six-month limitations period in her employment agreement is invalid,” the court concluded.

FedEx pointed to decisions enforcing employment agreements that allowed employees to shorten the statute of limitations period under other federal statutes, such as Title VII. While discrimination under other statutes is equally invidious, the panel agreed, the Supreme Court has allowed employees to waive their claims under Title VII. In addition, employers who racially discriminate against employees do not gain a competitive advantage, while employers who pay employees less than minimum wage arguably do gain a leg up on competitors. “The Court’s rationale for prohibiting waiver of FLSA claims is therefore not present for Title VII claims,” the court wrote.

The panel also distinguished an employee’s waiver of the judicial forum for an FLSA claim, like a mandatory arbitration clause in an employment agreement. Such a waiver does not eliminate an employee’s rights, the court said, whereas Boaz’s agreement, if enforced, operated as a complete waiver of her FLSA claim.

Similar logic led the court to conclude that claims under the Equal Pay Act – enacted as an amendment to the FLSA in 1963, after the U.S. Supreme Court had already held that employees cannot waive their FLSA claims for unpaid wages and liquidated damages – could also not be waived by an employment agreement.

“[B]y folding the Equal Pay Act into the FLSA, Congress meant for claims under the Equal Pay Act to be unwaivable as well,” the panel said.

To read the 6th Circuit’s decision in Boaz v. FedEx Customer Information Services, Inc., click here

Why it matters: The federal appellate panel based its decision not just on the Supreme Court precedent, but also the rationale that allowing employees to waive their FLSA rights would give those employers a competitive advantage. The 6th Circuit also distinguished the waiver of rights under other federal statutes based upon a 1945 Supreme Court decision. Whether that decision would withstand scrutiny from the Court in 2013 – with a majority of the justices recently affirming an employee’s ability to waive class actions in arbitration – is an open question. A spokesperson for FedEx told Law360 the company plans to “continue to defend the lawsuit.”

Reversing Circuit Precedent, 2nd Circuit Upholds FLSA Collective Action Waiver

Reversing its own precedent, the 2nd U.S. Court of Appeals upheld a class and collective action waiver provision in an arbitration agreement.

The case involved Stephanie Sutherland, an Ernst & Young audit employee who filed a collective action under the Fair Labor Standards Act against her former employer. She charged the company with failing to pay her a total of $1,867.02 in overtime.

When she began to work for the company, Sutherland signed an offer letter and a confidentiality agreement, which included an arbitration provision covering both “[c]laims based on federal statutes such as…the Fair Labor Standards Act,” as well as state law claims concerning wages and salary. In addition, the agreement prohibited class or collective actions. Based on the agreement, E&Y sought to compel individual arbitration.

Sutherland objected. Given the costs to arbitrate her claim individually – she estimated attorneys’ fees of $160,000, costs in excess of $6,000, and expert testimony running at least $25,000 – she would have to spend roughly $200,000 to recover less than $2,000.

A federal court judge agreed that requiring individual arbitration would prevent Sutherland from “effectively vindicating” her rights under state law and the FLSA. The court relied heavily upon a 2nd Circuit case brought by a class of merchants alleging antitrust violations against American Express.

Ernst & Young appealed. In the interim, the American Express case from the 2nd Circuit went up to the U.S. Supreme Court. In June the justices reversed the 2nd Circuit, ruling that plaintiffs could not invalidate a class arbitration waiver under the “effective vindication” doctrine. Even though it would be cost-prohibitive for the class members to bring their claims on an individual basis, the 5 to 3 Court said “the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”

Applying the Italian Colors v. American Express decision to Sutherland’s case, the 2nd Circuit reversed the order denying E&Y’s motion to compel individual arbitration.

The FLSA does not contain a “contrary congressional command” barring waivers of class arbitration, the three-judge panel wrote, citing similar conclusions from the 4th, 5th, and 8th Circuits. The text of the statute does not indicate an intent to preclude such a waiver, the court said, and recent U.S. Supreme Court precedents “inexorably lead to the conclusion that the waiver of collective action claims is permissible in the FLSA context.”

Further, Sutherland could not rely upon the “effective vindication” doctrine. “Despite the obstacles facing the vindication of Sutherland’s claims, the Supreme Court’s recent decision in Italian Colors, which reversed our decision…compels the conclusion that Sutherland’s class action waiver is not rendered invalid by virtue of the fact that her claims are not economically worth pursuing individually,” the 2nd Circuit wrote.

“[I]n light of the Supreme Court’s holding that the ‘effective vindication doctrine’ cannot be used to invalidate class-action waiver provisions in circumstances where the recovery sought is exceeded by the costs of individual arbitration, we are bound to conclude that Sutherland’s arguments are insufficient to invalidate the class-action waiver provision here,” the court concluded.

To read the decision in Sutherland v. Ernst & Young LLP, click here.

Why it matters: The 2nd Circuit’s decision is a resounding victory for employers, affirming the fact that employees can validly waive class or collective arbitration proceedings in employment agreements. It also reinforces the impact of the Supreme Court’s enforcement of class action waivers in the employment setting. While Italian Colors involved antitrust claims, the 2nd Circuit did not hesitate to apply the principles of the decision in the context of an FLSA collective action.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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