Employment Law - Nov 20, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

Third-Party Harassment Costs Employer $30,000

Why it matters: Employers, take note: harassment in the workplace can be committed not just by supervisors and coworkers, but by third parties such as customers, patients, clients, delivery people, or repair workers. The settlement in the Ross case (EEOC v. Southwest Virginia Community Health System) should remind employers that regardless of the source, sexual harassment cannot be tolerated in the workplace – or liability may result.

Detailed Discussion
A $30,000 settlement announced by the Equal Employment Opportunity Commission serves as a reminder to employers that they can be held liable for third-party sexual harassment.

The agency brought suit on behalf of Karen Ross, a female receptionist at Southwest Virginia Community Health System, Inc., alleging that she was sexually harassed by a male patient. Ross repeatedly complained to her supervisor about the patient’s conduct, but no action was taken to stop the sexual harassment, according to the complaint.

As the EEOC noted in its press release, employers are “liable for acts of a non-employee if the employer knew about the conduct and failed to take immediate and appropriate corrective action.”

To settle the charges that it violated Title VII, SVCHS agreed to pay Ross $30,000 and provide her with a letter of reference. In addition, the company promised to refrain from future discrimination or retaliation in violation of Title VII. For a three-year period, SVCHS will report to the EEOC at six-month intervals about any complaints made to the company regarding sexual harassment, with an explanation of the action taken in response.

A revised sexual harassment policy – including a statement that sexual harassment of employees by customers and third parties is prohibited under the SVCHS’s policy and federal law – also must be distributed to current employees and future employees, as well as posted in the workplace, as part of the settlement. Additionally, the company is also required to provide annual training to all employees, including an explanation of Title VII and the rights of employees to be free from third-party sexual harassment.

To read the consent decree in EEOC v. Southwest Virginia Community Health System, Inc., click here.

9th Circuit Strikes Employer’s Arbitration Policy

Why it matters: Employment-based arbitration agreements have faced a great deal of scrutiny from California courts in recent weeks. Last month the California Supreme Court held, among other things, that trial courts should conduct a review of the relevant terms and conditions for unconscionability prior to granting an employer’s motion to compel. In Chavarria v. Ralphs Grocery Store, the Court did just that. It is clearly essential that applicants and employees both receive a complete copy of the arbitration provision or agreement to read before signing off on it. Also, care must be taken to ensure that the selection of the arbitrator follows a wholly neutral process that does not have the impact of unfairly advantaging the employer over the employee. In addition, the distribution of arbitrator-related costs should be carefully considered. California courts in the past have generally required that an employer pay the arbitrator administrative costs if a statutory discrimination claim or statutory public policy claim is involved. Coupled with the Ralphs decision, the message to employers is that the courts are keeping a close eye on arbitration agreements in employment relationships and will not hesitate to continue to strike them down if they are determined to be unfair to employees.

Detailed Discussion
Continuing the recent focus of California courts on arbitration, the Ninth U.S. Circuit Court of Appeals has denied an employer’s motion to compel arbitration in a suit alleging failure to pay for meal breaks and overtime.

The arbitration policy as drafted by Ralphs Grocery Company “shocked the conscience” of the unanimous federal appellate panel, which found the agreement to be both substantively and procedurally unconscionable.

The dispute began when deli clerk Zenia Chavarria filed a putative class action alleging violations of the California Labor Code. Ralphs moved to compel arbitration pursuant to an arbitration policy that all employees agree to when submitting an application for employment. A federal district court refused to enforce the agreement and the 9th Circuit affirmed.

Under California contract law, the three-judge panel found the arbitration agreement to be unconscionable. The policy was procedurally unconscionable because it was presented on a “take it or leave it” basis with no opportunity for Chavarria to negotiate the terms. In fact, she did not even receive a copy of the policy itself until three weeks after she had agreed to be bound by it.

Substantively, the Court determined that several provisions rendered the policy unconscionable. The Company’s arbitration policy required the parties to use a single arbitrator who had to be a retired state or federal judge. (The use of an administrator from organizations like the Judicial Arbitration and Mediation Service (JAMS) and the American Arbitration Association was expressly prohibited.) If the parties were unable to agree on an arbitrator, each side was to propose three arbitrators and then strike one name from the other party’s list alternatively, beginning with the party “who has not demanded arbitration,” until one name remained.

The effect of this provision, according to the 9th Circuit: “Ralphs gets to pick the pool of potential arbitrators every time an employee brings a claim,” because even if an employee files suit in federal court, it must nonetheless serve a demand on Ralphs for arbitration – leaving the employer to select the decision maker.

“Ralphs has not argued that the selection process is fair,” the panel said. “Ralphs simply argues that sometimes the process may work to its disadvantage. But that is no consolation to the individual employee who is disadvantaged in her own and only claim. Forcing her into an arbitration process where Ralphs has an advantage cannot be justified by the possibility that some other employee might someday get the upper hand in that employee’s arbitration against Ralphs.”

Also troubling for the Court was the provision concerning attorneys’ and arbitration fees and costs. Each party was required to pay its own attorneys’ costs, but arbitration fees – including the amount paid to the arbitrator – had to be apportioned evenly at the outset of the arbitration between the parties. Ralphs represented to the district court that the fees for arbitrators qualified under its policy ranged from $7,000 to $14,000 per day. “This cost likely dwarfs the amount of Chavarria’s claims,” the Court noted.

“Ralphs has tilted the scale so far in its favor, both in the circumstances of entering the agreement and its substantive terms, that it ‘shocks the conscience,’” in violation of California law, the panel concluded.

Further, the Federal Arbitration Act (FAA) did not preempt California’s unconscionability doctrine. “In this case, California’s procedural unconscionability rules do not disproportionately affect arbitration agreements, for they focus on the parties and the circumstances of the agreement and apply equally to the formation of all contracts,” the Court said.

As for the substantive considerations, the panel held that the U.S. Supreme Court’s most recent declaration on arbitration in American Express Corp. v. Italian Colors Restaurant did not preclude it from considering the cost that Ralphs’ arbitration agreement imposed on employees. In that case, the Justices declined to invalidate a contractual waiver of class arbitration, even though it would be cost-prohibitive for the plaintiffs to bring their claims on an individual basis.

“The Court explicitly noted that the result might be different if an arbitration provision required a plaintiff to pay ‘filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable.’ Ralphs’ arbitration policy presents exactly that situation. In this case, administrative and filing costs, even disregarding the cost to prove the merits, effectively foreclose pursuit of the claim. Ralphs has constructed an arbitration system that imposes non-recoverable costs on employees just to get in the door,” the panel wrote.

“The Supreme Court’s holding that the FAA preempts state laws having a ‘disproportionate impact’ on arbitration cannot be read to immunize all arbitration agreements from invalidation no matter how unconscionable they may be, so long as they invoke the shield of arbitration. If state law could not require some level of fairness in an arbitration agreement, there would be nothing to stop an employer from imposing an arbitration clause that, for example, made its own president the arbitrator of all claims brought by its employees. Federal law favoring arbitration is not a license to tilt the arbitration process in favor of the party with more bargaining power.”

To read the opinion in Chavarria v. Ralphs Grocery Store, click here.

California Appellate Court: Employer Can Be Liable for Associational Disability Discrimination

Why it matters: While breaking new ground in the hotly contested area of disability discrimination, the Rope v. Auto-Chlor System of Washington court attempted to limit the case’s holding to its “unusual” facts. “Our holding should not be interpreted as a siren song for plaintiffs who, fearing termination, endeavor to prepare spurious cases by talking up their relationships at work to a person with a disability; such relationships do not, by themselves, give rise to a claim of discrimination,” the panel explained. Obviously, there must be appropriate evidence developed proving the necessary association with a disabled person and some sort of discriminatory motive linked directly to this association. Employers should be alert to this possible new theory of potential liability in the disability discrimination arena and ensure that the necessary careful analysis is performed before adverse actions are taken.

Detailed Discussion
In the first decision addressing a claim of associational disability discrimination, the California Court of Appeal ruled that an employer could be liable under the California Fair Employment and Housing Act (FEHA) in a suit brought by an employee who requested time off to donate a kidney to his sister.

When Scott Rope was hired by Auto-Chlor System as a branch manager, he informed his supervisors that he intended to take time off to donate a kidney to his sister in the coming months. At some point, Rope became aware of a new law, the Michelle Maykin Memorial Donation Protection Act (DPA), which entitles donors to 30 days of paid leave.

Rope repeatedly requested the paid time from his employer but got no response. Two days before the DPA was set to take effect, Rope was terminated. He filed suit alleging that he was fired by Auto-Chlor in an attempt to avoid having to pay his time off in violation of several state laws.

The appellate court affirmed dismissal of Rope’s claim under the DPA, ruling that it was not in effect when he was terminated and that the statute does not apply retroactively. “The 2010 enactment of the DPA substantively changed, rather than merely clarified, prior law,” the panel wrote. “Retroactive application of the DPA impermissibly would impose liability for an action that was lawful when taken.”

The employee’s claims under the Labor Code and the Private Attorneys General Act similarly failed, as did a claim for retaliation under the FEHA. The court concluded that repeated requests for an accommodation, without more, do not constitute protected activity sufficient to support such a claim.

However, the court reversed dismissal of claims for associational discrimination and failure to maintain an environment free from discrimination under the FEHA, as well as a common law claim for wrongful termination in violation of public policy.

Liberally construing the FEHA, which prohibits discrimination on the basis of physical disability, including “a perception that the person has any of those characteristics or that the person is associated with a person who has, or is perceived to have, any of those characteristics,” the court found that Rope made out a prima facie case. Lacking guidance from California case law, the court turned to a decision from the Seventh U.S. Circuit Court of Appeals in an associational disability discrimination case under the Americans with Disabilities Act (ADA), Larimer v. International Business Machines Corp., 370 F.3d 698 (7th Cir. 2004).

Larimer delineated three categories of associational discrimination claims, including “expense,” which the Seventh Circuit illustrated with an example of an employer who fires an employee where his spouse has a disability that is costly to the employer because the spouse is covered by the company’s health plan.

“While Rope’s claim does not fit neatly within Larimer’s narrow description of that category, Larimer provided an ‘illustrative,’ rather than an exhaustive, list of the kind of circumstances which might trigger a claim of associational discrimination,” the panel wrote. “Moreover, and more importantly, Larimer was decided under the ADA, and the provisions of FEHA are broadly construed and afford employees more protection than the ADA.”

Based on the facts alleged by Rope, the “reasonable inference is that Auto-Chlor acted preemptively to avoid an expense stemming from Rope’s association with his physically disabled sister,” the court concluded, adding that “FEHA’s policy prohibiting disability discrimination in employment is sufficiently substantial and fundamental to support a claim for wrongful termination in violation of public policy.”

To read the decision in Rope v. Auto-Chlor System of Washington, click here.

Senate Passes ENDA, Bill Faces Uphill Road to Passage in House

Why it matters: Although the chances of ENDA becoming law are slim, the Senate’s passage of the bill is notable. Similar legislation extending workplace protections under Title VII, the Americans with Disabilities Act, and the Age Discrimination in Employment Act to LGBT employees has been introduced in every congressional session since 1994 (with one exception). The Senate’s efforts also reflect a growing recognition of legal rights for LGBT individuals. Seventeen states and the District of Columbia already have laws prohibiting discrimination based on sexual orientation and gender identity. If ENDA does become law – President Obama has publicly expressed his support for the legislation – employers will need to update their policies and training accordingly.

Detailed Discussion
By a vote of 64 to 32, the U.S. Senate passed the Employment Non-Discrimination Act (ENDA) last week with bipartisan support.

ENDA would prohibit discrimination by employers with 15 or more employees based on sexual orientation or gender identity, preventing adverse employment actions against employees who are – or are perceived to be – gay, lesbian, bisexual, or transgender.

Senate Bill 815 would also outlaw retaliation for such employees who engage in protected activity related to LGBT status or gender identity, which is defined as “gender-related identity, appearance, or mannerisms or other gender-related characteristics of an individual, with or without regard to the individual’s designated sex at birth.”

ENDA contains exceptions for religious organizations and any other corporation, association, society, or educational institution or institution of learning that is exempt from the religious discrimination provisions of Title VII. If enacted, the bill would not require employers to add new facilities such as restrooms or locker rooms.

Employers would not be restricted from establishing reasonable dress policies or grooming requirements, but transgender employees must be allowed to follow the standards for the gender to which he or she is currently transitioning or has transitioned into.

Earlier versions of the bill permitted LGBT employees to make disparate impact claims (i.e., claims where no actual discriminatory intent would be needed; rather, even neutral policies could be attacked if their impact weighed more heavily on a protected individual). But that provision was removed in the version passed by the Senate and sent to the House of Representatives. Instead, claims under ENDA are explicitly limited to disparate treatment claims, and plaintiffs are limited to a single recovery, with damages available under either ENDA or Title VII but not both.

The bill now moves to the Republican-controlled House, where it faces an uphill road to passage. Speaker of the House John Boehner (R-Ohio) has publicly opposed the legislation, and some have predicted the law won’t even come up for a vote.

To read S. 815, click here.

Father’s Parental Leave Discrimination Suit Makes Headlines

Why it matters: Many employers may not have updated their parental leave policies in recent years, during which time men have increasingly taken on caregiver responsibility. CNN reporter Josh Levs’ EEOC charge and the rising numbers of gender discrimination lawsuits filed by men present an area of concern for employers. Pursuant to EEOC regulations, women may be granted leave for medical issues related to pregnancy and childbirth. However, to “avoid a potential Title VII violation, employers should carefully distinguish between pregnancy-related leave and other forms of leave, ensuring that any leave specifically provided to women alone is limited to the period that women are incapacitated by pregnancy and childbirth,” according to the agency’s guidance.

Detailed Discussion
Does a parental leave policy giving substantially more time off to women who give birth, as well as adoptive mothers and fathers, discriminate against birth fathers? A biological father says yes.

CNN reporter Josh Levs filed a discrimination charge with the Equal Employment Opportunity Commission against Time Warner, alleging the company’s policy of granting 10 weeks of paid time off to adoptive parents and women who give birth while allowing biological fathers just 2 weeks of paid time is illegal.

On his blog, Levs wrote that he tried using internal channels to get Time Warner to change its policy, to no avail. “Under Time Warner rules, I have only two choices: stay out for 10 weeks without pay, or return to work and hire someone to come to our home each day. Neither is financially tenable, and the fact that only biological dads face this choice at this point in a newborn’s life is ludicrous,” he wrote.

Levs’ suit made headlines in part because it demonstrates a rising trend: gender discrimination lawsuits filed by men. According to statistics from the EEOC, such claims increased from 16.2 percent in fiscal year 2010 to 17.8 percent in 2012.

“When you’re dealing with paternity leave policies, the current thinking is that there needs to be equity between what you give a father and a mother,” Levs’ attorney A. Lee Parks said in a statement. “There can be some disparity, but the disparity here is too great. Giving a mother 10 weeks and a father two weeks is gender-based and violates Title VII.”

Another of Levs’ attorneys said that Time Warner claimed it treated biological fathers differently than mothers due to the medical disability associated with childbirth. But “the rationale does not square with the 10 weeks given to adoptive parents who require no medical recovery time,” Andrew Coffman said.

As noted on Levs’ blog, the policy could result in some unusual circumstances. For example, if Levs was one half of a female same-sex couple and his wife gave birth, he would have to adopt the child to be a co-parent. In that situation, he would get 10 paid weeks off. Or if he gave up his child for adoption and a colleague at Time Warner adopted her, that father would receive 10 weeks off, paid.

“I look into my daughter’s beautiful new eyes and know where I need to be,” Levs wrote. “It’s a feeling many other dads know. And it’s heartbreaking to think that I could lose this critical bonding time with her.”

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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