Employment Law - September 2015

by Manatt, Phelps & Phillips, LLP
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In This Issue:

  • From The California Legislature: New Employment Laws, Bills Set for Signature
  • Start Your Engines: California Court Certifies Class of Uber Drivers
  • Employer's "Full Release" of Limitations Requirement Proves Costly in EEOC Action
  • Paid Suspension Doesn't Constitute Adverse Employment Action Under Title VII
  • SEC: It Doesn't Matter Where You Blow the Whistle

From the California Legislature: New Employment Laws, Bills Set for Signature

Why it matters

The California Legislature has been busy with employment-related bills, passing measures to provide additional protections under the Fair Employment and Housing Act and removing the term "alien" from the state Labor Code. Governor Jerry Brown has already signed both into law. Other bills were passed by lawmakers and are currently being considered by the Governor, including a measure that would limit employers' ability to mandate arbitration as well as a proposal that would prohibit unequal pay based on gender and ban retaliation against workers who discuss or ask about wages. One measure that did not see any movement: Senate Bill 3, which would have bumped the state's minimum wage up again, this time to $13 by 2017. The bills signed into law are set to take effect January 1, 2016, and employers should keep a close eye on the legislation still waiting for a signature, as the proposals could have a significant impact on employment practices.

Detailed discussion

California legislators have had employment on their minds. Below are a few of the new laws and pending bills relevant to employers in the state.

  • In August Governor Jerry Brown signed into law amendments to the Fair Employment and Housing Act (FEHA) that will provide protection for employees who make a request for an accommodation for a disability or religion. Assembly Bill 987 was initiated in reaction to Rope v. Auto-Chlor System of Washington, Inc., a 2013 decision from a California appellate panel. In that case the employee requested a leave of absence to donate a kidney to his sister five months prior to the surgery. Two months before the surgery the employee was terminated. He sued for associational disability discrimination under FEHA, but the appellate panel affirmed dismissal of his suit, holding that "a mere request—or even repeated requests—for an accommodation, without more" does not constitute protected activity sufficient to support a claim for retaliation in violation of FEHA. AB 987 amended the statute to establish that "[a] request for reasonable accommodation based on religion or disability constitutes protected activity … such that when a person makes such a request, he or she is protected against retaliation for making the request." The changes to FEHA will take effect January 1, 2016.
  • A second new law, also set to take effect January 1, 2016, will remove the term "alien" from the state Labor Code. Sen. Tony Mendoza (D-Artesia), who proposed Senate Bill 432, said the term was derogatory as applied to foreign-born workers. "California is among the top destination states for immigrants in the United States," the lawmaker said in a statement. "Given the abundant evidence of their many contributions, it is imperative that any derogative references to foreign-born individuals be repealed from state law." Pursuant to the new law, the term will be deleted from the state Code.
  • Bringing the battle over arbitration agreements in the employment context to the Legislature, lawmakers passed a controversial new measure earlier this month. Assembly Bill 465 would effectively ban mandatory agreements to arbitrate employment disputes in the state. While employee groups have voiced support for the proposal, the California Chamber of Commerce has dubbed it a "job killer," cautioning that it would clog the courts and lead to more employment litigation, as well as likely be preempted by the Federal Arbitration Act. The Senate passed the bill in a 22-to-15 vote and the Assembly followed by a vote of 45 to 30. Gov. Brown has until October 11 to sign it into law. If he does, any arbitration agreement entered into, revised, extended, or renewed on or after January 1, 2016 would need to include a statement that the agreement is not mandatory and that signing is not a condition of employment.
  • A second measure awaiting the Governor's signature is Senate Bill 358, the California Fair Pay Act. The legislation would prohibit employers from paying employees of one sex at a rate less than the rate paid to employees of the opposite sex "for substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions." In addition, the bill protects workers who discuss or ask about wages from retaliation. Gov. Brown has indicated that he intends to sign the measure, which would take effect January 1, 2016. Sponsor Sen. Hannah-Beth Jackson (D-Santa Barbara) called the bill a "template for other states to follow" and the strongest equal-pay law in the country.
  • One proposed law that didn't pass: Senate Bill 3, a piece of legislation that would increase the state's minimum wage to reach $13 by July 1, 2017, with annual cost-of-living increases beginning in 2019. Currently the state's minimum wage is $9 per hour, with a raise to $10 starting January 1, 2016 as a result of legislation enacted in 2013. SB 3 would have tweaked the schedule to jump to $11 on January 1, 2016 instead, with a further increase to $13 on July 1, 2017. The Assembly's Appropriations Committee held the bill instead of pushing it through the Legislature, however.

To read AB 987, click here.

To read SB 432, click here.

To read AB 465, click here.

To read SB 358, click here.

To read SB 3, click here.

Start Your Engines: California Court Certifies Class of Uber Drivers

Why it matters

A California federal court certified a class of Uber drivers, alleging they are employees and not independent contractors of the ride-sharing company. Uber contested the certification motion by arguing that the drivers failed to satisfy the requirements of Federal Rule of Civil Procedure 23, but the court disagreed. Although Uber emphasized factual differences between the drivers—how long they drove for Uber and whether they worked for other ride-sharing companies, for example—the legal question was the same for all the plaintiffs: "At bottom, it appears that common questions will substantially predominate over individual inquiries with respect to class members' proper employment classification," the court said. "The case will now proceed to trial."

Detailed discussion

Ride-sharing company Uber Technologies has grown to become a household name, but there is a hotly contested issue: whether Uber misclassified its drivers as independent contractors instead of employees. Several California drivers filed a putative class action alleging their misclassification entitled them to reimbursement for "all necessary expenditures or losses incurred … in direct consequence of the discharge" of their duties, as well as for the entire amount of any tips or gratuities "paid, given to, or left" by a patron.

The plaintiffs moved to certify a class of approximately 160,000 Uber drivers. Uber objected, arguing that the issue of employment classification could not be adjudicated on a classwide basis. The company's right of control over its drivers, as well as the daily realities of its relationships with them, were not sufficiently uniform across the class to satisfy the requirements of Federal Rule of Civil Procedure 23, Uber told the court.

But U.S. District Court Judge Edward M. Chen noted an inherent tension in the defendant's argument: "On one hand, Uber argues that it has properly classified every single driver as an independent contractor; on the other, Uber argues that the individual issues with respect to each driver's 'unique' relationship with Uber so predominate that this Court (unlike, apparently, Uber itself) cannot make a classwide determination of its drivers' proper job classification."

The court rejected Uber's position, ruling that a question of law common to class members predominated—whether or not the drivers should be classified as employees or independent contractors.

Analyzing the Rule 23(a)(1) factors, Judge Chen found the class to be objectively ascertainable from Uber's business records and, given the estimate of 160,000 individuals involved, easily satisfied the numerosity requirement. As for commonality, Judge Chen found "numerous legally significant questions" that will have answers common to each class member.

Finally, the court found the typicality and adequacy requirements were met despite Uber's contention that there is "no typical Uber driver," as the named plaintiffs' legal claims all arose from essentially the same conduct underlying the claims of fellow class members. Judge Chen was not persuaded by 400 affidavits submitted by Uber from drivers that hailed the company as a "liberator" from traditional employment. The company failed to establish these views were of a representative sample of the driver population, the court said, and constituted a small fraction of Uber's California drivers, just 0.25 percent.

However, the court found the plaintiffs had not demonstrated they were adequate class representatives with respect to their expense reimbursement claim, as there could be substantial variance as to what kind of expenses were even incurred by the putative employees in the first place.

The court then turned to the requirements of Rule 23(b). Analyzing predominance, Judge Chen applied the common-law test of employee or independent contractor from the California Supreme Court's 1989 decision in S.G. Borello & Sons, Inc. v. Department of Industrial Relations. That decision set forth several indicia of an employment relationship with the most significant factor being the putative employer's right to control work details.

While Uber argued that it does not control any of the drivers' schedules, permitting them to work as much or little as they want, "the fact that Uber admits that it exercises a uniform amount of control over its drivers' work schedules (i.e., none), benefits Plaintiffs at the class certification stage because it proves that this factor can be adjudicated on a classwide basis," the court explained. Uber unilaterally sets drivers' pay and similarly acknowledged that it retains the same right of control over all drivers with respect to their ability to work for other companies and the routes drivers take—again, none.

"At bottom, it appears that common questions will substantially predominate over individual inquiries with respect to class members' proper employment classification under the Borello test," the court wrote. "Indeed, every (or nearly every) consideration under the California common-law test of employment can be adjudicated with common proof on a classwide basis. Some may favor Plaintiffs' position on the merits, while others support Uber's. But all favor certification."

For similar reasons, the court found that the claim for withheld or converted tips was susceptible to classwide arbitration as the relevant legal questions under the state's Labor Code—did Uber "take, or receive any gratuity" from its riders? And if so, has Uber "paid" or "given" the full amount of those tips to its drivers?—could be answered by common proof.

To read the order in O'Connor v. Uber Technologies, click here.

Employer's "Full Release" of Limitations Requirement Proves Costly in EEOC Action

Why it matters

A requirement that an employee be "fully released" from limitations before returning to work from Family and Medical Leave Act (FMLA) leave cost one employer more than $100,000 after being investigated by the Equal Employment Opportunity Commission (EEOC). When Bernadine Adams went on FMLA leave due to her fibromyalgia, Brookdale Senior Living Center required that she be "fully released" by her doctor from any restrictions or accommodations before she returned to work. Brookdale eventually terminated Adams due to a breakdown in the accommodation process. The EEOC filed suit on behalf of the employee, alleging that the "fully released" requirement violated the Americans with Disabilities Act (ADA). To settle the charges, Brookdale agreed to pay Adams $112,500 as back pay and compensatory damages; the company also promised to provide additional training to its employees and managers on the ADA and report any new complaints of disability discrimination or retaliation to the agency. The agency said the case provided an important lesson for employers, who should "know that imposing a requirement that employees be without any restrictions whatsoever in order to return to work is a recipe for disaster," as EEOC Regional Attorney Mary Jo O'Neill said in a statement.

Detailed discussion

Bernadine Adams began working for Brookdale Senior Living Communities in 2009 as a full-time licensed practical nurse at a facility in Denver, Colorado. She was promoted the following year to Health and Wellness Director.

But in July 2011, Adams was diagnosed with fibromyalgia and presented her employer with a letter from her doctor. Her condition substantially limited her in several major life activities, including walking, sitting, sleeping, the ability to care for herself, thinking, and concentrating.

Adams took a few days off work due to her fibromyalgia and then went on Family and Medical Leave Act (FMLA) leave until January 2012. At that point, she returned to work without restrictions but with intermittent FMLA leave orders, if needed. Just two days later, her fibromyalgia flared up and her doctor recommended that she work from home on a half-time basis.

A series of meetings followed between Adams, human resources, and executives at Brookdale in an attempt to work out an accommodation. Adams sought an ergonomic chair, a workplace lighting adjustment, and a flexible work schedule. At the end of January, the employer placed Adams on full FMLA leave until she was "fully released" by her doctor to work without restrictions and accommodations. Adams responded by filing a complaint with the Equal Employment Opportunity Commission (EEOC) alleging violations of the Americans with Disabilities Act (ADA).

The parties continued to communicate, but in late March, Adams notified Brookdale that she was still not able to return to work without restrictions or accommodations. She was terminated on March 28, 2012, by letter stating that she "failed to engage in the interactive process within reasonable terms."

In September 2014, the EEOC filed suit on Adams' behalf against Brookdale with two claims for relief: discrimination by failing to accommodate and retaliation in violation of the ADA. "By not allowing Ms. Adams to return to work until she could return full-time with no restrictions or need for accommodations," the employer intentionally ran afoul of the statute, the agency said.

Brookdale reached a deal with the EEOC, agreeing to pay Adams $112,500. The employer also consented to provide training to all employees and district managers on the requirements of the ADA, including the need to provide reasonable accommodations to qualified individuals, and will report to the EEOC if any further complaints of disability discrimination or retaliation are made.

To read the complaint in EEOC v. Brookdale Senior Living Communities, Inc., click here.

To read the consent decree, click here.

Paid Suspension Doesn't Constitute Adverse Employment Action Under Title VII

Why it matters

In a victory for the employer, the Third Circuit Court of Appeals recently concluded that a paid suspension does not "typically" constitute an adverse employment action under Title VII. The case involved an employee suspended with pay while her employer investigated claims that she had submitted fraudulent timesheets. When the investigation determined she had forged the records, the employee was terminated. She then filed suit alleging discrimination and retaliation in violation of Title VII. A federal district court granted summary judgment for the employer and the federal appellate panel affirmed. The employee failed to establish that she was the subject of an adverse employment action as required by the statute because the suspension was not a refusal to hire or a termination, nor did it change her compensation or alter the terms, conditions, or privileges of employment, the panel wrote. Since the issue was a matter of first impression, the court looked to other circuits and joined the chorus of the Second, Fourth, Fifth, Sixth, and Eighth Circuits, which have reached a similar decision.

Detailed discussion

Does a suspension with pay constitute an "adverse employment action" under the discrimination provision of Title VII? The Third Circuit Court of Appeals answered in the negative in a case brought by Michelle Jones.

Jones had worked as an administrative assistant for the Southeastern Pennsylvania Transportation Authority, or SEPTA, for nine years when she was suspended with pay by her supervisor because of apparent fraud in her timesheets. While on suspension, Jones filed a claim alleging that her supervisor had sexually harassed and retaliated against her.

When an extensive investigation concluded that Jones collected pay for days she hadn't worked by submitting fraudulent timesheets, SEPTA suspended her without pay and then formally terminated her. The company also completed its investigation into Jones' allegations of sexual harassment, finding that the supervisor engaged in inappropriate behavior by once asking Jones to step on his back to relieve spinal pain. He was required to attend a training session and his lapse in judgment was noted in his performance review.

Jones then filed suit against SEPTA alleging discrimination and retaliation in violation of Title VII. A federal district court judge granted the employer's motion to dismiss and the Third Circuit Court of Appeals affirmed.

"We have described an adverse employment action 'as an action by an employer that is serious and tangible enough to alter an employee's compensation, terms, conditions, or privileges of employment,' " the panel wrote, based on the language found in Title VII.

"A paid suspension pending an investigation of an employee's alleged wrongdoing does not fall under any of the forms of adverse action mentioned by Title VII's substantive provision," the court said. "A paid suspension is neither a refusal to hire nor a termination, and by design it does not change compensation. Nor does it effect a 'serious and tangible' alteration of the 'terms, conditions, or privileges of employment,' because 'the terms and conditions of employment ordinarily include the possibility that an employee will be subject to an employer's disciplinary policies in appropriate circumstances.' "

Without more, a suspension with pay "is not an adverse employment action under the substantive provision of Title VII," the panel wrote, joining other federal circuits that have reached similar conclusions, including the Second, Fourth, Fifth, Sixth, and Eighth Circuits.

Applying this legal standard, "we readily agree with the District Court that Jones's suspension with pay did not constitute an adverse employment action," the court said. "Having failed to marshal evidence that her suspension with pay was atypical in any way, Jones's argument fails."

Further, the record was "devoid" of evidence to support the assertion that her suspension and termination were products of discrimination instead of the natural result of SEPTA's investigation into allegations of timesheet fraud, the panel added.

As for Jones' claim that SEPTA's decisions to suspend her without pay and then terminate her were acts of retaliation, the court said she lacked a causal connection or evidence that her complaints of harassment caused SEPTA to discharge her. The court noted that it did not consider or decide whether a paid suspension constitutes an adverse action in the retaliation context.

To read the opinion in Jones v. Southeastern Pennsylvania Transportation Authority, click here.

SEC: It Doesn't Matter Where You Blow the Whistle

Why it matters

In a new rule interpretation, the Securities and Exchange Commission (SEC) declared that whistleblowers that report allegedly unlawful activity internally are entitled to the same protections as those who report to the agency. Likely triggered by a decision from the Fifth Circuit Court of Appeals reaching the opposite conclusion, the agency acknowledged that the rules relating to whistleblower protections can be confusing. "Although we appreciate that if read in isolation Rule 21F-9(a) could be construed to require that an individual must report to the Commission before he or she will qualify … that construction is not consistent with Rule 21F-2 and would undermine our overall goals in implementing the whistleblower program," the agency wrote. In the Fifth Circuit case, Khaled Asadi contended that although he never reported his company to the SEC, he was protected by a Dodd-Frank Wall Street Reform and Consumer Protection Act provision for those who make "required or protected" disclosures under SOX. The panel disagreed in Asadi v. GE Energy. In what appears to be an attempt to limit the Fifth Circuit's decision from spreading to other jurisdictions, the SEC issued the new interpretation to make its position clear: whistleblowers who report alleged wrongdoing internally or to agencies other than the SEC are still entitled to anti-retaliation protections.

Detailed discussion

The SEC wants to make something very clear: a whistleblower is still protected by the anti-retaliation provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act no matter where he or she first reports alleged wrongdoing.

"[F]or purposes of the employment retaliation protections provided by Section 21F of the Securities Exchange Act of 1934, an individual's status as a whistleblower does not depend on adherence to the reporting procedures specified in Exchange Act Rule 21F-9(a), but is determined solely by the terms of Exchange Act Rule 21F-2(b)(1)," according to the agency's new rule interpretation. "[A]n individual may qualify as a whistleblower for purposes of Section 21F's employment retaliation protections irrespective of whether he or she has adhered to the reporting procedures specified in Rule 21F-9(a). Rule 21F-2(b)(1) alone governs the procedures that an individual must follow to qualify as a whistleblower eligible for Section 21F's employment retaliation protections."

The problem arose because of the two-pronged definition of "whistleblower" found in the Dodd-Frank Act. The statute amended the Exchange Act with the addition of Section 21F, which established a series of new incentives and protections for individuals to report possible violations of the federal securities laws.

Lawmakers utilized a broad catchall provision at Section 21F(h)(1)(A) prohibiting an employer from (among other things) retaliating against a whistleblower for "making disclosures that are required or protected under" the Sarbanes-Oxley Act, the Exchange Act, or other laws, rules, or regulations of the Commission. But the statute also defined a whistleblower in Section 21F(a)(6) as "any individual who provides … information relating to a violation of the securities law to the Commission," leading some to argue that the anti-retaliation protections were limited to those whistleblowers who reported to the SEC.

The SEC promulgated two separate definitions of whistleblower in its rules to implement the program, each with its own specified reporting procedures. First, Rule 21F-2(a) provides that an individual is a whistleblower "if, alone or jointly with others, [the individual] provide[s] the Commission with information pursuant to the procedures in [Rule] 21F-9(a)." This definition applies only to the award and confidentiality provisions of Section 21F, the SEC said.

Found in Rule 21F-2(b)(1), the second definition specifies that "[f]or purposes of the anti-retaliation protections afforded by Section 21F(h)(1) of the Exchange Act … [an individual is] a whistleblower if … [the individual] provide[d] that information in a manner described in 21F(h)(1)(A) of the Exchange Act." This definition does not require reporting in accordance with Rule 21F-9(a)'s procedures.

Since adoption of these rules, the agency has "consistently" understood Rule 21F-9(a) as "a procedural rule that applies only to help determine an individual's status as a whistleblower for purposes of Section 21F's award and confidentiality provisions," the SEC wrote. "Similarly, it has been our consistent view that Rule 21F-2(b)(1) alone controls the reporting methods that will qualify an individual as a whistleblower for the retaliation protections."

However, the Fifth Circuit Court of Appeals reached a contrary decision, dismissing a suit brought by Khaled Asadi against GE Energy. Asadi believed he had uncovered company conduct that violated the Foreign Corrupt Practices Act and reported the issue to his supervisor and the GE ombudsperson. But according to Asadi, he then received a "surprisingly negative" performance review and received pressure to step down from his position. He was terminated one year later.

Asadi filed suit pursuant to the whistleblower protection provision of Dodd-Frank, and GE moved to dismiss the suit. Because Asadi did not report his concerns to the SEC, he did not meet the statutory definition of a "whistleblower," the company argued. The Fifth Circuit agreed.

"[T]he plain language of the Dodd-Frank whistleblower-protection provision creates a private cause of action only for individuals who provide information relating to a violation of the securities laws to the SEC," the three-judge panel wrote. "Because Asadi failed to do so, his whistleblower-protection claim fails."

In response, the SEC sought to make its position even more clear with the new rule interpretation. "Although we appreciate that if read in isolation Rule 21F-9(a) could be construed to require that an individual must report to the Commission before he or she will qualify as a whistleblower eligible for the employment retaliation protections provided by Section 21F, that construction is not consistent with Rule 21F-2 and would undermine our overall goals in implementing the whistleblower program."

Rule 21F-2(b)(1) makes clear that an individual is entitled to the anti-retaliation protections whenever he or she makes any of the broader array of disclosures specified in Section 21F(h)(1)(A), the agency wrote, and the existence of separate procedures to recover an award demonstrates that the availability of employment retaliation protection is not conditioned on adherence to the Rule 21F-9(a) procedures.

Most importantly, "our interpretation best comports with our overall goals in implementing the whistleblower program," the SEC explained. "Specifically, by providing employment retaliation protections for individuals who report internally first to a supervisor, compliance official, or other person working for the company that has authority to investigate, discover, or terminate misconduct, our interpretive rule avoids a two-tiered structure of employment retaliation protection that might discourage some individuals from first reporting internally in appropriate circumstances and, thus, jeopardize the investor-protection and law-enforcement benefits that can result from internal reporting."

Providing equivalent employment retaliation protection for all types of reporting removes a potentially serious disincentive to internal reporting, the agency said, and an individual who reports internally and suffers employment retaliation should be no less protected than an individual who comes immediately to the Commission.

To read the Fifth Circuit's opinion in Asadi v. GE Energy, click here.

To read the SEC's rule interpretation, click here.

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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