What is the Going and Coming Rule in California?

In the recent Second Appellate District decision in Chang v. Southern California Permanente Medical Group, Plaintiff Kai-Lin Chang appealed from a grant of summary judgment in favor of defendant and respondent Southern California Permanente Medical Group (SCPMG).

Chang sued SCPMG over a vehicular accident allegedly caused by SCPMG employee Brittany A. Doremus while she was driving to work in the morning.

The trial court ruled SCPMG was entitled to summary judgment under the “going and coming rule,” which exempts employers from liability for employee torts committed while commuting to and from work.

On appeal, Chang contended the trial court erred in granting summary judgment because SCPMG failed to offer admissible evidence negating the possibility Doremus was talking or texting with coworkers on her employer-issued cell phone at the time of the accident.

Alternatively, Chang argued the going and coming rule should not apply because SCPMG allowed Doremus to work from home as well as at her office, and thus she was not commuting but traveling between job sites.

It was not SCPMG’s burden to negate all possibility Doremus was working at the time of the accident. It was sufficient that SCPMG made a prima facie showing Doremus was not working, a burden SCPMG met through Doremus’s deposition testimony.

The burden then shifted to Chang to provide contradictory evidence demonstrating a triable issue.

Chang did not meet this burden.

The appellate court disagreed that Doremus sometimes working from home converted her home to a second worksite for all purposes. Her uncontradicted testimony established that on Mondays, the day of the week the accident occurred, she did not work from home but at her office.

Thus, at the time of the accident, she was engaged in an ordinary morning commute, not transitioning between worksites.

Chang filed a complaint for negligence against Doremus and SCPMG that alleged that on Monday, September 12, 2022, at approximately 8:40 a.m., Chang was riding his bicycle on Victory Boulevard in West Hills.

As Chang turned onto Valley Circle, Doremus suddenly made a left turn in her vehicle, crossing directly into Chang’s path. Chang collided with Doremus’s vehicle, suffering injuries requiring hospitalization.

The complaint alleged Doremus was operating her vehicle in the course of her employment at the time of the accident, and therefore SCPMG was liable under the principle of respondeat superior.

SCPMG moved for summary judgment, contending Doremus was commuting to work at the time of the accident, and therefore, under the “going and coming rule,” was not acting within the course and scope of her employment.

SCPMG argued it therefore was not liable for Doremus’s alleged tort.

In support, SCPMG offered excerpts from Doremus’s deposition transcript. Doremus testified she was a palliative care doctor employed by SCPMG at the Woodland Hills Medical Center of Southern California. On Mondays and Tuesdays she worked in her office at the medical center. SCPMG permitted her to work from home half of the day on Wednesdays. Thursdays and Fridays she worked with patients at the medical center’s hospital.

When she was on call on nights or weekends, she would work from home.

Doremus testified that on the day of the accident, she left home around 8:30 a.m. to drive to her office at the medical center.

At the moment of the accident, she was turning into a shopping center’s parking lot to drop off her children’s Halloween costumes at a dry cleaner. This was a personal errand unrelated to her work.

Following the accident, she called 911, then sent a group text message to the nurse and social worker she worked with telling them she had been in an accident and requesting that they cancel her appointments for the day.

Doremus did not recall participating in any telephone calls the morning of September 12 before the accident. She testified she was not doing anything work-related at the time of the accident. 

The vehicle she was driving was a personal vehicle unrelated to her employment, and SCPMG never directed her to use the vehicle as opposed to another mode of transportation.

In further support of its summary judgment motion, SCPMG provided a text message log from Doremus’s wireless carrier covering activity between 8:30 and 9:30 a.m. on the day of the accident. The log indicated no text messages between 8:30 and 8:44 a.m. Between 8:44:17 and 8:44:55, Doremus sent or received 11 text messages, although the timestamps suggest that number might double-count single messages sent to multiple recipients.

Between 8:45:01 and 9:21:52 she sent or received another 30 text messages, some of which again might be double- counts of group texts. SCPMG provided a screenshot of a text chain of eight messages beginning at 8:44 in which Doremus informed her coworkers she was in an accident and would not be coming in. 

SCPMG also provided a call log for Doremus’s cellular phone. The log lists a call to 911 at 7:39:42 AM on September 12, 2022, followed by an incoming call from her husband at 8:44:14 and a series of calls from Doremus to her husband from 9:10:30 to 9:32:30.

Doremus testified after her husband called her, she had to call him back several times because the cellular reception was poor.

Chang opposed the summary judgment motion, arguing there was evidence Doremus was texting with coworkers “mere seconds before the collision,” and thus there was a triable issue whether Doremus was acting within the scope of her employment at the time of the accident.

Chang offered what he identified as a “template” of Doremus’s work schedule, which listed on several mornings at 8:30 a.m. a “Team Patient Conference,” including the morning of September 12.

In a footnote, Chang distinguished the “template” of Doremus’s schedule from Doremus’s “actual work schedule”; the latter would include patient names and summaries of their conditions.

Chang complained that SCPMG had never produced the “actual schedule” despite Chang’s discovery requests. Chang nonetheless contended the template created a triable issue whether Doremus was participating in a “Team Patient Conference” at the time of the accident.

Chang also pointed to the text message log indicating the “flurry” of texts between Doremus and her coworkers at 8:44 a.m., which Chang argued raised questions about whether Doremus was texting with coworkers before the accident.

In further support, Chang contended the evidence indicated Doremus could perform her work remotely. Chang interpreted Doremus’s employment agreement, which Chang provided as an exhibit, to not limit her to particular work hours, and to “financially incentivize[ ] her . . . to work more than the ‘full-time schedule.’ ”

The agreement also did not restrict where Doremus could work, and Doremus testified she performed work both at her office and at home. Chang offered evidence SCPMG provided its physicians with cellular phones, on which special SCPMG communication software was installed.

Chang argued some of the case law offered by SCPMG regarding the going and coming rule was inapposite because the cases concerned workers’ compensation, “and thus has no applicability in tort cases.”

Noting case law requiring evidence such as phone records to establish a defendant motorist was engaged in work at the time of an accident, Chang argued Doremus’s text log satisfied this requirement because it showed Doremus and her coworkers were sending each other text messages around the time of the accident.

Chang additionally argued the going and coming rule did not apply because SCPMG “derived an incidental benefit from Dr. Doremus’ use of her personal vehicle because it allowed her to commute seamlessly from her two primary locations where she conducted work — her home office, and her office at Kaiser Woodland Hills.”

Chang contended Doremus could do her job anywhere, but SCPMG required her to “take on the risk of traveling” by commuting to work.

Chang also contended SCPMG’s evidence was inadmissible because the attorney declaration to which SCPMG’s evidence was attached failed to authenticate the evidence properly.

Chang filed evidentiary objections to all of SCPMG’s evidence as hearsay and as lacking foundation, authentication, and personal knowledge.

The evidence to which Chang objected included Chang’s complaint, Doremus’s deposition transcript excerpts, the screenshot of Doremus’s text chain with her coworkers, Doremus’s telephone call and text logs, Doremus’s employment contract, and SCPMG’s benefits handbook.

Following a hearing, the trial court granted the motion for summary judgment. The court found, “There is no dispute in this case that Doremus was commuting to work. In fact, when the accident occurred, she was turning into a dry cleaner’s parking lot to take care of a personal errand unrelated to work. [Citation.] It is clear that the going and coming rule would apply in this case, and Doremus was not acting in the scope of her employment.”

The court further found no exception to the going and coming rule applied. Doremus was not driving a vehicle provided or required by SCPMG, nor did the vehicle provide an incidental benefit to SCPMG. Doremus was not running a special errand for her employer, but running a personal errand during her commute to work.

The court found the evidence did not support Chang’s contention Doremus was engaged in work at the time of the collision. The court noted the call and text logs did not reveal the content of the communications, only that they occurred, and the screenshot SCPMG provided indicated Doremus sent the text messages after the accident to inform her coworkers she would not be in that day.

The court overruled Chang’s evidentiary objections, noting Chang himself relied on the call and text logs in making his arguments, and thus “agreed to the accuracy of those documents.”

The court entered judgment in SCPMG’s favor. Chang timely appealed.

Under the doctrine of respondeat superior, an employer is liable for the torts of its employees committed within the scope of their employment.

An employee is generally not considered to be acting within the scope of [her] employment when going to or coming from her regular place of work. Under this rule— known as the going and coming rule — employers are generally exempt from liability for tortious acts committed by employees while on their way to and from work because employees are said to be outside of the course and scope of employment during their daily commute.

The theory behind the going and coming rule is that the employment relationship is suspended from the time the employee leaves work until she returns or, put another way, that in commuting, the employee is not rendering service to the employer.

Normally the going and coming rule applies in cases where an employee ordinarily works at a particular location and the job duties do not ordinarily include driving on the job.

Courts have recognized exceptions to the going and coming rule where the trip involves an incidental benefit to the employer, not common to commute trips by ordinary members of the work force. 

For example, the rule does not apply if use of a personally owned vehicle is either an express or implied condition of employment, or the employee makes the vehicle available as an accommodation to the employer and the employer has reasonably come to rely upon its use.

It does not apply if the employee is engaged in a special errand or a special mission for the employer.

To the extent an employee combines personal business with work duties while driving, or attends to both at substantially the same time, no inquiry will be made as to which business he was actually engaged in at the time of injury, unless it clearly appears that neither directly or indirectly could he have been serving his employer.

Chang raised two claims of error. First, he argued SCPMG did not make a sufficient prima facie showing below of the nonexistence of a triable issue of material fact, and therefore the trial court should have denied summary judgment rather than shifting the burden of production to Chang.

Second, he argued the going and coming rule should not apply in this case because Doremus was not a typical commuter traveling each day from home to office, but rather was a “hybrid” worker who performed her work outside normal business hours at different locations including her home.

Instructive is Miller v. American Greetings Corp. which similarly concerned whether a driver was acting in the scope of his employment when he struck someone with his vehicle.

In Miller, the tortfeasor driver, as part of his job for the defendant employer, visited stores throughout Los Angeles County to inspect the installation of greeting card stands, and spent much of his time talking on his cell phone coordinating installation projects.

The driver testified at deposition, however, that on the morning of the accident he had taken the day off and was on a personal errand.

The Court of Appeal affirmed a grant of summary judgment in favor of the employer because the

plaintiffs had no evidence to contradict the driver’s testimony. 

Although the plaintiffs proffered a cell phone record indicating the driver had spoken by phone with a coworker for one minute at 9:26 a.m., the evidence indicated the accident took place at 9:35 a.m.

Also instructive is Ayon v. Esquire Deposition Solutions, LLL, in which an auto accident plaintiff sued the tortfeasor’s employer. The plaintiff’s only theory of respondeat superior liability was that the tortfeasor and a coworker were discussing a scheduling issue for work on the phone at the time of the accident.

In moving for summary judgment, the employer offered testimony from the tortfeasor and the coworker in which they denied they were discussing work.

The testimony also established the tortfeasor only rarely made work calls outside of working hours and was social friends with the coworker.

The Court of Appeal stated the issue, therefore, is whether plaintiff presented substantial evidence to dispute their testimony.

The court held the plaintiff’s contention that the tortfeasor had an incentive to lie to please her employer, without more, was insufficient to create a triable issue of material fact on respondeat superior liability.

The court thus affirmed the grant of summary judgment.

In Miller and Ayon, the defendant employer did not have to negate all possibility the driver was acting in the scope of employment to shift the burden of production to the plaintiffs. It was sufficient the drivers provided testimony that established they were not acting in the scope of employment. The burden then shifted to the plaintiffs to dispute the testimony, which they failed to do.

The question was whether SCPMG made a prima facie showing that Doremus was not acting in the scope of her employment at the time of the accident, and if so, whether plaintiff offered contrary evidence demonstrating triable issues.

SCPMG met its initial burden. 

Contrary to his position below, on appeal Chang concedes the excerpts from Doremus’s deposition were admissible.

As in Miller and Ayon, those excerpts alone satisfied SCPMG’s prima facie showing. Doremus testified she was driving from her home to her office at the time of the accident, and apart from the commute was not doing anything work-related. She did not recall participating in any

telephone calls prior to the accident. She was driving a personal vehicle unrelated to her employment. This evidence, if credited by a finder of fact at trial, would establish Doremus was engaged in an ordinary morning commute, and therefore the going and coming rule applies.

Thus, SCPMG met its initial burden, even if arguendo SCPMG’s other evidence was inadmissible as Chang contends.

The documentary evidence does not contradict Doremus’s testimony that when the accident occurred, she was not communicating with coworkers or otherwise working.

Chang argues the evidence does not necessarily show Doremus was not working at the time of the accident.

It was not SCPMG’s burden to eliminate all possibility Doremus was not working at the time of the accident.

Rather, it was Chang’s burden to offer admissible evidence contradicting Doremus’s testimony that she was not working, and he failed to do so.

LESSONS:

1.         Under the doctrine of respondeat superior, an employer is liable for the torts of its employees committed within the scope of their employment.

2.         An employee is generally not considered to be acting within the scope of [her] employment when going to or coming from her regular place of work. Under this rule— known as the going and coming rule — employers are generally exempt from liability for tortious acts committed by employees while on their way to and from work because employees are said to be outside of the course and scope of employment during their daily commute. 

3.         The theory behind the going and coming rule is that the employment relationship is suspended from the time the employee leaves work until she returns or, put another way, that in commuting, the employee is not rendering service to the employer.

4.         Normally the going and coming rule applies in cases where an employee ordinarily works at a particular location and the job duties do not ordinarily include driving on the job.

5.         Courts have recognized exceptions to the going and coming rule where the trip involves an incidental benefit to the employer, not common to commute trips by ordinary members of the work force.

What are the Elements of a Cause of Action under California's Whistleblower Law?

In the recent California appellate decision of Contreras v. Green Thumb Produce, Inc., in 2020, Manuel Contreras mistakenly determined his former employer, Green Thumb Produce, Inc. (Green Thumb), was violating the Equal Pay Act (EPA; Lab. Code, § 1197.5) by paying him less than other coworkers performing similar duties.

However, Contreras did not believe Green Thumb was paying him less because of his gender, race, or ethnicity.

But the EPA does not prohibit variations in wages; it prohibits discriminatory variations in wages.

This meant the EPA did not protect Contreras from the wage difference of which he complained.

When Contreras, relying on the EPA, described to supervisors his dissatisfaction with being paid less than others who did the same work, Green Thumb terminated his employment.

In turn, Contreras sued Green Thumb, asserting three causes of action for wrongful termination.

His second cause of action was based on section 1102.5, subdivision (b), which prohibits employers from retaliating against employees who report legal violations.

At trial, the jury found in Contreras’ favor on all three of his causes of action.

Green Thumb filed a motion for partial judgment notwithstanding the verdict (JNOV) claiming the verdict on the whistleblower cause of action was unsupported because Contreras misunderstood the EPA, and his misunderstanding of the law could not provide a proper basis for liability under section 1102.5(b).

The trial court agreed, granted the motion, and entered an amended judgment.

On appeal, Contreras challenged the JNOV ruling asserting the evidence at trial adequately supported the jury’s verdict on his whistleblower cause of action.

The appellate court agreed, finding substantial evidence supported the jury’s conclusion that Contreras had reasonable cause to believe Green Thumb violated the EPA, notwithstanding his misinterpretation of that law.

The appellate court reversed the JNOV ruling and directed the trial court to amend the judgment consistent with the jury’s verdict.

From 2016 to 2020, Contreras worked at Green Thumb. Green Thumb packaged produce for retailers, and Contreras primarily worked in their sanitation department driving forklifts.

During his employment, Contreras discovered that Green Thumb paid him less than other employees performing similar duties, some of whom had less seniority at the company. Contreras mentioned the pay disparity to his supervisors several times, but they took no action.

In August 2020, Contreras started researching his legal rights because he thought the law required equal pay for equal work. Contreras contacted the Labor Commissioner’s Office of San Bernardino County and spoke to a deputy labor commissioner who stated that Green Thumb might be violating the law.

The deputy labor commissioner referred Contreras to the EPA and told him he could obtain more information about that law on the Labor Commissioner’s website.

Contreras went to that website, printed out a document titled “California Equal Pay Act: Frequently Asked Questions” (FAQ), and read it.

The FAQ is a seven-page document with 32 questions and answers. It provides general background information about the EPA and how to file a claim. Based on his discussion with the deputy labor commissioner and his understanding of the FAQ, Contreras believed that Green Thumb violated the state’s equal pay laws.

On September 3, 2020, Contreras brought the Labor Commissioner’s FAQ sheet with him to work intending to present it to human resources after his shift and to ask for a raise.

During his lunchbreak on that day, with the FAQ in hand, Contreras spoke to coworkers attempting to get one of them to be a witness for his meeting with human resources. Miguel Ramos, Contreras’s manager, approached Contreras and asked what Contreras had in his hand. Contreras replied that it was literature from the Labor Commissioner’s Office that he intended to use to secure a pay raise. Ramos then brought Contreras to the office of Sendy Ochoa, the human resources manager.

Once inside Ochoa’s office, Ochoa asked Contreras what paperwork he had with him. Contreras told Ochoa it was for her, handed her the FAQ, and asked for a raise. Contreras looked over the FAQ and returned it to Contreras.

She told him he should not be showing the FAQ to employees and asked him why he contacted the Labor Commissioner. Contreras explained that he was trying to get information to prove that he should be getting paid the same as others doing similar work.

After Ochoa denied Contreras’s request for a raise, Contreras stated that he would no longer be driving a forklift, intending that statement to mean additional responsibilities that he accrued due to another employee’s absence. He did not intend his statement to convey that he would no longer be driving his own assigned forklift. In response, Ochoa accused Contreras of insubordination 

After about 10 minutes, Contreras left Ochoa’s office. Ramos followed Contreras and instructed him to go home. When Contreras showed up for work the next day, a security guard escorted Contreras off the premises, informing him that he had been terminated from his job.

When Contreras got home, he received a letter from Green Thumb informing him Green Thumb terminated his employment there.

The letter stated that Contreras violated company policies and procedures by refusing to follow the lunch schedule, talking to coworkers instead of working, disrupting work by showing coworkers paperwork, refusing to go back to work after discussing his job performance with human resources, and refusing his manager’s instructions by stating “I am not operating the forklift.”

Contreras sued Green Thumb in 2021. In the operative first amended complaint filed in 2023, Contreras asserted three causes of action: (1) retaliation for exercising his employment rights (§ 98.6); (2) whistleblower retaliation (§ 1102.5); and (3) wage discussion retaliation (§ 232).

The matter proceeded to a jury trial in 2023. Contreras testified explaining the events leading up to his firing. Contreras also denied the violations of company policies and procedures stated in his termination letter.

Contreras told the jury that based on his discussion with the deputy labor commissioner and the  FAQ Contreras reviewed, he believed Green Thumb violated the EPA by paying him unequal wages.

Pursuant to his reading of the FAQ, Contreras explained that he understood the EPA was originally enacted to protect women, but he believed it also applied to men based on the law’s constant updates.

Contreras acknowledged that because he was not a lawyer, he was uncertain that Green Thumb violated the EPA. However, given his “10th grade education” he believed there might be an EPA violation, the resolution of which would help him get a raise.

Contreras also testified, however, that he did not believe his unequal wages were based on his sex, race, or ethnicity.

Vikita Poindexter, Green Thumb’s vice president of human resources, testified for Green Thumb.  Poindexter stated that while Contreras worked at Green Thumb, he had an enormous amount of attendance issues, he faced several disciplinary actions, he violated the code of conduct, and other employees complained about him. She opined that Green Thumb was overly lenient with Contreras and should have terminated Contreras much earlier.

The trial court used CACI No. 4603 to instruct the jury on Contreras’s section 1102.5(b) cause of action. Pursuant to that instruction, the trial court informed the jury that to prevail, Contreras had to prove that he had had reasonable cause to believe that Green Thumb was in violation of state law regarding equal pay.

The instruction was modified to state, Contreras only had to have a reasonable belief that Green Thumb was violating state law. That belief did not have to be, in fact, legally correct under the law.

The jury found in Contreras’s favor on all three causes of action. The jury awarded Contreras $53,000 in past economic damages, $72,428 in future economic damages, and $47,000 in past non-economic damages.

On August 18, 2023, Green Thumb filed its JNOV motion. Challenging only the second cause of action, Green Thumb argued there was insufficient evidence because Contreras admitted his pay disparity was not based on sex, or ethnicity, and Contreras’s mistaken belief that Green Thumb violated the EPA could not create liability under section 1102.5.

On August 25, 2023, the trial court entered judgment against Green Thumb in the amount of $172,428, reflecting the jury’s damage award. On September 8, 2023, the trial court filed an amended judgment, adding $20,000 in statutory penalties for Green Thumb’s violations of sections 98.6 and 1102.5.

On November 3, 2023, the trial court granted the partial JNOV motion, finding that based on Contreras’s own testimony, he had not made any complaints of any violation of law and that Contreras cannot make up a non-existent law to gain § 1102.5 protections.

The trial court entered a second amended judgment on November 20, 2023, reflecting its ruling on the motion. The second amended judgment awarded Contreras a total of $182,428 based on the jury’s determination of damages and $10,000 in statutory penalties for Green Thumb’s violation of section 98.6.

Contreras appealed from the second amended judgment, challenging the trial court’s ruling on the partial JNOV motion.

On appeal, Contreras argued there was substantial evidence that he reasonably believed Green Thumb violated the EPA. Green Thumb argued Contreras’s beliefs were unreasonable because the FAQ informed Contreras that the EPA only applied if the disparity in wages was based on sex, race or ethnicity, and Contreras admitted that was not the case. Green Thumb further contends that Contreras improperly based his section 1102.5 claim on nonexistent or inapplicable statutes.

Section 1102.5 is California’s general whistleblower statute.

Section 1102.5(b), prohibits an employer from retaliating against an employee for disclosing information to a person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation or noncompliance if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute.

This provision reflects the broad public policy interest in encouraging workplace whistle-blowers to report unlawful acts without fearing retaliation.

In developing the statute, the relevant committees spoke clearly and repeatedly about the purposes and reasoning behind the enactment and expansion of section 1102.5(b): to protect workers, to encourage disclosure, and to promote compliance with employment-related laws and regulations.

The protections of section 1102.5(b) apply only where the disclosing employee has reasonable cause to believe that the information discloses a legal violation.

Accordingly, the relevant inquiry is not whether the conduct actually violated any specific statute or regulation, but whether the plaintiff reasonably believed that there was a violation.

Unlike retaliation under section 1102.5(b), in which the employee must show only that he or she reasonably believed that there was a violation of a statute, rule, or regulation, section 1102.5, subdivision (c) requires a showing that the activity in question actually would result in a violation or noncompliance with a statute, rule, or regulation.)

Section 1102.5(b) requires objective reasonableness and it does not protect employees who do not believe or who unreasonably believe that the information they are disclosing shows a violation of the law.

Contreras’s mistaken interpretation of the EPA did not necessarily defeat his Section 1102.5 claim.

At the outset, when assessing the reasonableness of an employee’s mistaken beliefs under section 1102.5, there are three potential scenarios.

The employee could be mistaken about his or her understanding of (1) the law, (2) the facts, or (3) the law and the facts.

In this case, the appellate court confronted the first scenario, but saw no reason why the type of mistake should be controlling.

It found the proper focus is on the reasonableness of an employee’s beliefs, and preserving the legislative intent to encourage workers to report activity they believe is unlawful.

Green Thumb was correct that a section 1102.5 claimant may not rely on a perceived violation of a nonexistent law.

To have a reasonably based suspicion of illegal activity, the employee must be able to point to some legal foundation for his suspicion—some statute, rule or regulation which may have been violated by the conduct he disclosed.

Courts have rejected a Section 1102.5(b) claim where plaintiff did not cite any statute, rule, or regulation that may have been violated and instead argued simply that he reasonably believed that the activity violated some unnamed statute, rule, or regulation.

But this was not a case where Contreras claimed a violation of some unnamed statute, rule, or regulation.

Instead, Contreras pointed to some legal foundation for his suspicion; namely, the EPA.

Further, Contreras’s misinterpretation of the law does not necessarily undermine his section 1102.5(b) claim. As stated above, section 1102.5(b) only requires an employee to have “reasonable cause” to believe that a law has been violated.

There is no requirement that the employee prove an actual violation.

An employee need not prove an actual violation of law; it suffices if the employer fired him for reporting his “reasonably based suspicions” of illegal activity. As such, section 1102.5 may provide relief for an employee who reasonably believed a legal violation occurred despite incorrectly analyzing the relevant law.

Nor does common sense dictate a different result as Green Thumb suggested. According to Green Thumb, such an interpretation would allow an employee to recover under section 1102.5(b) under the mistaken belief that an employer is legally required to give a 100 percent pay raise every year, or that women must be paid twice as much as men for the same work. This argument ignores section 1102.5(b)’s “objective reasonableness” requirement.

The hypothetical mistaken legal interpretations cited by Green Thumb are unreasonable, precluding any relief under the statute.

Finally, the purpose of section 1102.5(b), is to encourage workplace whistle-blowers to report unlawful acts without fearing retaliation.

Indeed, accepting Green Thumb’s interpretation would defeat the Legislature’s purpose in enacting the law. It would deprive employees of the statute’s protection simply because the workers have no legal training and lack the expertise to properly interpret a statute. Such employees would be reluctant to report suspected violations for fear they misunderstood the law.

Based on the foregoing, while a lay employee’s incorrect legal interpretation may be unreasonable under some circumstances, the appellate court held there was no basis to find that it will always be unreasonable. Rather, reasonableness is generally a question of fact to be resolved by a jury.

Accordingly, Contreras’s incorrect legal analysis does not necessarily bar his section 1102.5 claim.

Based on his discussion with a deputy labor commissioner, and his reading of the FAQ, Contreras believed Green Thumb violated the EPA.

Although the deputy labor commissioner did not make a definitive determination, stating only that Green Thumb might have violated the law, it is reasonable for a lay person to give that assessment credit. After all, the Labor Commissioner enforces California’s labor laws.

As for his reading of the FAQ, Contreras explained that he interpreted the EPA as originally protecting women but it was later expanded to include men. This is consistent with the first two questions in the FAQ.

Accordingly, a lay person might interpret these first two questions as stating that the EPA requires equal pay for substantially similar work regardless of whether a protected class was involved.

The appellate court acknowledged that as judges with years of legal education and experience, its reading of the entire FAQ correctly reflects that the EPA only prohibits discriminatory wage variations based on sex, race, or ethnicity. But a lay person with no formal legal training could easily misinterpret the FAQ similarly to Contreras, especially when told by a deputy labor commissioner that there was a potential violation.

And that is why the decision in this case properly belonged to a jury of Contreras’s peers. The jurors had the FAQ to read for themselves, and they determined that Contreras’s mistaken legal analysis was reasonable from the perspective of a layperson. Although one could reach a different conclusion, that is not the standard of review on appeal.

In sum, notwithstanding Contreras’s mistaken interpretation of the EPA, there was sufficient evidence for the jury to conclude that Contreras had reasonable cause to believe Green Thumb violated that law.  Accordingly, the trial court erred in granting the partial JNOV motion.

LESSONS:

1.         Section 1102.5(b), prohibits an employer from retaliating against an employee for disclosing information to a person with authority over the employee or another employee who has the authority to investigate, discover, or correct the violation or noncompliance if the employee has reasonable cause to believe that the information discloses a violation of state or federal statute.

2.         Accordingly, the relevant inquiry is not whether the conduct actually violated any specific statute or regulation, but whether the plaintiff reasonably believed that there was a violation.

3.         An employee need not prove an actual violation of law; it suffices if the employer fired him for reporting his “reasonably based suspicions” of illegal activity. As such, section 1102.5 may provide relief for an employee who reasonably believed a legal violation occurred despite incorrectly analyzing the relevant law.

Can an Isolated Act of Harassment be Actionable in California?

In the decision in Bailey v. San Francisco District Attorney’s Office, the unanimous California Supreme Court considered the appeal of a case where Plaintiff Twanda Bailey sued the San Francisco District Attorney’s Office, former District Attorney George Gascon, and the City and County of San Francisco (collectively, the City) for violations of the California Fair Employment and Housing Act (FEHA), Government Code section 12900 et seq.

Under FEHA, it is an unlawful employment practice for an employer to harass an employee because of their race. (§ 12940, subd. (j)(1).)

It is also an unlawful employment practice for an employer to retaliate against an employee for engaging in protected activity, such as making a complaint of racial harassment in the workplace. (§ 12940, subd. (h).)

Bailey, who is African-American, alleges that a coworker with whom she shared an office and job duties called her the N- word.

Bailey further alleges that, after she reported this incident, the human resources manager for the District Attorney’s Office obstructed the filing of a formal complaint, engaged in a course of intimidating conduct, and ultimately threatened Bailey that she was “going to get it.”

Bailey’s action against the City alleges she was subjected to racial harassment by her coworker and retaliation by the human resources manager after complaining of the harassment. 

The trial court granted summary judgment for the City, finding Bailey had failed to make a prima facie showing on her FEHA claims.

The Court of Appeal affirmed, and the Supreme Court granted review.

This case asked the appellate court to assess whether certain conduct may be actionable under FEHA.

First, the appellate court assesses whether a coworker’s one-time use of a racial slur may be actionable in a claim of harassment, that is, whether such an incident may be so severe as to alter the conditions of employment and create a hostile work environment.

For the reasons discussed in its decision, the Supreme Court concluded that an isolated act of harassment may be actionable if it is sufficiently severe in light of the totality of the circumstances, and that a coworker’s use of an unambiguous racial epithet, such as the N-word, may be found to suffice.

Second, the court assesses whether a course of conduct that effectively seeks to withdraw an employee’s means of reporting and addressing racial harassment in the workplace is actionable in a claim of retaliation, that is, whether such conduct may constitute an adverse employment action.

The Supreme Court concluded that it may.

Applying these standards, the record presented triable issues of fact on Bailey’s harassment and retaliation claims, and the Supreme Court reversed the judgment of the Court of Appeal.

Bailey began working at the District Attorney’s Office in 2001 as a clerk in the records department. The office promoted her in 2011 to an investigative assistant position. Bailey worked alongside Saras Larkin, another investigative assistant. 

The two sat next to each other in the records room. Bailey is African- American. Larkin is Fijian/East Indian. On January 22, 2015, while in the records room, Larkin told Bailey that she saw a mouse run under Bailey’s desk.

Bailey was startled and jumped out of her chair. Larkin walked up to Bailey and quietly said, “You [N-words] is so scary.”

Immediately following this incident, Bailey left her office and told three coworkers what Larkin had said. Bailey was crying and upset. Although Bailey was offended by Larkin’s use of the racial slur, she did not immediately complain to human resources (HR) because she feared harassment and retaliation 

On December 30, Bailey filed suit against the City for racial discrimination, racial harassment, retaliation, and failure to prevent discrimination in violation of FEHA.

The City moved for summary judgment and the trial court granted that motion.

The parties agreed the two primary issues for determination were: (1) whether Bailey could establish a triable issue that there was severe or pervasive racial harassment based on the single allegation that her coworker called her the N-word; and (2) whether Bailey could establish a triable issue that she was subjected to an adverse employment action.

Addressing the first issue, the trial court found that the only race-related allegation in the lawsuit was Larkin saying “You [N-words] is so scary.”

The trial court noted that Bailey conceded this was the only race-related allegation at issue.

The trial court concluded that no trier of fact could find severe or pervasive racial harassment based on being “called a ‘[N-word]’ by a co-worker on one occasion.”

Addressing the second issue, the trial court reasoned that Bailey’s 2015 performance review was not an adverse employment action because Bailey presented no evidence showing it could lead to a substantial and material change in the terms and conditions of her employment.

Additionally, the trial court noted that, to the extent Bailey relied on Taylor- Monachino’s alleged misconduct, an allegation of “social ostracism at the hands of co-workers does not amount to an adverse employment action.”

Consequently, the trial court found Bailey could not prevail on her retaliation claim.

In an unpublished opinion, the Court of Appeal affirmed the trial court’s grant of summary judgment.

FEHA recognizes that freedom from employment discrimination on specified grounds, including race, is a civil right. (§ 12921, subd. (a).)

As a matter of public policy, FEHA declares the need to protect and safeguard the right and opportunity of all persons to seek, obtain, and hold employment without discrimination or abridgment on account of race.

The supreme court has declared that policy to be fundamental.

The express purpose of FEHA is to provide effective remedies that will eliminate discriminatory practices in the workplace (§ 12920), and its provisions “are to be construed broadly and liberally” to accomplish that purpose.

To that end, FEHA makes it unlawful, subject to certain exceptions not implicated here, for an employer to “discriminate” against an employee “in compensation or in terms, conditions, or privileges of employment” or to “harass” an employee “because of race.” (§ 12940, subds. (a), (j)(1).)

It is also unlawful for an employer to “discharge, expel, or otherwise discriminate against” an employee because they have opposed practices forbidden under FEHA or filed a complaint, testified, or assisted in any proceeding under FEHA. (§ 12940, subd. (h).)

In interpreting these provisions, California courts often look for guidance in decisions construing federal antidiscrimination laws.

Even as the courts look to federal authority, they are mindful that FEHA is a state law and we conduct an “independent analysis” of its provisions using state law principles.

It is an unlawful employment practice for an employer to “harass” an employee based on membership in a protected class, including “because of race.” (§ 12940, subd. (j)(1).)

Harassment of an employee by an employee, other than an agent or supervisor, shall be unlawful if the entity, or its agents or supervisors, knows or should have known of this conduct and fails to take immediate and appropriate corrective action.

Harassment includes verbal harassment such as “epithets, derogatory comments or slurs on a basis enumerated in the Act”; and it also includes physical and visual forms of harassment.

To prevail on a claim that a workplace is racially hostile under FEHA, an employee must show she was subjected to harassing conduct that was (1) unwelcome; (2) because of race; and (3) sufficiently severe or pervasive to alter the conditions of her employment and create an abusive work environment.

In addition, she must establish that the offending conduct was imputable to her employer.

The parties here do not dispute that Larkin’s conduct was unwelcome and because of race.

Unlike FEHA discrimination claims, which address only explicit changes in the “terms, conditions, or privileges of employment” (§ 12940, subd. (a)), harassment claims focus on “situations in which the social environment of the workplace becomes intolerable because the harassment (whether verbal, physical, or visual) communicates an offensive message to the harassed employee.” 

In other words, discrimination refers to bias in the exercise of official actions on behalf of the employer” whereas “harassment refers to bias that is expressed or communicated through interpersonal relations in the workplace.

Because a harasser need not exercise delegated power on behalf of the employer to communicate an offensive message, harassment claims may be predicated on conduct by supervisors and coworkers alike.

The standard for workplace harassment claims strikes a middle path between making actionable any conduct that is merely offensive and requiring the conduct to cause a tangible psychological injury.

Whether a work environment is reasonably perceived as hostile or abusive is not, and by its nature cannot be, a mathematically precise test.

The working environment must be evaluated in light of the totality of the circumstances.

These may include the frequency of the discriminatory conduct; its severity; whether it is physically threatening or humiliating, or a mere offensive utterance; and whether it unreasonably interferes with an employee’s work performance.

The required level of severity or seriousness varies inversely with the pervasiveness or frequency of the conduct .

Simple teasing, offhand comments, and isolated incidents (unless extremely serious) are not sufficient to create an actionable claim of harassment.

The objective severity of harassment should be judged from the perspective of a reasonable person in the plaintiff’s position. 

We must therefore consider allegations of a racially hostile workplace from the perspective of a reasonable person belonging to the racial or ethnic group of the plaintiff.

This allows us to recognize forms of discrimination that are real and hurtful, and yet may be overlooked if considered solely from the perspective of an adjudicator belonging to a different group than the plaintiff.

A single racial epithet can be so offensive it gives rise to a triable issue of actionable harassment 

Although viable hostile work environment claims often involve repeated conduct, it is not required.

The foundational high court standard provides that actionable harassment must be sufficiently severe or pervasive to alter the conditions of the victim’s employment and create an abusive working environment.

This standard allows that an isolated incident of harassment, if extremely serious, can create a hostile work environment.

Identifying the types of isolated incidents that may create a hostile work environment depending on the totality of the circumstances, courts have recognized that use of an unambiguous racial epithet such as the N-word  may suffice.

The N-word carries with it, not just the stab of present insult, but the stinging barbs of history, which catch and tear at the psyche the way thorns tear at the skin.

Far from a mere offensive utterance, this slur may be intrinsically “humiliating” depending on the totality of the circumstances.

Although a single use of a racial epithet, standing alone, would not create a hostile work environment, once the jury had determined that a pervasive pattern of such use had created a hostile work environment, the trial court in this case did not abuse its discretion in concluding that each additional instance would perpetuate the hostile environment and should be enjoined.

The isolated use of an unambiguous racial epithet may be sufficiently severe to create a hostile work environment based on the totality of the circumstances surrounding its use.

In other words, it does not require something more; rather, it requires full consideration of the use of the epithet itself, including but not limited to the specific word or words used, the speaker, whether it was directed at the plaintiff, and the larger social context of the workplace.

What matters is looking to the totality of the circumstances when determining whether the conduct is sufficiently severe or pervasive to be actionable.

Applying these standards to the facts of this case, there is a triable issue of fact whether Larkin’s one-time use of the N-word was, under the totality of the circumstances, sufficiently severe so as to create a hostile work environment.

This case involves an unambiguous racial epithet. The use of the “[N-word]” automatically separates the person addressed from every non-black person; this is discrimination per se.

The word was used only once; it was not overheard but directed specifically at Bailey. Although it was not physically threatening, a jury could find that use of the slur was degrading and humiliating in the extreme .

A jury could also find that the modifier “scary” further heightened the slur’s impact.

When the harasser is a supervisor, the employer is strictly liable for the supervisor’s actions.

When the harasser is a nonsupervisory employee, employer liability turns on a showing of negligence.

Specifically, harassment of an employee by an employee, other than an agent or supervisor, shall be unlawful if the entity, or its agents or supervisors, knows or should have known of this conduct and fails to take immediate and appropriate corrective action.

It is unlawful for an employer to discharge, expel, or otherwise discriminate against any person because the person has opposed any practices forbidden under this part or because the person has filed a complaint, testified, or assisted in any proceeding under this part.  This type of unlawful employment practice is known simply as “retaliation.”

To establish a prima facie case of retaliation under FEHA, an employee must show that (1) she engaged in a “protected activity,” (2) the employer subjected her to an adverse employment action, and (3) a causal link existed between the protected activity and the employer’s action.

It is undisputed Bailey engaged in protected activity when she reported Larkin’s use of a racial slur. This was activity for which she could not be subject to retaliation.

The phrase “adverse employment action” does not appear in FEHA but has become a familiar shorthand expression referring to the kind, nature, or degree of adverse action against an employee that will support a cause of action under a relevant provision of an employment discrimination statute.

LESSONS:

1.         Under FEHA, it is an unlawful employment practice for an employer to harass an employee because of their race. (§ 12940, subd. (j)(1).)

2.         It is also an unlawful employment practice for an employer to retaliate against an employee for engaging in protected activity, such as making a complaint of racial harassment in the workplace. (§ 12940, subd. (h).)

3.         Harassment includes verbal harassment such as “epithets, derogatory comments or slurs on a basis enumerated in the Act”; and it also includes physical and visual forms of harassment.

4.         To prevail on a claim that a workplace is racially hostile under FEHA, an employee must show she was subjected to harassing conduct that was (1) unwelcome; (2) because of race; and (3) sufficiently severe or pervasive to alter the conditions of her employment and create an abusive work environment.

5.         To establish a prima facie case of retaliation under FEHA, an employee must show that (1) she engaged in a “protected activity,” (2) the employer subjected her to an adverse employment action, and (3) a causal link existed between the protected activity and the employer’s action.

Can Arbitrary and Prejudicial Rulings Reverse California Jury Verdict?

In the recent case of Odom v. Los Angeles Community College District, Defendants appealed from a judgment on a jury verdict awarding $10 million to plaintiff on her claims for sexual harassment, retaliation and related claims.

The appellate court reversed the judgment, not for lack of substantial evidence, but for prejudicial errors in the admission of irrelevant and damaging “me-too” evidence from a witness who was not similarly situated to plaintiff, and for the equally prejudicial and erroneous admission of 20-year-old newspaper articles and other evidence of the alleged harasser’s misdemeanor convictions.

This was an unusual case, due to the significant arbitrary and prejudicial evidentiary rulings of the judge presiding over the trial.

After the judgment was entered, defendants filed motions for a new trial (or in the alternative a remittitur) and for partial judgment notwithstanding the verdict (JNOV) (or in the alternative for remittitur).

At the hearing on those motions, which were denied, the trial judge initiated extended, bizarre personal comments on racial matters with newly substituted defense counsel (the only Black woman in the courtroom), despite there being no racial issue of any kind in the case.

Defendants filed a motion to disqualify the judge for cause and to void his rulings on the motions. After writ proceedings and referral to a neutral judge, the trial judge was disqualified and his rulings on the postjudgment motions were voided.

On this appeal from the judgment, the appellate court decided whether the trial judge’s prejudicially erroneous evidentiary rulings during the trial were motivated, in part, as defendants contend, by “persistent racial and gender bias.”

It seemed clear the judge’s rulings were motivated by personal opinions untethered to the rules of evidence. Whatever his motivations may have been, the judge admitted inflammatory evidence without consideration of the evidentiary rules, with undeniable prejudicial effect, thus preventing a fair trial.

In October 2018, plaintiff Sabrena Odom filed a complaint for damages, alleging sexual harassment; failure to investigate and prevent sexual harassment; retaliation; and negligent hiring, supervision and retention, in violation of the Fair Employment and Housing Act (FEHA; Gov. Code, § 12940 et seq.), against defendants Los Angeles Community College District (the District) and Howard Irvin, then the vice president of student services at Los Angeles Southwest College, a community college in the District. The alleged sexual harassment occurred between February 2017 and October 2017.

Plaintiff was and still is a tenured professor at Southwest College. She began as an adjunct, and in 2005 was hired full time, working 50/50 as an English instructor and as director of the Student Success Center, which offered tutoring and workshops to enable student learning.

The record contained undisputed evidence recounting plaintiff’s background, the achievement of her lifelong dream of teaching at Southwest College, her doctorate, her exceptional performance at the college, her devotion to her students and to the Student Success Center, and the thriving of the center under her leadership.

Defendants are the District and Dr. Irvin, the alleged harasser. Dr. Irvin joined Southwest College in 2016 as vice president of student services. He had been an officer with the Los Angeles Police Department for 13 years, until he retired in 1998, 18 years before he joined Southwest College. After leaving the police department, he began a career in community counseling and worked at several community colleges in southern California. He earned his Ph.D. in 2007.

Plaintiff testified that the sexual harassment began in February 2017 and continued for about eight months.

In February 2017, plaintiff and Dr. Irvin both attended a conference in San Francisco, sponsored by a national organization, Achieving the Dream, that focused on working students and students who were parents.

They met in the lobby bar of the conference hotel and talked about the purpose for the conference and plaintiff’s plan for presenting a poster she had prepared for the conference. Plaintiff testified she felt uncomfortable with the casual way Dr. Irvin spoke to her and some of the personal questions he asked her. Dr. Irvin testified he asked plaintiff no personal questions.

Plaintiff testified that dinners with the group from the college attending a conference are typical, but that she did not want to go to dinner with Dr. Irvin alone, so she invited a colleague from another college to attend with her. Plaintiff testified she was “uncomfortable the entire time.”

Plaintiff testified that at the end of the conference, Dr. Irvin made her uncomfortable when he asked her if she “was willing to ride home with him in his car from San Francisco back to Los Angeles.” She told him she would take her flight back. Dr. Irvin testified he had flown to the Bay area from Los Angeles and rented a car, and he offered plaintiff a ride to the San Francisco airport. She accepted, and he took her to the airport.

Plaintiff testified that between February and September 2017, she met with Dr. Irvin to get his approval for budgetary items, when she needed supplies, and when she was hiring students for the tutoring program.

The first time, in February 2017, “the discussion quickly went from business to me, to my body, the way I looked.” Plaintiff described the meetings with Dr. Irvin, at which he would say things like, “[Y]ou look very sexy today, and I would love to see what your body looked like naked.”

Dr. Irvin said “multiple times” that he wanted to have sex with plaintiff. He continued to make comments and then he would apologize. “[A]fter I would state that I didn’t appreciate what he was saying to me, he would always apologize and say ‘I’m just a man’ and ‘I’m no good. I know I’m no good.’ ”

When Dr. Irvin asked plaintiff to have sex with him, she “felt violated because I was very clear and direct that I did not want a sexual relationship with him from the first time he asked. And I was just really confused as to why he continued to pressure me into having sex with him.”

There was a great deal of other testimony from plaintiff along those lines.

In early November 2017, plaintiff went to Denise Noldon, the interim president of Southwest College, and told her she was being sexually harassed by Dr. Irvin, had not complied with his wishes, and felt she was being retaliated against “with an attack against my program as well as my staff.”

Plaintiff testified that nothing happened in response to her complaint. Dr. Noldon testified that plaintiff did not complain to her about sexual harassment by Dr. Irvin at any of the three meetings Dr. Noldon had with plaintiff.

On December 4, 2017, a few days after a contentious meeting in Dr. Noldon’s office, plaintiff filed a written internal complaint, reporting Dr. Irvin’s unwanted sexual advances and retaliation against her for not complying with them. Her complaint included allegations that her work environment was unsafe.

Plaintiff filed her complaint in this action in October 2018.

Judge Robert S. Draper presided over a three-week trial in October 2022. There were more than 20 witnesses. Plainly, witness credibility was the key issue for the jury to decide, and the trial court should have carefully weighed the relevance of any evidence offered to impeach a witness against the potential for undue prejudice. The court admitted testimony and documents the appellate court concluded should not have been admitted.

Prejudice, under Evidence Code section 352, refers to evidence which uniquely tends to evoke an emotional bias against the moving party as an individual and which has very little effect on the issues.

When the evidence at issue involves prior bad acts, substantial prejudice is inherent in the evidence and its admission requires extremely careful analysis. The evidence should be examined pursuant to section 352. Generally, such evidence is admissible only if it has substantial probative value.

Here, the prejudicial effect of the newspaper articles far exceeded any relevance to this case.

Unlike the victim described in the 20-year-old articles, here there was no prior relationship between plaintiff and Dr. Irvin: no stalking, no restraining orders, no criminal charges. Plaintiff does not claim that Dr. Irvin ever touched or threatened her. He never showed plaintiff a gun or brought up the subject of guns; plaintiff is the one who kept bringing up the question whether he had a gun.

After the article describing Dr. Irvin’s criminal trial in 1998 was admitted, the jury was left to decide whether the college was negligent in hiring or retaining Dr. Irvin in light of his misdemeanor convictions.

The District contended it could not rely on the 20-year-old misdemeanor convictions in making its hiring decisions because California law prohibits employers from considering expunged misdemeanor convictions in most circumstances. (Lab. Code, § 432.7, subd. (a)(1).)

Yet, Judge Draper instructed the jury that the elements of plaintiff’s claim of negligent hiring or retention included that Dr. Irvin had a history of stalking which the District failed to consider in evaluating plaintiff’s claim of sexual harassment.

The District never should have been put in the position of having to explain to the jury why the college hired or retained Dr. Irvin despite the old convictions.

Plaintiff argues that even if there was error, it was harmless. The danger of undue prejudice is lessened if evidence of the uncharged acts was no more inflammatory than the testimony concerning the charged offenses.

Plaintiff asserted the content of the two newspaper articles was no more inflammatory than all of the conduct plaintiff and the other harassed women outlined in their testimony.

The appellate court did not agree; the articles themselves clearly demonstrated otherwise.

The appellate court likewise concluded that the trial court erred in admitting the testimony from Ms. Gonzalez—a student—about her internal college complaint of sexual harassment against a different administrator than Dr. Irvin, Johnel Barron, and the lawsuit she later filed, and dismissed, which included allegations against Dr. Irvin. Defendants objected to Ms. Gonzalez’s testimony, arguing the internal college complaint she made was against.

Courts have sanctioned the use of “me too” evidence, which is evidence of an employer’s alleged gender bias in the form of harassing activity against women employees other than the plaintiff’ in certain circumstances.

Me-too evidence is evidence that an employer waged the same type of discrimination against other employees as it did against a plaintiff.

However, the “me-too” doctrine does not permit a plaintiff to present evidence of discrimination against employees outside of the plaintiff’s protected class to show discrimination or harassment against the plaintiff.

Although “me too” evidence can be admissible to prove intent, motive, and the like with respect to the plaintiff’s own protected class, it is never admissible to prove an employer’s propensity to harass.

Additionally, the admissibility of “me too” evidence hinges on how closely related the evidence is to the plaintiff’s circumstances and theory of the case.

Here, even the trial court observed that the Gonzalez testimony was “really not a fair category as me-too evidence,” and “it doesn’t fall—neatly fall into any of the categories of me-too or somebody else . . . .”

But the court allowed the testimony on the basis that it was relevant to show “what it’s like to be . . . a student, a co-ed, innocent co-ed at the college.”

Needless to say, the standard for admissibility of “me-too” evidence is not whether the information is something a parent would like to have in considering a college admissions decision. The evidence must be closely related to the plaintiff’s circumstances and theory of the case.

By contrast, plaintiff was a tenured faculty member and colleague of Dr. Irvin’s, not a student worker. Her allegations of sexual harassment against Dr. Irvin were significantly different in kind from those in the Gonzalez complaint.

Defendants also contended that the jury’s noneconomic damages awards, totaling $10 million, were excessive.

Plaintiff continued to work at the District through the close of trial and had no economic damages. Defendants contend there is no precedent for this award absent economic or debilitating injuries, and the award was grossly disproportionate to awards in comparable cases.

The appellate court agreed the excessive verdict is an additional reason why the case must be retried. The jury made those awards after hearing highly damaging evidence it should not have heard; a jury instruction that referred to proving Dr. Irvin’s history of stalking; and closing arguments that emphasized the inadmissible evidence and the importance of stopping Dr. Irvin from ever being around, alone, with female students.

On a final note, while the appellate court did not know whether, as defendants contended, Judge Draper’s “persistent racial and gender bias” motivated his rulings at trial, it could not rule out that possibility in light of the extreme and bizarre comments he made at the posttrial motions hearing and his ensuing disqualification for cause.

It did not decide whether bias was the reason for his arbitrary and capricious evidentiary rulings; the rulings were an abuse of discretion irrespective of his motivations. One thing it could say for sure is, the rulings were not motivated by a devotion to the law of evidence.

The judgment was reversed and the cause was remanded to the trial court for a new trial.

LESSONS:

1.         Arbitrary and prejudicial rulings can result in a reversal of a California jury verdict.

2.         Prejudice, under Evidence Code section 352, refers to evidence which uniquely tends to evoke an emotional bias against the moving party as an individual and which has very little effect on the issues.

3.         California law prohibits employers from considering expunged misdemeanor convictions in most circumstances.

4.         Courts have sanctioned the use of “me too” evidence, which is evidence of an employer’s alleged gender bias in the form of harassing activity against women employees other than the plaintiff’ in certain circumstances.

5.         Me-too evidence is evidence that an employer waged the same type of discrimination against other employees as it did against a plaintiff.

6.         However, the “me-too” doctrine does not permit a plaintiff to present evidence of discrimination against employees outside of the plaintiff’s protected class to show discrimination or harassment against the plaintiff.

What is the Business Judgment Rule in California?

In the recent case of Tuli v. Specialty Surgical Center of Thousand Oaks, LLC, the California appellate court reviewed the business judgment rule.

Randhir Tuli is not a medical doctor, but he helped form a medical business. For a time, Tuli contributed to the enterprise, but then he lapsed into inactivity: he did nothing productive. He did, however, keep taking millions from the enterprise’s profits.

His hardworking surgeon colleagues in this business became restive and sought to buy him out, but Tuli refused to surrender his lucrative perch.

Then Tuli directed his lawyer to send an aggressive—and fateful—letter to a wide swath of recipients, including potential investors in the surgical business. The letter was professionally designed to be scary. It suggested the specter of criminal liability for all involved. Tuli had no good faith belief in the factual or legal basis for his specious claim.

In response to his baseless and damaging letter, others in the limited liability company warned Tuli they would eject him without compensation, as was their right, unless he cured the situation within 30 days. Tuli spurned their offer.

The surgeons made good on their ultimatum: they put Tuli out and paid him nothing.

Tuli launched a decade-long litigation campaign against his former business colleagues. The trial court rejected all Tuli’s claims and the appellate court affirmed.

From 1997 to 2005, Tuli and defendant Dr. Andrew Brooks worked together to create a group of surgery centers. Tuli was an experienced and sophisticated entrepreneur whose ventures had won him millions of dollars.

These centers created lower cost alternatives to hospitals: they eliminated a costly intermediary between surgeon and patient.

The corporate form of ownership for each center was a limited liability company. Specialty was a limited liability company. An operating agreement governed its activities.

In 2005, a Tennessee entity we will call Symbion paid Brooks and Tuli over $16 million each to buy their interests in every center except the Specialty location.

Tuli, Brooks, and Symbion set up Specialty to be a pass- through entity. Specialty did not accumulate retained earnings.

Every month, it distributed to members all the revenue it collected from recent surgeries. The idea was to convince the member surgeons that this was an attractive and immediately profitable place for them to conduct surgeries.

Specialty’s only real asset was its members’ entitlements to get a share of the revenues from future surgeries. Its one asset was prospective only.

There was no publicly traded market in Specialty’s shares. Tuli and Brooks had designed Specialty to be a closed and selective organization; they wanted complete control over the surgeon investors they would solicit and would accept for membership in their elite and highly profitable firm. It took a lot more than just money to become a Specialty member.

A central feature of each version of Specialty’s operating agreement was the provision about a “terminating event.” The terminating event provision was designed to ensure “bad actors” within the company did not damage it. The founders sought to prevent an insider from destroying the business.

They “spent a lot of time negotiating” the terminating event provision. They discussed it in detail with each other and with potential physician members.

A “terminating event” would occur when a Member has disrupted the affairs of the Company or has acted adversely to the best interests of the Company, as determined in the reasonable discretion of the Governing Board, and fails to cure such conduct within thirty (30) days after receipt of a written notice of such conduct sent by the Governing Board to such Member.

The pertinent consequence of a terminating event was loss of the offending member’s Specialty shares.

Friction arose at Specialty when Tuli wandered off the job—permanently. By the end of 2007, Tuli had completely abandoned Specialty.

Tuli’s inactivity at Specialty caused consternation to its doctor members. Their work generated all of the revenue. By contrast, Tuli’s productive effort was zero, but he continued to get 11.3% of the take.

At the time of the dispute, for instance, Specialty was distributing over a million dollars a year to Tuli for nothing in return.

In 2010 and 2011, Goodwin, on behalf of the physicians at Specialty, offered to buy Tuli’s interest. Tuli refused, claiming their offer was an “unfair lowball price.” He wanted more money.

On February 13, 2014, Tuli took his fateful action. He directed his attorney to send a threatening letter. Tuli’s decision prompted Specialty to oust him from the company.

The cover note warned that “[f]ailure to do so may expose you to individual liability.”

Tuli’s saber rattling backfired. Specialty ejected him from the company without compensation. Tuli responded with this lawsuit, which is now more than ten years old.

Specialty ousted Tuli in March 2014. It redeemed Tuli’s ownership shares for zero dollars and ended his participation in the company.

The fundamental principle governing this case is the business judgment rule.

This rule is a presumption that the directors of a corporation make business decisions on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company. Courts defer to board judgments that can be attributed to any rational business purpose.

The parties did not dispute that this rule applies to limited liability companies as well as to corporations.

The trial court ruled the business judgment rule insulated Specialty and its decisionmakers from Tuli’s claim they breached their fiduciary duty to him.

The court found Specialty established this affirmative defense by proving its business purpose was rational: Specialty sought to continue to use private offerings to raise capital without baseless allegations of illegality and impropriety from an existing shareholder.

The evidence supported Specialty’s rational fear that Tuli’s letter would scare off potential investors, that it was rational to notify Tuli his letter was a terminating event, and that it was rational to oust him when he refused to cure within 30 days of Specialty’s notice.

Tuli contended the business judgment rule should not apply to his case for three reasons: conflict of interest, bad faith, and improper investigation.

Tuli claimed a conflict of interest infected the governing board’s decision making, which Tuli maintained made it error to apply the business judgment rule to this case.

The conflict-of-interest exception to the business judgment rule arises when the interests of the individual decisionmakers diverge from the interest of the enterprise as a whole.

A classic example is when directors, faced with a merger, adopt defensive measures but might be acting to protect their own interests rather than those of the corporation and shareholders.

This situation sparks the fear the individual decisionmakers are not to be trusted, for they might be serving their self-interest at the expense of the interests of the entity and its owners, like the shareholders. When the decisionmakers’ personal interests conflict with the enterprise’s interests, the business judgment rule does not apply.

The uncontested evidence in this case, however, was that Specialty’s decisionmakers worked in the best interest of the company as a whole.

Tuli also argued the business judgment rule did not apply because bad faith and improper motives drove the governing board to be rid of him.

“Bad faith” is a common law term in corporate law with an indefinite meaning.

“The black letter requires that officers and directors act in good faith to receive the protection of the business judgment rule. The term ‘bad faith’ is used extensively in corporate law, and the extent to which its meaning varies depending on the context in which it is used is unclear. . . . Illegal conduct may constitute bad faith, and courts have generally stated that the business judgment rule does not apply to knowingly illegal conduct.”

Tuli argued Goodwin, Brooks, and “the other Defendants” exhibited “extreme animosity against Tuli.” “They had been ‘extremely upset’ with Tuli for a long time, were frustrated that he was earning high profits without bringing in business or providing services, and had repeatedly and unsuccessfully tried to buy his units.”

It is not bad faith to offer to buy out an unproductive element, as Tuli conceded. He admitted there was nothing wrong with offering to buy his shares.

Nor is it corporate bad faith for company decisionmakers to be frustrated with a corporate team member who is earning “high profits,” as Tuli phrased it, for doing nothing.

The appellate court saw no logic in adopting this position, which is at odds with the notion that corporate decisionmakers should be working to maximize enterprise value for the benefit of corporate owners.

The objective of a corporation is to enhance the economic value of the corporation.

In any organization, emotions sometimes can run high. After one business person attacks another before an audience of associates, without a good faith basis, it would be not unusual for the victim to scorn the attacker.

Tuli supplied no precedent for extending the concept of bad faith to a situation where a company decisionmaker, while working in the company’s best interests, privately disparaged a colleague.

Tuli made a third argument as to why the business judgment rule does not apply: Specialty, he claims, did not properly investigate the charge in his letter that it was engaging in illegal conduct.

The trial court's analysis was found to be right, and she cited the undisputed evidence that Specialty already had investigated this legal issue before Tuli’s letter.

She likewise noted Tuli offered no evidence that additional investigation would have changed anything. The trial court distinguished this situation from a whistleblower situation “where a shareholder would alert members of a corporation or LLC to actual illegal activity, or that the Board was attempting to take action without any investigation at all into its legality.”

Tuli complained about the trial court’s rejection of his unfair competition claim which was that Specialty engaged in unfair competition by labeling his letter a terminating event, declaring he had disrupted the company, and stripping him of his ownership share without compensation.

The trial court reasoned the business judgment rule protected Specialty’s rational action of preventing existing shareholders from telling prospective investors that new investment might be a crime.

The trial court was right because the business judgment rule indeed applied, and no exception annulled its operation. Tuli’s appellate argument cited no logic or authority to unhorse this result.

Tuli attacked the trial court’s ruling on his fiduciary duty claim which was that Specialty and its members breached their duties to Tuli by casting him out without payment. The trial court applied the business judgment rule and deferred to Specialty’s rational purpose of ejecting a company saboteur.

On appeal, Tuli argued Specialty’s purpose was to fund a special distribution for existing members rather than to aggregate new business capital.

This argument was unavailing, because both business purposes are rational. Company owners rationally want business returns as well as operating capital.

Tuli also argued Specialty did not follow proper company procedures because the board did not meet and vote before Specialty notified him of the terminating event.

The trial court ruled this procedural irregularity was substantively irrelevant, because board members all agreed with Specialty’s action. The court also noted Tuli cited no cases saying that technical violations of corporate procedure created an exception to the business judgment rule.

After trial, the court made factual findings, including that all versions of Specialty’s operating agreement from 2005 on contained the terminating event provision.

Brooks and Tuli discussed this provision with potential physician members. Tuli endorsed it in numerous conversations as a way to ensure “bad actors” would not damage Specialty.

Tuli understood “that with that formula, with the company that was distributing all of its profits, nobody was going to get anything when they committed a terminating event and their shares were redeemed.”

LESSONS:

1.         The business judgment rule is a presumption that the directors of a corporation make business decisions on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the company. Courts defer to board judgments that can be attributed to any rational business purpose.

2.         The rule applies to limited liability companies as well as to corporations.

3.         The business judgment rule insulated Specialty and its decisionmakers from Tuli’s claim they breached their fiduciary duty to him.

4.         Specialty established this affirmative defense by proving its business purpose was rational: Specialty sought to continue to use private offerings to raise capital without baseless allegations of illegality and impropriety from an existing shareholder.

5.         The objective of a corporation is to enhance the economic value of the corporation.

Is Compliance with Statute Excused by Good Faith, but Erroneous, Belief?

In the recent unanimous California Supreme Court decision in the case of Naranjo v. Spectrum Security Services, Inc., considered the California statute that requires employers to provide their employees with written wage statements listing gross and net wages earned, hourly pay rates, hours worked, and other employment-related information. (Lab. Code, § 226.)

If a claimant demonstrates that an employer has failed to comply with this requirement, the claimant is entitled to an injunction compelling compliance and an award of costs and reasonable attorney’s fees.

But in the case of a “knowing and intentional failure . . . to comply,” the law provides for statutory penalties of up to $4,000 or the employee’s actual damages, should the employee’s damages exceed the statutory penalties.

The question presented was whether an employer has knowingly and intentionally failed to comply with section 226’s requirements when the employer had a good faith, yet erroneous, belief that it was in compliance.

The law requires employers to treat certain amounts— premium pay awarded for the deprivation of a lawful meal or rest break — as wages earned for purposes of provisions penalizing the willful failure to timely pay wages to former employees (Lab. Code, § 203), and the knowing and intentional failure to report wages earned in compliance with Labor Code section 226.

Defendant Spectrum Security Services, Inc. (Spectrum) provides secure custodial services to federal agencies. Spectrum transports and guards prisoners and detainees who require outside medical attention or have other appointments outside custodial facilities.

Plaintiff Gustavo Naranjo worked as a guard for Spectrum. Naranjo was suspended and later fired after leaving his post to take a meal break, in violation of a Spectrum policy that required custodial employees to remain on duty during all meal breaks.

Naranjo filed a putative class action on behalf of Spectrum employees, alleging, among other things, that Spectrum had violated state regulations governing meal breaks.

The complaint sought an additional hour of pay — known as “premium pay” — for each day on which Spectrum failed to provide employees a legally compliant meal break.

The complaint further alleged that Spectrum had violated Labor Code section 226 by failing to report the premium pay it owed as wages on employees’ wage statements.

In 1984, the California Legislature added Labor Code section 226.6, that makes the knowing and intentional violation of section 226 a misdemeanor offense.

The statute does not define what constitutes a “knowing and intentional” violation.

But in 2012, the Legislature added a provision specifying what a “knowing and intentional” violation is not: “For purposes of this subdivision, a ‘knowing and intentional failure’ does not include an isolated and unintentional payroll error due to a clerical or inadvertent mistake. In reviewing for compliance with this section, the factfinder may consider as a relevant factor whether the employer, prior to an alleged violation, has adopted and is in compliance with a set of policies, procedures, and practices that fully comply with this section.

The question presented in this appeal concerns only the circumstances under which a plaintiff is entitled to statutory penalties in addition to these other forms of relief, based on a knowing and intentional failure by an employer to comply with section 226. 

On its face, the statute might appear to answer the question: It is the “failure to comply” with the law that must be knowing and intentional — not simply the act of issuing a wage statement that omits certain information that the law, properly interpreted, requires to be included.

The wording of the penalty provision, which connects the employer’s culpable state of mind to a violation of the law, is reasonably read to excuse intentional acts or omissions that are based on a reasonable, good faith mistake about what compliance with the law requires.

The context caused the Supreme Court to conclude that section 226, subdivision (e)(1) is best read to allow for a defense based on good faith belief in compliance.

The operative “knowing and intentional” language does not appear in a liability provision, but in a penalty provision. In other words, the purpose of asking whether the employer has knowingly and intentionally failed to comply with the requirements of section 226 is not to determine whether or not the employer has, in fact, violated the statute.

There is no doubt that an employer who issues incomplete wage statements is not complying with the statute, and an employee who can so demonstrate in court is entitled to remedies consisting of injunctive relief, costs, and reasonable attorney’s fees.

The question is only whether the employee is also entitled to an additional monetary remedy in the nature of penalties for knowing and intentional noncompliance.

As a general rule, courts refuse to impose civil penalties against a party who acted with a good faith and reasonable belief in the legality of his or her actions.

That is because the purpose of imposing civil penalties is typically, as with punitive damages, not primarily to compensate, but to deter and punish.

Those who proceed on a reasonable, good faith belief that they have conformed their conduct to the law’s requirements do not need to be deterred from repeating their mistake, nor do they reflect the sort of disregard of the requirements of the law and respect for others’ rights that penalty provisions are frequently designed to punish.

LESSONS:

1.         If possible, act with a good faith and reasonable belief in the legality of the actions.

2.         The law requires employers to treat certain amounts— premium pay awarded for the deprivation of a lawful meal or rest break — as wages earned for purposes of provisions penalizing the willful failure to timely pay wages to former employees (Lab. Code, § 203), and the knowing and intentional failure to report wages earned in compliance with Labor Code section 226.

3.         Those who proceed on a reasonable, good faith belief that they have conformed their conduct to the law’s requirements do not need to be deterred from repeating their mistake, nor do they reflect the sort of disregard of the requirements of the law and respect for others’ rights that penalty provisions are frequently designed to punish.

Are California Employers Required to Provide Reasonable Accommodations for Disabilities?

In the recent case of Brown v. Los Angeles Unified School District, the Second District Court of Appeal confirmed that California law requires employers to provide reasonable accommodations for an employee's disabilities.

Appellant Laurie Brown (Brown) had been a teacher employed by the LAUSD since 1989. In 2015, LAUSD installed an updated Wi-Fi system at the school where Brown taught.

Brown soon began to experience headaches and nausea, and she believed the electromagnetic frequency of the new wireless system was the cause. She requested various accommodations from LAUSD, but ultimately sued, alleging LAUSD discriminated against her based on her “electromagnetic hypersensitivity,” failed to accommodate her condition, and retaliated against her—in violation of the California Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.).

Brown contended the trial court erred in sustaining the LAUSD's demurrer to her complaint because she pled sufficient facts in support of each of her claims.

The appellate court concluded Brown adequately pled her cause of action for failure to provide reasonable accommodation for her disability, and reversed the sustaining of the LAUSD's demurrer on that cause of action only.

In 2012, LAUSD commissioned URS Corporation (URS) to consult with LAUSD about replacing the existing Wi-Fi system at Millikan Middle School (Millikan) with one that would accommodate iPads, Chromebooks, and tablets LAUSD intended to provide its students.

LAUSD requested public comment on the proposed new Wi- Fi system. Cindy Sage, an environmental scientist and expert on electromagnetic frequency (EMF), stated she could not support URS’s conclusions about the safety of the new Wi-Fi system.

During a May 28, 2014, school board hearing, LAUSD’s “medical personnel” presented a power point presentation indicating they were uncertain about any long-term effects the Wi-Fi system may have on students and staff. LAUSD promised to continue actively monitoring any developments.

In 2015, Brown began teaching at Millikan. Later that year, in April 2015, LAUSD installed and began operating the upgraded Wi-Fi system at Millikan. Brown thereafter experienced chronic pain, which she alleged was caused by the new Wi-Fi.

Brown filed a complaint that alleged five causes of action pursuant to FEHA:

1) Discrimination based on physical disability;

2) Failure to accommodate;
3) Failure to engage in the interactive process;

4) Retaliation; and

5) Failure to prevent discrimination and retaliation.

In its demurrer to all five causes of action, LAUSD contended Brown’s alleged disability, electromagnetic sensitivity, is not a “recognized” disability.

The Legislature has stated its intent that “physical disability” be construed so that employees are protected from discrimination due to actual or perceived physical impairment that is disabling, potentially disabling, or perceived as disabling or potentially disabling.

FEHA states a “physical disability” includes, but is not limited to, any physiological disease, disorder, condition, cosmetic disfigurement, or anatomical loss that does both of the following: Affects one or more of the following body systems: neurological, immunological, musculoskeletal, special sense organs, respiratory, including speech organs, cardiovascular, reproductive, digestive, genitourinary, hemic and lymphatic, skin and endocrine; and limits a major life activity.

Major life activities shall be broadly construed and include physical, mental, and social activities and working.

The complaint alleged that Brown could not work because she experienced the various symptoms of which LAUSD had been warned could occur, namely, chronic pain, headaches, nausea, itching, burning sensations on her skin, ear issues, shortness of breath, inflammation, heart palpitations, respiratory complications, foggy headedness, and fatigue, all symptoms of Microwave Sickness or EHS. These described symptoms affect one or more of the body systems listed in the statute and limited Brown’s major life activity of working as a teacher at Millikan.

Although the federal Americans with Disability Act does not “recognize” EHS, the appellate court held it is immaterial to its interpretation of the FEHA. Brown adequately pled physical disability within the four corners of the California statute.

An employer must provide a reasonable accommodation for an applicant or employee with a known mental or physical disability unless the accommodation would cause undue hardship.

Failure to do so is an unlawful employment practice.

To establish a failure to accommodate claim, Brown must show:

1) she has a disability covered by FEHA;

2) she can perform the essential functions of the position; and

3) LAUSD failed reasonably to accommodate her disability.

A “reasonable accommodation” means a modification or adjustment to the workplace that enables the employee to perform the essential functions of the job held or desired.

Although an accommodation is not reasonable if it produces an undue hardship to the employer, a plaintiff need not initially plead or produce evidence showing that the accommodation would not impose such an undue hardship.

Once notified of a disability, the employer’s burden is to take positive steps to accommodate the employee’s limitations. The employee also retains a duty to cooperate with the employer’s effort by explaining his or her disability and qualifications.

Reasonable accommodation thus envisions an exchange between employer and employee where each seeks and shares information to achieve the best match between the employee’s capabilities and available positions.

If a reasonable accommodation does not work, the employee must notify the employer, who has a duty to provide further accommodation.

LESSONS:

1.         Every employer in California has a duty to provide reasonable accommodations for an employee's disabilities, unless the accommodation would cause undue hardship to the employer.

2.         "Physical disability” is broadly construed so that employees are protected from discrimination due to actual or perceived physical impairment that is disabling, potentially disabling, or perceived as disabling or potentially disabling.

Is Extra Pay for Missed Breaks "Wages" That Must Be Reported?

In the recent California Supreme Court decision in Naranjo v. Spectrum Security Services, Ins., the justices were unanimous in answering this issue.

California law requires employers to provide daily meal and rest breaks to most unsalaried employees.

If an employer unlawfully makes an employee work during all or part of a meal or rest period, the employer must pay the employee an additional hour of pay.

The primary issue before the Supreme Court was whether this extra pay for missed breaks constitutes “wages” that must be reported on statutorily required wage statements during employment and paid within statutory deadlines when an employee leaves the job.

The Supreme Court concluded, contrary to the Court of Appeal, that the answer is yes.

Although the extra pay is designed to compensate for the unlawful deprivation of a guaranteed break, it also compensates for the work the employee performed during the break period.

The extra pay thus constitutes wages subject to the same timing and reporting rules as other forms of compensation for work.

The Supreme Court also resolved a dispute over the rate of prejudgment interest that applies to amounts due for failure to provide meal and rest breaks, and it agreed with the Court of Appeal that the 7 percent default rate set by the state Constitution applies.

Defendant Spectrum Security Services, Inc., (Spectrum) provides secure custodial services to federal agencies. The company transports and guards prisoners and detainees who require outside medical attention or have other appointments outside custodial facilities.

Plaintiff Gustavo Naranjo was a guard for Spectrum. Naranjo was suspended and later fired after leaving his post to take a meal break, in violation of a Spectrum policy that required custodial employees to remain on duty during all meal breaks.

Naranjo filed a putative class action on behalf of Spectrum employees, alleging that Spectrum had violated state meal break requirements under the Labor Code and the applicable Industrial Welfare Commission (IWC) wage order.

The complaint Naranjo also alleged that Spectrum violated state rest break requirements.

Naranjo sought an additional hour of pay — commonly referred to as “premium pay” — for each day on which Spectrum failed to provide employees a legally compliant meal break.

Naranjo’s complaint also alleged two Labor Code violations related to Spectrum’s premium pay obligations. According to the complaint, Spectrum was required to report the premium pay on employees’ wage statements and timely provide the pay to employees upon their discharge or resignation, but had done neither. The complaint sought the damages and penalties prescribed by statute as well as prejudgment interest.

The court first considered Spectrum’s liability for meal break violations. Under the governing IWC wage order, an employer ordinarily must provide covered employees an off-duty meal period on shifts lasting longer than five hours.

An exception to this requirement allows for on duty meal periods if the nature of the work prevents an employee from being relieved of all duty, but only when by written agreement between the parties an on-the-job paid meal period is agreed to.

Naranjo did not dispute that Spectrum had always required on-duty meal periods as company policy because of the nature of its guards’ work but argued that Spectrum did not have a valid written on-duty meal break agreement with its employees.

Agreeing with Naranjo that Spectrum had no valid agreement for part of the class period, the court directed a verdict for the plaintiff class on the meal break claim for the period from June 2004 to September 2007.

A jury found Spectrum not liable for the period beginning on October 1, 2007, after Spectrum had circulated and obtained written consent to its on-duty meal break policy.

The court then considered the related wage statement and timely payment claims.

The court concluded that the obligation to supply meal break premium pay also carried with it reporting and timing obligations.

Whether Spectrum was monetarily liable for failure to abide by those obligations depended on its state of mind: The wage statement statute authorizes damages and penalties only for “knowing and intentional” violations and excuses “isolated and unintentional payroll error due to a clerical or inadvertent mistake”, while the timely payment statutes impose penalties only for “willful[]” failures to make payment.

The trial court concluded Spectrum’s wage statement omissions were intentional and awarded Labor Code section 226 penalties, but the failure to make timely payment was not willful and so Spectrum was not liable for section 203 penalties.

The trial court entered judgment for the plaintiff class on the meal break and wage statement claims and awarded attorney fees and prejudgment interest at a rate of 10 percent.

As the Court of Appeal explained, whether the wage statement and timely payment statutes apply to missed-break premium pay is a question that has generated confusion in the Courts of Appeal as well as in federal courts.

California’s meal and rest break requirements date back to 1916 and 1932, respectively, when the newly created IWC included the requirements in a series of wage orders regulating terms and conditions of employment in various industries and occupations.

The primary questions in this case concern the relationship between the premium pay provision, and the provisions of the Labor Code governing the reporting of wages and timely payment of wages upon discharge or resignation.

When an employer unlawfully denies an employee a meal or rest period and thus becomes obligated to pay an extra hour’s pay, can the employer be held liable if it fails to pay any unpaid missed break amounts within statutorily mandated deadlines?

And can it be held liable if it fails to report that premium pay on a statutorily required wage statement? Spectrum argues the answer to each question is no.

When an employment relationship comes to an end, the Labor Code requires employers to promptly pay any unpaid wages to the departing employee.

The law establishes different payment deadlines depending on the manner of departure. Labor Code section 201 establishes a baseline statutory deadline for paying employees who are discharged from their employment: upon termination, the time of discharge are due and payable immediately.”

Naranjo’s class claim alleged that:

(1) Spectrum was obligated to pay premium pay for noncompliant meal periods (i.e., meal periods during which employees were required to work without a valid on-duty meal agreement in place);

(2) Spectrum was obligated to make these payments in a timely manner upon discharge or quitting, but did not do so; and

(3) this dereliction was willful, warranting imposition of waiting time penalties.

The Court of Appeal was correct that premium pay is a statutory remedy for a legal violation. But the court’s further conclusion that premium pay cannot constitute wages rests on a false dichotomy: that a payment must be either a legal remedy or wages.

For these purposes, premium pay is both.

That is because under the relevant statute and wage order, an employee becomes entitled to premium pay for missed or noncompliant meal and rest breaks precisely because she was required to work when she should have been relieved of duty: required to work too long into a shift without a meal break; required in whole or part to work through a break; or, as was the case here, required to remain on duty without an appropriate agreement in place authorizing on duty meal breaks.

The premium pay due for the deprivation is certainly designed to compensate employees for hardships the Legislature concluded employees should not be made to suffer. But when those hardships include rendering work, the pay owed can equally be viewed as wages.

In this respect, missed-break premium pay is comparable to other forms of payment for working under conditions of hardship.

Take overtime premium pay, for example: An employer who requires an employee to work more hours than the Legislature has determined is generally desirable must pay extra for the privilege, both to compensate the employee for the hardship incident to such work and to deter the employer from routinely imposing such obligations.

And precisely because it compensates the employee for work, overtime premium pay has always also been understood as wages for purposes of Labor Code section 200 and related statutes.

The trial court awarded Naranjo 10 percent prejudgment interest on his meal break claim. The Court of Appeal reversed with instructions to recalculate the award based on a 7 percent rate.

The Court of Appeal was correct to identify 7 percent as the applicable rate.

The state Constitution establishes a default interest rate of 7 percent “upon the loan or things in action, or on accounts after demand.”

Prevailing civil parties are entitled to this interest rate in the calculation of prejudgment interest absent a statute specifying a higher rate.

No statute specifies the rate of prejudgment interest for most tort or other noncontract claims, so, in such cases, the default constitutional rate of 7 percent typically applies.

For many years, the same was true of contract claims. But in 1985, the Legislature enacted a special default rule governing such claims: “If a contract entered into after January 1, 1986, does not stipulate a legal rate of interest, the obligation shall bear interest at a rate of 10 percent per annum after a breach.”

Whether such penalties were available in this particular case is a matter that has yet to be determined.

LESSONS:

1.         California law requires employers to provide daily meal and rest breaks to most unsalaried employees, and if an employer unlawfully makes an employee work during all or part of a meal or rest period, the employer must pay the employee an additional hour of pay.

2.         An employer ordinarily must provide covered employees an off-duty meal period on shifts lasting longer than five hours.

3.         When an employment relationship comes to an end, the Labor Code requires employers to promptly pay any unpaid wages to the departing employee.

4.         Prevailing civil parties are entitled to the interest rate of 7% per annum in the calculation of prejudgment interest absent a statute specifying a higher rate.

5.         When an employer unlawfully denies an employee a meal or rest period and thus becomes obligated to pay an extra hour’s pay, the employer can be held liable if it fails to pay any unpaid missed break amounts within statutorily mandated deadlines?

What Remedies are Available in a California Employment Discrimination Case?

In the recent case of Vines v. O'Reilly Auto Enterprises, LLC, Renee Vines sued his former employer O’Reilly Auto Enterprises, LLC for violations of the Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.), alleging race- and age-based discrimination, harassment and retaliation-related claims.

After a jury found in his favor and awarded damages on his claims for retaliation and failure to prevent retaliation, Vines moved for an award of $809,681.25 in attorney fees.

The trial court awarded only $129,540.44 in fees, based in part on its determination the unsuccessful discrimination and harassment claims were not sufficiently related or factually intertwined with the successful retaliation claims.

On appeal Vines contended that determination was based on a legal error and the court thus abused its discretion in reducing the fee award. The appellate court agreed, reversed the postjudgment fee order and remanded for the trial court to recalculate Vines’s fee award.

In 2017, Vines filed a complaint against O’Reilly alleging he was a 59-year-old Black man who had been subjected during his employment with O’Reilly to discriminatory treatment and harassment by his supervisor Tim Fonder and others because of his age and race.

For example, Fonder allegedly created false and misleading reviews of Vines, yelled at him and denied his requests for training given to younger, non- Black employees. Although Vines repeatedly complained to O’Reilly’s management regarding the harassment and discrimination, O’Reilly took no remedial action.

Instead, the company began an investigation that was pretextual and conducted to seek a reason for terminating Vines’s employment.

Vines alleged six causes of action: two for discrimination (race and age); two for harassment (race and age); retaliation; and failure to prevent discrimination, harassment and retaliation.

O’Reilly moved for summary judgment or, in the alternative, summary adjudication as to each of Vines’s claims.

The trial court denied O’Reilly’s summary judgment motion, finding triable issues of material facts existed—including as to whether O’Reilly had been motivated by racial animus in taking disciplinary action against Vines and retaliated against Vines for his complaints—but granted summary adjudication of Vines’s causes of action for age discrimination and age harassment, finding Vines had failed to present any evidence his age had anything to do with his termination or O’Reilly’s alleged discrimination, harassment or retaliation.

The parties tried the remaining four causes of action before a jury.

For Vines’s retaliation claim the jury was instructed, in part: “Mr. Vines does not have to prove discrimination or harassment in order to be protected from retaliation. If he reasonably believed that O’Reilly’s conduct was unlawful he may prevail on a retaliation claim even if he does not present, or prevail on, a separate claim for discrimination or harassment.”

The jury returned its verdict finding against Vines on his race discrimination (disparate treatment) and harassment claims: The jury found Vines’s race was not a substantial motivating reason for O’Reilly’s discharge or other adverse employment action and Vines was not subjected to unwanted harassing conduct because of his race.

Vines, however, prevailed on his retaliation and failure to prevent retaliation claims.

For his retaliation claim, as reflected on the special verdict form, the jury’s findings included that Vines had “complained to a supervisor, human resources or the T.I.P.S. Hotline of what he reasonably believed to be race discrimination, race harassment, or unlawful retaliation.”

The jury awarded Vines $70,200 in damages: $35,100 for economic loss and $35,100 for noneconomic loss.

Although the jury also found Vines had proved by clear and convincing evidence that an officer, director or managing agent of O’Reilly acting on O’Reilly’s behalf engaged in unlawful retaliation with malice, oppression or fraud, or that O’Reilly knew of that conduct and adopted or approved it after it occurred, the jury in a subsequent phase of the trial awarded Vines nothing as punitive damages.

Vines moved for an award of $809,681.25 in attorney fees—a lodestar of $647,745 with a 1.25 multiplier.

In its opposition to Vines’s attorney fee motion O’Reilly contended Vines was not the prevailing party for purposes of an award of attorney fees; but, even if he were, his fee request should be denied altogether because the amount of fees he requested was excessive given the nominal jury award and Vines’s limited success: The jury had awarded Vines only $70,200 even though in his closing argument he had sought more than $2.5 million in damages, and Vines had prevailed on only two of his six causes of action.

O’Reilly argued in the alternative the fee amount should be substantially reduced because a court has discretion to limit fees for unsuccessful causes of action if they were not related to the successful causes of action or the plaintiff did not obtain substantial relief.

O’Reilly asserted Vines’s FEHA claims were not interrelated and, even if the trial court were to find otherwise, Vines had obtained only limited success in the litigation, not substantial relief or “excellent results,” for the reasons O’Reilly had already stated in arguing for a denial of any fees.

Government Code section 12965 authorizes an award of attorney fees to the prevailing party in an action under FEHA: “In civil actions brought under this section, the court, in its discretion, may award to the prevailing party . . . reasonable attorney[ ] fees and costs.”

Because fee awards to prevailing FEHA plaintiffs promote the important public policy in favor of eliminating discrimination in using the same principle even in the absence of an offer under that statutory provision.

In order to calculate an attorney fee award under the FEHA, courts generally use the well-established lodestar method. The lodestar amount is simply the product of the number of hours spent on the case, times an applicable hourly rate.

The trial court then has the discretion to increase or reduce the lodestar figure by applying a positive or negative multiplier based on a variety of factors.

Vines asserted the trial court’s ruling his unsuccessful discrimination and harassment claims were not sufficiently related to or factually intertwined with his successful retaliation- based claims was predicated on a legal error and the court thus abused its discretion in reducing the amount awarded on this ground.

Specifically, he argued the trial court’s ruling was based on a faulty temporal analysis that failed to recognize he had to present evidence of the conduct underlying his discrimination and harassment claims to prove the reasonableness of his belief that such conduct was unlawful, as required to succeed on his retaliation cause of action.

The retaliation provision of FEHA forbids an employer to discharge, expel, or otherwise discriminate against any person because the person has opposed any practices forbidden under FEHA.

To establish a prima facie case of retaliation under the FEHA, a plaintiff must show (1) he or she engaged in a protected activity, (2) the employer subjected the employee to an adverse employment action, and (3) a causal link existed between the protected activity and the employer’s action.

It is well established that a retaliation claim may be brought by an employee who has complained of or opposed conduct that the employee reasonably believes to be discriminatory, even when a court later determines the conduct was not actually prohibited by the FEHA.

An employee is protected against retaliation if the employee reasonably and in good faith believed that what he or she was opposing constituted unlawful employer conduct.

A plaintiff must not only show that he subjectively (that is, in good faith) believed that his employer was engaged in unlawful employment practices, but also that his belief was objectively reasonable in light of the facts and record presented.

The trial court was held to have abused its discretion in determining Vines’s reasonable attorney fees when the trial court stated it found the claims were not sufficiently related or factually intertwined because any facts related to Vines being retaliated against arose after he complained about the discrimination and harassment conduct.

That statement reflects a legal error. Evidence of the facts regarding the alleged underlying discriminatory and harassing conduct about which Vines had complained was relevant to establish, for the retaliation cause of action, the reasonableness of his belief that conduct was unlawful.

Indeed, an employment discrimination cases, by their very nature, involve several causes of action arising from the same set of facts.

O’Reilly argued the trial court’s exercise of discretion in declining to award all of Vines’s requested attorney fees should nonetheless be affirmed because O’Reilly had defeated Vines’s age-based discrimination and harassment claims with its motion for summary adjudication; Vines lost at trial on his race-based discrimination and harassment claims; the jury awarded Vines only $70,000 on his retaliation claims, which was only 3 percent of the amount Vines had sought; and the jury declined to award punitive damages.

O’Reilly, however, ignored that the trial court expressly ruled Vines had won substantial relief and obtained excellent results and, aside from the reductions for specific fees not reasonably incurred, had reduced the attorney fees amount because it had found Vines’s claims were not sufficiently related or factually intertwined.

O’Reilly asserted the trial court’s determination Vines’s unsuccessful claims were not closely related to his successful claims was a factual finding supported by substantial evidence.

It contended Vines’s discrimination and harassment claims involved different facts—including different actors, locations, documents and motives—from his retaliation claims. O’Reilly argues the age-based claims had no relationship to the retaliation claims tried to the jury.

For Vines’s race-based claims, it asserted the alleged discrimination and harassment involved the conduct and comments of Fonder and certain of Vines’s coworkers on-site at O’Reilly’s Santa Clarita store, while Vines’s retaliation claims involved the conduct of O’Reilly’s management personnel, including Larotonda, none of whom participated in any underlying discrimination or harassment and whose sole involvement was in reviewing off-site Vines’s personnel file to determine whether termination of Vines’s employment complied with O’Reilly’s policies.

The trial court’s stated reason for its ruling regarding the insufficient relatedness of the claims, however, was not on the ground the age-based claims had no relationship to the retaliation-based claims. And the determination whether any facts related to Vines’s retaliation claim arose after he had complained about the discriminatory and harassing conduct, which was the basis for the court’s ruling Vines’s claims were not factually intertwined, entailed a legal conclusion: Whether evidence supports one claim but not another is not a historical fact.

Because evidence of the facts regarding the conduct about which Vines complained was probative as to whether he reasonably believed it constituted unlawful discrimination and harassment, the court erred in determining any facts related to the retaliation claim arose after he had complained about that conduct.

LESSONS:

1.         Government Code section 12965 authorizes an award of attorney fees to the prevailing party in an action under FEHA, providing in civil actions brought under this section, the court, in its discretion, may award to the prevailing party reasonable attorney's fees and costs.

2.         To establish a prima facie case of retaliation under the FEHA, a plaintiff must show (1) he or she engaged in a protected activity, (2) the employer subjected the employee to an adverse employment action, and (3) a causal link existed between the protected activity and the employer’s action.

3.         A plaintiff must not only show that he subjectively (that is, in good faith) believed that his employer was engaged in unlawful employment practices, but also that his belief was objectively reasonable in light of the facts and record presented.

What Issues are Involved in a Harassment and Discrimination Claim in California?

The various issues in a harassment and discrimination claim under California’s Fair Employment and Housing Act (FEHA)n are described in the recent appellate decision in Wawarzenski v. United Airlines.

Alexa Wawrzenski was a flight attendant employed by United Airlines, and it investigated and ultimately fired her for having a social media account featuring pictures of herself in uniform and wearing a bikini, with a link to a subscription- based account advertised as providing “[e]xclusive private content you won’t see anywh[ere else].”

Wawrzenski sued United, alleging that she endured years of gender discrimination and harassment, that United retaliated against her for complaining about the discrimination and harassment by terminating her employment, that United’s investigation into her social media and her termination discriminated against her as a woman, that United failed to prevent its employees’ misconduct, and that United intentionally caused Wawrzenski emotional distress.

United moved for summary judgment or in the alternative for summary adjudication on all causes of action and on Wawrzenski’s claim for punitive damages. The trial court granted United’s motion in its entirety, and Wawrzenski appealed from the ensuing judgment.

The appellate court concluded the trial court erred in granting United’s motion for summary adjudication on Wawrzenski’s causes of action under the Fair Employment and Housing Act (Gov. Code, § 12900 et seq.).

Wawrzenski began working for United in October 2015 as a flight attendant based in Los Angeles.

As a United employee, Wawrzenski benefitted from and was subject to certain employment policies. United’s Working Together Guidelines include four categories: dignity and respect, honesty, professionalism, and responsibility.

United also has social media guidelines that apply to employees’ social networking activities while on or off the job, including social networking you use without a name or under a false name.

Wawrzenski describes her “body type” as having a very small waist in proportion to her lower body and “larger hips.”  She claimed that throughout her employment she experienced harassing, derogatory, and objectifying comments about her body and the way she looked in her uniform.

The types of comments she heard “several times a month” included “offensive jokes” about her “‘breaking necks’” of male employees who looked at her, remarks about her “‘butt,’” and questions about where she had her “‘surgery done’” and how much she paid for “her body.” Wawrzenski said that “at times” she experienced “an unwanted sexual advance.”

Wawrzenski filed a complaint with the Department of Fair Employment and Housing (now the Civil Rights Department) and in October 2020 obtained a right-to-sue letter. She alleged in her ensuing lawsuit causes of action for gender discrimination, hostile work environment harassment, and retaliation in violation of FEHA; failure to prevent discrimination, harassment, and retaliation in violation of FEHA; whistleblower retaliation in violation of Labor Code section 1102.5; wrongful termination in violation of public policy; and intentional infliction of emotional distress.

FEHA prohibits an employer from subjecting an employee to an adverse employment action based on the employee’s protected status.

In evaluating claims of discrimination under FEHA, California courts apply the burden- shifting approach set forth in McDonnell Douglas Corp. v. Green.

Under this approach, if the plaintiff establishes a prima facie case supporting his or her discrimination claim, the burden of production shifts to the employer to rebut the presumption of discrimination by offering a legitimate, nondiscriminatory reason for the adverse employment action.

To state a prima facie case of discrimination under FEHA, the plaintiff must show (1) she was a member of a protected class; (2) she was qualified for the position she sought or was performing competently in the position she held; (3) she suffered an adverse employment action; and (4) some other circumstance suggests discriminatory motive.

The plaintiff must establish a causal nexus between the adverse employment action and her protected characteristic.

Direct evidence is evidence which, if believed, proves the fact of discriminatory animus without inference or presumption.

Because direct evidence of intentional discrimination is rare, the plaintiff must usually prove discrimination circumstantially.

Plaintiffs in FEHA cases can prove their cases by presenting either direct evidence, such as statements or admissions, or circumstantial evidence, such as comparative or statistical evidence.

Wawrzenski submitted a variety of evidence to attack United’s proffered reasons as pretexts for discrimination, including evidence of disparate treatment, United’s failure to investigate her complaints of discrimination and harassment, and a discriminatory atmosphere. Together, this evidence cast sufficient doubt on United’s nondiscriminatory reasons for terminating Wawrzenski’s employment to defeat United’s motion for summary adjudication on her cause of action for discrimination.

Nothing in the Guidelines or FEHA required Wawrzenski to report suspected discrimination and harassment through every channel available to her. Moreover, Wawrzenski did complain “in writing” to Mark about the alleged discrimination and harassment in the statement she prepared following the investigation meeting on July 2, 2020. And Perez admitted United “should have” investigated those complaints.

 It is an unlawful employment practice for an employer to “harass” an employee based on membership in a protected class, including because of sex.

Harassment includes verbal harassment such as epithets, derogatory comments or slurs on a basis enumerated in FEHA.

Sexual harassment also includes any unwelcome sexual advances, requests for sexual favors, or other verbal or physical conduct of a sexual nature.

Hostile work environment harassment is a type of sexual harassment that has the purpose or effect of either interfering with the work performance of an employee, or creating an intimidating workplace.

To prevail on a claim of hostile work environment under FEHA, an employee must show he or she was subjected to harassing conduct that was (1) unwelcome, (2) because of sex or gender, and (3) sufficiently severe or pervasive to alter the conditions of her employment and create an abusive work environment.

The working environment must be evaluated in light of the totality of the circumstances.

These may include the frequency of the discriminatory conduct; its severity; whether it is physically threatening or humiliating, or a mere offensive utterance; and whether it unreasonably interferes with an employee’s work performance.

The required level of severity or seriousness varies inversely with the pervasiveness or frequency of the conduct.

Simple teasing, offhand comments, and isolated incidents (unless extremely serious are not sufficient to create an actionable claim of harassment.

The objective severity of harassment should be judged from the perspective of a reasonable person in the plaintiff’s position.

A single incident of harassing conduct is sufficient to create a triable issue regarding the existence of a hostile work environment if the harassing conduct has unreasonably interfered with the plaintiff’s work performance or created an intimidating, hostile, or offensive work environment.

A hostile work environment exists when the harassing conduct sufficiently offends, humiliates, distresses, or intrudes upon its victim, so as to disrupt the victim’s emotional tranquility in the workplace, affect the victim’s ability to perform the job as usual, or otherwise interfere with and undermine the victim’s personal sense of well-being.

As discussed in the context of Wawrzenski’s cause of action for discrimination, Wawrzenski submitted sufficient circumstantial evidence to create a triable issue of material fact regarding whether United’s stated reasons for terminating Wawrzenski were pretextual.

From that evidence, a reasonable trier of fact could find that, even if Wawrzenski’s Instagram account with its link to a subscription-based OnlyFans page violated United’s social media policy, United retaliated against Wawrzenski by terminating her employment after she complained about the disparate enforcement of that policy between men and women.

LESSONS:

1.               FEHA prohibits an employer from subjecting an employee to an adverse employment action based on the employee’s protected status.

2.         Under the approach set forth in McDonnell Douglas Corp. v. Green, if the plaintiff establishes a prima facie case supporting his or her discrimination claim, the burden of production shifts to the employer to rebut the presumption of discrimination by offering a legitimate, nondiscriminatory reason for the adverse employment action.

3.         To state a prima facie case of discrimination under FEHA, the plaintiff must show (1) she was a member of a protected class; (2) she was qualified for the position she sought or was performing competently in the position she held; (3) she suffered an adverse employment action; and (4) some other circumstance suggests discriminatory motive.

4.         The plaintiff must establish a causal nexus between the adverse employment action and her protected characteristic.

What is the Test to Determine if a Real Estate Salesperson is an “Employee” or an “Independent Contractor”?

During 2023, it is imperative that California real estate brokers understand and apply the applicable test or governing standard for determining whether a real estate salesperson is an “employee” or an “independent contractor” for purposes of California Labor Code’s wage and hour provisions.

In the recent decision in Whitlach v. Premier Valley, Inc., Plaintiff James Whitlach pursued a claim under the Labor Code Private Attorney General Act of 2004 (Labor Code, § 2698 et seq.) against Defendants Premier Valley, Inc. (doing business as Century 21 MM) and Century 21 Real Estate LLC, to enforce civil penalties for violations of the Labor Code.

The trial court sustained defendants’ demurrer to the operative complaint without leave to amend. Whitlach appealed.

The appeal involved issues of statutory interpretation with regard to the following question: What is the applicable test or governing standard for determining whether a real estate salesperson is an “employee” or an “independent contractor” for purposes of the Labor Code’s wage and hour provisions.

Resolution of this question turns on interpreting recently enacted Labor Code section 2778, subdivision (c)(1), and other provisions incorporated therein.

The appellate court concluded the applicable test is the test set forth in Unemployment Insurance Code sections 650 and 13004.1, as incorporated in Business and Professions Code section 10032, subdivision (b), which is itself incorporated in Labor Code section 2778, subdivision (c)(1).

The trial court reached the same conclusion and applied the correct test in ruling on defendants’ demurrer, and the appellate court affirmed the judgment.

Plaintiff James Whitlach is a former real estate agent who was affiliated with defendant Premier Valley, Inc., doing business as Century 21 MM (Premier Valley), a real estate brokerage firm located in Oakdale. Premier Valley is a franchisee of co- defendant Century 21 Real Estate LLC (Century 21), a Delaware Corporation with its principal place of business in Parsippany, New Jersey.

On December 20, 2018, Whitlach filed a class action complaint alleging multiple violations of the Labor Code, among other claims. The complaint alleged he was bringing the class action on behalf of similarly situated real estate agents who were misclassified as independent contractors when they should have been considered employees, and as a result were not properly paid all wages due and owing, were subjected to unlawful deductions, and were not reimbursed for reasonable and necessary business expenses.

Whitlach filed a first amended complaint (FAC) that added a representative claim under the Labor Code Private Attorney General Act of 2004 (PAGA), which allows an aggrieved employee to recover civil penalties for Labor Code violations committed by an employer. (Labor Code, §§ 2698, 2699, subd. (a).)

The FAC alleged Whitlach was an “aggrieved employee” for purposes of his PAGA claim. The FAC further alleged that Whitlach’s PAGA claim was brought on behalf of himself and other current and former real estate agents affiliated with Premier Valley, to seek civil penalties for Labor Code violations committed by Premier Valley and Century 21.

Whitlach’s class claims were dismissed upon the trial court’s adoption of a stipulated order to this effect, leaving at issue only the PAGA claim.

Premier Valley and Century 21 demurred to the FAC on the ground that Whitlach was precluded from asserting a PAGA claim (or any derivative Labor Code claim) because he was an independent contractor, not an employee.

The trial court heard the demurrer and concluded the applicable test for determining Whitlach’s employee or independent contractor status for purposes of his PAGA cause of action and derivative Labor Code claims was the Unemployment Insurance Code section 650 test.

Applying the Unemployment Insurance Code section 650 test, the trial court ruled that Whitlach was an independent contractor as a matter of law and dismissed the FAC with leave to amend.

Whitlach filed a second amended complaint (SAC), which is the operative complaint in this case. The SAC again asserted a single PAGA cause of action, premised on alleged misclassification of real estate agents as independent contractors rather than employees, and attendant Labor Code violations, by Premier Valley.

In addition, the SAC contained multiple new allegations directed to the trial court’s rationale for dismissing the FAC (i.e., that Whitlach was an independent contractor as a matter of law).

The test applied by the trial court in determining that Whitlach was an independent contractor as a matter of law turned, in part, on the existence of a written contract or independent contractor agreement between Whitlach and Premier Valley.

In the SAC, Whitlach alleged the independent contractor agreement he had signed was unconscionable and, therefore, unenforceable.

Whitlach alleged, alternatively, that should he be determined to be an independent contractor and not an employee, then Labor Code section 2778(c)(1) violated equal protection and was unconstitutional under the California Constitution.

Finally, Whitlach alleged he was an employee for purposes of PAGA and his derivative Labor Code claims because he had entered into a separate contract or management employment agreement with Premier Valley, in his capacity as a sales manager for the firm.

Premier Valley and Century 21 demurred to the SAC. Premier Valley and Century 21 again argued that Whitlach was an independent contractor as a matter of law; they further argued that Labor Code section 2778(c)(1) was not unconstitutional, the independent contractor agreement between Whitlach and Premier Valley was not unconscionable, and the separate contract Whitlach had with Premier Valley for his work as a sales manager was irrelevant for purposes of his representative claims.

The trial court sustained defendants’ demurrer and dismissed the SAC without leave to amend.

Whitlach appealed the trial court’s ruling sustaining the demurrer to the SAC and the subsequent judgment of dismissal.

The parties agreed that in order for Whitlach to proceed on his PAGA claim, he was required to be an employee of Premier Valley, because PAGA, as well as the Labor Code statutes Whitlach seeks to enforce through PAGA, apply only to employees, and not to independent contractors.

A PAGA action must be brought by an aggrieved employee on behalf of himself or herself and other current or former employees.

California’s labor laws protect only employees, not independent contractors.

The principal question on appeal is therefore whether Whitlach was an employee or independent contractor for purposes of his PAGA cause of action and/or derivative Labor Code claims.

“Real estate licensee” is one of the occupational classifications that was specifically exempted from the purview of Labor Code section 2775(b)(1), and in turn from the application of the Dynamex opinion and the ABC test for purposes of the Labor Code, Unemployment Insurance Code, and wage orders.

Labor Code section 2778(c) and (c)(1), collectively remove real estate licensees from the purview of Labor Code section 2775(b)(1) and application of Dynamex’s ABC test, as follows: “(c) Section 2775 and the holding in Dynamex do not apply to the following, which are subject to the Business and Professions Code: A real estate licensee licensed by the State of California pursuant to the Business and Professions Code, for whom the determination of employee or independent contractor status shall be governed by subdivision (b) of Section 10032 of the Business and Professions Code. If that section is not applicable, then this determination shall be governed as follows: For purposes of unemployment insurance by Section 650 of the Unemployment Insurance Code. For purposes of workers’ compensation by Section 3200 et seq. of the Labor Code.

Business and Professions Code section 10032 provides as follows: “(b) A real estate broker and a real estate salesperson licensed under that broker may contract between themselves as independent contractors or as employer and employee, for purposes of their legal relationship with and obligations to each other. Characterization of a relationship as either ‘employer and employee’ or ‘independent contractor’ for statutory purposes, including, but not limited to, withholding taxes on wages and for purposes of unemployment compensation, shall be governed by Section 650 and Sections 13000 to 13054, inclusive, of the Unemployment Insurance Code.

Defendants Premier Valley and Century 21 contended the Legislature added Business and Professions Code section 10032 in 1991, to, inter alia, identify the proper test for determination of employee or independent contractor status for real estate agents/salespersons, for purposes of the Labor Code, among other statutory schemes.

The appellate court concluded that defendants Premier Valley and Century 21 have the better argument, in that the Unemployment Insurance Code section 650 test, as incorporated in Business and Professions Code section 10032(b), has long provided, and continues to provide, the controlling test for resolving the employee or independent contractor question for real estate salespersons, for purposes of the wage and hour provisions of the Labor Code.

As noted, Business and Professions Code section 10032(b) incorporates the test for determining the employee or independent contractor status set forth in Unemployment Insurance Code sections 650 and 13004.1, respectively.

Unemployment Insurance Code section 650 provides: “ ‘Employment’ does not include services performed as a real estate ... broker or as a real estate ... salesperson, by an individual if all of the following conditions are met: The individual is licensed under the provisions of ... Part 1 (commencing with Section 10000) of Division 4 of, the Business and Professions Code.... Substantially all of the remuneration (whether or not paid in cash) for the services performed by that individual is directly related to sales or other output (including the performance of services) rather than to the number of hours worked by that individual [i.e., the remuneration is in the form of a commission].

The services performed by the individual are performed pursuant to a written contract between that individual and the person for whom the services are performed and the contract provides that the individual will not be treated as an employee with respect to those services for state tax purposes.” Section 13004.1 of the Unemployment Insurance Code perfectly mirrors section 650 of that code.

The unique relationship between real estate brokers and agents is both commonly recognized and has long been reflected in California law.

A web of statutes and regulations require brokers to exercise significant control over agents and to direct work performed by agents under their supervision.

Such a legal regime would normally complicate determining real estate agents’ employment status because a principal’s right to control his agent is usually the most important factor suggesting the agent is an employee rather than an independent contractor.

Yet the Legislature has signaled, at the same time, that real estate agents were free to structure independent contractor arrangements, and that, in many contexts, traditional or common law-based tests did not make sense for resolving the employee or independent contractor question for real estate agents.

There were no statutory tests to resolve the employee or independent contractor question for real estate agents in other contexts. California courts were thus left to evaluate whether real estate agents were employees or independent contractors by recourse to the general control-based test and/or the provisions of the Real Estate Law, and to tackle the question under what circumstances, if at all, real estate agents could enter into independent contractor relationships with brokers.

Business and Professions Code section 10032(b), creates an express exception for a subpart of the Labor Code, that is, workers compensation, in that it provides that determination of the employee or independent contractor status of real estate agents for purposes of workers compensation is to be made pursuant to the Borello test.

This carve out for workers compensation indicates that the Unemployment Insurance Code sections 650/13004.1 test is applicable to other parts of Labor Code, and specifically, as relevant here, the wage and hour provisions of the Labor Code.

The appellate court agreed with the trial court that the isolated reference to a management employment contract in the SAC does not support a separate PAGA claim. The sole allegation in the SAC relating to the management employment agreement was that, in light of the agreement, Whitlach and other managers did not meet the criteria set forth in Unemployment Ins. Code § 650.

In other words, the SAC alleged that the existence of the management employment agreement made Whitlach an employee for all purposes, not that his rights were violated in his work as a manager.

Nor did the SAC allege that the management employment agreement was a novation or modification of his independent contractor agreement.

Accordingly, the trial court properly sustained the demurrer to the SAC.

LESSONS:

1.         Brokers should have the appropriate written agreements or independent contractor agreement with each salesperson operating under the broker's license.

2.         A PAGA action must be brought by an aggrieved employee on behalf of himself or herself and other current or former employees.

3.         California’s labor laws protect only employees, not independent contractors.

4.         A web of statutes and regulations require brokers to exercise significant control over agents and to direct work performed by agents under their supervision.

Can Defamation Be Alleged Against Employer Based on Employee’s Termination?

In the recent case of Hern v. Pacific Gas & Electric Company, Todd Hearn sued his former employer, Pacific Gas & Electric Company (PG&E) for retaliation and defamation.

The jury found PG&E liable for defamation but rejected Hearn’s retaliation claim.

On appeal, PG&E contended the trial court erred by denying its motion for judgment notwithstanding the verdict (JNOV) because Hearn’s defamation claim was not separately actionable—i.e., the defamation claim was premised on the same conduct that gave rise to his termination and the damages sought were solely related to his loss of employment.

Tort claims, including defamation, may be brought by former employees against their employers.

However, as Hearn’s claim for defamation is a claim for wrongful termination by another name, the appellate court reversed the trial court’s order denying PG&E’s JNOV.

In 1996, Hearn began working for PG&E as a meter reader. A few years later, he began training as a lineman and completed his apprenticeship in 2004. During the relevant time period, Hearn worked out of PG&E’s facility in Napa (the Napa yard).

In or around 2016, PG&E became aware of performance issues at the Napa yard, including delays in maintenance and repair projects and rising overtime claims.

By 2018, PG&E had focused its investigation on the eight employees from the Napa yard charging the most overtime and double time. The investigation was subsequently narrowed down to five of those eight— Hearn was identified as one of the five based on “potentially false time cards.”

In late June 2018, Hearn and four other linemen were suspended. Hearn was informed he was being placed on “crisis leave” due to an “alarming amount of discrepancies” in Hearn’s timecards.

On December 12, 2018, Mar submitted a memorandum to PG&E management regarding allegations that Hearn falsified timecards and misused company time. And Mar reported that although Hearn claimed to have a medical condition, he had not applied for or received formal accommodations. Mar omitted any mention in his report that Hearn received supervisor approval to go home.

In a January 18, 2019 letter, PG&E informed Hearn his employment was terminated based on findings of an investigation into his conduct. Hearn was told: “Specifically, it has been determined that you violated the Employee Code of Conduct by misusing company time, misstating work activities, and fraudulent submissions of timecards for overtime compensation resulting in all day rest periods, and delayed service time to customers in violation of the Labor Contract.”

Hearn filed the underlying action against PG&E, alleging four causes of action: (1) retaliation for disclosing the company’s safety violations (Lab. Code, § 1102.5); (2) retaliation for lodging a bona fide complaint about unsafe working conditions (Lab. Code, § 6310); (3) wrongful termination in violation of public policy; and (4) defamation.

Hearn’s first three claims were based on allegations that he reported various safety concerns (e.g., Tripsavers were unsafe; PG&E had downgraded dangerous issues with its power lines to save money on overtime labor; and PG&E did not have an adequate safety plan to address known and expected dangerous fire conditions), and was retaliated against for expressing such concerns by being suspended and ultimately fired.

In connection with his defamation claim, Hearn alleged various PG&E employees made false (defamatory) statements—that he misused company time, misstated his work activities, and fraudulently submitted timecards— in the CSD and Mar reports, Ledbetter’s January 2019 email, and the January 2019 employment termination letter.

Hearn alleged PG&E terminated his employment due to these false statements, and he was forced to repeat these defamatory statements to prospective employers who asked why he no longer worked for PG&E. Hearn alleged that publication of these statements caused him harm, including harm to his reputation, trade, profession, and occupation.

Hearn proceeded to trial on his claims for retaliation in violation of Labor Code section 1102.5 (section 1102.5) and defamation.

Hearn’s defamation and retaliation claims were tried to a jury over multiple days.

Following deliberations, the jury found PG&E not liable for retaliation but liable for defamation.

As to Hearn’s claim that PG&E retaliated against him in violation of section 1102.5, the jury found Hearn (1) disclosed certain events or occurrences to a superior or person with investigative authority, and (2) Hearn had reasonable cause to believe that the information he disclosed constituted a violation of state or federal safety regulations.

However, the jury found PG&E did not take “adverse employment action(s)” against Hearn because of these disclosures.

In connection with Hearn’s defamation claim, the jury declined to find liability for three of the four documents at issue (the CSD report, Ledbetter’s email, and the employment termination letter). In connection with these three documents, the jury found the actionable statements substantially true.

However, the jury found Hearn proved his defamation claim as to the Mar report. Specifically, the jury found (1) the actionable statements not substantially true, and (2) Mar acted with malice. By making these findings, the jury rejected PG&E’s common interest privilege defense and found that Hearn had established the defamatory statements were made with malice. (Civ. Code, § 47, subd. (c).)

The jury awarded damages totaling $2,160,417, comprised of separate awards as to past and future economic and non-economic damages. The verdict form did not ask the jury to consider or award any assumed reputational harm damages. The jury declined to award punitive damages.

The trial court subsequently entered judgment in favor of PG&E on Hearn’s cause of action for retaliation in violation of section 1102.5, and in favor of Hearn on his cause of action for defamation. The judgment provides that Hearn shall recover from PG&E damages totaling $2,160,417, with interest from the date of entry of judgment.

Following entry of judgment, PG&E moved for JNOV on the ground that Hearn waived his defamation claim before the matter was submitted to the jury by conceding his damages from loss of employment were the same as his defamation damages.

PG&E argued Hearn could not pursue a tort claim that was based on the same conduct which formed the basis for his wrongful termination claim and alleged no injury apart from his termination.

Hearn opposed the motion. He asserted employers are not immune from tort damages, the jury properly followed the damages instructions agreed upon by the parties, and lost earnings are a proper measure of damages for defamation.

The trial court denied PG&E’s motion.

A motion for judgment notwithstanding the verdict may be granted only if it appears from the evidence, viewed in the light most favorable to the party securing the verdict, that there is no substantial evidence in support.

The trial court properly identified the question as whether an employee may sue in tort for the same conduct that forms the basis for that employee’s wrongful termination claim.

The California Supreme Court has delineated the ability of a terminated employee to recover tort damages in three key cases: Foley v. Interactive Data Corp., Hunter v. Up-Right, Inc., and Lazar v. Superior Court

In Foley, the court considered in part whether a terminated employee could bring a cause of action for tortious breach of the implied covenant of good faith and fair dealing. In considering whether to extend tort remedies for a contractual breach, the court noted the duty of good faith and fair dealing is imposed by contract and compensation for its breach has almost always been limited to contract rather than tort remedies.  The court ultimately declined to expand available remedies for wrongful discharge to include tortious breach of the implied covenant of good faith and fair dealing.

In Hunter, the California Supreme Court applied Foley to consider whether a former employee was precluded from recovering tort damages for fraud and deceit predicated on a misrepresentation made to effect termination of employment.  The court concluded Foley precluded such relief.

In Lazar, the California Supreme Court distinguished Hunter. It noted Hunter expressly left open  the possibility that a misrepresentation not aimed at effecting termination of employment, but instead designed to induce the employee to alter detrimentally his or her position in some other respect, might form a basis for a valid fraud claim even in the context of a wrongful termination.

The Lazar court thus found the misrepresentations Lazar alleges were not aimed at effecting his termination, but, rather, at inducing him to accept the defendant’s offer of employment. Specifically, it noted Lazar’s fraud claim arose from the company’s misrepresentation to induce Lazar to leave his prior employment, and thus was not made in the course of Lazar’s termination.

Together, Foley, Hunter, and Lazar provide guidance for when a terminated employee may recover tort damages from his or her former employer. As a fundamental matter, these cases recognize employees may generally assert tort claims against their employer, even in the context of their termination.

But Foley, Hunter, and Lazar set forth parameters that may limit an employee’s ability to obtain damages from such torts within an employment termination context.

Specifically, the California Supreme Court has specified two hurdles employees must overcome: (1) such tort claims must be based on conduct other than that giving rise to the employee’s termination, and (2) the damages sought cannot exclusively result from the termination itself.

The record indicates PG&E’s conduct following Hearn’s suspension was primarily aimed at documenting and substantiating the findings that led to Hearn’s suspension. That process resulted in the Mar report, and Hearn was terminated based on Code of Conduct violations outlined in that report.

The defamatory statements contained in the Mar report were generated within the scope and context of Hearn’s disciplinary proceedings and termination, and both the defamation claim and Hearn’s termination arose from the same conduct—i.e., issuance of the Mar report. Simply put, the Mar report was the vehicle by which PG&E effectuated Hearn’s termination.

Moreover, the damages arising from PG&E’s defamation were solely related to Hearn’s termination. The record indicates Hearn declined to seek damages relating to any reputational injury distinct from his loss of employment.

While defamation may generally give rise to an assumption of reputational harm, Hearn did not request that the jury award assumed damages.

Likewise, Hearn did not seek any damages separate from his loss of employment, such as damages arising from republication to third parties.

Accordingly, the only damages alleged resulted from the termination itself.

Here the fact pattern is analogous to those cases in which courts have found tort claims barred because they arise from the same conduct underlying the employees’ terminations and only seek damages related to loss of employment.

The record indicated the defamatory statements were not separately actionable.

Hearn’s defamation claim was founded on the same conduct—i.e., the creation of the Mar report and its use in his termination—that would form the basis for an ordinary wrongful termination claim based on Code of Conduct issues, and sought the same damages—i.e., loss of employment.

Where the jury’s special verdict for the plaintiff is based on conduct that does not constitute an actionable tort, that verdict cannot stand.

LESSONS:

1.         A motion for judgment notwithstanding the verdict may be granted only if it appears from the evidence, viewed in the light most favorable to the party securing the verdict, that there is no substantial evidence in support.

2.         Tort claims barred because they arise from the same conduct underlying the employees’ terminations and only seek damages related to loss of employment.

3.         Together, Foley, Hunter, and Lazar provide guidance for when a terminated employee may recover tort damages from his or her former employer. As a fundamental matter, these cases recognize employees may generally assert tort claims against their employer, even in the context of their termination.

4.         The decisions in Foley, Hunter, and Lazar set forth parameters that may limit an employee’s ability to obtain damages from such torts within an employment termination context.

5.         Specifically, the California Supreme Court has specified two hurdles employees must overcome: (1) such tort claims must be based on conduct other than that giving rise to the employee’s termination, and (2) the damages sought cannot exclusively result from the termination itself.

Can a Meal Period be Mutually Waived Prospectively and in Writing in California?

As discussed in the recent California appellate decision in Bradsbery v. Vicr Operating, Inc., the California Legislature and the Industrial Welfare Commission (IWC) have determined a meal period for work shifts between five and six hours may be waived. 

The question on this appeal was narrow and of first impression: whether the mutual waiver of that meal period by an employer and employee can occur prospectively and in writing?

Labor Code section 512 guarantees a 30-minute, off-duty meal period for employees after five work hours and a second meal period after 10 work hours. 

Section 512 also provides that, for shifts between five and six hours, the first meal period “may be waived by mutual consent of both the employer and employee.” (§ 512, subd. (a).)  

The relevant wage orders issued by the IWC similarly provide for meal periods and their waiver. 

In 2014, La Kimba Bradsbery and Cheri Brakensiek (collectively, Plaintiffs) sued their former employer, Vicar Operating, Inc. (Vicar), alleging claims on behalf of a class of Vicar employees. 

Plaintiffs alleged Vicar failed to provide them with the meal periods required by section 512 and IWC Wage Orders. 

Vicar asserted Plaintiffs signed a valid written agreement that prospectively waived all waivable meal periods throughout Plaintiffs’ employment with Vicar. 

The agreement provided Plaintiffs could revoke the agreement at any time. 

Vicar moved for summary adjudication regarding the validity of this waiver under section 512 and the wage orders. The trial court determined the waivers were valid and ruled for Vicar. 

Plaintiffs argue prospective waivers permit employers to circumvent the statutory meal break requirements and deny employees a meaningful opportunity to exercise their right to meal breaks. 

The appellate court ruled the text and legislative and administrative history do not support those arguments. 

Further, Plaintiffs did not argue the waivers are unconscionable or that they impede or discourage workers from taking meal breaks. 

Nor did Plaintiffs argue that they unknowingly signed the waivers, that Vicar coerced them into signing the waivers because it had greater bargaining power, or that they could not freely revoke the waivers at any time. 

While the appellate court would hesitate to uphold a prospective written waiver under such circumstances, this case did not present them. 

Revocable, prospective waivers Plaintiffs signed were enforceable in the absence of any evidence the waivers are unconscionable or unduly coercive. 

The prospective written waiver of a 30-minute meal period for shifts between five and six hours accords with the text and purpose of section 512 and Wage Orders. 

The legislative and administrative history confirms the Legislature and IWC determined such waivers are consistent with the welfare of employees. 

Plaintiffs filed a putative class action in July 2014, alleging claims on behalf of all individuals who worked for Vicar in California as a veterinary assistant, veterinary technician, surgery technician, kennel technician, client service representative, or similar position in the four years before the complaint was filed. 

As relevant here, Plaintiffs alleged Vicar violated section 512, subdivision (a), by requiring Plaintiffs and class members to work shifts between five and six hours without a meal period and without waiving their legally mandated meal periods by mutual consent. 

In April 2009, Plaintiffs each signed a written meal period waiver with Vicar. 

The waiver stated: 

I hereby voluntarily waive my right to a meal break when my shift is 6 hours or less. I understand that I am entitled to take an unpaid 30-minute meal break within my first five hours of work; however, I am voluntarily waiving that meal break. I understand that I can revoke this waiver at any time by giving written revocation to my manager. 

Brakensiek also signed a second identical meal period waiver in 2011. 

Vicar asserted as an affirmative defense to liability that Plaintiffs validly waived the disputed meal periods. 

Vicar argued the prospective meal period waiver was valid because neither the Labor Code nor the wage orders specify what form the waiver must take, or when or how it may be obtained. 

Plaintiffs opposed, arguing prospective waivers were prohibited, and that employees could waive a meal period for a given shift only after they were scheduled to work that shift. 

In California, wage and hour claims are today governed by two complementary and occasionally overlapping sources of authority: the provisions of the Labor Code, enacted by the Legislature, and a series of 18 wage orders, adopted by the IWC. 

The IWC is the state agency empowered to formulate wage orders governing employment in California. 

The IWC possesses broad statutory authority to investigate and regulate the comfort, health, safety, and welfare of the California employees under its aegis.

At issue in this case is the meaning of the phrase “waived by mutual consent” of the employer and employee in section 512 and the two wage orders, and whether that meaning prohibits the prospective written waivers Vicar had its employees sign. 

In those written waivers, employees expressly waived their right to a 30-minute meal period for work shifts between five and six hours. 

Plaintiffs conceded the plain language of section 512 and the wage orders is silent as to when the first meal break can be waived. 

The requirement of a written agreement in these provisions imposes specific requirements in the particular circumstances in which they apply. Waivers “must” be made in writing and can apply prospectively to future meal periods, provided the employee may revoke the waiver with proper notice. 

The meal period waiver provisions at issue here in section 512 and section 11(A) of the wage orders do not require a written waiver (let alone in mandatory language). 

Plaintiffs argued the absence of a written waiver requirement for shifts between five and six hours supports an inference that prospective waivers are not authorized. 

Vicar argued that “the unambiguous language of the Labor Code and Wage Orders places no restrictions on the timing of meal waivers, and thus no prohibition on prospective meal waivers.” 

The history and purpose behind section 512 and Wage Orders indicates these laws do not reflect an intent to prohibit prospective written waivers of meal periods. 

The text of section 512 and the text of the wage orders do not support Plaintiffs’ claims. 

Plaintiffs did not address the legislative and administrative history. Instead, they asserted that an ongoing, prospective blanket waiver does not provide any protection to the employee and only favors the employer, and allowing such waivers would eviscerate the robust meal period protections that California has enacted.

It is reasonable to infer the Legislature and IWC wanted to be more protective of employees who worked longer shifts and for that reason spelled out in detail what is required to waive a right to a meal break for shifts over eight hours for health care employees and over 12 hours for all other covered employees. 

But it does not follow that when employees work fewer hours, here between five and six hours, that there was also an intent to prohibit a prospective written waiver. 

Further, the waivers at issue here are revocable by the employees at any time. 

The DLSE has emphasized employees have the right to revoke a written meal period waiver (or to decline to sign a waiver) without retaliation from their employer. 

In sum, Plaintiffs did not demonstrate Vicar’s use of prospective written waivers violates the Labor Code or the applicable wage orders at issue in this case. 

LESSONS:

1.         Employers should request and obtain, if employees consent, a written waiver of the meal period to protect from any employee claims based on missed meal periods.

2.         Labor Code section 512 guarantees a 30-minute, off-duty meal period for employees after five work hours and a second meal period after 10 work hours. 

3.         Section 512 also provides that, for shifts between five and six hours, the first meal period may be waived by mutual consent of both the employer and employee.