Lynberg and Watkins Employment Law Blog

U.S. Supreme Court Limits Definition of "Supervisor" in Title VII Actions

By: Keith R. Dobyns and Ankush Dhupar

In Vance v. Ball State University et al., the Supreme Court of the United States held that an employee who harasses others may subject an employer to vicarious liability under Title VII “only if he or she is empowered by the employer to take tangible employment actions against the victim.”  “Tangible employment actions” are actions that effect a “significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.”

In Vance, an African-American employee at Ball State University (BSU) alleged she was the victim of racial harassment and retaliation at her workplace.  The plaintiff claimed that a fellow BSU employee was the initiator of such discriminatory acts.  In her complaint, the plaintiff alleged that the employee was her supervisor and therefore BSU was vicariously liable for the creation of a racially hostile work environment.

BSU moved to dismiss the case claiming that it could not be held vicariously liable for the employee’s harassment.  BSU insisted the alleged harassing employee was not the plaintiff’s supervisor as she could not hire, fire, promote, transfer, or discipline the plaintiff.  The plaintiff argued that her fellow employee was a “supervisor” because she had the authority to control the plaintiff’s daily activities and evaluate her performance. 

The Supreme Court sided with BSU in holding that for purposes of Title VII, to be a “supervisor,” an employee must have the power to take a tangible employment action against the victim.  That is, she must be able to “effect a ‘significant change’ in employment status,” such as hiring, firing, demoting, promoting, transferring, or disciplining. 

In California, employees alleging employment discrimination or harassment are likely to sue under the Fair Employment and Housing Act (“FEHA”) rather than the federal counterpart, Title VII.  The FEHA usually offers employees greater protection, relief, and procedural advantages than Title VII.

Unlike Title VII, the FEHA defines “supervisor” as any person having the authority to hire, transfer, discharge other employees, or the responsibility to direct them. Thus, a person having the responsibility to direct an employee's day-to-day duties (i.e., a team leader) is a “supervisor” under the FEHA even if lacking authority to hire, fire, promote, or transfer the employee. This definition is broader than the definition under Title VII, and the Vance decision may have little impact on cases brought under California state law.

Practical Tip: Under the FEHA, an employer is strictly liable for workplace harassment by a supervisor. Additionally, an employer may be held liable for a non-supervisor’s harassing conduct if the employer knew or should have known of such conduct.  Thus, employers should continually monitor co-worker interactions - especially between supervisors and subordinates - to ensure a non-hostile working environment for their employees. 

The full text of the decision can be found here.

California Court of Appeal Classifies Workplace Sexual Harassment Under “Hate Crime” Law


Recently, the California Court of Appeal issued a ruling upholding a jury verdict that found that workplace harassment constituted a “hate crime” and awarded civil penalties in addition to compensatory damages. In Ventura v. ABM Industries, Inc., the plaintiff was a female janitor for the defendant company. During her employment her supervisor engaged in a pattern of sexually harassing behavior, including pushing her against a wall, asking her to kiss him, and choking, bruising, and biting her. When the plaintiff complained to the area supervisor, she was told to hand her keys to her direct supervisor (the harasser) and tell him she was leaving. Upon doing so, the supervisor followed the plaintiff to her car, banged on the steering wheel, swore at her, and told her he loved her.

The plaintiff sued her employer. However, instead of simply pursuing claims of sexual harassment under the Fair Employment and Housing Act, the plaintiff instead alleged a hate crime perpetrated by violence or threats of violence based on sex under California Civil Code section 51.7. The jury awarded the plaintiff $100,000 in damages, the judge added an additional $25,000 civil penalty under the hate crime statute, and also awarded $550,000 in attorneys’ fees.

On appeal, the Court of Appeal affirmed the jury verdict and the damages awarded. The Court found that the hate crime statute does not require an individual to be motivated by actual hate in order for the statute to apply and also found that it was properly applied in this workplace harassment situation. Interestingly, one of the Justices disagreed with the application of the hate crime statute to a single incident against an individual, such as the case here. Rather, he concluded that the acts of violence were not because of the plaintiff’s sex, but rather because she denied his advances. Nevertheless, the Court of Appeal ruling stands and the hate crime statute was found to have been properly applied in the case.

Practical Tip: The decision by the Court of Appeal now expands the panoply of claims and remedies available to employees who allege workplace harassment. Employees can now recover up to $25,000 in civil penalties in addition to the compensable damages recoverable for injuries and emotional distress suffered as a result of workplace harassment. Additionally, by proceeding under the hate crime statute, employees can avoid the one year time limit for filing a claim with the Department of Fair Employment and Housing, which is a necessary prerequisite for bringing workplace harassment claims under the Fair Employment and Housing Act.

Employers should make every effort to ensure a non-hostile working environment for their employees and continually monitor co-worker interactions – especially between supervisors and subordinates. Any actions by one employee towards another that involve violence or threats of violence should be addressed and remedied immediately so as to avoid the potential pitfalls and added civil penalties of claims brought under the California hate crime statute.

The full text of the decision can be read here.

California Supreme Court Issues Decision in Harris v. City of Santa Monica Permitting “Mixed Motive” Defense in FEHA Cases


On February 7, 2013, the California Supreme Court issued its ruling in the highly anticipated employment case of Harris v. City of Santa Monica. In its unanimous published opinion, the Supreme Court held that “when a jury finds that unlawful discrimination was a substantial factor motivating a termination of employment, and when the employer proves it would have made the same decision absent such discrimination, a court may not award damages, backpay, or an order of reinstatement.” However, the Court determined that an employee nevertheless may be able to obtain declaratory or injunctive relief and also recover attorney’s fees and costs.

As you may recall from our prior post, in Harris, the plaintiff argued that she was terminated from her position as a city bus driver because of her pregnancy. In response, the City cited several ongoing deficiencies in her performance unrelated to her pregnancy, including two preventable accidents, two missed shifts, and a performance evaluation indicating that the plaintiff needed further development as a driver. On this basis, the City asked the trial court to instruct the jury on its “mixed-motive” defense, which would have instructed the jury that “[i]f you find that the employer’s action . . . was actually motivated by both discriminatory and non-discriminatory reasons, the employer is not liable if it can establish . . . that its legitimate reason, standing alone, would have [led] it to make the same [employment] decision. . .” The trial court refused to give the requested “mixed-motive” instruction, and instead gave only a “motivating factor” instruction, which instructed the jury that it should find for the plaintiff if it determined that the plaintiff’s pregnancy was “a motivating reason” for the City’s decision to terminate her. The jury found by a vote of nine-to-three that the plaintiff’s pregnancy was a motivating factor for the City’s decision to discharge her, and awarded damages to the plaintiff of more than $175,000. On appeal, the Court of Appeal ruled that the employer’s mixed motive instruction should have been given to the jury.  The employee then appealed to the California Supreme Court.

In issuing its ruling, the Court determined that it was necessary to balance the goals of compensating employees subjected to unlawful discrimination and deterring unlawful discrimination, while at the same time preventing employees and employers from obtaining a windfall where both legitimate and discriminatory motives played a part in the adverse employment decision.  On this basis, the Court ruled that individual employees are prohibited from recovering damages if the employer can show that legitimate reasons were a factor in the employment decision, but under such circumstances, employers still may be subject to declaratory and injunctive action, such as an order by the court to refrain from engaging in certain actions in the future, where it is shown that discriminatory policies or practices were also a substantial motivating factor in the employer’s decision.  For this reason, the Court ruled that an employee may also recover attorney’s fees and costs where he or she proves that discrimination was a substantial motivating factor.

The Court’s ruling now brings FEHA mixed motive cases in line with the standard applied in federal mixed motive discrimination cases brought under Title VII of the Civil Rights Act.

Practical Tip: The ruling by the California Supreme Court, while not surprising, is a mixed bag of sorts for employers defending against discrimination claims brought under the FEHA. The adoption of a mixed motive theory gives employers an additional, albeit incomplete, defense to discrimination claims where an employer can show the same decision would have been made absent any discrimination. However, by allowing employees to also pursue declaratory and injunctive relief, coupled with the potential attorney’s fees awards, the statutory scheme nevertheless creates an incentive for plaintiffs’ lawyers to litigate mixed motive cases in anticipation of being awarded significant attorneys’ fees. So, in short, it appears that the Supreme Court gave with one hand, but took back with the other when it comes to defense of FEHA claims against employers.

The full text of the California Supreme Court's unanimous opinion can be found here.

California Court of Appeal Limits Scope of FEHA “Retaliation” Claims


In a recent decision by the California Court of Appeal, the Court upheld summary judgment in favor of the employer as to a male employee’s gender discrimination, retaliation, and defamation claims, and in doing so set forth important limits on FEHA “retaliation” claims.

The plaintiff in McGrory v. Applied Signal Technology, Inc. was a manager who was terminated after a subordinate complained to HR that the plaintiff had conducted a negative performance review of her because she was gay. The employer brought in an HR investigator to conduct interviews and investigate the employee’s claims. While the investigator determined that the performance review at issue was accurate and appropriately based on performance, the investigator’s report also found that the plaintiff had engaged in other improper conduct including making inappropriate sexual and racial remarks, and that he had not been truthful and forthcoming in his interview with the investigator. 

After the plaintiff was terminated, he sued, claiming that his termination was motivated by gender discrimination and retaliation for “participating” in a FEHA-related investigation, and that he had been defamed by an HR employee. The trial court granted the employer’s motion for summary judgment in its entirety, and the plaintiff appealed.

In affirming the trial court’s decision in favor of the employer, the Court of Appeal included particularly important language relating to the plaintiff’s FEHA retaliation claim. Specifically, the plaintiff had relied upon language within the FEHA which makes it unlawful for an employer to take action against an employee “because the person has filed a complaint, testified, or assisted in any proceeding under [the FEHA].” The plaintiff claimed that the employer’s internal investigation was a “proceeding under [the FEHA]” and that his participation in the investigation, including being interviewed, was a “protected activity for which he could not be terminated.”

Importantly, however, the Court ruled that although employees who participate in official Department of Fair Employment and Housing (DFEH) proceedings, or who themselves make complaints to their employer about  perceived FEHA violations, are protected from retaliation, simply participating as a witness in a company’s internal investigation itself does not constitute “protected activity” under the FEHA.

Practical Tip: While the Court of Appeal’s ruling in McGrory represents a victory for employers within the context of FEHA retaliation claims, it nevertheless remains vitally important that California employers protect themselves against retaliation claims by making certain to avoid even the appearance of retaliation when employees make complaints about perceived discrimination, harassment, or other “protected activity.”  The facts and outcome in McGrory also demonstrate how important it is for employers to take all employee complaints seriously, conduct adequate investigations, and document everything. The decision in favor of Applied Technology in this case rested in large part on the prompt, well-documented investigation that provided the underpinning for the plaintiff’s termination, showing just how important of a role proper documentation can play when a termination ends in an eventual lawsuit.

The full text of the decision can be found here.

U.S. Supreme Court To Decide Burden Of Proof In Retaliation Cases


Recently, the U.S. Supreme Court agreed to resolve the issue of an employee’s burden of proof for retaliation claims under federal workplace anti-discrimination laws. The question posed to the Supreme Court is whether the retaliation provision of Title VII of the Civil Rights Act of 1964 require a plaintiff to prove “but-for causation” (i.e., that an employer would not have taken an adverse employment action but for an improper motive), or instead require only proof that the employer had a mixed motive (i.e., that an improper motive was one of multiple reasons for the employment action).

Previously, the U.S. Supreme Court made clear that the more stringent “but for” causation applies to age discrimination claims under the Age Discrimination in Employment Act (ADEA), although it also ruled that the more employee friendly “mixed motive” analysis applied in discrimination claims under Title VII. Now, the Court will resolve whether the “but for” or “mixed motive” analysis will apply in retaliation claims under Title VII.

In retaliation cases, an employee complains that the employer took an adverse employment action against him or her because the employee had complained about discrimination or harassment or engaged in some other protected activity. In other words, the employee is complaining that he was retaliated against for complaining about perceived unlawful discrimination in the workplace. “But for” causation requires an employee to prove that the only reason for the employer’s retaliation was because the employee complained or engaged in some other protected activity.  However, if the employer can introduce other, legitimate reasons for taking the action, the employee cannot prevail.

Under the “mixed motive” framework, the employee must only prove that the protected activity that he engaged in (i.e. complaining about discrimination) was the motivating reason for the adverse employment action taken against him, even if the employer presents other legitimate, non-discriminatory reasons. This lesser burden of proof would make it increasingly more difficult for employers to obtain early dismissal of retaliation lawsuits under Title VII, given the inherent difficulty in conclusively proving an employer’s motivating reason.

The title of the case is University of Texas Southwestern Medical Center v. Nassar and can be found here.

Practical Tip: While retaliation lawsuits are currently among the more difficult employment-related lawsuits to defend, a ruling by the U.S. Supreme Court adopting the mixed motive framework (the likely outcome) will make it ever more difficult for employers to successfully defend these claims before judge and jury. Accordingly, it is important for employers to take all measures to ensure that employees who engage in protected activities such as raising complaints about discrimination or otherwise exercising their rights under federal or state anti-discrimination laws are protected from retaliation by supervisors, co-workers, and others.

California Employers' "To-Do" List for 2013

By: Ric C. Ottaiano and Patrick J. Kirby

On January 1, 2013, a number of new employment laws and changes to existing law will go into effect, many of which will have a direct effect on California employers. Below is a "to-do" list to aid in compliance with these changes and others that have gone into effect during 2012.

Employee Personnel and Pay Records

Under existing California law, employers are already obligated to provide copies of pay records and either access to or copies of an employee or former employee's personnel file upon request. With the passage of California Assembly Bill 2674 (AB 2674), the rules governing requests and compliance will be altered.

As to pay records, employers have 21 days from the date of receiving a request to provide paystubs going back three years. Under AB 2674, employers providing a "copy" of such records need not provide duplicate or photocopies of the paystubs themselves, but may provide printouts or other documents so long as they contain every piece of information found on (and required to appear on) the paystub.

For personnel record requests, upon request of either the current or former employee or his or her representative, employers must provide a copy of all documents signed by the employee (Cal. Labor Code § 432), and either a copy of or an opportunity to inspect the employee's personnel file (Cal. Labor Code § 1198.5) within 30 days of receiving a request. Importantly, employers can now designate a certain individual who will handle such requests, and can prepare a uniform document for such requests. Finally, under the new provisions, employers can now also redact the names of any other non-supervisory employees found in the file prior to fulfilling the request.

Under AB 2674, however, failure to meet any of the above requirements can now result in a $750 penalty, potential injunctive relief, and an award of attorney's fees.

Employee Commission Agreements

As we noted in a post from last year, Assembly Bill 1396 (AB 1396) requires California employers to prepare and execute written commission agreements for any employees who receive commissions by January 1, 2013. These agreements will require certain information including the method by which commissions will be calculated, as well as how such commissions will be paid. Employers must provide a signed copy of the agreement to the employee, as well as retain a copy for the employer's records.

One of the key issues for employers under AB 1396 will be clearly delineating all aspects of the commission plan to ensure that all information required to calculate commission amounts is found within the agreement. This should include defining terms used in calculations, spelling out exactly when a commission becomes "earned" versus when it will be "paid," as well as including language permitting future revisions to the agreement by the employer. 

More recently, the Legislature passed a bill clarifying these new requirements, and specifically excludes certain types of payments from the definition of "commissions," such as short-term productivity bonuses, and bonus and profit-sharing plans that are not based on paying a fixed percentage of sales or profits.

Employment and Social Media

Likely in response to substantial news media attention, the California legislature unanimously passed Assembly Bill 1844 (AB 1844), which prohibits California employers from requiring or requesting that an employee or applicant disclose usernames or passwords for any social media account, or be required to access such an account in the presence of the employer. The law also prohibits employers from discharging, disciplining, threatening to do so, or otherwise retaliating against any employee or applicant for refusing to comply with an employer's request to provide such access.

Workplace Pregnancy Leave/Accommodation

Earlier this month, the Fair Employment and Housing Commission issued new regulations relating to pregnancy leave for California employers with five or more employees. Some of these changes include:
  • The definition of what constitutes being "disabled by pregnancy" is expanded to include additional medical conditions, but the list remains non-exhaustive.
  • "Four months" of leave is clarified to mean one-third of a year, 17 1/3 weeks, or 346.5 hours of leave.
  • The requirement that an employee who takes pregnancy leave must be "reinstated" requires return to a position "virtually identical" to the position held before receiving accommodations and/or taking leave.
  • All leave provisions apply on a "per pregnancy" basis, not on a "per year" basis.
  • "Reasonable accommodations" include potentially modifying work schedules, providing seating, and providing additional breaks, among others.
  • Employers appear to now be required to maintain and pay (their usual contribution) for health coverage during pregnancy disability leave for up to seven months of leave.
The full text of the regulations can be found here.

Meal and Rest Periods for Non-Exempt Employees

One of the most substantial legal decisions to be issued during 2012 was the California Supreme Court's Brinker opinion. As we discussed more fully here when the decision was first published, the Brinker opinion provided important clarifications regarding when and under what circumstances non-exempt ("hourly") employees are entitled to meal and rest periods under California law.

In short, under Brinker:

  • Employees are entitled to (paid) rest periods "every 4 hours or major fraction thereof," which works out as follows: one 10-minute rest period for shifts between 3.5 and 6 hours; two 10 minute rest periods for shifts between 6 and 10 hours; and three 10 minute breaks for shifts between 10 and 14 hours.
  • In addition to the rest periods, employees are entitled to at least a 30-minute (unpaid) meal break for every five hours worked, which must begin at or before completing their fifth hour of work. For example, if an employee begins their shift at 8:00 am, they must begin their meal period by 12:59 pm at the latest.
  • Employers must legitimately provide employees with an opportunity to take all meal breaks, and cannot in any way discourage them from doing so or require that they perform any activities during their meal break. However, the employer is not required to affirmatively ensure that the break is taken. Any time that an employee is unable to take such a break due to work requirements, the employee is entitled to one additional hour of "premium" pay at their regular rate of pay.
The Supreme Court's decision can be found here.

Workplace Religious Accommodation

While California law has long required accommodations of religious beliefs and observances within the workplace, Assembly Bill 1964 (AB 1964) was signed into law in September, which for the first time specifically included religious dress and grooming practices within the protection of the Fair Employment and Housing Act (FEHA). 

Prior to the passage of AB 1964, particularly within the retail and service industries, employees who sought a religious accommodation which included clothing or grooming practices would often be accommodated by being segregated from other employees and/or the public by relegating them to work "behind the scenes." Under AB 1964, however, simply segregating such employees can no longer be considered a "reasonable accommodation." Instead, employers must engage in a more interactive process to determine if there are other possible accommodations which could meet both the needs of the employer and the employee.

For a helpful list of other laws impacting California employers in the New Year, visit the California Chamber of Commerce website here.

California Supreme Court Hears Oral Arguments in Harris v. City of Santa Monica

By: Keith R. Dobyns

After almost three years since first taking up the issue, the California high court is set to deliver its opinion in Harris v. City of Santa Monica after recently concluding oral arguments on the matter. As you will recall from our earlier post on the matter, the City of Santa Monica appealed to the Court of Appeal after a trial court refused to give a “mixed motive” instruction in response to an employee’s claim that she was terminated for being pregnant. After the Court of Appeal ruled in favor of the City, the employee appealed to the California Supreme Court seeking to reverse the Court of Appeal’s decision.

During the oral arguments that were heard on December 4, 2012, the Court addressed the extreme positions presented by the employer and employee. On one side, the employer was advocating for a “mixed motive” rule that would allow some discrimination to occur without any recourse so long as some legitimate reason was also involved in the adverse action taken against the employee. To some Justices, this result would impermissibly permit discrimination to continue in the workplace. However, on the other side, certain Justices were similarly skeptical of the position advanced by the employee, namely that so long as discrimination was a “motivating reason” in the decision, an employee would be insulated from any adverse action, even if there were legitimate reasons for the employer to take such action.

Some of the Justices proposed adopting the current standard used in discrimination cases brought under federal law. Under Title VII of the Civil Rights Act, to establish liability against an employer, the employee must show the discrimination was a “substantial factor” in the employment decision. This standard requires that the overriding or primary reason for the action taken was based on unlawful discrimination. Additionally, federal law limits damages in mixed motive cases to injunctive and declaratory relief, prohibiting an employee from recovering monetary damages if the action taken against him had both a legitimate basis in addition to unlawful discrimination.

A decision is expected within 90 days of the oral argument, by approximately March 4, 2013.

California Supreme Court Sets Oral Argument to Decide Viability of Mixed-Motive Defense

By: Patrick J. Kirby and Jesse K. Cox

Recently, the California Supreme Court scheduled oral argument in Harris v. City of Santa Monica for Tuesday, December 4, 2012. The Court will decide whether the “mixed-motive” defense applies to employment discrimination claims under the Fair Employment and Housing Act (“FEHA”).

In Harris, the plaintiff argued that she was terminated from her position as a city bus driver because she became pregnant. In response, the City cited several deficiencies in her performance unrelated to her pregnancy, including two preventable accidents, two missed shifts, and a performance evaluation indicating that the plaintiff needed further development as a driver. On this basis, the City asked the trial court to instruct the jury on its “mixed-motive” defense, which would have instructed the jury that “[i]f you find that the employer’s action . . . was actually motivated by both discriminatory and non-discriminatory reasons, the employer is not liable if it can establish . . . that its legitimate reason, standing alone, would have [led] it to make the same [employment] decision. . . .” The trial court refused to give the requested “mixed-motive” instruction, and instead gave only a “motivating factor” instruction, which instructed the jury that it should find for the plaintiff if it determined that the plaintiff’s pregnancy was “a motivating reason” for the City’s decision to terminate her. The jury found by a vote of nine-to-three that the plaintiff’s pregnancy was a motivating factor for the City’s decision to discharge her, and awarded damages to the plaintiff.

The City appealed, and the Court of Appeal ruled that the trial court erred by refusing to give the “mixed-motive” instruction, and sent the case back for a new trial.

The Supreme Court granted the plaintiff’s petition for review on April 22, 2010, and after a lengthy delay by the Supreme Court, oral argument will be heard on December 4, 2012. The Court’s case summary is available here, and the parties’ briefs are available here. The Supreme Court usually issues its decision within approximately ninety days of oral argument, and the L&W Employment Law Blog will of course report on the ruling once it is published.

New “Pro-Business” Legislation Seeks to Curb Abuse of ADA Lawsuits in California

By: Patrick J. Kirby and Jesse K. Cox

Recently, Senate Bill 1186 (“SB 1186”), a bi-partisan measure aimed at protecting California small-businesses from predatory lawsuits filed under the Americans with Disabilities Act (“ADA”), was signed into law by the Governor.  While only 12 percent of the country’s disabled population resides in California, upwards of 40 percent of ADA lawsuits nationwide have been filed within the state in recent years.  The goal of SB 1186 is to help business owners become compliant with the mandates of the ADA by mitigating the frequency and severity of these lawsuits that often times shut down small businesses, with little to no benefit to those whom the ADA is designed to protect.

Specifically, SB 1186 prohibits attorneys from sending demand letters threatening to sue for ADA violations and demanding that the business owner pay to settle the prospective claim.  Under the new law, parties are required to provide a written advisory to business owners 30 days before filing suit for construction-related violations.  The bill also prevents parties from “combining” claims for a single violation through repeated visits to the same business premises, and incentivizes business owner compliance with the ADA by capping damages for unintentional violations remedied within 30 or 60 days of a complaint.  However, this damages cap does not apply to “intentional” or “knowing” violations.  Further, under the new law, cities and counties are required to inform business licensees of their responsibility to satisfy accessibility laws under the ADA.  Portions of the bill are set to take effect immediately.

Practical Tips: With the enactment of SB 1186, California has taken the first steps to curb abusive ADA litigation that has plagued small business for years.  Under this measure, small business owners will face less of the “pay now or pay later” pressure previously asserted by those trying to take advantage of the financial incentives included in the ADA.  While hopefully reigning in many of the problems with ADA suits, the new law in no way excuses or exempts compliance, and the responsibility to align their operations with the ADA still rests on business owners.  Businesses should consider SB 1186 a shield and not a sword, potentially protecting them from costly litigation as they work to adhere to all requirements of the ADA.

To learn more about this new law, read the press release issued by SB 1186 co-sponsor, State Senator Dutton: http://cssrc.us/web/31/news.aspx?id=12637

California Court of Appeal Prohibits Enforcement of Arbitration Clause Contained Within Employee Handbook Despite Signed Acknowledgement by Employee

By: Patrick J. Kirby and Jesse K. Cox

In Sparks v. Vista Del Mar Child and Family Services, the California Court of Appeal prohibited the enforcement of an arbitration clause contained within an employee handbook.  Specifically, in Sparks, the plaintiff was hired as a temporary employee before being hired permanently as the defendant’s controller in 2007. The plaintiff claimed he was fired for pre-textual reasons in 2010 after he complained of employee practices he believed violated federal and state law. He later sued for wrongful termination, and the defendant sought a petition compelling arbitration per an arbitration clause included in its employee handbook.

In support of its petition, the defendant asserted that the plaintiff signed a form entitled “Acknowledgement of Receipt of Employee Handbook,” demonstrating that he received and reviewed the handbook, and agreed to its terms—including the arbitration clause at issue. The clause itself was located on pages 35 and 36 of the handbook, and typed in the same font style and size as the rest of the handbook.

The court ruled there was no agreement to arbitrate. The court reasoned that acknowledgement of receipt of the handbook, by itself, was not enough to create an enforceable arbitration agreement. Specifically, the Court noted that according to both federal and state law, “the threshold question presented by a petition to compel arbitration is whether there is an agreement to arbitrate.” The party seeking to compel arbitration bears the burden of proving a valid agreement. If it carries its burden, the opposing party must then prove its defense by a preponderance of the evidence.

In this case, the defendant’s arbitration clause was tucked within its employee handbook, indistinguishable from the handbook’s other provisions. It was not highlighted or boxed off, nor was there any place for employees to specifically acknowledge the provision in writing.  Moreover, on the “Acknowledgment” form that the plaintiff did sign, there was no specific reference to the arbitration clause. The Court stressed that to support a conclusion that an employee has given up his right to litigate an employment-related claim, there should be, “[a]t a minimum . . . a specific reference to the duty to arbitrate . . . in the acknowledgement of receipt form signed by the employee. . . .”

Additionally, the Court concluded that the defendant’s arbitration clause was both procedurally and substantively unconscionable. In particular, the Court found no evidence the clause was subject to negotiation; thus, it amounted to an adhesion contract and was procedurally unconscionable. Secondly, the clause was held substantively unconscionable because it forced the plaintiff to give up administrative and judicial rights under federal and state statutes without making express provisions for discovery rights or other procedures. Specifically, the arbitration clause referenced the American Arbitration Association rules, but these rules were not given to the plaintiff.

Lastly, the Court took issue with the defendant’s handbook on several other fronts. In particular, the handbook was merely “distributed” to the defendant’s employees, suggesting it was more informational than contractual. It also contained a sentence reading, “The Handbook is not intended to create a contract of employment. . . .” Importantly, the Court reasoned that because the defendant reserved for itself the power to unilaterally change the content of the handbook, any agreement it purported to make was illusory.

Practical Tips: The opinion in this case was not necessarily a wholesale assault on arbitration clauses. In fact, the court highlighted both United States Supreme Court and California Supreme Court authority recognizing the policy favoring arbitration agreements. That being said, such a general policy does not trump the requirement that these types of agreements be entered into voluntarily. Employers who choose to include arbitration clauses in their governing policies can help satisfy this requirement by ensuring employees are specifically aware of the arbitration provision, understand its terms, and understand what rights they are forfeiting by agreeing to arbitrate any dispute. While the court did not require that employees sign an arbitration agreement separate from a form acknowledging receipt of any handbook containing the arbitration clause, such a practice could help insulate employees from civil litigation in cases such as Sparks. If an employer chooses to not use a separate form, it may consider setting the arbitration clause apart from other text in the handbook, using bold font to highlight the clause’s presence, or include a signature line within close proximity to the arbitration provision to ensure that employees memorialize their recognition of the agreement to arbitrate.

The full text of the decision can be found here: http://www.courts.ca.gov/opinions/documents/B234988.PDF

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