Offers of Compromise

An offer of compromise under section 998 of the Code of Civil Procedure is a powerful tool to end litigation. If the other side does not accept the offer, it may result in financial penalties unless the other side's recovery is more than the section 998 offer. So, if you offer $10,000 under section 998 to settle a case, for example, the plaintiff has to do better than $10,000 at trial or the post-offer costs must be paid to the defendant.
But section 998 offers are tricky. The Court of Appeal recently held that a section 998 offer may not condition settlement on a "general release" of "all claims" (claims over and above what is included in the lawsuit that is the subject of the section 998 offer). The case is Chen v. Interinsurance Exchange and the opinion is here.


Court of Appeal: Deduction of Training Costs from Final Pay Illegal

To encourage police officers to stay with the Oakland Police Department longer, Oakland required those who went through training at its police academy to reimburse the city for training costs if the person left the police department before completing five years of service. Oakland's agreement with the police union provided that departing officers would owe the money at the time of separation and that the city could "deduct any amounts owed under this provision from the employee’s final paycheck." The remainder would be due as a debt.

Kenny Hassey was a new police officer. He signed an agreement permitting the city to charge back training costs if he left within five years. The training costs began at $8,000 and decreased over time. After several months, Hassey was told he was not performing to standards and should resign. He did, and therefore owed the repayment of training costs. Oakland deducted part of the money from his final pay, leaving about $6,000. Oakland sued Hassey for the rest. Hassey cross-complained that the repayment agreement was illegal.

The Court of Appeal first upheld Oakland's motion for summary judgment on its claim for the training costs. The court rejected arguments that it is illegal to ask employees to reimburse training costs, both under the federal Fair Labor Standards Act and under the Labor Code. The court upheld the breach of contract claim, in that Hassey had agreed to repay the money. Significantly, the court also rejected Hassey's argument that asking him to repay training costs was a de facto unlawful covenant not to compete.

The court then, not really surprisingly, held that Oakland illegally withheld Hassey's entire final paycheck as partial payment of the training costs. First, the court held, under the FLSA and state law, Hassey was not paid minimum wage for his final pay period because of the deduction. Second, the court held that Oakland was not allowed to "set-off" the reimbursement of training costs against wages. This conclusion is consistent with a lot of case law.

The opinion is City of Oakland v. Hassey and the opinion is here.

New I-9 Form

The USCIS has issued a new Form I-9 for employers to verify employment eligibility. The new form is here. It is substantively unchanged from the prior version, but has a new expiration date (6/30/09). Employers must use the new form as of 7/1/08.


IRS Standard Mileage Rate GOING UP

Effective July 1, the IRS mileage reimbursement rate will increase to $0.585 per mile. That's an $0.08 increase. This rate will remain in effect for the remainder of 2008.

The reimbursement rate for reimbursement of mileage for medical issues and moving also goes up $0.08 to $0.27, up from $0.19.

The IRS's announcement is here.

U.S. Supreme Court Holds Plan Administrator Had Conflict of Interest

Under ERISA, employees have the right to challenge decisions under a covered plan in federal court. The court will review the plan administrator's decision under different standards, depending on the circumstances. In certain cases, the court defers to the administrator's decision unless the administrator "abused its discretion." In other situations, the court applies "de novo" review and does not defer to the plan administrator at all. To determine what standard of review to apply, the trial court considers a number of circumstances, one of which is whether the plan administrator had a "conflict of interest."

The Supreme Court considered whether a plan administrator has a conflict when it is responsible for deciding to approve claims AND is the entity responsible for funding benefits. In a 5-4 decision, the Court said that such plan administrators do have a conflict. Therefore, the district court must consider this situation as "a factor" in deciding the deference to give the administrator's decision.

The case is Metropolitan Life Ins. Co. v. Glenn and the opinion is here.

U.S. Supreme Court Decides State Pension Formula Does Not Violate ADEA

Kentucky's pension system provides retirement benefits for employees who reach a certain age. It also provides benefits for certain employees who become disabled in the line of duty, or after a certain amount of service. The formula for retirement benefits adds "imputed" years of service to those employees who become disabled before retirement. The EEOC challenged the formula claiming that the pension provided lower "imputed" years for disabled employees who had longer service and, therefore, was a proxy for age discrimination.

Confusing, right? Well, the Supreme Court held the pension formula did not violate the Age Discrimination in Employment Act. And the decision was 5-4, with Justices Scalia, Kennedy, Ginsburg, and Alito dissenting.

The case is Kentucky Retirement System v. EEOC and the opinion is here.

Ninth Circuit: No-Match Letters Not Convincing Evidence of Immigration Status

The Ninth Circuit held that Aramark's policy of firing workers who did not cure "no-match" letters issued by the Social Security Administration was not compelled by law. Therefore, the court concluded, an arbitration award reinstating 33 workers who did not correct "no-match" deficiencies timely was not contrary to public policy.

In essence, Aramark received "no match" letters from the SSA for over 50 employees. The company issued a letter to the employees saying that if they did not correct the social security numbers within a certain period of time, they would be terminated. The employees' union grieved the termination. An arbitrator held the no-match letter did not establish the employees were ineligible to work and did not supply good cause for discharge under the union contract. Aramark attempted to challenge the award as contrary to public policy, namely IRCA.

The Court of Appeals upheld the arbitrator's award. The court noted that no-match letters did not prove illegal alien status and reviewed impressive statistics showing that many, many employees have mismatches because of factors other than immigrant status. So, the arbitrator's award did not violate public policy and was entitled to deference.

If no-match letters don't prove the employee is not entitled to work, and if the court is correct that there are few consequences that flow from the failure to correct them.... someone might argue: why issue them to the employer at all? Shouldn't it be up to the Social Security Administration and the employee to correct social security information to ensure that withholdings are properly credited? Why should the employer care if the employee is deprived of credit because of a mismatched number? If the employee won't correct it, the money can be used to pay other recipients.

The case is Aramark v. SEIU and the opinion is here.

Ninth Circuit: Employee's Burden to Show Disability Under ADA

Gribben worked for UPS. He claimed a heart condition was a "disability" because it "substantially limited" major life activities. Specifically, Gribben's physician felt that he could not perform a lot of physical activity when temperatures rose above 90 degrees. (The problem was that Gribben lived in Phoenix.)

The district court granted summary judgment against Gribben because he did not show that he had more trouble with physical activity in the hot Phoenix weather than a person without a disability. The Ninth Circuit reversed, holding Gribben's testimony about his own limitations was enough to raise a triable issue of fact.

Whether or not you have a heart condition, it becomes harder to physically exert oneself in hot summer sun. So, how can you tell if a condition is "substantially limiting" without some basis for comparison? I guess the court's point is that the comparison can be made by the fact finder rather than the trial court on summary judgment.

The case is Gribben v. UPS and the opinion is here.

Court of Appeal to Employers: No Coverage for You if Claims Reported Untimely

Westrec Marina Management had a "claims made" insurance policy with Arrowood Indemnity Co.. The policy covered claims reported during the policy period or within 30 days of policy expiration. After receiving a discrimination charge and a demand letter, the employer did not report it to the insurer timely. Arrowood, the insurer, denied the claim. The trial court found in favor of Arrowood and the court of appeal agreed. The court said that Westrec was on notice during the policy period that a "claim" was being made and that Westrec therefore failed to report the claim timely.

So, when you receive a charge, demand letter, etc. and you wish to have insurance coverage, it may be wise to tender to the insurer if there is any doubt about whether the information you have constitutes a "claim."

The case is Westrec Marina Management, Inc. v. Arrowood Indemnity Co., and the opinion is here.

Ninth Circuit Invalidates Certain Pre-Employment Inquiries

The Ninth Circuit has issued a few opinions lately in which the court has struck down pre-employment inquiries such as applicant drug testing, medical examinations, and the like. The court recently held that NASA's practice of investigating contractors' employees was too intrusive and, therefore, violated the employees' "information privacy" rights under the Constitution. The court, however, held that the questionnaires and background checks were not "searches" under the Fourth Amendment.

The persons at issue were employees of Caltech, working under a contract for NASA at a federal facility. Of note, these employees were not exposed to sensitive information and were considered "low risk" by NASA.

NASA has conducted the same federal background check since its inception for its own employees, and recently expanded the investigation to contractors. The federal investigation includes questionnaires sent to persons identified by the applicant, and asks for a broad and open-ended amount of information about the applicant's employment history, education, habits, behaviors, financial responsibility, etc.

The court found that parts of the questionnaire were too broad and, therefore, violated the applicants' rights to informational privacy because they were not sufficiently narrow to justify the intrusion.

Interestingly, the court held that questionnaires concerning past illegal drug use were NOT a violation, because they were narrowly tailored to meet the government's legitimate interest in a drug-free workplace. But, the questions asking about counseling for prior drug use were not narrowly tailored and, therefore, a violation of the applicants' privacy rights. Recall that in the recent case of Lanier v. City of Woodburn, the Ninth Circuit invalidated a county's applicant drug testing program.

This case is called Nelson v. NASA and the opinion is here.

U.S. Supreme Court on Employer's Burden of Proof in Age Discrimination Cases

The federal Age Discrimination in Employment Act is structured differently from Title VII. That is why case law interpreting Title VII is not always applicable in ADEA cases.

Like Title VII, ADEA authorizes "disparate impact" cases - where the plaintiff demonstrates a neutral employer practice that has a greater effect on members of a protected group than non-members. The statute provides that an employment practice is legal if based on "reasonable factors other than age." The question the Court addressed in Meacham v. Knolls Atomic Power Lab. is whether the "RFOA" provision is part of the plaintiff's burden of proof or an affirmative defense. Agreeing with the EEOC's long-held position, the Court held that employers have the burden of proving that a challenged practice, one that has a statistically significant impact on older workers, is based on "reasonable factors other than age."

Happy Second Anniversary to Us!

That's right. Our little Firm was born on 6/19/06. (Our little blog didn't come along until 6/30/06, so you can count on another "Look at Me" post on 6/30.)

Since our debut, we've grown to 7 lawyers in two Northern California offices. We've consumed about 250 lbs of coffee, 50 cases of copy paper, 11 computers, 2 projectors, countless boxes of pens, cases of stickies, and a lot of pizza, Chinese food, burritos, falafel, diet coke, a variety of nuts and lots and lots of mints. (tm)

Thanks for coming along with us. I hope we've added value, on and off the blog (notwithstanding this post).

Jennifer and Greg

Ninth Circuit: No Right to Search Text Messages Stored by Third Party

The headlines blared: "Employers can't look at your email or text messages." Unfortunately for you merchants of NSFW* content on employers' systems, not so fast. The case, Quon v. Arch Wireless, is not as broad as the papers suggest.

In Quon. the Ontario, CA sheriff noted excessive text message traffic over the department's system. Under the department's policy, an employee would get 25,000 characters as part of the plan and would have to pay for overage.

But the Sheriff wanted to see if the employees were using the system for non-work related matters. So, he contacted Arch Wireless, which provides the text message service and stores archived messages for the county. (That is, the county used Arch Wireless as its cell provider for text messages). Having received the owner's request, Arch turned over the text messages to the Sheriff.

The problem is that Arch was precluded from doing so by the Stored Communications Act. Arch, as an archiver of messages, could not turn over the messages without a court order or the consent of both parties to the communication.

The Sheriff also argued that its policy destroyed any expectation of privacy. But there was testimony from management that the announced policy was not to "audit" messages if the employee paid the overage. The promise not to inspect created an expectation of privacy.

Bottom line though - if the employer stores its own emails, this case does not apply. When this case does not apply, if you want to ensure you have access to employees' electronic communications, you need a tight policy that destroys any "reasonable expectation of privacy."

On the other hand, if a third party is the repository of your business' emails, texts, third party voice mails.... this case may be a shift in the law regarding when employers are permitted to see these communications. Therefore, employers may wish to consider bringing these IT functions "in house" or giving up the right to monitor such communications at will.

Read Quon v. Arch Wireless here.


* "Not safe for work." Yes, I am hip, kthanksbye..

Supreme Court Strikes Down California AB 1889 - Union "Neutrality"

Some years ago (2003 or so) I was lucky enough to be involved in a case where the court struck down California's AB 1889. That law requires employers receiving state funds not to use them to oppose (or support) union organizing. The California Chamber of Commerce and other groups challenged the law. The district court granted summary judgment in favor of the Chamber and held the law preempted.

On appeal, the Ninth Circuit initially upheld the district court's holding that federal law preempted AB 1889. But, the court then heard the case "en banc" and changed its mind, upholding the California law.

Then, my prior firm was replaced by Supreme Court experts who sought (and obtained!) certiorari review of the decision.

The Supreme Court decided today 7-2 that AB 1889 is preempted by the National Labor Relations Act. That is, California's law impermissibly regulated employers' conduct that is otherwise regulated by the National Labor Relations Act.

This is a very important case for nursing homes and other businesses that receive state funds. The case is Chamber of Commerce v. Brown and the opinion is here.

Court of Appeal Permits Claim of "Preemptive" Retaliation

Lisa Steele, a new employee of the California Youth Offender Parole Board, was a participant in a bikini contest (away from work). Her boss, Galindo, attended the contest. When they saw each other, Galindo kissed her on the cheek on a single occasion. No one was offended. Galindo otherwise treated Lisa professionally.

But another employee was in the process of complaining about Galindo's conduct at work. The powers than be apparently were worried that Steele would be a witness against Galindo, although she had not yet complained or participated in an investigation. So, according to the record, the higher-ups engaged in conduct forcing her to resign.

A jury found for Steele on a constructive discharge claim. But the YOPB appealed, arguing (among other things) that Steele had not engaged in protected activity, so she could not have suffered "retaliation."

The Court of Appeal, though, decided that Steele's status as a "potential" witness was enough to confer "protected activity" status. Steele's proof that the constructive discharge was related to management's fear that Steele would testify against Galindo was enough to prove Steele's retaliation claim. Preemptive retaliation for future possible protected activity ... Minority Report anyone?

So, what employee is not a "potential witness" in a workplace discrimination, harassment or retaliation claim? The lower courts will be left to sort that out, I guess. The opinion is Steele v. Youth Offender Probation Board and the opinion is here.

Court of Appeal Rules on Holiday Pay, Regular Rate, and Overtime

Sometimes employers pay workers "holiday premium" pay for working on a holiday. Under federal law, if the holiday premium is at least 1.5 times the normal rate, such premiums may be taken as a "credit" against overtime premiums due in the same workweek.

The Court of Appeal just decided that this federal regulation also applies in California. If you're not familiar with this rule, here's an example from the opinion of how it works:

During the week of September 4, 2006, Ms. Roman worked 12 hours on Monday, which was Labor Day, 12 hours on both Tuesday and Wednesday, and 8 hours each on Thursday, Friday, and Saturday for a total of 60 hours. Her paycheck reflected payment of one and one-half times her regular rate for the 4 hours of overtime she worked on both Tuesday and Wednesday of that week, as well as the premium rate of pay of one and one-half times for the 12 hours she worked on Labor Day. As such, Ms. Roman was paid for 40 hours at her regular rate of pay and 20 hours at a rate of time and one-half. Ms. Roman contends that the time and one-half she was paid for working on Labor Day was her regular rate of pay pursuant to the Employee’s Handbook, and she was entitled to be paid one and one-half times the premium rate for the hours she worked on Labor Day.

The plaintiff argued that she was entitled to time and one-half for the 20 hours of overtime she worked. The employer argued it paid her time and one-half for eight of those hours because of the holiday premium policy.

The Court of Appeal decided nothing in the California overtime law required the employer to pay more than the time and one-half for 20 hours of overtime work. However, the court expressly reserved judgment on whether the employee could bring a breach of contact claim for the holiday pay premium.

The case is Advanced Tech Security Services, Inc. v. Roman and the opinion is here.

Well, the court of appeal decided that

OSHA: Employers Must Pay for Most Personal Protective Equipment

Both federal and state OSHA impose rules requiring employees to wear "personal protective equipment" such as work boots, safety goggles, etc. Federal OSHA just issued a final regulation requiring employers to pay for such equipment in most circumstances. The obligation is limited to equipment required for compliance with OSHA standards.

According to OSHA's preface to the regulation:
The items excepted from payment by this rule are: Non-specialty safety-toe protective footwear (including steel-toe shoes or steel-toe boots) and non-specialty prescription safety eyewear, that is allowed by the employer to be worn off the job-site; Shoes or boots with built-in metatarsal protection that the employee has requested to use instead of the employer-provided detachable metatarsal guards; Logging boots required by 1910.266(d)(1)(v); Everyday work clothing; or ordinary clothing, skin creams, or other items used solely for protection from the weather.

For a long, detailed discussion and the regulation itself, please see here.

Local Living Wage Ordinance Not Local

Hayward, California has a "living wage" ordinance. This is a local law that requires employers to pay employees more than state or federal minimum wage. Such ordinances typically apply only to employers with city contracts, but San Francisco applies its local minimum wage ordinance to all employers.

Hayward's applies only to city contractors. Cintas had a contract with Hayward to handle laundry services. But many such services were performed outside of Hayward. Employees brought a class action against Cintas, claiming Cintas was violating the Living Wage Ordinance.

Agreeing with the trial court, the Court of Appeal held that Hayward could require city contractors to pay employees under the Living Wage Ordinance, even though the work was performed outside of Hayward. (The ordinance applied only to employees working on the contract, not to all Cintas employees worldwide).

The case is Amaral v. Cintas Corporation and the opinion is here.