Kate Gold and Elena Min Author Daily Journal Article

Los Angeles Partner Kate Gold and associate Elena Min recently authored for The Daily Journal an article on changes to Section 218.5 of California’s Labor Code.  The change, enacted through Senate Bill 462, curbs an employer’s ability to recover prevailing party attorney fees and costs in a lawsuit seeking unpaid wages, fringe benefits, or health and welfare or pension fund contributions.

Scheduled to go into effect January 1, 2014, the amendment limits recovery of attorney fees and costs by a prevailing employer “only if the court finds that the employee brought the court action in bad faith.”

Kate and Elena said the amendment “strips employers of one possible weapon in their arsenal for deterring nonmeritorious wage and hour claims.”

“Attorneys for plaintiffs and defendants will likely disagree with the consequences of the amendment as well as its premise – that the two-way fee recovery of existing Section 218.5 has had a chilling effect on employees’ wage and hour claims under that section,” they wrote. “But the bottom line is that “bad faith” is a high standard to meet and the amendment makes fee recovery in Section 218.5 actions an uphill battle for employers.”

Audiocast – Impact of DOMA and Proposition 8 on California Employers – September 9, 2013 at Noon Pacific

The recent Defense of Marriage Act “DOMA” ruling has caused some concerns for human resources professionals and in-house counsel of companies headquartered or doing business in California. Those concerns include: (i) how will DOMA impact their policies, (ii) how will it affect benefit plans and retirement plans, and (iii) what does the ruling mean for employers, in connection to Proposition 8?

Please join four of our California-based Drinker Biddle lawyers from our new cross-over group, “California HR,” as they present a one hour audiocast to discuss these issues and the impact of DOMA and Proposition 8 on California employers.

Presented by:
Kate Gold, Partner
Summer Conley, Counsel
Cheryl Orr, Partner
Heather Abrigo, Counsel

This complimentary presentation will address:

  • Possible changes California employers need to make to welfare benefit and retirement plans.
  • How beneficiaries are now determined.
  • What documentation employers can require in confirming a domestic partnership or same sex marriage?
  • The intersection between DOMA and FMLA.
  • Marital status discrimination issues and other issues of concern to California employers.

There will be an opportunity at the end of the program to ask questions. Alternatively, if you have questions to present to the speakers ahead of time, please send them to contact@dbr.com.

Participant Access Instructions:
Dial in 5 – 10 minutes prior to start time using the participant phone number and participant passcode.
Participant Code: 312703
International: 719-457-2626
United States/Canada: 866-431-5314

Employer Liability Under State Medical Marijuana Laws

Across the country, employers in states allowing medical marijuana use have been grappling with whether these statutes impact employer policies concerning drug testing and maintaining a drug-free workplace.  Though the statutes allow for marijuana use for medical purposes (and some for recreational purposes), these statutes do not consistently address the impact of legal medical marijuana on employers, if at all.  And the number of states enacting such legislation is continuing to grow.

Since 1996, 20 states[1] and the District of Columbia have enacted some form of legislation that allows for the non-criminal use of marijuana for medical purposes.  In fact, in the last three years, eight states have passed medical marijuana laws – and Illinois became the 21st jurisdiction to legalize medical marijuana when Governor Quinn signed HB 1 into law on August 1.

As such, companies that employ individuals in states with medical marijuana may be uncertain as to whether or under what circumstances they can take action with respect to an employee that fails a drug test or otherwise admits to being a medical marijuana patient.

Civil Protections – Where Do We Stand Today?  

Most of the states that have enacted a medical marijuana law have statutory language that is silent about medical marijuana patients’ civil protections.  Of the 21 jurisdictions that have medical marijuana on the books, 15 do not provide for any form of employment protections.[2]  In fact, supreme courts in California, Oregon, Washington and Montana have all upheld employer decisions to discharge employees that were medical marijuana patients.  The plaintiffs in these lawsuits have argued that medical marijuana users are protected under such statutes because the law itself creates the sought-after employment protections, that the employer’s decision to discharge the user violates the public policy of the state, and/or that the employer discriminated against them on the basis of a disability when it failed to accommodate their medical marijuana use.  The courts, in response, have held that the medical marijuana statutes in their state only protect patients from criminal sanctions and do not create any civil remedies or protections.  As such, the courts have held that these statutes do not create a clear public policy that might otherwise support a wrongful termination claim or establish that medical marijuana users belong to a protected class.  With respect to claims based on asserted disabilities, courts, like the Supreme Court of Oregon, have held that federal law preempts any argument that an individual is protected from disability discrimination on the basis that they are a medical marijuana patient.

Another argument that was recently tested by a plaintiff in Colorado is that an employer’s decision to discharge a medical marijuana user who fails a drug test violated the state’s “lawful activities” statute.  Colorado, like many states, prohibits employers from taking action against an employee for engaging in lawful activities or using lawful products outside of the workplace.  In a decision dated April 25, 2013, the Court of Appeals of Colorado held that the state’s “lawful activities” statute did not bar the employer from discharging an employee who tested positive for marijuana after a random drug test and who was also a licensed patient.  Coats v. Dish Network, LLC, case nos. 12CA0595, 12CA1704 (Co. Ct. App. April 25, 2013).  The court held that since the Colorado statute did not specify whether an activity’s “lawfulness” was determined by state or federal law, and marijuana is illegal under federal law, employees that use medical marijuana are not shielded by the statute from the risk of termination.

Despite the lack of civil protections in a majority of jurisdictions that have legal medical marijuana, a few states do provide clear restrictions on an employer’s ability to discriminate against a medical marijuana patient.  In Connecticut, Maine and Rhode Island, medical marijuana patients are given protected status and employers are prohibited from discriminating against an employee merely due to their status as a medical marijuana patient.  Under Illinois’ HB 1, Illinois also now prohibits such discrimination.

In addition, Arizona and Delaware have adopted much more explicit and impactful statutorily language that bars an employer from discriminating against a registered and qualifying patient who has failed a drug test for marijuana metabolites or components.  The only exceptions to this rule are that an employer may act upon the results of a failed drug test if the patient “used, possessed or was impaired by marijuana on the premises of the place of employment or during the hours of employment” or failing to do so would jeopardize an employer’s “monetary or licensing related benefit under federal law or regulations.”  See ARS 36-2813 and Del. Code Title 16, § 4905A.  Neither statute has been tested in the courts, but the language of these statutes appears to plainly prohibit employers from firing an employee who is a qualified medical marijuana patient based solely on a failed drug test.  Rather, in these two states, most employers will need to prove that their decision was based on the fact that the employee used, possessed or was impaired by marijuana while on the job.

Uncertainties Around Illinois Statute

Whether Illinois’ medical marijuana statute provides similar protections is a more uncertain question.  With regard to employer liability under the proposed statute, HB 1’s provisions are generally couched in what they do not prohibit, leaving open to interpretation what it may bar with regard to workplace decision-making.  HB 1 first states that it does not prohibit “an employer from enforcing a policy concerning drug testing, zero-tolerance or a drug free workplace provided the policy is applied in a nondiscriminatory manner.”  The bill also states that employers are not limited from “disciplining a registered qualifying patient for violating a workplace drug policy.”  These initial provisions suggest that Illinois’ statute is in line with the majority of jurisdictions, but then it goes on to provide that “[n]othing in this Act shall limit an employer’s ability to discipline an employee for failing a drug test if failing to do so would put the employer in violation of federal law or cause it to lose a federal contract or funding.”  This language, like that in Arizona and Delaware, appears to potentially prohibit employers from relying upon a failed drug test for marijuana unless the employer has contrary obligations under federal law or regulation.  The statute continues down this road by also stating that it does not create a cause of action against an employer for actions based on a good faith belief that the medical marijuana user used, possessed or was impaired by marijuana while working.  It also provides that an employer may consider a patient to be impaired when they exhibit “articulable symptoms … that decrease or lessen [the employee’s] performance of the duties or tasks of the employee’s job position.”  This provision further states that if an employee is disciplined under this section, that they must be given an opportunity to contest the employer’s determination.

Taking these latter provisions into account, there are strong arguments in favor of the position that Illinois’ medical marijuana does provide similar civil employment protections as found in Arizona’s and Delaware’s statutes.  First, the bill states that employees cannot sue an employer for actions that were based on a good-faith belief that the employee was impaired, that the belief that an employee is impaired must be based on “articulable symptoms,” and that  employees must have an opportunity to rebut the idea the they were impaired.  These provisions suggest that an employer may be found to have acted in bad faith and subject to liability if it discharges an employee without an articulable basis for why it believed that the employee was impaired or fails to give an employee a chance to challenge an assertion that they were impaired on the job.  In addition, the statute appears to tie the ability of an employer to discipline an employee for failing a drug test to an employer’s obligations under federal law.  This framework creates a plausible argument that the statute does provide protections for medical marijuana users who do not use or are not impaired by marijuana on the job.  However, the pronouncement that employers are not limited in keeping drug testing, zero tolerance, or drug-free workplace policies seems to conflict with such a finding.  Perhaps one way to read these provisions consistently is to find that the statute allows employers to maintain such policies, but that they must treat medical marijuana patients in the same manner as other employees that have been prescribed legal medications.  In reality, the only way we will know the answer to this question is when the law is inevitably relied upon by a qualified patient who is fired for failing a drug test that is positive for marijuana.

Recommendations for Employers in Medical Marijuana Jurisdictions

So, how should employers respond to these increasingly more common medical marijuana laws?  For those employers who have federal contracts or are otherwise subject to federal regulations concerning drug-free workplaces, your practices do not need to change.  According to the Department of Transportation, which regulates and provides drug testing requirements for certain safety-sensitive positions, it is “unacceptable for any safety-sensitive employee subject to drug testing under the Department of Transportation’s regulations to use marijuana.”  Thus, employers subject to such or similar regulations should continue to comply with applicable federal law.

Employers that are not subject to federal drug testing regulations should review their substance abuse policies to ensure compliance with local and state law.  Employers in states that generally do not provide for employment protections should still consider whether their state has a “lawful activities” or “lawful products” statute or whether courts in their state may be more favorable to finding a clear public policy protecting medical marijuana users.  In light of the holdings of those decisions that have addressed the issue, courts in these states will likely find that their state law does not establish a clear public policy in favor of medical marijuana patients.  However, this analysis may differ in Colorado and Washington, both of which now allow for legal recreational use.  In those states that do provide for some form of employment protection, you should carefully revise your policies to be consistent with those laws.

Employers should also consider whether or when they will conduct drug testing.  With the passage of these laws, employers should expect that more of their employees may be using marijuana outside of the workplace.  Similarly, employers should expect more challenges, based on the long period of time that marijuana metabolites remain in an individual’s system, from employees that have failed drug tests but who claim they were not impaired while working.  In Arizona, Delaware and Illinois, employers should revise their substance abuse policies to make sure they conform to state law and ensure that employees who are qualified patients are not disciplined solely on the basis of a failed drug test.  Lastly, employers should train their supervisors and managers to recognize signs of impairment (whether due to marijuana, alcohol, or other substances) and how to deal with inquiries from employees regarding their use of medical marijuana.


[1] States that provide for some form of legalized medical marijuana states are: Alaska, Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, Oregon, Rhode Island, Vermont, and Washington.

[2] The six jurisdictions that do provide some level of civil protections are: Arizona, Connecticut, Delaware, Illinois, Maine, and Rhode Island.

California Court of Appeal Finds Employment Arbitration Agreement Barring Class Claims Unconscionable

In Compton v. Superior Court of Los Angeles County, No. B236669 (2d Dist. Mar. 19, 2013), a divided panel of the Second District Court of Appeal reversed the Los Angeles Superior Court’s order compelling arbitration of her wage-and-hour class action complaint.

The Compton majority found the arbitration provision was substantively unconscionable because it was “unfairly one-sided” for four reasons.  First, the agreement exempted the employer from arbitration for injunctive relief on claims related to confidential information and trade secrets.  The majority did not find the carve-out of plaintiff’s claims for workers compensation, unemployment and disability claims sufficient to create parity.  Second, the majority found the imposition of a one-year time limit to arbitrate employee claims impermissibly shortened the applicable statutes of limitations; for a separate, but related reason, the court found this limitation was unfairly one-sided when compared with the three- and four-year statutes of limitation applicable to the unfair competition and trade secret claims preserved by the employer.  Finally, the majority found that the attorneys’ fees language undermined the employee-favorable statutory fee provisions.  Of some concern, the court declined to sever the offensive terms, finding the agreement to be “permeated by unconscionability.”

In an apparent effort to distance its opinion from AT&T Mobility, LLC v. Concepcion (2011) 131 S.Ct. 1740 and its progeny, the Compton majority emphasized that the Concepcion opinion arose out of a consumer arbitration agreement.  The court specifically found that Concepcion “did not abrogate the Armendariz one-sidedness rule,” i.e., “the doctrine of unconscionability limits the extent to which a stronger party may, through a contract of adhesion, impose the arbitration forum on the weaker party without accepting that forum for itself.”  Armendariz v. Foundation Health Psychcare Servs. (2000) 24 Cal.4th 83, 118.

The Compton court found that the agreement was also procedurally unconscionable because, regardless of “how conspicuous the arbitration agreement’s terms and advisements,” the employer’s reported conduct (hurried presentation and signature requested) “rendered them nearly meaningless” and demonstrated oppression.  The court also found that the information provided was one-sided because it did not sufficiently set forth the rights that were being waived, and because the rules of the applicable arbitration bodies were not provided to the employees in toto.

As a procedural side note, the panel was divided even on the basis for consideration of the appeal.  The dissent found that the appeal was appropriate pursuant to the “death knell” doctrine, and the majority side-stepped the issue by addressing the issue as a petition for writ of mandate.

The dissent raises a host of issues and highlights the unsettled conflicts between the Concepcion line of cases and California’s unconscionability principles, which have arisen primarily in the context of employee and consumer lawsuits.

Given the strong language in Compton and the court’s refusal to strike out the offensive terms, California employers may wish to engage in a review of their arbitration agreements in light of the Compton majority’s opinion.

Editor’s Update:

On June 12, 2013, the Supreme Court granted defendant’s petition for review, but deferred all briefing and further action in the matter pending its disposition of Sanchez v. Valencia Holding Co., S199119, the leading case on the related issue of whether the Federal Arbitration Act, as interpreted in AT&T Mobility LLC v. Concepcion (2011) 563 U.S. ___, 131 S.Ct. 1740, preempt state laws invalidating mandatory arbitration provisions in a consumer contract on grounds of procedural and substantive unconscionability.

Former Executive’s Race to California Hits a Roadblock in New York

Like many things in life, there is a perceived formula for success in non-compete cases:  If you are the former employee or his or her new or would-be new employer, conventional wisdom dictates that you identify the restrictions early and consider filing a preemptive declaratory judgment action in a state that is hostile to such agreements (provided the facts permit).  California is the most well-known example, but there are others.  The plan works best if the former employee lives in California (or similarly hostile state) or has other significant connections by virtue of his past or intended future employment.  But now, a New York appellate court has thrown conventional wisdom a curve.

Michael Cusack and Peter Arkley were former Aon executives.  They left Aon on June 13, 2011 to pursue lucrative opportunities with a competitor, Alliant Insurance Services.  The same day, 38 other Aon employees also left, and 22 more followed shortly thereafter.  Aon’s clients came too, with over $20 million in client revenue allegedly flowing from Aon to Alliant.

Arkley and Cusak, along with Alliant, following the familiar formula, filed for a declaratory judgment to invalidate their restrictive covenant agreements in California federal court on the same day they resigned.  Arkley’s chances of success in California seemed particularly good because, although his employment agreement was governed by Illinois law, he both lived and worked in California, and he planned to continue to do so with Alliant.

Aon responded by filing suits in Illinois and New York state courts, and found success in New York in particular.  The New York trial judge, undeterred by the action in California and Arkley’s California connections, enjoined him soliciting business from, and entering into any business relationship with, any of Aon’s clients whom he either procured or whose accounts he worked on in the 24 months prior to his departure.  She also enjoined him from soliciting any Aon employees to work for Alliant.

In January, a New York appellate court affirmed.  The court rejected Arkley’s calls to defer to the first-filed California action, calling it “a preemptive measure undertaken to gain a tactical advantage so as to negate the force and effect of the restrictive covenants, which the parties had freely agreed upon.”  The New York court seized upon the fact that the parties’ agreement had selected Illinois law to govern and held that Illinois law provided for enforcement.

Although the outcome was arguably an unusual one insofar as a New York court entered an injunction against someone who lived and worked in California and intended to do so in his new employment, so too were the facts involved, on many levels.  First, the conduct at issue was particularly egregious in that it involved, among other things, former employees allegedly taking the equivalent of hundreds of thousands of printed pages of documents, including highly-sensitive documents; a coordinated departure strategy that included filing a declaratory judgment action in California within an hour of the key executives’ resignations; a mass exodus of both employees and clients; and alleged violations of an earlier-issued temporary restraining order.  Second, the executives involved were high-level employees, who received seven-figure compensation from Aon, at least in part in consideration of the very restrictions they sought to avoid.  Third, the restrictive covenants at issue were not blanket non-competes, but rather restricted the executives from disclosing confidential information, from calling on the customers that they serviced for Aon, and from soliciting other Aon employees for employment.  In different circumstances, involving lower-level employees, who are alleged to have engaged in less egregious conduct and/or who are subject to broader restrictive covenants, the former employer may not fare as well.

Still, the takeaways are unmistakable.  First, choice of law is critical, and an employer loses a tactical advantage when it fails to select a state law that, if not favorable to it, at least gives it a fair shot.  Second, living and working in California is not the end all be all, and racing into a California court does not guarantee the former employee and his new employer freedom from the employee’s post-separation obligations.  Solid facts and a solid agreement, presented in a jurisdiction that follows a more traditional approach to restrictive covenants, can still result in success for the former employer.

New Year, New Laws for California Employers – Deposition Limits, San Francisco Ordinances and Meal Periods

In the final part of our series, “New Year, New Laws for California Employers,” we take a look at new deposition limits, San Francisco ordinances and meal periods.   Prepared by Mark Terman, partner in the Los Angeles office, this series looks at some of the significant new regulations becoming law in 2013 affecting private employers doing business in California.

Deposition Limits

AB 1875 limits a deposition of any person to seven hours of total testimony, similar to the requirement in federal courts.  Excepted from this limitation are depositions in employment and complex cases, and of expert witnesses.

San Francisco City Ordinances

For an employer who directly or indirectly employs or exercises control over an employee’s wages, hours and working conditions in the city of San Francisco, Minimum Wage, Health Care Security (HCS) and Paid Sick Leave (PSL) Ordinances benefit those employees (http://sfgsa.org/index.aspx?page=430).

For 2013, hourly minimum wage for employees in San Francisco increases to $10.55 from $10.22, while the statewide minimum wage outside San Francisco remains at $8. The required 2013 “spend per employee,” under the HCS Ordinance for employers with 100 or more employees increases to $2.33 from $2.20 per hour.  For employers of 20-99 employees, spend increases to $1.55 from $1.46.  Exempt from the HCS Ordinance are employers with 19 or fewer employees, managers and supervisors salaried at $86,593 or more and nonprofit employers of less than 50 employees.  So far, there is no change in the PSL Ordinance.

Meal Periods

Of the many court decisions this year affecting employers, perhaps none impact as many employers as the California Supreme Court’s meal period directive in Brinker Restaurant Corp. v. Superior Court.

Before Brinker, California employers were relegated to policing and disciplining employees to ensure they took at least one, 30-minute nonworking meal periods and, if employers did not, they stood to risk class-action and single-plaintiff litigation over regular wages, overtime wages, wage premium (an extra hour of pay for each meal period lost), interest and attorneys’ fees.

By contrast, Brinker ruled that an employer’s obligation is to relieve its employees of all duty, with employees then at liberty to use the meal period for whatever purpose, but the employer need not ensure that no work is done during the meal period.  Likewise, an employee may not capitalize on premium pay by intentionally working through provided meal periods, and an employer may not “impede or discourage” a full, uninterrupted meal period. Finally, the court held that an employer must provide a reasonable opportunity to take meal periods of at least 30 uninterrupted minutes, within the proper time frame, and relieve employees of all duties.

While this case is welcome news, employee claims may still surface. For example, some employees may contend that they were impeded or discouraged from taking lunch or leaving their work area, thus triggering premium pay.  Some employees may habitually decline to take a meal period to try to consume “regular rate” working time midday and assure that some overtime is worked, forcing the employer to pay overtime rates for those hours. Consequently, some employers may still prefer to require by their own policies that meal periods are actually taken, rather than made available.

 

Links to the other posts from this series are below.

New Year, New Laws for California Employers – Employer Access to Social Media

New Year, New Laws for California Employers – Religious Dress and Grooming Protected and Breastfeeding Further Protected

New Year, New Laws for California Employers – Added Whistle-blower Protections, With Whom Will the EDD Share Employer Reports and Contracts with Commission Employees

New Year, New Laws for California Employers – Right to Inspect and Receive Employment Records and Right to Inspect and Copy Wage Records

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