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NLRB Issues Series of Decisions Affecting Workplace Policies

By Ronald W. Novotny and Jonathan Judge

In the past several months, the National Labor Relations Board (NLRB) has issued a series of decisions that could affect everyday policies that union and non-union employers maintain in the workplace.  The decisions are summarized below.

First, in Flex Frac Logistics, 358 NLRB No. 127 (9/11/12), the NLRB ruled that a statement in an employer’s at-will policy requiring employees to keep “personnel information and documents” confidential was “overly broad” and illegal.  The NLRB held that such language had a reasonable tendency to chill employees’ exercise of their right to engage in “protected and concerted activities” guaranteed to them by the National Labor Relations Act (NLRA).   The NLRB specifically found that the rule would lead employees to reasonably believe that they were prohibited from discussing wages or other terms and conditions of employment with nonemployees such as union representatives. 

Similarly, in Knaus BMW, 358 NLRB No. 164 (9/28/12), the Board found that an auto dealership’s rule that “No one should be disrespectful or use profanity or any other language which injures the image or reputation of the Dealership” was unlawful because it could reasonably tend to limit employees’ ability to object to their working conditions and seek the support of others in improving them.  In both cases, the NLRB relied on the fact that employees could be disciplined or terminated for violating the policies as the basis for concluding that the policies interfered with their rights under the NLRA.

In another ruling that may have broad implications for the ability of employers to conduct workplace harassment investigations, the NLRB in Banner Estrella Medical Center, 358 NLRB No. 93 (7/30/12) invalidated a rule prohibiting employees from discussing with each other ongoing investigations of employee misconduct.  The NLRB stated that absent some evidence that such a confidentiality rule is necessary to protect the integrity of an investigation, it had the effect of coercing and restraining employees in their right to engage in “mutual aid or protection” for the purpose of improving their working conditions.  Under this decision, routine directives to persons interviewed in harassment and misconduct investigations that they must not speak with others about the investigation could run afoul of the NLRA and result in the filing of an unfair labor practice charge, unless the employer can establish that witnesses need protection, evidence could be destroyed, or other detrimental effects could result from not keeping the investigation confidential.

In Costco Wholesale Corp., 358 NLRB No. 106 (9/7/12), the NLRB held that Costco’s rule prohibiting employees from electronically posting statements that “damage the Company, defame any individual or damage any person’s reputation” would reasonably tend to chill employees in the exercise of Section 7 rights.  The NLRB found there was nothing that “even arguably suggested” that protected communications were excluded from this “broad” rule, citing the NLRB’s dictate that rule “be considered in context.” LutheranHeritage Village-Livonia, 343 NLRB 646 (2004).  Employers must give special consideration to the language used in workplace rules as sometimes the “context” that the NLRB espouses comes from rulings on its interpretation of buzz words in prior decisions rather than the context of the workplace.         

Employers should review their employment policies and practices, and workplace rules in light of these recent rulings.  The NLRB is taking a more aggressive approach with regard to rules that it believes infringe upon, or could be reasonably construed to prohibit, employees' exercise of Section 7 rights in union and non-union settings.   

AALRR Attorneys Obtain Unanimous Defense Verdict On Claims Of Age Discrimination and Retaliation

On August 31, 2012, AALRR attorneys Irma Rodriguez Moisa and Sharon J. Ormond obtained a unanimous jury defense verdict in favor of The Regents of the University of California after a 14-day jury trial.  The Plaintiff, James Friedman, was laid off from his position at the University of California at Los Angeles in April 2010 after a reorganization of his unit resulted in his position being eliminated.  He filed suit in September 2010 against the Regents, alleging: age and religious creed discrimination in violation of the Fair Employment and Housing Act (FEHA); retaliation for protesting or opposing of age and gender discrimination in his department in violation of the FEHA; failure to take steps to prevent retaliation from occurring in violation of the FEHA; whistleblower retaliation under California Labor Code section 1102.5 for reporting alleged copyright violations; and wrongful termination in violation of public policy.  He further sued two management employees of the University, alleging defamation and intentional infliction of emotional distress.  (James Friedman v. The Regents of the University of California, et al., Los Angeles Superior Court, Case No. BC445059.)

During the course of litigation, the Regents successfully obtained, through various motions, dismissals of the claims for religious creed discrimination, whistleblower retaliation, retaliation in violation of public policy, defamation and intentional infliction of emotional distress, and dismissals of the two individually named defendants from the action.  Consequently, the only claims presented to the jury at trial were the claims for age discrimination, retaliation under the FEHA, and failure to prevent discrimination and retaliation, with alleged economic damages of about $750,000 and non-economic damages of two to three times that amount.

Plaintiff presented evidence at trial that he was 51 years old at the time he was “terminated” from his management position by the department’s Director and that his primary duties were assigned to his former subordinate, who was much younger and earned less money than Plaintiff.  He further asserted that the Director engaged in a pattern of forcing out older workers and presented evidence that he protested or opposed of age and gender discrimination after several women had been reduced in hours and several older workers had left his department.  Plaintiff also sought to establish that unlawful motives must have been the basis for the termination, as the Director had informed his supervisor of various performance issues he had with Plaintiff, yet he failed to engage in progressive discipline before terminating the Plaintiff.

By contrast, the defense presented evidence that Plaintiff’s unit was in fact reorganized, and done so in accordance with goals identified through strategic planning.  The defense evidence further showed that Plaintiff’s position was eliminated, as indicated by his supervisory duties being assumed by his superiors and his other duties being eliminated or, to a limited extent, assigned to his former subordinate under the supervision of the Director (who was older than the Plaintiff).  The evidence showed that Plaintiff never submitted any written complaints about age or gender discrimination, and the defense make clear that Plaintiff’s protest was, at best, a passing remark that the reduction in hours of three women did not look good.  There was extensive evidence presented by the defense to support a determination that Plaintiff had not been a good communicator and had failed to keep the Director informed of major developments in his area despite a directive to do so, and that these issues resulted in the timing of the reorganization being done sooner than originally planned.

After closing arguments, the jury deliberated just under an hour before delivering a unanimous 12-0 defense verdict as to each Mr. Friedman’s claims.  

Court Of Appeal Decision Is a Cautionary Tale for Franchisors and For Franchisees

By Ann M. Guevara and Christopher S. Andre

The California Court of Appeal’s recent decision in Patterson v. Domino’s Pizza, LLC, serves as a cautionary tale for franchisors and for franchisees.  The Court of Appeal held a Franchisor can be held liable for alleged sexual harassment of an employee of the franchisee by a supervisor employed by the franchisee and for related claims.

Taylor Patterson filed suit against Sui Juris, LLC, dba Domino’s Pizza (the Franchisee), Domino’s Pizza, LLC, Domino’s Pizza, Inc., and Domino’s Pizza Franchising, LLC (collectively “Franchisor”) alleging causes of action for sexual harassment in violation of the California Fair Employment and HousingAct (“FEHA”), failure to prevent discrimination, retaliation for exercise of rights, infliction of emotional distress, assault, batter, and constructive wrongful termination.  Patterson alleged that an assistant manager of Franchisee sexually harassed and assaulted the then 16-year-old employee at the workplace. 

The Franchisor argued to the trial court that summary judgment should be granted in favor of the Franchisor and against Patterson on the asserted ground that the Franchisor was not Patterson’s employer and therefore could not have any liability.  The trial court agreed with Franchisor and granted the motion.  The trial court ruled, also, that even if Franchisor was considered to be Patterson’s employer, Franchisor still would not be liable based on the trial court’s finding there were no triable issues of fact showing the Franchisor had notice of, ratified, or otherwise condoned the alleged conduct on the part of the Franchisee’s assistant manager. 

On appeal, the Court of Appeal rejected both of Franchisor’s arguments and reversed the decision of the trial court granting summary judgment in favor of the Franchisor:

• The Court of Appeal held Franchisor did not meet its burden of showing the undisputed facts establish that the Franchisee was not an agent of the Franchisor and therefore not vicariously liable for the alleged conduct on the part of the Franchisee’s assistant manager.   The Court of Appeal held the terms of the franchisee agreement are not controlling and looked to the extent the Franchisor exercised control over the Franchisee’s operations, stating “a franchisee may be found to be an agent of the franchisor even where the franchise agreement states [the franchisee] is an independent contractor,” and stated, “[i]f the franchisor has substantial control over the local operations of the franchisee, it may potentially face liability for the actions of the franchisee’s employees.”  The Court of Appeal explained that the Franchisor exercised significant control over how the operations of the Franchisee, including the relationship between the franchisee and the employees of the Franchisee and concluded the Franchisor failed to demonstrate that the Franchisee was not an agent of the Franchisor.  The court found it significant that the Franchisor area manager directed the Franchisee to terminate among other employees of the Franchisee, the assistant manager who allegedly harassed Patterson. 

• The Court of Appeal rejected the trial court’s determination that the Franchisor could not be liable because there was no showing the Franchisor had notice of, ratified, or condoned the conduct of the assistant manager of the Franchisee.  The Court of Appeal held the trial court applied the wrong standard and explained that when the alleged harasser is a supervisor or a manager of the allegedly harassed employee, the employer(s) of the alleged harasser is/are strictly liable under the FEHA. 

The case presents a cautionary tale for franchisors in that it serves as a reminder that a franchisor can be exposed to liability for, among other things, employment related claims made by franchisee employees if the franchisor exercises sufficient control over the operations of a franchisee. 

The case presents a cautionary tale for franchisees as well.  Franchise agreements often contain provisions requiring the franchisee to defend, indemnify, and hold harmless the franchisor against claims arising from the franchisee’s operations, including employment related claims.  Such defense, indemnity, and hold harmless obligations can substantially increase the cost of defending a lawsuit if, for example, the franchisee is required to fund the franchisor’s defense, and if the franchisee cannot obtain an early dismissal of the franchisor.

Furthermore, the reasoning of this decision could, depending upon the particular factual circumstances, be extended to other business relationships, where one entity exerts substantial control over the activities or operations of another entity.

Court Of Appeal Holds Insubordination Is “Misconduct” And Is Grounds For Denial Of Unemployment Insurance Benefits

By Andres C. Hurwitz and Christopher S. Andre

Many employers require employees to acknowledge in writing the employee’s receipt of a notice or memorandum of discipline when workplace discipline is imposed.  In Paratransit, Inc. v. Unemployment Insurance Appeals Board, the California Court of Appeal held: (1) it is lawful for an employer to require an employee to sign such an acknowledgement, (2) an employee’s refusal to sign such an acknowledgement form when lawfully presented to the employee is “misconduct” as that term is defined in Unemployment Insurance Code section 1256, and (3) such “misconduct” is grounds for denying unemployment insurance benefits to an employee who is terminated for refusing to sign a discipline acknowledgement form lawfully presented to him or to her.

Following its investigation of a customer complaint, Paratransit conducted a post-investigation meeting with its employee, Craig Medeiros, to inform Medeiros that Paratransit investigated the complaint, that Paratransit concluded the customer’s complaint was valid, and that Medeiros would receive two days off without pay as discipline.  Paratransit informed Medeiros that signing the form was merely an acknowledgement of his receipt of the notice of discipline and not an admission of wrongdoing.  Medeiros requested that a representative of his union be present, stated his union instructed him not to sign anything without a union representative present, and refused to sign the form despite being informed by Paratransit that his employment would be terminated.  Medeiros refused to sign the form, and Paratransit terminated his employment.  A four-year saga followed.

After he was terminated, Medeiros submitted a claim for unemployment insurance benefits, which the California Employment Development Department (EDD) denied.  Medeiros appealed that decision, and the Administrative Law Judge (“ALJ”) who heard the appeal upheld the EDD’s denial of the claim following an evidentiary hearing.  Medeiros then appealed to the California Unemployment Insurance Appeals Board, which reversed the decision of the ALJ, finding Medeiros’ refusal to sign the form “was, at most, a simple mistake or an instance of poor judgment” on the part of Medeiros.  Paratransit then filed in the Sacramento County Superior Court a Petition for Writ of Mandamus requiring the Unemployment Insurance Appeals Board to vacate its decision in favor of Medeiros and enter instead a decision against Medeiros.  The trial court granted that Petition, and Medeiros then appealed to the California Court of Appeal. 

On appeal, the Court of Appeal affirmed the trial court’s decision in favor of Paratransit and against the Unemployment Insurance Appeals Board.  In so holding, the Court of Appeal looked to Labor Codes section 2856 which states that “an employee shall substantially comply with all the directions of his employer concerning the service on which he is engaged, except where such obedience is impossible or unlawful or would impose new and unreasonable burdens upon the employee.”  The court distinguished what is and what is not “misconduct” for purposes of determining whether a terminated employee is eligible for unemployment insurance benefits:

Misconduct within the meaning of section 1256 is “limited to conduct evincing such willful or wanton disregard of an employer’s interest as is found in deliberate violations or disregard of standards of behavior which the employer has the right to expect of his employee, or in carelessness or negligence of such degree or recurrence as to manifest equal culpability, wrongful intent or evil design, or to show an intentional and substantial disregard of the employer’s interests or the employee’s duties and obligations to his employer.  On the other hand mere inefficiency, unsatisfactory conduct, failure in good performance as the result of inability or incapacity, inadvertencies or ordinary negligence in isolated instances, or in good faith errors in judgment or discretion are not to be deemed “misconduct” within the meaning of the statute.”

  

The court concluded, based on the record facts, that Medeiros’ “failure to sign the disciplinary memo violated his obligations to Employer under Labor Code section 2856,” and was “misconduct” that disqualified Medeiros for unemployment insurance benefits.  The court determined that even though the document he was asked to sign did not specifically indicate that he was not admitting fault, it was clearly a “receipt” of a notice regarding an investigation that had already been completed.  His refusal to sign the document, when instructed to do so by his employer, was without any legitimate basis, and his actions were therefore determined to be “misconduct,” pursuant to Unemployment Insurance Code section 1256, precluding his right to unemployment insurance benefits.

The court further concluded, for purposes of determining whether Medeiros’ engaged in “misconduct” by refusing to sign the disciplinary memorandum, that the meeting Paratransit held with Medeiros to inform him of the results of Paratransit’s investigation of the customer complaint and to inform him of the discipline Paratransit decided to impose did not trigger Medieoros’ rights as an employee subject to a collective bargaining agreement to have a union representative present during the meeting because the meeting was not an investigatory meeting that could result in discipline.  Rather, Medeiros “never asked for union representation during [the] investigation.  The only thing [Medeiros] was confronted with at the . . . meeting was his employer’s decision to discipline him at which time he did not have a right to union representation.”  In this regard, we note that the National Labor Relations Board has exclusive jurisdiction over claims of alleged unfair labor practices, and the court’s decision in this case is not a precedential decision as to whether Medeiros did nor did not have a right to union representation during the meeting under the National Labor Relations Act

The court concluded, also, that Medeiros was not entitled to rely on purported union advice the court found erroneous:  “The trial court also concluded that, even if the union president had told [Medeiros] not to sign anything without union representation, [Medeiros] was not entitled to rely on such erroneous advice.  We agree.  Were it otherwise, a union could insulate members from adverse employment action simply by giving them bad advice that they need not comply with an employer’s orders.  If the union gave [Medeiros] bad advice that resulted in his termination, [Medieros’] recourse may be against his union, not a claim for unemployment insurance funds.”

It is important to note that the question of whether an employee has engaged in “misconduct” that disqualifies him or her for unemployment insurance benefits often will be a fact-specific inquiry.  Unfortunately, there is no bright line rule.  Examples of “misconduct” giving rise to disqualification, as that term has been interpreted, have included repeated tardiness despite admonitions from an employer, a refusal to submit to a drug test in a safety-sensitive position, and, more generally, dishonest acts committed willfully and which have injured the employer.  As reiterated in Paratransit, mere inefficiency, unsatisfactory conduct, failure in good performance, inadvertencies or ordinary negligence in isolated instances, or good faith errors in judgment or discretion, are not to be deemed misconduct within the meaning of the statute.  The EDD provides some guidance on the issue of what might rise to the level of “misconduct” here.

Nevertheless, we think this decision is a good decision for employers that brings some welcome clarity regarding the rights of employers to expect and, if necessary, to demand compliance with lawful directives to employees.

California Court Strikes Down Arbitration Clause in Employee Handbook

By Ronald W. Novotny and Jonathan Judge

As employers increasingly consider adopting mandatory arbitration agreements for employment disputes following last year’s Supreme Court decision upholding class arbitration waivers in Concepcion (previously discussed here), there is an increasing need to review old agreements and policies contained in Employee Handbooks to ensure that they do not render such attempts futile.  Nowhere was this demonstrated more clearly than in the recent decision in Sparks v. Vista Del Mar Child and Family Services, issued on July 31, 2012, in which the court denied the enforcement of a policy requiring arbitration because of its inclusion in a handbook which contained general language permitting an employer to change its terms unilaterally and stating that it was “not an agreement.”

Vista Del Mar Child and Family Services hired Perry Sparks as a temporary employee in January 2007.  Sparks alleged that he was permanently hired in April 2007 as a controller and was terminated for pretextual reasons in 2010 after he complained of various employee practices that he asserted violated federal and state reporting and compensation laws.  Sparks filed a wrongful termination lawsuit.  Vista Del Mar filed a motion to compel arbitration based on the arbitration policy contained in the handbook. 

The court denied the motion to compel arbitration, citing numerous deficiencies surrounding Vista Del Mar’s arbitration policy. 

First, the court noted the arbitration clause, in the form of a “Dispute Resolution Policy,” was buried at page 35 of the employee handbook, in the same type and size as other provisions of the handbook.  The policy was not prominently distinguished, not specifically highlighted, and there was no place for the employee to acknowledge the policy in writing.  The court noted that Vista Del Mar corrected these deficiencies in a later handbook issued in 2009 that not only required employees to sign for receipt of the handbook acknowledging inclusion of the arbitration policy, but also required employees to sign a full, separate arbitration agreement.  Unfortunately for Vista Del Mar, Sparks did not sign the 2009 handbook acknowledgment, or the separate arbitration agreement. 

Thus, Vista Del Mar was left with the 2006 handbook Dispute Resolution Policy.  The court noted that immediately after the Dispute Resolution Policy, the handbook contained an Amendment, Revisions, and Modifications Policy, which stated “this handbook is not intended to create a contract of employment and does not in any way alter the at-will employment relationship between” Vista Del Mar and its employees.  The court found that such language did not bind Sparks to arbitration as it negated the contractual nature of the Dispute Resolution Policy.  Vista Del Mar could not “have it both ways” by claiming the handbook was not a contract but then argue that Sparks was bound to arbitrate employment disputes through the same document.    

Further, the acknowledgment Sparks signed provided that Vista Del Mar could “change, rescind or add to any policies, benefits or practices described in the Handbook from time to time in its sole and absolute discretion, with or without prior notice.”  The court found Vista Del Mar’s ability to unilaterally modify the handbook rendered the agreement to arbitrate in the Dispute Resolution Policy illusory – even though it has been held that such a right does not nullify an arbitration agreement so long as it is exercised fairly and in good faith.  24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1214.

The court was not finished, and faulted Vista Del Mar for not providing a copy of the American Arbitration Association (“AAA”) rules to Sparks as the Dispute Resolution Policy specifically incorporated the AAA rules.  Further, the court determined the policy was unconscionable because it did not meet the minimum requirements set forth in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000). The policy language required employees to relinquish administrative and judicial rights under federal and state law, and contained no express provision regarding discovery rights.     

What This Means For Employers

Above all, the Sparks case stands as just another example of the extreme judicial hostility some courts still have towards arbitration agreements in the employment setting.  It is difficult to balance the employer’s desire to avoid eroding the at-will presumption and avoid creating an implied agreement not to terminate employees but for good cause against creating a contractual and enforceable obligation to arbitrate employment disputes.  Arbitration agreements that are separate from the employee handbook allow for clearer distinction between these competing objectives.  Further, to guard against the possibility of such agreements being invalidated, employers should consider using a stand-alone agreement which (1) specifies that all claims against the employer and its officers, directors and employees are arbitrable under the Federal Arbitration Act; (2) excludes only claims for administrative charges filed with the EEOC and DFEH (which the Sparks policy failed to do), as well as unemployment and workers’ compensation insurance, and unfair labor practice charges filed with the NLRB; (3) provide reference or access to the rules of the tribunal which will be administering the arbitration; (4) provide that to the fullest extent permitted by law, the claims asserted in arbitration shall not be joined or consolidated with those of other parties; and (5) provide that it is the entire agreement between the parties with respect to dispute resolution and can only be modified by both parties in writing.  By including such provisions, employers should be able to maximize their ability to enforce arbitration agreements should the time come for them to do so.