Employment Law

California Governor Signs Bills Aimed at Preventing Workplace Harassment

Why it matters

On September 30, 2018, Governor Brown signed a bill prohibiting the inclusion of confidentiality provisions in settlement agreements in cases and administrative actions involving sexual harassment, as well as other sexual offenses, while allowing the claimants in such actions to retain the right to include provisions that shield their identity.

Confidentiality provisions in settlements, often referred to as “secret settlements” or “nondisclosure agreements” (NDAs) are used to prevent details of cases from becoming public. While the previously existing law prohibited secret settlements of certain civil actions in which the public has a strong interest, it did not prohibit secret settlements in cases of sexual harassment, sexual assault and workplace harassment. This law will prevent the use of secret settlement agreements in such cases, while allowing the amount of the settlements to still remain confidential. Further, information about the identities of the claimants could be kept confidential by request of the claimants, except in cases where government agencies or public officials are parties to the cases. 

Detailed discussion: California and Washington politics continue to converge

In response to the growing national #MeToo movement and revelations of sexual harassment by powerful public figures, including members of the California legislature, State Senator Connie Leyva (D-Chino) sponsored Senate Bill 820 to prohibit secret settlements and NDAs in sexual harassment cases entered into on or after January 1, 2019. 

Leyva, a mother of twin girls, is a former union leader and the current vice chair of the California Legislative Women’s Caucus. Senator Leyva and the Legislative Women’s Caucus have been proactive in responding to sexual harassment scandals at the state capitol, introducing a number of bills that were sent to Governor Brown in his last year in office. 

Specifically, the prohibitions in SB 820 will apply to cases of sexual assault, any workplace harassment or discrimination based on sex or failure to prevent an act of workplace harassment or discrimination, any retaliation for reporting harassment or discrimination based on sex, and more. According to Senator Leyva, the purpose of the bill is to prevent “wealthy and well-connected perpetrators” from repeatedly engaging in sexually harassing behavior with “no public accountability.”  

Existing law already disfavors the secret settlements of certain civil actions in which the public has a strong interest, such as prohibiting the confidential settlement of a civil action the factual basis for which is a cause of action for “an act that may be prosecuted as a felony sex offense” and in civil actions based on a violation of the Elder Abuse and Dependent Adult Civil Protection Act. Leyva, who refers to the bill as the STAND Act (Stand Together Against Non- Disclosures), asserts that the prohibitions in SB 820 are consistent with current law and policy in this regard.

Opponents of the law have raised concerns it will interfere with the settlement of claims alleging sexual harassment or assault by forcing companies to litigate through trial in order to preserve their public image. Additionally, this law may pose future problems for employers. They are often named parties in sexual harassment actions regardless of culpability, because employers have more financial resources from which to extract a settlement. By eliminating confidentiality, this law could expose employers to a public presumption of guilt even where the decision to settle was not based upon merit, which in turn may drive employers to litigate to trial rather than opt for early resolution.

Despite strong opposition from the business community, Governor Brown signed SB 820 and 17 other bills aimed at addressing sexual harassment and discrimination on the very last day to sign or veto any bills passed in 2018. The governor’s announcement regarding Leyva’s bill happened to coincide with the extended and highly contentious Supreme Court confirmation hearings in Washington, D.C. The four-term governor of California highlighted his legislative actions as laws intended to “strengthen protections for women and children.” In addition, Brown stated that “recent events in Washington, D.C.—and beyond—make it crystal clear that many are not getting the message” as he signed SB 826 (Jackson, ch. 924 stats. 2018), a bill that requires publicly held corporations whose principal executive offices are located in California to have a representative number of women on their boards of directors by 2019. The reference and overall viewpoint regarding Washington, D.C., clearly drove Brown’s decision on SB 820 and secret settlement agreements.

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NLRB Asks for Comment on Joint Employer Standard

Why it matters

Making good on its promise, the National Labor Relations Board (NLRB or Board) published a notice of proposed rulemaking (NPRM) to establish a new joint employer standard. The past few years have seen significant changes in the standard, and the NLRB opted to promulgate a rule in an effort to provide certainty for employers and employees alike. Pursuant to the proposed rule, an employer may be found to be a joint employer of another employer’s employee only if it possesses and exercises substantial, direct and immediate control over the essential terms and conditions of employment and has done so in a manner that is not limited and routine. Indirect influence and contractual reservations of authority would no longer be sufficient to establish a joint employer relationship, the NLRB said. “I look forward to receiving the public’s comments and to working with my colleagues to promulgate a final rule that clarifies the joint employer standard in a way that promotes meaningful collective bargaining and advances the purposes of the Act,” NLRB Chair John F. Ring said in a statement. Board member Lauren McFerran dissented from the proposal. Comments will be accepted on the NPRM until November 13.

Detailed discussion

For several decades, the National Labor Relations Board (NLRB or Board) followed a single standard in evaluating the scope of joint employer liability. But in 2015, the Board adopted a controversial new standard in the Browning-Ferris Industries of California, Inc., decision.

In that case, the Board held that even when two entities have never exercised joint control over the essential terms and conditions of employment, and even when any joint control is not “direct and immediate,” the two entities will still be joint employers based on the existence of “reserved” joint control or based on indirect control or control that is “limited and routine.”

The employer appealed the decision to the U.S. Court of Appeals, D.C. Circuit. While the case was pending, however, things got more complicated with the subsequent Hy-Brand Industrial Contractors, Ltd. & Brandt Construction Co. case. There, an administrative law judge applied the Browning-Ferris standard to find that the two entities were joint employers for purposes of the National Labor Relations Act (NLRA) when they terminated a total of seven workers.

But when the employers appealed to the NLRB, the Board—featuring new members courtesy of President Donald Trump—took the opportunity to throw out the Browning-Ferris standard and establish a new test.

Although the decision was hailed by employers, the victory was short-lived. In a motion for reconsideration, for recusal and to strike, the charging parties requested that the NLRB vacate its decision and that Board member William J. Emanuel recuse himself. After an investigation by the NLRB’s Inspector General determined that Emanuel should have recused himself, the NLRB vacated its decision in Hy-Brand.

Earlier this year, the Board suggested that formal rulemaking might be the best solution for the continuing confusion over the standard and followed through with a notice of proposed rulemaking (NPRM) published in the Federal Register in September.

Rulemaking is desirable for several reasons, the Board said. Public comment on the issue will be beneficial for the NLRB, and establishing a standard will “foster predictability and consistency” regarding determinations of joint employer status, which has significant consequences for businesses, unions and employees alike.

“Under the proposed rule, an employer may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision and direction,” according to the NPRM. “A putative joint employer must possess and actually exercise substantial direct and immediate control over the employees’ essential terms and conditions of employment in a manner that is not limited and routine.”

This proposal reflects the Board’s view “that the Act’s purposes of promoting collective bargaining and minimizing industrial strife are best served by a joint employer doctrine that imposes bargaining obligations on putative joint employers that have actually played an active role in establishing essential terms and conditions of employment,” the Board added.

The proposed rule is consistent with the common law of joint employer relationships as well as Supreme Court precedent and that of lower courts, the NLRB said, particularly the need for “direct and immediate” control.

“Accordingly, under the proposed rule, there must exist evidence of direct and immediate control before a joint employer relationship can be found. Moreover, it will be insufficient to establish joint employer status where the degree of a putative joint employer’s control is too limited in scope (perhaps affecting a single essential working condition and/or exercised rarely during the putative joint employer’s relationship with the undisputed employer).”

For further illustration, the NPRM includes examples. Example 10 states: “Business contract between Company and a Contractor reserves a right [for] Company to discipline the Contractor’s employees for misconduct or poor performance. Company has never actually exercised its authority under this provision. Company has not exercised direct and immediate control over the Contractor’s employees’ terms and conditions of employment.”

Alternatively, Example 6 provides: “Under the terms of a franchise agreement, Franchisor and Franchisee agree to the particular health insurance plan and 401(k) plan that the Franchisee must make available to its workers. Franchisor has exercised direct and immediate control over essential employment terms and conditions of Franchisee’s employees.”

Board member Lauren McFerran filed a statement dissenting from the NPRM. No evidence of “continuing uncertainty” because of the fluctuating standard was presented to the Board, she said, and the best way to end any purported uncertainty would be “to adhere to existing law, not upend it.”

McFerran also expressed concern that the Board’s efforts may only further complicate the situation, as the Browning-Ferris decision remains pending before the D.C. Circuit. If the federal appellate panel were to uphold the Browning-Ferris standard but the Board were to reject it via rulemaking, then the Board’s final rule would be premised on a legal error, she wrote.

To read the NPRM, click here.

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Customer Costs Costco $250,000 in Hostile Work Environment Suit

Why it matters

Providing a valuable lesson for employers about liability for the actions of third parties, the U.S. Court of Appeals, Seventh Circuit affirmed a verdict against Costco on behalf of an employee who was stalked by a customer. Dawn Suppo began encountering the customer in 2010 when he repeatedly came up to her and asked personal questions. When she saw him hiding behind displays, wearing a hat and sunglasses and watching her, she reported the customer to management and said she was scared. Management spoke to the customer and told him to stay away from Suppo, but the customer continued to appear in the store, trying to speak to Suppo and touch her. She reported the customer to the police and obtained a no-contact order, but only after she took an unpaid medical leave because she was so traumatized. The Equal Employment Opportunity Commission (EEOC) filed suit on Suppo’s behalf, alleging that the conduct constituted a hostile work environment. A jury agreed, awarding Suppo $250,000 in compensatory damages but denying the EEOC’s request for back pay. Both parties appealed. The Seventh Circuit affirmed the verdict, ruling that a reasonable jury could find the customer’s behavior rose to the level of “severe or pervasive.” The court also remanded the case on the denial of back pay, instructing the district court to reconsider whether the plaintiff was owed for her period of medical leave resulting from her emotional distress.

Detailed discussion

Dawn Suppo began working at Costco’s store in Glenview, Illinois, in 2009. Her duties included doing “go-backs,” or reshelving items that Costco members had removed from their original locations but then decided not to purchase. Go-backs required Suppo to circulate around the large warehouse with a shopping cart to return the items to their various locations.

Suppo first encountered Thad Thompson in May or June of 2010. Referring to Suppo by her first name (which appeared on her nametag), Thompson began asking her personal questions. A few days later, they had a similar encounter. Unnerved, Suppo told a manager about the incidents.

She then observed Thompson watching her in different aisles and hiding behind displays while wearing a hat and sunglasses. Suppo reported him to her supervisor, and members of the management spoke with Thompson, asking him to avoid Suppo and not to talk to her. He agreed but continued to stalk Suppo, appearing at Costco multiple times and attempting to engage her.

Thompson tried to give Suppo his phone number, asked her out on dates, and repeatedly asked her age, where she lived, what else she did and whether she had a boyfriend; he also told her she was “pretty,” “beautiful” and “exotic,” and would bump into her with his shopping cart. On multiple occasions he tried to touch and hug her.

Suppo filed a complaint with the police (which resulted in one of her managers yelling at her and telling her to “be friendly to” Thompson). In September 2011, Suppo noticed Thompson with his phone over his head, video-recording her. She was then able to secure a Stalking No Contact Order against Thompson, which forbade him from approaching Suppo at her residence or place of employment.

Thompson was banned from the Glenview Costco and directed to shop at a different store. However, Suppo—who went on an unpaid medical leave after the video-recording incident—encountered him at a different Costco store while shopping with her father. Thompson screamed profanity at them.

Suppo was subsequently terminated when her unpaid medical leave of absence extended beyond 12 months. She filed a charge with the Equal Employment Opportunity Commission (EEOC), and the agency filed suit on her behalf. The EEOC alleged Costco discriminated against Suppo because of her sex by creating and tolerating a sexually hostile work environment.

A jury sided with Suppo and awarded her $250,000 in compensatory damages. The district court denied the EEOC’s request for back pay. Both parties appealed to the U.S. Court of Appeals, Seventh Circuit.

While Costco conceded that Suppo subjectively perceived Thompson’s conduct to be severe or pervasive, it argued that it could not be seen that way from an objective point of view.

The federal appellate panel agreed that Thompson’s attempts to solicit information from Suppo, compliments on her appearance, requests for dates and physical contact were less sexually suggestive or lewd than conduct found in other Title VII cases.

“Yet Costco’s argument implies a position inconsistent with our case law: that harassment must be overtly sexual to be actionable under Title VII,” the court said. “Actionable discrimination can take other forms, such as demeaning, ostracizing, or even terrorizing the victim because of her sex.”

A reasonable juror could find Thompson’s conduct objectively intimidating or frightening, the panel concluded.

“Suppo testified that Thompson’s presence at the Glenview Costco was ‘constant.’ He followed Suppo around the store, watching her from around corners. He stared at her from behind clothes racks, disguised in sunglasses and a hat. He monitored her movements and asked her to account for her conversations with men. He made trips to the warehouse to see Suppo rather than shop. He ‘constantly’ asked her out and ‘constantly’ tried to give her his phone number. And Thompson continued this dogged pursuit of Suppo even after [the manager] told him to stay away from her, even after he knew that Suppo had gone to the police, even after he had assured both the police and [the manager] that he would avoid her, and even though he knew that his attention scared her. … A reasonable juror could conclude that being hounded for over a year by a customer despite intervention by management, involvement of the police and knowledge that he was scaring her would be pervasively intimidating or frightening to a person ‘of average steadfastness,’” stated the panel.

The court was not persuaded by Costco’s efforts to paint Thompson as friendly but overeager or Suppo as an eggshell plaintiff. “That position is exceeding[ly] difficult to maintain in light of the state court’s conclusion that Thompson violated the Illinois Stalking No Contact Order Act,” the panel noted.

After an adversarial hearing, the state court found that Thompson had violated the statute, and it issued a no-contact order prohibiting him from coming within 200 feet of Suppo’s place of employment for a year.

“Given the state court’s judgment that Thompson engaged in a course of conduct that would ‘cause a reasonable person to fear for his or her safety … or suffer emotional distress,’ it would be quite something for us to say that a jury acted unreasonably by reaching the same conclusion,” the Seventh Circuit pointed out.

Having affirmed the verdict, the court considered the EEOC’s request for back pay. While the district court was correct that Suppo was not entitled to back pay after Costco terminated her, the remedy was available for wages lost during an unpaid leave.

The federal appellate panel remanded to the district court. If the EEOC can show that Suppo’s work environment was so hostile that she was forced to take unpaid leave, then she was entitled to back pay for that time period, the court said.

To read the opinion in Equal Employment Opportunity Commission v. Costco Wholesale Corp., click here.

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Employer’s Legitimate, Nondiscriminatory Reason for Termination Ends Suit

Why it matters

As the employer provided a legitimate, nondiscriminatory reason for her termination, the U.S. Court of Appeals, Eighth Circuit affirmed dismissal of a plaintiff’s state and federal retaliation and discrimination claims. An executive housekeeper at the Millennium Hotel in Minneapolis, Isis Naguib, had run the department since 1977, overseeing 50 housekeepers and managing payroll. When she was terminated shortly after returning from Family and Medical Leave Act (FMLA) leave, she filed suit against the company, alleging she was discriminated and retaliated against because of her age, for taking FMLA leave and for opposing discriminatory practices. In response, the hotel told the court the plaintiff was fired when an internal investigation revealed Naguib had been overseeing a scheme of rounding down the hours of housekeepers to avoid paying overtime and in turn triggering a bonus that she was eligible to receive for minimizing payroll. Affirming the district court’s grant of summary judgment in favor of the employer, the Eighth Circuit found that even assuming the plaintiff had presented a prima facie case, the hotel had clearly shown a legitimate, nondiscriminatory reason for her termination.

Detailed discussion

From 1977 through 2014, Isis Naguib ran the housekeeping department at the Millennium Hotel in Minneapolis. She oversaw about 50 housekeepers and managed payroll for the department. Millennium tracked its employee hours using a punch clock system. However, Naguib also required housekeepers to handwrite their hours on a sign-in sheet.

Several housekeepers later reported that Naguib told them they were not allowed to list any overtime hours on the handwritten sheet; instead, they were directed to write in eight-hour shifts rather than the same hours reflected in the punch clock system. Naguib then manually overrode punch clock times and entered the shifts reflected on the handwritten sheets. Naguib’s contract with Millennium included an annual 1 percent bonus tied to minimizing employee payroll.

After Naguib was terminated in 2014, she alleged the hotel discriminated and retaliated against her. She cited several incidents as the basis for these claims, including her testimony in a 2011 deposition that a manager instructed her to use a different cleaning standard than the hotel actually used. That manager sent an email to his replacement asking whether she was “taking control” of Naguib, and the replacement manager once said to Naguib, “You’ll probably never retire, we’ll be carrying you out … in a box.” Naguib also claimed that the new manager asked her to tell Muslim employees to get notes from their mosques saying they were required to wear headscarves to work, but she refused.

In 2014, Naguib was instructed that she needed to use up her vacation hours or lose them. She took time off as a result and then requested—and was granted—Family and Medical Leave Act (FMLA) leave. When Naguib returned to work, she was suspended and then fired. She pointed to the various incidents and her FMLA leave as the basis for her termination, which she said was really motivated by her age and her taking FMLA leave, and was in retaliation for her opposition to discriminatory practices.

Millennium told a different story. During Naguib’s vacation days and FMLA leave in 2014, the employee who filled in at her position observed the timekeeping irregularities and reached out to management. As a result, Millennium launched a hotelwide investigation and learned that Naguib had instructed the housekeepers not to list their overtime hours on the handwritten sign-in sheet. The investigation also found that housekeeping had by far the most punch time edits of any department in the hotel.

A district court judge granted the employer’s motion for summary judgment, holding that Millennium had a legitimate, nonretaliatory and nondiscriminatory reason for firing Naguib that was not pretextual. Naguib appealed.

The U.S. Court of Appeals, Seventh Circuit agreed with the district court. Naguib failed to provide direct evidence that she was retaliated or discriminated against, the court said. Her deposition testimony took place in 2011, at which time the manager who had disagreed with her was no longer her boss; her allegation about being asked to obtain notes from Muslim employees was denied by the manager, and no such policy ever existed at the hotel.

Without direct evidence, Naguib’s claims must proceed under the McDonnell-Douglas burden-shifting framework, the court said. “Even assuming Naguib can establish a prima facie case of retaliation under that standard, Millennium has clearly shown a legitimate non-discriminatory or [non-]retaliatory reason for firing her. Millennium’s internal investigation credibly exposed that Naguib regularly altered employee hours without using a company-sanctioned form.”

The timing of Naguib’s termination supported the notion that it was not retaliatory, the panel added. Only when she took vacation did someone else fill in Naguib’s role, allowing the hotel to discover the time sheet practice Naguib oversaw.

“Within one month, and after a hotel-wide internal wage and hour investigation, Millennium fired Naguib. The investigation that resulted in Naguib’s termination also resulted in discipline for three other managers at Millennium who engaged in similar conduct on a smaller scale. Millennium then compensated its employees for unpaid overtime discovered in the investigation. Naguib has not met her burden to demonstrate that Millennium’s state[d] reasons for firing her were pretextual because she has not discredited Millennium’s version of events.”

After affirming summary judgment on Naguib’s retaliation claims, the court came to the same conclusion on her age discrimination and FMLA retaliation claims as well.

To read the opinion in Naguib v. Trimark Hotel Corp., click here.

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