Employment Law

“Use It or Lose It” Policy Results in Multimillion-Dollar Verdict

Why it matters: Although this decision is unpublished, it provides a lesson on the potentially expensive ramifications of maintaining an illegal vacation policy. Not only was the company ordered to pay employees for their lost vacation and personal choice time, the court found that the company’s illegal behavior tolled the statute of limitations, allowing the class to recover not just over the four-year period prior to filing the suit, but dating back an additional decade. The company managed to score one victory with the panel’s ruling on how damages should be calculated, however, holding that vacation pay is determined by the employer or contract.

Detailed Discussion
A “use it or lose it” vacation policy violated state labor law, and a class of 178 employees is entitled to millions of dollars in damages, the California Court of Appeal determined.

The unpublished opinion affirmed a ruling for the class of employees but remanded the case for a recalculation of the damages owed, previously set at roughly $8.3 million.

Lexmark International spun off from IBM in 1991 and instituted a policy later that year that required employees to use all of their earned vacation and personal choice days by year-end. Vacation earned in a given year and not used was lost. Tweaks were made to the policy over the years–switching from an employment anniversary date to a calendar year to calculate the appropriate number of days–but it remained in place for roughly 15 years.

In 2005, an employee sued Lexmark, alleging that the policy violated Labor Code section 227.3 by effectively depriving California employees of earned wages. The court extended the period of potential liability beyond the four-year statute of limitations and certified a class of 178 current and former employees.

Following a bench trial, the court entered judgment for the class. Vacation pay is a form of deferred compensation that vests as labor is rendered, the court held, and Section 227.3 protects such vested wages.

The parties battled over the correct calculation of damages for the class. The court ultimately entered an award totaling $8,299,242, with additional amounts for attorney’s fees and costs.

In addition to damages for the Labor Code violation, the court found that Lexmark ran afoul of the state’s Business and Professions Code. It therefore ordered the defendant to notify its California employees in writing of their rights and to develop and implement legal vacation policies.

On appeal, Lexmark challenged nearly every finding and conclusion by the trial court, from certification of the class to the amount of damages to the award of attorney’s fees to the inclusion of certain class members.

But the panel upheld the majority of the trial court’s holdings. Lexmark’s vacation policy violated Section 227.3, the court confirmed. “The evidence in this case established that, beginning in 1991, [Lexmark] adopted a policy that required class members to take vacation and personal choice days. A number of employees lost vacation and personal choice days as a result of the policy. Under the policy, employees were only paid for vacation time accrued during the years they were terminated without regard to prior vested vacation which had been forfeited,” the court wrote. “We agree with the trial court’s determination that [Lexmark] had an illegal policy that forced its employees to either use or forfeit already accrued vacation time in violation of section 227.3.”

Tolling the statute of limitations to allow claims dating back to the policy’s inception in 1991 was also appropriate, the panel said. “By concealing its unlawful conduct from its employees, [Lexmark] precluded class members from bringing the action within the statutory period,” the court wrote.

However, the panel did find error on one issue, ruling that calculations should not be based on gross pay. Rather, the base rate of pay for class members should apply, excluding commissions. Lexmark’s policy “has always stated that vacation pay is calculated at ‘base rate,’ ” the court wrote, and therefore damages should be similarly awarded. Two opinion letters from the state Division of Labor Standards Enforcement provided support for this reasoning, the court noted, stating that the rate of vacation pay is determined by the employer or contract.

The court remanded the case to the trial court for a recalculation of damages.

To read the decision in Molina v. Lexmark International Inc., click here.

back to top

Pregnancy Discrimination in California, Maryland, and New York City

Why it matters: The new laws in New York City and Maryland illustrate the growing number of jurisdictions enacting expanded protections for pregnant employees beyond federal laws such as the Americans with Disabilities Act and the Pregnancy Discrimination Act. As for California, employers should familiarize themselves with the Harris decision and its implications. The opinion heightens the standard in FEHA cases, requiring plaintiffs to establish that pregnancy was “a substantial motivating factor” behind the adverse employment action and not simply “a motivating factor.” However, the decision also requires employers to affirmatively plead a mixed-motive defense in the answer to the plaintiff’s complaint or waive it as a defense at trial.

Detailed Discussion
Pregnant employees have made headlines recently, with greater protections for pregnant workers in Maryland and New York City, while the California Court of Appeal adopted a heightened standard for plaintiffs in pregnancy discrimination suits.

In New York City, a new law requiring city employers with four or more employees to provide reasonable accommodations for pregnant women was unanimously passed by the City Council and signed into law by Mayor Michael Bloomberg on October 2.

Pregnant women and those suffering medical conditions related to pregnancy and childbirth are entitled to “reasonable accommodations” under the law, which listed examples like “bathroom breaks, leave for a period of disability arising from childbirth, breaks to facilitate increased water intake, periodic rest for those who stand for long periods of time, and assistance with manual labor.”

Employers that can establish that such accommodations would result in an “undue hardship” to their business may avoid the requirements. Employees who believe they have been discriminated against can file a complaint with the New York City Commission on Human Rights or file suit against their employer.

Pursuant to the new law, set to take effect January 30, 2014, employers must also provide notice to employees about their right to be free from discrimination in relation to pregnancy, childbirth, and related medical conditions.

Employers in Maryland are already facing similar requirements under a new law that took effect October 1. There, the Reasonable Accommodations for Disabilities Due to Pregnancy Law requires employers with at least 15 employees to provide accommodations to an employee with a disability caused by or contributed by pregnancy, unless the accommodation would impose an undue hardship on business.

Possible accommodations employers should consider, according to the legislation: changing job duties or work hours, switching work areas, transfer to a less hazardous position, or providing leave. Employers may request certification from an employee’s healthcare provider.

However, on the other end of the spectrum, a California Court of Appeal recently reversed a jury verdict in favor of an employee alleging pregnancy discrimination, holding that plaintiffs must establish that pregnancy was a “substantial motivating reason” behind an adverse employment action – not just “a motivating reason.”

The decision is in accordance with the California Supreme Court’s opinion in Harris v. City of Santa Monica earlier this year, which established that the proper standard of causation in a Fair Employment and Housing Act discrimination or retaliation claim is “a substantial motivating reason.” 

The case involved Lorena Alamo, who was terminated by Practice Management Information Corporation the day she returned from a maternity-related leave of absence. When she filed suit, PMIC said the action was based upon performance problems and insubordination issues. But a jury decided that Alamo’s pregnancy was “a motivating reason” for her termination and awarded $10,000.

The verdict was originally upheld on appeal. But in light of Harris, the panel subsequently reversed and remanded for a new trial, rejecting Alamo’s argument that a jury in an employment discrimination case would not draw any meaningful distinction between the two standards.

“Requiring the plaintiff to show that discrimination was a substantial motivating factor, rather than simply a motivating factor, more effectively ensures that liability will not be imposed based on evidence of mere thoughts or passing statements unrelated to the disputed employment decision,” the court wrote, quoting from Harris.

Importantly for employers, the court also held that PMIC was not entitled to an instruction on a “mixed-motive” defense on remand. A mixed-motive defense is available under FEHA as a limitation on remedies and not a complete defense to liability, the court noted. But PMIC failed to plead the defense in its answer to Alamo’s complaint and never asserted as an affirmative defense that it did not discriminate or retaliate against her, that it acted lawfully in terminating her employment, or that it had legitimate reasons for any adverse employment decision.

PMIC therefore waived the mixed-motive defense, the panel concluded.

To read New York City’s new law, click here

To read Maryland’s new law, click here

To read the decision in Alamo v. Practice Management Information Corp., click here.

back to top

Fifth Circuit Adopts Broad Reading of ADA

Why it matters: For employers in the Fifth Circuit, finding a reasonable accommodation for a disabled employee pursuant to the ADA just got more complicated. Accommodations without a nexus to the essential functions of an employee’s job – such as a parking place for an attorney with a bad knee – should be considered to avoid the potential for a lawsuit. The court also emphasized the importance of accommodations that allow employees “to enjoy equal benefits and privileges of employment.”

Detailed Discussion
Adopting a broad interpretation of the Americans with Disabilities Act, the Fifth U.S. Circuit Court of Appeals held that an employer may have an obligation to provide a reasonable accommodation that is unrelated to the essential functions of an employee’s job.

Assistant Attorney General for the Louisiana Department of Justice Pauline Feist suffered from osteoarthritis of the knee. She requested that the LDOJ provide her with a free on-site parking space as an accommodation of her disability. The agency declined.

When she was later terminated, Feist filed suit under the ADA, alleging the refusal to provide parking violated the Act while her termination violated the prohibition on retaliation under both the ADA and Title VII.

A federal district court dismissed her suit, but the Fifth Circuit reversed. It was undisputed that Feist was a qualified individual with a disability known to her employer. Answering the remaining question, the three-judge panel found that Feist’s proposed accommodation was reasonable.

Reasonable accommodations are not restricted to modifications that enable performance of essential job functions, the court wrote. The text of the ADA “gives no indication that an accommodation must facilitate the essential functions of one’s position. Moreover, the requested reserved on-site parking would presumably have made her workplace ‘readily accessible to and usable’ by her, and therefore might have been a potentially reasonable accommodation,” the court said.

The panel also looked to the ADA’s implementing regulations, which provide definitions of a reasonable accommodation, specifically 29 C.F.R. § 1630.2(o)(1): “Modifications or adjustment that enable a covered entity’s employee with a disability to enjoy equal benefits and privileges of employment as are enjoyed by its other similarly situated employees.”

The district court “erred in requiring a nexus between the requested accommodation and the essential functions of Feist’s position,” the Fifth Circuit concluded. The court vacated and remanded the case, expressing no opinion as to whether the parking space was reasonable.

To read the decision in Feist v. Louisiana, click here.

back to top

Discrimination Against Transgender Employee Results in $50,000 Settlement

Why it matters: Employers should take note – this settlement affirms the EEOC’s position that discrimination against transgender workers constitutes a violation of Title VII, following a 2012 case where the agency held that such stereotyping on the basis of sex is illegal in Macy v. Department of Justice, involving a police detective in Phoenix who transitioned from male to female. In a press release about the deal, the EEOC said that courts are also increasingly recognizing that discrimination based on transgender status – also referred to as gender identity – constitutes a violation of Title VII’s prohibition on sex discrimination.

Detailed Discussion
The Equal Employment Opportunity Commission recently reached a conciliation agreement with a supermarket chain accused of discriminating against a transgender employee, including a $50,000 payment to the victim.

Cori McCreery approached supervisors at Don’s Valley Market in Rapid City, South Dakota, to inform them of her intent to transition from male to female. In response, the supermarket chain fired the store clerk, the EEOC alleged, despite her five years of good performance for the company and recent promotion. McCreery said she was told that she was “making other employees uncomfortable.”

The agency alleged the termination violated Title VII’s prohibition on gender discrimination. “Employers need to be made aware that their personal myths, fears, and stereotypes about gender identity can subject them to liability if they act upon them in an employment setting,” Julie Schmid, acting director of the EEOC’s Minneapolis Area Office, which handled the case, said in a statement.

In addition to the $50,000 payment, Don’s Valley Market agreed to provide McCreery with a letter of apology and a letter of recommendation. In addition, the chain must make several policy changes, including conducting annual antidiscrimination training for all employees, establishing and distributing an antidiscrimination policy to all employees, and reporting all future complaints of discrimination to the EEOC.

Lambda Legal, which represented McCreery, noted that the payment reflects the maximum statutory penalty for a business with under 100 employees.

back to top

The NLRB: There’s An App For That

Why it matters: The app makes it even easier for employees to learn about their rights under the NLRA and to contact the NLRB with any questions or concerns. The release is only the latest step in the Board’s educational efforts, following a revamped website and a proposed rule requiring employers to hang posters detailing employees’ rights in the workplace, a move shot down by multiple federal courts.

Detailed Discussion
The National Labor Relations Board has gone mobile, releasing a free app for both iPhone and Android users.

In a statement, the Board said the move is part of its efforts to reach employees with information about their rights. The agency received more than 82,000 inquiries last year about work-related issues and “this app can help provide the answers,” NLRB Chairman Mark Pearce said in a statement. “The promise of law can only be fulfilled when employers and employees understand their rights and obligations.”

The app offers information for employees, employers, and unions. For example, it walks users through the process the NLRB uses in elections held to determine whether employees want to be represented by a union; it also explains what rights are afforded employees under the National Labor Relations Act.

Specific topics covered by the app include employees’ right to engage in protected concerted activity and what that includes, with specific examples such as talking with coworkers about wages or other working conditions.

Social media, an issue on the Board’s radar recently, is addressed. Employees are informed by the app of their right to engage on sites such as Facebook and YouTube about work-related issues. Other topics include strikes, pickets, and protests.

The app also makes contacting the Board easier. A “CONTACT NLRB” button can take users to a page with contact information for the closest NLRB office or for calling the Board directly.

back to top




pursuant to New York DR 2-101(f)

© 2022 Manatt, Phelps & Phillips, LLP.

All rights reserved