Significant 2007 Employment Law Cases

2007 has been another interesting year for decisions impacting California employment law. Here are notes on just a few of the most important developments:

CALIFORNIA SUPREME COURT INCREASINGLY UNCOMFORTABLE WITH PRE-DISPUTE ARBITRATION AGREEMENTS BETWEEN EMPLOYERS AND EMPLOYEES

On August 20, 2007, the California Supreme Court stretched to express fundamental concerns with pre-dispute arbitration agreements in the employment context. Gentry v. Superior Court (Circuit City Stores, Inc.) (PDF, 133KB), S141502, was filed as a class action for overtime pay in the L.A. Superior Court. Gentry had signed a pre-dispute arbitration agreement providing that the Arbitrator did not have “the power to hear arbitration as a class action . . . .” In a four to three decision, the Court reversed the Court of Appeal’s ruling in favor of the employer, finding that the prohibition of class-wide relief “would undermine the vindication of the employees’ unwaivable statutory rights and would pose a serious obstacle to the enforcement of the state’s overtime laws.” Thus, the class arbitration waiver would not be enforced.

The Court went on to consider whether the entire arbitration agreement might be fatally defective. If so, the employees would be free to pursue their class action in court, rather than in arbitration. Pre-dispute arbitration agreements are unenforceable if they are both “procedurally” and “substantively” “unconscionable.” “Procedural” unconscionability generally means that the weaker party has no real choice (“take it or leave it”). “Substantive” unconscionability generally means that the substantive provisions of the agreement are not fair (overly beneficial to the more powerful party). Circuit City sought to avoid the “procedural unconscionability” problem by including an easily understood opt-out form, which the employee could simply sign and submit within thirty days, thereby avoiding the arbitration agreement entirely. Circuit City argued that this device eliminated the possibility that its agreement could be argued to be “adhesive” and, thus, procedurally unconscionable. Not a bad argument.

The Court was unconvinced. It first noted (with appropriate authorities) that silence is not assent; though the failure to “opt out” might constitute waiver. The Court then ticked off the reasons why a failure to opt-out of did not represent an “informed choice” (which a “waiver” must be to be effective). The package accompanying the arbitration agreement, featuring the prominent subheading, “WHY ARBITRATION IS RIGHT FOR BOTH YOU AND CIRCUIT CITY,” left “no doubt about Circuit City’s preference,” (thus pressuring the brand new employee not to start off the new job on the wrong foot), stated that arbitration was “much less expensive,” stated that the arbitrator “can award monetary damages to compensate you for the harm you may have suffered,” and stated that claims are resolved “in a matter of weeks or a few months rather than years” (this last a very dubious proposition – if not an outright lie – that the Court did not specifically comment on). Only a vigilant, sophisticated and bold brand-new employee would dare to opt out, and might well miss the fine print providing that the agreement had a one year statute of limitations rather than the statutory three years, that an arbitrator “could” award a prevailing plaintiff attorneys’ fees (as opposed to a court, which “must” do so), and that back pay was limited to one year (rather than the up to three years available in court). All of these “substantive” provisions, of course, like the “no class action” provision, are likely to found “substantively” unconscionable.

The majority, finding agreement procedurally unconscionable, remanded for what would appear to be a foregone determination on substantive unconscionability (a question not yet reached by lower courts). Once that determination is made, the employees may proceed with their class action in court, not just in arbitration.

The dissent stood for the sanctity of what it was pleased to call “private arbitration agreements,” making the usual arguments for deference to the parties’ agreement -- an argument premised upon the fiction that employees really have a choice not to agree. Interestingly, given Circuit City’s opt out procedure, the dissent’s position was a lot sounder in this case than the usual one, but it still failed to carry the day.

The implications of Gentry are likely to be significant. It is the rare large employer which does not require pre-dispute arbitration agreements as a condition of employment. If the Gentry majority’s analysis holds up (and in the world of arbitration jurisprudence, particularly given a 4-3 decision, nothing is certain), it is a strong precedent for the proposition that most – if not all – pre-dispute arbitration agreements in the employment context are at least “procedurally” unconscionable. It will be a powerful weapon (at least in California state courts) in the hands of employees and their counsel.

COURT OF APPEAL FOR THE SIXTH DISTRICT (SILICON VALLEY) REINSTATES GOOGLE AGE DISCRIMINATION CASE

In 2004, after a two year tenure, PhD. computer scientist Brian Reid, Director of Operations and Engineering was terminated by Google weeks after being transferred to a dead end lesser position. Mr. Reid had been hired in 2002 at age 52. His only written performance review was close to a rave, though it did indicate that “adapting to the Google culture” was his primary task. As the review stated, “Google is simply different: Younger contributors, inexperienced first line managers, and [a] super fast pace.” And, apparently, an appallingly offensive atmosphere for people of Reid’s generation. Reid was subjected to a plethora of age-related disparagement (including disparagement by key decision makers): “obsolete,” “too old to matter,” “lethargic,” no “sense of urgency,” “ancient knowledge,” “old man,” “old guy,” “fuddy-duddy.” He was the butt of jokes (his office was referred to as an “LP case” office rather than a “CD case” office; get it?) and an outsider in a “youthful atmosphere” featuring employee participation in hockey, football and skiing (tough on 54 year old knees). Reid testified that upon being fired, he was told (big surprise) he was not a “cultural fit.” Google said it had simply eliminated the dead end job.

Amazingly, the trial court decided that the ultimate issue on summary judgment was whether Reid could prove that Google’s reason for firing him was a “pretext.” i.e., if Reid couldn’t prove that Google was lying about firing Reid because his dead end job had been eliminated, Reid failed to prove pretext, which the trial court viewed as an essential element of his case. The trial court apparently did not find the overwhelming evidence of age-based animus (including some interesting statistical evidence on the ages of Google hires) particularly germane.

The Court of Appeal (Reid v. Google, Inc. (PDF, 70KB), H029602) held that the trial court’s view of the ultimate question was wrong. The question is not whether the plaintiff can prove that defendant’s proffered reason for the termination is a pretext; the question, rather, is whether the plaintiff can offer evidence of a discriminatory motive:

In the employment context, a finding of discriminatory motive may be reached without ever finding that the cited reason was “pretextual,” because the “ultimate issue” is what really happened, not whether one of the parties is lying about it. [emphasis the court’s.]

Of course, you say. This is all obvious. But it apparently was not obvious to a very respected judge sitting in the Santa Clara County Superior Court. Scary.

US SUPREMES INVENT TECHNICALITY TO KILL PAY DISCRIMINATION CLAIM

We earlier commented on Ledbetter v. Goodyear Tire and Rubber Co., Inc. (PDF, 356KB), a May 2007 decision in which the U.S. Supreme Court’s majority found a way to throw out an obviously meritorious case of pay disparity based on sex by holding that plaintiff Ms. Ledbetter – who had no way to know or find out that similarly situated male employees were being paid lots more than she for years – had blown the six month Title VII statute of Limitations by not filing until she actually learned the facts. You can read our complete discussion of this particular travesty in our June 2007 article on the Ledbetter case.

EDWARDS v. ARTHUR ANDERSON LLP AWAITS DECISION BY CALIFORNIA SUPREMES

We discussed this very interesting case in our 2006 case law overview. The California Supreme Court is reviewing a case calling upon it to decide between the consistent view of the California appellate courts that sec. 16600 of the Business & Professions Code means what it says in invalidating post-employment non-compete agreements, and the Ninth Circuit’s judicially created “narrow exception” to the California case law. As you might imagine, the Court has received amicus briefs from every interested party imaginable. Our prediction is that the Court will stand firm and enforce the virtually unanimous view of California’s lower appellate courts against the “reasonableness” analysis of the Ninth Circuit. The decision could come any time.