Labor and Employment

In January, the Cal/OSHA Standards Board (OSHSB) adopted new regulations intended to prevent and reduce workplace injuries suffered by housekeepers in the hotel and hospitality industry. The new regulations, which go into effect on July 1st, require California hotel (and other lodging) employers to adopt a Musculoskeletal Injury Prevention Program (MIPP) to complement the Injury and Illness Prevention Plan (IIPP), which should already be in place. The MIPP must include:

*Procedures to identify and evaluate housekeeping hazards through worksite evaluations.

*Procedures to investigate musculoskeletal injuries.

*Methods to correct identified hazards.

*Training of employees and supervisors on safe practices and controls (both, upon hire and annually thereafter).

*Record retention and a process for reporting injuries to the employer.

If you need help drafting a compliant MIPP, the attorneys in Weintraub Tobin’s Labor and Employment Group are happy to assist you. Contact any one of us for help.

As any reader of our blog knows, California employers are prohibited from discriminating on the basis of national origin (among other classifications). The Fair Employment and Housing Commission (“FEHC”) recently issued new regulations, which go into effect on July 1, 2018, expanding the definition of “national origin” to include an individual’s or ancestors’ actual or perceived (1) physical, cultural, or linguistic characteristics associated with a national origin group; (2) marriage to persons of a national origin group; (3) tribal affiliation; (4) membership in an organization identified with or seeking to promote the interests of a national origin group; (5) attendance in schools or religious institutions typically used by persons of a national origin group; and (6) name associated with a national origin group. The regulations also provide that “national origin groups” include “ethnic groups, geographic places of origin, and countries that are not presently in existence.”

These new regulations further specify the following:

1. Employers may not have an “English-only rule” unless they are able to demonstrate the following three elements: (1) that the rule is a business necessity; (2) that the rule is narrowly tailored; and (3) that the rule was effectively explained to employees. In order to be considered a “business necessity,” the employer must establish: (1) that the language restriction is necessary to the safe and efficient operation of the business; (2) that the language restriction effectively fulfills the business purpose it is supposed to serve; and (3) that there is no alternative practice to the language restriction that would accomplish the business purpose equally well with a lesser discriminatory impact. Further, while the FEHC clearly establishes that some English-only rules may be permissible, it clarifies that such rules “are never lawful during an employee’s non-work time.” This means that English-only rules are never permissible during meal or rest breaks, or other unpaid employer-sponsored events.

2. Employers may not question an employee’s immigration status “unless the person seeking discovery or making the inquiry has shown by clear and convincing evidence that such inquiry is necessary to comply with federal immigration law.”

3. Employers may not have height and weight requirements that disparately impact a certain national origin group. Where an employee is able to show that a height and/or weight requirement does adversely impact a particular national origin, the requirement will be considered unlawful unless the employer can establish the requirement is job related and justified by business necessity, and its purpose cannot be achieved through other means.

If you employ more than five employees in California, you should review your employment policies to ensure compliance with these new regulations. Specifically, employers should ensure that any English-only language restrictions, and or height and weight requirements, comply with these new regulations, and are supported by legitimate business needs.

Still have questions? The attorneys in Weintraub Tobin’s Labor and Employment Group assist employers in all areas of employment law compliance. Contact any one of us if we can be of assistance.

On May 7, 2018, the San Francisco Office of Labor Standards Enforcement (OLSE) published 14 new rules for interpreting the San Francisco Paid Sick Leave Ordinance (“PSLO”). The PSLO was amended on January 1, 2017.  The new rules take effect on June 7, 2018.

We’ve summarized the 5 rules that our clients most frequently ask about:

Rule 1 – Employee Notification of Need for Leave

The rule clarifies that employers may establish policies or procedures dictating how employees need to give notice of a need for leave.

1.1:  Policies requiring advance notice for pre-scheduled absences (like a doctor’s appointment) are generally presumed reasonable.  But, rules requiring excessive amounts of time for advance notice, or especially burdensome methods of communicating the notice, might not be reasonable.

1.2:  Policies requiring notice “as soon as practicable” for an unforeseeable absence will be presumed reasonable. But, policies requiring more than two (2) hours’ notice for an unscheduled absence are not reasonable.  Employers may define “as soon as practicable” as two hours, or less than two hours, prior to the start of an employee’s work shift.  Employers must recognize that there are instances such as accidents or sudden illnesses for which such a requirement is unreasonable.

1.5:  Employers cannot require that employees use magic words (“PSLO” or “paid sick leave”) when giving notice of an absence. If an employee says “I’m out sick” that is all the notice needed.

Takeaway: Employers’ “notice” policies should provide for more than one method of notice if feasible (i.e., call, email or text message to the manager) that allows the employee some flexibility and ease of providing notice.  Employers should also allow someone else to give notice on the employee’s behalf if the employee is incapacitated. Policies should specify that “whenever possible”, employees give up to two hours’ advance notice and note that in an emergency, employees should give notice as soon as practicable.

Rule 2 – Verifying Valid Use of Paid Sick Leave

2.1:  Employers can require verification (such as a doctor’s note) that provides information necessary to confirm that the absence was for a statutory reason (illness, injury, domestic violence, sexual assault, or stalking suffered by the employee, bone marrow/organ donation, etc.)  Employers cannot demand additional information or details (such as for a diagnosis of a specific condition).

2.3-2.5: Employers may only use reasonable methods to verify that an employee did not abuse a paid sick leave policy.  Employers may require a doctor’s note for either (1) verification of a doctor’s appointment if the reason given for the leave was an appointment; or (2) three or more consecutive missed workdays.  Employers cannot require a doctor’s note for less than three consecutive missed days, unless there is a “clear pattern” or instance of abuse.

Takeaway: Make sure your policies do not require a doctor’s note for each instance of paid sick leave of less than three workdays.  Consult with legal counsel before deeming an employee’s use of leave abusive and demanding a doctor’s note.

Rule 5 – Rate of Pay

The PSLO will track the State law in regards to calculating rates of pay and defining “exempt” employees as those exempt from the federal Fair Labor Standards Act and California labor law.

5.3:  If the employee is an exempt employee, and no other forms of paid leave are provided, the employee’s salary shall continue without deduction for sick time taken, with the time taken applied against the employee’s leave balance.

Rule 6 – Work-From-Home and Occasional Workers in San Francisco

6.1:  Employees who live in San Francisco and work from home or telecommute, are covered by the PSLO if they perform 56 or more hours of work in San Francisco in a calendar year.

6.2:  Employees who simply travel through San Francisco (i.e., rivers who drive through San Francisco while working) are not covered unless they actually stop in the City to work (for example, to make pickups or deliveries) and work 56 or more hours in the City in a calendar year.

Rule 7 – Small Business Exemption – Fluctuating Workforce

The ordinance does not apply to employers with fewer than 10 employees. If a small employer’s workforce fluctuates above and below 10, then the OLSE will determine if an employer is covered by taking the average number of employees who worked during the prior calendar year.

For new employers, OLSE will calculate business size for the current calendar year based upon the average number of persons per week who worked for compensation for the first 90 days after its first employee(s) began work.

Takeaway: Small employers should calculate their average employees at the end of each calendar year. If you were above 10 last year, the PLSO covers your employees this year, even if you fall below 10.

The attorneys in Weintraub Tobin’s Labor and Employment Group assist employers in all areas of employment law compliance.  Contact any one of us if we can be of assistance.

On May 21, 2018, the United States Supreme Court issued its much anticipated decision in Epic Systems Corp. v. Lewis. In a 5-4 decision written by the newest jurist, Justice Gorsuch, the Court declares that employers can require employees to arbitrate their employment disputes individually and waive their rights to resolve those disputes through class or collective actions.

Background.

The case was a consolidation of three cases (Epic Systems Corp. v. Lewis, Ernst & Young LLP v. Morris, and National Labor Relations Board v. Murphy Oil USA, Inc.). In each case, the employees brought a class action under the federal Fair Labor Standards Act (“FLSA”) and related state law against their employer on behalf of themselves and similarly situated employees for wage and hour violations. However, in each of the cases, the employees had entered into an agreement with their employer providing for individualized arbitration proceedings to resolve employment disputes between the parties. Although the Federal Arbitration Act (“FAA”) generally requires courts to enforce arbitration agreements as written, the employees argued that the FAA’s “savings clause” removes this obligation if an arbitration agreement violates some other federal law and that, by requiring individualized proceedings, the agreements they signed violated the National Labor Relations Act (“NLRA”).

Each of the employers countered that the FAA protects agreements requiring arbitration from judicial interference and that neither the FAA’s saving clause nor the NLRA demands a different conclusion. After a detailed analysis, the U.S. Supreme Court agreed.

Court’s Analysis.

The FAA’s Savings Clause Recognizes Only General Contract Defenses Which the Employees Did Not Raise.

The employees argued that the FAA’s savings clause permits courts to refrain from enforcing arbitration agreements if the agreements violate some other federal law, like the NLRA. However, the Supreme Court held that the FAA’s savings clause —which allows courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract,” recognizes only “‘generally applicable contract defenses, such as fraud, duress, or unconscionability,’” (citing AT&T Mobility LLC v. Concepcion, 563 U. S. 333, 339), not defenses targeting arbitration either by name or by more subtle methods, such as by “interfer[ing] with fundamental attributes of arbitration.” (Id. at 344.) (emphasis added.)

The Court held that “this is where the employees’ argument stumbles” because they didn’t argue that their arbitration agreements were extracted, say, by an act of fraud or duress or in some other unconscionable way that would render any contract unenforceable. Instead, they object to their agreements precisely because they require individualized arbitration proceedings instead of class or collective ones. And by attacking (only) the individualized nature of the arbitration proceedings, the employees’ argument seeks to interfere with one of arbitration’s fundamental attributes.

Section 7 of the NLRA Does Not Encompass the Right to Class or Collective Actions.

The employees also mistakenly claimed that, even if the FAA normally requires enforcement of arbitration agreements like theirs, the NLRA overrides that guidance and renders their agreements unlawful. The employees argued that class and collective actions are “concerted activities” protected by Section 7 of the NLRA, which guarantees employees the right to self-organization, to form, join, or assist labor organizations, to bargain collectively, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection. But the Court pointed out that Section 7 focuses on the right to organize unions and bargain collectively, and “does not mention class or collective action procedures or even hint at a clear and manifest wish to displace the Arbitration Act.”

The Court found that it is unlikely that Congress wished to confer a right to class or collective actions in Section 7, since those procedures were hardly known when the NLRA was adopted in 1935. As the Court pointed out, the Federal Rule of Civil Procedure 23 didn’t create the modern class action until 1966; class arbitration didn’t emerge until later still; and even the Fair Labor Standards Act’s collective action provision postdated Section 7 by years.

The Court rejected the employees’ argument that the catchall term at the end of Section 7 that provides for “other concerted activities for the purpose of . . . other mutual aid or protection” can be read to include class and collective legal actions. The Court concluded that the catchall term should be understood to protect the same kind of things employees “just do” for themselves in the course of exercising their right to free association in the workplace, rather than “the highly regulated, courtroom-bound ‘activities’ of class and joint
litigation.”

The Court went on to point out that the NLRA’s structure underscores the same conclusion. After speaking of various “concerted activities” in Section 7, the NLRA establishes a detailed regulatory regime applicable to each item on the list. It even sets rules for adjudicatory proceedings under the NLRA itself. However, the Court noted that “…missing entirely from this careful regime is any hint about what rules should govern the adjudication of class or collective actions in court or arbitration.”

The Court rejected the employees’ argument that the NLRA does not discuss class and collective action procedures because it means to confer a right to use existing procedures provided by statute or rule. As the Court pointed out, the NLRA does not say even that much. And the Court held that, “…if employees do take existing rules as they find them, they must take them subject to those rules’ inherent limitations, including the principle that parties may depart from them in favor of individualized arbitration.” (emphasis added.)

Individualized Arbitration Agreements are Enforceable under the FLSA.

The Court pointed out that the employees’ underlying claims involve their wages and arise under the FLSA not under the NLRA. The FLSA allows employees to sue on behalf of themselves and other similarly situated employees just as the employees had done in these cases. Yet, as the Court calls out, the employees do not argue that the FLSA overcomes the FAA to permit their class and collective actions, and asks why not? Presumably the Court concludes, because the Court made clear decades ago that “…an identical collective action scheme (in fact, one borrowed from the FLSA) does not displace the Arbitration Act or prohibit individualized arbitration proceedings.” (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U. S. 20, 32 (1991).)

The Court takes real issue with the employees’ attempt to bootstrap the NLRA into a claim that falls squarely within the four corners of the FLSA in order to then try and avoid the dictates of the FAA. It underscores how “[e]very circuit to consider the question” has held that the FLSA allows agreements for individualized arbitration, and goes on to find that “…[f]aced with that obstacle, the employees are left to cast about elsewhere for help. And so they have cast in this direction, suggesting that one statute (the NLRA) steps in to dictate the procedures for claims under a different statute (the FLSA), and thereby overrides the commands of yet a third statute (the Arbitration Act). It’s a sort of interpretive triple bank shot, and just stating the theory is enough to raise a judicial eyebrow.” (emphasis added.)

Holding.

The Court concludes its decision by discussing the many cases it has heard over the years in which it has rejected every attempt to conjure conflicts between the FAA and other federal statutes. In this large body of case law, the Court points out that the following two principles remain true:

1. The Court has made clear that even a statute’s express provision for collective legal actions does not necessarily mean that it precludes individual attempts at conciliation through arbitration.

2. The Court has stressed that the absence of any specific statutory discussion of arbitration or class actions is an important and telling clue that Congress has not displaced the FAA.

The Court ultimately held that Congress has instructed in the FAA that arbitration agreements providing for individualized proceedings must be enforced, and neither the FAA’s savings clause nor the NLRA suggests otherwise.

Takeaway for California Employers.

Prior to the U.S. Supreme Court’s Epic Systems Corp. decision, the California Supreme Court approved class action waivers in employment arbitration agreements. In its Iskanian v. CLS Transportation decision, the California Supreme Court held that class-action waivers in arbitration agreements are enforceable under the FAA. However, in the same decision, the California Supreme Court held that actions under the California’s Private Attorneys General Act (“PAGA”) are not subject to waiver. The Court concluded that “…the rule against PAGA waivers does not frustrate the FAA’s objective because…the FAA aims to ensure an efficient forum for the resolution of private disputes, whereas a PAGA action is a dispute between an employer and the Labor Workplace Development Agency.”

Given the California Supreme Court’s interpretation of the FAA, it does appear that the U.S. Supreme Court’s decision in Epic Systems Corp. will change the legal landscape in California. Under this new U.S. Supreme Court decision, class-action waivers in arbitration agreements have become enforceable again, but PAGA waivers will remain unenforceable – unless and until we get a different ruling from the California or the U.S. Supreme Court.

The Labor and Employment attorneys at Weintraub Tobin are happy to assist in the review and drafting for employment arbitration agreements. Feel free to contact us.

On April 30, 2018, the California Supreme Court applied an expansive definition of independent contractor in a ruling that is sure to have a dramatic impact on many California businesses, and the burgeoning gig economy in particular.

In the case of Dynamex Operations W. v. Superior L.A. County, a class action was brought on behalf of a group of delivery drivers who were classified as independent contractors by delivery company, Dynamex. Dynamex argued that the drivers were properly designated as independent contracts under the totality-of-the-circumstances standard set forth in the Borello case—utilized by California businesses since 1989—which concentrated primarily on the degree of control the employer exercised over the worker. Dynamex’s drivers provided their own vehicles, paid their own transportation expenses (fuel, tolls, vehicle maintenance, and insurance), set their own schedules, and were generally free to choose the sequence in which they made deliveries and the routes they would take. They were also allowed to simultaneously work for other delivery companies.

The Supreme Court sided with the drivers, concluding that a worker is presumed to be an employee unless the company can establish that each of three factors exist under the “ABC” test: (A) that the worker is sufficiently free from the control and direction of the company; and (B) that the worker performs work that is outside the usual course of the company’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

The Court said it wasn’t enough that Dynamex didn’t prevent the drivers from engaging in other work; it had to prove that the drivers actually performed delivery services for other companies. In addition, Dynamex was a “delivery company,” so its delivery drivers were performing the essential functions of the business. They were not comparable in that regard to an electrician or plumber who might do business with Dynamex as independent contractors.

This ruling, with its newly drawn legal parameters, is expected to significantly affect California’s freelance industry and gig economy. Business offering web-based food delivery services, courier and ridesharing services that are based on independent contractor workforces will likely be the most impacted. But this landmark ruling warrants an analysis across the board of many positions that were previously classified as independent contractors.

It is an old joke that the world can be divided into people who are good at math and those who go to law school.  Whether you believe the joke or not, math – or in this case, simple arithmetic – can be at the heart of many wage and hour questions.  On March 5, 2018, the California Supreme Court issued an opinion in Alvarado v. Dart Container Corp.  The Court articulated a rule on how an employee’s overtime pay rate should be calculated when the employee has earned a flat sum bonus during a single pay period.  Please be aware of the emphasized language:  flat sum bonus.

The Supreme Court’s decision in Alvarado details the procedure for applying a “flat sum bonus” in determining the regular rate of pay for purposes of overtime.  The “regular rate of pay” is the pay rate which is multiplied by the applicable overtime premium (time and a half or double time).   The Court relies heavily on the Department of Labor Standards Enforcement (“DLSE”) Enforcement Manual.  That manual divides the world of regular rate calculations involving bonus and incentive payments into two categories:  (1) those that are “production or commission based;” and (2) those that are paid as a flat sum.  In Alvarado, the flat sum bonus was an attendance bonus paid by the employer to employees who met the company’s attendance incentive goals.

The question was how are these non-hourly rate wages properly included in calculation of the regular rate.  The DLSE Enforcement Manual outlines acceptable approaches for including such bonus and incentive payments into the regular rate calculation.  Simply put, the law requires periodic bonus commission payments earned in a particular pay period be included in the determination of the “regular rate of pay” prior to calculating the overtime premium payment.  These sums are added to the regularly earned wages and then divided by a divisor to determine the “regular rate of pay.”  The question considered by the Alvarado Court is to what that divisor should be.  As the Court put it:

Specifically, we consider whether the divisor for purposes of calculating the per-hour value of the bonus should be (1) the number of hours the employee actually worked during the pay period, including overtime hours; (2) the number of nonovertime hours the employee worked during the pay period; or (3) the number of nonovertime hours that exist in the pay period, regardless of the number of hours the employee actually worked.

The Court concluded that the divisor should be the second of these options.  That is, dividing the flat sum bonus received in the pay period by the number of non-overtime hours the employee worked during the pay period.

The case did not consider how production based or non “flat sum” bonuses should be included in calculation of the regular rate of pay. The Court’s rationale in Alvarado, however, lends credence to the methods of calculation outlined in the DLSE Enforcement Manual at section 49.2.1.2. :

Compute the regular rate by dividing the total earnings for the week, including earnings during overtime hours, by the total hours worked during the week, including the overtime hours.

News you can use summary:

What this means is that if employees receive a flat sum bonus – one not tied to productive activity or sales activity (such as commissions) the total earnings for the pay period are divided by the total hours of regular work in the week (excluding overtime).  A different rule applies for production bonus workers or commission workers which requires that all wages for the pay period be divided by the total hours worked during the pay period, including overtime hours.

Assembly Bill (“AB”) 2069 was introduced by the California Assembly on February 7, 2018. Currently, California employers can deny employment or impose discipline on cannabis users, regardless of whether such use is for medical purposes. AB 2069 would amend the Fair Employment and Housing Act (“FEHA”) to make it an unlawful practice for an employer to take adverse action against an applicant or employee because of a positive drug test for cannabis (by a medical cannabis card holder) or because of one’s status as a medical cannabis card holder.

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Beware. Routine criticisms of job performance when directed to employees engaged in a caring profession, may subject you to retaliation and whistleblower claims.

So you hire an employee, call her a brick layer. She is a horrible brick layer. You get in constant arguments with her concerning the quality of her brick laying. You say that the bricks must be square and aligned and she says, no they look better if they are crooked, uneven and “rustic.” Firing that employee for discharging her duties as a brick layer in a way the employer finds unacceptable is, in almost all cases, a low risk decision. Subjective dislike of an employee’s work performance is a time honored and well recognized “legitimate nondiscriminatory, nonretaliatory,” reason for termination.

But what if you employ professionals engaged in a helping profession (doctors, nurses, teachers, social workers, psychologists, etc.) or professionals engaged in activities that may affect public health (epidemiologists, doctors, certain engineers, etc.)? An employer of teachers who grows unhappy with a teacher’s performance of his teaching duties or an employer of doctors or nurses who grow unhappy with those health professionals discharge of their professional duties may not have the same protections that the employer of the brick layer enjoys. Why? Because California statutes and regulations recognize and protect certain professions against retaliation or interference with such professional work. For example, Business and Professions Code section 2056 protects health practitioners from retaliation for “advocating appropriate medical care,” and numerous regulations and laws similarly protect teachers. California Education Code section 56046 prohibits any employer from taking adverse action against a teacher for having advocated on behalf of a student or assisting parents in seeking or obtaining services or accommodations for students with exceptional needs. Such workers may also have substantial protections under the U.S. Constitution and section 504 of the federal rehabilitation act.

What this means is that employers who employ helping professionals should familiarize themselves with statutes, regulations and laws that may cloak an employee’s disagreement over what to do for their patient, student, or the public with “protected activity” status. Prior to taking any “he/she does a bad job” action against a helping professional or, anyone engaged in compliance activities, employers should carefully scrutinize whether their action could be viewed as interference with an employee’s protected “whistleblower” activities or opposition to improper teaching, medical, or public health activities by the employer.

We all understand the common meaning of the word “employer.” In California, “employers” need to keep track of the various rules and regulations, all of which have their own definitions of the word. Most frequently, the number of employees dictates whether a given statute or ordinance applies to the employer. In addition, California’s Fair Employment and Housing Act (“FEHA” or the “Act”), exempts certain “employers” from the application of the anti-discrimination laws found within the Act.

This blog post focuses on protecting the so-called “religious entity” exemption from the FEHA.

Employer versus Employer versus Employer – Various Definitions

The FEHA prohibits discrimination, harassment, and retaliation on a large list of protected class statuses, and is more expansive than the federal analog, Title VII. FEHA’s anti-discrimination provisions apply to “employer” – defined as any person who employs five or more persons, subject to certain exceptions. Relevant to this blog, Cal. Gov. Code § 12926(d) a “religious association or corporation not organized for private profit” is not an “employer” for the “unlawful practices” provisions of FEHA.

FEHA, Cal. Gov. Code § 12950, also requires “all” employers, impliedly using the section 12926 definition and impliedly subject to the religious entity exemption – to post notices regarding employees’ rights under FEHA. But, most employers – including religious entities – are required to post a variety of other notices (minimum wage, payday notices, unemployment insurance, worker’s compensation, whistleblower rights, etc.) pursuant to various Labor Code, Unemployment Insurance Code, federal law, local ordinances, and the Department of Industrial Relations requirements. There are several vendors who supply “all in one” posters, updated annually. Most HR professionals and in-house counsel order these “all in one” posters from reputable sources, relying on them to be accurate.

FEHA also has a mandatory training component (commonly referred to as “AB 1825” training). For this purpose, an “employer” is defined in the FEHA regulations – Ca. Admin Code 11024 – as “any person engaged in any business or enterprise in California, who employs 50 or more employees to perform services for a wage or salary or contractors or any person acting as an agent of an employer, directly or indirectly.” Notably, there is NOT an express “religious entity” exemption from FEHA regulations. Such “employers” are required to conduct bi-annual anti-harassment training to educate supervisors on the prohibitions against harassment and discrimination in FEHA and Title VII – apparently, even if those “employers” are otherwise exempt from FEHA.

The Unresolved Question since 2002 – is a Nonprofit Religious Corporation Operating a School exempt from FEHA?

Certain religious entities have long been exempt under Cal. Govt. Code section 12926(d). But effective January 1, 2002, section 12926.2(f) was added, expanding the definition of “employer” to include religious non-profit educational institutions that are (1) non-profit public benefit corporations; (2) formed by, or affiliated with a particular religion; and (3) operate an educational institution as its sole or primary activity. However, the amendment left intact the ability for such institutions to restrict employment in all categories of employment to adherents of the religion, regardless of whether the duties of the positions are connected to a religious function.

There has only been one case interpreting the 2002 amendment to preserve the exemption for a school organized as a Nonprofit Religious Corporation, Henry v. Red Hill Evangelical Lutheran Church (2011) 201 Cal. App. 4th 1041. In that case, the Court seemed to find it relevant that the school was part of the church’s ministry, did not exist as a separate legal entity, was on church property and was adjacent to the church. Until 2017, no case had expressly protected the religious entity exemption for a school that is separately incorporated, is not on church grounds, but is nevertheless a religiously affiliated school organized as a Nonprofit Religious Corporation.

The good news for religious entities, especially nonprofit religious schools.

In December 2017, the San Francisco Superior Court ruled on an issue of first impression, and decided that a private high school, organized as a California Nonprofit Religious Corporation primarily for religious and educational purposes, is exempt from FEHA.

The judge correctly interpreted the 2002 FEHA amendment (§12926.2(f)(2)) that narrowed the exemption for public benefit corporations operating schools as applying only to public benefit corporations, not to all schools including those organized and incorporated as nonprofit religious corporations.

This may seem axiomatic based on the plain language of the statute, but it was a hard-fought issue at trial because of three facts: (1) the school was, for a time, incorporated as a public benefit corporation (and reincorporated after to the 2002 amendment), (2) unlike the school in Red Hill, this high school is a distinct corporate entity from any church and is not on church grounds, and (3) the school teaches secular (as well as religious) subjects.

The catch – waiver and estoppel may bar assertion of a statutory right.

Religious entities must take care to avoid inadvertently wiping out their religious entity status. In the same 2017 trial, the judge and jury ruled that the school, by its conduct, waived and should be equitably estopped from asserting its religious entity exemption from FEHA. “Waiver” means the intentional relinquishment of a known right (here, the FEHA exemption), or acting in a way that is so inconsistent with the intent to assert a right that the party should not be able to assert the right. Estoppel is a similar doctrine, and requires that the other party relied on the party’s words or conduct and suffered harm as a result. Often treated as interchangeable by courts, these equitable principals developed to protect an innocent who has justifiably relied on the other party’s conduct.

What “knowing and intentional” conduct might support waiver and estoppel of a nonprofit religious school’s FEHA exemption?

In the 2017 trial, three facts supported waiver/estoppel: (1) having a handbook with a policy committing to enforce federal anti-discrimination laws, (2) providing supervisor anti-harassment training, and (3) posting the standard breakroom “all in one” posters on the wall.

We usually think of waiver and estoppel as equitable doctrines that prevent someone from having their cake and eating it too. But here, the school didn’t benefit in any way from failing to explicitly shout to its employees that they are not protected by FEHA, and the plaintiff didn’t suffer any added harm because of the school’s failure to tell her that it is exempt from FEHA. The school here tried in earnest to follow the laws, and can only be faulted for being extremely conservative in its approach to handbooks, training, and posters. It was trapped in a web of differing and unclear definitions in California’s various rules, ordinances and laws. The prudent employers we represent can sympathize: the school followed the laws that clearly do apply– having anti-discrimination policies consistent with federal law – and to be safe, to follow the laws that may be interpreted to apply to the school – posting the breakroom notices that FEHA says “all employers” must post (“employer” being defined differently for that subsection of FEHA) – and by adopting what any rational employer would view as a best practice – sending its supervisors to anti-harassment training.

What’s the risk?

The result of a finding of waiver/estoppel in a case like this could be that a school may be required to pay a jury award that is not subject to the Title VII damages cap (the federal anti-discrimination statute). A plaintiff who deliberately elected to pursue state law FEHA claims only, in order to avoid the Title VII damages cap, could blindside a nonprofit religious corporation which believed itself exempt from the FEHA. A plaintiff, who could otherwise only recover damages but not fees under her common law wrongful termination claim, now may also be able to recover attorney’s fees and expert witness fees under FEHA.

What should a religiously affiliated school or other nonprofit religious corporation with more than five employees do to avoid this trap?

1. Have your employee handbook, offer letter template, teacher contract template, parent/student handbook, and any standalone policies and related acknowledgment forms reviewed by competent employment counsel. These documents should contain a clear explanation of the religious entity exemption, and a declaration of intent to preserve, and not waive, the religious entity’s rights and protections, while still preserving the commitment to an environment free of harassment, discrimination and retaliation.

2. If you offer “AB 1825” anti-harassment training, be sure your trainer knows that the entity is a non-profit religious corporation and that the materials contain appropriate disclaimers and disclosures. If your company’s usual trainer doesn’t understand why that is important, look for one who does.

3. Consider modifying, or supplementing, the FEHA portions of the standard “all in one” breakroom employment notices to make employees aware of your religious entity exemption.

4. Have competent legal counsel review your Articles of Incorporation, Bylaws, and corporate practices, to ensure that the entity’s organizational documents and practices comply with the Nonprofit Religious Corporation Code.

5. If your entity is a religiously affiliated school incorporated as a Nonprofit Public Benefit Corporation, seek advice regarding whether it qualifies as a Nonprofit Religious Corporation. Religiously-affiliated schools organized as nonprofit public Benefit Corporations enjoy only a narrow exemption from FEHA, except regarding the hiring of persons holding religious positions.

Weintraub Tobin’s team of employment and corporate attorneys understand these issues and provide training, handbook and other document review, and guidance tailored to your specific industry.

Employers sometimes see a position elimination or reduction in force as a way of terminating employees that is kinder and gentler than termination for cause. Position eliminations and reductions in force allow an employer to say goodbye to an employee without having to lay out the reasons for the separation on the employee’s door step. It is, after all, easier to say the “business won’t support your continued employment,” than it is to say, “we don’t like your work.” While some people may embrace confrontation, my experience has been that most employers don’t like to frankly tell their employees that their work performance is inadequate. Employers or managers can feel nitpicky, impolite, and discourteous, when they document an employee’s performance deficiencies.

This discomfort can result in inflated job performance evaluations (giving, for example, a marginal employee a satisfactory rating and a satisfactory employee a “walks on water” rating). But real dangers can arise when employers try to avoid an honest communication with employees. That is because employment cases are less about “what” an employer did. It is lawful to fire an employee. It is unlawful to fire an employee for unlawful reasons (such as the employee’s race or religion). As a result, the question in most wrongful termination cases is: Did the employer have a legitimate lawful reason for the termination? Courts can’t open up the employer’s head and find the reason, so courts look to surrounding facts and circumstances to determine the employer’s motives.

In order to prevail in a discrimination claim against a defendant, a plaintiff must establish, for example, that she was adequately performing her job, that she is a member of a protected class, that she suffered an adverse job action, and some additional fact or facts would suggest that the plaintiff’s protected class status was a factor in the employer’s adverse employment action.

The burden then shifts to the defendant to state a legitimate nondiscriminatory non-retaliatory reason for the adverse employment action. (Something like, “his performance was inadequate,” or “he stole money from the cash drawer,” etc.) The burden then shifts back to the plaintiff to present evidence that the stated legitimate reason for the termination or adverse employment action is a pretext for illegal discrimination. Often plaintiffs can do this by pointing to the fact that similarly situated persons not in a protected class or who engaged in the same conduct were not fired or did not suffer the same adverse employment action as the plaintiff.

Another way for a plaintiff to meet the burden of establishing pretext is by showing that the stated reason is a false reason. That is the hidden danger of claiming the need for a reduction in force or a business restructure in lieu of terminating an employee for cause. Employers often think, mistakenly, that simply saying your position has been eliminated can avoid all the messiness and explanation required of a termination for cause. This just isn’t true. Employers can still be challenged by an employee who claims that the reduction in force is merely a pretext for a discriminatory (and illegal) termination of employment. Reductions in force can be complicated things. After a company makes a decision to reduce the number of full-time positions, it will have to establish or demonstrate a legitimate business objective (to reduce costs, reduce or eliminate losses, etc.) and to demonstrate that its selection of the plaintiff for the position elimination was not itself discriminatory. Many employers who rely on a position elimination don’t bother to do the ground work of establishing a neutral selection criteria that results in the selection of candidates for a reduction in force. Without that ground work being done, employers can end up with egg on their faces when a plaintiff says “okay, you had to eliminate a position, but why my position?” Another danger is that employers will claim a reduction in force may re-fill the position that they told the plaintiff they were eliminating. Such a fact, if proven, could easily support a claim that the employer’s stated reason for termination was a pretext for discriminatory intent.

Finally, you should recall that an employer who has to change reasons for an adverse employment action is already helping a plaintiff prove that the stated reason is a pretext for an illegal reason for termination.