Labor and Employment

As you know, documentation is essential to performing even routine HR functions. You have potential employees fill out numerous pre-hire documents. You have employees sign employment agreements and other documents when hired. During the course of employment, you have employees sign additional documents, such as acknowledgments regarding your employee handbook, change in employment status documents, etc. But have you sat down recently to review whether all of the documents you are having employees sign are consistent? The recent case of Grey v. American Management Services demonstrates why you should.

In the Grey case, the employer, AMS, had Grey complete a pre-hire application packet that included an Issue Resolution Agreement (“IRA”). The IRA provided that all disputes related to Grey’s future employment with AMS would be subject to arbitration. However, when Grey was actually hired by AMS, he was asked to sign an employment contract that stated that only disputes arising out of a breach of the employment contract would be subject to arbitration. That employment contract also contained what’s called an “integration” clause that provided: “This agreement is the entire agreement between the parties in connection with employee’s employment with [AMS] and supersedes all prior and contemporaneous discussions and understandings.”

Grey later sued AMS for a variety of claims and claimed that he was subject to harassment based on his sexual orientation. AMS moved the Court to compel arbitration pursuant to the IRA he signed. The Court ordered the case to arbitration. At arbitration, AMS successfully defended against Grey’s claims and not only had the trial court confirm the arbitration award, but also award costs to AMS for having to defend against Grey’s claims.

Grey appealed the decision and argued that the trial court erred in ordering the case to arbitration. The appellate court agreed. Why? Because of the inconsistency in the arbitration provisions in the employment contract that Grey signed at the time of hire and the IRA he signed during the pre-hire application process.

The Court ruled that, under California law, “the terms of a final integrated contract `may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement’.” The Court found that the employment agreement that Grey signed at the time of hire contained an “integration” clause that meant it was intended to be the “final” contract regarding Grey’s employment and superseded all prior agreements, including the IRA. While the IRA contained an arbitration provision that was broader (requiring the arbitration of any dispute relating to Grey’s employment); the employment contract was much narrower requiring arbitration only of breach of the agreement itself (and not statutory claims such as unlawful harassment). Because the employment agreement superseded the IRA, the Court held that it was improper to rule to order Grey to arbitrate his harassment claims. Therefore, the appellate court vacated the arbitration award and ordered that Grey be allowed to present his claims in state court.

Had the employer in the Grey case simply reviewed the various employment documents it had employees sign to ensure consistency, it may well have avoided the outcome of having won at arbitration but later losing on appeal.

To avoid this potential outcome, all employers should periodically review any documents they have employees sign, such as employment agreements, employee handbook acknowledgments, dispute resolution agreements and other policies. Not only should they ensure that these documents are updated to address any new laws, they should also be reviewed to ensure that they remain consistent with one another over time.

Making national headlines today is the news of a physician’s assistant who obtained an astronomical $167 million jury verdict against her employer in a Sacramento federal court. Going largely unreported, however, is information about the case (Ani Chopourian v. Catholic Healthcare West) that should be noted by employers in the healthcare industry.

While media outlets accurately have depicted the case as a sexual-harassment lawsuit, the plaintiff also alleged violations of section 1278.5 of California’s Health and Safety Code. The legislature enacted the strong medicine in that anti-retaliation statute to “encourage patients, nurses, members of the medical staff, and other health care workers to notify government entities of suspected unsafe patient care and conditions.”

The colossal award in the Sacramento case most likely was spurred by the jury’s belief that the employer violated this healthcare law. Indeed, while many jurors could be offended by an employer who does not take steps to prevent or stop sexual harassment against healthy employees, such jurors assuredly would be outraged by the idea that an employer punished a healthcare worker for reporting flaws in the delivery of medical care to sick and suffering patients. Either way, employers in the healthcare field should be aware that this law has a lot more teeth – some might say, “more fangs” – than other employment laws.

The statute protects patients and healthcare workers (including members of the medical staff) who present “a grievance, complaint, or report to the facility, to an entity or agency responsible for accrediting or evaluating the facility, or the medical staff of the facility, or to any other governmental entity.” The law also protects such persons who have “initiated, participated, or cooperated in an investigation or administrative proceeding related to, the quality of care, services, or conditions at the facility that is carried out by an entity or agency responsible for accrediting or evaluating the facility or its medical staff, or governmental entity.” Such complaints or participation/cooperation presumably would concern perceived violations of the myriad of regulations that pertain to the healthcare industry.

In forbidding such reprisals, section 1278.5 creates very stern presumptions against healthcare employers. For example, it imposes a “rebuttable presumption” that the employer unlawfully retaliated “against an employee . . . if responsible staff at the facility” knew that the employee filed a grievance or complaint about healthcare flaws and the employer then executed an adverse employment action against the employee “within 120 days of the filing of the grievance or complaint.”

The law also contains a clause that could diminish the protections of the peer-review privilege. In other types of employment cases, this privilege oftentimes may shield an employer’s evaluations of and deliberations about a healthcare professional’s skills and abilities and the reasons for the adverse action.

Finally, as demonstrated by the jury verdict in the Sacramento case, the law provides very generous remedies to prevailing plaintiffs while dosing unsuccessful defendants with severe punishment. For instance, any individual “who willfully violates this section is guilty of a misdemeanor punishable by a fine of not more than twenty thousand dollars ($20,000).” Moreover, a prevailing employee could be “entitled to reinstatement, reimbursement for lost wages and work benefits . . ., and the legal costs associated with pursuing the case,” as well as “any remedy deemed warranted by the court.”

Given the plaintiff’s success in this case and the notoriety of her verdict, healthcare employers in California should brace themselves for many more similar suits to follow. The cost of trying such actions and the size of the jury’s award underscore the need for healthcare employers to consult with employment attorneys who are knowledgeable about the industry (and the many laws and regulations pertaining to it) when making important personnel decisions.

An employer’s ability to have disputes with employees resolved by arbitrators instead of courts had some ups and downs in recent days. One of those developments suggests that employers should review and perhaps revise their arbitration agreements to keep them enforceable in state court. The other development indicates that arbitration agreements will continue to be treated favorably by federal courts.

In particular, the California Court of Appeal published yet another opinion last week diminishing the ability of employers to enforce arbitration agreements with their employees. On the other hand, the U.S. Supreme Court this week decided yet another case striking down a state law that impairs enforcement of arbitration contracts.

It is widely believed that, all other things being equal, an arbitrator would be less likely than a court to conclude that an arbitration agreement is invalid. Accordingly, many employers prefer to have an arbitrator (instead of a court) decide whether such a contract is valid. However, California’s First Appellate District issued a decision on February 16, 2012, in a case called Ajamian v. CantorCO2e, L.P., indicating that such ambitions are not always easy for employers to obtain.

The appellate court noted that a broadly worded provision in an employer’s arbitration contracts gave “arbitrators the power to decide the validity of [those] arbitration agreements.” Nonetheless, the court said the provision “did not provide clear and unmistakable evidence that the parties intended to delegate authority to the arbitrator, rather than to the court.” As fate would have it, the court went on to find the agreement unenforceable and declined to order the employee to arbitrate the dispute.

A few days later, on February 21, 2012, the U.S. Supreme Court unanimously overturned a West Virginia law that rendered “unenforceable all predispute arbitration agreements that apply to claims alleging personal injury or wrongful death against nursing homes.” In a case called Marmet Health Care Center, Inc. v. Brown, the nation’s highest court reiterated that any state’s “categorical rule prohibiting arbitration of a particular type of claim” is invalid because it runs afoul of federal law.

This much remains certain: California may not adopt a law banning or specifically impairing the arbitration of employment disputes, but care must be taken to ensure that arbitrators can resolve disputes concerning the enforceability of an arbitration agreement. Thus, employers are well advised to confer with counsel to determine if an arbitration contract is desirable.

Where an employer determines that such an agreement is appropriate, legal counsel can provide guidance in terms of what provisions should be included to enhance the enforceability of such a contract. Legal counsel also can help to identify provisions in an employer’s existing arbitration agreements that should be discarded to achieve that goal.

In my November 4, 2011 post, I discussed a new California law (Labor Code § 226.8) that imposes serious monetary fines and other sanctions against those who willfully misclassify workers as “independent contractors” rather than “employees.” Those who violate the law can find themselves paying up to $15,000 per violation and up to $25,000 if there is a pattern and practice of misclassification. Also, if the violator is a licensed business, it runs the risk of having its license revoked. Finally, the law provides for publication of a notice to employees and the general public for a period of one year, stating that the violator committed a serious violation of the law.

California’s Secretary of Labor and Labor Commissioner have made it clear that California is serious about enforcing this new law and the state has teamed up with the Feds to help it do so. On February 9, 2012, the Deputy Administrator from the federal Department of Labor (DOL), Nancy J. Leppink, and California’s Labor Commissioner, Julie Su, held a press teleconference announcing that the DOL and California have signed a Memorandum of Understanding (MOU) that provides for the DOL and California to share information and resources as they embark on intensified enforcement efforts against those who misclassify workers as independent contractors. According to the DOL and the State, the purpose of increasing enforcement is to protect the rights of employees and level the playing field for responsible employers by reducing the practice conducted by some businesses of misclassifying employees. This federal/state partnership is the twelfth of its kind for the DOL.

Leppink stated at the press conference that “this memorandum of understanding helps us send a message: We are standing together with the State of California to end the practice of misclassifying employees. …This is an important step toward making sure that the American dream is still available for workers and responsible employers alike.”

Su said “California is proud to enter into this partnership with the U.S. Department of Labor to work together to attack the problems of the underground economy, … Gov. Brown just signed an important law that went into effect on Jan. 1, increasing penalties for willful misclassification. With the Labor Department, we are poised to use all the tools in our arsenal to lift the floor for hardworking employers and employees throughout the state.” The current term of the MOU is through December 21, 2014.

California businesses must be aware that any business model that attempt to change, obscure or eliminate the employment relationship are illegal if they are used to evade compliance with the law. The misclassification of employees as something else, such as independent contractors, presents a serious problem because these workers often are denied access to certain benefits and protections like family and medical leave, overtime compensation, minimum wage, and unemployment insurance benefits, to which they are entitled. Misclassification can create economic pressure for law-abiding business owners, who often struggle to compete with those who are skirting the law. Finally, and most important to both the federal and state government, employee misclassification generates substantial losses in federal and state tax revenues, unemployment insurance contributions, and workers’ compensation funds.

For questions regarding this new MOU or any of the federal or state laws related to the misclassification of independent contractors, or for legal assistance in evaluating your current classifications, feel free to contact Lizbeth West or one of the other employment lawyers in the Employment Group at Weintraub Genshlea Chediak Tobin & Tobin – the employment lawyers who support employers.