California Supreme Court Cases Employers Should Be Watching

The California Supreme Court was busy in 2021 deciding cases that affect employers from how to pay meal and rest period penalties to when the statute of limitations for a failure to promote runs. While the state's high court answered some big questions last year, they still have several cases pertaining to employment law awaiting their attention.

Here are the cases employers should be watching in the new year and why.

People ex rel. Garcia-Brower v. Kolla's Inc.

In this case, a complainant filed a timely retaliation complaint with the Division of Labor Standards Enforcement (DLSE) claiming immediate termination after complaining about non-payment of wages. Her complaint did not allege any disclosure to a governmental agency, but the retaliatory act of termination upon her direct complaint to her employer. The DLSE undertook an investigation and determined that respondents had violated several California Labor Code sections, notably Section 1102.5, California's whistleblower statute.

The DLSE notified the parties involved of its determination on Dec. 22, 2015. Respondents were ordered to do several things, including paying the complainant lost wages and civil penalties of $20,000 each for violations of sections 1102.5 and 98.6. Respondents never complied.

On Oct. 17, 2017, the Labor Commissioner filed an enforcement action against Respondents under the authority of Section 98.7, subdivision (c)(1)5, alleging violations of these statutory provisions. Eventually, through a lack of response by the employer-defendant, the Labor Commissioner sought to take a default judgment.

The trial court, however, determined that the Labor Commissioner had not stated a claim under Section 1102.5, because the complainant had not approached a governmental agency until after her termination. The trial court found that retaliation under the statute required the complainant to have been terminated as a result of disclosure to a governmental agency, which was not alleged. The trial court also found insufficient evidence for the claimant's unpaid wages, and that the penalties under Section 98.6 were not appropriate.

The Court of Appeal disagreed with the trial court's reasoning, but nevertheless affirmed the denial of Section 1102.5 claim as it found the after-termination complaint to be defective. It also reversed as to the penalties awarded under Section 98.6 and remanded that portion of the judgment.

The question before the California Supreme Court is limited to whether Labor Code Section 1102.5, subdivision (b), which protects an employee from retaliation for disclosing unlawful activity, applies when the information is already known to that person or agency.

Why employers should watch this case. Depending on the direction the California Supreme Court takes, its holding will affect the burden on employers defending against whistleblower claims – especially those arising out of allegations that an employee told an employer or agency information that the employer or agency was already aware of.

Grande v. Eisenhower Medical Center

FlexCare, LLC, a temporary staffing agency, assigned the plaintiff to work as a nurse at Eisenhower Medical Center. The plaintiff alleged that during her employment at Eisenhower, FlexCare and Eisenhower failed to ensure she received the required meal and rest periods, wages for certain periods she worked, and overtime wages. She then filed a class-action lawsuit on behalf of FlexCare employees assigned to hospitals throughout California. The plaintiff's claims were based solely on her work on assignment to Eisenhower. FlexCare settled with the class and plaintiff executed a release of claims. The trial court entered a judgment incorporating the settlement agreement.

A year later, the plaintiff brought a second class-action suit against Eisenhower, which had not been named in the previous lawsuit, alleging the same labor law violations. FlexCare intervened in the action asserting the plaintiff could not bring the separate lawsuit against Eisenhower because she had settled her claims in the prior class action.

The trial court held a limited trial on the issue of the propriety of the lawsuit and ruled that Eisenhower was not a released party under the settlement agreement. Accordingly, Eisenhower could not avail itself of the doctrine of res judicata because the hospital was neither a party to the prior litigation nor in privity with FlexCare. The appellate court agreed with the trial court.

Why employers should watch this case. This case could affect staffing agency employers who may want to utilize broad releases if their "clients" are not also named to avoid duplicative litigation—for which they may have to pay twice—through indemnity clauses.

Lawson v. PPG Architectural Finishes, Inc.

This case will explore whether the evidentiary standard set forth in Labor Code Section 1102.6 replaces the McDonnell Douglas test as the relevant evidentiary standard for retaliation claims brought under Section 1102.5.

In this case, the defendant was a manufacturer of paint, stains, caulks and other products. The plaintiff was a territory manager whose duties included merchandising and claims that he was directed by his supervisor to handle a product in a way that fraudulently removed a slow-selling product from its inventory. The plaintiff told his supervisor he would not do this, then reported the directive to the company's ethics hotline on two separate occasions. The second report to the ethics hotline resulted in an investigation. During this time, the plaintiff received poor ratings for his work, was placed on a performance improvement plan, and eventually, the defendant terminated his employment.

The plaintiff then filed a complaint against the company in a U.S. district court, alleging that he was retaliated against as a whistleblower.

The trial court applied the McDonnell Douglas test, which employs burden-shifting between the plaintiff and the employer. This test originated in the context of Title VII of the Civil Rights Act of 1964, the federal statute governing workplace discrimination, harassment and retaliation. The trial court concluded that the plaintiff failed to carry his burden to raise triable issues of fact regarding pretext and granted the defendant's motion for summary judgment.

On appeal, the plaintiff argued to the 9th U.S. Circuit Court of Appeals that the trial court should have applied the evidentiary standard outlined in Section 1102.6. Section 1102.6 states that once it has been demonstrated by a preponderance of the evidence that the whistleblower activity was a contributing factor in the retaliation against the employee, the employer's burden of proof is to demonstrate by clear and convincing evidence that the alleged action would have occurred for legitimate, independent reasons.

In its question to the California Supreme Court, the 9th Circuit noted that application of the McDonnell Douglas test to whistleblower claims under Labor Code Section 1102.5 "seems to ignore [a] critical intervening statutory amendment" by which the California Legislature established the evidentiary burdens of the parties participating in a civil action or administrative hearing involving a violation of the statute. Though this statement by the circuit seems like a decision, the 9th Circuit pointed out three published California appellate court decisions that expressly applied McDonnell Douglas after the amendment.

This contradiction between California's statute and the court rulings is the root of the 9th Circuit's question.

Why employers should watch this case. If the California Supreme Court rules that the evidentiary requirement under Section 1102.6 applies, disposing of whistleblower retaliation claims prior to trial will become extremely difficult due to the high clear and convincing evidentiary standard imposed on the employer.

Naranjo v. Spectrum Security Services, Inc.

This case involves a class of security guards who alleged meal-break violations and sought premium wages, waiting time penalties, inaccurate pay stub penalties, and attorney's fees.

The appellate court held that unpaid premium wages for meal-period violations did not entitle employees to paystub penalties or waiting-time penalties.

Why employers should watch this case. This case will resolve a long-standing debate on whether waiting-time penalties are recoverable for meal and rest period violations. If the California Supreme Court disagrees with the lower courts, it will increase potential penalties for California meal and rest period violations, as violations could be compounded by alleged paystub penalties and waiting-time penalties.

Leonora M. Schloss and Karen Luh are attorneys with Jackson Lewis in Los Angeles. © 2022 Jackson Lewis. All rights reserved. Reposted with permission.