Over the past couple of months I have been dealing with a case against a major national bank on behalf of one of its former employees.  The case involves his "discretionary" annual bonus, which most employers would say is just that-discretionary.  However, the term discretionary is misleading because except in some very limited circumstances a party to a contract does not have absolute discretion.

This is because all contracts in California have an "implied covenant of good faith and fair dealing".  This is one of the least sexy concepts in contract or employment law, so I will summarize it quickly.  This doctrine acts as a check on parties in contracts where one side has the right to exercise broad discretion that effects the other party's rights.  The law says that in such a case when the party exercises their discretion it generally must be done "fairly".

This is especially important in our case because on Wall Street investment bankers and other professionals are usually paid a (relatively) small salary and then an extremely large annual bonus at the end of the year.  In our case, the employee was used to making over $750,000 and suddenly his employer decided at the end of last year to give him a bonus of less than $50,000 for 2007 with no warning whatsoever and despite the fact that he was performing better than his peers.

It turns out that the employer was planning to lay him off in a few weeks, so they decided to give his usual bonus to his co-workers.  This is the classic case where the implied covenant comes up in California employment law cases.  If an employee performs acceptable work during the year with the expectation that he would receive a bonus similar to his peers and what he received in prior years, the employer does not exercise discretion in "good faith" by paying him hundreds of thousands of dollars less than they do to similar employees.

This might be an extreme case for most employees, but the same concepts can be applied to any bonus and even Christmas bonuses in certain circumstances.

Well, the California Supreme Court finally released its opinion in Ross v. Ragingwire Telecommunications, Inc., S138130, today and I have to say I am disappointed with the opinion, although I think the dissenting opinion was completely on the mark.

The Decision

The Court decided that employers can terminate employees in California who use medical marijuana with a doctor's prescription for a valid medical reason and not be held liable for doing so under state employment discrimination laws.

The majority spent almost all of their opinion talking about how the Compassionate Use Act of 1996 (the referendum that decriminalized medical marijuana under California law) does not explicitly say employers are prohibited from terminating an employee for using medical marijuana at home.

However, the majority seems to have forgotten that the case was brought under California's Fair Employment and Housing Act ("FEHA") and not the Compassionate Use Act ("CUA"), seemingly concluding that because the CUA was not violated, neither was the FEHA.

The only reason that the CUA has any application here at all is by virtue of the fact that it is the reason that the plaintiff can say he was not breaking state law. Arguably, if state law says something is illegal, then state anti-discrimination laws cannot be held to protect an employee who breaks it. However, the fact that the plaintiff broke no California law should mean that the legality or illegality of the conduct is a non-issue.

FEHA Disability Discrimination Analysis

In California, employers are required to "reasonably accommodate" individuals with disabilities, which basically means that they need to work with the employee and their doctor to determine what the employee needs to be able to do their job and treat their disability. In Ragingwire, the employee simply wanted his employer to allow him to use medical marijuana at home during non-work hours.

The employer generally must allow any accommodation that does not cause it to suffer an "undue hardship". In order avoid liability for refusing a particular accommodation, the employer must demonstrate what sort of undue hardship it would suffer.

Here, the Defendant pointed to virtually no undue hardship it would suffer by letting Ross use his medical marijuana at home during non-work hours. Instead, it pointed to "red herrings" (which the majority readily adopted as some of its justifications) such as:

• We cannot be forced to allow him to use drugs at work--The Court admits that Ross explicitly stated he was not asking for the right to use medical marijuana at work.
• We cannot be held responsible for him coming to work under the influence--Again, Ross was not asking to be allowed to be under the influence at work. This is exactly the same as if an employee had an Oxycotin or Vicodin prescription and could potentially show up at work under the influence of their medication.
• We cannot condone our employees violating the law--If you let your employees bet on sports such as running football pools, this is essentially the same thing. Under federal law simple possession of a small quantity of marijuana is a misdemeanor punishable with a maximum $1,000 fine and/or a year in jail, whereas gambling in California is punishable by a $1,000 fine and/or six months in jail. However, this argument is irrelevant where an employee is only using medical marijuana at home during non-work hours because an employee breaking a law on their own time does not create an undue hardship.

None of these arguments proves that the employer would suffer an undue hardship under these circumstances. Under the FEHA, a claim of hardship generally must be based on either (1) the fact that the accommodation would cost the employer too much to implement, or (2) it would be too inconvenient to implement the accommodation. (See Cal. Gov. 12940(m).)

The majority in this case simply glosses over this whole analysis (which is really the only question they needed to answer here) by conclusively stating "The FEHA does not require employers to accommodate the use of illegal drugs" with virtually no support for that statement. (p. 5)

The majority tries to support this statement by going into a long analysis of cases where it has held that (1) employees can be drug tested under certain circumstances, and (2) employees can be terminated for "abusing" drugs that have no "legitimate medical explanation". Of course, neither of these arguments really has any application to this case, but I guess it sounds good.

Me and the Dissenters Make 3

The dissenting opinion, written by Justice Kennard (who was joined by one other justice to make the decision 5-2) gets the analysis right and reaches the right conclusions, in my opinion. Of course, my earlier post about this case makes his same points, but because we both seem to be in the minority it will probably be quite some time before our opinions are adopted.

It will, however, be interesting to see what the rest of the blawgosphere things about this decision.

In the United States, employers must actively engage in an "interactive process" with disabled employees to try and find a "reasonable accommodation" for their disability, even if no such accommodation actually exists.

What is an "Interactive Process"?

What this means is if an employer knows one of their employees is disabled and they suspect that employee might need some sort of accommodation (e.g. ergonomic keyboard, wheelchair ramp, a chair to sit in while working, etc.), they must approach that employee and work with them to determine if such a reasonable accommodation exists.

The employee does not have to ask for an accommodation to be entitled to one, because many employees do not know their rights and that should not effect their entitlements under the law.

Additionally, if an employee requests an accommodation for their disability, the employer must work with the employee to either find a reasonable accommodation or determine that no such accommodation exists.

The employer cannot simply ignore the employee or deny the request because the accommodation requested is not feasible. For example, if an employee requests to telecommute and work from home as an accommodation, but the employer legitimately needs them in the office, then even though the requested accommodation might not be "reasonable," the employer is now under a duty to see if there is some other accommodation both sides can agree upon. If the employer simply says "no" and leaves it at that, then a violation has occurred.

California Takes this One Step Further

In California, if the employer refuses to engage in this "interactive process," the employee can sue based on this violation alone. This was the case in Wysinger v. Automobile Club of Southern California (Cal.App.Dist. 2 11/9/2007) No. B191028.

In Wysinger, the jury determined that (1) the employer failed to engage in the required interactive process, but also that (2) the employer did not fail to accommodate the employee's disability because no such accommodation was available. The employer appealed the decision, arguing that these two verdicts were inconsistent, because they were held liable for not working with the employee to agree on an accommodation that did not even exist.

However, the court upheld the award to the employee of over $2 Million, because the employer's failure to even respond to the employee's accommodation requests is a completely separate question and independent from whether an accommodation actually existed or was denied.

Employees must realize that they have a right to a reasonable accommodation for their disabilities at work and employers have to realize that they have to at least try to explore possible reasonable accommodations with an employee who is disabled.

Let me first say that I rarely disagree with decisions by California state or federal appellate courts (at least those I am not personally involved in and therefore biased towards). However, I occasionally come across a case where I just think the court got it wrong.

In Mokler v. County of Orange, et.al. (Cal.App.Dist.4 11/26/2007), No. G036029, a former Orange County employee sued under several different claims, including sexual harassment of her by a county supervisor. While I agree with the court's decision on most of the issues presented by the case, I do disagree on their sexual harassment analysis and decision.

The Facts of the Case

Without going into too much detail, Ms. Mokler had to interact with Orange County Supervisors "on almost a daily basis" as part of her job duties, including Supervisor Chris Norby. Mokler introduced herself to Norby at a budget hearing in 2003 and he promptly asked her if she was married. When she said no, he called her an "aging nun". Mokler reported the incident to her supervisor, but he did nothing about it and actually told Mokler to "be careful".

Mokler next encountered Norby at a hotel where a political event was being held. Norby took her arm, pressed her body up against his and said "in a flirtatious manner: 'Did you come here to lobby me?'" Mokler responded that she was not there to lobby him and he asked "Why not? These women are lobbying me," gesturing to two women standing next to him. Norby continued to hold her body up against his, looked her up and down, and told her she had "a nice suit and nice legs". Mokler was finally able to push her self away from him and again went to her supervisor who again told her to "be careful" and further suggested she "needed 'to win him over'".

Mokler's final encounter with Norby occurred in his office. When she arrived, he put his arm around her and told her she looked "nice". He walked over to a large map on the wall and asked her where she lived. When she hesitated, he "demanded she provide her exact address." He put his arm around Mokler again and rubbed her breast with his arm until she pushed herself away from him and apparently a male co-worker interrupted them.

The Trial Court's Decision

The jury found in Mokler's favor on her sexual harassment claim against Norby, but awarded no damages to her for the claim. While uncommon, this does occur where an employee suffers no economic damages as a direct result of the harassment and they are unable to prove any emotional distress or other special damages. However, the trial court ultimately "entered judgment on this claim against Norby, but nonetheless declared him the 'prevailing party' and awarded costs in his favor."

In California sexual harassment cases, the "prevailing party" is entitled to attorney's fees and costs, but I am still scratching my head on how Norby had a judgment entered against him and is still considered to have "prevailed".

The only reason for this I can come up with is that there as an offer made under California Code of Civil Procedure 998.  Under that statute, if a party offers to settle for a set amount, the offer is rejected, and then the other party gets less than was originally offered to them, the opposing party can get their costs reimbursed.  However, this is not mentioned anywhere in the opinion and there are several reasons why even this does not make sense as a reason.  But this is not the point of the post, so I will let it go...

The County appealed several of the trial court's rulings, including the finding of sexual harassment by Norby for creating a "hostile work environment".

The Appellate Court's Decision

The appellate court reversed the trial court's decision, finding that no hostile work environment was created by Norby. The court ruled that Norby's conduct was not "severe or pervasive" enough to justify the trial court's finding that sexual harassment occurred.

It is extremely rare to find a case where both the jury and the trial court found that sexual harassment occurred and the appellate court reverses that decision. In almost all cases that are reversed like this, it is usually very clear that sexual harassment did not occur and the jury got it wrong. I would submit to you that in this case the jury was right and the appellate court was in error.

The appellate court based its decision on a number of factors, including their findings that the incidents "involved no physical threats," "the touching...was brief and did not constitute an extreme act of harassment," and the demand for her address was "brazen," but "[did not create]...a hostile work environment."

To me, if a manager rubs a subordinate's breast, this does constitute "an extreme act of harassment". This is sexual assault, plain and simple, which is punishable as a crime in California! How this conduct could ever not qualify as "severe" or "extreme" is beyond me. Further,holding her body up against his and telling her she has nice legs also borders on extreme.

The court suggests that no "physical threats" occurred. However, when a supervisor grabs an employee's breast after demanding to know where she lives and getting no response, to me this certainly does qualify as a "physical threat".

Additionally, while it is unclear whether Mokler brought her sexual harassment claim against just Norby or against Orange County as well, I believe the county should have liability here. When Mokler complained to her supervisor about Norby's conduct, he simply told her to "be careful" and that she "needed to win him over." I do not know whether these remarks were intended to suggest that she go along with Norby's behavior or if this was a veiled threat against her for complaining, but the way the court's opinion reads it seems the county did absolutely nothing to stop Norby's conduct and possibly tried to stop her from bringing it up.

This is simply one man's opinion, but I call them like I see them and to me this case was decided incorrectly by the appellate court. I do not know if Mokler plans to file an appeal, but I would be very interested to see what the California Supreme Court would decide after reviewing the case.

Sometimes employees use their employer's e-mail address or computer to contact us. This is understandable, especially for long-term employees who spend most of their waking time at work or using a company-issued computer at home.

The problem is that using an employer's computer or e-mail address to communicate with your attorney might mean these communications are not confidential and may have to be divulged in future litigation.

The Sacred "Attorney-Client Privilege"

The "attorney-client privilege" is sacred in our legal system. This rule of evidence assures that anything you say to your attorney is confidential and nobody can make you or your attorney disclose what was discussed.

There are, of course, narrow exceptions to this rule that communications between an attorney and their client are privileged. The major exception is that any communications also involving a third party are not.

For example, if you and your attorney have a conversation about your case in a crowded elevator and someone overhears it, the conversation is not privileged.

This is because in a crowded elevator you have no reasonable "expectation of privacy", which is a requirement for the attorney-client privilege to apply. If the conversation is not "private", it is not "privileged.

The Problem

Most of our clients come to us after they have been terminated by their employer, so these issues do not arise, but occasionally an employee is savvy enough to come to us when things start to go wrong at work (which is always a good idea, by the way).

The problem is that if you use a company computer or e-mail address to communicate with your attorney, you could accidentally destroy the attorney-client privilege, much like if you had the same conversation in a crowded elevator.

The reason for this is that most employers have agreements they make their employees sign when they are hired giving their employer permission to monitor their e-mail and other activities on corporate computers.

The theory goes that if you know someone might be monitoring your e-mail, then the e-mail is not private and therefore not privileged. However, the main question here is whether the employee "knows" they might be monitored when they send the e-mail.

The Law

California Evidence Code 917(b) states that "electronic communications" do not lose their privilege "sole[ly]" because they are electronic in nature and third parties (e.g. Yahoo, Google) involved in their transmission "may" be able to access them. However, the privilege still might be lost if the e-mails in question are not considered "private".

I am unaware of any California case that deals with this issue directly (please let me know if you are). However, the case of In re: Asia Global Crossing, Ltd, et. al, a New York federal case, is one of the leading opinions on the subject. It also happens to mention Evidence Code 917(b), which was modeled after an identical New York Statute.

The Court in Asia Global Crossing established a number of factors to examine in cases such as these, many of which subsequent courts have used to analyze similar cases. These primarily include whether the company warns its employees that their e-mail or computer use may be monitored and whether the company actually does monitor its employees' use.

Every Situation is Different

Analyses in these situations are extremely fact-intensive. For example, employees are often told by their employers to sign a stack of documents upon hiring and there might be a one-sentence warning buried in the employee handbook stating that e-mail might be monitored.

If there are no further notices to an employee that their employer may monitor them and ten years later that employee sends their attorney an e-mail on their company computer, it is quite possible that the employee has a legitimate expectation of privacy.

However, if an employer regularly reminds its employees that e-mail traffic is monitored, such as a warning that appears every time an employee signs into their computer, it is possible that no legitimate expectation of privacy exists.

Conclusion

We have a bold warning against communicating with us using corporate e-mail or hardware on our "Ask Us a Question" page, but sometimes clients come to us from other sources or simply do not read the warning before submitting their question.

The best way to avoid all of the headache involved in fighting over these sorts of things in litigation is to simply make sure any electronic communication with your attorney is done from home using a personal computer and e-mail account.

Yesterday the California Supreme Court heard arguments in Ross v. Ragingwire Telecommunications, Inc.

In this case, the employee was refused employment because his pre-employment drug test came back positive for marijuana. The employee had been using medical marijuana at the direction of his physician to deal with lower back strain and muscle spasms.

Case Background

Under California's Compassionate Use Act, patients cannot be prosecuted under state law for using or possessing medical marijuana.

However, while federal authorities do not usually pursue prosecution against those who simply use marijuana and do not sell it, the federal Controlled Substances Act still makes possession of marijuana illegal.

California's Fair Employment and Housing Act ("FEHA") makes it illegal for an employer to terminate an employee as a result of their disability or to fail to "reasonably accommodate" their disability.

The collision of these three laws is messy and the answer as to which should prevail is very unclear.

Criminal Law Meets Employment Law

The Supreme Court now has to interpret the FEHA while considering the two drug laws as a backdrop.

To simplify the discrimination issues in terms of a "normal" disability discrimination case, just substitute the word "Vicodin" for "marijuana". Generally, an employer could not terminate an employee for using Vicodin in connection with their disability.

Under these facts, the employee would have a fairly sound disability discrimination case under California law. However, the fact that marijuana use or possession is illegal under federal law complicates things considerably.

Employment Law Meets Criminal Law

For the Court to hold in Ross' favor, they would essentially prohibit employers from terminating employees for engaging in what is essentially criminal conduct.

The FEHA does not really address whether employers must allow employees to engage in illegal conduct outside of work as part of a "reasonable accommodation" for a disability.

Basically, the law is silent on this issue, but this analysis could turn on the word "reasonable". Is allowing an employee to break the law at home on their own time reasonable?

I do not pretend to know the answer to that question.

My Opinion

If I was deciding this case, I would say that the question of legality or illegality on the part of the employee does not enter into the analysis for the purposes of FEHA liability. Illegality should only be considered if it affects the employer.

It is important to note that Ross only used the marijuana at home and did not bring it to or use it at work. As long as the employee does not use the medical marijuana during work hours, I think it is no concern of the employer. I bring this caveat up because if they were to use at work, the employer would essentially be helping the employee commit a crime if they provide a place or time to use it.

I also think that employers would not have to allow the employee to work if they are under the influence at work and doing tasks that would make them dangerous to themselves or others.

Many of the opponents to Ross point to this as a major issue. How can an employer know if the employee has recently used and is safe to have at work? However, I think this is a red herring, because this would also be a problem where an employee has to use Vicodin, which arguably can impair function much more than marijuana does.

The Court's Opinion

Of course, my opinion does not matter much. What really matters here is what the California Supreme Court thinks.

Based on the transcripts from the arguments yesterday, it roughly seems to be a 3-3 tie among the justices present in deciding the case.

In a dramatic twist, Justice Carol Corrigan was out with the flu and could not attend oral arguments. She will be watching a videotape of the arguments to help her decide, but we have no way of guessing what she thinks of the case.

The Court has 90 days to issue a ruling. It should be very interesting reading.

What do you think? Let us know in the comments below...

Defense attorneys for large corporations in California have been trumpeting the case of In re Farmers Ins. Exch., 466 F.3d 853 (9th Cir. 2006) for the proposition that insurance claims adjusters are now exempt employees who are not entitled to overtime pay. However, this is not true when it comes to employees in California.

Case Brought in Oregon

Although the case is a 9th Circuit opinion, the case was brought in Oregon. Sometimes in California we forget that there are other states in the 9th Circuit besides us. As it happens, none of the Plaintiffs had a connection to California.

Case Decided Under Federal Law

This case was not only brought in another state, but also under federal (not state) overtime laws.

In 2004, the Bush Administration's Department of Labor issued new federal overtime regulations that were very anti-employee, resulting in many employees being re-classified as exempt from overtime pay.

Under these new laws, the employees who brought the In re Farmers Ins. case lost their case.

Ruling Does Not Effect California Employees

For virtually all intents and purposes, the In re Farmers Ins. case (and the 2004 change in federal law) does not affect the rights of California employees to overtime pay.

This is because California law is much more employee-friendly when it comes to guaranteeing overtime for most employees. Many employees who would be considered exempt under federal law are clearly non-exempt under California law.

The case of Bell v. Farmers Ins. Exchange, 115 Cal.App.4th 715 (2004) came to the opposite conclusion as the Court in In re Farmers Ins. While the defendant in both cases was actually the same company, the Bell case was decided based on California law (not federal).

So, in California insurance claims adjusters (and most other employees) are still entitled to overtime pay, despite what you may have read elsewhere.

Q: One of my co-workers has asked me to testify for in her discrimination case against our employer. I want to help, but I am afraid that my employer will retaliate against me if I help her.

--Want to Help But Scared (CA)

A: Both state and federal discrimination laws prohibit retaliation by employers against employees for participating in an investigation or prosecution of an employment discrimination or harassment case.

Investigation Outcome Irrelevant

Even if it turns out that the employee who complains about discrimination was not discriminated against, or even if that employee turns out to be lying, you are still protected from retaliation.

The law protects the act of speaking up for someone else, which is evaluated independently of the underlying discrimination claim.

Retaliation Can Be Subtle

This year's landmark Supreme Court case of Burlington Northern v. White, 126 S.Ct. 2405 (2006), clarified and strengthened protections for employees against retaliation in discrimination cases.

The Court decided that any actions by an employer that would "dissuade" a "reasonable employee" from making or supporting a discrimination complaint is illegal retaliation and proper grounds for that employee to sue.

What this boils down to is that if you are retaliated against and in hindsight you would not have participated in the investigation if you had known what your employer would later do to you for it, then those actions are likely illegal.

Co-Worker Assistance is Crucial

One of the major motivations for the Court in the Burlington case was the strong public policy in this country to encourage those employees who witness discrimination against others to speak up and testify if needed.

It is important for these witnesses to feel comfortable testifying against their employers on other employees' behalf if there was wrongdoing.

Q: There are rumors circulating at work that our boss is spying on employees with video surveillance. Is that legal?

--Private Eyes are Watching Me (CA)

A: The answer to your question is: it depends. Whether or not video surveillance at work is illegal depends largely upon the facts in a given situation. The main question is whether or not you have a "reasonable expectation of privacy" in the area that is being taped.

Examples

If the surveillance is occurring in a large open area where many people are working or passing through, such as a warehouse, a parking lot, or a retail checkout counter, it is less likely that an employee would have a right to privacy from surveillance there.

On the other end of the spectrum, it is very unlikely that an employer could argue there is no reasonable expectation of privacy in the employee bathroom or changing room.

The "Grey Areas"

The real "grey area" in these types of situations is locations like inside of an employee's private office, cubicles and other, more private areas.

A recent California court decision (Hernandez v. Hillside, Inc.) has helped clarify the situation, but the issue still depends largely on the specific facts of a case.

In cases dealing with such locations, an employer's policies become very relevant. If an employer has a clear, well-communicated policy that you may be videotaped at any time in any area of the building, this would be strong evidence in the employer's favor that you do not have a reasonable expectation of privacy anywhere in the building.

These types of policies are currently pretty rare, but other factors also come into play. For example, whether there is a door to your office, whether there is a lock on the door and the number and position of windows in the office are important factors.

A Simple Test

All of these factors basically are parts of the same basic question: does an employee have a reasonable expectation of privacy in a particular area at work.

One simple way to look at it is ask yourself whether or not you would reasonably expect to be able to change your clothes to go to the gym in a certain location and not expect to be interrupted or seen, such as in your private office with the door closed and the window blinds drawn.

If you would be surprised or offended to be watched or seen changing there, it is likely that you have a reasonable expectation of privacy there and video surveillance under those circumstances would be illegal.