Attorney-Client Privilege in the Wage and Wage & Hour Context; Legal Consequences of Offering a Severance Agreement and Release
The Goldstein Law Firm
December 2009 Newsletter
“Attorney-Client Privilege in the Wage and Wage & Hour Context; Legal Consequences of Offering a Severance Agreement and Release; Punitive Damages are not as Punitive as They Use to Be in California; and Why Every Employer Should Have Employment Arbitration Agreements”
By: Charles H. Goldstein, Esq.
The Goldstein Law Firm
1. California Supreme Court Protects Client Communications To Attorneys Involving Wage and Hour Audits
Until the California Supreme Court issued its recent decision in Costco Wholesale Corporation v. Superior Court, decided November 30, 2009, there was serious concern that if an Employer communicated information to their attorneys about the job duties performed by employees in order to determine if the employees were exempt from federal and/or state wage and hour statutes – the facts communicated to the attorneys could be subject to forced disclosure during the course of pretrial discovery in a wage and hour lawsuit. In Costco Wholesale Corporation, the lower Court of Appeal had ruled that the attorney had to disclose the factual basis of the attorney’s opinion and not the opinion itself regarding wage and hour exemption. This decision required the attorney to disclose the factual information provided to the attorney upon which the legal opinion was given. In rejecting the Court of Appeal’s reasoning, the California Supreme Court concluded that the factual information communicated by Costco to their Attorney, when seeking the Attorney’s legal opinion, was clearly covered by the attorney-client privilege and was not subject to forced disclosure in discovery.
The broader lesson to be learned from Costco Wholesale Corporation is that the best defense to a U.S. Department of Labor or State Labor Commissioner wage and hour audit and/or costly wage and hour class action is to have your own audit conducted by a knowledgeable attorney, who offers the protections of the attorney-client relationship, and take self-corrective actions, if necessary before any lawsuit is filed. In contrast, this would not be the case if a wage and hour classification study was performed by a person who is not an attorney and there is no attorney client privilege.
2. When You Are Giving a Departing Employee Severance Protect Yourself with a Well-Drafted Severance Agreement and Release
No federal and/or state law requires an Employer to pay severance to an employee who voluntarily or involuntarily leaves employment. However, a concern existed that by merely offering a severance agreement in which the departing employee releases the Employer from claims of discrimination and harassment and from all other claims – that this might be used as evidence that discrimination and harassment was on the Employer’s mind when the employee was terminated. Therefore the Employer was motivated by the employee’s improper/unlawful purpose.
In Thomas Mangano v. Verity, Inc. issued on November 16, 2009, the employee wanted to have the trial court admit into evidence the severance agreement the employee had rejected to prove the Employer’s liability. The trial court and the Court of Appeal rejected the employee’s attempt to prove that the Employer was liable because the employer had offered settlement in exchange for a release of all claims including the claim on which the employee was presently suing the Employer. The Court cited broad provisions of the California Evidence Code section 1152, that prevented the admissibility of a an offer of settlement for humanitarian reasons and barred the employee from introducing the severance agreement offered by the Employer, but not accepted by the employee, to prove the Employer’s liability.
This ruling is limited to California Employers who are sued in state court, or California Employers who are sued in Federal Court and utilize a California choice of law provision. It should be noted that unlike California Evidence Code section 1152, the federal statute covering settlement agreements – Federal Rule of Evidence (“FRE”) 408 – expressly applies only where a “claim” was “disputed” at the time of the offer. If there was no disputed claim, an Employer’s severance agreement might be admitted in federal court utilizing FRE 408 to prove liability under Cassino v. Reichhold Chemicals, Inc. (1987), a United States Court of Appeals Ninth Circuit case.
3. Punitive Damages Are Not as “Punitive” as They Use To Be in California
In Roby v. McKesson 2009 DJDAR 16712, the facts giving rise to a punitive damage claim were as follows: Plaintiff Roby worked for Defendant McKesson Corporation from 1975 to 2000. At the end of her career with McKesson, Roby was a customer service liaison at a local distribution center, processing forms and handling customer problems related to product delivery. Roby received favorable performance reviews. Starting in 1997, Roby began experiencing “panic attacks” that temporarily (and on short notice) restricted her ability to perform her job. During a panic attack, Roby suffered heart palpitations, shortness of breath, dizziness, trembling, and excessive sweating.
During this period, McKesson instituted a complex attendance policy that required 24 hour advance notice for all absences, including medical absences and also imposed progressive levels of discipline based on the number of occasions an employee accrued in any 90-day period. McKesson’s attendance policy operated to the disadvantage of employees who, like Roby, had disabilities or medical conditions that might require several unexpected absences in close succession. Roby accrued a large number of occasions in a relatively short time span, and most of them were directly or indirectly related to her panic attacks.
Roby’s supervisors were aware that Roby suffered from these unpredictable panic attacks and that many, if not all, of her absences without notice resulted from this condition. Roby’s medication for her panic attacks caused Roby’s body to produce an unpleasant odor, and Roby also developed a nervous disorder that caused her to dig her fingernails into the skin of her arms, producing open sores. Roby’s supervisor made negative comments in front of other workers about Roby’s body odor and also called Roby “disgusting” because of the sores on her arms and her excessive sweating. McKesson eventually terminated Roby because of absenteeism which violated the new McKesson Absenteeism Policy. Roby filed a lawsuit against McKesson and her supervisor alleging: wrongful termination in violation of public policy; harassment in violation of the California Fair Employment and Housing Act (“FEHA”); discrimination in violation of FEHA; and failure to accommodate in violation of FEHA. The jury had awarded the plaintiff $3.5 million in compensatory damages, $500,000.00 against her supervisor, $15 million in punitive damages against McKesson and $3,000.00 against the supervisor.
The Roby Court ruled that a punitive damage award can pass constitutional muster on the facts in this case if there is a one-to-one ratio between compensatory and punitive damages. Therefore, the Court ordered the reinstatement of a single harassment award of $500,000.00 against both McKesson and the supervisor, the reinstatement of the jury’s $3,000.00 punitive damages award against the supervisor, and a reduced punitive damage award against McKesson of $1,905,000.00. This ruling on the constitutional permissibility of punitive damage calculations is good news for California employers because the decision could have the effect of reducing employees’ expectations of eventually receiving a punitive damage “windfall” from an employment case.
However, this decision negatively impacts corporate defendants because the Court retreated from its landmark ruling in Reno v. Baird which held that “commonly necessary personnel management actions … do not come within the meaning of harassment.” The Roby Court stated that “… harassment is generally concerned with the message conveyed to an employee, and therefore with the social environment of the workplace, whereas discrimination is concerned with explicit changes in the terms or conditions of employment. However, it is clear that in some cases the hostile message that constitutes the harassment is conveyed through official employment actions.” (emphasis added). The Court stated that in analyzing the sufficiency of the evidence in support of a harassment claim, there is no basis for excluding evidence of biased personnel management actions so long as that evidence is relevant to prove the communication of a hostile message. This means that even necessary personnel management actions must be reviewed to determine whether they are part of a systemic hostile work environment.
4. Why Every Employer Should Have Employment Arbitration Agreements
Surprisingly, some employers still resist requiring all new employees, employees who receive a promotion and/or a raise and/or employees who sign new employment agreements, to sign enforceable arbitration agreements. This makes no sense and places your decisions at the mercy of a judge and jury. Arbitrators, for all of their faults, rarely award mega dollar damages for employment cases that amount to legally examining employee’s “hurt feelings”. Juries do make such awards based on their emotional biases. By having well drafted legal arbitration agreements, employers will avoid having their decisions second guessed by employee friendly juries and/or unsympathetic/pro-employee judges. Arbitration agreements must be procedurally and substantively fair to both employees and employers and are used to shift the forum of the dispute from a court/jury to an arbitrator. In addition, these agreements do not alter and/or diminish the substantive legal right that employers and employees enjoy under federal and/or state law. Arbitration Agreements merely ensure that these substantive legal rights are decided in a more logical and efficient forum.
For the remainder of 2009 and 2010, make it your top human resource priority to have the following types of employees sign a legally enforceable arbitration agreement: (a) all new employees, and (b) every employee who receives an increase in pay and/or who receives a promotion and/or who signs a new employment agreement. Employers should not rely on arbitration provisions contained in their Employee Handbook or rely on Arbitration Agreements drafted several years ago since they may not be enforceable.
The Goldstein Law Firm
8912 Burton Way
Beverly Hills, California 90211
Telephone: (310) 553-4746
Facsimile: (310) 282-8070