California Supreme Court to Hear Three Employment-Related Cases

May 23, 2007

California's highest court is expected to hear, in the next few weeks, oral argument in three cases with far-ranging implications for employers. Here is a brief overview of the cases and what the outcomes could mean to employers.

Green v. State of California (S137770)

On May 31, the Court will hear arguments in a disability discrimination case under California's Fair Employment and Housing Act (FEHA). The question before the court is whether an employee bears the burden of proving that he or she is capable of performing the essential duties of the job, or whether the employer has the burden of proving that the employee was not capable of performing those duties.

Dwight D. Green worked for the State of California as a stationary engineer at a correctional facility for more than 12 years before he was placed on disability retirement. The jury found that in failing to provide Green with reasonable accommodation for his hepatitis C, the State discriminated against him in violation of FEHA. The court of appeal held that it was the employer's burden to prove, as an affirmative defense, the employee's incapacity.  The court approved the trial court's judgment that there was substantial evidence to support the jury's finding of disability discrimination.

If this ruling stands, employers will have the burden of proving that employees with a disability lack the capacity to perform the job. Employees who bring a disability discrimination claim will no longer be required to prove their capacity to perform their job duties.

Gentry v. Superior Court of Los Angeles County (Circuit City Stores) (S141502)

The California Supreme Court will hear oral arguments in the Gentry case on June 5. This case concerns the enforceability of a preemployment arbitration agreement that prohibits employee class actions concerning alleged violations of California's wage and hour laws.

Robert Gentry filed a class action lawsuit against Circuit City, claiming it violated the State's Labor Code and Business and Professions Code by illegally misclassifying him and other salaried customer service managers as "exempt managerial/executive employees" not entitled to overtime pay. Gentry claims that they were nonexempt nonmanagerial employees entitled to be compensated when they worked more than eight hours a day or 40 hours a week.

As part of his employment agreement, Gentry failed to opt out of an arbitration agreement that contained a class action waiver providing, "The Arbitrator shall not consolidate claims of different Associates into one proceeding, nor shall the Arbitrator have the power to hear arbitration as a class." Gentry later challenged the agreement as unenforceable.

At the time there was a split of authority in California on the enforceability of class action waivers in consumer contracts. In Szetela v. Discover Bank, 97 Cal.App.4th 1094 (2002), the court held that an arbitration provision in a credit card agreement that prohibited class actions was unfair and unconscionable, and thus unenforceable. In Discover Bank v. Superior Court, 105 Cal.App.4th 326 (2003), however, the court disagreed with Szetela and held that where there is a valid arbitration clause the trial court could not strike a class action waiver from the arbitration agreement.

The court of appeal elected to follow Discover Bank v. Superior Court and upheld the arbitration agreement in Gentry. The Supreme Court, however, granted Gentry's petition for review in light of its 2005 decision in Discover Bank that class action waivers in consumer contracts are unenforceable. Discover Bank v. Superior Court, 36 Cal.4th 148, 153 (2005). 

If the high court overturns the lower court ruling in Gentry, employers will be at greater risk of lawsuits even in cases where waivers requiring arbitration exist.

Prachasaisoradej v. Ralphs Grocery (S128576)

On June 6 the Supreme Court will hear arguments in this case. At issue is whether an employee bonus plan—based on a profit figure that is reduced by a store's expenses—violates California's Business and Professions Code, Labor Code, or the State's Code of Regulations.

Prachasaisoradej was employed by Ralphs as a produce manager. Throughout his employment, he and other similarly situated employees were paid a bonus that was calculated using a formula that deducts expenses and losses due to cash shortages, merchandise shortages and shrinkage, workers' compensation, tort claims by nonemployees, and other losses beyond the employees' control. He claims that such expenses are required by law to be borne by employers, and that Ralphs wrongfully deducts expenses from the wages of their employees.

Ralphs countered by stating that the bonus plan was the product of collective bargaining and Prachasaisoradej's claims were therefore preempted by section 301 of the federal Labor Management Relations Act (LMRA).

The trial court agreed that Prachasaisoradej's claims were preempted by LMRA. However, the court of appeal held that his claims were not preempted because they involved independent rights that neither derive from nor require interpretation of a collective bargaining agreement. His claims stated valid causes of action under California law, the court said.

Should the court of appeal ruling prevail, employers will be at risk of litigation in spite of a valid collective bargaining agreement. 

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