Labor & Employment Update

• OSHA Decides to Stay Out of Home-Based Worksites
• Family/Medical Leave May Expand to Cover Grandparents and Domestic Partners
• Board that Acts Reasonably has Broad Discretion to Decide Whether to Settle Numerous Sexual Harassment Suits
• Plaintiff Cannot Transform a Decision to Quit into a Wrongful Firing
• Employer Must Pay Boss Who Successfully Defended Against Harassment Suit

OSHA Decides to Stay Out of Home-Based Worksites

On February 25, 2000 OSHA issued instructions for compliance in worksites in an employee's home.

• OSHA will not conduct inspections of employee's home offices and will not hold employers liable for employee's home offices, nor does it expect employers to inspect the home offices of their employees.
• If OSHA receives a complaint about a home office, the complainant will be advised of OSHA's policy. If an employee makes a specific request, OSHA may informally let employers know of complaints about home office conditions, but will not follow-up with the employer or employee.
• OSHA will only conduct inspections of other home-based worksites such as home manufacturing operations, when OSHA receives a complaint or referral that indicates that a violation of a safety or health standard exists that threatens physical harm, or that an imminent danger exists, including reports of a work-related fatality.
• Even in these rare circumstances, the scope of the inspection on an employee's home will be limited to the employee's work activities. OSHA does not apply to an employee's house or furnishings.

• Employers are, however, responsible in home worksites for hazards caused by materials, equipment, or work processes which the employer provides or requires to be used in an employee's home.

Family/Medical Leave May Expand to Cover Grandparents and Domestic Partners

On January 26, 2000 the California Assembly passed a bill that, if enacted into law, would expand the coverage of the state family leave act (CFRA) to allow employees who care for sick grandparents, siblings, adult children, domestic partners, or roommates to take up to 12 weeks of unpaid leave to do so. The measure would significantly expand the California Family Rights Act, which currently allows employees to take up to 12 weeks off to care for themselves, a child, parent or spouse suffering from a serious health condition.

If the bill were to pass as currently worded, the "extended family" leave would continue to be available only to employees with more than 12 months of employment, and 1250 hours in the previous 12 months of service to an employer. However, the number of persons in the "care" circle would expand significantly. Grandparents would be included (but for inexplicable reasons not grandchildren). Domestic partners are included -- defined as two adults in a committed relationship who share a common residence , agree to be responsible for each other's basic living expenses, and have filed a Declaration of Domestic Partnership with the employer. The bill would cover parents of adult children who need care, and, most nebulous of all ,-- those who share a common residence with an individual who depends on them for care-taking.

All employers attempting to comply with the California Family Rights Act and its federal counterpart, the Family Medical Leave Act, already understand the tremendous complexity of these laws and the administrative morass they can create. Just when many employers have found ways to comply with the law without becoming involved in their employee's private lives, this new bill would add a new layer of intrusiveness on employers attempting to administer properly protected leaves of absence. Needless to say, we will be following this bill closely and will keep you updated.

Board that Acts Reasonably has Broad Discretion to Decide Whether to Settle Numerous Sexual Harassment Suits

In November 1998, a shareholder read an article in U.S. News and World Report about the troubles facing ICN Pharmaceuticals, Inc., arising from numerous complaints of sexual harassment and misconduct by ICN's CEO, Milan Panic. The article stated that "Panic and ICN shareholders have paid millions in settlements in four separate cases and are at risk for millions more.. In April, with two harassment suits still pending, the board sweetened [Panic's] $644,680 salary with a $1.8 million bonus." Outraged, the shareholder filed a derivative complaint naming Panic and other Board members. In his complaint, he alleged that Panic had breached his fiduciary duties to ICN shareholders by his workplace sexual harassment and that the Board of Directors had breached their fiduciary duties by affirmatively taking steps absolving Panic of responsibility for his behavior and failing to implement proper control mechanisms. Among other things, the plaintiff claimed that the Board breached its duty by settling the suits, awarding a bonus, and providing a loan and subsequent guarantee in connection with Panic's settlement of the lawsuit.

In White v. Panic et al., 2000 WL 85046 (Del. Ch. 2000), the Delaware Court of Chancery held that the Board of ICN Pharmaceuticals Inc. had acted properly and within the scope of the "business judgment" rule when it allegedly used million-dollar settlements and restrictive employment agreements to shield Panic from numerous sexual harassment complaints.

Under corporate law, corporate directors are empowered by the "business judgment" rule to determine whether to settle suits against the corporation if they can show that they are objective enough to fairly review the charges brought by the plaintiffs. If a plaintiff shareholder seeks to substitute his judgment for that of the board, the shareholder must overcome the powerful presumption of the "business judgment" rule before he will be permitted to pursue the derivative claim. The plaintiff must show that the directors are unable to make an impartial decision regarding the litigation.

In White, in ruling to dismiss the shareholder derivative suit, the judge found that the ICN directors were objective enough to have fairly reviewed the charges against the CEO. The fact that ICN was sued, settled the cases, and chose not to seek contribution from the alleged perpetrator did not provide a sufficient basis to infer bad faith conduct on the part of the directors. Indeed, the judge accused the shareholder of making "moralistic, conclusory charges of misconduct" that the directors "turned a blind eye on the hostile work environment." The court stated that the shareholder's different judgment on what should have been done did not create a reasonable doubt that the directors' actions in relation to the allegations of sexual harassment were excluded from the protections of the business judgment rule.

Although the plaintiff did not characterize the suit as a "failure to supervise" action, the judge stated that the director defendants would face liability if the suit showed "a lack of good faith as evidenced by sustained or systematic failure.to exercise reasonable oversight." In other words, the Board needed to show that it took its action in good faith. The Board easily satisfied the business judgment rule and demonstrated its good faith because it had created a special committee immediately upon learning of the allegations against the CEO, and this special committee had hired a reputable counsel to investigate and make a report to the Board. The Board's immediate action protected it from shareholder liability.

Plaintiff Cannot Transform a Decision to Quit into a Wrongful Firing

Joan Gallo was City Attorney, George Rios was Assistant City Attorney, and Ralph Greene was Chief Trial Attorney. David Huskey, the plaintiff, was a Senior Deputy City Attorney and reported to Ralph Greene. In March 1994, Huskey and his boss Greene worked together on an important case. About a week before trial was scheduled to begin, Gallo called Huskey to say that his boss, Greene, was an alcoholic and that he might be in the midst of a relapse. The City Attorney asked Huskey to report to her any suspicion he might have that Greene had been drinking. Huskey was reluctant to do so because he feared that Greene, who was his boss, might find out and resent him. However, during the trial Huskey did suspect Greene of drinking and did report the incident to Gallo.

Initially, after the trial Huskey received a performance review from Greene of "excellent." But after a few months, he noticed that his relationship with Greene began to decline. He began to receive less favorable performance evaluations. Because of his concern about Greene's dislike of him, Huskey interviewed for another job. When he mentioned it to Gallo, she told him that he should stay. Later, when he confronted Gallo about his status in the office, she explained that she, Rios and Greene were reassigning some of his cases because they had lost confidence in him. Gallo told Huskey that he was free to stay, but if he did he would be referred to counseling and would be given only insignificant cases. Huskey resigned.

Huskey sued claiming that he was forced to quit and that he did so for reasons that implicated "public policy." In Huskey v. City of San Jose, 2000 WL 204770 (9th Cir.(Cal.)) the Court of Appeal held that Huskey was first required to demonstrate that any reasonable person in his position would have quit because the working circumstances had become intolerable. Huskey was not demoted or disciplined, nor did he receive a cut in pay. Although Gallo once responded affirmatively when Huskey asked her if he should leave the office, she also stated in a memo that if he so desired he was welcome to stay. Huskey alleged that he was told he would be referred to counseling, he was given cases beneath him, was criticized, and was given the cold shoulder by colleagues. These were all found by the court to be insufficient reasons for quitting.

Even if Huskey could have shown that his quitting was the equivalent of a firing, the court also found that he had failed to introduce evidence demonstrating a connection between his statements to Gallo (to the effect that Greene was an alcoholic) and any adverse employment action he may have suffered. According to the court, to conclude that Greene, plaintiff's supervisor, was aware of plaintiff's statements to Gallo, and that Greene therefore retaliated against plaintiff because of them, would have been to engage in the logical fallacy of "after this, therefore because of this." In other words, one thing following onto another does not mean the two events are causally linked. Having received an excellent evaluation from Greene immediately after the trial tended to demonstrate that Greene was not aware of the comments and was not retaliating against Huskey.

Employer Must Pay Boss Who Successfully Defended Against Harassment Suit

On March 3, 2000 the California Court of Appeal ruled in Jabobus v. Krambo Corporation, 2000 WL 236433 that if an employee prevails in a sexual harassment suit, the employee may be entitled to indemnification from his employer for the costs incurred fighting the claim.

Krambo Corporation was an investment banking firm. Its former treasurer and CFO, Russell Jacobus, was sued (along with Krambo) by a secretary, Vera-Aviles, who claimed that Jacobus had sexually harassed her. Krambo settled the claim as to the firm but Jacobus insisted on "proving his innocence." Jacobus continued fighting and eventually won a jury verdict. When Jacobus made the decision to fight on, Krambo refused to continue to pay for his attorney. Jacobus incurred upwards of $82,000 in legal costs defending himself.

The jury had found that the sexual banter and exchange of sexually explicit reading materials between Jacobs and the secretary was consensual. The appellate court then reasoned that because Jacobus had been found not guilty of sexual harassment, his conduct with the secretary, though sexual in nature, was legal conduct "broadly incidental" to their employment. In light of the verdict, the court reasoned that the entire consensual interchange between Jacobus and Vera-Aviles was "simply part of the social intercourse that occasionally occurs in modern office settings." The court said that social interactions among employees, even those of a private nature, are "broadly incidental" to the enterprise of an employer and thus, the employer, was obligated to defend Jacobus.

Section 2802 of the California Labor Code provides: "An employer shall indemnify his employee for all that the employee necessarily expends or loses in direct consequence of the discharge of his duties as such, or of his obedience to the directors of the employer, even though unlawful, unless the employee, at the time of obeying such directions, believed them to be unlawful." The statute requires an employer to pay any judgment entered against an employee for conduct arising out of the employment and pay for a legal defense. Therefore "an employer is vicariously liable for risks broadly incidental to the enterprise undertaken by the employer - that is, for an employee's conduct that in the context of the employer's enterprise is not so unusual or startling that it would seem unfair to include the loss resulting from it among other costs of the employer's business."

The law as to whether supervisors can be sued personally in court for sexual harassment is unsettled. Appellant courts have said such suits can be brought and clearly Jacobus is a case where that occurred, but the California Supreme Court has not addressed the issue. The Jacobus opinion points out one of the many Catch 22 situations an employer finds itself in when supervisors can be sued personally.