Labor & Employment Update: April 1998

Court Gives Expansive Definition Of "Supervisors" For Purposes Of Strict Liability Under The FEHA

A California court of appeal has provided a broad definition of who is a "supervisor" in a case for sexual harassment brought under the Fair Employment and Housing Act. In Lai v. Prudential Insurance Co. of America, 62 Cal.App.4th 220, the court ruled that an individual in the "chain of command" over an employee, who has "sufficient actual or reasonably perceived control or direction in the work environment to significantly affect an employee's employment status," is a supervisor for purposes of holding an employer liable under the FEHA.

Justine Lai was an insurance sales agent for Prudential, who claimed that she was forced by her sales manager, Mr. Chiman Dialani, into having sexual intercourse with him, and was subjected to other sexual comments and contact. Within one week of learning of the complaints, Prudential investigated the charges, found them to have merit, and terminated Dialani. When Lai sued for harassment under the FEHA, the issue became whether Dialani was a "supervisor," thereby making Prudential liable for his harassing conduct, or merely a co-employee, making Prudential liable only if it "knew or should have known" of the behavior.

Prudential argued that Dialani was merely a co-employee, because he did not have authority to hire, promote, terminate, demote, or otherwise discipline the sales agents; he could not set compensation or transfer the agents; he did not set corporate policy at any level. Prudential conceded that Dialani trained sales agents, worked with them in their sales efforts, and reported their progress to his supervisors in management. Lai countered that Dialani oversaw sales agents' performance, assisted in general management and personnel administration, recommended new hires, promotions, terminations and transfers, approved sick leaves and vacations, scheduled mandatory sales meetings and met with agents to discuss their sales activities.

The Court rejected as overly "narrow" Prudential's argument that the definition of "supervisor" be limited to include only those who act as the employer "in decisions involving hiring, promotions, discipline and like substantial matters." Instead, the Court listed several "objective criteria" to be considered in determining whether an individual had been invested with the requisite actual or reasonably perceived power to be deemed a "supervisor" under the FEHA:

  • Has a title, such as "supervisor" or "manager" been conferred, coupled with the power to direct the work of other employees?
  • Do the duties include the right or responsibility to oversee, evaluate, or train other employees?
  • Is there actual or perceived power to discipline or recommend discipline of other employees?
  • Is there power to significantly influence working conditions, such as by increasing or decreasing work duties?
  • Is the employee charged with day-to-day supervision of the work environment?

Applying the above factors, the Court held that Dialani was a supervisor within the meaning of the FEHA, and that Prudential was therefore strictly liable for Dialani's sexual harassment. In finding liability, the Court rejected Prudential's fallback argument that the Court, in interpreting the FEHA, should follow federal jurisdictions' interpretations of Title VII and not apply a strict liability standard when considering cases involving supervisory hostile work environment harassment. The Court held that it is "clear" that strict liability is the standard in California under statutory and case law, both for a hostile work environment and for "quid pro quo" harassment involving demands for special favors.

Scope Of Domestic Partners Benefit Ordinance Limited

In a significant victory for its clients, Brobeck, Phleger & Harrison LLP convinced Northern District Court Judge Claudia Wilken to carve away much of the San Francisco domestic partners benefits ordinance, in a 95-page ruling issued on April 10. The ordinance, which became effective in June 1997, requires employers contracting with the City of San Francisco to offer the same benefits to domestic partners of employees which they offer to spouses of employees, all over the country. The ordinance was challenged by two airline trade associations on behalf of their member airlines, many of whom contract with the city to obtain leases and permits at San Francisco International Airport. The airlines, represented by Brobeck, claimed that the ordinance was preempted by three federal laws: the Airline Deregulation Act, the Employee Retirement Income Security Act (ERISA), and the Railway Labor Act. In addition, the airlines claimed that the ordinance violated Constitutional provisions limiting the regulatory powers of state and local governments. The ruling was issued after six months of deliberation over cross-motions for summary judgment filed by the parties. Despite conflicting reports in the media, the ruling serves, in Judge Wilken's words, to "largely invalidate the ordinance."

The issue decided was whether San Francisco had reached beyond the limits of its power by both imposing requirements on employee benefit plans governed by federal law and by attempting to regulate contractors' conduct throughout the United States. "On both counts," the Court held, "the answer largely is yes."

The Court ruled that "the Ordinance is unconstitutional as applied to out-of-state conduct that is unrelated to the purpose of a City contract." This ruling limits the reach of the ordinance to contractors' operations in San Francisco or on city-owned property elsewhere. In addition, the city can apply the ordinance to contractors' locations outside of San Francisco only where the contractor is actually performing work on its contract with the city.

The Court also ruled that "the City is preempted as applied to ERISA plans [which provide ERISA-covered benefits, such as health and pension benefits] if the City is exercising more economic power than an ordinary consumer could exercise." Because the city has extraordinary power as proprietor of the airport, "the Ordinance as applied to Airport contracts is entirely preempted" as it applies to ERISA-covered benefits.

Because of the Court's finding of ERISA preemption, "the ruling covers virtually all of the benefits offered by the airlines to their employees," according to Brendan Dolan, the Brobeck partner who filed the action.

For most employers, health and retirement plans are among the most costly benefits offered to employees and their dependents. By finding ERISA preemption in all instances but those where the city acts as "an ordinary consumer," the Court has significantly diminished the impact of the ordinance. In addition, the Court made very clear that the city cannot regulate employment practices of city contractors which occur outside the state. Read the Court's decision.

Mental Disorder Must Limit Major Life Activity To Constitute "Disability" Under FEHA

Federal law, codified in the Americans with Disabilities Act ("ADA"), states that in order to claim either a physical or mental "disability," an individual must have an impairment that "substantially limits one or more major life activity." On its face, however, the California Fair Employment and Housing Act ("FEHA") only requires that physical impairments limit a "major life activity" before qualifying as a "disability;" there is no such requirement specified for mental disorders. California Courts of Appeal have disagreed as to whether the Legislature intended to provide this disparate protection for mentally impaired employees. In Muller v. Automobile Club of Southern California, 61 Cal.App.4th 431, a California court of appeal ruled that FEHA protection extended only to employees with mental impairments that impaired a major life activity, conforming to Federal law.

Muller involved a claims adjuster who left work due to fear and anxiety caused by threats from a customer and insensitive remarks from co-workers regarding the threats. After the Auto Club complied with most of Muller's requests for accommodation, she received a psychiatric reevaluation, which concluded that Muller would not be able to return to work at the Auto Club . although she was fully able to work elsewhere. After receiving vocational rehabilitation from the Auto Club, and beginning another job, Muller sued for disability discrimination under the ADA. When the federal court dismissed her ADA action on the basis that she was not disabled under the ADA, since no "major life activity" was impaired, Muller filed a complaint in state court claiming harassment of a disabled individual under the FEHA.

The state court was faced with an individual seeking recovery for disability harassment under the FEHA, where such protection was clearly unavailable under corresponding federal law. The court found that the California legislature intended to conform California's disability discrimination statutes to the Federal law by extending protection only to persons whose mental impairment substantially limits a major life activity. Since Muller's FEHA claim sought, in essence, to relitigate an identical Federal claim, the court found that her case had properly been dismissed.

The court of appeal reviewing this determination expressly disagreed with the decision in Pensinger v. Bowsmith, Inc., 60 Cal.App.4th 709 (1998) earlier this year, where another appellate panel refused to look beyond the statutory language of the FEHA, and found that California law provided broader protection for mental than for physical disorders. Employers should not rely on either case too heavily, since these inconsistent opinions may not be resolved until the California Supreme Court has an opportunity to take up the issue.

Court Questions Use Of Statistical Evidence In Layoff

In Wado v. Xerox Corporation, 75 F.E.P. 1807 (W.D.N.Y. 1998), a United States District Court raised interesting questions concerning the use of statistics to prove discrimination claims resulting from reductions in force. The court found that the plaintiffs' mere proof of a statistical disparity between the impact of a RIF on 40-and-over employees versus those under-40 employees was insufficient to show any inference of discrimination strong enough to merit a trial.

In 1994, Xerox began implementing a worldwide layoff, eliminating jobs for 10,000 of the company's 97,500 employees. In order to select employees for layoff, managers were asked to rank employees in their divisions in four areas: work quality, work speed, work orientation, and work skills. The employees were ranked against each other and the lowest-ranking employees were terminated.

Fifteen former Xerox employees who lost their jobs brought claims under the Age Discrimination in Employment Act, claiming that the RIF process was a sham. In support of their disparate impact claim, the plaintiffs relied entirely upon one expert's statistical analysis reports. The expert concluded that the layoffs resulted in a disparity between the percentages of employees who were laid off in the 40-and-over group and those in the below-40 group.

The court found the statistical analysis was fundamentally flawed. The expert failed to account or control for possible nondiscriminatory reasons for the disparities which he discovered specifically, the different performance and skill ratings assigned to the employees. When asked why he had not accounted for the performance ratings, the expert responded that the ratings were themselves a "tool" used by Xerox to deliberately downgrade older employees' scores and identify them for layoff.

The Court stated that a failure to account for possible nondiscriminatory reasons for the statistical disparities rendered the expert's opinion "practically worthless." The Court went further to state that by ignoring the performance and skills ratings in the statistical analysis on the grounds that the figures were themselves discriminatory, the plaintiffs had failed to state a viable claim for facially-neutral disparate impact discrimination.