Labor & Employment Update: January 1999

Court Stays Enforcement of San Francisco's Domestic Partner Benefits Ordinance Against United Airlines until January Hearing

In October, U.S. District Court Judge Claudia Wilken granted a preliminary injunction to United Airlines Inc., blocking San Francisco from enforcing its domestic partner benefits ordinance against United. The ordinance requires businesses which enter into contracts with the city to provide their employees with domestic partner benefits equal to those provided employees' spouses. The motion for the preliminary injunction was written and argued on behalf of United Airlines by attorneys from Brobeck, Phleger & Harrison.

Earlier this year, the court ruled that the Employment Retirement Income Security Act (ERISA) preempted application of the domestic partners ordinance to the extent the law attempts to regulate health and welfare benefits. However, the court's earlier ruling left open the issue whether United Airlines and other businesses subject to the ordinance could be required by the City of San Francisco to provide their employees with certain non-ERISA employment benefits, such as paid bereavement leave, family and medical leave, and discounted airline tickets for domestic partners. The court's decision allows United Airlines, which leases ground space at the city-owned San Francisco International Airport, to continue doing business as usual until a pending summary judgment hearing scheduled for this month.

Employer's Affirmative Defense that Investigation of Claimed Harassment was Adequate Does Not Waive Privilege

California's First District Court of Appeal has ruled that when an employer pleads as a defense the adequacy of its investigation into claimed misconduct, the employer does not waive the protection of the attorney-client privilege and the attorney work product doctrine as to documents contained in its investigation files. In Kaiser Foundation Hospitals v. Superior Court, 66 Cal. App. 4th 1217 (1998), three female Kaiser employees filed a lawsuit against Kaiser Foundation Hospitals claiming sex discrimination and harassment by Kaiser employees. Prior to the litigation, Kaiser directed its human resources consultant to conduct an investigation into allegations against a particular doctor. During the investigation, the consultant periodically consulted with members of Kaiser's legal department concerning the process and progress of the investigation. Although the consultant intended to keep his communications with Kaiser's attorneys confidential, at times he kept notes of these conversations together with other investigation notes and documents.

During discovery, plaintiffs requested that Kaiser produce its complete investigation files. The parties agreed that Kaiser would produce investigative reports, notes and other documents which did not refer to communication with counsel, and that the production of these documents would not waive the attorney work product and attorney-client privilege. After receiving these documents, plaintiffs' attorney demanded that Kaiser turn over all documents in the investigation files. Plaintiffs' attorney asserted that as long as Kaiser was placing at issue the scope and adequacy of its investigation as to plaintiffs' claims, Kaiser could not withhold relevant documents on the ground of attorney-client privilege and the attorney work product doctrine. The trial court ordered Kaiser to produce the withheld documents, and Kaiser then appealed the court's order.

The court of appeal directed the trial court to set aside its order, and ruled that Kaiser had not waived the attorney-client privilege and attorney work product protection as to the withheld documents. The court reasoned that where an employer has produced its files and disclosed the substance of its internal investigation conducted by non-lawyer employees, and only seeks to protect conversations which those employees had with their attorneys, disclosure of privileged communications is not essential for a thorough examination of the adequacy of the investigation or a fair adjudication of the action.

The Kaiser case emphasizes the importance of investigators keeping notes of confidential conversations with attorneys separate from other documents generated during an investigation. As with any confidential communication with an attorney, an investigator also must not disclose the communication to a third party, since disclosure of a substantial part of a confidential communication to a third party generally waives the privilege. Additionally, employers should remember that the law requires employers to permit employees to inspect their personnel file and that commingling privileged documents with such files could further erode the privilege.

Tester Posing as Job Seeker Does Not Have Standing to File Lawsuit for Hiring Discrimination

The use of testers by state and federal fair employment agencies is a hot button issue. Testers are persons who present fictitious resumes while posing as job seekers for the purpose of uncovering discriminatory hiring practices. Business groups generally oppose the use of testers, fearing that such programs may be used to unfairly target certain businesses and coerce settlements with the threat of costly discrimination lawsuits.

A federal district court for the Northern District of Illinois recently granted summary judgment in favor of an employer in a lawsuit brought by two testers. In Kyles v. J.K. Guardian Security Services Inc., 77 FEP 1473 (BNA 1998), plaintiffs were two African-American college students employed for the summer as testers for the Legal Assistance Foundation of Chicago. Plaintiffs developed fictitious resumes designed to make them attractive to employers, but had no interest in accepting the employment for which they applied. Plaintiffs submitted their fictitious resumes and completed employment applications for a receptionist position with a security services firm. The firm interviewed both testers but did not offer either a job. The testers later filed a lawsuit against the firm, alleging racially discriminatory hiring practices.

The court granted the company's motion for summary judgment, ruling that the testers did not have standing to maintain their lawsuit. The court reasoned that since plaintiffs did not want or intend to accept any job offer, they did not suffer an injury, as required for standing to sue under Article III of the U.S. Constitution. The court also concluded that plaintiffs had no standing to assert a claim for discriminatory hiring practices under either Title VII or the Civil Rights Act of 1866. In contrast to the Fair Housing Act, under which courts have recognized the standing of testers, the court reasoned that both Title VII and the Civil Rights Act of 1866 require a plaintiff to show genuine interest in the employment sought.

Employment Arbitration Agreements Survive Recent California Legislative and Judicial Challenges

On September 30, 1998, State of California Governor Pete Wilson vetoed a bill which would have banned mandatory arbitration of employment-related disputes. Many California employers utilize arbitration agreements with employees to help control the costs of employment-related litigation. Had it passed into law, Assembly Bill 574 would have amended the California Fair Employment and Housing Act to make it an unlawful employment practice for an employer to request or require a current or potential employee to agree to arbitrate employment-related claims prior to the existence of an actual dispute. Under the bill, employers would be liable for a civil penalty of $5,000 per violation.

Backers of the anti-arbitration bill hope that the outcome of this year's gubernatorial election will set the stage for passage of the bill next year. If the bill ever does pass into law, California employers can expect it to be challenged on the ground that it is preempted by the Federal Arbitration Act. Future editions of the Labor & Employment Update will report any significant developments concerning the enforceability of arbitration agreements.
Contrary to current legislative trends, California's First District Court of Appeal recently upheld the arbitrability of employment-related claims. In 24 Hour Fitness, Inc. v. Superior Court, 66 Cal. App. 4th 1199 (1998), plaintiff Sierra Munshaw complained that harassment by her co-employees rendered her work environment at a fitness center so intolerable that she was constructively discharged. Munshaw filed suit against the fitness center and various co-employees. The company filed a motion for summary judgment on the ground that Munshaw's claims were subject to an arbitration agreement contained in the company's personnel handbook. In opposition, Munshaw argued that her claims against her former co-employees, which were not subject to the arbitration agreement, precluded summary judgment in favor of the company.

The court of appeal ruled that the presence of nonarbitrable claims against another defendant does not preclude summary judgment in favor of a defendant as to whom all claims are arbitrable. Thus, an employee cannot avoid arbitration with the employer simply by naming as defendants in a lawsuit individuals who are not subject to the arbitration agreement. The court also rejected Munshaw's argument that her discrimination claim under California's Fair Employment and Housing Act (FEHA) was rendered nonarbitrable by the Ninth Circuit's recent decision in Duffield v. Robertson Stephens & Co., 144 F.3d 1182 (9th Cir. 1998). The court reasoned that the federal court's ruling in Duffield was not binding on California state courts. The court also concluded that the validity of Duffield is undermined by contrary state court decisions that expressly hold that discrimination claims under FEHA are subject to arbitration.

U.S. Supreme Court Agrees to Decide if a Plaintiff's Social Security Statements Bar ADA Claims

During the United States Supreme Court's last term, the Court issued several landmark decisions interpreting federal discrimination laws. On the opening day of its 1998-99 term, the Supreme Court granted certiorari to hear the appeal of the plaintiff in an action involving the Americans with Disabilities Act, Cleveland v. Policy Management Systems Corp., U.S. No. 97-1008 (October 5, 1998). In that case, plaintiff Carolyn Cleveland suffered a stroke while employed by a corporation in Texas conducting telephone background checks. After her stroke, Cleveland signed an application for Social Security disability benefits, asserting complete disability. Several months later her doctors cleared her to return to work, and she told the Social Security Administration that she did not need the benefits. Cleveland experienced difficulty performing her job, requested accommodations, and eventually was fired for poor job performance. She renewed her request for Social Security benefits, and one week before receiving them, sued the company under the ADA.

The Fifth Circuit Court of Appeal affirmed summary judgment in favor of the company on Cleveland's ADA claim. The court ruled that the receipt of Social Security disability benefits creates a rebuttable presumption that the claimant or recipient of such benefits is judicially estopped from asserting that she is a "qualified individual with a disability" within the meaning of the ADA. The Fifth Circuit recognized the inconsistency of a claimant asserting a complete disability and a resulting inability to work while, at the same time, alleging that she had the ability to perform the essential functions of a job with reasonable accommodations.

The Supreme Court granted Cleveland's petition for certiorari, identifying the following questions for review:

  1. whether the application for or receipt of Social Security disability benefits creates a rebuttable presumption that the applicant or recipient is precluded from asserting that he or she is a "qualified individual with a disability" under the Americans with Disabilities Act; and
  2. if it does not create such a presumption, what weight, if any, should be given to the application for, or receipt of, Social Security disability insurance benefits when a person asserts that he or she is a "qualified individual with a disability" under the ADA?

The Supreme Court's expected ruling will resolve a conflict between the Fifth Circuit's decision and contrary decisions in the U.S. Courts of Appeal for the Sixth, Seventh, Ninth and Eleventh Circuits.