Drafting the Employee Handbook

Posted on March 24, 2014 07:14 by Marc Zimet

Are you an employer? Then you should have an employee handbook. If you don't have one, now is the time to procure one. If you do have one, then now is the time to review your handbook to ensure it is up to date with the ever changing employment laws. While the state of California does not require an employer to maintain an employee handbook, a well drafted handbook helps to avoid lawsuits, offers an affirmative defense to litigation, and ensures compliance with complex state and federal regulations. 

A good employee handbook sets forth the company's stance on important legal issues, such as harassment and discrimination, as well as informs the employee of the company's operating policies and procedures. A handbook can set forth the rules for employees, including management guidelines, and may also be used to educate employees about benefit plans. Regardless of the depth of a handbook, there are a few policies an employer should be sure to develop and include. 

- An explanation of “at-will” employment and disclaimer. To ensure an employee handbook is not interpreted by an employee as constituting an employment contract , the handbook must include an “at-will” disclaimer. This will explain to the employee that he or she can be terminated with or without cause at any time.

-An explanation of the different classifications of employment. This should include full-time, part-time, temporary, exempt, and non-exempt classifications. It should be clear which category an employee fits into, and the employer should ensure the employee is properly classified. 

- An explanation of hours, meals, and breaks. To aid in avoiding litigation, employers should ensure their policy regarding employee hours, meals, and breaks is clearly set forth and in compliance with legal requirements. This should also include the employer's policies regarding over-time and double-time pay rates. 

-A statement of equal employment opportunity. Employers should ensure they have a well drafted policy addressing their dedication to equal employment and intolerance of all forms of discrimination against classes protected by law. It should further set forth that the employer shall not discriminate at any time during the employment process, such as during hiring and termination. 

-Policy against harassment. All employers should clearly set forth their policy against harassment in the workplace. This should include all forms of harassment employees are protected against (not just sexual). A harassment policy should also provide employees who believe they have been harassed with guidelines for reporting such harassment and protocols for handling incidents reported by employees. 

- Employee conduct and performance. The handbook should set forth what conduct is impermissible in the workplace, especially that conduct which may result in termination. It should also set forth expectations regarding an employee's performance and whether there will be periodic reviews of performance levels. 

-Explanation of the company's electronic privacy policies. The employee handbook is the best place for employers to set forth their policy on electronic privacy of employees. This includes an employee's privacy of their computers, emails, telephone conversations, and voicemails.  

- Family and Medical Leave Act (FMLA) policy. If you are an employer with more than fifty employees, you are required by law to provide your employees with your FMLA policy in writing. The handbook is an excellent place to do this.

- Acknowledgment. Employers should always ensure they receive a written acknowledgment from the employee stating his or her receipt of the handbook and that he or she understands the terms and agrees to abide by company policies. It cannot be emphasized how important this step is. 

Due to the complexity of employment laws, employers should hire experienced legal counsel to draft and/or review their employee handbook. A well drafted handbook will be written in simple, laymen language to ensure all employees understand its provisions and there is no confusion about the meaning of its terms.

Last of all, employers must ensure its employees actually follow the employee handbook. It is important that not just low-level employees comply, but managers as well. This is especially true in cases of claims of discrimination or harassment where a manager's handling of a claim can either mitigate a company's damages, or increase them. 

While the above list is not exclusive, it provides a solid foundation for employers to base their employee handbooks. An employer who clearly sets forth its policies on these issues protects itself against litigation, and will find that in the event litigation is ever commenced, the handbook provide defense as well as evidence of company policies and culture. 

Blurb: If you are an employer in California, an employee handbook is a must. While the state of California does not require an employer to maintain an employee handbook, a well drafted handbook helps to avoid lawsuits, offers an affirmative defense to litigation, and ensures compliance with complex state and federal regulations. Included are some of most important policies an employer should be sure to develop and include in their handbook.

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How to Avoid Retaliation Claims When Firing

Posted on January 22, 2014 02:34 by Marc Zimet

Retaliation claims were the most frequent claims filed with the Equal Employment Opportunity Commission (EEOC) for 2012. There has been a sharp rise in retaliation claims since the 2006 Supreme Court opinion in Burlington Northern & Santa Fe Railway Company v. White, which lowered the standard for what is considered retaliatory conduct. Employers accused of wrongdoing by an employee risk such a claim when the employee is later fired for a legitimate reason. However, employers should not fear retaliation claims so that employees are kept on to the detriment of their business. While fear of a retaliation claim is a legitimate concern, there are steps an employer can take to help reduce the likelihood of such a claim, and protect themselves if a claim is made. 

1) Maintain an effective no-retaliation policy. All employers should maintain an effective no-retaliation policy to solidify its stance against retaliation. This should be affirmed in the company’s policies against harassment and discrimination, but can also be provided for in its own provision.

2) Train Employees. Employers must train supervisors and managers on how to properly respond to employee complaints, and specifically those complaints that involve them as managers. Those managers to whom a complaint is made against, or who personally supervise the complaining employee, should not be in charge of investigating the complaint. A neutral, third party should always be used to ensure an objective viewpoint.

3) Investigate Claims. All complaints should be thoroughly investigated and documented.

4) Document Performance Issues. Good documentation of performance issues leading to termination can defend an employer against a retaliation claim. Ensure employees with similar performance problems are treated equally.

5) Before termination, review discipline and the decision to terminate. Ensure the employee’s poor performance is well documented. If an employee has made a recent complaint regarding harassment or discrimination, has complained of workplace misconduct, or has engaged in any protected activities such as union picketing, it may not be a good time to terminate if there may appear to be a connection between the activity and the termination.

No employer wants to face a retaliation complaint. Proactive employers following the above steps can reduce their exposure and likelihood of suits. In the case that a complaint is filed, employers aren’t stuck with a poorly performing employee. However, understanding the proper steps to documenting the performance issues and ensuring the cause for termination is clear from the record and timing is essential before taking termination action.

This blog was originally posted on Jampol Zimet’s blog on January 14. Click here to read the original entry.  

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The U.S. Court of Appeals for the Second Circuit has granted two petitions to appeal trial court decisions in employment cases concerning whether interns qualify as employees and therefore are entitled to minimum wage and overtime protections. The two cases in question involve similar facts, however, the trial courts arrived at exact opposite conclusions.

In Eric Glatt and Alexander Footman, et al., v. Fox Searchlight Pictures, Inc., former interns Glatt and Footman brought suit against Fox in 2011, seeking class certification for more than one hundred interns and back pay for work done for the company on the film Black Swan. While the U.S. Supreme Court has upheld unpaid internships, such internships must be for training purposes. Glatt and Footman claim their internships, which consisted of getting coffee and taking out the trash, were anything but that. Citing the Labor Department’s six-prong test that must be met in order for an internship to be legally unpaid, District Judge William Pauley permitted the class certification and granted summary judgment for the plaintiffs, ruling the interns were in fact employees because the picture company had formal and “significant” control over the interns.

In the second case, Wang v. Hearst Corporation, unpaid interns sued the magazine company on behalf of 3,000 students who worked in the name of gaining experience. However, District Judge Harold Bauer declined to certify the class stating the class lacked the element of commonality. His finding was based on the fact that the company did not have an internship policy and that each Hearst magazine utilized interns in different manners and for different purposes.

The U.S. Court of Appeal’s decision in these cases is being watched closely by many, especially those in industries that rely heavily on unpaid interns. For those industries, such as the entertainment, finance, and sports industries, a decision changing the way interns are classified could change the way these industries operate. Hearst Corporation has already stopped its practice of taking interns. To students seeking real-world experience, this could mean they graduate without any training or contacts to help them land a job. To critics of the industries, unpaid internships are nothing more than an abuse of the labor system. For employers, the outcome will determine how future internships are handled; including for what purposes unpaid interns can be utilized. Interestingly, according to the Hearst decision, so long as an employer does not have an internship policy in place, it should be protected from class actions. This, however, will not protect an employer from individual suits.

This blog was originally posted on December 17 on the Jampol Zimet blog. Click here to read the original entry. 

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The ruling comes from California’s Court of Appeals for the Sixth District in Bain v. Tax Reducers, Inc. after extensive litigation following the plaintiff’s month-long employment with the defendant. Plaintiff Harold Bain worked as an accountant for a firm where he was classified as an independent contractor, earning a salary for a fixed 32 hours per week.

A few years later, while attending a seminar, Bain and his employer realized he was improperly categorized as an independent contractor when in fact he was an employee. They agreed to finish the year, and then re-categorize Bain as an employee. However, shortly before the year’s end, in December 2004, the company was sold to defendant TRI. TRI’s President James Griffin met with Bain to discuss his employment, but did not discuss whether Bain would be an independent contractor or employee. After the takeover, Bain was never given any employment documents from TRI. Bain put together a packet consisting of a W-4, I-9, and other documents and placed them on Griffin’s desk; Griffin denied ever receiving them.

While working for TRI, Bain was instructed to continue to use his weekly time sheets to report his hours, and worked under the direction and supervision of TRI. He was directly supervised by Griffin and met with clients as they were assigned to him. At the end of the first month, Bain had not yet been paid and so he asked Griffin when he would receive his first pay check. Griffin responded by leaving an independent contractor agreement on Bain’s desk, proposing to pay Bain a reduced rate and terminating employment after six months. Believing Griffin was trying to reclassify him from his employee status, Bain responded to Griffin requesting employee status and no reduction in pay. Griffin said he would talk to the former employer. A few weeks later, Bain resigned citing TRI’s failure to pay him for seven weeks and failure to reimburse him for expenses submitted.

In March 2005 Bain filed a claim for unpaid wages and expenses with the California Labor Commissioner and sent a demand letter to TRI. TRI responded that its offer to pay Bain a reduced rate “still stands” but did not send a check. Bain claimed $7,700 in unpaid wages, $157.26 for unpaid expenses, and $6,600 in waiting time penalties. In its response, TRI claimed Bain was not entitled to wages or penalties because he was never an employee. The hearing before the Labor Commissioner occurred a year later in March 2006, at which time it was found that Bain was an employee and he was awarded the amounts requested plus interest. TRI appealed the decision to the superior court. Although labeled an “appeal” such trials are de novo in which the decision of the Labor Commissioner is not entitled to any weight.

In Superior Court, trial was set for December 2006. The parties reached a judicially supervised settlement the day of trial. However, the court failed to retain jurisdiction over the settlement. The parties attempted over the next few months to finalize a written settlement agreement, however they could not agree on the terms. A year and a half later, in May 2008, Bain filed a new action to enforce the settlement. Litigation followed at which time both parties conducted discovery and sought summary adjudication. TRI argued that Bain’s cause of action for Labor Code violations and wages due were time barred by the statute of limitations. The trial court denied the motion.

After a four day trial, the trial court held that Bain was in fact an employee of TRI and that his claims were governed by a three year statute of limitations period. However, because TRI had agreed to pay Bain wages in January 2007 as part of their December 2006 settlement, the limitations period began to run in 2007 and therefore the claims were not time barred. Alternatively, the court held that Bain was entitled to rely on the doctrine of equitable tolling because he had consistently pursued his claims. The court found in Bain’s favor on the claims and gave him a choice of two judgments both totaling approximately $25,400. TRI and Bain appealed; Bain claimed additional attorney’s fees owing and an enhancement factor against TRI due to alleged vexatious litigation. TRI claimed the court erred in finding the action was not barred by the statute of limitations and when it imposed statutory penalties.

On appeal, the Court stated that a cause of action for wage liability must be commenced within three years after the cause of action accrues. A cause of action accrues when the wages first become regularly due (i.e. on payday). Therefore, the Court held the trial court erred in finding the cause of action accrued after TRI agreed to pay a settlement, in 2007, when in fact it accrued no later than February 18, 2005, the last day Bain worked for TRI. As suit was not filed until May 7, 2008, more than three years later, his causes of action were time barred before the superior court.

However, on the issue of equitable tolling, the Court found the limitations period to be tolled. The doctrine of equitable tolling applies when a party has multiple remedies available and pursues one, such as where a plaintiff first pursues administrative remedies, even if not legally required to exhaust those first. Whether the doctrine applies is heavily reliant upon the individual facts and the proponent must demonstrate three elements: 1) timely notice, 2) lack of prejudice to the defendant, and 3) reasonable and good faith conduct of the plaintiff. Based upon Bain’s diligent prosecution of his claims, substantial evidence existed to support the trial court’s ruling that the statute of limitations was equitably tolled.

This case serves to remind employers that proper classification of employees is essential to avoiding litigation. It is clear in this case that both Bain’s former employer and defendant TRI lacked guidance or knowledge on the issue of employee classification. Furthermore, TRI failed to adhere to laws requiring payment to its employees thereby subjecting it to waiting time penalties. This case is a prime example of how such mistakes can lead to time-consuming and costly litigation, all which could have been avoided.

This blog was originally posted on December 3, 2013 by Jampol Zimet LLC. Click here to read the original entry. 
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California Court of Appeals for the Fourth District Rules Insurance Broker Had No Duty To Investigate Insured’s Coverage Needs

On October 4, 2013, the California Court of Appeals for the Fourth District reaffirmed prior rulings regarding the duties of an insurance broker in procuring coverage in San Diego Assemblers, Inc. v. Work Comp for Less Insurance Services, Inc. Assemblers, a remodeling contractor, contacted its broker, Work Comp for Less, to procure a liability policy. It requested only the lowest priced policy available and desired limits, but did not request any specific coverage. Work Comp responded with several plans and Assemblers chose one, without asking any questions concerning the coverage. Assemblers never at any time indicated that it did not want a policy with a manifestation endorsement, or with a prior work completed exclusion. In 2004, Assemblers performed work on a restaurant; in 2008 an explosion and fire caused substantial property damage. The restaurant’s insurer, Golden Eagle Insurance, pursued Assemblers for the damage. Assemblers tendered the claim to its insurer in 2004, Lincoln General Insurance Company, and its insurer in 2008, Preferred Contractors Insurance Company.

Thereafter, Lincoln General denied Assembler’s claim asserting a manifestation endorsement limiting coverage to injury or damage first manifested during the policy period. Preferred Contractors denied coverage asserting the period completed work exclusion. Assemblers informed Golden Eagle that it did not have coverage and stated that it could sue Assemblers. Assemblers thereafter filed bankruptcy and any and all claims in relation to the matter were assigned to Golden Eagle.

Golden Eagle responded by filing suit in Assembler’s name, naming Work Comp as defendant and alleging the broker negligently failed to procure insurance for Assemblers that would cover the fire. Work Comp responded by filing a motion for summary judgment, asserting it had no duty to provide Assemblers with different or additional coverages, as well as asserting the defenses of the superior equities doctrine and statute of limitations. The trial court granted the motion, stating it had no duty to provide different coverage. The court did not consider the issues of the superior equities doctrine or statute of limitations. The plaintiff appealed.

On review, the California Court of Appeals for the 4th District considered the superior equities doctrine, as well as the broker’s duty to procure a different policy.

On the issue of the superior equities doctrine, the Court noted that, though Golden Eagle brought suit as Assembler’s assignee, the analysis of any claimant in subrogation was the same and such a claimant must first demonstrate a right in equity to be entitled to subrogation. An insurer can show this by establishing a position superior to the party to be charged. This cannot be established where the party to be charged is not the wrongdoer whose act or omission caused the underlying loss. Here, there was no evidence Work Comp caused the restaurant fire, nor that it agreed to indemnify Assemblers. Therefore, pursuant to the superior equities doctrine, Golden Eagle’s claim must fail.

The Court next considered whether Work Comp had a duty to procure prior completed work coverage. The Court stated the law is well-settled that insurance brokers owe a limited duty to their clients only to use reasonable care, diligence, and judgment in procuring insurance. This duty is not breached unless the broker misrepresents the nature, extent, or scope of the coverage being offered, there is a request by the insured for a particular type of coverage, or the broker assumes an additional duty by express agreement or by holding itself out as have a certain level of expertise. Golden Eagle argued that Work Comp had an implied duty to investigate Assembler’s coverage needs and procure an appropriate policy. The Court, however, declined to follow this reasoning citing public policy reasons and stating that to create an implied duty in insurance brokers to investigate coverage needs would result in the overselling of insurance to avoid professional liability.

The trial court’s ruling was affirmed.

This case serves to remind brokers of their duties in procuring insurance coverage, as well as the possibility of creating additional duties. While a broker’s duty may be limited, it is important to recognize that a broker can breach the duty by misrepresenting the coverage offered, or by assuming additional duties either by agreement or holding itself out as an expert in specific fields.

This blog was originally posted on November 19, 2013 by Jampol Zimet LLC. Click here to read the original entry. 

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A California District Court has ruled in favor of a Muslim employee of Abercrombie & Fitch who claimed Abercrombie failed to accommodate her religious beliefs when it banned her from wearing her hijab. The plaintiff, 19-year-old Umme-Hani Khan, wears a traditional Muslim head scarf, called a hijab, in observation of her religion. She wore the garment to her hiring interview, as well as throughout her four month employment period for the company’s Hollister store in San Mateo, California, where she was an “impact associate” working primarily in the stockroom.  Khan’s local supervisors permitted her to wear the hijab so long as it matched the company’s colors. However, when a visiting district manager saw the hijab, he informed the local supervisors that Khan was not in compliance with the company’s “look policy.” She was then asked if she could remove the garment while at work and was told that if she did not, she would be taken off schedule. Khan denied the request, stating it was part of her religious observance. She was thereafter terminated.

The Equal Employment Opportunity Commission attempted to resolve the dispute with Abercrombie, but rejected the company’s affirmative defense of undue hardship and brought suit alleging discrimination on the basis of religion in violation of Title VII of the Civil Rights Act of 1964. The act prohibits discrimination based on religion and requires employers to accommodate religious beliefs or practices of employees unless doing so would impose an undue hardship.

In defense, Abercrombie claimed its grooming policy prohibits employees from garnishing head-wear and requires them to project a beach-inspired image, which is essential to the company’s business model. Thus, it claims it could not reasonably accommodate Khan without undue hardship.

Abercrombie further claimed in federal court that the EEOC did not make a good faith attempt to resolve the matter, which is required before it can file a suit. The district court judge held that while there is no standard for reviewing whether the EEOC made a good faith attempt to settle the dispute, extensive negotiations between the parties provided sufficient evidence of an attempt to settle and therefore supported the filing of the suit in federal court.

The judge noted that despite Abercrombie’s claim that an accommodation for Khan would constitute an undue hardship, it provided no evidence that Khan’s attire affected sales or disturbed customers, nor any data whatsoever tending to show that the company’s “look policy” affected sales. The judge concluded that Abercrombie could have made an accommodation for Khan without undue hardship.

Abercrombie next argued that its employees were “living advertisements” for the company and therefore constituted commercial speech that was entitled to protection by the First Amendment. The judge dismissed this allegation, holding that employees who are hired to fold and stock clothing cannot be considered “living advertisements” and therefore their attire is not protected as commercial speech.

This isn’t the first time Abercrombie has found itself defending its “look policy.” In fact, it is the third time a district court has ruled against the company and its defense of undue hardship in cases involving Muslim employees or applicants wearing a hijab.

This case, and other rulings against Abercrombie, demonstrate to employers the importance of understanding what reasonable accommodations must be made for an employee or applicant’s religion, as well as what constitutes an undue hardship. Clearly, Abercrombie has been unsuccessful in asserting that any change to its “look policy” and business model would be an undue hardship.

For further information on what constitutes a reasonable accommodation and undue hardship, click here

This blog was originally posted on October 17, 2013 by Jampol Zimet LLC. Click here to read the original entry. 

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California State Bar Rules Attorney’s Fees Not Unconscionable Because No Element of Fraud

In a recent opinion, the State Bar Court of California found an attorney not guilty of charging an unconscionable fee because the attorney’s actions did not contain an element of fraud or overreaching. The case, In the Matter of Breyon Jahmai Davis, concerned a newly admitted attorney who, it was alleged, improperly charged legal fees in two matters. 

In the first matter, a wrongful foreclosure case, she charged her clients a contingency fee in the amount of $20,666 even though her agreement did not provide for a contingency fee. When her clients objected to the fee, she returned $6,666 to the client trust account.

In the second matter, for the same clients in an unrelated employment case, the attorney charged an hourly fee totaling $14,250. However, her agreement provided only for a contingency fee in that case, not an hourly fee. When her clients filed a complaint with the state bar, the attorney refunded the entire $20,666 and stopped efforts to collect the $14,250.

The attorney was charged by the state bar with a violation of Rule 4-200(A), charging and collecting an unconscionable fee in the foreclosure matter, and charging, but not collecting, an unconscionable fee in the employment matter. She furthermore was charged with violating Rule 4-100(A) for failing to maintain the disputed amount in her client trust account after her clients disputed the fee. At hearing, the judge found the attorney did not violate Rule 4-200(A) because she held an honest, mistaken, belief that she was entitled to the fees. However, a Rule 4-100(A) violation was found for the attorney’s failure to return the funds to the client trust account. The State Bar appealed, arguing the hearing judge improperly dismissed the charge related to Rule 4-200(A).

On review, the Review Department noted that while a gross overcharge by an attorney may constitute an unconscionable fee, such cases usually contain some element of fraud or overreaching. In the instant case, it was found that the attorney sent her clients her fee agreement and inadvertently left out the contingency fee provision. The hearing judge found the client’s testimony that there was no agreement to a contingency fee not credible, and found the attorney’s testimony that the parties agreed to a contingency fee credible. Therefore, because the attorney’s actions in charging the excessive fees were based on a mistaken act rather than an intentional act of fraud, the fee was not unconscionable. Similarly, in the employment case, the attorney charged what she believed was a reasonable amount for her services. There was no evidence to support a finding that she charged the amount in an effort to deter her clients from seeking return of the contingency fee collected, as alleged by her clients. The Review Department further considered mitigation factors, which included the attorney’s responsiveness and candor during the proceedings, as well as her recognition of wrongdoing and remorse. In consideration of all factors, the hearing judge’s findings were affirmed. The attorney was found to have violated Rule 4-100(A) for failing to return the disputed funds to the client trust account and received as punishment public reproval and was required to receive ethics training and take the MPRE.

It is important for attorneys to understand their ethical obligations when it comes to client fees and their handling, especially when it comes to proper management of the client trust account. Here, the attorney was not found culpable in charging an unconscionable fee because the element of fraud or overreaching was not present. Despite this, her failure to properly fund the client trust account when the client disputed her fees did result in disciplinary action. It should be remembered by all attorneys that if at any time a client disputes a fee, it must be returned to the client trust account until the dispute is resolved to avoid discipline.

This article was originally posted on September 26 by Marc Zimet on the Insurance Defense Blog. Click here to read the original post. 

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On August 21st, the U.S. Court of Appeals for the Ninth Circuit in Richards v. Ernst and Young held that an employer’s arbitration agreement could be enforced, despite any limitation on joint or class actions.

The decision came after defendant; Ernst & Young LLP appealed the district court’s decision denying its motion to compel arbitration of state wage and hour claims brought by its former employee, Michelle Richards. The district court ruled that the defendant had waived its right to arbitration by failing to raise the agreement as a defense early in litigation. However, plaintiff Richards’ action was consolidated with other former employees’ claims at a later date.

In reversing the district court’s decision, the Court of Appeals noted that waiver of a contractual right to arbitration is not favored. Therefore, any party arguing waiver of the right has a heavy burden of proof which includes demonstrating: (1) knowledge of an existing right to compel arbitration; (2) acts inconsistent with that right; and (3) prejudice to the party opposing arbitration resulting from the inconsistent acts.

The plaintiff argued prejudice as a result of the defendant’s failure to compel arbitration at an earlier date, after she had already provided pretrial information and incurred expenses. However, the Court of Appeals ruled this was insufficient prejudice. Plaintiff further argued she was prejudiced as there were meritorious arguments and as a result of compelling arbitration, some of her claims were dismissed. However, the Court noted that one of her claims was dismissed without prejudice, which did not constitute a decision on the merits. Furthermore, another of her claims was resolved when it was determined that she lacked standing to bring the claim- a decision that precedes and does not involve any analysis of the merits.

Last of all, the plaintiff argued that the Court should follow a decision of the National Labor Relations Board (NLRB) in D.R. Horton, 357 N.L.R.B. No. 184, 2012 WL36274 (Jan. 3, 2012) in which it was held that an arbitration agreement that did not allow employees to file joint, class, of collective employment related claims was invalid. The Court of Appeals declined to entertain the argument, as it was not properly raised before the district court for argument. However, it more importantly noted that it, as well as a majority of courts, have declined to follow the NLRB’s decision because it conflict with explicit pronouncements of the U.S. Supreme Court and the Federal Arbitration Act (FAA) 9 U.S.C. §§ 1–16. It specifically noted that the U.S. Supreme Court recently reiterated the importance of courts enforcing arbitration agreements, including those whose subject matter involves claims of federal law violations.

This case is important for employers, who may be able to limit their exposure to class actions by utilizing mandatory arbitration agreements such as the one in this case. Employers should be careful to understand the benefits of litigation versus arbitration and seek advice from an experienced attorney regarding the use of such an agreement in its employment contracts.

This blog was originally posted on September 19 on the Jampol Zimet website. Click here to read the original entry. 

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CA Court of Appeals Rules Insured Must Accept Insurer’s Counsel Where No Conflict of Interest Exists That Could Be Influenced by Retained Counsel

On August 26th, the California Court of Appeals ruled in Federal Insurance Company v. MBL, Inc. (2013) — Cal.App.3d– that an insured must accept its insurer’s defense counsel where no conflict of interest exists that could be influenced by defense counsel in litigation. The issue arose when MBL, a supplier of dry cleaning products, was sued by one of its customers seeking indemnity and contribution after the customer was found responsible by the federal government for contamination of land on which its dry cleaning business operated.

MBL tendered the defense to its several insurers, who accepted the tender of defense subject to reservations of rights, and retained counsel to represent MBL. However, MBL refused to accept the insurers’ counsel on the grounds that the insurers’ reservations of rights created a conflict of interest. MBL instead demanded the insurers pay for independent counsel of MBL’s choosing. The insurers denied the existence of a conflict of interest and filed action seeking declaratory relief from the trial court that no conflict existed. The trial court granted summary judgment in favor of the insurers and MBL appealed.

On review, the Court of Appeals revisited the issue of when independent, or “Cumis,” counsel must be provided to an insured. In San Diego Federal Credit Union v. Cumis Ins. Society, Inc., the court held that where a conflict exists between an insured and insurer based on potential non-coverage under the insurance policy, the insured is entitled to independent counsel at the insurer’s expense. This rule was later codified by California Civil Code section 2860, which further provides: “[f]or purposes of this section, a conflict of interest does not exist as to allegations or facts in the litigation for which the insurer denies coverage; however, when an insurer reserves its rights on a given issue and the outcome of that coverage issue can be controlled by counsel first retained by the insurer for the defense of the claim, a conflict of interest may exist. No conflict of interest shall be deemed to exist as to allegations of punitive damages or be deemed to exist solely because an insured is sued for an amount in excess of the insurance policy limits.”

As explained by the Court, it is clear from the language of section 2860 that not every situation in which a conflict exists between an insurer and insured gives rise to the right to Cumis counsel. The reasoning for this is that the basis for Cumis counsel is not in insurance law, but rather in the professional duties of an attorney to avoid conflicts of interest in representation. It has previously been held that where a reservation of rights is based on coverage issues that have nothing to do with the underlying litigation, no conflict exists.

In the instant case, the insurers’ various reservations of rights were based upon acts not occurring within the policy periods, qualified exclusions, as well as a general reservation of rights. The Court first held that a general reservation of rights does not give rise to the right to Cumis counsel. Furthermore, the Court stated that all reservations of rights by the insurers were not issues that could have been influenced by MBL’s retained counsel in litigation. Therefore, because the reservation of rights did not require retained counsel to represent conflicting interests between the insured and insurer, the insurers were not required to provide independent counsel.

It is important for insureds to understand and be aware of the circumstances under which they may have the right to independent counsel. Furthermore, it is equally important for insurers to identify the situations that create a conflict between the insurance company and insurer such that independent counsel should be provided. A comprehensive understanding of both parties on this issue can aid in settling representation issues before litigation on the subject becomes necessary.

This blog was originally posted on September 3. Click here to read the original entry. 

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This month, a complaint was filed against Fidelity National Title Group, Inc. in Los Angeles Superior Court by one of its former employees alleging discrimination based on gender, pregnancy, and a medical condition, as well as retaliation, harassment, and intentional infliction of emotional distress.

In Stepp v. Fidelity National Title Group, the former employee, Jessica Stepp, a female attorney, was hired by the company when she was five (5) months pregnant. She claims that throughout her pregnancy, her supervisor and coworkers made disapproving remarks regarding her pregnancy and of her choice to have children, for example, asking when she would be getting her tubes tied. When she returned to work after delivering her child, she claims her supervisor was unaccommodating. She requested a windowless office to allow her to pump breast milk, which her supervisor denied and told her to “figure things out.” Her supervisor also denied her a lock for her office door, and instead required her to hang a “do not disturb” sign on her door’s exterior announcing that she was in the midst of pumping. After a worker accidentally walked in on her with her top off, she installed a lock herself.

Throughout her employment, Stepp further claims her supervisor refused to lighten her case load even when medically necessary. Following the birth of her child, Stepp became pregnant again, but miscarried resulting in an emergency medical leave. During this period, motions were due to be filed in court. However, her supervisor refused to assign them to another attorney stating Stepp had to figure out a way to get them done herself.

The complaint further alleges that not only did she receive a heavy case load, but other female attorneys in the office did as well, a problem not suffered by any of her male coworkers. Her workloads forced her to work seventeen (17) hours per day, and she was forced to take on the additional duties of a paralegal after one quit. Of the other women heavily burdened (all of whom had children), one quit her job because she felt she could be liable for malpractice as a result of her unmanageable caseload.

Finally, the complaint claims Stepp was fired as a result of inadequate performance, despite all other male employees being given a probation period prior to termination.

This case underlines the importance of employers treating their employees equally to avoid the filing of lawsuits alleging discrimination. As we found out several weeks ago in Inconsistent Treatment of Employees Could Land You in Hot Water, disparate treatment of employees is sufficient to support a claim for discrimination and is an issue properly determined by the trier of fact. Here, it appears Stepp has met her burden in alleging disparate treatment among female and male coworkers such that her case may proceed. It is therefore important for employers to ensure they, as well as supervisors, follow clear employment protocols and are trained to avoid situations that may give rise to liability.

This blog was posted on August 27 on Jampol Zimet’s Insurance Defense Blog. Click here to see the original post. 

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