United States: Three California Supreme Court Decisions: Not All Good News

On July 18, 2005, the California Supreme Court entered its decision in the case entitled Miller v. Department of Corrections (2005) 36 Cal.4th 446. The decision significantly expands potential employer liability for sexual harassment claims. In short, employees in California may now sue employers for sexual harassment if a sexual affair between a supervisor and a subordinate creates a hostile work environment for employees not involved in the affair.

Two employees, Edna Miller and Frances Mackey, sued the Department of Corrections under the FEHA for, among other things, sexual harassment, sexual discrimination, and retaliation. Plaintiffs’ claims stemmed from their tenure under Lewis Kuykendall, who served as the chief deputy warden at the first prison facility where plaintiffs were employed, and later as the warden at a second facility where they worked. Kuykendall was having concurrent consensual sexual affairs with his secretary and two other subordinates. These affairs were not concealed from other employees. On the contrary, the three women with whom Kuykendall was involved sometimes publicly squabbled over him while at work.

One of the plaintiffs knew of these affairs and was denied promotions to positions that were awarded to one of Kuykendall’s lovers. Plaintiffs expressed concern about Kuykendall’s behavior. As a result of the complaints, one of the plaintiffs’ supervisors, a friend of Kuykendall’s, became abusive towards plaintiffs.

Considering the record de novo, the court found that Kuykendall had engaged in favoritism towards each of his paramours by securing their transfer to the new facility where he worked, by assisting in certain promotions, and by awarding them workplace privileges. The court also found that another supervisor (the foregoing friend of Kuykendall’s) had physically assaulted one of the plaintiffs after she had complained about Kuykendall. Plaintiff Miller resigned her employment after her complaints failed to result in better working conditions. Plaintiff Mackey also resigned after her supervisor repeatedly questioned her regarding her participation in an internal investigation into Kuykendall’s behavior.

A Sacramento trial court entered summary judgment in favor of defendants on the grounds that evidence of Kuykendall’s sexual favoritism did not constitute discrimination or harassment under the FEHA. The Court of Appeal affirmed, concluding that a supervisor who grants favorable employment opportunities to a person with whom the supervisor is having a sexual affair does not, without more, commit sexual harassment toward other, nonfavored employees. Notably, the Court of Appeal found that plaintiffs were in the same position as male employees who had failed to acquire the benefits secured to the three paramours of Kuykendall, and thus the challenged conduct disfavored both female and male employees.

In a forty-page opinion, the California Supreme Court reversed. The court relied heavily on a 1990 policy statement issued by the EEOC addressing employer liability under Title VII for sexual favoritism. The policy statement explains that if favoritism based upon the granting of sexual favors is widespread in a workplace, both male and female colleagues who do not welcome this conduct can establish a hostile work environment, regardless of whether any objectionable conduct is directed at them and regardless of whether those who were granted favorable treatment willingly bestowed the sexual favors. An employee can establish a violation if the conduct is sufficiently severe or pervasive to alter the conditions of employment and create an abusive working environment. Significantly, the court found the EEOC’s statement consistent with prior California case law finding a hostile work environment through the creation of a work atmosphere that demeans women.

Applying this standard, and analogizing to a workplace riddled with racist comments, the court found that plaintiffs had established a prima facie case of sexual harassment. The court emphasized that while isolated instances of favoritism towards an employee with whom a supervisor is engaged in a consensual affair do not ordinarily constitute sexual harassment, the court held that a "hostile work environment" can exist where the atmosphere is so severe that it demeans women as "management’s sexual playthings" and conveys the message that "the way to career advancement is to sleep with the boss." Here, not surprisingly, the court found that much more than an isolated act of favoritism towards a paramour had occurred. Critically, Kuykendall had caused his sexual paramours to be transferred to his new facility, had granted another supervisor the ability to abuse those who complained about his affairs, and had ensured that advancement was based upon sexual favors. The court found that this evidence collectively created an issue of triable fact as to whether the message was implicitly conveyed that management viewed women as "sexual playthings," noting that "it is clear under California law that a plaintiff may establish a hostile work environment without demonstrating the existence of coercive sexual conduct directed at the plaintiff or even conduct of a sexual nature."

The Miller decision makes it clear that California employers should take every measure to ensure that any conduct that could be construed as sexual favoritism is handled with caution. These measures may include implementation of detailed, narrowly-tailored anti-harassment, nonfraternization, and/or anti-nepotism policies. In addition, employers should ensure that their supervisors are aware of Miller’s implications when conducting supervisor sexual harassment prevention training pursuant to AB 1825, and that supervisors understand that a sexual relationship need not be coerced in order to result in potential liability for the employer.

From this point forward, employer liability will turn on the fine distinction between isolated sexual favoritism and widespread sexual favoritism. In practical terms, this vague standard virtually guarantees that any action taken by a supervisor with regard to his or her lover in the workplace could expose the employer to lawsuits filed by non-favored employees. In fact, this decision opens the door to lawsuits by any employee challenging the employment decisions by a supervisor engaged in, or believed to be engaged in, an office romance. Quite simply, any employee who knows about an office romance and receives some adverse employment action can potentially file a lawsuit.

The real world importance of this decision cannot be overstated. For example, a recent survey conducted this year by Vault, Inc., found that 58% of employees had dated someone at work, up from 46% two years ago. Among the 600 respondents, the survey found that 14% had dated a boss or supervisor, while 19% dated a subordinate. Careerbuilder.com also conducted a survey this year that found that, among 1,300 respondents, 75% believed that employees should be able to date anyone they wish at work.

Thus, not only are office affairs becoming more widespread in the workplace, employees arguably continue to find nothing wrong with such conduct.

On August 1, 2005, the California Supreme Court issued its decision in Koebke v. Bernardo Heights Country Club (2005) 2005 Cal.LEXIS 8359. The unanimous ruling was the court’s first on California’s Domestic Partner Act, which took effect on January 1, 2005, and furnished registered partners most of the rights of spouses under state law. Not surprisingly (in light of the recently passed Domestic Partner Act), the court ruled that California businesses must treat registered domestic partners the same as married couples. (For a complete review of this legislation, see our September 2004 Employment Law Commentary available at http://www.mofo.com/docs/PDF/ELC0904.pdf.)

Koebke involved a lesbian couple who were registered domestic partners. They sued the defendant country club to which one of them belonged, claiming the club’s refusal to extend to them certain benefits it extended to married members of the club constituted marital status discrimination under California’s Unruh Civil Rights Act (California Civil Code section 51), which requires businesses to treat customers equally. The club argued the strong public policy favoring marriage categorically precluded recognition of marital status discrimination under the Unruh Act. Further, the club asserted that extending spousal benefits to "members’ friends" might lead to overuse of its facilities, disincentivize such friends to apply for membership, and discourage the club’s "legitimate goal of creating a family-friendly environment by welcoming the immediate family of married members."

Lower courts ruled in the club’s favor, holding that the Unruh Act did not forbid discrimination based on marital status. The state Supreme Court, however, disagreed, stating that marital status discrimination is categorically prohibited when the customers are registered domestic partners. Indeed, California’s high court unanimously decided, "A business that extends benefits to spouses it denies to registered domestic partners engages in impermissible marital status discrimination." Thus, because a chief goal of the Domestic Partner Act is to equalize the status of registered domestic partners and married couples, the Unruh Act barred the club from granting married couples benefits denied to individuals registered as domestic partners under the Domestic Partner Act.

Notably, the Domestic Partner Act, initially passed in 2000, provided only limited benefits at first. However, the 2005 version includes far more expansive rights and is arguably the broadest such measure in the nation, effectively granting spousal status, except for joint tax filing under state law and the numerous rights of married couples under federal law. And, after Koebke, domestic partners now enjoy equal treatment by businesses.

In the wake of Yanowitz v. L’Oreal USA, Inc. (August 11, 2005) Cal.LEXIS 8594, California employers now face greater exposure to retaliation suits brought under the Fair Employment and Housing Act (FEHA). Quite simply, Yanowitz significantly expands employees’ rights to sue for retaliation, and in so doing, further opens the courthouse doors to these already problematic lawsuits.

In order to establish a claim for retaliation, an employee must establish that he or she engaged in "protected activity"(i.e., opposed unlawful conduct); that he or she sustained an "adverse employment action" because of that activity; and that he or she suffered damages. In Yanowitz, the California Supreme Court: (i) clarified the standard for opposing unlawful conduct; (ii) resolved a conflict among the lower courts about how to define an "adverse employment action"; and (iii) held that the "continuing violations" doctrine is applicable to retaliation claims. The general consequences flowing from the court’s resolution of the foregoing issues, discussed below, are to make it correspondingly more difficult for employers to dispose of retaliation claims prior to trial.

In Yanowitz, the plaintiff served as a Regional Sales Manager employed by L’Oreal USA, Inc. She alleged that a male supervisor repeatedly ordered her to terminate a female sales associate who, in the superior’s view, was not sufficiently attractive. The plaintiff asked for an "adequate justification" before she would terminate the associate. No other justification was given, and plaintiff refused to comply with the termination order. In her lawsuit, plaintiff alleged that she refused the order because she felt it was sex discrimination. Critically, however, plaintiff never told her superior, nor anyone else at L’Oreal, about her belief the order was discriminatory. After refusing to comply with the order, plaintiff alleged she received heightened scrutiny and increasingly hostile adverse treatment. This treatment included management soliciting negative information about plaintiff from her subordinates and increased verbal and written criticism of plaintiff’s performance. Prior to this incident, however, plaintiff received universally good reviews and awards.

In its decision, the California Supreme Court first reaffirmed the established principle that "protected activity" includes complaints or opposition to conduct that the employee "reasonably" and in "good faith" believes to be unlawful, even if the conduct is not actually prohibited by the FEHA. In probably the most far-reaching portion of its decision, the California Supreme Court went on to hold that it is not necessary in all cases for an employee to expressly indicate to the employer that he or she believes the challenged conduct is discriminatory. Instead, according to the court, protected activity occurs "when the circumstances surrounding an employee’s conduct are sufficient to establish that an employer knew that an employee’s refusal to comply with an order was based on the employee’s reasonable belief that the order is discriminatory … [and] the employee [need] not explicitly inform the employer that she believed the order was discriminatory." While a wholly unarticulated belief that an employer is engaging in discrimination will not suffice to establish protected activity, according to the Supreme Court, the relevant question is not whether a formal accusation of discrimination is made, but whether the employee’s communications to the employer sufficiently conveyed the employee’s reasonable concerns that the employer has acted or is acting in an unlawful discriminatory manner.

Thus, the court concluded that plaintiff’s requests for an "adequate justification" before she would terminate the employee, were sufficient to raise a triable issue of fact whether she had engaged in protected activity, even though plaintiff never explicitly mentioned that she thought the termination order was discriminatory. In reaching that conclusion, the Supreme Court found it significant that the employer had never inquired what plaintiff meant by the use of the term "adequate justification." The troubling aspect of this conclusion, as pointed out by the dissent, is that in some circumstances, employers will have the burden of investigating and/or discovering the underlying basis (i.e., a feeling that improper conduct is occurring) for seemingly benign requests from subordinates regarding business practices.

In Yanowitz, the court also resolved a dispute among the lower courts as to the definition of an "adverse employment action." The court agreed with the view taken by two California appellate courts, and most federal circuit courts under Title VII, that an adverse employment action is one that "materially" impacts a plaintiff’s terms and conditions of employment. While the court adopted the "materiality test" over the "deterrence test" for purposes of a FEHA retaliation claim, the court gave the concept of "materiality" an expansive reading. Borrowing from federal "harassment" law, the Yanowitz court indicated that a "material impact" does not require that an employee suffer an economic detriment or psychological injury. While mere offensive utterances or petty social slights are not actionable, the Supreme Court held that FEHA’s anti-retaliation language protects employees from "the entire spectrum of employment actions that are reasonably likely to adversely and materially affect an employee’s job performance or opportunity for advancement in his or her career."

Further, and perhaps more importantly, the court noted there is no requirement that an employer’s retaliation "constitute one swift blow, rather than a series of subtle, yet damaging, injuries." Thus, according to the court, the proper approach is not to look at each alleged retaliation action individually to see if it meets the "materiality" standard. Rather, courts should look at the totality of the employer’s actions to see if they collectively rise to the level of having a material impact on the employee.

Finally, the court also held that an employee can bring a claim for retaliation based on conduct that occurred years earlier as long as the employee alleges that it is part of a pattern of retaliatory conduct. Under the FEHA, an employee generally has one year to make a claim for retaliation with the state agency. Defendants argued that many of the acts plaintiff relied on had occurred years earlier. The court rejected the argument and held that where an employee alleges a retaliatory course of conduct (as compared to discrete acts), the "continuing violations" doctrine applies and the statute of limitations does not begin to run on any of the related alleged retaliatory acts until the adverse employment action acquires some degree of permanence or finality.

Without belaboring the obvious, this conclusion is also terrible news for employers. Previously, employers could reliably (and at a minimal cost) dispose of meritless actions that did not fall within the one-year statutory period. Now, however, future plaintiffs (and their counsel) facing a problematic statute of limitations issue in a contemplated action can plead around this jurisdictional bar by alleging there has been a pattern of retaliatory conduct such that any perceived statute of limitations problem is cleansed by the continuing violations doctrine. As a result, the employer will have lost an effective and straightforward defense to the lawsuit.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved