In September 2018, Governor Jerry Brown signed a series of bills aimed at drastically reshaping California’s approach to claims of discrimination and harassment amidst the “#MeToo” Movement. Among the legislation is Senate Bill 1300 which clarifies and expands employee rights under the California Fair Employment and Housing Act (“FEHA”). SB 1300, which was met with both opposition and support, became effective January 1, 2019. In addition to Senate Bill 1300, Gov. Brown also signed into law a series of bills on issues relating to workplace harassment, gender equality and human trafficking.

CALIFORNIA SENATE BILL 1300: HEIGHTENED EXPOSURE FOR EMPLOYERS

SB 1300 intends to close loopholes in the law that discourage or prevent victims from speaking out, and allow employers to avoid sexual harassment and discrimination laws and leave employees vulnerable to sexual harassment at work. In an attempt to aid these efforts, SB 1300 provides the following enhancements, further described below: 1) a new “single occurrence” standard for sexual harassment cases; 2) increases the challenges of recovering litigation costs for defendants; 3) potentially holds employers liable for third-party harassment; 4) prohibits release of both claims and non-disparagement agreements; and 5) provides for workplace accommodation and bystander training.

“SINGLE OCCURRENCE” STANDARD

One highly significant implication of SB 1300 is that it now makes a single instance of sexually harassing conduct a potentially triable sexual harassment claim by statute. Under FEHA, action was required to be so “severe or pervasive” so as to create a hostile work environment before it was actionable. However, the term “severe or pervasive” was subjective, leaving room for interpretation as to what conduct would be significantly severe or pervasive to support a claim under the existing law. For example, in Brooks v. City of San Mateo, 229 F.3d 917 (9th Cir. 2000), the Ninth Circuit Court of Appeals found that an employee touching another employee’s chest under her sweater was not significant enough to rise to the level of “severe or pervasive,” and, thus, granted the employer’s motion for summary judgment.

SB 1300 narrows the definition of “severe or pervasive” by clarifying that a single incident of harassing conduct is sufficient to create a triable issue, so long as the conduct limited the employee’s work performance or created a hostile work environment. The Legislation specifically rejects the court’s holding in Brooks and states that the case opinion shall not be used in determining what kind of conduct is sufficiently severe or pervasive to constitute a violation of the FEHA.

Of significance to litigation resulting from employment claims, SB 1300 affirms the court’s opinion in Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243. In Nazir, the Plaintiff filed a lawsuit against his former employer, United Airlines, and his former supervisor (“Defendants”). Defendants filed a motion for summary judgment/summary adjudication, seeking adjudication of 44 issues. The appellate court found that hostile work environment cases involve issues that are “not determinable on paper.” SB 1300’s reference to the finding in the Nazir case that employment issues are too complex for motions for summary judgment may be a threat to the validity of future motions for summary judgment in employment law cases which has been a common and successful defense tactic.
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Ramsey v. Georgia Southern University Advanced Development Center, et al., No. 305, 2017, C.A. No. N14C-01-287 ASB (Del. June 27, 2018).

On June 27, 2018, the Supreme Court of the State of Delaware issued a fifty-seven-page opinion in the above-mentioned case, creating new precedent for Delaware employer liability in secondary or “take-home” asbestos cases. Below is a summary of both the relevant factual and procedural background, as well as Chief Justice Strine’s opinion.

The plaintiff’s spouse, Robert Ramsey, worked for Haveg Industries, Inc. at its industrial plant for twenty-four years. From 1967 to 1979, Mr. Ramsey regularly handled asbestos-containing products manufactured by Georgia Southern University Advanced Development Center and Hollingsworth and Vose Company as part of his job as a maintenance worker at Haveg. Throughout this period his wife, Plaintiff, Dorothy Ramsey, washed Mr. Ramsey’s asbestos-covered clothing. Mrs. Ramsey eventually developed lung cancer, from which she subsequently died in 2015. Her estate sued the manufacturers of the asbestos products, alleging that the cancer was caused by Mrs. Ramsey’s exposure to her husband’s asbestos-riddled clothing. In granting the appellee manufacturers’ motions for summary judgment and dismissing the claims, the Delaware Superior Court relied primarily on two previous Delaware Supreme Court cases, Riedel v. ICI Americas Inc., 968 A.2d 17 (Del. 2009), and Price v. E.I. DuPont de Nemours & Co., 26 A.3d 162 (Del. 2011), in which the Delaware Supreme Court held that an employer owed no duty to non-employees, including their spouses, for failure to adequately warn of the dangers of handling clothing exposed to asbestos, minus a special relationship between the employer and the non-employee, because the failure to warn was nonfeasance rather than misfeasance. Mrs. Ramsey appealed, arguing that in distinguishing an employer from a manufacturer: 1) a manufacturer of asbestos products creates the danger of asbestos-related harm and therefore commits misfeasance by failing to warn foreseeable victims; and 2) to the extent the holdings in Riedel and Price would block recovery on take-home claims against manufacturers, those holdings should be overruled. The appellant defendants argued that Riedel and Price controlled, and prevented Mrs. Ramsey from recovering from manufacturers because they are even further removed from an employer’s spouse than the employer itself. Additionally, they argued that allowing such claims would impose upon manufacturers an essentially limitless duty to warn that would be both impractical and unfair.

The Supreme Court acknowledged the compelling arguments on each side, but ultimately agreed with Mrs. Ramsey. First, the Court held that manufacturers owe a duty to warn to reasonably foreseeable users of their products, stating that “[b]ecause the risk of harm from take-home asbestos exposure when laundering asbestos-covered clothing is reasonably foreseeable, a plaintiff in Mrs. Ramsey’s position has a viable claim against a manufacturer . . . . Ramsey. at p. 44 of 57. However, the Court limited this duty by stating that the “sophisticated purchaser” defense would cut off a manufacturer’s liability to ultimate end users once the manufacturer has warned the
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On April 16, 2018, a Rhode Island court addressed for the first time whether an entity owes a duty of care to protect non-employees from exposure to the asbestos-tainted work clothes of the entity’s employee.  In a decision denying the defendant Crane Co.’s motion for summary judgment in the matter of Carolyn Nichols, as Executrix of the Estate of Iva Pearl Jones, et al. v. Allis Chalmers Product Liability Trust, et al., C.A. No. PC-2008-1134, Judge Sarah Taft-Carter held that while the existence of such a duty is determined on a case-by-case basis, the plaintiffs had presented sufficient evidence to establish that Crane Co. had a duty to protect against such “secondary” or “take-home” exposure.  The decision is significant in that the Court demonstrated a willingness to impose such a broad duty upon an employer if certain factors are met through the plaintiff’s evidence.

In the Jones matter, the plaintiffs alleged that the decedent, Iva Pearl Jones (“Ms. Jones”) was exposed to asbestos from the clothing of her brother-in-law, Stanley Nichols (“Mr. Nichols”) while Mr. Nichols was employed by Crane Co. from 1979 to 1980 and resided in the same home as Ms. Jones and other family members.  The testimony also established that Ms. Jones “always” did the laundry, including Mr. Nichols’ work clothes.  Ms. Jones was diagnosed with mesothelioma in 2005 and passed away in 2007.  The plaintiffs alleged that Crane Co. failed to take adequate precautions to prevent asbestos fibers from leaving the work site and failed to warn employees of a foreseeable risk of take-home exposures to their cohabitants. Following discovery, Crane Co. moved for summary judgment on all counts asserting that it had no duty of care to Ms. Jones, its employee’s sister-in-law, and that the plaintiffs had failed to establish that the alleged exposure to asbestos from Mr. Nichols’ clothing caused Ms. Jones’ disease.

The Court, noting that an employer’s duty to protect against “take-home” exposures is an issue of first impression in Rhode Island, recognized the division of existing authority in other jurisdictions that have addressed the issue in NY, MD, GA, TN, NJ, IL, and ND. The Court held that it need not find a “special relationship” between Crane Co. and Ms. Jones to impose a duty because the plaintiffs allegations were based upon Crane Co.’s own alleged misfeasance in utilizing asbestos-containing products and not on an alleged failure of Crane Co. to protect against the actions of a third-party tortfeasor.  Instead, the Court held that under Rhode Island law, the existence of a duty of care is determined on a case-by-case basis considering the following factors: (1) the foreseeability of the harm; (2) the degree of certainty of injury; (3) the closeness of connection between the defendant’s conduct and the plaintiff’s injury; (4) the policy of preventing future harm; (5) the burden to the defendant and consequences to the community in imposing a legal duty; and (6) the relationship between the parties.

After considering the above-factors, the Court
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Title VII of the Civil Rights Act of 1964 prohibits employers from discriminating on the bases of race, color, national origin, religion, and sex. Federal circuits are currently split on whether discrimination based on sexual orientation falls within the scope of discrimination based on sex (and therefore within the scope of Title VII’s prohibition). On February 26, 2018, the en banc Second Circuit Court of Appeals found in Zarda v. Altitude Express that Title VII’s prohibition of discrimination based on sex does in fact cover discrimination based on sexual orientation, overturning its own precedent holding from almost twenty years prior. This result signals increased viability for challenges advocating a broader interpretation of Title VII to remedy sexual orientation discrimination, as well as a potential pushback by the Jeff Sessions-helmed Justice Department as these challenges arise.

Zarda involved a skydiving instructor (Zarda) who alleged that his employer (Altitude Express) fired him in response to a customer telling them of his sexual orientation. The U.S. District Court for the Eastern District of New York granted summary judgment in favor of Altitude Express on Zarda’s claim, finding that Title VII failed to cover sexual orientation discrimination, and that Zarda failed to establish the type of gender-stereotyping claim covered by the act. The District Court considered itself bound by the Second Circuit’s 17-year-old decision in Simonton v. Runyon, and held that, absent an en banc review by the Second Circuit reversing Simonton, Second Circuit precedent required dismissal. Zarda appealed the summary judgment to the Second Circuit, which granted an en banc review. Writing the majority opinion, Judge Robert Katzmann wrote in the majority opinion that sexual orientation discrimination necessarily involves sex discrimination, as it means discrimination against someone based on their own sex in relation to the sex of those to whom they are sexually attracted. Katzmann noted that although Congress had not sought to address sexual orientation discrimination in Title VII, laws like Title VII “often go beyond the principal evil to cover reasonably comparable evils,” which in this case included sexual orientation discrimination. The Second Circuit thus reversed Simonson, vacated the summary judgment, and remanded the Title VII claim to the District Court.

By allowing such a claim to proceed under Title VII, the Second Circuit joined the Seventh Circuit, which found last April that Title VII covers sexual orientation discrimination in its decision in Hively v. Ivy Tech Community College of Indiana. Hively concerned an adjunct professor who alleged that her employer passed her up for full employment because she was openly gay. Hively argued that she faced discriminated for failing to conform to female stereotypes, and because she publicly identified as a lesbian. The Seventh Circuit reversed and remanded the summary judgment in favor of her employer. It found that “discrimination on the basis of sexual orientation is a form of sex discrimination” and that “a person who alleges that she experienced employment discrimination on the basis of her sexual orientation has put forth
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On December 22, 2017 President Trump signed into law the Tax Cuts and Jobs Act (officially Public Law no. 115-97, named “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”). Recognized generally for changes to the individual income tax brackets, the corporate tax cuts, and the estate tax modification, a separate section, 13307, likely will have a significant impact on sexual harassment settlements.

Senator Bob Menendez (D- NJ) proposed the Weinstein tax exclusion (above) in direct response to the #MeToo movement after the sexual harassment revelations about Harvey Weinstein. The provision was added to the Tax Cuts and Jobs Act to restrict tax deductibility of sexual harassment settlements associated with nondisclosure agreements. Such agreements were reported in connection with Harvey Weinstein, Fox News, and other high profile cases.

Section 13307 modified the IRS Tax Code section 162 to eliminate the ability of businesses and defendants (and possibly plaintiffs) to deduct the costs associated with settlements of sexual harassment claims that are subject to nondisclosure agreements, including legal fees related to the settlements. Because most settlements related to sexual harassment have included confidentiality or nondisclosure language, the impact of this legislation will be significant for all parties involved, and will be reflected in advice from legal counsel. The provision applies to any payments made on or after December 22, 2017 and is not retroactive, except to the extent it affects payments left to be paid after December 22, 2017 on any prior settlement agreement.

The statutory language does not provide definitions for the terms “sexual harassment” or “sexual abuse.” The statutory language also does not clarify the meaning of “related to” for the purposes of settlement or legal fees. This ambiguity leaves several important open questions:

• An employment dispute that does not involve claims of sexual harassment but results in a nondisclosure agreement that includes broad releases may be problematic. If the scope of the releases includes sexual harassment claims, can that settlement be deducted by the business?

• What if a plaintiff has multiple claims, including but not limited to retaliation, gender discrimination, and a sexual harassment claim; what portions of a settlement payment will be deductible? Could effective contract drafting allocate most of the settlement consideration to the non-sexual harassment claims and thereby affect deductibility?

• In settling multiple claims, should counsel draft two separate agreements, one dealing only with the sexual harassment claim and the other agreement with all remaining claims, and allocating the larger portion of the settlement consideration to the nonsexual harassment claim, which is deductible?

• Does the statute exclude all legal fees associated with the claim from deduction, or just the portion of fees associated with the negotiation of the settlement and the drafting and execution of a settlement agreement?

Until more clarity is provided by administrative rules, legislative changes, or court opinions, lawyers will have an important role advising clients how to modify previous boilerplate nondisclosure settlement
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