California Supreme Court Gives Two Victories to Employees

In a matter of a week, the California Supreme Court gave employees two victories in cases concerning disability discrimination and mandatory employment arbitration agreements.

In Colmenares v. Braemar Country Club, Inc. (February 20, 2003), the California Supreme Court, disapproving five contrary decisions of the California Court of Appeal, as well as its own previous opinion on the subject, held that the definition of "physical disability" under California law is, and has been since 1992, much broader than the definition of "disability" under the federal Americans with Disabilities Act. Under California’s broad definition of "physical disability," a person is disabled if he or she has an impairment that makes participation in a major life activity difficult. Put another way, unlike under federal law, virtually any physical impairment can potentially be a "physical disability" under California law. That means even somewhat benign conditions will trigger protections under the law, including the duty of an employer to reasonably accommodate the alleged "physical disability" of the employee.

Employers in California have known since 2001, with the passage of the Prudence Kay Poppink Act (Poppink Act), that California had an extremely broad definition of "physical disability" under the law. The Supreme Court’s decision in Colmenares, however, means that the broad definition of the Poppink Act is applicable to cases arising prior to 2001. The California Legislature passed the Poppink Act in response to a variety of rulings by the United States Supreme Court that narrowed the definition of "disability" under federal law. The Poppink Act expressly defined a "physical disability" as an impairment that merely limits an individual’s ability to participate in a major life activity. Conversely, under federal law, a person is disabled only if he or she has an impairment that "substantially limits one or more major life activities." (42 U.S.C. § 12102(2)(A) (emphasis added). Thus, the California definition of "physical disability" is far broader than the federal definition of "disability." Under the Poppink Act, virtually any condition can "limit" a major life activity and thus be a protected disability under the law.

Most employers legitimately believed that the Poppink Act represented a change in California law. Indeed, at least five published decisions of the Court of Appeal decided prior to passage of the Poppink Act — as well as language in a California Supreme Court decision— held that California defined "physical disability" the same way it was defined under federal law. These courts held that an impairment constituted a "physical disability" under the law only if it substantially limited a major life activity. Employers legitimately relied upon these judicial opinions in making their own employment decisions.

Nonetheless, in Colmanares, the Supreme Court held that California law had always used the broad definition of disability contained in the Poppink Act. Thus, when the plaintiff’s disability discrimination action arose in 1997 (which was prior to passage of the Poppink Act), the plaintiff needed only to demonstrate that he had an impairment that "limited" (as opposed to substantially limited, as required under federal law), his ability to participate in major life activities.

Based upon this analysis, the Supreme Court reversed the Court of Appeal’s grant of summary judgment (rendered on grounds that the employee did not have a disability under California law prior to the passage of the Poppink Act) and remanded the case for further proceedings. The issue in the case will now likely revolve on whether the employer reasonably accommodated the employee and/or fired him because of his alleged disability (a back injury).

The Colmenares decision makes clear that California employers must be ready to attempt to reasonably accommodate almost any impairment raised by an employee; and, employers must be prepared to defend disability discrimination cases on their merits. Employers can no longer, as they often can under federal law, avoid a reasonable accommodation obligation (or a disability discrimination/adverse treatment claim) by merely arguing that an employee’s condition is not a physical disability and thus not subject to legal protection.

It is possible that employees whose claims were previously adjudicated using the federal standard may now seek to revive their claims against their employers. Cases that employers thought were gone may take on new life.

One week later, in Little v. Auto Steigler, (February 27, 2003) the California Supreme Court reaffirmed and broadened the applicability of its restrictions upon mandatory employment arbitration agreements imposed by the Court in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000). Under Armendariz, to be enforceable in California, a mandatory employment arbitration agreement that seeks to force an employee to arbitrate statutory employment claims must (1) not limit damages normally available to the employee in civil court under the applicable statute; (2) provide for adequate discovery by the parties; (3) provide for a written arbitration decision; and, (4) provide that the employer pay all types of costs that are unique to arbitration.

In a 4-3 vote, the Court expanded Armendariz’s reach to include claims for wrongful termination in breach of public policy. The Court also reaffirmed that employment arbitration agreements must apply equally to both employee and employer and, an employer imposing mandatory arbitration upon its employees must, notwithstanding federal decisions to the contrary, continue to pay all costs unique to arbitration. However, the Court also, in a boon for employers, agreed to sever an unconscionable provision in an arbitration agreement rather than vitiating the entire arbitration agreement.

In Little, the employee signed a mandatory arbitration clause with his employer. The agreement provided, among other things, that if the arbitrator awarded more than $50,000 in the arbitration, the losing party could appeal the decision to a second arbitrator. This was the only appellate right provided in the arbitration agreement. The employee, who claimed that he had been fired because he had reported warranty fraud, brought a claim for wrongful termination in breach of public policy. The employer then sought to compel the claim to arbitration.

The Supreme Court examined several issues. First, the Court examined whether the Armendariz restrictions applied to claims for wrongful termination in violation of public policy. Reasoning that employees have public policy rights that are just as strong as statutory rights, and in fact are, by definition, based upon statutory rights, the Court extended Armendariz protections to govern arbitration agreements that mandate arbitration of public policy termination claims.

The Court then concluded that one part of the arbitration agreement did not satisfy Armendariz. It examined the arbitration clause to determine if both sides—employer and employee—had equal rights. Here, however, the arbitration gave the employer a chance to appeal an adverse decision while denying the employee any right to appeal if he or she lost the arbitration. The Court found that the unequal appeal provision was not enforceable. However, because the appeal provision was the only unconscionable clause in the contract, the Court held that it could be severed and that the arbitration agreement was still enforceable. This is a positive development. After Armendariz, there was concern that courts would be reluctant to "blue pencil" defective arbitration agreements that contained unconscionable clauses, and would instead simply invalidate the entire arbitration agreement.

Finally, differing from the United States Supreme Court, the Court held that under California law, an employer must, in cases where Armendariz applies (statutory and public policy claims), pay all of the costs unique to arbitration. The employer cannot force the employee to split arbitration costs.

Little thus reaffirms three basic truths about mandatory employment arbitration agreements in California:

• The agreement must be mutual. Employers cannot devise clever ways to put the employee at a disadvantage. Employers should recognize that getting a case into arbitration and away from a jury often provides advantages; trying to "rig" the arbitration in the employer’s favor is a recipe for losing the opportunity to arbitrate altogether.
• The employer must pay for the arbitration. The Supreme Court will generally not permit an employer to force an employee into arbitration unless the employer is willing to pay for the cost of the arbitration.
• The arbitration must provide the employee benefits and procedures similar to those that exist in a civil judicial proceeding. Employers must not limit arbitration procedures by restricting discovery or other litigation opportunities. Employees must be permitted to litigate fully their claims in the arbitration forum.

In addition to their specific legal holdings, both cases demonstrate a more fundamental point: California law is substantially different than federal law. While the Supreme Court of United States may issue employment law decisions favorable to employers, often these decisions will have little impact upon California employers.