A troika of California Supreme Court rulings over the past year may signify the end of an era in which the state was at the forefront of employee protections. The rulings demonstrate a strong employer bent, strengthening their ability to dismiss employees and limiting exposure to liability in discrimination cases.

Sanford Jacoby, associate director of UCLA's Institute for Industrial Relations, pointed out that California had established itself as a leader in worker protection, largely because of its Supreme Court decisions.

"Now," he maintained, "the court seems to be backing away and making us more like other states in the sense that employees are less powerful, relative to employers, when it comes to asserting their rights."

In each of the three rulings there was good news for businesses and bad news for individual workers seeking recourse under the California Fair Employment and Housing Act.

The upshot of these decisions could be more arbitration cases with smaller awards to employees and less exposure to punitive damages for employers on the discrimination front. In the workplace, it may mean a further fraying of the employer/employee relationship.

The most recent ruling, Guz v. Bechtel, handed down Oct. 5, strengthens the ability of employers to fend off claims of "implied contract," a doctrine sometimes used by dismissed employees that asserts length of service and pay raises are proof of an employer's legal commitment to keep them on board.

"That's important," said Jeffrey Berman, an employer attorney with Sidley & Austin, "because what the courts had been doing was putting a bunch of facts in a bag, shaking them up and assuming there was enough in there to assume implied contract."

California is an "at-will" employer state. The doctrine gives employers wide discretion in deciding who they want to work for them. Once the concept of implied contract is established, an employer is required to demonstrate that there is a "cause" for dismissal. If such a cause is established, successfully suing that employer becomes more difficult for the employee.

Possible boost for unions

Jacoby suggested that one reaction to the recent decision might be that employees will become more receptive to joining a labor union, which can provide greater protection under collective bargaining agreements. Jacoby noted, however, that most people who bring such suits are well-paid managers who are not covered under the National Labor Relations Act but can afford attorneys.

"The decision points out, more glaringly after all the downsizing in recent years, how little loyalty and protection employers extend to their professional employees and (those employees) will respond in kind," Jacoby predicted.

Mark Rudy, an employee advocate at the San Francisco-based law firm of Rudy, Exelrod and Zieff, said he has received calls from potential clients who have been confronted with at-will employment agreements and the option to sign them or be fired.

"Employees will be required to sign integrated agreements waiving their right to litigation and the trend is already beginning," he said.

Employer attorney Berman maintained that "employee advocates are saying this case will be the demise of Western civilization because employers will arbitrarily terminate workers. That's bunk. Employees have protections from literally dozens of laws, federal anti-discrimination being the most notable."

In the second recent ruling, Armandariz v. Foundation Health Psychcare Services, handed down Aug. 24, the employer sought to compel the plaintiff to arbitrate rather than go to court in a discrimination case based on sexual orientation.

The Supreme Court provided a series of conditions under which employees could be forced into binding arbitration. Prior to the ruling, there were no true guidelines as to what courts were looking for in such agreements. That had made employers edgy about trying the alternative to litigation because a court might strike down the settlement and still require actual legal proceedings.

"It's an important ruling for business," explained Michael Karsis, an employment attorney with Arter & Hadden, "because it says, 'Yes, there are enforceable arbitration decisions.'"

Relief from legal fees

He said employers now have the option to stay out of the court system and, in doing so, incur less in the way of attorneys' fees and court costs.

Michele J. Silak, editor of the California Employment Law Report, concurred.

"It was extremely good news for employers," she said. "Talk had been that it was doubtful whether the court would approve any type of arbitration for statutory discrimination claims."

She noted, however, that the court gave with one hand, but took with the other.

"It said the employer must remember not to have some slipshod arbitration and that the pre-hearing must be more 'court-like,' with discovery and with the employee's costs covered by the employer," she said.

Employers, Silak added, need to review all their written personnel documents and cull them of anything that employees might point to as implying other than an at-will arrangement.

Rudy characterized the ruling as a setback for employees filing as discrimination plaintiffs.

"The bottom line is that you're going to see more cases in arbitration yielding easier, but smaller, awards," he said.

The third case, White v. Ultramar, was decided last August and signaled a sea change in the court's handling of employee/employer relationships, according to those interviewed. The ruling limited an employer's liability in discrimination cases where the company agent is not a manager.

In short, if an accused discriminatory act came from a non-managerial supervisor or foreman, the company itself is free, not of all liability, but of punitive damage claims.

Employees, Rudy said, "won't get a lot of comfort out of the ruling."

But Berman pointed to a realignment of California employment law along the lines it is practiced in other states.

"These are not far-out decisions," he said. "In Armandariz, you had Stanley Mosk (considered a liberal justice) writing the opinion. It is the court simply engaging in appropriate decision making."

For reprint and licensing requests for this article, CLICK HERE.