Friday, May 18, 2012

California Employers Beware

Every so often I get a decision crossing my desk that is so breathtakingly silly that I have to mention it. Sometimes, those silly decisions have significant ramifications for employers. And, it seems, a decision that meets both criteria is, nine times out of ten, coming from California.

I don't know what it is about California, but you would think the place with an economy approaching the status of Greece would have judges a little more sensitive to the business implications of their decisions. Not so. A relatively recent decision out of a Northern California appellate court sets a new standard for oddball analysis and pernicious result.

Here's the situation: a partner in a partnership complains to the other partners about allegations of sexual harassment by members of the partnership against partnership employees. Sometime after that, the partnership  reduces the partner's responsibilities and job title. She sues under California state employment discrimination law, claiming that the partnership is retaliating against her for raising the allegations of sexual harassment.

The thing is, a partner in a partnership is not an employee of the partnership, she's a member of the company ownership and management. She can't sue the partnership directly for employment discrimination, because that would be the functional equivalent of an employer suing itself for its own conduct. In fact, the California Supreme Court determined that a partnership is not the employer of its partners, and can't be liable to them for employment discrimination claims. Presumably this included retaliation claims, at least until this latest demonstration of California judicial reasoning.

The appellate court found that the partner could sue the partnership for retaliation, based on the fact that although the statute specifically exempted nonemployer entities (i.e., partnerships) from its coverage, this exclusion did not apply to non-employees (i.e. partners) who were acting to protect the status of partnership employees. Thus, a nonemployer could be sued by its nonemployee if the nonemployee complained about the nonemployer's actions with respect to actual employees.

This gobbledygook rationale creates all kinds of troubling scenarios for employers in the state. For example, if a delivery driver (a nonemployee) reports to one of his customers that he observes a customer manager mistreating a customer employee, and the customer then tells the delivery service that it does not want that particular driver to show up anymore, the nonemployer customer is liable to the nonemployee delivery driver for some type of improper retaliation (my thanks to my friend and LA partner John Barber for crafting this enlightening example).

Such a possibility makes absolutely no sense whatsoever.

It will be pure entertainment to see if other appellate courts follow this rationale, or if this decision gets unceremoniously dumped on appeal.  Until it does, however, the floodgates of retaliatory discharge are now wide open on the West Coast.


  1. "the California Supreme Court determined that a partnership is not the employer of its partners, and can't be liable to them for employment discrimination claims."

    Can you give me a cite, pretty please?

  2. Here's the excerpted analysis from the case under discussion:

    "Torrey Pines extended the holding of the Supreme Court in Reno v. Baird (1998) 18 Cal.4th 640 that a supervisor whose conduct renders the employer liable for employment discrimination under section 12940, subdivision (a) cannot be held personally liable for the discrimination. The court reached this conclusion even though other subdivisions taken literally would impose liability on all persons responsible for the misconduct.
    In Torrey Pines, the court held that the rationale for not holding individuals personally liable for discrimination applies equally to retaliation. (Torrey Pines, supra, 42 Cal.4th at p. 1164.) The multiple reasons for not imposing liability on nonemployer individuals for discrimination or retaliation—although they can be held personally liable for harassment under section 12940, subdivision (j)were summarized succinctly in Torrey Pines as follows: supervisors can avoid harassment but cannot avoid personnel decisions, it is incongruous to exempt small employers but to hold individual nonemployers liable,sound policy favors avoiding conflicts of interest and the chilling of effective management, corporate employment decisions are often
    collective, and it is bad policy to subject supervisors to the threat of a lawsuit every time they make a personnel decision (Id. at p. 1167.)"
    "Upholding plaintiff‘s claim here does not imply that a partner would have a valid claim for harassment or discrimination against himself or herself by the partnership....the alleged sexual harassment of a
    partner by a fellow partner is not a practice[] forbidden under this part..."

    Hope that helps.