2024 California Supreme Court preveiw

2024 brings us the second year of service by California's new Chief Justice

On January 2, 2023, Chief Justice Patricia Guerrero was sworn in as the 29th Chief Justice of California.  She followed former Chief Justice Tani Cantil-Sakauye, who was regarded as a strong leader who brought stability and consistency to the administration of justice.  2024 will therefore be Chief Justice Guerrero's second year of service.

Predictions for 2024

If we were to hazard a prediction as to the ideology and direction of the Court in 2024, we would predict that its stability and consistency would continue.  In fact, there is only one remaining Republican appointee, Justice Corrigan, who was appointed by Governor Schwarzenegger in 2005.

More to the point, given the fact that Mr.  Schwarzenegger hardly governed as a political conservative, it appears the court is entirely moderate to left of center in terms of ideology.  There have been no notable four to three decisions in recent memory and the Court has become known for its unanimous seven to zero decisions. 

Key rulings likely to involve the scope of protections for employees

In 2024 the Supreme Court has already issued an opinion regarding whether a trial court may dismiss a Private Attorney General (PAGA) claim related to meal and rest breaks on "manageability" grounds. (Estrada v. California Commerce Club).  We will discuss Estrada in a future post, but it is worth noting this is not the only case relating to employment pending before the Supreme Court and, indeed, other cases with employment law issues may be granted review.  

The question then becomes:  will counsel for employees continue their recent success?  We will see, and, in the meantime, note that briefs of cases that have or will soon be argued are available here. 

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Arbitration — Employer alleged to have received trade secrets from a new employee does not have a right to “arbitrate” claims brought by prior employer against the new employer (Mattson v. Applied)

 

Arbitration — while a former employee may demand that the former employer arbitrate its claims of trade secret theft against him, the new employer who allegedly received the secrets cannot claim any right to arbitrate the claims against it

The First District, Division Five, has held agreement signed by an employee agreeing to arbitrate claims related to his employment cannot be utilized by the employee’s new employer to force the former employer to arbitrate claims against it related to theft of trade secrets. (Mattson v. Applied (October 30, 2023) A165378.)  Defendant Applied is a competitor of plaintiff Mattson and hired at least 14 former employees of Mattson, including co-defendant Lai, who eventually admitted that he emailed himself documents from his tenure at Mattson before he left for Applied.  Mattson sued both Lai and Applied, and the defense moved to compel arbitration pursuant to the employment agreement signed by Lai and Mattson.  

Plaintiff alleged causes of action for 1) misappropriation under the Uniform Trade Secrets Act against each defendant, and, as against employee Lai, breach of his employment agreement.  Of course, at the time the agreement with Mattson was signed, there was no employment or other sort of contractual relationship between Lai and Applied.

The Hon. Evelio M. Grillo, Judge Presiding, of the Superior Court of Alameda County ruled that while Lai could compel arbitration, Applied had no right to compel former employer Mattson to arbitrate.  The trial court also issued a broad preliminary injunction regarding any use of trade secrets.  Moreover, the trial court declined to stay litigation of the claims of Mattson against Applied until the claims against Lai could arbitrated.

Justice Burns and a unanimous court upheld the first two of these trial court orders.  Even though Applied could claim no contractural privity, it argued that “equitable estoppel” prevented Mattson from refusing arbitration of its claims against Applied.  This argument was rejected by the First District because, inter alia, former employer Mattson made no attempt to apply any portion of the employment agreement with Lai against new employer Allied:

Equitable estoppel provides a limited exception to this general rule.  When a signatory to a contract asserts claims against a non-signatory that rely upon, or are inextricably bound up with, the contract terms, the non-signatory may invoke an arbitration clause in the same contract.  

This makes sense.  As a matter of fairness, when a party to a contract seeks to hold a non-signatory defendant liable for obligations imposed by the contract, the party cannot evade an arbitration clause in the contract simply because the defendant is a non-signatory.  It’s a two-way street. 

Keeping this policy in mind helps define the limits of the rule.  It is not enough that a complaint simply refers to a contract; the claims must be founded on the contract.  Nor is it sufficient that a complaint alleges collusion between a signatory and non-signatory defendant, or that the controversy would not have occurred but for the existence of the contract, provided the contract is not the basis for the claims against the non-signatory.  In these situations, the policy rationale for equitable estoppel—"relying on an agreement for one purpose while disavowing the arbitration clause of the agreement”—does not exist.  (Id., pp. 5-6; citations omitted and emphasis added.)

The Mattson court therefore relied upon a federal case, Waymo LLC v. Uber Techs., Inc. (Fed. Cir. 2017) 870 F. 3d 1342, at 1343-1344) where, likewise, the claims of misappropriation against the new employer did not rely upon the employee's contract with the former employer.

The appellate court also upheld the injunction against Applied, finding the trial court had a reasonable basis for granting its order.  However, it overturned the trial court’s order denying the request to stay the litigation to first permit the completion of the arbitration with Lai.  As the First District pointed out, California's Code of Civil Procedure section 1281.4 provides a “stay” in these circumstances “shall” be granted:

If a court of competent jurisdiction. . . has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before a court of this State, the court . . . shall . . . stay the action or proceeding until an arbitration is had in accordance with the order to arbitrate. (Id., p. 12.)

Tips for practitioners

Equitable estoppel is often misapplied by counsel, not only because it is an equitable concept that relies heavily upon how the facts of a particular case are to be interpreted.  The concept is also applied in a sloppy and/or cursory way because counsel wrongly presume the concept is entirely malleable because it involves "equity;" therefore, counsel mistakenly focus more on what they believe are the sympathies in their particular case rather than the limitations of the doctrine set forth by case law.  

However, the key concept in equitable estoppel may be said to be the parameters of "estoppel" and not the broader concept of equity.

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Short-takeway - Agent of employer on hook for asking illegal questions of job applicants (Raines v. US Healthworks)

 

Short Take-away:  Agent of employer who asked invasive questions as part of a pre-employment screening may be sued under California's FEHA

Responding to a question from the Ninth Circuit Court of Appeals, the California Supreme Court has held the agent of an employer may be sued under the Fair Housing and Employment Act (FEHA) when it acts on behalf of an employer and asks intrusive questions prohibited by law. (Raines v. US Healthworks (August 24, 2023) S273630.)  Questions from defendant US Healthworks Medical Group to potential employees of the hiring employer included:

. . . USHW required job applicants to complete a written health history questionnaire that included numerous health-related questions having no bearing on the applicant’s ability to perform job-related functions. According to plaintiffs, these questions covered details of the applicant’s health history including “whether the applicant has and/or has ever had: 1) venereal disease; 2) painful or irregular vaginal discharge or pain; 3) problems with menstrual periods; 4) irregular menstrual period; 5); penile discharge, prostate problems, genital pain or masses; 6) cancer; 7) mental illness; 8) HIV; 9) permanent disabilities; 10) painful/frequent urination; 11) hair loss; 12) hemorrhoids; 13) diarrhea; 14) black stool; 15) constipation; 16) tumors; 17) organ transplant; 18) stroke; or 19) a history of tobacco or alcohol use.” In addition, the questionnaire asked whether the job applicant was pregnant, sought information regarding medications taken, and required the job applicant to disclose prior job-related injuries and illnesses. (Id., pp. 2-3.)

Justice Jenkins wrote for a unanimous court, which held that instead of the rules of common-law agency, the relevant and applicable authority was Government Code section 12940 of the FEHA.  This section provides that "[e]mployer’ includes. . .  any person. .  acting as an agent of an employer. . . ."

The Supreme Court  explained this result is supported by public policy because it makes liable the entity who (allegedly) violated FEHA, and indeed, the entity who no doubt drafted the offensive questionnaire:

If a business entity contracts with an employer to provide services that will affect that employer’s employees, and if, in providing those services, the business-entity agent violates FEHA’s antidiscrimination policies, causing injury to the employer’s employees, it is consistent with sound public policy to treat the business entity as an employer of the injured employees for purposes of applying the FEHA. This interpretation imposes FEHA liability not only on the employer but also extends it to the entity that is most directly responsible for the FEHA violation. (Id., p. 27.)

As a final comment, it is difficult to understand how US Healthworks could even consider asking such improper questions, such as whether female employees are pregnant, and not run afoul of California law.  The idea that US Healthworks may escape liability by claiming they are merely an agent of the employer seems to border on subterfuge, and, indeed may appear to be an attempt by the hiring employer and its agent to evade rules forbidding employers from asking questions that clearly violate California law.

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