In three recent decisions, the California Supreme Court ruled in favor of employers in two instances and against them in one.

In Green vs. State of California, 2007 Cal. LEXIS 8910 (Cal. 2007), the California Supreme Court was asked to interpret the Fair Employment Housing Act in connection with disability claims. Specifically, the California Supreme Court was asked to determine whether employees or employers, under state law, bear the burden of proving that the employee is capable of performing the essential duties of the job. Consistent with federal law, the California Supreme Court held that it is part of the employee’s burden of proof to establish that he/she is capable of performing the essential functions of the job. This ruling should assist employers in defending state disability claims, particularly in the context of motions for summary judgment.

In Prachasaisoradej vs. Ralph’s Grocery Company, Inc., 2007 Cal. LEXIS 8908 (Cal. 2007), the California Supreme Court was asked to determine whether the state’s “wage protection laws” invalidated an employer’s incentive compensation plan which took into consideration storewide workers compensation costs and storewide cash and merchandise losses. Numerous California statutes prohibit, among other things, employers from deducting various costs from an employee’s “wages.” There are a series of appellate decisions holding that including workers compensation costs and storewide cash and merchandise losses as part of a profitability calculation in an incentive compensation plan violates state wage protection laws. In invalidating those decisions, the California Supreme Court held that “Ralph’s profit-based supplementary incentive compensation plan, designed to reward employees beyond their normal pay for their collective contribution to store profits, did not violate the wage protection policies of labor code Sections 221, 400-410 and 3751 insofar as the plan included store expenses, such as workers compensation costs, cash and merchandise shortages, breakage and third-party tort claims in the profit calculation.” In essence, the Court held that the incentive compensation plan did not constitute “wages,” and, therefore, the state wage protection laws did not apply.

Lastly, in Gentry v. Superior Court (Circuit City Stores, Inc.), (Circuit City Stores, Inc.), 2007 Cal. LEXIS 9376 (Cal. 2007), the California Supreme Court held that in most instances class action arbitration waivers are invalid because they may operate effectively as an exculpatory contract clause that is contrary to public policy. The Court concluded that, even before the district court evaluates whether the arbitration provision is “unconscionable,” it must determine whether the class action waiver is an exculpatory contract contrary to public policy. The Court specifically held that “under some circumstances [a class arbitration waiver] would lead to a de facto waiver [of statutory rights] and would impermissibly interfere with employees’ ability to vindicate unwaivable rights and to enforce the overtime laws.”

In making that determination, the Supreme Court provided the trial courts with various factors to be considered. Those factors include the following: (1) the modest size of the potential individual recovery; (2) the potential for retaliation against members of the class; (3) the fact that absent members of the class may be ill-informed about their rights; and (4) other real world obstacles to the vindication of class members’ right to overtime pay through individual arbitration. Based on this ruling, it appears that most class arbitration waivers will be found to be invalid and that the process of attempting to enforce such waivers will be expensive in light of judicial review of both the validity of the class arbitration waiver and the procedural and substantive unconscionability of the arbitration clause.