Northwest Business Litigation

New Portland sick leave ordinance will go into effect January 1, 2014

Following in the footsteps of Seattle, San Francisco, and others, the City of Portland enacted a sick leave ordinance on March 13, 2013, applicable to employees who work at least 240 hours per calendar year within the City limits. Employees who work in the City intermittently accrue benefits under the ordinance only for the hours they are paid to work within the City.

The ordinance requires small employers – those with five or fewer employees – to provide one hour of unpaid sick time for every 30 hours of work performed by the employee. Employers of six or more employees must provide one hour of paid sick time for every 30 hours of work performed. Salaried executive, administrative or professional employees who are exempt from overtime under state and federal law are presumed to work 40 hours per week for purposes of accruing sick time under the ordinance, unless their regular work week is less than 40 hours.

Employees may accrue a maximum of 40 hours of paid sick time per year unless the employer provides or is contractually obligated to provide more. Employees may carry over up to 40 hours of unused sick time from year to year. An employer with an established sick leave or PTO policy that provides for the accrual of sick time that equals or exceeds the requirements of the ordinance need not provide additional time off.

Employees may use sick time accrued under the ordinance for:

• The diagnoses, care, or treatment of an illness, injury, or health condition, including pregnancy, childbirth and preventive care, of the employee or the employee’s family member.
• For protected leave under ORS 659A272 (covering absences due to domestic violence, criminal harassment, sexual assault , or stalking).
• Due to an ordered closure of a business, school or day care facility due to a public health emergency.
• Due to a legal requirement that the employee be excluded from the workplace for health reasons.
• To care for a family member of whose presence in the community would jeopardize the health of others, as determined by a public health authority.

The required sick time may be used for all of part of a shift in increments of no less than one hour, unless the employer allows a smaller increment to be used. Employees may not use sick time if the employee is not scheduled to work in the City for the shift for which the sick time is requested. Employees are also prohibited from using sick time in the first 90 days of employment, unless the employer allows it.

Employers must allow employees to trade shifts to avoid using sick time if the employer allows shift trading. Employees must otherwise use their accrued sick time whenever an absence qualifies for it.

Employees must notify employers of their need to use sick time. Employers are required to establish a written policy or standard to inform employees how that notice should be provided. For absences of more than three consecutive days, employers may require reasonable documentation that sick time has been used for a permissible purpose. Employers must pay the cost of any verification required from a health care provider that is not covered by insurance.

Employers are not required to pay employees for unused accrued sick time on termination of employment.

Employers may not count the use of sick leave toward as an unexcused absence under an attendance policy. In addition, employers are prohibited from interfering with or retaliating against employees who exercise or attempt to exercise their rights under the ordinance. Employers must post a notice informing employees of their rights under the ordinance.

The City has yet to adopt administrative rules for interpreting or implementing the ordinance, which will be subject to a public review process. Enforcement is likely to be governed by ORS Chapter 659A.800, which sets forth the procedures for enforcement and remedies for violation of many of Oregon’s employment-related statutes.

Employers have the rest of the year to beef of their sick leave policies or otherwise comply with the new ordinance. Stay tuned for further developments.

US Supreme Court: Class certification inquiry may involve a ruling on the merits

Courts considering motions to certify a class action can't shy away from considering the merits, if doing so is necessary to determine whether the class meets the requirements of FRCP 23(a).  That was the conclusion reached last week by the US Supreme Court in Comcast Corp. v. Behrend. 

In Comcast, the plaintiffs sought to certify a class of Comcast cable television customers in the Philadelphia area.  Plaintiffs claimed an antitrust violation arising out of Comcast's acquisition of competitor cable providers.  In order to certify a class action under FRCP 23(a), plaintiffs were required to show, among other things,that damages were measurable on a classwide basis through a common methodology.  In agreeing to certify the class, the Third Circuit Court of Appeals refused to entertain certain of defendant's arguments about the plaintiffs' damages model because those arguments had a bearing on the merits of plaintiffs' claim.

Justice Scalia, writing for the majority, stated that the inability of plaintiff's expert to tie the above-market prices to the alleged antitrust violations made the case improper for class certification.  The Third Circuit's refusal to address that issue because it touched on the merits was improper.

Employers must exercise caution when withdrawing offers of employment

The Oregon Supreme Court in Cocchiara v. Lithia Motors, Inc., (discussed in our earlier blog post here) opened up the possibility of a promissory estoppel or fraud claim against an employer who withdraws an offer of at-will employment. The Supreme Court found no conclusive presumption against recovery for lost at-will employment where the plaintiff was never hired or allowed to start work.  

The anomaly created by this case – and the one noted in other cases involving this issue – is that the employer may not have been subject to suit if it had allowed the employee to start work in the at-will position, and then terminated his employment soon thereafter. Short of that, employers seeking to avoid claims in connection with offers of employment will want to be clear about any contingencies that must be met before employment begins, and must insure that any representations they make to induce the employee’s reliance on a job offer are accurate.

Retracting an at-will job offer puts employer at risk for a tort claim

The Oregon Supreme Court this month held that a person offered at-will employment may be able to state a claim for promissory estoppel and fraud when the prospective employer retracts the offer. 

In Cocchiara v. Lithia Motors, Inc., according to the facts put forward by plaintiff in response to a summary judgment motion, plaintiff was a long-time employee of defendant who, after suffering a heart attack, asked defendant for a transfer to a less stressful position.  Defendant offered plaintiff a transfer to a new position, and plaintiff as a result turned down a job offer from another prospective employer. Soon thereafter, and before plaintiff made the transfer, the employer retracted the offer.  Plaintiff sued for promissory estoppel and fraud.

The trial court and Court of Appeals held that plaintiff could not state a claim as a matter of law.  Because the employment offered to him was at-will and could have been terminated at any time, those courts concluded he could not prove either reasonable reliance on the promise or damages.  The Supreme Court disagreed, finding nothing in the law to support the conclusion that "a promisee's reliance is per se unreasonable if the underlying promise is for a contract at will."  Reasonableness is an issue for the jury, considering all relevant circumstances.  Likewise, the fact that the offered job was terminable at will does not mean as a matter of law that plaintiff cannot prove associated damages.

Securities fraud: Proof of materiality not required to obtain class certification

Last week the U.S. Supreme Court held that a securities fraud plaintiff need not prove the materiality of defendant's alleged misrepresentations or omissions in order to obtain class certification.  While materiality is a necessary element of a securities fraud claim, the issue before the Court in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds was whether materiality must be proven at the early stages of the case, when the trial court decides whether to allow it to proceed as a class action. The Court affirmed the Ninth Circuit, and resolved a split in the circuits, when it concluded that proof of materiality is not necessary to insure that common questions of law or fact predominate.  

LLC member's breach of fiduciary duty results in 600,000-1 ratio of punitive to compensatory damages

Last week the Oregon Court of Appeals again addressed the appropriate ratio of punitive to compensatory damages when compensatory damages are modest.  One week after affirming an award of punitive damages that was 200 times compensatory damages in Lithia Medford LM, Inc. v. Yovan, the court, in Evergreen West Business Center, LLC v. Emmert, reinstated a jury award of punitive damages 600,000 times compensatory damages.

In Evergreen, the jury's verdict and damages awards were supported by evidence that the defendant LLC member had a substantial net worth and that he made a calculated decision to breach his fiduciary duties to the LLC in order to profit at its expense. The defendant breached his fiduciary duties by dealing behind the backs of the other LLC members to acquire real property that was owned by the LLC, but under threat of foreclosure.

Finding for the LLC, the jury had awarded $1 in compensatory damages and $600,000 in punitive damages. The trial court reduced the punitive damages award to $4 in order to maintain the 4-to-1 ratio that has been approved by the Oregon Supreme Court as consistent with the Due Process Clause in non-personal-injury cases.

Among his arguments on appeal, defendant contended that, as a member of the LLC, he did not owe it any fiduciary duty.  In particular, he claimed the LLC statute provides that members of a manager-managed LLC who are not also managers owe no duties to the entity or the other members solely by reason of being a member. The Court of Appeals concluded that the statute was inapplicable because the defendant's fiduciary duty was not based solely upon his status as a member, but rather upon the fact that the defendant entered into a relationship of confidence with the company when he promised to prevent the foreclosure of the property on behalf of the LLC.

Next, the court discussed the punitive damages award of $600,000. Relying on the Oregon Supreme Court's decision in Hamlin v. Hampton Lumber Mills, Inc. and its own decision in Lithia, the court held that the reprehensibility of the defendant's conduct, which is the most important indicator of reasonableness of a punitive damages award, supported an award that exceeded a single-digit multiplier of nominal damages. Given the defendant's net worth and the gravity of his tortious conduct, the $600,000 in punitive damages was sufficiently admonitory and did not violate his right to due process.

See our discussion of Lithia here.

Oregon Court of Appeals affirms 200-1 ratio of puntive damages to compensatory damages

The Oregon Court of Appeals last week affirmed a jury award of $100,000 in punitive damages in a case where compensatory damages were $500.  The Court applied the standards set forth by the Oregon Supreme Court last year in Hamlin v. Hampton Lumber Mills, Inc., finding that the defendant engaged in sufficiently reprehensible behavior to justify punitive damages 200 times compensatory damages.

In Lithia Medford LM, Inc. v. Yovan, defendant purchased an automobile from plaintiff, and soon thereafter found a discrepancy between the mileage on the odometer and the actual mileage.  Following an extended dispute over how to resolve the issue, plaintiff sued to rescind the sale due to mutual mistake.  Defendant counterclaimed for violation of the Oregon Unlawful Debt Collections Practices Act.  The trial court reduced the jury's award of $100,000 in punitive damages to $2,000, to bring it in line with the modest amount of compensatory damages. 

Hearing the case en banc, the Court of Appeals split on whether the trial court properly reduced the punitives award to a single-digit multiple of the compensatory damages. Judge Nakamoto, writing for the majority, stated that the consumer had proven that the car dealer "repeatedly used deceptive and abusive tactics against a financially vulnerable consumer to enhance its financial interests."  The court also pointed to the dealer's "arrogant presentation to the jury of its position that it had done nothing wrong" to justify retaining the jury's punitive damages award.  These facts supported the 200-1 ratio of punitive to compensatory damages.

Judge Wollheim, writing for the minority, advocated for reducing the punitives to $25,000, which is comparable to the statutory penalties available under the Unlawful Debt Collections Practices Act.

See our discussion of Hamlin, and its analysis of punitive damages in cases in which compensatory damages are small, here.

Ater Wynne vindicates trademark owner against prior user of mark

A federal judge in Illinois recently ruled that a Chicago company's long-term use of the term "vault" to describe its product did not defeat an Oregon company's use of the term as a registered trademark. 

Edsal Manufactoring Company, Inc., an industrial steel cabinet manufacturer, sued Vault Brands, Inc., an Oregon designer of custom cabinetry and the owner of the registered mark VAULT, for trademark infringement on the grounds that Edsal had been using the word "vault" for its locking metal cabinets more than 10 years before Vault had used its VAULT mark for custom cabinets.  Soon after answering the complaint and denying the allegations, Vault filed a motion for summary judgment on Edsal's claim for trademark infringement.  Vault contended that, although Edsal used the word "vault" to describe its locking metal cabinets, Edsal never used the term as a trademark to identify the source of the goods.  Sitting in the Northern District of Illinois, United States District Judge Dow agreed with Vault and granted summary judgment on Edsal's claim of trademark infringement because Edsal used the word "vault" as merely a desciptor or generic for its locking metal cabinets. 

Ater Wynne litigator Dan Larsen represented Vault Brands.  See the opinion in Edsal Manufacturing Company, Inc. v. Vault Brands, Inc., here.

US Supreme Court: Federal Arbitration Act bars state court from ruling on contract's validity

This week the U.S. Supreme Court again affirmed the broad scope of the Federal Arbitration Act, holding that when a contract includes a valid arbitration provision, an arbitrator, and not a court, should decide in the first instance whether the contract is valid under state law.

In Nitro-Lift Technologies, LLC v. Howard, an employer sought to enforce an employee non-competition agreement containing an arbitration clause.  Two employees subject to the agreement asked the Oklahoma state court to hold that it was void under state law.  While the employer argued that the contract's enforceability should be decided by an arbitrator in the first instance, the Oklahoma Supreme Court refused to send the issue to an arbitrator and held that the noncompetition agreement was "void and unenforceable as contrary to Oklahoma's public policy."

On review, the U.S. Supreme Court rebuked the Oklahoma court for displaying the type of "judicial hostility toward arbitration" that is foreclosed by the FAA.  The Oklahoma court ignored longstanding precedent establishing that attacks on the validity of the contract as a whole, as distinct from attacks directed to the validity of the arbitration clause, must be resolved by the arbitrator. 

(Mostly) Business as Usual after Voter Approval of Washington's Marijuana Initiative

On election day, voters in Washington decriminalized the production, processing, sale, and possession of marijuana under state law by approving Initiative Measure No. 502 (I-502). Effective December 6, 2012, Washington law will no longer prohibit the possession of specified amounts of marijuana by people who are 21 years of age or older. Adults in this age category will be permitted to possess not more than one ounce of dried marijuana flowers, 16 ounces of marijuana-infused products in solid form, or 72 ounces of marijuana-infused products in liquid form. Also effective December 6, 2012, the state’s driving-under-the-influence law will set forth a THC concentration limit for drivers who are 21 or over of 5.00 nanograms per milliliter of blood. There will be zero tolerance for drivers under 21.

I-502 does not set an effective date for the legalization of the production, processing, and sale of marijuana. Instead, the state liquor control board has until December 1, 2013 to adopt rules that will govern the market for recreational marijuana. These rules will, among other things, establish licensing requirements, marijuana inventory limits, and advertising restrictions.

Although the state liquor control board has more than a year to issue its rules, it is unclear how the board will go about its task given the fact that federal law, which supersedes state law, is inconsistent with I-502. In response to a similar initiative that passed in Colorado, the United States Attorney’s Office for the District of Colorado issued a statement that noted, “The Department of Justice’s enforcement of the Controlled Substances Act remains unchanged. In enacting the Controlled Substances Act, Congress determined that marijuana is a Schedule I controlled substance.” Under the Controlled Substances Act, Schedule I substances are those that have a high potential for abuse and no currently accepted medical use in treatment in the United States. Possession of a Schedule I substance is a federal crime, and a first conviction is punishable by up to one year in prison and a minimum fine of $1,000.

Most, if not all, prospective marijuana producers, processors, and retailers will likely stay out of the market for recreational marijuana as long as they face potential criminal prosecution by the federal government. This reality means that I-502 may end up having little practical effect on the availability of marijuana in Washington. The Department of Justice is reviewing both I-502 and the Colorado initiative and will presumably issue a report at the conclusion of its review.

Unless and until the federal government changes the classification of marijuana or the enforcement of the Controlled Substances Act, employers in Washington may continue to test applicants and employees for THC and take adverse employment actions based on the results of those tests. The possession of marijuana remains illegal under federal law, and I-502 does not require Washington employers to permit illegal drug use by their employees. That said, employers may consider whether their drug use policies should be amended to prohibit the use of any drug that is illegal under state or federal law.