As 2003 ended, the California Supreme Court handed down two employment law decisions that are of vital importance to public entities and which illustrate the old saying, "I’ve got good news and I’ve got bad news." First the bad news. In Shifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 6 Cal.Rptr.3d 457, the Court determined that a public employee may file a civil action for employment discrimination directly with the Court without first exhausting any internal administrative remedies set forth in the public entities’ rules, regulations or Charter.

Now for the good news. In State Department of Health Services v. Superior Court (McGinnis) (2003) 31 Cal.4th 1026, 6 Cal.Rptr.3d 441, the Court held that while employers are still strictly liable under the FEHA for sexual harassment by a supervisor, an employee’s recoverable damages in sexual harassment cases does not include damages the employee could have reasonably avoided by reporting harassment to his or her employer. Together, the cases change the legal landscape of FEHA claims in general and sexual harassment claims under FEHA in particular.

Steve Schifando was employed as a storekeeper for the City of Los Angeles. He suffered from severe hypertension which caused him to become dizzy and lightheaded in stressful situations. During a meeting in August, 1998, two of Schifando’s supervisors began arguing with Schifando in an attempt to trigger his hypertension. As the argument progressed, Schifando experienced severe hypertension and had trouble breathing. He finally informed the supervisors that he could not take it anymore and that he quit. The supervisors then asked Schifando to sign a document which he later realized was a resignation form. Schifando filed a complaint against the City for employment discrimination based on physical disability under the California Fair Employment and Housing Act ("FEHA"). Prior to filing his civil action, Schifando timely filed an administrative claim with the Department of Fair Employment and Housing ("DFEH") and received a right to sue letter. However, Schifando never attempted to exhaust the internal administrative remedies set forth in the City’s Charter.

The Charter provides that a person who is wrongfully discharged must file a demand for reinstatement with the Board of Civil Service Commissioners and a claim for compensation within ninety days.

The City argued that Schifando was required to exhaust both the FEHA remedies and the City Charter remedies before filing a lawsuit in superior court. The Court disagreed. Relying upon a prior decision which held that state employees may bring suit under the FEHA (rather than only under the Civil Service Act), the Court determined that public employees should not be required to exhaust internal administrative remedies prior to filing a FEHA claim in superior court. While the Court noted that government employees remain perfectly free to pursue a city’s internal remedies, such remedies need not be followed if the employee chooses to file a claim with the DFEH instead. The Court reasoned that requiring government employees to exhaust both DFEH and internal remedies would frustrate the intent of the FEHA to expand an employee’s right to address discrimination.

The Schifando decision may lead public entities to believe that employees asserting FEHA claims will never proceed administratively and will always proceed directly to Court. In an attempt to ease this fear, the Schifando court noted that civil actions often take years to conclude and are expensive. The Court surmised that only those with the most egregious discrimination claims would chose litigation over internal remedies. The Court also emphasized that employees are still required to exhaust internal remedies for non-FEHA claims as long as the Legislature has not mandated another statutory scheme containing its own exhaustion procedures.

Following Schifando, public employers can expect that more and more employees will bypass the internal administrative remedies which most public employers have in place in order to file a complaint directly with the court. Public entities must carefully review any claims from employees which bypass the internal remedies to determine if the claim really falls under the provisions of the FEHA. In addition, the Schifando decision does not change an employee’s obligation to exhaust his or her DFEH remedies prior to a civil action. Public entities must continue to carefully review all FEHA claims for procedural defects. Interestingly, the holding of Schifando has some connection to the second case addressed in this article.

In McGinnis, the California Supreme Court finally resolved an issue concerning sexual harassment claims that has been left unresolved in California since 1998. In 1998, the United States Supreme Court issued two decisions Burlington Industries, Inc. v. Ellerth ("Ellerth") 524 U.S. 742 (1998) and Faragher v. City of Boca Raton ("Faragher") 527 U.S. 775 (1998) which for the first time created a partial or complete defense for employers facing claims for sexual harassment based on supervisory conduct. Specifically, in Ellerth and Faragher, the Supreme Court held that an employer may establish a partial or complete defense to an employee’s claim for sexual harassment not involving a "tangible employment action" (i.e. demotion or termination) by proving (1) that the employer exercised reasonable care to prevent and correct promptly any sexually harassing behavior and (2) that the plaintiff employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer or to avoid harm otherwise. Since the Supreme Court’s decision arose from a claim of sexual harassment under Title VII of the Civil Rights Act rather than the FEHA, it was unclear whether the Ellerth and Faragher defense articulated by the Supreme Court applied to sexual harassment claims brought under California law. The Court finally addressed this issue in McGinnis.

The California Supreme Court’s response to the United States Supreme Court holding was somewhat novel. In McGinnis, the Court determined that it would not adopt the partial or complete defense articulated by the Supreme Court. However, the Court did determine that the doctrine of "avoidable consequences" applied to claims for sexual harassment under FEHA and that under this doctrine, an employee’s damages for sexual harassment do not include damages the employee could have avoided with reasonable effort and without undue risk, expense or humiliation. The Court made clear that from a liability standpoint, California employers are strictly liable for harassment committed by a supervisor. However, from a damages standpoint, California employers can potentially limit the damages recoverable from an employee claiming harassment by a supervisor.

The McGinnis decision identified three elements which an employer must establish to create a defense based on the avoidable consequences doctrine: (1) the employer took reasonable steps to prevent and correct workplace sexual harassment, (2) the employee unreasonably failed to use the preventive and corrective measures that the employer provided and (3) reasonable use of the employer’s procedures would have prevented at least some of the harm that the employee suffered. The Court warned that the defense will allow an employer to escape only those damages that the employee likely could have prevented with reasonable effort by taking advantage of the employer’s internal complaint procedures appropriately designed to prevent and eliminate sexual harassment.

The Court also stated that in some instances, an employee’s failure to report harassment may be reasonable, such as where the employer lacks an adequate anti-harassment policy or procedures, the employer never communicated the policy or procedures to the victimized employee, the employee may reasonably fear reprisal for complaining, or the employee can show that embarrassment, humiliation or shame prevented him or her from reporting the harassing conduct.

The McGinnis decision emphasizes how important it is for public entities to have updated, adequate and appropriate anti-harassment policies and procedures. In addition, public agencies must ensure that its anti-harassment policies and procedures are disseminated to its employees through posters, notices, on-going training and distribution. Public employers must also ensure that employees have several ways to report harassment in a way that will protect the employee’s confidentiality to the extent possible and which will not result in embarrassment or humiliation to the employee. Any allegations of retaliation against an employee for reporting harassment must be swiftly and effectively addressed to ensure that employees can reasonably be expected to report harassment when it occurs without fear of retribution. Public entities must also investigate claims of harassment thoroughly and promptly so that employees cannot claim that it would have been unreasonable to make a report of harassment. Handling all harassment claims in strict accordance with the employer’s policies and procedures is particularly important under McGinnis since employees may be able to obtain this information when the employer asserts the avoidable consequences defense.

The effect of a public entity having an updated and comprehensive approach to preventing and responding to harassment claims will be a reduction of such claims and the ability to limit damages when such claims are brought.