Issue 2 - 2005

After employers purchase Employment Practices Liability Insurance (EPLI), can they choose their own attorneys in case of a lawsuit? Often not. EPLI policies commonly have provisions giving the insurance company the right to choose counsel. Once an EPLI policy with such a provision is in place, an employer may not be able to convince the insurance company to use an attorney whom the Company knows and trusts. The best time to address this issue is before purchasing/renewing EPLI. Employers can often negotiate the right to use certain attorneys as part of the insurance bargain.

The federal Americans with Disabilities Act ("ADA") and California's Fair Employment and Housing Act ("FEHA") prohibit medical examinations and inquiries until after an employer has made a "real" job offer to an applicant. A recent court case, Leonel v. American Airlines, Inc., (9th Cir. 2005), addressed just when a job offer is "real".

American Airlines extended offers of employment to several applicants for flight attendant positions which the Company conditioned on their passing background checks and medical examinations. Applicants were all HIV positive; however, they did not disclose this information during their medical examinations. Blood tests administered in connection with the medical examination revealed that Applicants were HIV positive. American withdrew its conditional offers of employment, citing the Applicants' failure to disclose this information during the medical examinations. The Applicants sued, claiming, among other things, that the medical examinations violated the ADA and FEHA.

The Court stated that in order to issue a "real" offer under the ADA and FEHA, an employer must have either completed all non-medical components of its application process or be able to demonstrate that it could not reasonably have done so before issuing the offer. The Court concluded that American had not extended "real" offers of employment because: (1) its offers to the Applicants were contingent not just on the Applicants successfully completing the medical component of the hiring process but also on the completion of a critical non-medical component: undergoing background checks, and (2) American failed to establish that it could not reasonably have completed the background checks before subjecting the Applicants to medical examinations.

The Court rejected American's argument that even if the offers were not "real", the Company did not violate the ADA or FEHA because it evaluated the Applicants' non-medical information before it considered their medical information. The Court stated that the statutes regulate the sequence in which employers collect information, not the order in which they evaluate it.

This case highlights the importance of conducting prospective employees' medical examinations only after all other contingencies (such as completion of background checks, etc.) have been lifted. Timing is everything!

Getting rid of employee records just got a little more difficult. The "Disposal of Consumer Report Information and Records" Rule, effective June 1, 2005, requires certain businesses to "properly" dispose of all consumer reports or records derived from consumer reports which can individually identify a person. Proper disposal involves taking "reasonable measures to protect against unauthorized access to or use of the information in connection with its disposal." The Rule is designed to addresses the risk of consumer fraud, identity theft and other consumer harms from improper disposal of such information. The Rule covers records in paper, electronic, or other form and applies to any individual or business under the jurisdiction of the Federal Trade Commission that maintains or otherwise possesses consumer information for business purposes. Businesses that fall into this category include companies that obtain consumer reports for employment screening purposes, as well as those who otherwise obtain personal information about employees from consumer reports.

The Rule does not proscribe a specific method for destruction of records. However, the following methods should comply with the Rule: (1) implementing and monitoring compliance with policies and procedures that require burning, pulverizing, destroying, or shredding of papers containing consumer information; (2) implementing and monitoring compliance with policies and procedures that require erasing electronic media containing such information; and (3) contracting with a third party to dispose of consumer information in a manner consistent with the Rule (and monitoring performance of such disposal).

What does this mean for employers? Employers who obtain consumer reports for employment screening purposes or otherwise obtain personal information about employees from consumer reports must either implement policies to adequately dispose of such consumer information or contract with a third party to do it.

The legal rules as to when an employer can legally test for drugs are complex. California law applies a balancing test in each case, comparing the employer's interest in a drug-free workplace with the employee's expectation of privacy. No testing is risk free. However, based on current California case law, the following guidelines can be deduced: employers should be able to drug test applicants for all positions; employees in non-safety sensitive positions only should be tested based on individualized reasonable suspicion; and, employees in safety sensitive positions may be tested randomly or based upon suspicion. However, because only one appellate court has held that employees in safety sensitive positions may be tested randomly, there is still risk in random testing. A conservative employer (unless in a highly safety-sensitive industry) who wishes to avoid litigation will avoid random testing. Whatever testing the employer chooses to adopt, the program must be supported by an appropriate policy, procedures, forms, and management training.

Wilkinson v. Times Mirror Corp. (Cal.App. 1989), permitted the testing of job applicants because they have a lesser expectation of privacy than employees. California courts have expanded upon Wilkinson and earlier decisions that permitted drug and alcohol testing of applicants. For example, Pilkington Barnes Hind v. Superior Court (Cal. App. 1998), points out the importance of conditioning job offers on successfully passing a drug test. A manager received a conditional offer of employment that required successfully passing a drug test, which he did not take until after he had relocated and started work. He failed the test and was discharged. The discharged manager claimed that he had been an employee, who could not be tested unless there was reasonable suspicion. The court disagreed. Even though he had started work, he was still considered an applicant whose drug test did not require reasonable suspicion.

Luck v. Southern Pacific Transportation Co. (Cal. App. 1990), and Semore v. Pool (Cal. App. 1990), determined that random testing of employees not in safety sensitive positions, is unlawful. Kraslawky v. Upper Deck Co. (Cal. App. 1997), addressed but did not completely answer whether an employee (an executive secretary neither in a safety or security sensitive position) may be tested on reasonable suspicion. The appellate court did not dispute the lawfulness of reasonable suspicion testing because the secretary had agreed as a condition of employment to suspicion based testing. It is unclear whether the court would have reached the same conclusion had the secretary not voluntarily agreed to reasonable suspicion drug testing. Also, the California Supreme Court has not squarely addressed whether non-safety-sensitive employees may be tested on reasonable suspicion.

The California Supreme Court did invalidate a city's suspicion-less drug testing program for employees who were promoted. Loder v. City of Glendale (Cal. S.C. 1997). The court ruled that testing current employees without reasonable suspicion violated the Fourth Amendment (which applies only to a government employer, but not a private sector employer). Although the court did not reach the privacy issue under Article One, Section One of the California Constitution, the court presumably would have reached the same conclusion on the basis of the state constitution (which does apply to all California private employers). The Loder decision also implied that it would approve of reasonable suspicion testing for employees not in safety-sensitive positions. The court observed:

"If a current employee's performance and work record provides some basis for suspecting that the employee presently is abusing drugs or alcohol, the employer will have an individualized basis for requesting that the particular employee undergo drug testing, and current employees whose performance provides no reason to suspect that they currently are using drugs or abusing alcohol will not be compelled to sustain the intrusion on their privacy inherent in mandating urinalysis testing."

The same decision upheld across the board applicant testing regardless of position on the grounds that pre employment testing was merely an incremental intrusion into the individual's privacy because all applicants for employment with the City of Glendale were required to take pre employment medical exams and the city complied with other appropriate procedural safeguards in administering the test.

In 1999, an appellate court approved random drug testing of an employee in a safety sensitive position. The Court carefully considered substantial details to determine that the position was safety sensitive. Smith v. Fresno Irrigation District (Cal. App. 1999). Although the Fresno Irrigation District is a government employer, the court guidelines may be used by private employers to evaluate which of their employees may be considered as having safety sensitive positions for which random testing may be permitted in California. The factors for consideration are the degree, severity and immediacy of harm posed to the individual, co workers and the public.

In Fresno Irrigation District, the construction maintenance worker position was found to be safety sensitive for the following reasons:

1. the construction maintenance worker operated power tools and heavy equipment (including a sloper and a boom) in close proximity to co workers;
2. in order to make repairs, the construction maintenance worker had to crawl through as much as a half mile of pipe where injury from collapse, gas fumes, water and debris presented high potential for injury, especially if a drug impaired employee became disoriented or claustrophobic;
3. as a "top man," the construction maintenance worker's responsibility for the safety of his pipe crawling partner required no drug impairment that would significantly increase the risk of injury (from an inappropriate and/or untimely response) to a pipe crawler in an already hazardous position; and
4. almost all work was performed in or around trenches involving the ever present danger of collapse or falling into the trench.

Some industries must test certain employees, pursuant to regulation. For example, the Department of Transportation mandates drug testing of drivers holding commercial licenses.

Whatever testing the company chooses to adopt, the program must be supported by an appropriate policy, procedures, forms, and management training.