• California Court of Appeal Splits on Retroactivity of New Customer Harassment Law
  • February 5, 2005
  • Law Firm: Mayer, Brown, Rowe & Maw LLP - Chicago Office
  • Two different districts of the California Court of Appeals have issued conflicting rulings on the retroactivity of a new state law making an employer liable for sexual harassment committed by its customers. In Salazar v. Diversified Paratransit, Case B144243, Second District, March 30, 2004, the Second District applied the law retroactively to a case where the events at issue occurred in 1997. In contrast, just months later, the Fourth District refused to apply the law retroactively in Carter v. California Dept. of Veterans Affairs, Case E030908, Fourth District, August 17, 2004. The California Supreme Court might have to decide this issue.

    Background

    The Second District issued its initial Salazar decision on October 28, 2002, finding that California law did not hold an employer liable for sexual harassment committed by a customer, surprising most labor and employment law practitioners. Indeed, federal law, in the form of regulations promulgated by the Equal Employment Opportunities Commission, has long prohibited sexual harassment of an employee by the employer's customers. California law, however, has never contained a similar prohibition. Instead, California law contained a confusing dichotomy: the preamble to the harassment statute, which does not have the force of law, expressly stated that worksite harassment by "clientele" is prohibited, while the statute itself contained no such provision. Shortly after the initial Salazar decision was issued, the Fourth District issued a similar ruling in Carter.

    Before the Supreme Court could hear the cases, the California Assembly passed Assembly Bill 76 ("A.B. 76"), which specifically provides that the legislature meant to "clarify" the existing harassment law by clearly stating that the law applied to sexual harassment of employees by customers. A.B. 76 also clearly states that its intent is to reverse the Salazar decision. Following the passage of A.B. 76 and its subsequent enactment into law, the Supreme Court remanded both the Salazar and the Carter cases to their respective courts with instructions to reconsider the cases in light of A.B. 76.

    Clarification or Revision?

    As noted, the two courts reached different conclusions. A divided Salazar court decided the issue first, with the majority concluding in a relatively brief decision that A.B. 76 could be applied retroactively. The Salazar majority reasoned that the existing statute was muddied and in need of clarification, that the legislature clarified the meaning of the statute and that the legislature's clarification could not be disregarded. Under California precedent, a clarification of a statute has retroactive application because it does not change the statute's meaning -- it merely clarifies what the statute has meant all along. Accordingly, the Salazar majority reversed the court's prior decision and remanded the matter back to the trial court.

    The dissenting Salazar justice, however, found that a subsequent legislature cannot validly clarify the intent of a previous legislature, especially when only two members of the prior legislature were in the legislature over 15 years later. The dissenting justice also reviewed the legislative history of A.B. 76 and concluded that A.B. 76 was not a clarification but was a substantial revision of existing law.

    "Clarification" Too Narrow

    In contrast to Salazar, a unanimous Carter court held that A.B. 76 could not be applied retroactively. The Carter court noted the Salazar dissent but further found that A.B. 76 could not be a clarification of existing law because the existing law broadly proscribed harassment on the basis of any protected category, not just an individual's sex. A.B. 76, on the other hand, expressly applies only to sexual harassment. Further, the existing statute imposes liability for harassment on employers, labor organizations, employment agencies and apprenticeship programs. A.B. 76 expressly imposes liability for customer sexual harassment only on employers, not the other entities. Thus, the existing law prohibits a broad range of harassment and imposes liability on numerous entities. The A.B. 76 "clarification" merely imposes liability on one entity for one type of harassment. Accordingly, the Carter court held that A.B. 76 is far more than a clarification -- it wholly changes the existing statute.

    Retroactivity v. Due Process

    Nevertheless, the Carter court found that even if A.B. 76 is a wholesale change in the law, it may apply retroactively if the legislature clearly intended that it do so. Because the legislature specifically noted that A.B. 76 was meant to reverse the Salazar decision and because the original Carter decision reached the same conclusion as the original Salazar decision, the Carter court found the legislature did clearly intend that the new law be applied retroactively to the plaintiff in Carter.

    In one final twist, the court held that despite the legislature's clear intent, it would not apply the new law retroactively. The court held that doing so would deprive the employer of due process. The court reasoned that due process requires that citizens be apprised of rules affecting their conduct and that applying the law retroactively would impose liability for past conduct that was clearly legal at the time it occurred. Accordingly, the court upheld its previous result.

    Only time will tell how this split will be resolved. It is unlikely that many other sexual harassment cases exist where retroactive application is currently an issue. Nevertheless, these cases illustrate what can happen when a legislative body tries to fix something without thinking through all of the ramifications.