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FEHA harassment claim based on failure to promote accrues when employee knows or should have known of adverse decision

By Kathleen Kapusta, J.D.

California’s highest court also held that a statute of limitations is an affirmative defense and the burden is on the defendant to prove all facts essential to each element of the defense.

A FEHA harassment claim based on a failure to promote accrues when the employee knows or reasonably should know of the employer’s non-promotion decision, the California Supreme Court ruled, and the limitations period under Section 12960 begins to run at that point. In reversing the decision of the court below, which found that a customer service rep’s injury occurred when her employer did not promote her because of sexual harassment, the state high court also noted that the statute of limitations is an affirmative defense and the burden is on the employer to provide all facts essential to proving when the employee knew or should have known of the adverse decision. Nor, said the court, can an appellate court award costs or fees on appeal to a prevailing FEHA defendant without first determining that the plaintiff’s action was frivolous, unreasonable, or groundless when brought or that the plaintiff continued to litigate when it clearly became so (Pollock v. Tri-Modal Distribution Services, Inc., July 26, 2021, Liu, G.).

Denied promotions. According to the customer service rep, an executive VP of the distribution services company initiated a dating relationship with her in 2014. When she refused his attempts to turn the relationship into a sexual one, he and the company denied her a series of promotions even though she was the most qualified candidate.

Trial court decision. She then sued the company and the VP alleging quid pro quo harassment in violation of the FEHA. Because she filed her administrative complaint in April 2018, more than a year after the successful candidate for the promotion at issue was offered and accepted the job, the trial court found her claim barred by the then applicable one-year limitations period.

Appeals court decision. Agreeing that her claim was time-barred, the intermediate appeals court explained that the “statute of limitations for a failure to promote runs from when the employer tells employees they have been given (or denied) a promotion. That date is key, and not the date when the promoted worker actually starts the new work.” According to the court, that moment occurred in March 2017 when the employer did not promote the employee because of sexual harassment. After concluding that the trial court properly granted summary judgment to the employer and VP, the court awarded costs on appeal to the defendants.

“Occurred.” On appeal, the state high court noted that it was addressing the employee’s quid pro quo sexual harassment claim against the VP and the issue was when the actionable harassment “occurred” within the meaning of section 12960, former subdivision (d). The employee argued that the failure to promote occurred in May 2017, the effective date of the other candidate’s promotion. For his part, the VP argued that the promotion denial occurred in March when the company offered the promotion to the other candidate and she accepted.

Better view. While the appeals court took the view that the injury “occurred” when the employer decided not to promote the employee because of sexual harassment, it included no mention of notice to the employee, the high court observed. This, the court noted, could allow an employer to decide not to promote an employee, never inform the employee of that decision, and later rely on its own record of when the decision was made to assert that the limitations period had expired. The better view, the court declared, is that such a claim does not accrue until an aggrieved employee knows or reasonably should know of the non-promotion decision.

Romano. The court turned to its 1996 decision in Romano v. Rockwell Internat., Inc., a case in which an employer notified an employee more than two years before his actual termination that he would be fired. In that decision, it held that the limitations period began to run at the time of the actual termination. Rejecting the employee’s contention that under Romano the limitations period for her harassment claim did not begin to run until the other candidate’s promotion took effect, the court found this “conflates a promotion with a failure to promote.” A promotion, the court explained, occurs when an employee begins working in the new position. An employer’s refusal to promote “does not depend on any decision by the employer to promote someone else,” as in many cases, an employer may refuse to promote the aggrieved employee well before promoting someone else.

Federal law. Further, observed the court, federal authorities interpreting similar federal laws also indicate that a failure-to-promote claim accrues when the employee knows or reasonably should know of the non-promotion decision. After surveying the case law, the state high court held that “a FEHA harassment claim based on a failure to promote accrues, and the limitations period under section 12960 begins to run, when the aggrieved employee knows or reasonably should know of the employer’s decision not to promote him or her. It is not enough to identify when an employer made its decision not to promote the employee; what starts the clock is the employee’s actual or constructive knowledge of the employer’s decision. This approach, said the court, protects the employee because the clock starts running only when the employee knows or reasonably should know about the adverse decision.

Burden of proof. Addressing next who bears the burden of proving when the employee knew or should have known about the adverse decision, the court pointed out that the statute of limitations is an affirmative defense. Therefore, as with any affirmative defense, the defendant bears the burden to prove all facts essential to each element of the defense. “This approach makes sense,” the court explained, “because the timing and manner of notifying an employee of an adverse promotion decision are often uniquely within the defendant’s control.” Moreover, the court pointed out, placing the burden on the defendant also properly incentivizes clear and timely notification to the employee.

Reversed and remanded. Because the lower court found that the statute of limitations began to run when the other candidate was offered the job, and did not discuss when the employee knew or should have known that she had been denied the promotion or whether the VP, in asserting the statute of limitations defense, established any facts regarding the employee’s actual or constructive knowledge, the court reversed and remanded to the court below.

Costs. Finally, the court addressed the issue of costs on appeal. California Rules of Court 8.278(a)(1) provides that “the prevailing party in the Court of Appeal in a civil case other than a juvenile case is entitled to costs on appeal.” However, FEHA Section 12965(b), which provides a private right of action to enforce the FEHA, provides that the court may award reasonable attorneys’ fees and costs to the prevailing party “except that . . . a prevailing defendant shall not be awarded fees and costs unless the court finds the action was frivolous, unreasonable, or groundless when brought, or the plaintiff continued to litigate after it clearly became so.”

Noting that the lower court made no finding before awarding costs to the employer and VP, the state high court pointed out that Section 12965(b) governs the authority of “the court” to award fees and costs. The VP argued that Rule 8.278 speaks directly to costs on appeal while Section 12965(b) is silent regarding its costs on appeal, and thus it governs only costs in the trial court. Explaining that it previously rejected a similar argument, the court concluded that Section 12965(b) applies to costs on appeal and that an appellate court may not award costs for fees without first determining that the plaintiff’s action was frivolous, unreasonable, or groundless when brought, or that the plaintiff continued to litigate after it clearly became so. Accordingly, the court vacated the lower court’s award of costs.