California Supreme Court Holds Failure to Promote Claims Accrue With Employee’s ‘Knowledge’ of Denied Promotion

If an employee is passed over for a promotion due to alleged harassment, does the failure to promote happen when the employer decides to promote someone else or when the successful candidate actually takes on the role?

The answer, as the California Supreme Court unanimously held in Pollock v. Tri-Modal Distribution Services, Inc. on July 26, 2021, is neither. Rather, the court ruled that the statute of limitations on a failure to promote claim brought under the Fair Employment and Housing Act’s (FEHA) harassment provision begins to run once the employee knows or reasonably should know the employer did not promote him or her.

The California Supreme Court also held that the FEHA’s directive 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” applies to an award of costs on appeal.

Background

Pamela Pollock is a customer service representative at Tri-Modal Distribution Services, Inc. In 2014, Tri-Modal’s executive vice president, Michael Kelso, began dating Pollock. They dated until 2016, at which point Pollock ended the relationship because Kelso allegedly wanted their relationship to become sexual. Pollock alleges that after she refused to have sex with Kelso, Tri-Modal and Kelso “denied her a series of promotions even though she was the most qualified candidate.” One of the promotions Pollock claims the defendants unlawfully denied her went to Leticia Gonzalez. Gonzalez accepted the promotion offer in March 2017, and she assumed the new position on May 1, 2017.

On April 18, 2018, Pollock filed an administrative complaint with the California Department of Fair Employment and Housing (DFEH), alleging that Tri-Modal and Kelso had subjected her to quid pro quo sexual harassment in violation of the FEHA. At that time, the FEHA required individuals seeking relief under the statute to “file an administrative complaint with the DFEH within one year ‘from the date upon which the alleged unlawful practice … occurred.’” (Ellipses in original.) (The current statute now permits individuals to file such administrative complaints within three years rather than one.) Thus, the court found that if the failure to promote Pollock “occurred” when Gonzalez’s promotion took effect on May 1, 2017, her harassment claim was timely. But if the failure to promote Pollock occurred in March 2017 when Gonzalez accepted the promotion offer, the court continued, the statute of limitations would have lapsed by the time Pollock filed her administrative complaint.

The trial court determined that the failure to promote occurred in March 2017, and thus granted Kelso’s motion for summary judgment on the ground that Pollock’s claim was time-barred. The California Court of Appeal agreed and awarded costs to the defendants. The cost awards were not predicated on any finding by the court of appeal that “Pollock’s underlying claim ‘was frivolous, unreasonable, or groundless when brought’ or that she ‘continued to litigate after it clearly became so.’”

The Supreme Court’s Decision

The California Supreme Court took a different approach. Acknowledging from the outset that “the limitations period set out in the FEHA should be interpreted so as to promote the resolution of potentially meritorious claims on the merits,” the court determined that the meaning of “occurred” should turn on “notice to the employee” rather than the timing of the failure to promote decision by the employer. As the California Supreme Court explained:

The Court of Appeal’s holding would presumably allow an employer or supervisor to decide not to promote an employee but never inform the employee of that decision, and then later rely on the employer’s or supervisor’s own record of when the decision was made to assert that the limitations period for challenging the decision has expired. This is at odds with the principle that “section 12960 should not be interpreted to impose serious practical difficulties on an employee’s ability to vindicate” the right to hold employment without experiencing discrimination or harassment “if it can be reasonably interpreted otherwise.”

Accordingly, the California Supreme Court held that the limitations period to file an administrative complaint based on a failure to promote “does not begin to run … until an aggrieved employee knows or reasonably should know of the employer’s decision not to promote him or her.” The court further determined that “[t]he statute of limitations is an affirmative defense, and as with any affirmative defense, the burden is on the defendant to prove all facts essential to each element of the defense.” Thus, according to the court, Tri-Modal and Kelso must prove when Pollock knew or reasonably should have known of the adverse promotion decision. Because the record on appeal did not indicate when Pollock became aware of Gonzalez’s promotion, the case was remanded to the lower court for further proceedings.

The California Supreme Court also vacated the cost awards to the defendants. The defendants had argued that costs on appeal in a FEHA action should be governed by Rule 8.278(a) of the California Rules of Court, which generally provides that “the party prevailing in the Court of Appeal in a civil case other than a juvenile case is entitled to costs on appeal.” Not surprisingly, Pollock advocated for the FEHA’s costs provision to apply, whereby “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.”

Relying heavily on the legislative history of the FEHA costs provision, which emphasized “the public policy that society should incentivize enforcement of our civil rights laws,” the California Supreme Court ultimately sided with Pollock and held that Section 12965(b) applies to awards of costs to defendants on appeal—and not just at the trial court level. Thus, “because the Court of Appeal made no finding as to whether Pollock’s claims were objectively groundless,” the California Supreme Court vacated the award of costs to the defendants.