Salas v. Sierra Chemical Co.

Facts

Defendant Sierra Chemical Co. manufactures, packages, and distributes water-treatment chemicals, a business whose demand rises in spring and summer and falls in autumn and winter, producing seasonal layoffs and recalls of production-line workers. (Salas, supra, 59 Cal.4th at p. 415.) In April 2003, plaintiff Vicente Salas applied for a job, providing a Social Security number and a resident alien card; he completed and signed, under penalty of perjury, a federal Form I-9 listing that number, attached a copy of a Social Security card bearing it, and signed a Form W-4 with the same number. (Ibid.) He began on the production line in May 2003 and was laid off and recalled across the next several seasons, each time using the same Social Security number on new I-9 and W-4 forms. (Id. at pp. 415–416.)

In late 2004 or early 2005, Salas received a letter from the Social Security Administration stating that his name and number did not match the agency’s records; some coworkers received similar letters. (Salas, supra, 59 Cal.4th at p. 416.) According to Salas, defendant’s production manager, Leo Huizar, “told the workers not to worry about discrepancies with Social Security numbers because as long as the company’s president was satisfied with their work they would not be terminated.” (Ibid.) In March 2006 and again in August 2006, Salas injured his back stacking crates on the production line; he returned to work under lifting and posture restrictions, defendant modified his duties, and he filed a workers’ compensation claim. (Ibid.) He continued on modified duty until a seasonal layoff in December 2006. (Ibid.) When the parties later disputed whether and on what terms Salas would be recalled for 2007, the dispute ripened into litigation. (Id. at pp. 416–417.)

The statutory framework — FEHA. Salas’s two causes of action arose under the California Fair Employment and Housing Act (FEHA; Gov. Code, § 12900 et seq.): the first alleged that defendant failed to provide reasonable accommodation for his disability, and the second alleged that defendant wrongfully denied him employment in violation of the public policy expressed in the FEHA by retaliating against him for filing a workers’ compensation claim and for being disabled. (Salas, supra, 59 Cal.4th at pp. 416–417.) Both claims sought lost wages, emotional-distress damages, punitive damages, and attorney fees. (Id. at p. 417.) As the court later emphasized, the FEHA declares the right of all persons “to seek, obtain, and hold employment without discrimination” (Gov. Code, § 12920), and “to combat invidious employment discrimination, the FEHA’s remedial scheme depends heavily on private causes of action in which compensatory damages, including lost pay, may be awarded.” (Salas, supra, 59 Cal.4th at p. 420.)

The statutory framework — Senate Bill No. 1818. The second body of California law at issue is Senate Bill No. 1818 (2001–2002 Reg. Sess.), enacted in 2002, which added four nearly identical provisions to the codes: Civil Code section 3339, Government Code section 7285, Health and Safety Code section 24000, and Labor Code section 1171.5. (Salas, supra, 59 Cal.4th at p. 418.) Government Code section 7285 is representative. Its operative declaration provides: “All protections, rights, and remedies available under state law, except any reinstatement remedy prohibited by federal law, are available to all individuals regardless of immigration status who have applied for employment, or who are or who have been employed, in this state.” (Gov. Code, § 7285, subd. (a); Salas, supra, 59 Cal.4th at pp. 418–419.) Subdivision (b) makes immigration status “irrelevant to the issue of liability” and bars discovery into status absent a clear-and-convincing showing of necessity to comply with federal law, and subdivision (c) declares the provisions “declaratory of existing law.” (Id. at p. 419.) The court explained that the Legislature enacted Senate Bill No. 1818 “in response to the United States Supreme Court’s decision earlier the same year in Hoffman Plastic Compounds, Inc. v. NLRB (2002) 535 U.S. 137.” (Id. at p. 419.)

The federal counterweight. Against these state protections stood the federal Immigration Reform and Control Act of 1986 (IRCA; 8 U.S.C. § 1101 et seq.). Federal law requires employers to verify the identity and work eligibility of new employees (8 U.S.C. § 1324a(a)(1)(B)(i)), requires termination upon an employer’s discovery of a worker’s unauthorized status (id., § 1324a(a)(2)), and subjects violating employers to civil fines and criminal prosecution; a worker who uses false documents to gain employment is likewise subject to civil fines and criminal prosecution. (Salas, supra, 59 Cal.4th at p. 418.) The interplay of these two regimes — California’s command that remedies reach all workers “regardless of immigration status” and IRCA’s command that an employer not knowingly employ an unauthorized alien — frames the entire decision.

Procedural history

After the parties filed motions in limine, Salas acknowledged in one motion that it is a federal crime (18 U.S.C. § 1546(b)(2)) and a state felony (Pen. Code, § 114) to use false identification documents to conceal one’s citizenship or resident-alien status, and stated that he would assert his Fifth Amendment privilege if asked at trial about his immigration status. (Salas, supra, 59 Cal.4th at p. 417.) That disclosure prompted defendant to investigate the authenticity of the documents Salas had submitted. (Ibid.) Defendant then moved for summary judgment, contending it was entitled to judgment as a matter of law under the doctrines of after-acquired evidence and unclean hands, supported by a declaration from the true holder of the Social Security number — a North Carolina resident who did not know Salas and had given no one permission to use the number — and a declaration from defendant’s president describing a policy of refusing to hire, and immediately discharging, anyone who supplied false work-eligibility documents. (Id. at pp. 417–418.)

The trial court initially denied summary judgment. (Salas, supra, 59 Cal.4th at p. 418.) When defendant sought a writ of mandate and the Court of Appeal issued an alternative writ, the trial court vacated its order and entered a new order granting the motion. (Ibid.) Salas appealed, and the Court of Appeal, Third Appellate District, affirmed, holding that his claims were barred both by after-acquired evidence — because he had misrepresented his eligibility to work in the United States — and by unclean hands, because he had falsely used another person’s Social Security number, was disqualified under federal law from working, and had exposed defendant to federal penalties. (Ibid.) The Court of Appeal further held that Senate Bill No. 1818 did not preclude application of those doctrines. (Id. at p. 418.)

The Supreme Court granted review. After review was granted, the court asked the parties for supplemental briefing on whether federal immigration law preempts Senate Bill No. 1818, “an issue the parties had not raised before.” (Salas, supra, 59 Cal.4th at p. 414.) The court ultimately reversed the Court of Appeal’s judgment and remanded. Justice Kennard, a retired Associate Justice sitting by assignment, wrote for a five-Justice majority joined by Chief Justice Cantil-Sakauye and Justices Werdegar, Corrigan, and Liu. Justice Baxter, joined by Justice Chin, filed an opinion concurring in part and dissenting in part: he agreed that summary judgment was improperly granted and assumed the majority’s after-acquired-evidence analysis, but he disagreed on federal preemption, concluding that IRCA forecloses any recovery of posttermination lost wages by an unauthorized worker who procured the job through immigration fraud. (Id. at pp. 433–434.)

Issue

Three questions, layered atop one another. First, does the federal Immigration Reform and Control Act of 1986 preempt — wholly or in part — California’s Senate Bill No. 1818, which extends state employment protections and remedies, including FEHA’s lost-pay remedy, to workers “regardless of immigration status”? Second, is after-acquired evidence of a FEHA plaintiff’s disqualifying misconduct — here, immigration fraud — a complete defense barring the action, or does it instead bear only on the remedies available? Third, may the equitable doctrine of unclean hands wholly defeat a FEHA claim founded on a legislatively expressed public policy?

Holding

Reasoning

Summary judgment supplied the lens; the preemption question was the threshold. Because the case arose from an order granting summary judgment, the court reviewed the record independently, “resolving in the plaintiff’s favor any doubts regarding the propriety of summary judgment.” (Salas, supra, 59 Cal.4th at p. 415.) It then identified the “threshold inquiry” as whether IRCA preempts application of the FEHA’s antidiscrimination provisions to unauthorized-alien workers. (Id. at p. 418.) The court answered that the FEHA is “generally not preempted,” but that “federal preemption does bar an award of lost pay damages under the FEHA for any period of time after an employer’s discovery of the employee’s ineligibility under federal law to work in the United States.” (Id. at p. 418.)

Hoffman did not control, because FEHA is not the NLRA. The court confronted Hoffman Plastic Compounds, Inc. v. NLRB (2002) 535 U.S. 137 head-on. In Hoffman, the United States Supreme Court held that the NLRB could not “award backpay to an illegal alien for years of work not performed, for wages that could not lawfully have been earned, and for a job obtained in the first instance by a criminal fraud.” (Salas, supra, 59 Cal.4th at pp. 419–420, quoting Hoffman, at p. 149.) But the court read Hoffman narrowly: it “did not decide any issue regarding federal preemption of state law,” addressing instead “federal immigration law’s impact on a federal agency’s authority to award a remedy for a violation of federal law.” (Id. at p. 420.) Equally important, the FEHA “differs significantly from the NLRA.” (Ibid.) The FEHA’s remedial scheme “depends heavily on private causes of action in which compensatory damages, including lost pay, may be awarded,” whereas the NLRA does not rely on private causes of action or lost-pay damages, the NLRB being able to enforce its policies “by issuing remedial orders enforceable through its contempt power.” (Id. at pp. 420–421.) Because of that “critical difference … relating to the role played by lost pay awards,” the court declined to treat Hoffman as controlling. (Id. at p. 421.)

The court worked methodically through all three preemption categories. Drawing on De Canas v. Bica (1976) 424 U.S. 351 and Arizona v. United States (2012) 567 U.S. 387, the court began with the presumption that “the historic police powers of the States” are not superseded “unless that was the clear and manifest purpose of Congress,” and that regulation of the employment relationship lies within the states’ police powers. (Salas, supra, 59 Cal.4th at pp. 421–422.) Express preemption did not apply: IRCA’s express clause preempts state laws imposing sanctions on those who employ unauthorized aliens, whereas Salas sought to impose sanctions on an employer for FEHA discrimination, not for hiring. (Id. at p. 422.) Field preemption did not apply either: although IRCA made “combating the employment of illegal aliens central to ‘[t]he policy of immigration law,’” the parties cited no clear-and-manifest congressional purpose to occupy the field so completely as to displace state worker-protection laws, and a contrary conclusion “would dramatically affect state laws such as those regulating workers’ compensation, minimum wages, working hour limits, and worker safety.” (Id. at pp. 422–423.)

Conflict preemption split the case along the discovery line. The decisive analysis came under conflict preemption, which the court resolved by distinguishing the “prediscovery period” from the “postdiscovery period.” (Salas, supra, 59 Cal.4th at pp. 423–424.) For the postdiscovery period, the court held compliance with both laws impossible: because IRCA prohibits an employer from continuing to employ a worker known to be ineligible (8 U.S.C. § 1324a(a)(2)), “any state law award that compensates an unauthorized alien worker for loss of employment during the postdiscovery period directly conflicts with the federal immigration law prohibition,” imposing liability for not performing an act “expressly prohibited by federal law.” (Id. at p. 424.) Federal law therefore preempts Senate Bill No. 1818 to the extent it makes postdiscovery FEHA lost-pay available. (Id. at p. 424.) For the prediscovery period, by contrast, compliance is not impossible: IRCA “does not prohibit an employer from paying, or an employee from receiving, wages earned during employment wrongfully obtained by false documents, so long as the employer remains unaware of the employee’s unauthorized status,” so prediscovery lost wages produce no “inevitable collision between the two schemes of regulation.” (Id. at pp. 424–425.)

Obstacle preemption did not bar prediscovery wages either. Turning to whether prediscovery lost-wage liability would frustrate IRCA’s purpose, the court reasoned that any incentive such a remedy creates for unauthorized workers is “minimal,” because the typical worker is unfamiliar with state remedies, rarely contemplates being unlawfully terminated, and would risk exposing his own status (and criminal prosecution and deportation) by suing. (Salas, supra, 59 Cal.4th at pp. 425–426.) On the other side of the ledger, denying prediscovery wages “would effectively immunize employers that … discriminate against their workers,” lowering employment costs in a way that “would encourage employers to hire workers known or suspected to be unauthorized aliens” — exactly contrary to IRCA’s aim of removing employers’ economic incentives to hire such workers. (Id. at p. 426.) It would, the court wrote, “frustrate rather than advance the policies underlying federal immigration law to leave unauthorized alien workers so bereft of state labor law protections that employers have a strong incentive to ‘look the other way’ and exploit a black market for illegal labor.” (Id. at pp. 426–427.) Senate Bill No. 1818’s prediscovery lost-wage remedy thus survives. (Id. at p. 427.)

After-acquired evidence limits remedies; it does not bar the claim. Adopting the reasoning of McKennon v. Nashville Banner Publishing Co. (1995) 513 U.S. 352, the court held that after-acquired evidence “does not bar all relief under the federal ADEA, although such evidence can limit the remedies granted to the employee,” and that McKennon‘s reasoning “applies with equal force” to FEHA. (Salas, supra, 59 Cal.4th at pp. 428–429.) A complete defense would “eviscerate the public policies embodied in the FEHA by allowing an employer to engage in invidious employment discrimination with total impunity,” because by definition such evidence is unknown to the employer at the time of the unlawful act. (Id. at pp. 429–430.) Yet the employer’s “lawful prerogatives … and the corresponding equities … arising from the employee’s wrongdoing” deserve recognition. (Id. at p. 430.) The court therefore fixed the remedial measuring line: relief “generally should compensate the employee for loss of employment from the date of wrongful discharge or refusal to hire to the date on which the employer acquired information of the employee’s wrongdoing or ineligibility,” and in an appropriate case “particularly egregious” wrongdoing may bar lost wages entirely. (Id. at pp. 430–431.) On the record, a triable issue remained: Huizar’s alleged assurance that workers “would not be terminated” despite Social Security discrepancies, if true, “would support a finding that defendant … deliberately chose to look the other way,” which “could affect application of the after-acquired evidence doctrine and thus the remedies available.” (Id. at pp. 431–432.)

Unclean hands cannot wholly defeat a statutory public-policy claim. The court acknowledged that unclean hands, where applicable, “may be a complete defense to legal as well as equitable causes of action,” but held that equitable defenses “may not … be used to wholly defeat a claim based on a public policy expressed by the Legislature in a statute.” (Salas, supra, 59 Cal.4th at p. 432.) Equitable considerations “may guide the court in fashioning relief,” and have been used “to reduce ordinary tort damages imposed for violation of antidiscrimination laws,” but the Court of Appeal erred in deploying unclean hands as a complete bar to a FEHA action “founded upon public policies established by the Legislature.” (Ibid.)

The separate opinion sharpened the preemption fault line. Justice Baxter, joined by Justice Chin, concurred in the judgment of reversal — agreeing summary judgment was wrongly granted and assuming, without deciding, the majority’s after-acquired-evidence analysis — but dissented on preemption. (Salas, supra, 59 Cal.4th at pp. 433–434.) In his view, “a state law rule that allows any recovery of posttermination lost wages by an employment-ineligible alien who sought or procured the job by submitting fraudulent eligibility documents … is foreclosed by” Hoffman and IRCA — that is, he would have preempted prediscovery wages as well, not merely the postdiscovery wages the majority withheld. (Id. at p. 434.) He also faulted the majority’s treatment of unclean hands, observing that the doctrine “serves as a complete defense to employment-based claims” when applicable and that, properly read, McKennon “rejected the defense of unclean hands under the statute at issue there” rather than reducing damages by it. (Id. at p. 437 & fn. 4.) Because the record did not establish that Salas is in fact an unauthorized alien, Justice Baxter agreed remand was required. (Id. at pp. 433–434.)

Significance

Salas is the Supreme Court’s definitive statement on the remedies available to unauthorized workers under California’s antidiscrimination and labor laws, and it resolves how Hoffman translates — and does not translate — into state-court FEHA litigation. Its central move is to refuse Hoffman the controlling weight employers had hoped to give it: because the FEHA, unlike the NLRA, “depends heavily on private causes of action” and the lost-pay remedy is integral to that scheme, the federal backpay holding does not preempt state remedies wholesale. (59 Cal.4th at pp. 420–421.) The decision instead installs a single, administrable dividing line — the date of the employer’s discovery of the worker’s ineligibility — that channels the entire conflict between IRCA and Senate Bill No. 1818 into one narrow remedial carve-out: no FEHA lost pay for the postdiscovery period, full availability of state remedies (including prediscovery lost pay) otherwise. (Id. at pp. 424–427.)

Equally consequential is the decision’s treatment of after-acquired evidence and unclean hands. By importing McKennon into FEHA and holding that neither doctrine is a complete defense, the court foreclosed the most powerful summary-judgment weapon defendants had wielded against plaintiffs whose résumés or eligibility documents contained later-discovered misconduct. (59 Cal.4th at pp. 429–432.) After Salas, after-acquired evidence is a remedies question, not a liability question: it generally cuts off relief as of the discovery date but leaves the underlying FEHA claim — and prediscovery damages — intact. The opinion also flagged a fact pattern of recurring importance: where an employer is shown to have knowingly tolerated or “looked the other way” about a worker’s status, the equities — and the availability of remedies — may shift against the employer. (Id. at pp. 431–432 & p. 424, fn. 3.)

Key quotes

“Senate Bill No. 1818, which extends state law employee protections and remedies to all workers ‘regardless of immigration status,’ is not preempted by federal immigration law except to the extent it authorizes an award of lost pay damages for any period after the employer’s discovery of an employee’s ineligibility to work in the United States … the doctrines of after-acquired evidence and unclean hands are not complete defenses to a worker’s claims under California’s FEHA, although they do affect the availability of remedies.” (Salas, supra, 59 Cal.4th at p. 414.)

“To allow such after-acquired evidence to be a complete defense would eviscerate the public policies embodied in the FEHA by allowing an employer to engage in invidious employment discrimination with total impunity.” (Id. at p. 430.)

“It would frustrate rather than advance the policies underlying federal immigration law to leave unauthorized alien workers so bereft of state labor law protections that employers have a strong incentive to ‘look the other way’ and exploit a black market for illegal labor.” (Id. at pp. 426–427.)

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Open questions

The court expressly reserved the most aggressive employer scenario. In a footnote, it confined its postdiscovery preemption analysis “to employers who discover the plaintiff employee’s unauthorized status after the employee has been discharged or not rehired,” and pointedly did not address “a situation in which an employer has knowingly hired or continued to employ an unauthorized alien in violation of federal immigration law,” suggesting that in those circumstances “arguably federal law would not preempt lost wages remedies.” (Salas, supra, 59 Cal.4th at p. 424, fn. 3.) Whether a knowing employer may invoke IRCA preemption at all — even for the postdiscovery period — thus remains open, and the Huizar evidence makes the question live on remand.

Two further issues await development. First, the court left the precise calibration of after-acquired-evidence remedies “to be addressed by the judicial system in the ordinary course of further decisions,” identifying the discovery-date cutoff as the general rule but reserving how “particularly egregious” wrongdoing might bar lost wages altogether and how the “relative equities” are to be weighed case by case. (Salas, supra, 59 Cal.4th at pp. 430–431.) Second, the separate opinion exposed an unresolved tension over unclean hands: Justice Baxter argued that the doctrine, when applicable, is necessarily a complete defense and that the majority’s suggestion it might merely “reduce” damages misreads McKennon. (Id. at p. 437, fn. 4.) The doctrinal relationship between unclean hands as a complete equitable bar and the FEHA’s public-policy floor therefore remains a contested seam for future cases.