California Labor and Employment Defense Blog : California Employment Lawyer & Attorney : Van Vleck Turner & Zaller Law Firm : Wage and Hour Class Actions : Serving Los Angeles, San Diego, San Francisco

The California Labor Code is very strict in protecting an employee's right to be paid for all compensation that he earns.  As we have repeatedly blogged in the past, it is often a thorny issue to determine exactly when these protections attach -- in other words, when has a mere hope or expectation of a reward matured into a fully vested proprty right that must be paid by the employer without further delay or reduction?  

The California Supreme Court recently shed a bit more light on this issue in Schachter v. Citigroup, Inc.  In that case, a stockbroker had elected to take some of his compensation in the form of "restricted stock," which would only vest if he were still employed by the Company on a specified date.  The broker quit before the vesting date and never received the stock.  Schachter argued that  this arrangement violated the Labor Code because it required him to "forfeit" compensation that he had already earned.  (He also argued that it was irrelevant that he had agreed to the deal in the first place because the Labor Code also prohibits any agreement to waive its protections).

The Supreme Court rejected the theory that this restricted stock deal was an illegal forfeiture.  In doing so, the Court basically construed the deal as a "stay bonus" or "longevity bonus."  Under this construction, the employee never earned the compensation in the first place because he voluntarily quit.

Only when an employee satisfies the condition(s) precedent to receiving incentive compensation, which often includes remaining employed for a particular period of time, can that employee be said to have earned the incentive compensation (thereby necessitating payment upon resignation or termination).

The Court seemingly went out of its way, however, to caution employers against overreaching.  For example, the Court specifically noted that bonuses, commissions, and other incentive compensation may have to be paid out where the worker does not quit but is fired.  

If the employee is discharged before completion of all of the terms of the bonus agreement, and there is not valid cause, based on conduct of the employee, for the discharge, the employee may be entitled to recover at least a pro-rata share of the promised bonus.  In the analogous context of commissions on sales, it has long been the rule that termination (whether voluntary or involuntary) does not necessarily impede an employee's right to receive a commission where no other action is required on the part of the employee to complete the sale leading to the commission payment.  This concept has been colorfully described as “He who shakes the tree is the one to gather the fruit.”

The Bottom Line:  Employers may lawfully condition bonus payments on an employee's voluntary decision to quit.  But employers generally cannot condition payment on matters solely within their own unilateral control, such as a decision to fire an employee before he can perform all of the contractual conditions.  

• Email This
• Print
• Comments
• Trackbacks

In Parth v. Pomona Valley Hospital Medical Center, the Ninth Circuit authorized employers and employees to exercise some flexibility in attempting to work around the overtime requirements of the FLSA.

In Parth, a group of nurses was originally assigned to work almost exclusively in 8-hour shifts.  The majority of the nurses, however, "preferred working 12-hour shifts in order to have more days away from the hospital."  As a result, the Company implemented a new pay plan.

The pay plan provided nurses the option of working a 12-hour shift schedule in exchange for receiving a lower base hourly salary (that at all times exceeded the minimum wage set forth by the FLSA) and time-and-a-half pay for hours worked in excess of eight per day. The result: nurses, who volunteered for the 12-hour shift schedule, would make approximately the same amount of money as they made on the 8-hour shift schedule (while working the same number of hours and performing the same duties).

Several years later Parth filed a class action claiming that the whole plan was just an artificial scheme to avoid paying overtime, and that the lower base rate for 12 hour shifts therefore violated the FLSA.  The Court disagreed.  It held instead that the use of a lower base rate of pay for longer shifts is permissible so long as the rate is not so low as to be wholly "unrealistic and artificial." 

A number of other factors, while not strictly relevant to its interpretation of the FLSA, also influenced the Court.  For example, the employees had apparently expressed their preference for the longer shifts, the 12 hour shifts were voluntary, and  the whole arrangement was eventually codified in a CBA that was ratified by the bargaining unit.   Under these circumstances it was pretty difficult to paint a picture of employees being unfairly exploited.

Since its passage in the 1930's the FLSA has been one of the preeminent examples of government paternalism designed to protect employees by taking away their right to bargain with their employers over certain working conditions.  The Parth decision is an especially refreshing development because it restores a small degree of discretion to employers and employees to work together to craft "win-win" alternatives to the standard 9 to 5 workweek.  

• Email This
• Print
• Comments
• Trackbacks

California employees have a right to be reimbursed for their work related expenses, such as business travel, equipment, materials, training, and even legal expenses.  On the other hand, companies typically have their own deadlines, rules, special forms, and  other procedural requirements which must be followed in order to request and receive reimbursement.

So what happens when an employee sues for reimbursement and the Company argues that his claim should fail because he did not make a proper request under its internal rules?

In Stuart v. RadioShack, the Northern District addressed this very question and held, in effect, that the requirements of the statute must override any internal reimbursement rules set by the employer. 

Indeed, California Labor Code section 2802 provides that "An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties."  And Section 2804 further provides that "Any contract or agreement, express or implied, made by any employee to waive the benefits of this article or any part thereof, is null and void." 

Thus, companies must reimburse employee expenses and the parties can't do anything to forfeit or limit these rights even if they wanted to.  According to the District Court, the employer's duty to reimburse expenses should be triggered by the same standard that applies in cases of "off-the-clock" work:

The Court concludes that a fair interpretation of [Labor Code] §§ 2802 and 2804 which produces “practical and workable results,” consistent with the public policy underlying those sections, focuses not on whether an employee makes a request for reimbursement but rather on whether the employer either knows or has reason to know that the employee has incurred a reimbursable expense. If it does, it must exercise due diligence to ensure that each employee is reimbursed.

The Bottom Line:  Employer's should continue to set internal deadlines and procedures for expense reimbursement.  However, they should also recognize that the failure to follow these procedures will ultimately not  be a defense to legal liability if they know or have reason to believe the expense was actually incurred.

• Email This
• Print
• Comments
• Trackbacks

Dan Rather was famously terminated following his 2004 "60 Minutes II" report which used forged documents to accuse George W. Bush of evading military service.   And a New York State Appellate Court has just dismissed the last remnants of Rather's wrongful termination lawsuit against the network.

After the 2004 scandal, CBS had continued to pay Rather's $6 million salary even while it stopped using his services for any on-air broadcasts.  Once he was formally terminated in June 2006, CBS accelerated and paid the remaining five-months of compensation due under the term of the contract. 

Rather claimed, however, that if he were not utilized as the CBS Evening News anchor his contract required CBS to reassign him to actual broadcast stories on 60 Minutes or 60 Minutes II.  The Appellate Court disagreed.  It held that the contract's "pay or play" clause clearly allowed the network to keep him off the air so long as it continued to pay the compensation due under the contract.

Rather claims that, in effect, CBS "warehoused" him, and that, when he was finally terminated and paid in June 2006, CBS did not compensate him for the 15 months "when he could have worked elsewhere." This claim attempts to gloss over the fact that Rather continued to be compensated at his normal CBS salary of approximately $6 million a year until June 2006 when the compensation was accelerated upon termination, consistent with his contract.

Contractually, CBS was under no obligation to "use [Rather's] services or to broadcast any program" so long as it continued to pay him the applicable compensation. This "pay or play" provision of the original 1979 employment agreement was specifically reaffirmed in the 2002
Amendment to the employment agreement.
 

The Court also dismissed Rather's final claim that CBS breached a fiduciary duty on the ground that "employment relationships do not create fiduciary relationships."   

• Email This
• Print
• Comments
• Trackbacks

In Halpert v. Manhattan Apartments, Inc. a job applicant sued after being told he was "too old" for a position.  The prospective employer initially won summary judgment on the ground that it was not liable as the hiring decision was made by an outside contractor who was not its employee.  

The Second Circuit reversed on the ground that the independent contractor status of the decision maker was irrelevant -- so long as he was acting as an authorized agent on behalf of the Company it is directly liable for his discriminatory decisions:

That prohibition [against age discrimination] applies regardless of whether an employer uses its employees to interview applicants for open positions, or whether it uses intermediaries, such as independent contractors, to fill that role. . . . [I]t makes no difference whether the person whose acts are complained of is an employee, an independent contractor, or for that matter a customer.  If a company gives an individual authority to interview job applicants and make hiring decisions on the company's behalf, then the company may be held liable if that individual improperly discriminates against applicants on the basis of age.

This result is logically sound since a corporation acts only through its agents and must therefore bear legal responsibility for the illegal personnel decisions of those agents.   The decision is a stark reminder, however, that employers cannot absolve themselves of liability merely by delegating personnel decisions to outsiders such as temp agencies, business consultants, or even unions. 

• Email This
• Print
• Comments
• Trackbacks

USA Cab owns a fleet of about 45 taxis that it leases to drivers, and it operates a taxi dispatch service. At issue in the case was whether USA Cab’s classification of the drivers as independent contractors was proper. The Plaintiffs’ brought a putative class action alleging that due to the misclassification, USA Cab failed to provide workers’ compensation insurance, failed to pay minimum wages, improperly required drivers to pay security deposits and other fees, and denied them meal and rest breaks.

Under the terms of the agreement with the drivers, USA Cab provided the lessee-drivers with a taxi "painted with [its] insignia and equipped with meter, radio, and any other equipment as required by state law and local ordinances relating to taxicabs.” The company also paid for all licenses, taxes and fees assessed on the taxi, and to furnish liability insurance, oil, tires, and maintenance, except that required by the lessee's misuse or abuse of the taxi. The company also allowed the lessee to select from specified daily, weekly or monthly lease rates depending on his or her driving record.

USA Cab argued the purported class would be unmanageable, and common questions do not predominate over individual issues, given differences among the driver-lessees' situations.

The court noted, that while the merits of the case are not determined at the class certification stage, the facts and defenses pertinent to the merits of the case are taken into consideration to determine whether class certification is appropriate. With regards to the test of which workers can be classified as independent contractors, the court noted:

While the right to control work details is the most important factor, there are also " 'secondary' indicia of the nature of a service arrangement." [citation] The secondary factors are principally derived from the Restatement Second of Agency, and include "(a) whether the one performing services is engaged in a distinct occupation or business; (b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision; (c) the skill required in the particular occupation; (d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work; (e) the length of time for which the services are to be performed; (f) the method of payment, whether by the time or by the job; (g) whether or not the work is a part of the regular business of the principal; and (h) whether or not the parties believe they are creating the relationship of employer-employee." [citation] "Generally, the individual factors cannot be applied mechanically as separate tests; they are intertwined and their weight depends often on particular combinations." [citation]

The court provides an excellent overview of California law regarding which workers can be classified as independent contractors.  The opinion is well worth the read for anyone dealing with this issue in California. 

In this case, USA Cab submitted a number of declarations from primarily current drivers to oppose Plaintiffs’ motion for class certification. The court noted that the declarations tended to show that the case was not proper for class certification because the they tended to show that individualized issues predominated the case:

• The declarations tended to show a lack of class-wide damage. For instance, most declarants said they incurred no work-related injuries, customarily took meal and rest breaks, and earned wages equaling or exceeding minimum wage.
• The declarations established that the drivers were not required to use USA Cab's dispatch service. Some drivers used it for between 20 and 60 percent of their business, many used it infrequently, and some chose not to use it at all.
• The declarations also showed that drivers paid for their own tools, such as map books, flashlights, tool kits, jumper cables, cell phones, computers, GPS navigational systems, and credit card machines.
• Some of the drivers also established that they conducted their own marketing and advertising to gain new customers.
• The drivers also declared that “with varying frequency they chose to set their own rates, such as flat rates for trips, or rates below the standard metered rate.”

Based on these facts, the trial court ruled, and the appellate court agreed, that this case was not suitable for class treatment. The opinion, Ali v. USA Cab Ltd., can be downloaded here (Word).
 

• Email This
• Print
• Comments
• Trackbacks

The San Francisco 49ers have recently filed a complaint with the NFL against the New York Jets for supposedly "tampering" with their unsigned draft pick, Michael Crabtree.  The Jets deny the accusation, of course, but what is "tampering" anyway?  Well, the best definition I have been able to find, is given by NFL spokesman Greg Aiello in the Minneapolis Star Tribune:

The term tampering as used within the National Football League, refers to any interference by a member club with the employer-employee relationship of another club or any attempt by a club to impermissibly induce a person to seek employment with that club or with the NFL.

That's not terribly enlightening.  But if this is a "free country" as the saying goes, where does the NFL get off telling a prospective employee and a prospective employer that they are not allowed to talk to one another?  To my mind, this seems positively anti-free market, anti-free speech, and downright un-American. 

Indeed, California Business and Professions Code section 16600 explicitly states that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."  Thus, at least to the extent California law governs the matter, it would seem that any agreement between NFL clubs not to speak with one another's unsigned draft picks about prospective employment is entirely illegal and unenforceable. 

• Email This
• Print
• Comments
• Trackbacks

The HR blog Fistfull of Talent raises a concern I think a lot of HR professionals feel. See article “Hey Employment Law ‘Experts’, You’re Killing My Profession.” Kris Dunn expresses the all too common sentiment that employment lawyers are not advising their clients – but are rather scaring them into inaction. Kris uses the example of advice some lawyers are providing about whether or not companies should use social networking sites and Google to conduct background checks on job applicants. Taking the conservative approach, many lawyers, as Kris notes, advise against using these new technologies out of concern that it could create potential discrimination claims. (On a side note – I warned awhile ago that companies should be using the Internet to conduct background checks.)

Kris’ analysis is right on for a number of reasons. First, lawyers are trained to point out the risks of any situation to properly advise their clients. Second, lawyers are notoriously behind the technology curve. Most do not know what “new” technologies are being used or how to use them, and this creates concern as anyone is scared about what they do not know about.

Employment lawyers need to take heed of this critique. HR professionals have jobs to perform and companies to run. They need legal advice that helps them perform their jobs better – not scare them into failing to change and keeping up with the times.

Employment lawyers need to recognize that change entails risk. However, companies always have to change, and lawyers need to help companies navigate this risk, not prevent them from doing anything new.

Note to HR professionals

As you know, the HR profession is changing a lot given today’s new technologies. New issues are creating a lot of uncertainty. Issues such as how to use social networking sites to conduct background checks, monitoring employee’s internet use, and determining "hours worked" when employees always have a smart device on them.

When looking for legal advice about these issues, you need to be certain that your lawyer is familiar and up-to-date with the technology available. Does the lawyer who you are seeking legal advice from have a Twitter, Facebook, or LinkedIn account? Do they use an iPhone or Blackberry? If the answer to these questions are ‘no’ – don't be surprised if their advice is to avoid these “new” technologies.

• Email This
• Print
• Comments
• Trackbacks

It is well settled that employers may be liable for the actions of their employees in the "course and scope" of their employment.  It is also well settled that employers are not liable for an employee during his commuting time -- otherwise known as the "coming and going rule." 

These two principles become blurred, however, when an employee is traveling to or from an off-site conference, job assignment, or some other so-called "special errand."  For example, in Jeerwat v. Warner Bros., the employee was driving back from a three-day business conference to his home, and was even following his normal commute path, when he struck several pedestrians.  The pedestrians sued the employer and the Court held that the lawsuit could proceed. 

We hold that an employee's attendance at an out-of-town business conference may be considered a special errand under the special errand doctrine. In addition, when an employee intends to drive home from the errand, the errand is not concluded simply because the employee drives his regular commute route, but rather, the errand is concluded when the employee returns home or deviates from the errand for personal reasons.

In other words, when Companies schedule retreats, conferences, and office parties they need to be aware that they may be liable for any accidents caused by their employees in getting to and from the meeting.    

• Email This
• Print
• Comments
• Trackbacks