Employer Cannot Unilaterally Reduce Promised Commission Rates -- McCaskey v. California State Automobile Association

When an employer reserves the right to modify or amend a sales commission plan it create a dangerous conflict of interest with the sales person.  This is especially true where the employer believes it has the ability to unilaterally modify the terms of the agreement even after the employee has already performed his end of the bargain.  

In McClaskey v. California State Automobile Association, the California Appellate Court has clarified that under certain conditions a commission contract may become "vested" so that its benefits cannot be unilaterally reduced.   

The California State Automobile Association (CSAA), promised McClaskey and other insurance salesmen that if they had worked for the company for at least 15 years their minimum sales quotas would be reduced by 15% when they reached age 55.  After each of the plaintiffs had met the conditions for this "relaxed commission" benefit, the employer decided to rescind it.  Each of the plaintiffs was subsequently fired for either failing to meet the regular quota or for refusing to sign a new contract that waived this provision.

First, the Court rejected the employer's theory that it could not be required to honor its promise forever and must therefore be allowed to rescind it so long as the policy had been in effect for a "reasonable time."  Assuming arguendo that this theory was valid in the first place, the Court held that the "reasonableness" of any time limit for modification must be judged from the perspective of whether the employee has had time to receive a fair exchange in return for his performance.

Determining what constituted a reasonable time under the circumstances would seem to require consideration of the facts we have already noted, i.e., that the benefit is readily understood as a way to ease plaintiffs into retirement, that plaintiffs had in fact devoted their careers to CSAA's service in anticipation of the benefit, and that CSAA had therefore received everything it bargained for while yielding nothing whatever in return.  So understood, it would seem patently unreasonable to refuse the promised benefit when CSAA did.     

Next, the Court rejected the argument that an employer has carte blanche to do anything it likes merely because the employment relationship is generally terminable "at-will."

It may indeed be true, and can in any event be assumed for present purposes, that the employment was “at will” in the sense that CSAA was generally entitled to discharge plaintiffs without having to establish good cause to do so. It does not follow, however, that it could discharge them-as it explicitly did-for failing to meet production quotas after they had qualified for the promised reductions, or for refusing to relinquish the right to those reductions. The governing question is not CSAA's general power to discharge plaintiffs without cause, but its power to discharge them, as it expressly did, for a reason it had promised not to use as a basis for their discharge.

Finally, the Court rejected the employer's ability to rely on the standard commission plan language under which the employer reserved a right to "modify" the plan at its sole discretion whenever it wanted. 

[T]he reserved power to modify the compensation plan does not pose an insuperable barrier to plaintiffs recovery because it can easily be understood as qualified by the obligation to honor the promise of reduced [quotas] as to those representatives who had qualified for it-i.e., earned it-while it was still in effect.

Taken together, these holdings are a major victory for the rights of commissioned employees.  Indeed, the McClaskey Court rejected the most common contract arguments offered by unscrupulous employers who might otherwise be tempted to evade their promises to pay commissions even after their employees have performed every condition asked of them.    

California Supreme Court Extends Statute of Limitations for Late Wage Penalties -- Pineda v. Bank of America

Labor Code section 201(a) requires employers to pay final wages "immediately" upon terminating an employee.  Labor Code section 203, in turn, adds "teeth" to this requirement by imposing a "waiting time" formula that continues the unpaid wages for up to 30 days while they remain unpaid.  (In addition, Labor Code section 208 provides that "Every employee who is discharged shall be paid at the place of discharge.")

Employers -- especially out-of-state employers doing business in California -- will sometimes implement policies that result in the systematic late payment of final wages.  These policies may include waiting until the next regular payday to cut a final paycheck, or issuing final paychecks by mail from a central payroll location so that the checks are not received until days or weeks after termination.  

This type of systemic late payment may not trigger a very large late penalty for any single employee but the cumulative liability across an entire work force can be huge.  As a result, such late payment policies are a prime target for class action litigation.       

In Pineda v. Bank America, the California Supreme Court gave a boost to such class actions by holding that late penalties under Section 203 can be collected for up to three years after the underlying final wages were paid.  Prior caselaw had applied a one-year statute of limitations.  So Pineda effectively triples the class-wide exposure of employers.

In light of Pineda, employers may want to reexamine their procedures for generating final paychecks.  On the other hand, their former employees may want to take a trip down memory lane to think back about when they received their final pay at their various jobs over the past three years.      


Monetary PAGA Penalties Appy to Violation of Wage Order Working Condition Provisions -- Bright v. 99 Cent Only Stores

In Bright v. 99 Cent Only Stores, the Second Appellate District reversed the dismissal of a cashier's claim for penalties because her employer failed to give her a place to sit while she was working.  One unfamiliar with California's unique employment law enforcement scheme may be excused for reacting along the lines of "so what? that sounds like no big deal." 

Au contraire gentle reader. In fact, this may be a very big deal and may signal a whole new wave of employment litigation in California.

The reason is that providing "suitable seats" to employees is one of the many "working condition" provisions contained solely in the administrative Wage Orders.  These requirements generally provide no express remedy or private right of action.  To the extent employers have even been aware of these administrative working condition provisions at all (which most aren't) they have generally been ignored on the assumption that they could be enforced only through a governmental prosecution for injunctive relief.  And given budget restrictions and the lack of any realistic monetary penalty these "Wage Order only" regulatory requirements have gone essentially unenforced. 

By contrast, since the advent of the Labor Code Private Attorney General Act of 2004 ("PAGA"), violations of the Labor Code have triggered penalties of at least $100-200 for each pay period that the violation continues.  In a class or collective action on behalf on an entire workforce these penalties can add up very quickly indeed.  By its terms, however, PAGA applies only to violations of the "Labor Code." 

The great innovation of Bright v. 99 Cent Only Stores, is that it extends PAGA remedies to the violation of obligations which are contained solely in the administrative Wage Orders and which are not independently set forth in the Labor Code.  It does this with an assist from Labor Code section 1198, which states that:

“The maximum hours of work and the standard conditions of labor fixed by the commission shall be the maximum hours of work and the standard conditions of labor for employees. The employment of any employee for longer hours than those fixed by the order or under conditions of labor prohibited by the order is unlawful.”             

The Court in Bright reasoned that Labor Code section 1198 effectively incorporates the provisions of the Wage Orders and converts them into a separate violation of Labor Code section 1198 itself.  Once converted to a "Labor Code" violation, the non compliance now triggers the scary penalty and collective action remedies set forth in PAGA.

For example, by failing to provide a chair at its cashier stations 99 Cent Only Stores could owe $200 per month to every cashier in California for the entire limitations period -- which could certainly equal many million of dollars in the aggregate.    

Cataloging the previously unenforced Wage Order provisions which are now enforceable under PAGA is probably worthy of a separate blog post.  But the Bright decision noted that these obligations may include topics as diverse as keeping adequate records of hours worked, supplying tools and uniforms, providing changing rooms and rest facilities, providing adequate seating, and maintaining an appropriate workplace temperature.  

In light of the Bright decision, employers would be well advised to familiarize themselves with the more obscure Wage Order working condition requirements that they have probably been ignoring and to begin aggressive compliance efforts.    


More political activity discrimination -- Keith Olbermann suspended for making campaign contributions

Just a few weeks ago we blogged that NPR's termination of Juan Williams for political comments would likely have been illegal under California law.  Now it seems MSNBC has suspended Keith Olbermann for making campaign contributions.  Once again, California employers (journalistic or otherwise) should think twice about prohibiting campaign donations which would clearly violate California Labor Code section 1102.