Compensation Used to Purchase Forfeited Restricted Stock not Deemed Earned Unpaid Wages

A November, 2009 California Supreme Court ruling affirmed that an incentive stock option plan which had not fully vested upon plaintiff employee’s resignation did not constitute earned but unpaid wages and the employer could lawfully require the employee to forfeit the stock and the salary used to purchase the stock.  Schachter v. Citigroup, Inc. (2009) 47 California Reports 4^th 610.

Plaintiff David Schachter worked as a stockbroker for Citigroup from April 28, 1992 to March 29, 1996.  He voluntarily chose to participate in a company-offered incentive compensation plan which provided employees with shares of restricted stock options at a reduced price in lieu of a portion of that employee’s annual cash compensation.  Per this compensation policy, employees could elect to receive anywhere from 5% up to 25% of their total compensation in the form of restricted stock.

Restricted stock could not be sold, transferred, pledged or assigned for a two-year period; however, participating employees had the right to vote and receive regular dividends on such shares during the restricted period.

If an employee remained with the company for the two years following the purchase of the restricted stock, the title to the shares vested fully without restriction.  However, if an employee quit or was terminated for cause before the end of the two-year period, the employee was forced to forfeit his or her restricted stock as well as the percentage of annual income allocated for purchase of the restricted stock.  If an employee was involuntarily terminated without cause, the employee forfeited his or her restricted stock, but received a cash payment equivalent to the portion of annual compensation which had been paid in the form of such forfeited restricted stock.

Schachter elected to receive 5% of his total compensation in restricted stock during 1995 and early 1996.  He then resigned from Citigroup in March, 1996.  Because his resignation occurred within the two-year vesting period, he forfeited all his shares of stock and did not receive a cash payment equal to the 5% compensation used to purchase those shares.

In May, 1998, Schachter filed a class action lawsuit against Citigroup alleging that the restricted stock purchase plan (the Plan) violated California Labor Code sections 201 and 202 which require the employer to promptly pay all earned wages upon termination or resignation.  He also alleged the Plan’s forfeiture provision violated Labor Code section 221, which prohibits an employee from returning wages to an employer.

After eleven years of protracted litigation, the California Supreme Court (the Court) ruled that the Plan’s forfeiture provision did not violate California labor law.

First, the Court discussed the term “wages,” which it  broadly construed to include not only monetary compensation but also other benefits to which an employee is entitled as part of his or her overall compensation.  This can include accrued vacation pay which “vests” throughout a given year as well as bonuses and profit-sharing plans.

The Court then concluded the restricted stock constituted a “wage” under California law.  However, when Schachter voluntarily signed the Plan election forms he understood that the restricted stock would not fully vest for two years.  He chose not to remain with the company for the two year period and thus the Court ruled he did not earn and had no right to receive either the restricted stock or the compensation used to acquire it. According to the terms of the Plan, no earned, unpaid wages remain outstanding upon voluntary resignation.  In other words, the only thing the company hadn’t paid to Schacter was something he never earned, i.e. fully vested company stock.

The Court quoted the colorful truism, “He who shakes the tree is the one to gather the fruit” and concluded Schachter was not entitled to “gather the fruit” since he failed to perform the condition necessary to do so – i.e. remain employed with the company for two years after the stock purchase.

Further recommendations:  Companies that offer their employees incentives such as incentive stock options, commissions and bonuses should consult legal counsel to ensure these plans are properly structured and documented.

If you have any questions on these or any other employment laws, please contact me or any of our other employment law attorneys.  Best, Cindy Bamforth

Sexually Harassed Victim Unable to Sue Individual Supervisors for Retaliation/Wrongful Termination

A recent California federal court ruling confirmed that company supervisors are not individually liable for retaliatory acts.  Sarmas v. County of Stanislaus, et al. October 26, 2009 Westlaw 3489425 (Eastern District California).

According to Stanislaus County’s Sheriff’s Department (Department) employee Valine Sarmas, Sheriff Christianson’s sergeant Pedro Beltran sexually harassed her on two incidents in September and October 2008 during which he made unwelcome physical advances, insisted she drive him to a strip club, kissed, bit and groped her in her car, and showed her cell phone videos of him having sex with another coworker.  Days after the September incident, Sarmas learned a Department lieutenant was aware of Beltran’s conduct and was investigating the matter further. Beltran himself then contacted Sarmas, voicing his concern that he would be fired and asking Sarmas what she intended to say in the investigation.  She responded she would tell the truth.

On January 20, 2009, Sarmas called 911 for assistance when a man came to her front door, verbally harassed her and her friends, and made various threats.  The police arrested that suspect.  On February 2, 2009, the Department’s Internal Affairs informed Sarmas she was being investigated on rumors that the man arrested at her home in January was a gang member and her boyfriend.  Then on March 2, 2009, the Department fired Sarmas despite having given her an excellent performance evaluation the week before.  The reason for her termination was “administrative decision.”

Sarmas’s lawsuit for violations of the California Fair Employment and Housing Act (FEHA) alleged that her termination was “retaliation for bringing Beltran’s conduct towards her to the attention of Internal Affairs and Sheriff’s Department command staff.”

The individual defendants, Sheriff Christianson and Sergeant Beltran filed a motion to dismiss the retaliation cause of action, contending that as a matter of law Sarmas was unable to sue them as supervisors for retaliation/wrongful termination under California law.  The district court agreed, ruling that Stanislaus County (Sarma’s employer) was the only proper retaliation defendant as settled by the California Supreme Court’s ruling in Jones v. Lodge at Torrey Pines Partnership (2008) 42 California Reports 4^th 1158.

Disagreeing with two appellate court cases and a federal Ninth Circuit case to the contrary, the Jones court had ruled that only an employer can be liable under FEHA for firing someone in retaliation and not individual supervisors.

In a footnote of its Jones ruling, however, the Court stated it was only addressing alleged retaliation by firing, demotion or other major deprivation of benefits.  It left open whether a supervisor might be personally liable for retaliating against an employee by harassing that individual.  One or more future decisions may deal with that issue.

If you have any questions, please contact me or any of our other employment law attorneys.   Best,  Cindy Bamforth

Barbosa v. IMPCO – Terminating an Employee for Mistakenly Falsifying Time Card Violates Public Policy

Although well-established law in California holds that an employer may not retaliate against an employee who has a valid wage claim, a November 30, 2009 appellate court ruling also protects employees against retaliation for mistakenly believing they have a valid wage claim.  Barbosa v. IMPCO Technologies, Inc. (2009 Westlaw 4227462).

Former employee Manuel Barbosa sued employer IMPCO for wrongful employment termination after IMPCO fired him for allegedly falsifying his time card.  According to his testimony at trial, Barbosa, an hourly team leader of eight other workers, became convinced after talking with two of his group’s workers that he and others were missing two hours of overtime.  Barbosa approached the company’s payroll administrator and informed her that most of his group’s workers were not paid that overtime, possibly because the recently-installed time clock was malfunctioning (the previous time clock system was known to make timekeeping mistakes).  After Barbosa’s supervisor said he trusted Barbosa and approved the overtime pay, the payroll administrator paid all eight employees in Barbosa’s group the additional two hours of overtime.

Upon further investigation into the accuracy of the new time clock, the payroll administrator and human resources manager reviewed security tapes against the time clock records which effectively determined Barbosa and the others could not have worked the claimed two hours of overtime.  Additionally, one of the group workers informed the human resources manager that she should not be paid for extra overtime because she had not worked those hours.

Barbosa was then questioned before company management officials.  When asked if he was sure he and his group worked overtime as he claimed, he said yes.  After showing Barbosa the security gate report, he said he was confused and he offered to pay the extra overtime back to the company.  However, the company refused his offer and terminated Barbosa for falsifying time card records.  Barbosa testified the stated reason for termination was “cheating the company.”

After Barbosa finished putting on his evidence at trial, IMPCO successfully moved to dismiss his case.  Barbosa appealed.

The appellate court reversed, ruling that (a) public policy protects Barbosa from being terminated if he made a good faith claim to overtime; and (b) Barbosa presented sufficient evidence at trial to support a jury finding that the overtime claim was indeed made in good faith.

The appellate court determined that when an employee exercises his or her legal right to overtime wages out of a reasonable good faith belief he or she is entitled to those wages, he is still protected from employer retaliation even if the employee later discovers he is wrong.  Here, Barbosa gave evidence showing he had a reasonable good faith belief he was entitled to the two hours’ of overtime.  The previous time clock system was known to be faulty, the new system had been installed less than a month prior to this incident, his co-workers convinced him the overtime was due and unpaid, and he in turn convinced his supervisor. Barbosa also testified he was confused.

IMPCO argued Barbosa was terminated for misrepresenting that he worked overtime and cheating his employer.  The appellate court concluded IMPCO “misses the point” because if Barbosa proves to the jury he had a reasonable good faith belief in his right to overtime, then it’s impossible to also conclude he attempted to cheat IMPCO.  Thus, the case should have been submitted to the jury for deliberation.

According to this holding, public policy requires that employees should be able to openly question their employer regarding pay-related matters without fear of retaliation, even if the employee’s pay concerns are ultimately incorrect.

If you have any questions, please contact me or any of our other employment law attorneys.   Best,  Cindy Bamforth, Esq.

Blurring the Distinction between Discriminatory Conduct and Harassment – California Supremes Decide Roby v. McKesson Corp.

As a result of a November 30, 2009 decision, the California Supreme Court (the Court) has now paved the way for employees to more easily establish harassment claims against individual supervisors.

Toward the end of her 25-year customer service career at McKesson Corporation, Roby began experiencing unanticipated, temporary “panic attacks” which caused her to be absent from work unexpectedly.  Roby’s immediate supervisor, Karen Schoener, openly expressed her displeasure with Roby’s poor attendance record.  Compounding this problem, Roby’s medication gave her unpleasant body odor and she also developed a nervous disorder causing her to dig her fingernails into her arms, producing unpleasant open sores.  Schoener made disparaging remarks about Roby’s body odor in front of other workers and she also called Roby “disgusting” because of her open sores and excessive sweating.  Schoener reprimanded Roby in front of her coworkers and spoke about her job in a demeaning manner.  Schoener also openly ostracized Roby, ignored her at staff meetings, refused to give her holiday gifts or travel trinkets, and excluded Roby from office parties by ordering her to cover the office telephones.  Roby complained to senior management about Schoener’s conduct but to no avail.

McKesson suspended Roby pending an investigation into her excessive absences and then terminated her shortly thereafter.  After her termination she depleted her savings, lost her medical insurance, developed agoraphobia (anxiety in public places) and became suicidal.

Following a jury trial against defendants McKesson and supervisor Schoener for wrongful employment termination, discrimination, harassment and failure to accommodate, the trial court rendered judgment of approximately $3.5 million against McKesson and $500,000 against Schoener.  In a separate verdict, the jury found punitive damages of $15 million against McKesson and $3,000 against Schoener.

Both defendants appealed.  The appellate court held that Roby’s evidence was insufficient to support the harassment verdict, stating that a plaintiff may not use personnel management actions as evidence in support of a harassment claim.  The appellate court thus threw out the harassment verdict as to Schoener and also reduced Roby’s award to $1.405 million plus $2 million in punitives.

The California Supreme Court disagreed, ruling that the appellate court erred when it divvied up Roby’s evidence between her harassment claim and her discrimination claim.

Under California law, discrimination focuses on explicit changes in the terms, conditions or privileges of employment, that is, changes involving some official action taken by the employer, such as hiring, firing, failing to promote, adverse job assignment, or change in pay or benefits.

Harassment, on the other hand, focuses on situations in which the workplace’s social environment becomes unacceptable because the harassment suffered on the job communicates an offensive message to the victim.

Even though discrimination and hostile work environment harassment are different legal constructs, evidence of discrimination is not necessarily different from evidence of harassment.  The Court stated that the evidence brought forth to establish discrimination and harassment claims can overlap and thus “acts of discrimination can provide evidentiary support for a harassment claim by establishing discriminatory animus on the part of the manager responsible for the discrimination, thereby permitting the inference that rude comments or behavior by that same manager was similarly motivated by discriminatory animus.”

Because the appellate court had incorrectly separated out and disregarded the “business and management” evidence when determining whether Roby was unlawfully harassed, the Supreme Court reinstated the jury’s harassment verdict against McKesson and Schoener.

Thus, when evaluating whether a supervisor has engaged in unlawful harassment in the workplace, the trial court (and jury) need to consider all of the supervisor’s conduct, even conduct that would ordinarily be construed as “official” acts made on the company’s behalf under the supervisor’s managerial duties and functions.  Managerial acts which previously could only support a discrimination claim may now be used to prove individual harassment liability against the acting supervisor.  Therefore, plaintiffs may have an easier time defeating summary judgment and bringing their case to trial since they are now permitted to introduce a broader range of evidence in support of their harassment claim.

If you have any questions, please contact me or any of our other employment law attorneys.   Best, Cindy Bamforth

The California Administrative Exemption

             Under California labor laws, certain provisions of the Industrial Welfare Commission (IWC) Wage Orders – including California overtime law and meal and rest period premiums – do not apply to persons employed in an exempt administrative capacity.  An exempt administrator is primarily engaged (51%-plus) in high level “desk-bound” planning, organizing, and enabling of production as opposed to the actual production of the company itself.  An administrator makes sure the “production line” is created, established, coordinated, serviced and maintained as opposed to participating directly in that production line.  In other words, an administrator is concerned with how a business is programmed and organized to turn out its products or services, not with actually assembling that product or delivering that service.  Since an exempt administrator may also perform such organizational duties for his employer’s clients or customers to enable them to produce in turn, it is possible in special cases for an employer’s service providers to be exempt administrators (for example, a consulting company that employs specialists to provide custom management or financial investment consulting and advice to its clients).

         An exempt administrator needs no actual juniors to direct on the chain of command.  It is possible for such administrator to occupy a “one person” subdivision of a company.  However, he or she must regularly and customarily exercise independent judgment and discretion in the programming and coordination of personnel and/or resources that enables the production of the employer or the employer’s clients. 

        While every employee is expected to use judgment as an element of any job, a worker will qualify for the administrative exemption only where he or she has and exercises the authority to make independent choices on the highest or higher levels of business policy, planning and coordination of operations, so-called “matters of significance.”   A truck driver who makes “discretionary” decisions on the route he or she takes to a destination is not exempt from overtime.  A programs director for a trucking business – responsible for the planning, programming, financing, acquisition of resources, allocations of personnel, etc. to ensure the company’s viability – is probably exempt from overtime compensation.

       Last, the required regular and customary exercise of discretion and independent judgment is not limited to powers to make final decisions on significant matters. An administrator is legitimately exempt from overtime even if he or she only makes recommendations on policy, planning and coordination subject to review and approval, as long as the company’s seniors give weight to those recommendations.

       If an administrator must perform a rote or routine duty that is “directly and closely related” to his or her planning and coordination functions such as typing up a program or counting and reporting on the statistical production of an area,  the law considers this incidental work as part of exempt duties.

       California recognizes three main settings for exempt administrators:

•  someone who regularly assists the company owner, a exempt executive or other administrator and is entrusted with the same discretionary authority as the senior when that senior is absent (classically, the “executive assistant”);
•  an individual who performs his or  her coordinating functions in highly specialized or technical areas that require special training, experience or knowledge (for example, the internal IT manager, entrusted with planning and enabling a state-of-the-art computing and communications system for the employer); and
•  a person who executes special assignments or tasks under only general supervision (for example, a marketing specialist responsible for assigned projects to find and create new markets and to develop and define new products to service those pioneer markets).

       Job titles are not determinative.  As with exempt executives, an exempt administrator’s purposes, duties and products contained in his or her written job description should accurately emphasize all of the above concepts as requirements, including the expectation that he or she will devote the majority of work time to the job’s administrative functions.

      As with exempt executives, the employer must pay an exempt administrator a salary in each pay period that is at least two times the state minimum wage.  As of January 1, 2008, the minimum is $640 weekly and $2,773.33 monthly.  These amounts are unchanged for 2009 and thus far for 2010.

       The California Industrial Welfare Commission (IWC) Wage Orders are available online at http://www.dir.ca.gov/iwc/wageorderindustries.htm.       

       If you have any questions, please contact me or any of our other employment law attorneys.   Best, Bob Edwards

NEW EEOC POSTING REQUIREMENT FOR EMPLOYERS

EFFECTIVE NOVEMBER 21, 2009

The Equal Employment Opportunity Commission (EEOC) has revised its “Equal Employment Opportunity is the Law” poster to address two new federal employment discrimination laws:

• The Americans with Disabilities Act Amendments Act of 2008 (ADAAA); and
• The Genetic Information Nondiscrimination Act of 2008 (GINA)

Employers covered by federal Title VII and ADA anti-discrimination laws (typically 15 or more employees) will need to update their employee notice posters to reflect these new laws by November 21, 2009.

For private employers:

• The Disability section is revised as follows:

DISABILITY

Title I and Title V of the Americans with Disabilities Act of 1990, as amended, protect qualified individuals from discrimination on the basis of disability in hiring, promotion, discharge, pay, fringe benefits, job training, classification, referral, and other aspects of employment. Disability discrimination includes not making reasonable accommodation to the known physical or mental limitations of an otherwise qualified individual with a disability who is an applicant or employee, barring undue hardship.

• The following section is added:

GENETICS

Title II of the Genetic Information Nondiscrimination Act of 2008 protects applicants and employees from discrimination based on genetic information in hiring, promotion, discharge, pay, fringe benefits, job training, classification, referral, and other aspects of employment. GINA also restricts employers’ acquisition of genetic information and strictly limits disclosure of genetic information. Genetic information includes information about genetic tests of applicants, employees, or their family members; the manifestation of diseases or disorders in family members (family medical history); and requests for or receipt of genetic services by applicants, employees, or their family members.

The EEOC Poster Request Form is available on-line at http://archive.eeoc.gov/posterform.html, and provides several ways for employers to comply with the law:

1. Print the supplement below and post it alongside EEOC’s September 2002 “EEO is the Law” poster.

• “EEO is the Law” poster supplement (http://archive.eeoc.gov/gina_supplement.pdf)
• “EEO is the Law” poster (http://archive.eeoc.gov/self_print_poster.pdf)

1. Print and post the EEOC’s November 2009 version of the “EEO is the Law” poster.

1. Order a new poster through the EEOC Clearinghouse at the address provided at http://archive.eeoc.gov/posterform.html. The new poster will also be available in Spanish, Chinese and Arabic before the GINA statute becomes effective on November 21, 2009.

Again, the new posting is mandatory effective November 21, 2009.  In addition, employers can order the new 2010 California and federal labor law poster from the California Chamber of Commerce online at https://www.calbizcentral.com/store/products/pages/california-employment-poster.aspx.    The EEOC is in the process of revising its EEOC regulations and accompanying interpretive guidance in order to implement the ADA Amendments Act of 2008 (ADAAA) and include the Genetic Information Nondiscrimination Act of 2008 (GINA) (http://archive.eeoc.gov/policy/regs/index.html).

If you have any questions on these or any other employment laws, please contact me or any of our other employment law attorneys.  Best, Bob Edwards

The California Executive Exemption

Under California law, provisions of the Industrial Welfare Commission (IWC) Wage Orders – including overtime compensation and meal and rest period premiums – do not apply to persons employed in an executive capacity.  This exemption is for executives primarily engaged (51%-plus) in managing at least two personnel below them in the chain of command. Exempt executives do not have to oversee – or have the authority to oversee – every worker in the organization.  They can be senior to a distinct division or, conceivably, a department or even a unit.  However, as one moves further down the organizational chart, qualification for exemption becomes less-and-less likely as the chances diminish that the subject employee is going to be involved in actually managing employees more than half of his or her time.

The sort of “managing” that will qualify for executive exemption is not just supervising two or more subordinates, i.e. spending over half of one’s day telling them what to do or supervising them to complete their job assignments or other set lists of tasks.

“Managing personnel” means having and exercising the authority for full responsibility over the planning, recruiting, work priorities and allocation, coordination, documentation (e.g., statistics, evaluations of personnel performance) and production results of a company or a distinct area of a company.  This must include the ability to hire, advance, demote, discipline or fire other employees (or, at least, to make recommendations that are “given particular weight” by senior managers on these matters).  Production, sales or routine clerical or maintenance work, whether or not the same as the work of subordinates, is not management work. However, if a manager must perform a rote or routine duty that is “directly and closely related” to managing personnel – e.g., writing a daily or weekly report of the area’s production, photocopying materials to pass out to subordinates – the law considers these labors as part of exempt duties.

In order to qualify for the executive exemption, a manager must “customarily and regularly exercise discretion and independent judgment.”  This means a manager must have and exercise throughout the workday the power of making independent decisions on important aspects of planning and operations in his or her area.  In contrast, actions that merely follow specified procedures are “paint by numbers” tasks that do not qualify for the exemption.   While every employee must use discretion to make decisions no matter the position, a manager is entrusted to make decisions on matters that have a relatively substantial impact on the success or failure of the business or some major portion of the enterprise.  For example, a janitor may have discretion on which room he or she vacuums first but this does not make him a manager.  On the other hand, a division head deciding to allocate all of the personnel of his or her area to work on an “all hands” promotional blitz for an entire work day is clearly exercising discretion on a sufficiently important matter to qualify for the exemption.

An exempt executive’s purposes, duties and products contained in his or her written job description should accurately emphasize all of the above concepts as requirements, including the expectation that he or she will devote the majority of work time to the task of managing his or her subordinates.  California is a stickler for requiring an executive to manage 51% or more on post hours, week-in and week-out. Working foremen, for example, are not exempt.  The only exceptions include a manager who must pitch-in on rote tasks occasionally or one who must overcome an emergency so demanding in a given week that he or she is unable to actually manage for the majority of work hours.

To qualify an executive for exemption, the employer must pay him or her a salary in each pay period that is at least two times the state minimum wage.  As of January 1, 2008, the minimum is $640 weekly and $2,773.33 monthly.  “Salary” means a predetermined amount that is some or all of the employee’s compensation. “Predetermined” means the employer cannot reduce it due to changes in that worker’s amount or quality of work.  With some exceptions, if an exempt executive works even a single hour in a given workweek, the employer must pay that person his or her salary for the entire week.

If you have any questions, please contact me or any of our other employment law attorneys.   Best, Bob Edwards

HERBALIFE’S AFTERLIFE BATTLE:  CALIFORNIA SUPREME COURT AFFIRMS SEVERE OR PERVASIVE REQUIREMENT FOR SEXUAL HARASSMENT CLAIMS

The California Supreme Court, for the second time in the past four years, has affirmed that sexually harassing conduct must be either “severe” or “pervasive” to be actionable sexual harassment.  The decision stems from a high profile suit by Suzan Hughes, Herbalife’s deceased founder Mark Hughes’ ex-wife and mother to his only son, Alex, against Hughes estate trustee Christopher Pair. This was not the first legal battle between Ms. Hughes and Mr. Pair.  Upon his sudden death at age 44, Mark Hughes left an estate valued at approximately 400 million to Alex as sole beneficiary.  Thereafter, Suzan Hughes had an acrimonious relationship with the three trustees of that estate, including Mr. Pair, an Herbalife executive, prompting her to file seven prior lawsuits against the trust or the trustees.

Battle of the Beach House: In this eighth lawsuit, Suzan Hughes sued trustee Christopher Pair for sexual harassment and intentional infliction of emotional distress.   According to Ms. Hughes’s harassment complaint, on June 13, 2005, she requested the trust reimburse her for a two-month Malibu beach home rental for her and Alex, at a cost of $80,000 per month.  Three days later, the trustees unanimously approved a one-month rental, but not two.  The trustees declined reimbursement of the second month because (a) they did not have sufficient information from Suzan Hughes to justify the expense; (b) vacation expenses were Suzan Hughes’s responsibility under her marital settlement agreement; (c) a portion of the vacation home expense should be allocated to Ms. Hughes; and (d) the two-month rental was for Ms. Hughes’s benefit rather than Alex’s.  The trustees sent Ms. Hughes’s attorney written notice of their decision.

The King Tut “Exhibitionism”: After not speaking with each other directly for three years, Christopher Pair called Ms. Hughes shortly afterwards to invite her and Alex to join him and his son that evening at a King Tut exhibit.  During the call, Ms. Hughes complained about the trustees’ beach rental decision, to which Pair reportedly replied, “you know how much I love Alex and you in that special way” and Pair could be persuaded to give Ms. Hughes more rental time if she would “be nice” to him.  When Ms. Hughes replied that it was crazy for Pair to talk to her this way, he replied, “how crazy do you want to get?”  Pair gave Ms. Hughes his home phone number and told her to call him if she wanted to go to the exhibit that night.  Although she wrote down his home number, she declined his invitation.

Ms. Hughes brought Alex to the King Tut exhibit on her own, where she encountered Pair and his nine-year-old son in a hallway.  Ms. Hughes alleged that in her only direct encounter with Pair that evening, Pair crudely predicted she would yield to his sexual proposition, stating he would get her “on your knees eventually.”  He made this statement while the boys were standing nearby.  He then said hello to Alex and walked off.

Ms. Hughes filed for sexual harassment under California Civil Code section 51.9, which prohibits sexual harassment by a person engaged in a designated “business, service, or professional relationship.”  As a trustee, Christopher Pair was in such a qualifying relationship.

Pair Prevails: The trial court granted Pair’s motion for summary judgment, ruling that Ms. Hughes could not establish sexual harassment as the alleged harassment was neither “pervasive” nor “severe.”  The appellate court and Supreme Court affirmed.  Looking to hostile work environment workplace harassment cases for guidance, the Supreme Court ruled the harassment was not pervasive because “pervasive” requires a level of egregiousness that would alter their relationship and the harassment must be more than a few isolated incidents.  Here, the underlying professional relationship was not altered in any way (the trustees had already voted in favor of a shorter house rental) and the comments were made during one telephone conversation and one brief in-person encounter.

The Supreme Court also found that to constitute “severe” harassing behavior, a single harassing incident generally must include physical violence or the threat of physical violence to constitute sexual harassment.  In this case, Pair’s comment at the King Tut exhibit, although course, vulgar and grossly inappropriate was made during an isolated incident which did not reach the level of violent sexual assault or unwanted physical conduct.  The Court also believed his telephone conversation was “ambiguous” and did not support Ms. Hughes’ sexual harassment claim.

Lessons for the Work Place: Although this case did not involve an employer-employee relationship, Pair’s alleged behavior, if true, was unprofessional and out of line.  Clearly, such behavior should not be tolerated or condoned in the workplace, regardless of whether or not it is sufficiently “severe or pervasive” under state or federal employment law.  Employers should enact and enforce company harassment policy that prohibits such unprofessional conduct, and management should discipline violators, up to and including termination.   We are available to assist you in preventing workplace harassment.  To view our available dates for anti-harassment training seminars, please go to   http://www.tbowleslaw.com/knowledge/unlawful-harassment-seminar.php or contact us to schedule a seminar at your location.l

If you have any questions, please contact me or any of our other employment law attorneys.   Best, Cindy Bamforth

IS YOUR COMMISSIONED INSIDE SALES

REPRESENTATIVE EXEMPT FROM OVERTIME?

“Commission wages” are compensation based proportionately on the value or amount of the item or service sold.  An “inside sales representative” sells merchandise in a store or sales lot or sells products or services via a company telephone.  In contrast, “outside sales representative” means any person, 18 years of age or over, who customarily and regularly works more than half the working time away from the employer’s place of business selling or obtaining orders for a product or service.  The provisions of the California Industrial Welfare Commission Wage Orders (see blog article, “DO YOU KNOW YOUR CALIFORNIA WAGE ORDER?”) do not apply to outside salespersons.

Under California law, a commissioned inside sales representative covered either by Wage Order 4 or Wage Order 7 is exempt from overtime compensation if:

• total compensation exceeds 1.5 times the minimum wage for each hour worked during the pay period (As of January 1, 2008, 1.5 x $8.00 = $12.00/hour); and
• at least 50% of total compensation comes from commissions.

Since the compensation must exceed the $12.00 amount for every hour worked in a week, this exemption has the unique requirement of employee’s accurately tracking work hours each week to ensure he or she qualifies for the exemption.  Whether the sales commission structure is comprised of a base salary plus commissions, pure sales commissions, a draw provided against future commissions or some combination of these, the exemption also requires that each weekly paycheck exceeds $12.00 times the number of hours worked to qualify.

The exemption applies in the case of an employee paid a fixed salary plus an additional amount of earned commissions if the amount of sales commission payments exceeds the total amount of salary payments for a chosen representative period.  If a worker is compensated by pure sales commission, this “51% – 49%” calculation is of course irrelevant.

The representative period a company chooses to establish the plus-50% commissions and minus-50% salary ratio must be at least one month and not longer than one year.  The employer should pick reasonable duration at or between those extremes which yields a fair reflection of the sales person’s true weekly average of earned commissions.  For example, in a company where sales to the public and commissions paid are relatively constant month-in and month-out, then picking a relatively short representative period is reasonable.  In a company that has seasonally high or low periods of sales, then calculating the average weekly figure for commissions should reasonably require a period nearer or at a year’s-worth of activity.  Whatever representative period(s) the employer chooses, the employer must document the average ratio for each employee for each such period.

The employer thus must maintain adequate records that clearly indicate: i) the amount paid to employees exempt under this category; ii) the breakdown of base salary and commission payment for each week; and iii) the number of hours worked each week.  In order to implement the exemption, the employer must also maintain:

• A symbol, letter or other notation placed on the payroll records identifying each employee who is paid  under this inside sales exemption;  and
• A copy of the policy or the specific written agreements with particular employees that lay out the terms of the sales commission structure, including the chosen representative period, the date the agreement was entered and how long it remains in effect.

Note:  The California and federal exemptions and wage and hour laws are not identical.  The comparable federal exemption only applies to retail or service establishments.  Therefore, California employers are cautioned not to rely on the commissioned insides sales employee exemption from overtime without first consulting with an attorney.

If you have any questions, please contact me or any of our other employment law attorneys.   Best, Bob Edwards

THE CALIFORNIA Computer Professional Exemption

Under California law and Wage Orders, a “computer professional” is exempt from overtime compensation if he or she is “highly skilled and is proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, or software engineering.”

In addition, he or she must be primarily engaged (51%-plus of the time) in:

• work that is intellectual or creative, requiring exercise of discretion and independent judgment; and
• performing one or more of these duties:

1. Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications;
2. The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; and/or
3. The documentation, testing, creation, or modification of computer programs related to the design of software or hardware for computer operating systems.

Exercise of “discretion and independent judgment” means entrusted with comparison and evaluation of possible courses of conduct relative to his duties and with the authority to make an independent choice among the alternatives, free of immediate supervision.  Someone who mostly follows specified “paint by numbers” procedures does not qualify for the exemption.

The California computer professionals’ exemption has no requirement for any particular academic degree and there is no licensure or certification requirement.  Furthermore, job titles are not determinative of the applicability of this exemption.

There are several types of computer workers who are not eligible for the exemption:

• trainees and workers at entry-level positions;
• employees not skilled enough to work independently and without close supervision;
• employees engaged to operate, manufacture, repair or maintain hardware;
• engineers, drafters and machinists using computer-aided design software, including CAD/CAM, but not in a systems analysis, programming or any other similarly skilled computer-related occupation;
• writers creating box labels, product descriptions, setup and installation instructions, or content material to be read by customers or subscribers or visitors to computer-related media (including the internet or CD-ROM); or
• employees creating imagery for effects in the movie, television or theatrical industry.

Effective on September 30, 2008, amended Labor Code Section 515.5 extended the exemption to salaried employees whose annual and monthly salaries are not less than statutorily specified rates, which the California Division of Labor Statistics and Research (DLSR) is responsible for adjusting every October 1^st of every year, effective January 1^st the following year (online at http://www.dir.ca.gov/DLSR/statistics_Research.html).

During 2009, the minimum monthly salary for the exemption for 2009 is $6,587.50 and the minimum annual salary is $79,050.00.  DLSR states it should issue the 2010 minimum monthly and annual salaries for the computer professional exemption in the next one or two weeks.

If you have any questions, please contact me or any of our other employment law attorneys.   Best, Bob Edwards