Proper Use of “Advances” and “Chargebacks”

By the end of 2012, Labor Code 2751 will require California businesses to place all of its commission compensation arrangements with their employers in writing or such agreements may be unenforceable. See, Employee Commissions, California Requires Written Agreements by End of 2012. As the year edges to a close, employers should thus confirm their commission plans are documented in clearly expressed policy memos or written agreements.

The recent California Court of Appeal decision in Deleon v. Verizon Wireless (July 10, 2012) illustrates the importance of drafting unambiguous commission plans, particularly where the business is prone to class action claims as a large employer such as Verizon.

Verizon’s written plan established that after a guaranteed minimum base pay, sales representatives received advance payments of their anticipated commissions which were not actually earned (“vested”) until the expiration of a chargeback period during which the consumer had the right to cancel the service. The plan thus allowed the employer to make later deductions from the advanced amounts to calculate the final “earned” amount for a given time period.

The plaintiff, Deleon, worked as a Verizon sales representative for some nine months, subject to the company’s written advance payment and chargeback plans in effect during that time. Claiming he was qualified to represent numerous other sales representatives under a class action, Deleon challenged the plans as an alleged “secret underpayment of wages” under Labor Code section 223.

Deleon contended the initial payment of commission monies should not qualify as unearned “advances” and instead should be regarded as earned wages. Thus, he asserted that later deductions from these initial payments were improper “secret deductions” from wages.

Verizon prevailed in the case. The court commended the employer’s clarity in its written plans: “As specifically described in the compensation plans, Deleon received advances and his commissions were earned at the expiration of the chargeback period. Section 223 refers to the underpayment of wages. Commission advances are not wages.” Emphasis added.

The Deleon v. Verizon Wireless decision thus underscores the importance for carefully drafted commission agreements. If Verizon had failed to make clear that initial payments were unearned amounts pending its well-defined consumer chargeback periods, the case may well have had an entirely different outcome with significantly negative impact on that employer.

For assistance creating complete and comprehensive sales commission agreements, contact a knowledgeable labor law attorney.

Refusal to Sign a Disciplinary Memo Disqualifies a California Worker

In California, an employee terminated for “misconduct” is disqualified from receiving unemployment benefits. In Paratransit Inc. v. Unemployment Insurance Appeals Board (Medeiros) (May 31, 2012), the Court of Appeal found an employee’s declining to sign a “receipt” line at the bottom of a disciplinary notice constituted such misconduct. Thus terminated over the refusal, that employee, Mr. Medeiros, was not eligible for unemployment.

The consequence is ironic as the discipline that Paratransit driver Mr. Medeiros was to receive was only two days suspension without pay (for a reported incident with a passenger). For declining to sign the memo describing that discipline, he lost his job and his “out-of-work benefits” to boot.

California Labor Code section 2856 specifies that an “employee shall substantially comply with all the directions of his [her] employer concerning the service on which he [she] is engaged, except where such obedience is impossible or unlawful, or would impose new or unreasonable burdens upon the employee.” The Court of Appeal found that Mr. Medeiros violated his section 2856 obligations by failing to sign the memo. However, this insubordination did not by itself disqualify him from collecting unemployment.

California Labor Code section 1256 bars unemployment benefits for an employee terminated for misconduct. The California Supreme Court has found such misconduct to include action showing wilful or wanton disregard of an employer’s interests “as is found in deliberate violations or disregard of standards of behavior which the employer has the right to expect of his employee … On the other hand mere inefficiency, unsatisfactory conduct, failure in good performance as the result of inability or incapacity, inadvertencies or ordinary negligence in isolated instances, or good faith errors in judgment or discretion are not to be deemed ‘misconduct’ within the meaning of the statute.” Amador v. Unemployment Ins. Appeals Bd. (1984) 35 California Reports, third series (Cal.3d) 671, 678

Mr. Medeiros asserted he qualified for unemployment as his refusal to sign was supposedly a “good faith error in judgment” since he thought signing the “receipt” line was his admission of guilt on the alleged offense. Although the employer’s representatives sought to assure him this was not the case, Mr. Medeiros claimed he believed those representatives were lying. However, the Court of Appeals ruled against him. In this context, where the employer was only presenting a memo with the results of a prior investigation, including the ensuing decision on discipline, refusing to sign a simple acknowledgment of receipt of that memo was sufficient deliberate disregard of the company’s directives to constitute “misconduct.”

While this Paratransit decision involved other issues (including whether the company had to use more specific language in the memo on “non-admission of fault” due to Mr. Medeiros’s union agreement – it did not), its fundamental lessons are:

• An employer can and must conduct any investigation over substantial employee rule violations deliberately and fairly, providing the subject worker ample opportunity to respond to any charges before the company makes its findings and any disciplinary decision;

• Once the company completes such deliberate process, the findings and decision should be presented to the subject employee in writing; and

• As long as any acknowledgment the employee is to sign concerning that “findings and decision memo” only establishes that he or she has received that memo (and does not require that worker to agree with the findings), then that employee may be disqualified for unemployment if the company terminates him/her for refusing to sign that acknowledgement.

Obviously, handling terminations for violations of workplace standards and rules can be a touchy subject. For assistance, contact an experience employment law attorney.

Employers Should Curb Workplace Verbal Battles

An employer is not only liable for actually terminating a worker on the basis of race, gender, national origin and other protected classifications. A worker may also have a claim if the employer “unlawfully constructively discharged” that person (also known as “unlawful (or wrongful or illegal) constructive termination” or “unlawful constructive dismissal”). See, “Constructive Discharge, When Employers May Be Liable for ‘Causing’ a Resignation.”

An employee claiming unlawful/wrongful constructive discharge must show the employer made the environment so unbearable on the basis of that person’s race, national origin, or other such protected classification that the worker had no reasonable choice but to resign. In effect, the employer fired that worker just for creating such extremely hostile conditions and can be liable for discrimination even though the business took no formal action to terminate the person. See, Turner v. Anheuser–Busch (1994).

Under appropriate circumstances, the courts may also treat a retirement as a wrongful constructive discharge. In one California case, an university made the employee’s working conditions “so intolerable that her preexisting medical condition worsened to the point where she was no longer able to function in her duties and needed to remove herself from her job.” The court thus found such conditions caused her disability-based retirement, thus amounting to an illegal constructive discharge. See, Colores v. Board of Trustees of Calif. State Univ. (2003).

An employee does not automatically have a claim for unlawful constructive discharge just because he or she was belittled or harshly criticized. Again, the extreme hostility that triggers a legal claim must be based on a person’s protected characteristics or classification that is protected by the anti-discrimination law. A worker would not have a constructive discharge claim arising out of management’s rough verbal reactions to that employee’s production errors. That might cause a constructive discharge, but not an illegal one. However, that worker would have a possible unlawful constructive discharge claim for extreme abuse over his or her gender, religion, physical or mental disability or the like.

Executives and managers are of course expected to create and maintain a working environment that promotes understanding, collaboration and efficient, quality production. Supervisors are best advised against any prolonged angry or antagonistic treatment of any worker for any reason, with zero tolerance of any hostility expressed due to a person’s membership in a classification protected by law. An experienced employment lawyer is equipped to help management navigate this area, preferably well before any trouble or legal claim arises.

May 25, 2012

Employers Should Curb Workplace Verbal Battles

An employer is not only liable for actually terminating a worker on the basis of race, gender, national origin and other protected classifications. A worker may also have a claim if the employer “unlawfully constructively discharged” that person (also known as “unlawful (or wrongful or illegal) constructive termination” or “unlawful constructive dismissal”). See, “Constructive Discharge, When Employers May Be Liable for ‘Causing’ a Resignation.”

An employee claiming unlawful/wrongful constructive discharge must show the employer made the environment so unbearable on the basis of that person’s race, national origin, or other such protected classification that the worker had no reasonable choice but to resign. In effect, the employer fired that worker just for creating such extremely hostile conditions and can be liable for discrimination even though the business took no formal action to terminate the person. See, Turner v. Anheuser–Busch (1994).

Under appropriate circumstances, the courts may also treat a retirement as a wrongful constructive discharge. In one California case, an university made the employee’s working conditions “so intolerable that her preexisting medical condition worsened to the point where she was no longer able to function in her duties and needed to remove herself from her job.” The court thus found such conditions caused her disability-based retirement, thus amounting to an illegal constructive discharge. See, Colores v. Board of Trustees of Calif. State Univ. (2003).

An employee does not automatically have a claim for unlawful constructive discharge just because he or she was belittled or harshly criticized. Again, the extreme hostility that triggers a legal claim must be based on a person’s protected characteristics or classification that is protected by the anti-discrimination law. A worker would not have a constructive discharge claim arising out of management’s rough verbal reactions to that employee’s production errors. That might cause a constructive discharge, but not an illegal one. However, that worker would have a possible unlawful constructive discharge claim for extreme abuse over his or her gender, religion, physical or mental disability or the like.

Executives and managers are of course expected to create and maintain a working environment that promotes understanding, collaboration and efficient, quality production. Supervisors are best advised against any prolonged angry or antagonistic treatment of any worker for any reason, with zero tolerance of any hostility expressed due to a person’s membership in a classification protected by law. An experienced employment lawyer is equipped to help management navigate this area, preferably well before any trouble or legal claim arises.

May 25, 2012

The California Supreme Court has promptly followed its game-changing Brinker decision with another important ruling, specifically limiting the rights of workers to collect attorney fees from their employers in lawsuits over allegedly missed meal breaks and rest periods.

As we reported in “Brinker: California’s Meal Break Breakthrough, Employers are No Longer the Lunch Police,” California had experienced an explosion of lawsuits over workplace meal and rest periods ever since the 2000 enactment of Labor Code 226.7. That statute requires employers to pay an employee an extra hour of compensation for “each work day that the [required] meal or rest period is not provided.” The recent Brinker decision clarified several aspects of that law that are favorable to employers. See also, “Brinker Decision and Rest Periods, California Employers Get a Break.”

Yet, Brinker did not address a worker’s ability to collect attorney fees from his/her employer in the event of a successful suit over this meal and rest period law. Over the past decade, the prospect of collecting such fees from employers has become an additional incentive to bring such claims.

However, in Kirby v. Immoos Fire Protection, Inc. (April 30, 2012), the California Supreme Court found that neither the employee nor the employer can recover attorney’s fees on such claims over meal and rest period violations. This clarification is another favorable development for employers who are generally required to pay the “prevailing party” attorneys fees if they lose a wage/compensation-related lawsuit, but rarely, are allowed to recoup fees if they win the case.

The Kirby decision will likely further discourage lawsuits over alleged meal and rest period violations, particularly the higher stakes class action suits.

The California Supreme Court has promptly followed its game-changing Brinker decision with another important ruling, specifically limiting the rights of workers to collect attorney fees from their employers in lawsuits over allegedly missed meal breaks and rest periods.

As we reported in “Brinker: California’s Meal Break Breakthrough, Employers are No Longer the Lunch Police,” California had experienced an explosion of lawsuits over workplace meal and rest periods ever since the 2000 enactment of Labor Code 226.7. That statute requires employers to pay an employee an extra hour of compensation for “each work day that the [required] meal or rest period is not provided.” The recent Brinker decision clarified several aspects of that law that are favorable to employers. See also, “Brinker Decision and Rest Periods, California Employers Get a Break.”

Yet, Brinker did not address a worker’s ability to collect attorney fees from his/her employer in the event of a successful suit over this meal and rest period law. Over the past decade, the prospect of collecting such fees from employers has become an additional incentive to bring such claims.

However, in Kirby v. Immoos Fire Protection, Inc. (April 30, 2012), the California Supreme Court found that neither the employee nor the employer can recover attorney’s fees on such claims over meal and rest period violations. This clarification is another favorable development for employers who are generally required to pay the “prevailing party” attorneys fees if they lose a wage/compensation-related lawsuit, but rarely, are allowed to recoup fees if they win the case.

The Kirby decision will likely further discourage lawsuits over alleged meal and rest period violations, particularly the higher stakes class action suits.

Recent Federal Guidelines on Preventing Discrimination

It is nearly a given that employers will ask for an applicant’s criminal conviction record in the hiring process. However, past guilt for a crime is not always a legitimate factor in the employment decision. For example, a conviction for a decades-old traffic offense might well be irrelevant on choosing a person for a desk job. Misuse of criminal records to deny a job could even lead to a discrimination suit, particularly if the applicant belongs to a minority racial group or happens to be from a particular country or culture.

Thus enter the U.S. Equal Employment Opportunity Commission’s (EEOC) extensive April 25, 2012 “Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964” (Guidance).

The Guidance points out that discrimination may occur “when an employer treats criminal history information differently for different applicants or employees, based on their race or national origin (disparate treatment liability).”

It also cautions that an “employer’s neutral policy (e.g., excluding applicants from employment based on certain criminal conduct) may disproportionately impact some individuals protected under Title VII [the federal Civil Rights Act] and may violate the law if not job related and consistent with business necessity (disparate impact liability).” Thus, if for example those convicted of a particular crime happen to be disproportionately African American or Latino, then consistent use of such information for all applicants can have the unintended effect of excluding protected classes of workers from employment opportunities.

The EEOC was motivated to issue the Guidance as over the last twenty years, there has been a “significant increase in the number of Americans who have had contact with the criminal justice system” and thus a “major increase in the number of people with criminal records in the working-age population.” According to the Guidance, in 1991 only 1.8% of the adult population had served prison time. The figure rose to 2.7% by 2001 and 3.2% by 2007. The U.S. Department of Justice has concluded that “if incarceration rates do not decrease, approximately 6.6% of all persons born in the U.S. will serve time in state or federal prison during their lifetimes.”

In the face of the resulting potential increase in discriminatory impact, the Guidance offers several “best practices,” including:

• Refrain from having a policy or practice that automatically disqualifies from employment individuals with any criminal record.
• Train managers and other decision makers about Title VII and its prohibition on employment discrimination.
• Develop a narrowly tailored written policy and procedure for screening applicants and employees for criminal conduct. Such procedures should include identifying essential job requirements and determining, based on all available evidence, the specific offenses that may demonstrate unfitness for performing such jobs.
• Document all consultations and research considered in developing your policies and practices, as well as the justification for each employment decision.
• During the hiring process, limit inquiries concerning an individual’s criminal background to those types of convictions that would be job-related.
• Keep information about applicants’ and employees’ criminal records confidential. Only use it for the purpose for which it was intended.

While the EEOC’s Guidance is not law, the EEOC and courts will likely defer to its recommendations when addressing discrimination charges arising from the handling of a person’s criminal record. It is thus wise for employers to assess their current policies and practices with an experienced employment law attorney.

Recent Federal Guidelines on Preventing Discrimination

It is nearly a given that employers will ask for an applicant’s criminal conviction record in the hiring process. However, past guilt for a crime is not always a legitimate factor in the employment decision. For example, a conviction for a decades-old traffic offense might well be irrelevant on choosing a person for a desk job. Misuse of criminal records to deny a job could even lead to a discrimination suit, particularly if the applicant belongs to a minority racial group or happens to be from a particular country or culture.

Thus enter the U.S. Equal Employment Opportunity Commission’s (EEOC) extensive April 25, 2012 “Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964” (Guidance).

The Guidance points out that discrimination may occur “when an employer treats criminal history information differently for different applicants or employees, based on their race or national origin (disparate treatment liability).”

It also cautions that an “employer’s neutral policy (e.g., excluding applicants from employment based on certain criminal conduct) may disproportionately impact some individuals protected under Title VII [the federal Civil Rights Act] and may violate the law if not job related and consistent with business necessity (disparate impact liability).” Thus, if for example those convicted of a particular crime happen to be disproportionately African American or Latino, then consistent use of such information for all applicants can have the unintended effect of excluding protected classes of workers from employment opportunities.

The EEOC was motivated to issue the Guidance as over the last twenty years, there has been a “significant increase in the number of Americans who have had contact with the criminal justice system” and thus a “major increase in the number of people with criminal records in the working-age population.” According to the Guidance, in 1991 only 1.8% of the adult population had served prison time. The figure rose to 2.7% by 2001 and 3.2% by 2007. The U.S. Department of Justice has concluded that “if incarceration rates do not decrease, approximately 6.6% of all persons born in the U.S. will serve time in state or federal prison during their lifetimes.”

In the face of the resulting potential increase in discriminatory impact, the Guidance offers several “best practices,” including:

• Refrain from having a policy or practice that automatically disqualifies from employment individuals with any criminal record.
• Train managers and other decision makers about Title VII and its prohibition on employment discrimination.
• Develop a narrowly tailored written policy and procedure for screening applicants and employees for criminal conduct. Such procedures should include identifying essential job requirements and determining, based on all available evidence, the specific offenses that may demonstrate unfitness for performing such jobs.
• Document all consultations and research considered in developing your policies and practices, as well as the justification for each employment decision.
• During the hiring process, limit inquiries concerning an individual’s criminal background to those types of convictions that would be job-related.
• Keep information about applicants’ and employees’ criminal records confidential. Only use it for the purpose for which it was intended.

While the EEOC’s Guidance is not law, the EEOC and courts will likely defer to its recommendations when addressing discrimination charges arising from the handling of a person’s criminal record. It is thus wise for employers to assess their current policies and practices with an experienced employment law attorney.

California Employers Get a Break

The California Supreme Court has recently clarified this state’s workplace rest period laws. Brinker Restaurant Corp. v. Superior Court (Hohnbaum) (April 12, 2012).

California law requires employers to provide their hourly employees with one paid 10-minute rest break for every four hours worked or “major fraction thereof.” The Court confirmed “major fraction thereof” as “more than half.” Obviously, more than half of four hours is thus two hours and one minute. Thus, the Court directed that if an employee works six hours and one minute, the employer must provide that person with two paid 10-minute breaks must be provided. A worker who puts in ten hours and one minute has the right to three paid breaks. (However, this rule does not apply to the first hours worked in a day. Employers do not have to give employees any rest breaks if the total work for the day is less than 3.5 hours. See, “Employee Meal Periods and Rest Breaks: California’s Basic Requirements for Daily R&R”)

An employer’s (and worker’s) tendencies would of course be to schedule such breaks in the middle of each four-hour increment of work, with the required meal period in the middle of those two increments in the workday. However, the Brinker Court observed that this is not always practical, depending on the business.

For example, the Brinker case involved restaurant workers for whom a break in the middle of each of two daily major work intervals (e.g., morning and afternoon shifts) or a meal falling in the middle of the workday (e.g., at the business world’s lunchtime) might not be workable. Restaurant service personnel depend on tips and would thus resist having to go off of their positions if the establishment happens to be busy at any officially designated break or meal time.

In recognition of such realities, the Brinker Court dictated that there is no rigid rule on the timing of meal periods and rest breaks. For example, an employer is not even required to designate that a worker’s first rest break precede that person’s mid-workday meal period. The Court only directed that a employee take the rest break as close to the middle of any four hour work period “insofar as practicable.”

Unlike meal breaks, rest periods are counted as time worked and are compensable. Therefore, employers may require their employees to take their rest breaks on premises.

Employers who fail to provide an employee with required rest breaks must pay the employee one hour of pay at the employee’s regular rate of pay for each workday that one or more rest periods are not provided. However, only one hour of premium pay is due no matter how many rest breaks an employee missed in a day. See Division of Labor Standards Enforcement Manual Section 45.3.7

For assistance in implementing meal and rest periods laws into your business, contact an employment law attorney.