Commission Plans - Chargebacks and Forfeitures

As shown in Koehl v. Verio, the courts in recent times are more likely to enforce clear provisions in commission plans permitting employers to recover advanced commissions and bonuses. The language must be clear, and there must be a rationale for the advances and chargebacks. The key is to define when commissions are "earned," e.g., when payment is received, after a certain stage of the installation / serving process etc. The Court in Koehl relied in part on recent court decisions upholding such arrangements, as well as the California Division of Labor Standards Enforcement's "Enforcement and Interpretations Manual."

This opinion is thoroughly reasoned, including a comprehensive discussion of related case law. It can help employers and their lawyers draft lawful commission plans that permit sales employees to benefit from early cash flow without receiving windfalls from overpaid commissions. Yes, even in California.

DGV

Video Monitoring of Employees at the Workplace

Surveillance technology continues to collide with employees' privacy interests. Telephone monitoring and recording, email and web use monitoring, GPS tracking, and video camera surveillance all present potential employment law problems. The law is struggling to keep up, and employers must be careful to anticipate how courts will react to new technology.

The newest California decision is Hernandez v. Hillsides, Inc. An employer set up a motion-activated video camera in an office to determine who was accessing a computer at night to view porn. The manager who installed the camera disconnected it each day and re-connected it only at night. Two employees who used the office during the day discovered the camera one day when it had not been disconnected. They sued for invasion of privacy.

The employer argued the camera was not even activated during the day (except for the one day it was mistakenly left on). But the California Court of Appeal held "a plaintiff need not establish that he or she was actually viewed or recorded in order to succeed on a cause of action for invasion of privacy." Employers can monitor employees' work areas by ensuring the employees do not have an "expectation of privacy." The way to do this is by giving notice of the monitoring. Notice may take away the element of surprise, but it also deters the conduct sought to be monitored.

Unintended consequences department: What effect will this decision would have on "nanny cams?" A nanny or babysitter is an employee. The workplace is the parents' home. Under this decision, a nanny may be able to argue a privacy invasion if the parents set up hidden cameras. However, the court pointed out that the employer failed to establish a sufficient justification for the monitoring, nor did the employer sufficiently establish the employees had a diminished expectation of privacy. Perhaps homeowners may argue that nannies do not have privacy expectations while working in a private home. Stay tuned (so to speak).

DGV

OFCCP Says, "Never Mind" Those Surveys

Contractors with the federal government may have completed an "Equal Opportunity Survey" (EOS) from the OFCCP, the federal agency that enforces affirmative action plan requirements. The OFCCP began the EOS program in 2000, and had issued some 80,000 of them to date. The EOS was intended to determine which contractors were most likely to be violating EEO obligations imposed on federal contractors, triggering audits.

Anyway, the OFCCP apparently determined the EO Surveys were not a necessary enforcement tool and eliminated the requirement. They initially proposed to do this in January.

One less paperwork obligation!

DGV

Another Non-Compete Provision Struck Down

We know California law is tough on "non-compete" agreements. However, the law (Bus. and Prof. Code section 16601) does allow non-competes in the context of the sale of a business. So, if a doctor sells her practice to another doctor, the patient list and the ongoing "goodwill" will be a significant value. A transaction like that can include a non-compete, so the seller does not open a new practice across the street. But even those lawful non-competes have to be drafted correctly. The Court of Appeal held in Strategix, Inc. v. Infocrossing West, Inc., that a non-compete precluding the seller from soliciting the buyer's employees and customers (even those who were not the seller's former customers and employees) was too broad. The Court also refused to "blue pencil" or modify the agreement to apply only to seller's former customers. Ouch.

Non-competes, non-solicits, and trade secrets agreements are tricky (obviously). So, if they are important to you, ensure they are drafted to survive at least four judges' scrutiny (one trial judge and three at the court of appeal).

DGV

Independent Contractors in California

The characterization of workers as "independent contractors" can be tempting for employers: no workers' compensation coverage, no benefit plans, etc. Some workers may like being independent contractors too because they receive payment withhout tax withholdings. The government, on the other hand, is not a fan.

The California Court of Appeal in JKH Enterprises, Inc. v. Department of Indus. Relations decided that a group of delivery messengers were wrongly classified as independent contractors rather than employees. The court brushed aside evidence that the employer, JKH, did not control the messengers' means or methods of performing the work. The court noted that when the job does not require specialized skills, the employee's autonomy is not as important. Rather, the court focused on the messengers' hourly rate of pay (rather than payment by the job), and the fact that the alleged contractors were performing the job essential to the business' purpose. (That is, JKH was a delivery service, and it classified those responsible for accomplishing that business purpose as contractors).

Interestingly, the court also decided that when independent contractor status is evaluated in the context of whether the employer should have provided workers' compensation insurance, the court must evaluate the case differently than when the case is brought in another context.

DGV

Even "Limited" Non-Competes Illegal in CA

Employers in many states implement "non-compete" agreements. The employer seeks to preclude employees from leaving going to work for the competition, typically to protect the employer's customer list or other proprietary information. Most states limit these agreements to one extent or another. However, in California, with just a couple of exceptions, agreements not to compete are per se illegal.

Employers and their lawyers, fonts of ingenuity that they are, have come up with a variety of end-runs around California's prohibition on non-competes. Non-solicitation agreements, for example, have been held lawful to the extent necessary to protect a valid, protectable interest, such as a trade secrets.

Another example is an agreement not to compete with the employer's primary competitors - a "limited" non-compete. So, hypothetically, McPotroast might implement an agreement restricting employees from going to work for King Carnivorous, but the employee can work for anyone else.

Is that sort of arrangement illegal in California? The U.S. Court of Appeals for the Ninth Circuit has ruled said "no," predicting how the California Supreme Court would rule on the issue.

The Ninth Circuit's interpretation of California was wrong, says the Court of Appeal in the August 30, 2006 decision in Edwards v. Arthur Andersen.

The opinion surveys California non-competition law in some detail and the court then concludes even a limited non-compete is illegal unless necessary to protect trade secrets or unless one of the narrow statutory exceptions to the general rule applies:

In sum, we conclude the "narrow restraint" doctrine is a misapplication of California law. Noncompetition agreements are invalid under section 16600 even if narrowly drawn, unless they fall within the statutory or trade secret exceptions. Thus, the noncompetition agreement at issue here was invalid and violated California's public policy, unless, on remand, Andersen proves the trade secret exception applies.

The Court then held that requiring Edwards to sign the agreement established a required element of the tort of "interference with prospective economic advantage" (the "independently wrongful act" element.). As such, Edwards was permitted to proceed on this theory, exposing Andersen to the a panoply of tort damages, including punitive damages.

Sexual Harassment Training and Prevention Reducing Claims?

Clients who invest in sexual harassment prevention may be reaping a benefit, according to this article in the SF Chronicle. The number of EEOC filings claiming sexual harassment has decreased about 20% between 1997 and 2005. The average verdict in sexual harassment cases has increased tenfold. So, giving short-shrift to prevention is more risky than in the past.

The article tries to link the decrease in EEOC filings with AB 1825, California's mandatory training law. But that law took effect just last year, so it can't be responsible for the decrease in charges between 1995-2005. AB 1825 may further reduce harassment claims in the future, but employers' voluntary prevention efforts deserve at least some of the credit for the decrease in claims.

Since Clarence Thomas' confirmation hearings, companies even of modest size increasingly have implemented comprehensive prevention programs. More than just a zero tolerance policy - these include routine training, open door policies, "grievance" or in-house resolution programs, anonymous tip lines, and skilled investigators.

Harassment prevention really came of age as a result of the Faragher / Ellerth line of Supreme Court cases, where the U.S. Supremes provided employers with a defense to harassment claims when they take preventive measures. California employers also took notice after Weeks v. Baker & McKenzie, where a jury socked the big firm for millions in punitive damages on actual damages of $50,000 as I recall. Finally, the U.S. Supremes' decision in Kolstad v. ADA (why yes I did write an amicus curiae brief, thank you for remembering), provides a defense to punitive damages claims in federal discrimination cases, when an employer demonstrates its good faith efforts to comply with anti-discrimination laws. "good faith efforts" include training and other prevention efforts.

*** Warning: Only slightly tongue-in-cheek marketing ploy follows****

So, you ask, where does one find a great trainer - one who will motivate people to pay attention and take the training seriously, while covering all the legal bases? Hmm. (Yes, you're supposed to click the link!).

DGV