It's November, so See's Candy is on every employer's mind...

I've made my own views about time-clocks for employers known before, but here comes a case that may change that.  Even if you are using time cards that an employee fills out by hand each day, questions come up about whether an employer can round time up (or down) to the nearest five, ten or fifteen minute period.  

Now, the California Court of Appeals has an answer for us - and again, it's a good result for employers (always nice to see in this employee-friendly state).  In See's Candy Shops, Inc. v. Superior Court, a case out of San Diego, the court upheld a policy used by See's Candy that rounds employee punch in/out times to the nearest one-tenth of an hour.  That's six minutes, for the math challenged among us.

The policy must be "fair and neutral on its face"  and over time it cannot appear to deprive the employee of just compensation for the time they have worked.  My guess is that this will translate as "round up, as well as down" as an easy-to-follow rule for employers.

This ruling ties in with policies from the United States Department of Labor and  California Division of Labor Standards Enforcement.  And, as we get closer to Thanksgiving, it is a well-deserved treat for employers everywhere.

To fire, or not to fire? A $17 million question.

One of the most frequent questions I get from clients is a variation on the following:

I want to terminate an employee, but he/she has been sick/is pregnant/made a worker's compensation claim/just turned 55/is the only minority in the business.  How can I do this without getting sued?

For disgruntled employees, the threat of a retaliation or discrimination claim against a former employer has long been a way of guaranteeing a severance payment.  Smart employers do not fire employees who may threaten litigation without first considering the risks and taking steps to protect themselves from legal action.  

The case of  Marlo v. United Parcel Service made the news when a unanimous federal jury awarded a former UPS supervisor, Michael Marlo, $2,201,425 in economic and non-economic damages, and an extraordinary $15,897,053 in punitive damages.  Evidence at trial showed that UPS may have had a mixed motive for firing Marlo.  The jury found that UPS had retailiated against Marlo for bringing an wage and hour claim, reporting safety violations and encouraging other supervisors to file lawsuits against the company; UPS argued that it had legitimate reasons for firing Marlo that were unrelated to these factors.

Quoting Grant-Burton v. Covenant Care, Inc. (2002) 99 Cal.App.4th 1361, the Marlo court explained the mixed motive test clearly:

In some cases, the evidence will establish that the employer had “mixed motives” for its employment decision. In a mixed motive case, both legitimate and illegitimate factors contribute to the employment decision. Once the employee establishes that an illegitimate factor played a motivating or substantial role in an employment decision, the burden falls to the employer to prove by a preponderance of the evidence that it would have made the same decision even if it had not taken the illegitimate factor into account.

Jury instructions are often a good, "plain English" way of understanding the law.  In this case, the jury were given the following instruction:

Plaintiff Michael Marlo claims that UPS retaliated against him in violation of the California Labor Code by terminating his employment. Mr. Marlo has the burden of proving each of the following elements by a preponderance of the evidence:

1. That Mr. Marlo engaged in protected activity;

2. UPS subjected Mr. Marlo to an adverse employment action by terminating his employment; and

3. UPS terminated Mr. Marlo's employment because he engaged in protected activity-that is, that the protected activity was a motivating or substantial factor in UPS's decision to terminate his employment.

If you find that Mr. Marlo has failed to prove any of these elements, your verdict must be for UPS.

If you find that Mr. Marlo has proved all three of these elements, then UPS must prove by a preponderance of the evidence that it would have made the same decision to terminate Mr. Marlo even if his protected activity had not been a motivating or substantial factor in the decision. If UPS does not meet this burden, then your verdict must be for Mr. Marlo.

Simply put, in a mixed-motive case, the employee must prove that his termination from employment was improper.  If he or she does so, the employer can defend against the claim by showing that the other factors for termination were strong enough that he or she would have been fired anyway.

My advice to any employer looking to terminate an employee is to spend ten or twenty minutes talking to an attorney first, especially if, like Mr. Marlo, that employee has filed safety complaints and wage and hour claims.  

Every case is different, of course, and nothing herein on any of these entries is intended as legal advice or to create an attorney-client relationship between reader and writer.  This material is offered as a service to clients and the community but should not replace legal advice from a licensed attorney.

More limits on arbitration provisions

I've written about the problems employers face enforcing arbitration agreements before, and here is a new spin on the issue.  In Elijahjuan v. Superior Court (2012) --- Cal.Rptr.3d ----, the Second District Court of Appeal, Division 8 (Los Angeles) ruled that a lawsuit brought by a group of employees challenging their status as independent contractors  fell outside the scope of an arbitration agreement that specified that the individuals were independent contractors.  

Why? According to the Court of Appeal, because the lawsuit did not concern the application or interpretation of the Agreement, but instead sought to enforce rights arising under the Labor Code, it was "outside" the agreement. The Labor Code would not apply to independent contractors and did not cover any of the rights and responsibilities set forth in the agreement.

Job recruiters ruled "employed in sales," exempt from overtime

Sometimes, the specific work your employees do triggers special handling under California Labor Law - just last month, I wrote about mortgage underwriters being ruled nonexempt for purposes of overtime and FLSA.  This month, we have a new decision relating to job recruiters.

Muldrow v. Surrex Solutions Corp. (August 29, 2012)___Cal.App.___) was originally transferred back to the Court of Appeal by the California Supreme Court with instructions to reconsider an earlier ruling in light of Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004.

Finding that Brinker had no impact on an earlier ruling, the Court of Appeal affirmed an earlier decision and ruled that job recruiters were employed "principally in selling a product or service," and fell within the commissioned employee exemption from overtime law. The recruiters' job was to offer a candidate employee’s services to a client in exchange for a payment of money from the client to the recruiters’ employer, and it was only upon the successful placement of a candidate that the employer recorded a “sale” and the client was required to pay.

The facts of this case showed that seven to ten recruiters consistently received payments in excess of their guaranteed draw (suggesting a commission system), and approximately two-thirds of the recruiters in the employer's current workforce had been paid commissions.  This, in the eyes of the Court of Appeal, was sufficient to establish that the commission system was bona fide and the employees were not entitled to overtime.

What's cooking at the courthouse for the Julia Child Foundation?

We all need a break from employment law sometimes.  Today's hotsheet (a list of new case filings in Santa Barbara, San Luis Obispo and Ventura Counties) has an interesting new lawsuit that will make many court-watchers' salivate (sorry, enough food jokes).

The Julia Child Foundation for Gastronomy and the Culinary Arts v. BSH Home Appliances Corporation dba Thermador was filed on August 28, 2012, in Santa Barbara County Superior Court by Los Angeles attorney Charles Harder of  Wolf Rifkin Shapiro Schulman & Rabkin, LLP.  

The lawsuit, for misappropriation of right of publicity, alleges that Thermador used Julia Child's name, photograph, likeness and other publicity rights in magazine and website advertisements, newsletters, and commercial marketing materials to promote and sell Thermador products without permission. The plaintiff is asking for revenues and profits received, the imposition of a constructive trust, an injunction preventing defendant from using Ms. Child's publicity rights, general and punitive damages.

This dispute has been brewing for a while, and the Los Angeles Times has a great story about it here.  According to the LA Times, "[t]he campaign rolled out this year by Thermador, a 96-year-old brand based in Irvine, ranged from a Facebook 'like' of its products by 'Julia Child, chef' to glossy magazine ads that showed photos of Child and two of the brand’s ovens with the caption, 'An American Icon and Her American Icons.'"

Julia Child, who would have celebrated her 100th birthday this year, loved Santa Barbara and set up home here late in life, giving her stamp of approval to scores of local restaurants.  

Arbitration provisions in the employment context

Including an arbitration provision in an employment agreement is almost the norm these days - however, including an enforceable arbitration provision is less common.  For a great primer on arbitration in the employment context, click here.

The Courts consider arbitration agreements to weigh in the employer's favor, at the expense of the employee's right to trial.  Because of this, an arbitration agreement should not be an afterthought but a separately signed agreement.  Second, an arbitration agreement must clearly state what it is intended to cover and indicate that the signatories understand that they are giving up their rights to trial.

In Simmons v. Morgan Stanley Smith Barney, LLC. (2012) _________, the United States District Court, Southern District of California ruled that arbitration provisions in promissory notes and bonus agreements did not cover statutory employment discrimination claims.

In that case, the agreements to arbitrate were included in an executive's promissory notes and bonus agreements with his employer.  They did not state that the executive waived his right to a jury trial on his statutory claims for employment discrimination or otherwise show that the executive had knowingly foregone his statutory remedies for such claims.  Because of this, the Court ruled that the agreements to arbitrate did  not apply to the claims for employment discrimination

The Court did find that the arbitration agreement covered the executive's remaining claims for wrongful termination in violation of public policy, fraud, and breach of contract, and his request for a temporary restraining order and preliminary and permanent injunction.

Moral of the story? A well-drafted arbitration provision can save you time and money, and a poorly-drafted provision could cause you big problems.

Mortgage underwriters ruled non-exempt, qualify for overtime and FLSA rules

In a class action lawsuit out of Washington state, the District Court has ruled that residential mortgage underwriters are not exempt from the requirements of the Federal Fair Labor Standards Act (FLSA) and Washington's version of the same law, the Washington Minimum Wage Act.

The case, Bollinger v. Residential Capital, LLC; Gmac Mortgage, LLC and Ally Financial, Inc., (2012) C10-01123-RSM, 2012 WL 1945033, is important for a number of reasons. 

Good Faith Does Not Protect Employers Who Make Mistakes

First, the employers in this case went the extra mile in trying to comply with the law. In 2006, they hired  law firm Morgan, Lewis & Bockius to audit their decision to classify Plaintiffs as exempt administrative workers. Morgan Lewis ultimately advised Defendants that the decision was proper.

In 2008, Morgan Lewis reviewed Whalen v. J.P. Morgan Chase & Co., 569 F.Supp.2d 327 (W.D.N.Y.2008), which held that mortgage underwriters fell under the FLSA's administrative exemption.  Morgan Lewis reviewed Whalen and concluded that it supported the employer's decision to classify Plaintiffs as exempt. The law firm also reviewed a 2006 opinion letter on loan officers, published guidance on financial services industry employees and other legal authority.  

In this case, despite the law firm's advice that the mortgage underwriters were covered by the administrative exemption, the employers were clearly concerned about the decision to classify their underwriters as exempt employees. Internal emails from May 2009 showed that the issue had been “a source of debate for some time.” The employers were particularly concerned because they knew that most of their competitors were paying their underwriters overtime.

The employers next hired another attorney, Maxine Goodman, to perform a new audit of the exemption decision. Like Morgan Lewis, Goodman concluded that the 2006 opinion letter on loan officers, published guidance on financial services industry employees, and Whalen supported Defendants' exemption decision. 

In this case, it seems like the employers were ahead of the legal curve - in November 2009, the Second Circuit issued Davis v. J.P. Morgan & Chase Co., 587 F.3d 529 (2d Cir.2009), which reversed Whalen and held that underwriters did not qualify for the FLSA's administrative exemption. 

Attorney Maxine Goodman reviewed the Davis decision and concluded that underwriter duties described in that case were analogous to Plaintiffs' duties. In January 2010, she recommended that the employers reclassify their mortgage underwriters as nonexempt. They did so about a month later.  

Think the employers were acting in good faith when they hired all those lawyers?  The court wasn't ready to say so.  Under the law, there is a very limited good faith defense available under § 260 of the Portal–to–Portal Act. Under § 260, “if the employer shows to the satisfaction of the court that the act or omission giving rise to [an overtime pay action] was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the [FLSA], the court may, in its sound discretion, award no liquidated damages or award any amount thereof not to exceed the amount specified in [§ 216(b) ].” 29 U.S.C. § 260. 

What is the administrative exemption?  

Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempt certain computer employees. To qualify for exemption, employees must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week. 

Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department of Labor’s regulations.

As of August 23, 2012 (remember, the law changes every day), to qualify for the administrative employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;

• The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and

• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Here, the mortgage underwriters were working in excess of 40 hours a week, and were expected to review a certain number of applications each day.  Incentive bonuses were based on the total value of reviewed loans, and evaluations included the number of errors made in applying the mortgage company's guidelines.

In short, the underwriter's duties were "functional as opposed to conceptual,"  as one employer witness said.  After mortgage applications went through an automated review system, the employees reviewed the application for compliance with guidelines the automated review system could not process and made the final decision about whether to approve the application.  They were able to recommend approval of loans that did not meet guidelines, but in those cases, the final approval went to another department.  The underwriters had limited freedom to calculate income and assets, but the calculations had to be in line with the employers' own criteria.

The law changes every day, and this legal analysis is for information purposes only.  Nothing herein is intended to create an attorney client relationship, nor is this intended as an advertisement for legal services.  You should always consult a licensed attorney for legal advice.