Court of Appeal Expands Wrongful Discharge Law

OK, so let's say an employee has a non-compete agreement with a former employer. After Employee is hired by new employer, the former employer sends a "cease and desist" letter to the new employer. The new employer, fearling litigation, fires the employee. Employee sues new employer for wrongful discharge?!

Yep. I know....#@^!%.

In 2003, Silguero began employment with Floor Seal Technology, Inc. as a sales representative. In August 2007, FST threatened Silguero with termination unless she signed a confidentiality agreement. The agreement prohibited her from sales activities for 18 months following either departure or termination. (A Non-compete). FST terminated Silguero's employment in October 2007.

Shortly therafter, Silguero was hired by with Creteguard. But FST contacted Creteguard and requested enforcement of the non-compete.

In November 2007, Creteguard's chief executive officer, Thomas Nucum, did not call me. Instead, he informed Silguero in writing that "although we believe that non-compete clauses are not legally enforceable here in California, [Creteguard] would like to keep the same respect and understanding with colleagues in the same industry." Nice.

Silguero argued the noncompetition agreement enforced by Creteguard was void pursuant to section 16600, that no statutory exception to section 16600 applied, and that Creteguard's enforcement violated public policy.

The Court of Appeal agreed:

The complaint in this case alleges an ―understanding‖ between Creteguard and FST pursuant to which Creteguard would honor FST‘s noncompetition agreement. Creteguard admitted in writing that it entered into this understanding with FST, ―although [Creteguard] believe[d] that non-compete clauses are not legally enforceable here in California,‖ because Creteguard ―would like to keep the same respect and understanding with colleagues in the same industry. This alleged understanding is tantamount to a no-hire agreement.

No hire agreements are illegal too.

This case is Silguero v. Creteguard, Inc. and the opinion is here.

California Supreme Court Bings Google

I think Reid v. Google (opinion here) will be more memorable for its discussion of objections in summary judgment proceedings than for its discussion of the stray remarks doctrine.

I will post my upcoming article here next Monday, which will explain the above gibberish. (Or I'll cheerfully refund your money, and that's a promise!)

Ninth Circuit Thwarts End Run Around California Labor Code

EGL, a Texas transportation company, came up with an idea. Avoid all those pesky California wage and hour laws by making everyone an independent contractor, and inserting a choice of law clause into the agreement.

First, the court had to get by the Texas choice of law clause. The clause said only that the independent contractor agreement would be "interpreted under the law of the State of Texas." The claims, however, were not brought under the agreement, but rather were brought under the California Labor Code. So, this case is a warning to practitioners to draft choice of law clauses expansively. The court did not consider whether the Texas choice of law clause could be enforced in California.

Then, applying California law, the court reversed summary judgment. The court held that there was significant evidence of an employment relationship under California's test for independent contractor status. The court went on at length. So, you can read the opinion in Narayan v. EGL, Inc. et al. here.

California Supreme Court Holds No Private Right of Action Re: Tip Pooling

Labor Code Section 351 provides that tips belong to the servers who generate them. Tip pooling - employer-mandated sharing of tips among service staff, has been held lawful under that section. But certain tip pooling arrangements, particularly those in which management shares tips, have been held illegal.

In Lu v. Hawaiian Gardens Casino, Inc., a card dealer sued over a tip pooling arrangement, claiming that the employer's policy violated section 351. The lower courts held that Section 351 does not authorize private lawsuits. The Supreme Court stepped in to resolve a split in the courts of appeal. Applying general principles regarding when the Legislature intends to create private causes of action, the Court held there was none authorized under Section 351.
Of course, the plaintiffs can pursue their unfair competition claims, etc. The main disadvantage I can see off the cuff is the absence of a claim for attorney's fees under the Labor Code.

This case does not address whether tip pooling itself is lawful. So, employers should continue to draft tip pooling arrangements in accordance with lower court decisions on the subject, such as Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 1067; Etheridge v. Reins Internat. California, Inc. (2009) 172 Cal.App.4th 908, 921-922; Budrow v. Dave & Buster’s of California, Inc. (2009) 171 Cal.App.4th 875, 878-884; and Jameson v. Five Feet Restaurant, Inc. (2003) 107 Cal.App.4th 138, 143.

The case is Lu v. Hawaiian Gardens Casino, Inc. and the opinion is here.

Trial

Trial in employment cases is as rare as hen's teeth. Most cases settle. With the increasing prevalence of "EPLI" insurance, there is often little appetite for taking a case "all the way" and facing a jury. At least for us defense lawyers, going to trial is unusual.

Trial also is, to say the least, arduous. Sleep is something you get in between preparing for trial, conducting the trial, and preparing for the next day. No matter how much you prepare, there is much to do once the trial begins.

Once you're there, the odds are against you. Plaintiffs win as much as 60% of the time, depending on the type of claim and the court's location. That's another reason cases settle a lot. Let's not forget the time and money the employer has to spend, and victory defined only as a jury's conclusion that the defendant was right.

Don't let anyone tell you different. Winning is special. So, we're proud to let you know about two employment law trials that concluded this week with favorable outcomes.

First, Shaw Valenza alumnus Shane Anderies, now of Anderies and Gomes, won a verdict in style. His case, covered by the media (also rare), resulted not only in a defense verdict, but also a huge award on a cross-claim for defamation. Read about Moreno v. Ostly et al here.

Oh, yeah, and the Shaw Valenza trial team just received a verdict on behalf of our client Signature Properties in a retaliation case, tried in Sacramento Superior Court. The jury was out just 6 hours after a four week, fifteen trial-day, trial. No press coverage so far. The facts of our case were nowhere near as interesting as Shane's. (His involved a paralegal suing a lawyer for sexual harassment and his defamation cross-action). But winning was just as exciting for our client as us as it was for Shane and his.

Thanks to all of you who patiently waited for return calls during July. I will get back to you soon. I promise. I also will be posting on a number of new cases in the coming days. And congratulations again to Shane, Mr. Ostly, and of course Signature Properties.

DGV

Court of Appeal: Employee Must Initiate Interactive Process

Tanya Milan worked for the city of Holtville's water treatment plant. After a work-related injury, she began a leave of absence. During the leave, her workers' compensation doctor decided she would not be able to perform her duties. She never requested an accommodation or contacted her employer to state her intention to return to work. Instead, she accepted retraining benefits from the city's workers' compensation administrator and began taking courses for a new career.

The trial court awarded damages. The court felt that when the employee's doctor opined she was unable to do her job, that triggered the city's obligation to accommodate her.

However, on appeal, the court reversed. The court noted that the claim for failure to participate in an interactive process requires the employee to initiate the process:

Section 12940, subdivision (n), requires that an employer "engage in a timely, good faith, interactive process with the employee or applicant to determine effective reasonable accommodations, if any, in response to a request for reasonable accommodation by an employee or applicant with a known physical or mental disability or known medical condition." (Italics added.)

* * *

Importantly, by its terms section 12940 subdivision (n) requires that the employee initiate the process. (Gelfo v. Lockheed Martin Corp., supra, 140 Cal.App.4th at p. 62, fn. 22.) On the other hand, "no magic words are necessary, and the obligation arises once the employer becomes aware of the need to consider an accommodation. Each party must participate in good faith, undertake reasonable efforts to communicate its concerns, and make available to the other information which is available, or more accessible, to one party. Liability hinges on the objective circumstances surrounding the parties' breakdown in communication, and responsibility for the breakdown lies with the party who fails to participate in good faith."

Here is the money quote:

In short, where, as here, an employer has not received any communication from an employee over a lengthy period of time, and after the employee has been given notice of the employer's determination the employee is not fit, an employer is not required by section 12940, subdivision (n), to initiate any discussion of accommodations. Imposition of such a duty under those circumstances would contradict the express terms of the statute which requires that the employee initiate the interactive process.

Although this case does not require it, from a preventive standpoint, it is important to document attempts to check in with employees on long term leave. Employers should also ensure it has policies requiring employees to communicate periodically regarding their status and intentions. By doing so, that bolsters the argument that the employee's failure to communicate demonstrates a lack of intention to engage in an interactive process or request accommodation.

The case is Milan v. City of Holtville and the opinion is here.

Court of Appeal Approves Nordstrom Class Settlement

Nordstrom employees filed a class action challenging a commission plan. The parties settled for nearly $9 million in cash and vouchers, and Nordstrom agreed to make changes to its commission plans.

One employee filed a valid objection, which the trial court overruled. The trial court then approved the settlement as "fair, adequate and reasonable." The objector, Kellie Taylor, appealed.

Taylor's objection primarily went to the contention that the plaintiff's claims were stronger than what the settlement justified. The court evaluated the strength of the commission claims and found Nordstrom had a number of good faith defenses to whether its commission plan was faulty. This case will be helpful in providing an overview of commission plan law. For example, the court rejected the notion that the parties' allocation of $0 to PAGA and waiting time penalties was unreasonable:

There is no willful failure to pay wages if the employer and employee have a good faith dispute as to whether and when the wages were due. (Amaral v. Cintas
Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1201-1202.)

The court then explored the good faith basis for the dispute. In doing so, the court summarized cases discussing commission plans and their validity:

The right to commission wages is subject to the employment contract between an employer and employee, and Nordstrom calculated and paid its employees’ commission wages in accord with its written commission agreements with its employees. “It is undisputed that commissions are ‘wages,’ and thus that plaintiff’s claim for commissions falls within the terms of Labor Code sections 2926 and 206. [Citations.] However, for purposes of enforcing the provisions of the Labor Code, ‘[t]he right of a salesperson or any other person to a commission depends on the terms of the contract for compensation.’ [Citations.] Accordingly, plaintiff’s right to commissions ‘must be governed by the provisions of the [employment agreement].’ [Citation.] We have already concluded that, pursuant to the plain language of the written employment agreement, plaintiff was not entitled to any further commissions after he was terminated. Accordingly, defendant’s failure to pay such commissions cannot constitute a violation of the Labor Code.” (Nein v. HostPro, Inc. (2009) 174 Cal.App.4th 833, 853, fn. omitted; see also Div. of Lab. Stds. Enforcement, Enforcement Policies and Interpretations Manual (June 2002 Rev.) § 34.3 [“Commission computation is based upon the contract between the employer and the employee”] (DLSE Manual); id., § 34.3.1 [“Computation of commissions frequently relies on such criteria as the date the goods are delivered or the payment is received. Sometimes, the commission of the selling salesperson is subject to reconciliation and chargebacks if the goods are returned. If these conditions are clear and unambiguous, they may be utilized in computing the payment of the
commissions”].)

Good stuff. Then the court discussed payment of commissions when they can be calculated, rather than immediately:

If commissions cannot be calculated as of the time employment is terminated,
California law permits an employer to pay commissions after the termination date, as long as they are paid once they can be calculated. (DLSE Manual, supra, §§ 4.6, 5.2.5.) California law also permits Nordstrom’s policy of paying commissions based on net sales. (Steinhebel v. Los Angeles Times Communications, LLC (2005) 126 Cal.App.4th 696, 707 [approving process under which “an employer makes advances on commissions to employees and later reconciles any overpayments by deductions from future commissions”]; Hudgins v. Neiman Marcus Group, Inc. (1995) 34 Cal.App.4th 1109, 1122 [central issue decided was that employer could not deduct pro rata share of commissions from all employees for returns where salesperson could not be identified; “[a]s to those items of merchandise the customer decides to keep, the sales associate has clearly earned his or her commission at the moment the sales documents are completed and the customer takes possession of the purchased items. As to identified returns, the sale is reversed and the individual sales associate is required to return the commission because his or her sale was rescinded”], italics added.)

Taylor also objected to the use of merchandise coupons as partial payment because coupons cannot be used as a substitute for wages under Section 212. The court rejected this argument because the wages were not due and earned. This was a settlement of a disputed claim.

So, the Court approved the settlement. This case appears to throw some cold water on the new trend of objecting to settlements.

The case is Nordstrom Commission Cases and the opinion is here.