Contents
Lead Articles
- IRS Program Provides Amnesty For Settling Contractor Misclassifications
- Important California Legislative Developments
News Bites
- "Meal Period" Issue Set For Oral Argument in Brinker: The "Provide" v. "Ensure" Saga Continues
- NLRB Pushes Deadline to Post Employee Notice to January 31
- Employer Defeats Challenge to Termination Over Facebook Post
- Unsigned Sales Commission Plan Enforceable
- Retaliation Claims Survive, Even as Underlying Sexual Harassment Claims Dismissed
- Appellate Court Rules Employment Arbitration Agreement Unenforceable Since Employees Cannot Waive PAGA Representative Actions
IRS Program Provides Amnesty For Settling Contractor Misclassifications
The Internal Revenue Service ("IRS") recently announced a program to encourage employers to reclassify workers who were previously misclassified as independent contractors. Through the Voluntary Worker Classification Settlement Program, companies may voluntarily reclassify independent contractors as employees for future federal employment tax purposes and settle any past payroll taxes on such workers' compensation. To be eligible for the program, the company must have consistently treated the worker as a nonemployee, filed the required 1099 tax forms for the past three years, and not be under a worker classification audit. Participating companies will be required to pay 10% of the employment tax liability that may have come due on compensation paid to the reclassified workers in the past year – with no interest or penalties due and a guarantee of no employment tax audit of reclassified workers for the prior years. More information about the program and other conditions of participation is available at the IRS website.
The program appears to be part of a larger effort by the IRS to curb worker misclassification. Prior to announcing the program, officials from the Department of Labor, IRS, and several state agencies announced they would be partnering to reduce worker misclassification. In fact, IRS regulators have reportedly observed that, due to the availability of the program, the IRS will be more vigilant about worker misclassification in the future.
While participation in the program may favorably address past federal employment tax liability, employers are cautioned that reclassification will likely have other consequences, both intended and unintended. Thus, employers are advised to seek legal counsel before deciding whether to take advantage of the new IRS program.
Important California Legislative Developments
Governor Brown recently signed into law two bills that substantively change private employer obligations to their employees in California.
Maintenance of Medical Coverage During Pregnancy Disability
Leave: SB 299
Effective January 1, 2012, all employers with at least 5 employees
in California must maintain at the same level, and pay for,
continued health care coverage for employees on pregnancy-related
disability leave. Previously, while California law guaranteed up to
four months of leave due to pregnancy-related disabilities (also
referred to as "maternity leave"), it did not require
employers to continue an employee's health care coverage during
the leave. Such protections fell only within the realm of the
federal Family and Medical Leave Act, which applies to employers
with at least 50 employees, has employee eligibility requirements,
and caps out at twelve workweeks. Employers should now review their
handbooks, stand-alone policies, and practices regarding
pregnancy-related disability leave and continued health care
coverage to ensure compliance with SB 299 in 2012.
Signed, Written Commission Contracts: AB 1396
Effective January 1, 2013, all agreements to pay employees
commissions based on services to be rendered in California must be
in a writing signed by the employer and employee. Under AB 1396,
the employer is obligated to document in that written agreement
"the method by which the commissions shall be computed and
paid." The bill further provides that, where the parties
continue to work under the terms of an expired agreement, the terms
are presumed to remain in effect until the contract is superseded
or employment ends.
Many employers already document their commission practices and policies, most often in a commission plan or through less formal ways. However, it is now incumbent on all employers with employees rendering services in California to ensure such practices and policies are captured in a signed agreement. From a best practices perspective, the agreement should not only include the topics required by the bill, but also other key terms such as when commissions are earned and payable and commission payout upon or after termination. Additionally, employers will need to proactively update their agreements – in writing and in advance – to ensure that annual or quarterly changes are effective at the start of the new term, since verbal or late notice of such changes that purport to apply retroactively from the beginning of the applicable period may run afoul of the new law.
Because the bill is not effective until 2013, employers have the next year to evaluate and bring into compliance their commission documentation practices.
News Bites
"Meal Period" Issue Set For Oral Argument in
Brinker: The "Provide" v. "Ensure" Saga
Continues
On November 8, 2011, the California Supreme Court will hear oral
argument in Brinker v. Hohnbaum, which poses whether
employers must ensure that employees take meal periods or
simply make them available to employees. Most courts, especially
California state courts, have concluded that employers must
provide – or make available – such
periods, but not guarantee they are taken. Consistent with this
approach, Judge James P. Kleinberg of the Santa Clara County
Superior Court recently ruled in Driscoll v. Graniterock that the
company met its meal period obligations by allowing drivers the
opportunity to take a meal period, even though most drivers opted
for an on-duty meal with attendant premium pay and earlier
departure time. However, some other courts have gone a step further
and required employers to force employees to take their meal
periods. The ultimate decision in Brinker, which is
expected to issue by February 2012, is anticipated to give
employers much needed, conclusive guidance about their meal period
obligations.
NLRB Pushes Deadline to Post Employee Notice to January
31
The National Labor Relations Board ("NLRB") has postponed
the deadline by which most employers, whether unionized or not,
must post a notice of employee rights under the National Labor
Relations Act ("NLRA"). Originally, the deadline was
November 14, 2011, but, after significant controversy and reactions
from the employer community and attempts to block implementation
through legal action and federal legislation, the compliance
deadline has been postponed to January 31, 2012. The posters are
available for download on the NLRB's website. For further information
regarding the content of the notice and the posting requirement,
refer to the September 2011 FEB and the NLRB's
FAQs on the posting requirement.
Employer Defeats Challenge to Termination Over Facebook
Post
With increasing NLRB scrutiny toward adverse action for employee
social networking activities (see the September 2011 FEB), its General Counsel (who
prosecutes charges for the NLRB) brought unfair labor practices
charges against Karl Knauz Motors, Inc. after it terminated a
Chicago-area BMW employee for his Facebook post in which he
commented on two work-related events. First, the employee mocked
the "Ultimate Driving Event" – at which the
dealership served hot dogs and water – as cheap and
conveying the wrong message to potential customers. The post
followed discussion with, and voiced the concerns of, co-workers
whose salaries were based on commissions and who had access to and
commented on the post. Second, the employee posted photos of an
accident caused by a 13-year-old driving an LR4 into a pond at an
adjacent (employer-owned) car dealership and commented: "This
is your car: This is your car on drugs." The NLRB
administrative law judge ruled that the commentary on the Ultimate
Driving Event was protected activity, but concluded the termination
resulted from the posting of the accident photos and, therefore,
was not wrongful. In recognizing no protection for the
accident-related post, the judge observed it was done
"apparently as a lark, without any discussion with any other
employee . . ., and had no connection to any of the employees'
terms and conditions of employment."
Also of interest, the administrative law judge concluded that several provisions in the employer's handbook – seemingly innocuous as they prohibited use of language injurious to the employer's image or reputation, unauthorized interviews, and communications with non-employees regarding personnel matters – violated the NLRA because they were overbroad with the potential to chill lawful, employee concerted action.
Unsigned Sales Commission Plan
Enforceable
The Seventh Circuit Court of Appeals (covering mid-western states
including Michigan) recently upheld a trial court's dismissal
of an employee's claims, finding the commissioned sales
representative, Matthew Carroll, bound by an unsigned commission
plan. See Carroll v. Stryker Corporation. As an initial
matter, the court recognized Carroll accepted the terms through his
continued employment. The court then rejected several challenges
Carroll raised to the commission plan. It found that the
employer's express right to modify the contract did not
eliminate the employer's promise and obligation to pay
commissions on services rendered prior to any changes, so the
contract contained mutual promises and was enforceable. The court
further found that the disclaimer in the company's employee
handbook – that the handbook was not a contract
– was not relevant to evaluating the plan's
enforceability.
Retaliation Claims Survive, Even as Underlying Sexual
Harassment Claims Dismissed
Serving as an important reminder to employers everywhere, in
Moore v. Third Judicial Circuit of Michigan, a federal
district court in Michigan allowed a court administrator to pursue
her retaliation claim against her employer, even as her underlying
claims of sexual harassment were thrown out. Applying a federal
standard to her harassment claims, the court rejected the
administrator's contention that any employment benefits were
conditioned upon her submission to (or rejection of) unwelcome
advances and observed that the conduct, "while perhaps
awkward, impolite, and even unpleasant, [had] not risen to the
level of frequency or severity to be deemed extreme." Still,
the retaliation claim survived. Thus, the court permitted the
administrator to pursue her claim that, after her complaints,
several of her superiors commenced a pattern of retaliatory action
toward her, including impugning her integrity and chastity,
deprivation of authority previously held, barring her from
accessing areas within the employer's offices, and refusal to
consider her as a replacement for her supervisor following his
departure.
Appellate Court Rules Employment Arbitration Agreement
Unenforceable Since Employees Cannot Waive PAGA Representative
Actions
In the second California appellate decision to address class action
waivers in employment arbitration agreements since the U.S. Supreme
Court's ruling in AT&T Mobility LLC v. Concepcion
(see the April 2011 Litigation Alert) upholding the
enforceability of class action waivers in arbitration agreements,
the court refused to enforce an arbitration agreement due to its
purported waiver of representative actions under California's
Private Attorneys General Act ("PAGA"). See
Urbino v. Orkin Services of California, Inc. Following the
reasoning of Brown v. Ralphs Grocery Co. (see the
August 2011 FEB), the court determined such
waivers contradict "the fundamental purpose of a
representative enforcement action under PAGA" and are
therefore "unconscionable and unenforceable."
Consequently, the court refused to extend the AT&T
Mobility holding to PAGA representative actions. Many
employment law practitioners question the viability of the
Urbino and Ralphs Grocery decisions in light of
the U.S. Supreme Court's AT&T Mobility broad
ruling and await further direction as case law continues to develop
in this area.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.