HIGHLIGHTS
FOR THE MONTH OF SEPTEMBER 2007
By: Elizabeth
Torphy-Donzella
Plan
That Denied Commissions To Departed Salesman For Orders
Placed Before He Left Did Not Violate Maryland Wage Laws
Supreme Court Labor
And Employment Agenda For 2008 Term
Is Accrued Unused Vacation
Subject To Forfeiture In Maryland?
"No
Match" Regulations Stayed By Court Order
Deferred Compensation
And IRC 409A
Compensation For "Donning
And Doffing" Under The FLSA
Consistently Proactive
Responses To Employment Complaints Yield Dividends
RECENT DEVELOPMENTS
Plan That
Denied Commissions To Departed Salesman For Orders Placed
Before He Left Did Not Violate Maryland Wage Laws
In Hoffeld
v. Shepherd Electric Co, Inc., the Maryland Court of
Special Appeals rejected a salesman’s claim that he
was denied commissions in violation of the Maryland Wage
Payment and Collection Act for sales made before he left.
The Court ruled that the employer’s policy –
under which a commission was paid to the salesperson employed
on the product shipment date – did not illegally divest
departed salespeople of earned wages.
Facts of the Case: Plaintiff
was an outside commissioned salesman for an electrical supply
company. His primary duty was to develop relationships with
clients so that the inside salespeople could make sales.
He also was responsible for handling change orders and resolving
problems for clients before and after orders shipped. Under
the company’s unwritten policy, commissions were not
considered “earned” until the shipment/invoice
date. Reasons for this included that orders were modified
before shipment and clients were permitted to cancel orders
before shipment. After plaintiff quit his job, he did not
receive commissions on orders shipped after he left. (Plaintiff’s
successor was paid the commissions). Plaintiff sued, claiming
this policy denied him earnings in violation of the Maryland
Wage Payment and Collection Act (WPCA). The trial court
rejected his claim.
The Court’s Ruling: The
Court of Special Appeals agreed with the trial court that
the commissions were not earned until the orders shipped,
and thus plaintiff was not denied wages due under the WPCA.
The court noted that there were a multitude of steps between
the issuance of a purchase order and the shipment, which
belied the plaintiff’s contention that the commission
was earned on the earlier date. “Most importantly,
such changes require the outside sales representative to
perform additional work throughout the order interval, continuing
those duties until the order is actually shipped.”
Thus, the employer’s policy was distinguishable from
that found to be illegal in Medex
v. McCabe, in which an employee who had done all work
necessary to earn the commission was denied it solely because
he was not employed on the scheduled payment date. “Unlike
Medex, commissions in this case were not linked to the arbitrary
factor of employment, but to a reasonable job requirement.”
Lessons Learned: The WPCA
requires employers to pay departed employees all wages for
work performed before termination. In the case of commission
payments, whether the work is fully performed – and
thus earned under Maryland law – will depend on the
nature of the sale and the terms of the commission plan.
In order to deny a departed salesperson commissions on sales
in which he/she was involved before termination, the employer
must show that there is a legitimate business reason connected
to the denial. The potential for there to be additional
service and effort, in this case, was the critical factor.
It also is important that the parties agree on what factors
must be met before a commission will be deemed “earned.”
A written commission plan (unlike the verbal agreement in
this case) is the best evidence of what is agreed upon.
Supreme Court
Labor And Employment Agenda For 2008 Term
The U.S. Supreme Court has so far agreed to review four
cases with employment law implications. The new Supreme
Court term begins on October 1.
Arbitration: Can The Parties Choose
The Standard Of Court Review? Faced with rising litigation
costs and the prospect of jury trials, some companies have
chosen to make the arbitration of employment claims a condition
of employment. Properly crafted, these agreements have been
enforced by courts, even for the resolution of discrimination
claims. Arbitration has not, however, been the panacea many
anticipated; too often, there is little or no cost savings
and, although juries are avoided, court review of an adverse
arbitration award is exceedingly narrow. In Hall
Street Associates LLC v. Mattel, Inc. (a non-employment
case with employment law impact), an arbitration agreement
sought to remove the second of these problems by specifying
that a reviewing court could overturn a decision if it found
that the arbitrator’s conclusions of law were erroneous.
The U.S. Court of Appeals for the Ninth Circuit held that
this provision was invalid because it was inconsistent with
the narrower standards of review in the Federal Arbitration
Act. The Supreme Court will decide whether the parties can
expand the standard of review.
“Me Too” Evidence: Do
Plaintiffs Get To Bring Other Employees To Trial To Testify
That They Also Were Discriminated Against? Plaintiffs
sometimes try to buttress their claims of discrimination
by calling other employees or former employees to testify
that they, too, believed they were discriminated against.
Absent evidence that the other employees were similarly
situated – i.e. worked at the same facility under
the same line of supervision at relatively the same time
period and claim the same discrimination – courts
usually do not permit the testimony. In Mendelsohn
v. Sprint/United Management Co., the U.S. Court of Appeals
for the Tenth Circuit went against this trend and reversed
a trial court’s exclusion of such “me too”
testimony by employees who did not work at the same facility
or under the same supervision as plaintiff. They were, however,
like plaintiff, laid off as part of a nationwide reduction
in force. (Notably, some of the proffered witnesses were
laid off at different times than plaintiff.) In finding
that the trial court erred in excluding the testimony, the
Tenth Circuit ruled that despite all these dissimilarities,
if the evidence could in some way be shown to be “logically
or reasonably tied to” the challenged decision, then
the testimony should be admitted. One of the principal points
that the defendant company will be making on appeal is that
the Tenth Circuit’s view will promote a series of
mini-trials in order to evaluate the employment decisions
affecting each of the employee/witnesses.
What Is A Charge Of Discrimination?
Filing a timely charge of discrimination is a precondition
to filing a Title VII lawsuit. If the charge is late or
if the papers that are filed do not have the legal status
of a “charge,” the employee loses the right
to pursue the claim under Title VII. In Holowecki
v. Federal Express Corporation, the plaintiff filed
a charge on the official EEOC form late, but claimed that
her lawsuit should not be dismissed because she timely submitted
a signed “intake questionnaire” to the EEOC
with a four-page sworn affidavit attached. The EEOC did
not, however, treat the first filing as a charge. The trial
court dismissed her case. The U.S. Court of Appeals for
the Second Circuit reversed, ruling that the submission
of the intake questionnaire with the verified affidavit
should have alerted the EEOC that this was intended to be
treated as a charge.
Does ERISA Bar Individuals From Suing
Plan Fiduciaries For Individual Losses? The decision
of the U.S. Court of Appeals for the Fourth Circuit in LaRue
v. DeWolff, Boberg & Associates, Inc., impacts employers
only indirectly. The issue to be decided is whether an individual
can sue a fiduciary of a retirement plan for losses to the
individual caused by bad investments by the plan. The Fourth
Circuit held that ERISA permits suits only for losses to
the plan as a whole, not just to the individual.
TAKE NOTE
Is Accrued Unused
Vacation Subject To Forfeiture In Maryland?
As we advised in an E-lert
this month, the recent unreported Maryland Court of Special
Appeals decision in Catapult
Technology, Ltd. v. Wolfe held that a company policy
that provided for forfeiture of accrued unused vacation
at termination violated the Maryland Wage Payment and Collection
Act. The decision was a surprise, contradicting a reported
decision of the U.S. District Court for the District of
Maryland on the topic. The outcome also is at odds with
information
on the web site of the Maryland agency charged with
interpreting and enforcing the wage laws. We have learned
that the decision will not be appealed. Despite the fact
that unreported decisions are not binding precedent, the
decision for now is the only pronouncement of a Maryland
State appeals court on the topic. Inevitably, plaintiffs’
lawyers and employees who are aware of the decision will
rely on it in demanding pay for accrued unused vacation
upon termination or at year’s end (in the case of
“lose it or use it” vacation policies). Thus,
Maryland employers, in concert with their employment law
counsel, will have to devise plans to deal with the issue.
“No Match”
Regulations Stayed By Court Order: In our August
E-update we explained the regulations issued by the
Department of Homeland Security dictating what companies
must do after receiving “no match letters” (letters
from the Government to employers advising of a mismatch
between a Social Security Number and an employee’s
name). Although the regulations were to become effective
September 14, 2007, because of a legal challenge by the
AFL-CIO, civil rights groups, and others, they have been
stayed pending a hearing on the matter in October. We will
promptly advise clients if and when the stay is lifted.
Deferred Compensation
And IRC 409A: The IRS announced on September 10,
2007 that it will extend the document compliance deadline
for deferred compensation plans to comply with the regulations
interpreting IRC 409A from December 31, 2007 to December
31, 2008. (Under the 409A regulations, covered deferred
compensation arrangements – which broadly speaking
are agreements for compensation promised in one calendar
year that is payable in another calendar year – must
meet a number of criteria and include an array of technical
terms. Noncompliance means payments will be subject to substantial
taxes and penalties.) Although such compensation plans will
have to come into compliance with 409A by the end of this
year, Notice
2007-78, which granted the extension, will permit amendments
to documents to be complete by the end of next year. Companies
still have to identify all documents and arrangements that
represent covered deferred compensation (such as “golden
parachute” agreements, employment contracts, severance
agreements, and more) and make the required corrections
to the arrangement by year’s end or risk non-compliance.
Thus, it probably is easier to amend the documents this
year despite the extension.
Compensation For
“Donning And Doffing” Under The FLSA: In
Felix
de Asencio v. Tyson Foods, Inc., the U.S. Court of Appeals
for the Third Circuit held that time spent by employees
changing into and out of work clothes is compensable “working
time” under the following conditions. First, it must
be “integral and indispensable” to the employee’s
principal activity. For example, if the employee cannot
perform his work without wearing the gear and is required
to change on company premises (because of law or the employer’s
rules) this criteria would be met. (In so holding, the appeals
court rejected the lower court and employer’s logic
that to be “work” the activity had to involve
some exertion, mental or physical). Second (and assuming
the gear is integral and indispensable), the time would
be compensable unless it was a de minimis activity.
The court defined de minimis as meaning seconds
or minutes of time that occur in uncertain and indefinite
duration, and thus are administratively difficult to track.
The court also held that the donning time and doffing time
should be considered together in determining whether the
time was de minimis.
TOP TIP
Consistently Proactive Responses
To Employment Complaints Yield Dividends: Employers
that post and consistently enforce anti-discrimination and
harassment polices may not be able to avoid liability in
all cases, but these actions can reduce the potential for
damages if a case goes to trial.
A comprehensive policy: An
anti-discrimination and harassment policy optimally will:
• identify both the classifications that are protected
by federal law and those covered by the law of the jurisdiction
in which the facility operates;
• describe the types of conduct that are prohibited
in language that is understandable (relying on the EEOC’s
jargonistic definitions is not sufficient in-and-of-itself);
• provide a mechanism for complaining, with at least
two points of contact to receive complaints, since one of
the contacts may be charged as the harasser;
• oblige supervisors to report conduct that they believe
to be harassment (since companies are responsible for what
supervisors see);
• contain a commitment to carefully review claims
and take action appropriate to the facts of the case;
• prohibit retaliation against anyone who makes a
good faith complaint under the policy or assists with a
complaint or an investigation.
Publication of the policy: It
is important that, at minimum, the policy be distributed
to employees at hire and as updated. Recent court decisions
suggest that it is also wise to provide the policy to contract
and temporary workers assigned to the employment site. The
policy also should be posted in a location where employees
regularly gather, like the break room, common bulletin board,
or even above the time clock. Whenever an employee is provided
with the policy, the company should have the employee sign
an acknowledgement that he/she read the policy, understood
it, and had the opportunity to ask any questions he/she
might have about the policy.
Training: Court frequently
find that employers that fail to conduct regular training
about harassment policies lose their “good faith efforts”
defense to punitive damages claims. Failure to conduct training
can also deprive an employer of the complete defense to
a harassment claim, one element of which is that the employer
took efforts to prevent harassment. Training is not like
a one-time vaccine. Instead, after the initial “inoculation”
employees and managers need to get “booster shots.”
Consistent follow through: Finally,
a policy that exists only on paper is virtually worthless.
What is important to courts (and to prevention as well)
is prompt action whenever an employee complains. Such action
includes an appropriate and unbiased investigation, the
reaching of a conclusion, and remedial action. That may
involve terminating the harasser in the case of a proven
violation that merits the ultimate penalty. It may mean
adjusting the method of supervision when, for example, the
supervisor is claimed to have been the harasser (such as
requiring the supervisor’s actions to be reviewed
by a higher level manager). It is also important to communicate
to the complainant that the claim was investigated and action
taken. Although it may not be appropriate to tell the complainant
what punishment was imposed, failure to communicate anything
may cause the complainant to think nothing was done. Finally,
in addition to communicating to anyone who was involved
with the complaint and investigation that retaliation will
not be tolerated, companies need to follow up with the complainant
to ensure that he/she does not think retaliation is occurring.
Employers that follow these steps are well positioned to
avoid claims in the first instance, and to defend against
them if litigation results.
For greater clarification of any of these issues, you may
contact any Shawe
Rosenthal attorney.
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