Employment Law

California Supreme Court Weighs In On Commission Wages

Why it matters: Employers in California that pay commission wages should familiarize themselves with a new decision from the California Supreme Court limiting payroll choices. Answering a question from the Ninth U.S. Circuit Court of Appeals, the state’s highest court held that employers may not attribute commission wages in one pay period to other periods in order to satisfy the state’s compensation requirements. The employer utilized a payment system of biweekly paychecks with hourly wages, paying commission wages approximately every other pay period. Taking a strict reading of the regulations, the court refused to allow the exemption to be satisfied by factoring in commission payments from other pay periods. “[W]e hold that an employer satisfies the minimum earnings prong of the commissioned employee exemption only in those pay periods in which it actually pays the required minimum earnings,” the court concluded. “An employer may not satisfy the prong by reassigning wages from a different pay period.”

Detailed Discussion
For less than one year, Susan Peabody was an account executive at Time Warner Cable, selling advertising on the company’s television channels. Every other week, Time Warner paid her $769.23 in hourly wages, or $9.61 per hour based on a 40-hour week. Approximately every other pay period, Peabody received commission wages.

After she stopped working for Time Warner, Peabody sued, alleging various wage and hour violations. She claimed that she regularly worked 45 or more hours per week but was never paid overtime wages; on weeks where she worked more than 48 hours, she received less than the minimum wages when she was paid only hourly wages.

Time Warner moved for summary judgment. Peabody fell within California’s “commissioned employee” exemption for overtime, the employer argued.

Wage Order No. 4 requires that an employee’s “earnings exceed one and one-half times the minimum wage” for the exemption to apply. While Time Warner acknowledged that most of Peabody’s paychecks included only hourly wages and were less than the statutory requirement, the company told the court that commissions should be reassigned from the pay periods in which they were paid to earlier pay periods and attributed to the monthly pay period for which they were earned, satisfying the minimum earnings requirement.

A federal district court agreed and Peabody appealed. Finding a lack of controlling precedent, the 9th Circuit certified the issue to the California Supreme Court.

Taking a strict reading of the Wage Order requirements, the court said commissioned employees must receive 1.5 times the minimum wage in each paycheck. The fact that Peabody earned more than $75,000 during her tenure at the company – more than compensating her for any alleged overtime, Time Warner said – was irrelevant.

“[A]ll earned wages, including commissions, must be paid no less frequently than semimonthly,” the court wrote. “Limited exceptions do exist, demonstrating that the Legislature knows how to establish a different payroll period when it wishes to do so.”

Time Warner’s monthly pay period for commission wages based on when the commission was earned was impermissible, the court said. “Whether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period,” the court said. “An employer may not attribute wages paid on one pay period to a prior pay period to cure a shortfall.”

This narrow construction of the exemption’s language was consistent with the minimum earnings requirement with “an eye toward protecting employees,” the court added. “Making employers actually pay the required minimum amount of wages in each pay period mitigates the burden imposed by exempting employees from receiving overtime. This purpose would be defeated if an employer could simply pay the minimum wage for all work performed, including excess labor, and then reassign commission wages paid weeks or months later in order to satisfy the exemption’s minimum earnings prong.”

Further, allowing employers to pay wages attributed to a different pay period would be inconsistent with other Labor Code provisions, including those requiring semimonthly paychecks with wages earned during that period, as well as the enforcement policies of the state’s Division of Labor Standards Enforcement, the court said.

Compliance with federal law – which Time Warner contended permitted the wage attribution it used – was insufficient. “Unlike state law, federal law does not require an employee to be paid semimonthly,” the court wrote. “It also permits employers to defer paying earned commissions so long as the employee is paid the minimum wage in each pay period. In light of these substantial differences from California law, reliance on federal authorities to construe state regulations would be misplaced.”

To read the opinion in Peabody v. Time Warner Cable, click here

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EEOC Issues New Guidance On The Pregnancy Discrimination Act

Why it matters: In the first new guidance on the Pregnancy Discrimination Act (PDA) in more than 30 years, the Equal Employment Opportunity Commission (EEOC) released the “Enforcement Guidance on Pregnancy Discrimination and Related Issues.” Issued in a split vote by the Commission, the guidance covers the general prohibitions and requirements for employers under the PDA, emphasizing the requirement that pregnant employees be treated in the same manner as other employees in terms of alternative assignments and modified tasks. The EEOC also discussed the intersection of the PDA with other statutes, including the Americans with Disabilities Act (ADA), the Family and Medical Leave Act (FMLA), and Title VII. For employers, a key part of the document can be found at the end, when the agency concluded with a list of best practices regarding pregnant employees. Despite the importance of the guidance, employers should be aware that it may not be as impactful as the agency hopes. Two commissioners voted to disapprove the guidance, expressing concern that it was issued without public comment and presents a new legal interpretation of the PDA unsupported by case law or congressional intent. And the document may be on a collision course with a case before the U.S. Supreme Court set to be argued next term. In Young v. UPS, the justices have agreed to hear the issue of whether – and in what circumstances – an employer that provides work accommodations to nonpregnant employees with work limitations must provide work accommodations to similarly situated pregnant employees.

Detailed Discussion
In 1983 the EEOC added a chapter to its Compliance Manual on the Pregnancy Discrimination Act. Now, more than 30 years later, the agency has updated the guidance in a somewhat controversial new document.

In addition to the guidance, the EEOC released a Q&A document and a Fact Sheet for Small Businesses.

The guidance cautions employers that the PDA covers discrimination beyond an employee’s current pregnancy to include any differential treatment based on an employee’s fertility or childbearing capacity, such as a past pregnancy, the use of contraception, or a woman’s potential to become pregnant. Lactation is also covered as a pregnancy-related medical condition, as are back pain, preeclampsia, and the aftereffects of a delivery.

Can an employer ask whether an applicant is pregnant? Title VII does not prohibit the inquiry but generally discourages questioning about gender-related characteristics, the EEOC said. And the agency will consider the question when evaluating a charge of pregnancy discrimination.

Caregiving responsibilities were also addressed in the guidance. By reassigning a female employee upon her return from maternity leave, assuming that a new mother will be less committed to her job, the employer would violate Title VII’s prohibition on discrimination based on sex, the EEOC said. Alternatively, if an employer offers parental leave, it must be provided to male and female employees on the same terms, the agency added.

While some circumstances exist under which employers have to provide light duty or other accommodations for pregnant workers, the EEOC noted that the statute prohibits employers from requiring pregnant workers who are able to do their jobs to take leave. Employers may require that a pregnant worker be able to perform the duties of her job, but adverse actions based on assumptions or stereotypes are prohibited, the agency said – such as reassigning a pregnant employee to a job with fewer deadlines to decrease her stress.

As for the ADA, the agency explained that pregnancy itself is not an impairment, but pregnancy-related impairments may be protected under the statute and reasonable accommodations required for pregnancy-related impairments. The EEOC provided examples of pregnancy-related impairments that might substantially limit major life activities, such as gestational diabetes or a woman who suffered from a disorder of the uterus that necessitated certain physical restrictions to enable a full-term pregnancy.

Reasonable accommodations suggested by the agency ranged from light duty or allowing a pregnant worker on bed rest to telework to modifying workplace policies or schedules (allowing an employee to start later because of morning sickness) or purchasing equipment for a pregnant worker, such as a stool to sit on for a job task typically performed while standing.

The EEOC concluded the new guidance by offering best practices for employers under the PDA. Tips included developing and enforcing a policy based on the requirements of the statute, conducting employee training, reviewing any light-duty policies, establishing a process for “expeditiously” considering reasonable accommodation requests related to pregnancy, and when rejecting a request, offering an explanation as to why and offering to discuss alternatives.

To read the EEOC’s new guidance, click here

To read the Q&A document, click here

To read the Fact Sheet, click here

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Courts, Lawmakers Consider Employment Protections For Interns

Why it matters: Are unpaid interns protected by employment laws? The answer depends. In response to a court decision finding that interns were not protected in the state of New York, Governor Andrew Cuomo recently signed a new law adding unpaid interns to the state’s anti-discrimination laws, joining other jurisdictions such as Oregon and Washington, D.C. But on the same day, the Wisconsin Supreme Court held that unpaid interns are not entitled to anti-retaliation protections under the laws of that state. Between the question of whether interns should be legally considered employees or independent contractors and the issue of whether anti-discrimination laws apply, the use of interns poses serious concerns for employers.

Detailed Discussion
Last year a federal court judge in New York granted summary judgment for an employer in a case brought by a former unpaid intern who alleged she had been sexually harassed while on the job. In what the court called an issue of first impression in New York courts and the Second U.S. Circuit Court of Appeals, the judge determined that the anti-discrimination laws relied upon by the plaintiff did not apply.

“The plain terms of [New York City law] make clear that the provision’s coverage only extends to employees, for an ‘employer’ logically cannot discriminate against a person in the ‘conditions or privileges of employment’ if no employment relationship exists,” U.S. District Court Judge P. Kevin Castel wrote in Wang v. Phoenix Satellite Television.

In response, the New York City Council voted unanimously to prohibit discrimination against unpaid interns, tweaking the definition of “employee” to include “an individual who performs work for an employer on a temporary basis whose work provides or supplements training given in an educational environment where the employability of the individual performing the work may be enhanced, experience is provided for the benefit of the individual performing the work, and the work is performed under the close supervision of staff.”

State lawmakers followed suit, enacting legislation to provide civil rights protections for interns prohibiting discrimination “because of the intern’s age, race, creed, color, national origin, sexual orientation, military status, sex, disability, predisposing genetic characteristics, marital status, or domestic violence victim status.”

Gov. Cuomo signed the bill into law without comment.

On the opposite end of the spectrum, the Wisconsin Supreme Court affirmed dismissal of an intern’s suit, agreeing with lower courts and the state’s Labor and Industry Review Commission (LIRC) that unpaid interns are not entitled to the anti-retaliation protections of state statute.

Asma Masri was a doctoral student at the University of Wisconsin-Milwaukee with a position as a “Psychologist Intern” in the Division of Transplant Surgery at the Medical College of Wisconsin. She claimed that she was terminated after reporting certain clinical and ethical concerns to an administrator and filed a charge against the hospital (no hospital mentioned to this point). She relied upon a provision that states employers may not take “disciplinary action against . . . any person” who in good faith reports violations of state or federal laws, regulations, or standards.

But the hospital (see above) said the law defined “disciplinary action” as “any action taken with respect to an employee.” As Masri was not an employee, the hospital (see above) argued it could not take “disciplinary action” against her pursuant to the statute and therefore she could not avail herself of its protections.

The Wisconsin Supreme Court agreed. Affirming holdings from the LIRC, a trial court, and an appellate panel, the court said the language, structure, and context of the state law “addresses only one category of people bringing complaints: employees.” Only employees are subject to “disciplinary action,” the court noted, and “[t]he lack of remedies for unpaid interns demonstrates that it is highly unlikely that unpaid interns fall under the anti-retaliation protections of [the law].”

Masri said her 40-hour-per-week schedule, her all-access badge to the hospital (see prior pg.), office space, support staff, and networking opportunities all constituted tangible benefits that made her an employee.

While noting that it might be possible to be an employee based on tangible benefits other than salary, the court found Masri’s perks were insufficient. “If these benefits were enough to confer employee status on Masri, it seems that almost any unpaid worker would be considered an employee,” the court wrote.

The court also rejected her public policy argument that the remedial purpose of the statute warranted an expansive definition of employee, or interns would be less likely to report ethical violations absent statutory protections.

“Masri advances legitimate policy interests, but the effect of her argument is to engraft purposes onto the statute that are not embedded in its text,” the court said. “Public policy is not a panacea for perceived shortcomings in legislative determinations. Nothing in the statute evinces a purpose to protect unpaid interns.”

To read New York’s new law, click here

To read the decision in Masri v. State Labor & Indus. Review Commission, click here.

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Employer May Be On The Hook For Patient’s Verbal Harassment

Why it matters: An employer may be liable for failing to take adequate remedial measures to end alleged harassment by a patient, a federal court judge in Hawaii determined in a case brought by a nurse. During the course of one week a patient directed profane language at the nurse twice; in one instance he also stood to yell at her, and she said she feared he was going to hit her. When the nurse changed the patient’s treatment schedule to avoid being alone with him, her employer – aware of the incidents – placed her on investigatory suspension and then terminated her. Denying the employer’s motion for summary judgment in the nurse’s Title VII suit, the court found the patient’s conduct to be sufficiently severe and pervasive for the claims to survive. In addition, a genuine issue of material fact existed as to whether the employer took adequate remedial measures to deal with the alleged harassment, the court said. The decision serves as an important reminder that employers can be liable for harassment by third parties, from patients to independent sales reps.

Detailed Discussion
Martha Wilson worked for Fresenius LLC as the Clinical Manager of the Community Dialysis Center of Lanai. Wilson was the highest-ranking employee at the location and responsible for coordinating all aspects of patient care, including the scheduling of patients.

While treating dialysis patient Stanley Turqueza, he became angry and he and Wilson got into a verbal altercation. During the altercation, Wilson claimed Turqueza removed his blood pressure cuff and stood up while yelling at her, “F-U, you f-ing bitch!” She said she was afraid he was going to hit her.

The next day Wilson spoke about the incident to a social worker at the Center. She treated Turqueza twice more without incident that week, but he got into another verbal altercation with a patient that resulted in a police report. After a meeting with the Center’s director of operations, Turqueza ran into Wilson and repeated his earlier remarks.

A few weeks later Turqueza filed a complaint with the state in an effort to have Wilson’s nursing license revoked. Wilson claimed she repeatedly expressed concerns about Turqueza’s abusive conduct to the director of operations and that he did not take any corrective action, even instructing her not to change Turqueza’s treatment times, despite her concern about being alone with him.

Wilson changed the treatment time and was placed on investigatory suspension before being terminated. She filed a lawsuit alleging Fresenius was liable for a hostile work environment of gender harassment in violation of Title VII.

U.S. District Court Judge Helen Gillmor denied Fresenius’ motion for summary judgment, first finding that the alleged harassment was severe and pervasive.

Wilson submitted evidence of two verbal attacks by Turqueza. “The two incidents occurred within a week of each other,” the court said. “Plaintiff has also submitted evidence to support her belief that Turqueza posed a physical threat. Plaintiff claims that Turqueza’s conduct was based on her gender, as Turqueza believed he could overpower a woman.”

Despite her repeated concerns, the court said Wilson additionally produced evidence that the operations director did not take her complaints about Turqueza seriously and prohibited her from changing his treatment time. “The prohibition required Plaintiff to continue to work with Turqueza, a patient who had repeatedly verbally abused Plaintiff and who was actively attempting to have Plaintiff’s nursing license revoked,” the court noted.

Turning to the adequacy of the employer’s remedial action, Judge Gillmor emphasized that Fresenius had actual knowledge of Turqueza’s conduct toward Wilson and yet provided no evidence that anyone at the Center counseled him on his conduct toward her or warned him that his actions could affect his ability to receive treatment there.

The court said the employer even furthered the allegedly hostile environment by preventing Wilson from changing Turqueza’s treatment time. “Fresenius put Plaintiff in a position of choosing between continuing to treat Turqueza at a time when Plaintiff was alone with him at the clinic, and being suspended,” Judge Gillmor wrote, finding a genuine issue of material fact with regard to whether the employer undertook adequate remedial measures to end the alleged harassment.

To read the order in Wilson v. Fresenius Medical Care Oahu, click here.

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N.Y. Federal Court Allows ADA Suit To Proceed

Why it matters: In an employee-friendly opinion emphasizing the need for “active participation” in the interactive process of finding a reasonable accommodation under the Americans with Disabilities Act (ADA), a federal court judge in New York allowed a suit brought by a former employee with post-traumatic stress disorder (PTSD) to move forward. The plaintiff’s PTSD was triggered by the September 11 attacks and worsened when his employer relocated his team to a building near the site of the World Trade Center. Although the employer pointed out that it proposed multiple accommodations for the employee – such as a cube without a view of the site and a white noise machine – the court said the proposed accommodations did not address the employee’s “consistently stated fear of being near the site” of the World Trade Center. The employer also denied the worker’s suggested accommodations to work from a different Manhattan building or telecommute from home. The breakdown of the reasonable accommodation process could result in liability for the employer under the statute, the court said, as “the interactive process of the ADA demands active participation by both parties in creating a reasonable accommodation, not just occasional employer reactions as a mentally ill employee works his way through the resources structure.”

Detailed Discussion
On September 11, 2001, Bruce Goonan was in his office at the Federal Reserve Bank of New York, three blocks from the foot of the World Trade Center. He feared for his life and felt trapped as the towers burned and collapsed. The events of the day exacerbated Goonan’s preexisting PTSD, which began in 1982 after he and his wife were in a car crash that resulted in his serious injury and her death.

With counseling, Goonan was able to manage his PTSD until 2010, when the Fed moved his application development group to an office on the 23rd floor of Three World Financial Center, overlooking the site of the World Trade Center. The move aggravated Goonan’s PTSD. He became depressed and anxious and his work performance suffered.

Goonan informed his employer of his difficulties and requested permission to work in a different Fed building or telecommute from home. His request was denied because of his poor work performance. A supervisor proffered seven alternative accommodations based on a treatment plan for another employee struggling with 9/11-related PTSD, such as the use of white noise machines or moving Goonan’s cube to a different location without a view of the site.

Rejecting the proposals, Goonan said none would actually address the core issue, “his crippling fear that another attack would cause the new tower to fall on him.” His treating physicians opined that the accommodations would be ineffective or possibly harmful.

The interactive process broke down when the Fed again refused to allow Goonan to telecommute, even on a trial basis, and he announced his intent to retire. He then filed suit under the ADA.

Denying the Fed’s motion for summary judgment, U.S. District Court Judge J. Paul Oetken explained that the employer failed to make good faith and reasonable efforts, and therefore could be liable for the failure of the interactive process.

The record was far from clear that the Fed’s seven proposed modifications would have reasonably accommodated Goonan’s disability, he wrote, and “[n]either of Goonan’s treating doctors recommended or approved the changes.” The fact that the employer used recommendations based on another employee’s needs “does not show that they were suitable as a matter of law,” the court added. Goonan was not required to take the accommodations for a test-drive, as argued by the Fed, Judge Oetken said. “[T]he ADA imposes no obligation on an employee to try out proposed modifications to test their effectiveness: the interactive process does not extend so far as to require either party to do what the other wants on a trial basis,” he wrote.

An alternative argument presented by the employer – that Goonan unilaterally terminated the interactive process by choosing to retire rather than continuing a discussion of alternative accommodations – also failed. “It appears undisputed that Goonan chose to retire after becoming frustrated with the Fed’s persistent refusal to reasonably accommodate his disability,” the court said. “Goonan’s mere decision to quit, then, cannot be dispositive of the entire interactive-process question.”

The Fed’s good faith efforts were called into question by its rationale for declining Goonan’s request to telecommute. Other employees below standards were allowed to telecommute, the court noted, and Goonan’s poor performance, the basis for the refusal, was a result of his PTSD.

“[T]he interactive process of the ADA demands active participation by both parties in creating a reasonable accommodation, not just occasional employer reactions as a mentally ill employee works his way through the resources structure,” Judge Oetken wrote. “[A] jury could also conclude on the basis of these facts that the Fed was merely attempting to placate Goonan rather than making good-faith reasonable efforts to accommodate him. Here, then, the Fed’s rejection of Goonan’s request, the dubious coherence of its proffered explanations for that decision, and its unwillingness to show any flexibility despite Goonan’s repeated efforts to seek out doctors, supervisors, and ombudsmen all create genuine questions as to the Fed’s good faith and the reasonableness of its efforts to help Goonan.”

The court also denied summary judgment for the Fed on its undue hardship defense, Goonan’s retaliation claim under the ADA, and state and city law claims.

To read the opinion in Goonan v. Federal Reserve Bank of New York, click here.

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