Employment Law Blog Archives - Page 3 of 6

California Commission Disputes

Mar 20, 2020 | By Ottinger Employment Lawyers | Read Time: 4 minutes

Commission disputes are all too common in California. The threshold question in most of these cases is do the commissions at issue constitute earned wages under the California Labor Code? What is a “Commission”? In order to answer this question, let’s first look at what counts as a “commission” under California law. Section 204.1 of the California Labor Code states, “Commission wages are compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Section 2751 specifies that “commissions” do not include the following: “(1) Short-term productivity bonuses such as are paid to retail clerks. (2) Temporary, variable incentive payments that increase, but do not decrease, payment under the written contract. (3) Bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.” When is a Commission “Earned”? Determining when a commission is earned is often critical for executives who have left their employer with outstanding commissions. If the commission is deemed earned at the time they leave the company, they most likely have the legal right to the commission. If the commission was not earned at the time of their departure then they will forfeit the payment. According to California law, classifying a commission as “earned” is a matter of contract between employer and employee. In Koehl v. Verio, the court held, “A commission is ‘earned’ when the employee has perfected the right to payment; that is, when all of the legal conditions precedent have been met. Such conditions precedent are a matter of contract between the employer and the employee…” Likewise, Sciborski v. Pacific Bell Directory states clearly that once the contractual obligations are fulfilled, the commission is considered a wage: “[O]nce the express contractual conditions are satisfied, the commission is considered a wage.” The courts have traditionally deferred to the language of the contract in determining when a commission is “earned” – for example, courts have held that employers are legally allowed to require customers to submit payment before a salesperson “earns” the commission in question. Thus, once employees fulfill their contractual obligations, their commissions are typically deemed “earned.” And once commissions are “earned,” they are protected by the California Labor Code. In fact, California courts have held that section 221 of the Labor Code prohibits an employer “from collecting or receiving wages that have already been earned by performance of agreed-upon requirements.” Thus, once an employee fulfills all its contractual requirements, thereby earning the commission, an employer is required to pay the commission to the employee. Retroactive Commission Changes Some companies attempt to alter an employee’s commission after a deal has been closed. This normally occurs after a commissioned sales employee closes an unusually large transaction. Is it legal to lower the commission after the employee has done the work? The answer is not always clear. While courts generally give deference to the language of the contract, courts have also refused to allow employers to apply changes to commission plans retroactively. In Mathews v. Orion Healthcorp Inc., the court for the northern district of California held that “Although the commission plans contained a clause reserving to Defendant the right to unilaterally change the plans, such a clause is contrary to California law if applied retroactively.” To come to its conclusion, Matthews cited a previous case that dealt with changes to a commission plan, Asmus v. Pacific Bell. In Asmus, the court relied on contract theory, specifically the notion of a contract as “illusory,” to arrive at its ruling. The Asmus court held that “an unqualified right to modify or terminate the contract is not enforceable. But the fact that one party reserves the implied power to terminate or modify a unilateral contract is not fatal to its enforcement if the exercise of power is subject to limitations, such as fairness and reasonable notice.” Citing this section from Asmus, the Mathews court held that “Defendant’s reserved right to modify the commission plan could not extend to past earned commissions under California law, and there is no dispute of fact that Plaintiff satisfied the conditions precedent to qualify for the commissions due to be paid.” The point here is that the terms of a commission plan will govern unless the agreement gives the company the unfettered right to make retroactive unilateral changes. Pfeister and Vinson: Are Commissions Plans Enforceable Contracts? As the rulings in Asmus and Mathews demonstrate, the courts have generally refused to allow employers to modify commissions plans retroactively. In order to deny employers this right, the courts started from the position that the incentive commission plans it dealt with were enforceable contracts. However, there has been a thread of subsequent cases pushing back on this conception of incentive plans. In such cases, courts have interpreted commission plans between employer and employee not as a matter of enforceable contract at all. Therefore, employers in these cases were not required to pay employees commissions according to the terms of the incentive plans. In Pfeister v. Int’l Bus Machs. Corp, Plaintiff worked for IBM and had a dispute over Q4 commissions earnings. IBM originally set Plaintiff’s Q4 signings quota to approximately $2.8 million. IBM then increased this quota to $10 million in February of the following quarter. When applied to Plaintiff’s Q4 sales, this retroactive change had the effect of reducing his commissions by nearly $400,000. In this case, the court denied Plaintiff’s claim for breach of contract on the grounds that the incentive plan was not an enforceable contract. To reach this position, the court discussed two principles characterizing an enforceable contract: (1) Mutual assent or consent of the parties to enter into a contract; and (2) sufficiently definite terms. Regarding (1) mutual consent of the parties, the Pfeister court held that, because the incentive plan stated it “does not constitute an express or implied contract or a promise by IBM to make any distributions under it,” IBM did not consent to form a contract with Plaintiff. Likewise, regarding (2) sufficiently definite terms, the court stated that, because the incentive plan granted IBM the right “in its sole discretion to change sales performance objectives…[and] the right of IBM in its sole discretion to adjust the incentive payment,” the incentive plan did not contain sufficiently definite terms. Because the incentive plan contained neither (1) mutual consent of the parties or (2) sufficiently definite terms, the court did not recognize the incentive plan as an enforceable contract. In refusing to recognize Plaintiff’s incentive plan as an enforceable contract, the Pfeister court dismissed Pfeister’s breach of contract claim. In Vinson v. Int’l Bus Machs. Corp, a 2019 commission dispute again involving IBM, the court similarly sided with IBM. Like Pfeister, the Vinson court again held that the incentive plan in place did not constitute an enforceable contract, because IBM reserved the right to change the plan’s features and modify or cancel the plan. Conclusion As discussed previously, once a commission is considered “earned,” this triggers wage protections under California law. As cases like Koehl and Sciborski demonstrate, determining when a commission is “earned” is typically a matter of contract between employee and employer. While the courts generally defer to the language of the contract in deciding when a commission is earned, the Mathews court offered some protection to employees. Mathews relied on contract law principles cited in Asmus to deny employers the unrestricted right to apply changes to commission plans retroactively. But some commission plans, such […]

Employment Law Blog

California Wrongful Termination in Violation of Public Policy

Jan 28, 2020 | By Ottinger Employment Lawyers | Read Time: 3 minutes

California employment relationships are generally at-will, meaning either party may terminate the relationship with or without cause at any time and for any reason or no reason at all. However, there are exceptions, and an employer cannot terminate an employee for reasons that violate California public policy. What Does It Mean to Violate “Public Policy?” A wrongful termination that violates public policy occurs when an employer terminates an employee for exercising a legal right or obligation that affects the greater public. These cases generally fall into four categories whereby an employee is terminated for: (1) refusing to violate a statute; (2) performing a statutory obligation; (3) exercising a statutory right or privilege; or (4) reporting an alleged violation of a statute of public importance. For example, an employer cannot fire you for taking time off to serve on jury duty or for military service because these are statutory obligations (legal duties). Similarly, you cannot be terminated for refusing to commit fraud at the request of your employer (refusing to break the law), or for filing a wage complaint with the Labor Commissioner (exercising a statutory right). The public policy at issue must involve a matter that affects society at large rather than an interest personal to the employee or employer. It must also be set forth in California or federal law, and the policy must be fundamental, substantial, and well-established. The requirements for what qualifies as a violation of public policy are nuanced, so if you suspect you have been terminated for one of the above reasons, do not hesitate to contact an experienced California employment attorney. Examples of California Wrongful Termination in Violation of Public Policy Wrongful termination in violation of public policy can take many forms. If your employer terminated you for one of below reasons, you might have a claim for wrongful termination in violation of public policy: Reporting unsafe workplace practices or other OSHA violations. Reporting an employer’s refusal to pay wages on time, or refusal to pay minimum wage or overtime pay. Reporting employer violations of meal or rest break requirements. Engaging in political activities outside of work. Discrimination based on age, sexual orientation, or gender. Reporting or complaints of sexual harassment. Refusing to sign a covenant not to compete. Reporting employer violations of California or federal family or medical leave Refusing to engage in illegal conduct (e.g., fraud, embezzlement, forgery). Refusing to sign an agreement releasing an employer from liability for intentional acts. Retaliation for being a whistleblower (e.g., reporting securities fraud or fraud related to the use of public funds). Discussing wages with other employees. Retaliation for testifying in court as a witness. Keep in mind the alleged policy violation must affect the public-at-large, and an employee has two years from the time of termination to file a wrongful termination claim. Wrongful Termination Remedies In California, to successfully prove wrongful termination in violation of public policy, you must demonstrate: An employment relationship existed, which can include part-time or full-time employees but not independent contractors; The employer terminated the employee; employee resignation or nonrenewal of a contract is generally insufficient unless the employer forced the employee to resign; The employer’s reason for termination violated public policy and was a substantial motivating reason for the termination; and The employee suffered damages as a result of the termination. If an employee is successful in their wrongful termination suit, they may be entitled to compensatory damages (compensate for actual loses like lost wages, benefits, or emotional distress damages); punitive damages (meant to punish the wrongdoer rather than compensate the harmed party); or attorney fees and costs. If you believe you were fired in violation of public policy, contact us for a free consultation. The California wrongful termination attorneys of Ottinger Law have decades of experience providing personalized, zealous representation on behalf of their clients.

Employment Law Blog

Another Uber Class-Action Lawsuit

Jan 27, 2020 | By Ottinger Employment Lawyers | Read Time: 2 minutes

Of the estimated 50,000 Uber drivers operating in California, thirty of them have started a class–action lawsuit against the company. The complaint claims that Uber has been misclassifying all of its California drivers as independent contractors rather than employees ever since the Dynamex case was decided. Dynamex, of course, is the California Supreme Court decision, published on April 30, 2018, that proclaimed that the “ABC Test” is the proper test for determining whether someone is an independent contractor or an employee. The decision was a significant departure from previous case law on worker classification. Notably, the ABC Test presumes that someone is an employee unless the hiring entity can demonstrate all three parts of the ABC Test. In this way, Dynamex almost completely shifted the burden of proof in misclassification cases from workers to hiring entities. Nevertheless, Uber has asserted since Dynamex that it can and will continue to treat all of its California drivers as independent contractors. Accordingly, in this new lawsuit, it will be Uber’s burden to prove all of the following: that its drivers are “free from the control and direction” of Uber in their performance of work; that its drivers are performing work that is “outside the usual course” of Uber’s business; and that its drivers are “customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed” for Uber. For the first part of the test, expect Uber to argue that the fact that its drivers can decide their own hours easily satisfies the first part of the test. However, plaintiffs are likely to counter that the level of control exercised by Uber over things like terms of service, rates, and payment is still considerable – and non-negotiable for drivers. The second part of the ABC Test will be especially difficult for Uber to establish. It will require Uber to show that the work performed by Uber drivers – namely, transporting people from place to place, is not, in fact, what Uber’s business consists of. Uber, for its part, has already begun reframing how it describes its business. While it appears to still acknowledge that is part of the “ride–sharing industry,” it has reportedly stated that drivers aren’t “core” to its business. Instead, Uber’s chief legal officer has stated that Uber’s business is “a technology platform for several different types of digital marketplaces.” Uber has also started referring to itself as a “mobile application platform” in its legal filings. (See Uber’s recently filed complaint against the State of California alleging that California Assembly Bill 5, codifying Dynamex, is unconstitutional). On the other hand, Uber will have a hard time proving it has a viable business model without including drivers in the equation. Drivers are vital to providing the services that result in the collection of revenue for its business. It may be true that no single driver is essential to Uber, but, until its self-driving vehicles are in service, the company simply couldn’t remain in business without drivers. For the third part of the ABC Test, Uber will likely argue that this test is satisfied since none of its drivers is obliged to drive for Uber exclusively. But that is not the same thing as proving that each of its drivers is, in fact, “customarily engaged” in driving as an “independently established trade, occupation, or business.” Indeed, Uber touts that drivers can work for Uber as a side gig to supplement income from other employment or businesses they may have. Consider also the chronology of events. How many Uber drivers had independently established ride-sharing services before Uber launched? How many would continue to provide such services if Uber folded? If the answer is not “all of them,” then all of Uber’s drivers are not engaged in an independently established business and they cannot all be classified as independent contractors.

Employment Law Blog

New York (NY) Wrongful Termination Laws

Jan 23, 2020 | By Ottinger Employment Lawyers | Read Time: 3 minutes

What NY workers need to know about their rights in cases of illegal retaliatory employment termination NY Wrongful termination occurs when an employee is fired for an illegal reason. But NY wrongful terminations are rare. This is because most all New York employees are employees-at-will. An employee-at-will can be fired for any reason or no reason at all. Fairness is not required. The only way to remove yourself from the employment-at-will category is to have an employment contract or company policy manual that limits your employers’ ability to fire you. NY Wrongful Termination Does Not Cover Unfair Firings Many firings are based on factual disputes. For example, an employee might be fired for being late to work when the employee actually was not late. The employee who was fired for being late may feel that they were fired wrongfully. But legally, the firing was not wrongful because companies are allowed to fire employees for any reason at all, even based on a misunderstanding. Being “let go” is never any fun, regardless of the reason. It is especially painful if the reason was unfair or based on a misunderstanding of the facts. The fact is that it hurts and it is embarrassing, not to mention the stress and worry about finding another job in today’s marketplace. Unfortunately, as much as you might want to seek revenge by filing a claim or cause of action against your former employer for wrongful termination, you may not have a leg to stand on because of the employment-at-will rule. Often employees feel that they have been wronged simply because they have been loyal to the company for such a long time that they are entitled to more than just a goodbye. When Does NY Wrongful Termination Occur? NY Wrongful termination exists when the termination is unlawful. This occurs if the termination breached an existing employment agreement or violated one of the laws that protect New York employees. Employees have the right to be protected from the breach of any oral or written contractual agreement between the employer and employee, as well as protection against any illegal acts by the employer. For example, if the termination was not in accordance with the outlined procedures in the employment contract; if there was some form of employment discrimination involved regarding age, pregnancy, sex, disability, race, etc. or if there was some form of retaliation for reporting other acts of discrimination or violations of federal securities laws, there could be a claim or cause of action for NY wrongful termination. Every case is different and each is determined on the specific details and circumstances of the termination of the employer-employee relationship. Remedies for NY Wrongful Termination In NY wrongful termination cases, employees can recover any lost income that resulted from the illegal firing. Other remedies such as punitive damages, compensation for emotional distress, legal fees and costs can also be recovered under certain laws. For example, an employee fired due to a violation of the Family Medical Leave Act is entitled to recover double damages (twice the amount lost pay) as well as legal fees and costs. Likewise, the New York City Human Rights Law provides employees with the right to collect unlimited punitive damages for any form of employment discrimination or sexual harassment. If you need help with a NY wrongful termination case, please contact The Ottinger Firm for a free consultation at 347-305-5427.

Employment Law Blog

California’s Gig Law is Impacting Musicians, Actors and other Creatives in a Bad Way

Jan 15, 2020 | By Ottinger Employment Lawyers | Read Time: 3 minutes

Proper classification of independent contractors and employees has never been simple, and the passage of California’s new gig law Assembly Bill 5 (“AB5”) ensures this issue will continue to pose challenges for workers and businesses alike. AB5 took effect on January 1, 2020. While the full impact of this new legislation is yet to be seen, there are legitimate concerns about how this law will impact musicians and other independent artists. What is AB5? AB5 is the legislative result of the Dynamex decision, whereby the California Supreme Court employed a three-part test to determine employment status and ultimately concluded that Dynamex delivery drivers were employees and not independent contractors. Dynamex Operations W. v. Superior Court, 4 Cal.5th 903, 942 (2018). To support workers’ rights and expand on the Dynamex ruling, AB5 was signed into law in September 2019, effectively requiring companies to classify independent contractors as employees, with a few exceptions. Requirements Under AB5 AB5 adopted the three-part Dynamex test and requires the hiring entity to demonstrate the following to qualify a worker as an independent contractor: The worker is “free from the control and direction of the hiring entity in connection with the performance of the work”; The work performed is “outside the usual course of the hiring entity’s business”; and The worker “is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.” AB5 provides exceptions for more than 50 businesses and professions, including physicians, dentists, psychologists, lawyers, accountants, commercial fishermen, real estate agents, insurance agents, financial brokers, hairstylists, and travel agents. Freelance photographers and journalists are exempt if they do not contribute more than 35 pieces to a company per year. There is an exemption for “fine artists,” but that term has not been clearly defined. Practically speaking, AB5 will significantly increase costs for “hiring entities” that are now required to follow labor laws (e.g., meal and rest breaks); provide employment benefits like minimum wage, overtime pay, expense reimbursement, workers’ compensation coverage, and unemployment insurance; deduct taxes and issue a W-2. What Does This Mean for Gig Workers? Proponents of AB5 believe the law will lead to enhanced protections for workers, including wage protections and increased bargaining power. However, AB5 presents multiple concerns for gig workers and entire industries, especially the music industry and other creative arts. Small companies with limited resources will be unable to compete with larger organizations because their limited incomes will be insufficient to comply with AB5’s requirements. Some fear AB5 will ultimately stifle creativity and force the migration of talented artists and entire industries outside of California. Moreover, one significant upside of gig work is flexibility; if classified as an employee, workers may lose the ability to manage their schedules. Becoming a “hiring entity” poses other problems. For instance, imagine you are a musician hired to play at a private party; you contact other musicians and offer to pay them to play with you. Are you a “hiring entity?” Can this issue be avoided by having the party planner, host, or other middleman hire all the musicians independently? Independent contractors will undoubtedly be looking for ways to avoid being a “hiring entity” and should take great care to review all contracts to ensure you maintain your status as an independent contractor. Final Thoughts AB5 has yet to face judicial scrutiny. However, there is no question that AB5 will limit who qualifies as an independent contractor, and the law will be challenged in court. AB5’s language is ambiguous, and there is room to argue that it conflicts with federal law because it excessively burdens interstate commerce by impacting industries that cross state lines. The Ottinger Firm has extensive experience representing California gig workers. With offices in Los Angeles and San Francisco, our team of California employment attorneys is prepared to assist you with questions about your employment status and the effects of AB5. Contact us today for a free consultation.

Employment Law Blog

California’s Gig Economy 2020 Forecast: More Lawyers, More Rhetoric

Jan 8, 2020 | By Ottinger Employment Lawyers | Read Time: 2 minutes

Some things seem certain for gig economy companies like Uber in 2020: they will continue to accrue legal fees and continue to claim they are just “mobile application platforms” and emphatically not service providers. Let’s look at Uber as an example. Even as it defends against multiple lawsuits brought by its drivers, Uber is now suing the State of California. Case No. 2:19-cv-10956. The central issue in these lawsuits is whether Uber’s operations constitute a legitimate business model matching independent drivers to riders needing rides, or whether Uber is just a modern profit machine rebuilt from the age-old cogs and widgets of exploited workers. In its suit, Uber claims that California’s Assembly Bill 5 (AB5) is unconstitutional. Effective January 1, 2020, AB5 was drafted to require gig-economy companies like Uber, DoorDash, and Lyft to reclassify drivers as employees rather than independent contractors. AB5 requires Uber and other gig-economy dependent companies to meet all three prongs of the “ABC Test” to legally continue classifying gig workers as independent contractors. The lawsuit states that the law is arbitrary and irrational because it includes “nonsensical” exemptions for many other categories of workers. The complaint suggests the exemptions under AB5 are “so ill-defined or entirely undefined that it is impossible to discern what they include or exclude.” Thus, “there does not appear any reason why the California legislature would choose those carve-outs other than to respond to the demands of political constituents, [making] the law unconstitutional even under the minimal ‘rational basis’ standard of judicial review.” Instead, the complaint asserts the intent of the law is driven by “irrational animus” on the part of the California Legislature against the “on-demand economy,” meant to deprive workers of freedom and flexibility. Whether or not you think the legal basis for Uber’s lawsuit has any merit – and many will argue it does not – by filing this lawsuit before AB5’s effective date, Uber essentially gives itself an alibi against later suggestions that its failure to reclassify drivers on January 1 is a willful violation of California labor laws. By claiming the law is unconstitutional, Uber is preemptively justifying its noncompliance. It is also doing something else of significance. Eventually, it will become critical for Uber, in fulfillment of the second prong of the ABC Test, to show that its drivers perform a type of work that is entirely outside Uber’s “usual course of business.” Thus, Uber’s lawsuit could also be understood as part of a strategic volley to reframe public and judicial perception of its business model. Joining Uber as a plaintiff is Postmates, another gig-economy platform reportedly on the verge of an IPO. In addition, named plaintiffs include two drivers – or “app-based independent service providers” as they are termed in the complaint. The complaint also rechristens the “gig economy” as the “on-demand economy,” declaring it “a free market system … with unprecedented independence and flexibility” for those “app-based independent service providers.” Similarly, the complaint styles Uber as a “mobile application platform” rather than a ride-sharing service. The first named plaintiff driver elects to drive for Uber because it allows her to be available to care for her husband who suffers from multiple sclerosis. The second named plaintiff can now attend his son’s little league games while making nearly twice as much money. Driving for Uber gives them the ability “to create their own financial stability.” In short, companies like Uber “empower” people to “work as much, or as little, as they want in order to accommodate family, social, professional, academic and other commitments.” It would seem Uber is also setting the stage with this lawsuit to claim eventually that it meets all three parts of the ABC Test, including the second prong: namely, its drivers are performing work “outside the usual course” of Uber’s business. As framed in the complaint, the drivers are “independent providers” and Uber is just an app they use – one of many, in fact.

Employment Law Blog

California’s Gig Economy Law: 5 Things to Know

Jan 7, 2020 | By Ottinger Employment Lawyers | Read Time: 2 minutes

The new “Gig Economy Law” – also known as Assembly Bill 5 (AB5) – was signed into law on September 18, 2019. How much the law will actually impact California companies, employees and independent contractors has been a hot topic ever since. Here are five things you should know about AB5: 1. The law’s intent is to guard against further “erosion of the middle class and the rise in income inequality,” and to protect workers from being exploited in the gig economy. Experts estimate that it is up to 30% cheaper to hire independent contractors than employees because then companies aren’t required to pay for things like unemployment insurance, workers’ compensation premiums, payroll taxes or Social Security contributions. 2. The law codifies the California Supreme Court’s decision in Dynamex. The Dynamex case, decided in spring 2018, established the “ABC Test” as the standard in California for determining whether or not a worker is properly classified as an employee or an independent contractor. The ABC Test presumes an employment relationship unless the hiring entity can demonstrate three things – A, B and C. More on Dynamex and the ABC Test. In addition to codifying the Dynamex decision, the law extends the scope of the ABC Test beyond just wage and hour cases to also encompass workers’ compensation and unemployment insurance. 3. Some parts of the law are retroactive. Those provisions of the law that codify the Dynamex decision are meant to apply retroactively to existing claims and actions “to the maximum extent permitted by law.” However, the parts of the law that serve to expand the scope of Dynamex to cover workers’ compensation and unemployment insurance will be effective on January 1, 2020. 4. AB5 contains many exemptions from the ABC Test, but they’re either very specific or difficult to qualify for. The law specifies many categories of workers that may be considered exempt from application of the ABC Test. Some exemptions, such as those for commercial fishermen and manicurists, come with expiration dates. Exemptions also exist for insurance agents, health care professionals like doctors and dentists, lawyers, engineers, accountants, registered securities broker-dealers or investment advisers, direct sales salespersons, real estate licensees, workers providing licensed barber or cosmetology services, and subcontractors in the construction industry. Freelance journalists are exempt for up to 35 submissions per year to a single outlet, but at 36 submissions, the law would require them to be treated as a part–time employee of the outlet. There is a general exemption for providers of professional services that applies if the hiring entity can demonstrate that the person they hired: maintains their own business location separate from the hiring entity (this could be the person’s home); has a business license and any required professional license; can set their own rates, completion dates and hours; Can set their own rates, completion dates and hours; is customarily engaged in, or holds themselves out to other potential customers as available to perform, the same type of work as they are doing for the hiring entity; and customarily and regularly exercises discretion and independent judgment. There is also an exemption for “bona fide business to business” contracting relationships. This exemption may be relied on when the business service provider is providing services directly to the contracting business rather than to customers of the contracting business. There are eleven other requirements that must be met for a bona fide business to business relationship to exist – including that the service provider in fact has other clientele for whom they perform similar services. 5. Courts may determine factual contexts where the ABC Test “cannot be applied,” and may instead apply Borello in those cases. Under Section 2 of the law, if “a court of law rules that the [ABC Test] cannot be applied to a particular context …, then the determination of employee or independent contractor status in that context shall instead be governed by [Borello].” More on Borello.

Employment Law Blog

A Successful Exit with Financial Wins OR Transforming Taste for Vengeance into Financial and Career Gains

Dec 10, 2018 | By Ottinger Employment Lawyers | Read Time: 4 minutes

How we helped a NYC banking sales star transform her vengeful rage into a successful exit, in a case combining promotional pass-over, unvested stocks and non-compete I gave my all to the bank; that promotion was mine! I felt so violated!” Hell hath no fury like an employee scorned – and Rachel was livid. She was passed over to run her department at the bank where she’d been top earner in financing mid-market technology firms. Her driven, extroverted personality helped her forge many lucrative client relationships in New York City over the eight years she worked at the large bank. Rachel, in her early 30s, loved her job and knew she was good at it, quickly scaling the earnings ladder. Ambitious, she was excited when her older male boss announced his plan to retire. “I knew I was the right person to become department head,” she recalls. But the bank didn’t even interview her; they hired an outsider – another older man. Rachel was in shock; she’d burnt the midnight oil year after year to win clients. She felt lucky most evenings if she had time to take her bulldog for a walk around the block. Then salt was added to the wound when her new boss started on the job. “He talked down to me in front of coworkers,” says Rachel. “He called me a young girl who’s not ready to manage.” She’d long felt her age, gender and looks were a liability at work. Pretty and curvy, Rachel liked to wear form-fitting Saks Fifth Avenue dresses rather than conventional banking suits. Male coworkers and managers leering at, and remarking on, her body were part of the work culture she despised and tried to ignore. (The bank is run predominantly by men who started their careers in the ‘70s and ‘80s.) Rachel put up with all of it – until she didn’t get that promotion. Seething in her office, screaming in her car and condo, venting with friends at local water holes, she vowed to get back at the bank. (Ever see the movie, “Kill Bill”?) Golden Handcuffs But Rachel did not stage a dramatic exit or bloody rampage; she couldn’t afford to decry ‘take this job and shove it.” Afterall, upon quitting she was subject to a situation common in banking, facetiously referred to as “golden handcuffs.” Rachel earned yearly bonuses equal to or greater than her 400K salary, but they were not all paid upfront; they were “stock vested in time.” So a 400K bonus was parsed out in 100K in cash upfront, and the remaining 300K in stock spread equally over three years. Rachel’s had accrued a lot of unvested equity over eight years – all of which she would lose were she to leave the bank. (Even her bonus for 2017.) “Failure to Promote” Hard to Win But Rachel was getting out. As soon as possible. And she wasn’t going to make it easy for the bank. She decided to sue them. Rachel called Ottinger Law, on the warpath, and presented her case to us. “I was treated like dirt, I was betrayed,” she almost shouted into the phone. We invited her to our New York office and let her vent (for a bit), pacing the boardroom, fists clenched, face flushed. Then we dropped advice she definitely didn’t like. “’’Failure to promote’” cases are very difficult to win,” we told Rachel. “And the bank never said or did anything that proves age or gender discrimination.” (Any slights were subtle or hidden.) Furthermore, we said, if Rachel sued, her name would be out in public and other banks might see her as a troublemaker and avoid hiring her. Naturally, Rachel took that pretty seriously, and got all strategic with us. She wouldn’t sue, but she’d leave the bank – on her terms. We reached out to her employers to discuss alternatives to the unvested-stock loss. No way, was the bank’s response. If Rachel leaves, she gets no bonus, no stock; tough luck. Rage swept over Rachel again, this time coupled with fear and anxiety – so much that she took a week off work, using vacation days, and holed up at home. She didn’t want to see anyone or go anywhere. She was so upset sometimes she couldn’t discuss the case with us on the phone. Still she hung on – over the tense weeks as we negotiated her exit. We asked the bank, “how do you expect Rachel to take such a big loss?” They had no good answer for that. We kept asking the bank the same thing in different ways. “Can you do anything to make this easier?” we asked. Eventually, we convinced them to pay her the full 2017 bonus in cash (400K) and allow some of her unvested equity to vest. Rachel still lost money, but it was a good deal. She turned in her resignation. Non-Compete Broken Rachel also had a non-compete agreement that prevented her from working for other banks for a year after leaving. In our negotiations, we got the bank to agree to let her out of the non-compete. Rachel found a job with another bank right away. In the end, we helped Rachel minimize her loses as she cut loose from an employer she no longer respected or felt respected by. It was, no doubt, a tricky case – one we learned from as lawyers (which we love!). What started as an emotional pressure-cooker with much at risk – both in reputation as well as financially – ended with Rachel’s pride intact. Well, largely so… maybe a little bruised. *not her real name

Employment Law Blog

Non-Compete Trends Favor Executive Mobility

Jul 5, 2018 | By Ottinger Employment Lawyers | Read Time: 3 minutes

An encouraging new trend we have seen lately is more states enacting laws or enhancing existing laws that limit the enforceability of non-compete clauses. The specific laws that apply to non-compete clauses in employment contracts vary greatly from one state to another. While some of the basic law around this area is outlined in court opinions — or “case law” — there are also legislatively enacted laws that affect what is and isn’t allowed in different states. This year, Utah, Idaho, and Colorado joined recent moves by California and Illinois to strengthen laws covering an employee’s right to switch employers. Meanwhile, case law around non-compete clauses also continues to develop. Non-compete clauses can take many forms. Generally speaking, a non-compete clause is a provision that restricts an employee from directly competing with the employer while in the employment relationship, from accepting later employment with a competitor of the employer or from going into business against the employer after the employment relationship has ended. A non-compete provision may cover only a short period after employment, or it may last many years. Non-compete agreements may or may not include provisions against “poaching” one’s colleagues (known as “non-solicitation” clauses). Geographically, they may be limited in scope to a particular neighborhood, town or city, or they may reach across an entire state or region. They may only encompass the employer’s existing clientele, or they may broadly restrict employment by the employee within an entire industry. Indeed, where these lines are drawn in a particular non-compete clause can determine whether or not the clause is considered legal and enforceable or null and void. Employers are, of course, fond of non-compete clauses because they perceive them as protecting competitive advantages and trade secrets while supporting workforce stability. For employees, though, non-compete clauses can have drastic and lasting effects on their ability to earn a living. And, for society in general, the impacts of non-competition agreements can be significant. Since they restrict people’s ability to switch jobs easily, taking their accumulated expertise and knowledge with them, they impact social and geographical mobility as well as wage and salary growth. It is conceivable that left entirely unfettered, they could hurt innovation across whole industries. Thus, like other restraints on free-trade and competition, there are limits to what various jurisdictions — and the courts — consider acceptable in a non-compete clause. Here are some recent developments: This spring, Utah enacted a new law to limit the reach of non-compete agreements in the broadcasting industry. This law adds more strength to a bill they enacted two years ago. The two-year-old law in Utah imposed, in general, a one-year post-employment time limit on non-compete agreements. With this new law, employers in the broadcasting industry may not impose non-compete agreements on employees making a salary of less than $47,476 annually. Nor may they enforce a non-compete provision against an employee who was not terminated for cause unless the employee breached their employment contract. Also this spring, Idaho moved to repeal a burdensome requirement it had enacted two years ago which required employees to prove that their change of employers did not irreparably harm their former employer. With Idaho’s repeal of Idaho Code Section 44-2704(6), the burden is once again on the former employer to show a likelihood of irreparable harm before a court may issue an injunction against the employee’s new employment. In Colorado, the legislature passed a law that allows physicians to continue treating patients with “rare disorders” even when that would otherwise constitute a violation of the physician’s non-compete agreement. This serves to clarify Colorado’s existing law which generally prohibited non-compete agreements except in certain specific cases, such as for protection of trade secrets. In addition to these statutory changes, we’ve also seen recent case law affecting non-compete agreements: In Wisconsin, non-compete clauses are governed by Wisconsin Statute 103.465. In Wisconsin, to be enforceable, the statute requires that a non-compete covenant must be “reasonably necessary for the protection of the employer,” only cover a reasonable period, only cover a reasonable territory and not be an unreasonable restraint on employees. In January this year, the Wisconsin Supreme Court held, in Manitowoc v. Lanning, that this statute, which generally refers to “covenants not to compete,” also applies to non-solicitation agreements that would prevent employees from soliciting, inducing or encouraging other employees to terminate employment with one employer to accept employment with a competitor. The court found that the statute applies to all such covenants that are restraints of trade, regardless of whether they specifically include the term “compete” in their label. Last but not least, the South Dakota Supreme court decided a case in March of 2018 entitled Farm Bureau Life Insurance v. Dolly. In that case, the court declined to enforce a non-compete clause. The clause would have prevented a former insurance salesman from selling insurance to any of Farm Bureau’s former customers, even though the former customers had approached him and he had not actually reached out to the customers or otherwise solicited them for their business. The court held that “an agreement not to solicit — rather than not to sell to — an insurer’s existing customers [was] the only reasonable interpretation of [South Dakota Codified Laws 53-9-12].” The court concluded by stating, “The general rule against contracts in restraint of a lawful profession, trade, or business is a legislative expression of public policy….”

Employment Law Blog

The Janitor Rule Mops Up Another Non-Compete Agreement

Jul 4, 2018 | By Ottinger Employment Lawyers | Read Time: 3 minutes

The Janitor Rule is a tool used to invalidate non-compete agreements. This rule, also known as the “janitor analogy,” applies to non-compete agreements that are so broad that they would bar employees from even working as a janitor at another company. In other words, the non-compete agreement prohibits employment or affiliation with a competitor in any capacity. While non-compete agreements are permitted to protect employers’ interests, they cannot be unreasonably burdensome on employees or so overbroad as to prevent the employee from working in any job, even an unrelated job, with a competitor. Such an agreement would not be protecting the employer’s legitimate business interests. An Illinois federal district court recently relied upon the Janitor Rule to invalidate an overbroad non-compete agreement. The court concluded that Medix Staffing Solutions, Inc.’s non-compete agreement with a former director was so broad that it was unreasonable on its face and unenforceable. Med Medix Staffing Solutions, Inc. v. Dumrauf, No. 17-C-6648 (N.D. Ill. Apr. 17, 2018). The court dismissed the case noting it was an extreme case and the judge even refused to modify the agreement because the non-compete agreement was so overbroad. Background Daniel Dumrauf was a director at Medix responsible for sales and recruiting strategy in the pharmaceutical, biotechnology, and medical device industries. He entered into a non-compete agreement prohibiting him from gaining employment by any company that worked in the same field as Medix within 50 miles of the Medix office in Scottsdale, Arizona. The non-compete agreement also applied to companies that are not competitors of Medix. In August 2017, Dumrauf resigned from his position at Medix and accepted a position with ProLink Staffing overseeing its Healthcare Division’s operations. While Dumrauf alleged that 90 percent of his activities with ProLink would take place in Ohio and Kentucky, he occasionally worked from ProLink’s office in Arizona, which would be a violation of his non-compete agreement with Medix. Medix filed suit alleging breach of contract claims. Dumrauf filed a motion to dismiss the case arguing the non-compete agreement was so overbroad that it would prevent him from performing any services for a company that worked in the same field as Medix, even if it did not relate to his prior role at Medix. The Janitor Rule One argument raised by Dumrauf was that the non-compete agreement violated the “janitor rule.” In this case, the court concluded that while Dumrauf’s argument that he would be prevented from even working as a janitor at another company was “a bit far-fetched, the Court sees no language in the [non-compete agreement] that makes it an inaccurate statement of its prohibitions.” The court explained that the non-compete agreement would prevent him from not only taking plausible jobs at another company but any jobs for any company in the same business as Medix. The non-compete agreement was unenforceable, and the court refused to modify the agreement because “where it involves a covenant not to compete whose provisions are so broad as to be a ban on competition per se, courts should refuse to enforce or modify the agreement.” Takeaways The Janitor Rule can be a powerful tool for employees as a defense against overbroad non-compete agreements. Also, the rule can be useful for employers as a guide when drafting non-compete agreements. Employers should carefully examine their non-compete provisions to ensure they are not prohibiting former employees from working for a competitor, or any company in their field, in any capacity or manner. A one-size fits all agreement may not be appropriate for all situations. Non-compete agreements are disfavored, and many New York judges and the New York Attorney General recognize the importance of limiting non-compete agreements. New York non-compete agreements must be narrowly tailored and reasonably limited in time and geographic scope, as well as justified by a company’s legitimate business interests. While there may be tactics to beat your non-compete agreement, non-compete agreements may be enforced and need to be taken seriously. If you are contemplating a non-compete agreement or currently bound by one, you should get a non-compete Review & Consultation. The Ottinger Firm will review your non-compete agreement and meet with you to go over it and discuss your options. We have litigated non-compete agreements in federal and state court and mediated, arbitrated and negotiated hundreds of non-compete disputes. For more information contact our non-compete attorneys at 347-492-1904.