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MARCH 2001
EXEMPT
EMPLOYEES: PEPSI SUED FOR MISCLASSIFYING OUTSIDE SALES
REPS: Employers continue to face costly lawsuits by
workers who claim they were misclassified as exempt employees.
A lawsuit filed in Alameda County on behalf of current
and former Pepsico Corp. employees charges that customer
service representatives were improperly classified as outside
salespersons and denied overtime. To be exempt from overtime,
outside salespeople must, among other things, spend at
least 50% of their time making sales away from the employer's
place of business. But the workers claim that they spent
most of their time on non-sales activities, such as traveling
to stores, taking inventory, checking date codes and stocking
shelves. The lawsuit seeks several years of back overtime
for the workers, plus penalties and attorneys' fees. In
1999, a similar issue went all the way to the California
Supreme Court, highlighting how difficult it can be to
determine whether or not outside sales personnel qualify
as exempt from overtime-especially when they perform a
mix of sales and non-sales work. In Yosemite Water Co.
v. Ramirez, the Court said that to decide whether someone
qualifies for the outside sales exemption, you should consider
only one straightforward question: Does the employee spend
at least 50% of their total work time performing purely
sales-related activities? If the answer is yes, then you
don't have to pay overtime. The question in these cases
is whether or not the employee meets this 50% threshold.
Outside
Sales Checklist: Here's a checklist to help make sure
your outside sales workers are classified correctly:
Does
the employee spend at least 50% of work time doing sales
on the road, away from any fixed place of business? To
be exempt from overtime, workers must spend at least half
their work time selling or obtaining orders or contracts
for products or services. Time spent delivering products
or merchandising doesn't count.
Do
you allocate incidental work appropriately? Tasks directly
related to sales work-such as traveling to and from a sales
call-should count when analyzing how many hours are spent
on outside sales. But travel time that relates both to
sales and non-sales work-for example, an appointment to
deliver products and make a sales pitch-should be allocated
between the two types of work.
Do
you monitor performance? Disputes sometimes arise because
of a difference between how an employer expects employees
to spend their time and what the workers say they actually
do. To avoid the problem of a poor performer spending less
time than expected on sales work-and falling below the
50% threshold-make sure your job descriptions are accurate
and realistic. Also, carefully monitor performance and
promptly inform workers of any problems so there's no confusion
about your standards.
STATE
LAUNCHES MY.CA.GOV-YOUR ONLINE LINK TO CALIFORNIA! Governor
Gray Davis announced the launch of a one-stop California
Web portal that offers Californians access to an array
of online information and state services, including Household
Employer Internet Reporting to EDD. The new "My California" Web
portal is located at www.ca.gov or my.ca.gov.
The state is attempting to use Web technology to personalize
government in a unique way. The first "eGovernment" service
offered through EDD on the new portal is the Household
Employer Internet Reporting (HEIR) application. Employers
of household workers (nannies, gardeners, others) can file
their most common EDD tax and wage forms over the Internet.
For more information about HEIR, please call the Telefile/HEIR
customer service line at 1-800-796-3524. Employers of household
workers who are registered with EDD's Electronic Funds
Transfer (EFT) Debit Program will also be able to pay their
payroll taxes over the Internet.
FEDERAL
JOB TAX CREDITS EXTENDED UNTIL END OF 2001: The Work
Opportunity Tax Credit (WOTC) Program, which provides employers
with up to $8,500 in federal tax credits for every eligible
job seeker they hire, has been extended until December
31, 2001. Generally, WOTC-eligible job seekers are in one
of nine target groups, such as Temporary Assistance for
Needy Families recipients, youths ages 18 through 24 living
in designated communities, and veterans receiving Food
Stamps. To apply for this tax credit, there are only two
one-page forms to complete. Employers can also request
a referral of an eligible job seeker from EDD. For more
information, or to determine if a job applicant is a member
of a WOTC target group, you can contact your local EDD
Job Service site (listed in the State Government section
of your telephone directory), or contact the WOTC Center
at P.O. Box 1408, Roseville, CA 95661, or call (916) 774-4374.
Additional WOTC information and forms may also be obtained
from EDD's Web site at www.edd.ca.gov (select
the "For Employers" section).
SUPREME
COURT CUTS BACK ADA COVERAGE FOR STATE EMPLOYEES: A
new U.S. Supreme Court decision continues the trend of
restricting the rights of state employees under federal
employment laws. The court ruled that state workers can't
sue their employers for disability discrimination under
the Americans with Disabilities Act. This ruling has no
impact, however, on the protections against disability
discrimination that exist under California law.
COURT
AFFIRMS NON-COMPETE AGREEMENTS CANNOT BE ENFORCED IN CALIFORNIA: In
a recent court decision, California courts reaffirmed the
state's public policy against contract clauses that restrict
an employee's ability to take a new job, even if that job
directly competes with a former employer. Generally, "non-compete" agreements
are unenforceable in California. Often this surprises employers
who, in today's tight job market, keep looking for ways
to retain employees and protect their businesses from high
turnover.
Cannot
Ban Lawful Work: California Business and Professions
Code Section 1660 provides that "every contract by
which anyone is restrained from engaging in a lawful profession,
trade or business of any kind is void." Recent amendments
to California law also prohibit employers from stopping
employee moonlighting. In D'Sa v. Playhut, a California
Court of Appeal recently addressed the non-compete issue.
Playhut hired Richard D'Sa based on an oral contract for
an indefinite term. Later the company asked D'Sa to sign
an employee confidentiality agreement. The confidentiality
agreement contained provisions about an employee's rights,
responsibilities and trade secrets, with a broadly worded "covenant
not to compete." The agreement also said the laws
of the state where Playhut is located (not California's
laws) would be used to interpret the agreement, and included
a severability provision that said if any part of the agreement
was invalid, other portions of the agreement remained valid.
D'Sa refused to sign and was dismissed.
Cannot
Be Condition of Employment: Playhut argued that because
the non-compete covenant could be separated from other
provisions of the confidentiality agreement, the firing
was lawful. The Court of Appeal disagreed, saying "an
employer cannot lawfully make the signing of an employment
agreement which contains an unenforceable covenant not
to compete, a condition of continued employment, even if
such agreement contains choice of law or severability provisions
which would enable the employer to enforce the other provisions." The
Court further held that terminating an employee who refused
to sign such an agreement is a wrongful termination that
violates public policy. In so holding, the Court noted
the clear legislative statement in Section 16600 against
covenants not to compete.
California
differs so widely from other states in this area that employers
must stay informed about the issue. For instance, in 1999
a San Francisco Superior Court jury awarded $1.2 million
to a former Aetna employee, including $1,020,000 in punitive
damages. Aetna fired the employee after she refused to sign
a non-compete agreement. The jury found the termination violated
public policy because it was unenforceable under Business
and Professions Code Section 16600.
Non-compete
agreements are invalid in California, but agreements against
revealing trade secrets are fully enforceable. Some employers
also have argued employees should not be allowed to work
for competitors under what has been called the "inevitable
disclosure" theory. Under this theory, employees working
in the same field at a new workplace could give away, even
without meaning to do so, their old company's trade secrets.
California courts, however, generally have not accepted this
theory.
What
Should Employers Do? Employers can condition bonuses
upon retention of employment for a specified period of
time, or require repayment of certain expenses if an employee
accepts other employment anywhere within a certain timeframe.
The
best approach, however, is to examine what you can do to
keep an employee from leaving in the first place. Employers
also should: 1) Review all employment agreements, handbooks
and policies and remove any non-compete provisions. Also,
do not include non-compete language in offers of employment.
2) Uniformly enforce policies related to disclosure of trade
secrets. 3) Examine creative ways to retain employees. Communication
between employer and employee is critical. Perks such as
better benefits, stock options and bonuses are good ways
to help retain employees. Less tangible solutions, such as
assessing the employee's scheduling needs or supervisorial
relationships, also may prove beneficial.
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