An important change to California Labor Code 2751 takes effect January 1, 2013. That’s next week!

The change requires California employers who pay their employees sales commissions (regardless whether commissions are all or just part of the worker’s compensation) to enter into a written employment agreement. The law previously only required an agreement for out-of-state employers with no permanent and fixed place of business in California. Note that simply setting forth compensation terms in an employee handbook or written commission policy will not satisfy this obligation.

Here’s the fine print:

• Again, the agreement must be in writing.
• It must explain how the commission will be computed and paid.
• It must explain how a commission is earned and any conditions required for the commission to be earned.
• The employee must be given a signed copy of the written agreement and employers must obtain a signed acknowledgement from the employee confirming receipt. This signed acknowledgement should be kept in the employee’s personnel file.
• Employers who wish to terminate or change the commission policy, should do so by a written amendment or new written agreement that supersedes the earlier agreement (again, with a signed acknowledgement of receipt).
• This agreement is not required for short-term productivity bonuses.
• This law does not apply to independent contractors.

Happy New Year employers!

Some employers struggle with reasonable accommodation of an employee’s religious preferences. Effective January 1, 2013, the California Fair Employment and Housing Act (FEHA) definition of “religious creed” will be amended to explicitly include “religious dress practice” and “religious grooming practice.” “Religious dress practice” includes the wearing or carrying of religious clothing, head or face coverings, jewelry, artifacts, and any other item that is part of the observance by an individual of his or her religious creed, while “religious grooming practice” includes all forms of head, facial and body hair that are part of the observance by an individual of his or her religious creed. The terms “religious dress” and “grooming practices” are to be broadly construed.

I hold the (perhaps naive) belief that, when most employers violate prohibitions against religious discrimination, it’s often by accident. So I try to provide examples.  The HR Gazette provides these:

“‘[R]eligious dress’ means virtually any piece of clothing or accessory that signifies or expresses a religious creed or belief.  The most common examples are a hijab (the headscarf worn by Muslim women), the dastar (the turban worn by Sikh males) or a yarmulke (the skullcap worn by Jewish males).  Religious dress could also include jewelry such as a Christian cross, Star of David, or an Ankh.”

“[A]n employer would be required to accommodate an employee’s religious belief by allowing him to wear a beard or long hair in the workplace.  Some religions require men and women to shave their head.”

Here are a couple of ripped-from-the-headlines cases to further illustrate:

1. A certain “preppy” store refused to hire a woman when she appeared for an interview wearing a headscarf, which she wore for religious reasons as a devout Muslim. The employer argued that it had a strict “Look” policy in order to insure a unified “preppy” brand image. The jury awarded the woman $20,000.

2. A fast food chain was sued after terminated a devout Nazirite due to his failure to cut his hair. Nazirites do not cut their hair as a sign of devotion to God. The employee had worked for six years without cutting his hair (in fact, he had not cut his hair since he was 15 years old) before the company tried to enforce its grooming policy that required him to cut his hair. The chain entered into a consent decree whereby it settled the case and agreed to pay the employee $27,000, and also to adopt a formal religious accommodation policy.

Employers subject to FEHA must reasonably accommodate an individual’s religious creed. The amendments provide that an action that segregates or hides an individual, either from other employees or the public, because of that individual’s religious dress or grooming practices is not a reasonable accommodation of an employee’s religious dress or grooming practices.

I counsel and defend both small and large companies, mostly on employment issues and cases. I see many differences in how a larger, more established company handles its role as a defendant in civil litigation, and I think there are important lessons a smaller entity can learn from these “big dogs,” even if they never plan (hope!) to get sued again. Chief among these lessons is the value of a well-considered evaluation report.

Smaller companies might view any kind of written evaluation as a frivolous, unnecessary expense. I sympathize with this view, but I think it is misplaced. First, as you’ll see, I’m not advocating the kind of “term paper” report demanded by large corporate defendants. For a corporate client or insurance carrier that is regularly involved in litigation and knows what it wants to know, I’m happy to provide the most detailed report in the world. Why would I object–I get paid to do it?

But when I counsel a company that rarely finds itself in civil litigation, I don’t think it’s necessary to incur the cost of a 20 or 30 page tome. Rather, something that is between 2 and 4  pages total balances cost-efficiency with the importance of a written evaluation.

Before I get to what to look for in an evaluation, I want to cover timing. Large corporate clients for whom I’ve prepared evaluation reports typically require a comprehensive initial report anywhere from 90-180 days after the suit was assigned. Thereafter, most corporate clients like to see an update every 90-120 days, with some kind of even more comprehensive pre-trial evaluation about 60-90 days before the scheduled trial date. There’s no reason a smaller company should deviate from this timing. It is important to understand that an update is just that, it’s not a re-writing. I simply bold any information that is new since the last report. If there are things from prior reports that no longer belong, they can either be scored or deleted altogether.

Here are the elements I would, as a client, always expect from an evaluation of a case in litigation:

1. Brief statement of operative facts. Brief means brief. The point is to make sure both the client and the lawyer have a common understanding of the operative facts. These might be both what is alleged and what the defendant is expected to prove. The last thing any client should want is for its lawyer to start trial without ever having run through a narrative of the operative facts on paper.

Also, even a very small company will likely have people involved at the management level with only a marginal understanding of the facts. This brief (did I say brief ?) statement can be shared with senior management, directors, investors or partners, to bring everyone up to speed. In addition to the liability facts, I would also include a list of the theories of liability and a brief statement of the damages sought, even if only in summary prayer, rather than concrete dollars and cents.

2. Very brief evaluation of the venue, judge, opposing counsel and plaintiff. (I mean brief dammit!)

3. Evaluation of each viable defense, including strengths and weaknesses. This is really the heart of the evaluation. This should be written in language that, to the extent possible, is devoid of legalese or confusing concepts. Clients who are not lawyers should be able to read this section and get a clear understanding of what will be proven at trial and how. On receiving this, clients should ask counsel to clarify any point that is not clear.

Now, while this section of the evaluation is written for the client, part of the value is in the composition process itself. In formulating this part, the lawyer will be forced to think through the client’s defenses, evaluate their viability and even develop a short inventory of what evidence will support the defense or make it challenging.

4. Exposure. How much, realistically, could the client lose if the case is tried and lost. In my field, employment law, this needs to include an estimate of the opposing side’s attorney’s fees since most federal and state employment law schemes permit a prevailing employee to recover her reasonable attorney’s fees.

5. Ultimate recommendation. Is this a case that should settle? Is it a trial candidate: i.e., one in which there is a 75% or greater likelihood the client will win (I prefer to think of it this way: a jury will return a defense verdict 7 out of 10 times)? Clients’ risk tolerances differ; some are more willing to gamble, others want to be virtually certain of prevailing at trial (there’s no such thing as virtual certainty of a verdict, by the way).

If the recommendation is to pursue settlement, what is a reasonable settlement amount, and what is the proposed path to get there?

6. Tasks and budget. Clients should be entitled, at every stage of any lawsuit, to a list of what is anticipated to be done in the next 60-120 days, and a reasonable estimate of what the cost will be. Hopefully clients understand that this is only a thoughtful estimate of what is required and the cost. None of us is omniscient.

Crucially, an evaluation should be considered a living document. Cases evolve. If every single fact, estimate and nuance of an evaluation remains the same from the beginning of the case until the start of trial, something is missing. Again, I advocate an approach that simply adds new developments to an old evaluation in bold.

Many lawyers will provide some kind of evaluation as part of their ordinary practice. If you’ve hired one that does not, ask her not only to provide an evaluation, but to provide it early enough so that a bad case can be settled before so much time and money has been invested that settlement is not a viable option for one side or the other.

A new California law restricts an employer’s right to seek access to existing or prospective employees’ social media accounts.

The law, Chapter 2.5 of Part 3 of Division 2 of the Labor Code (commencing with Section 980),  defines “social media” for purposes of the new law to mean “an electronic service or account, or electronic content, including, but not limited to, videos, still photographs, blogs, video blogs, podcasts, instant and text messages, email, online services or accounts, or Internet Web site profiles or locations.”

Under the new law, employers cannot request existing or prospective employees to disclose either a username or password, to access a personal social media account in the presence of the employer, or to divulge any personal social media.  It is also unlawful to retaliate against an employee or applicant for refusing such a request.

Important exceptions to the law are (1) where divulging social media is “reasonably believed” to be relevent to an investigation of an employee’s violation of law or allegations of employee misconduct; and (2) if done for the purpose of accessing an employer-issued electronic device.

The California Supreme Court will decide whether the terms of a franchise agreement, or the franchisor’s conduct at-odds with that agreement, govern for purposes of whether the franchisor can face liability for (mis-)treatment of a franchisee’s employee.

The issue is simpler than it sounds, but an opinion could have wide-ranging implications for franchisors doing business in California.  In Patterson v. Domino’s Pizza, a 16 year-old employee of a Domino’s franchise sued, not only the franchisee and its manager, but also Domino’s, for alleged sexual harassment, retaliation and constructive wrongful termination.  The franchisee petitioned for bankruptcy protection and Domino’s obtained summary judgment on the grounds that the operative franchise agreement placed sole responsibility for recruiting, hiring, training and supervising employees on the franchisee, such that the franchisee was an independent contractor for liability purposes.

In June, 2012, the California Court of Appeal for the Second District issued and certified for publication an opinion that reversed the summary judgment in Domino’s favor.  In a nutshell, the Court of Appeal looked well outside the terms of the franchise agreement, focusing instead on the course of conduct between Domino’s and its franchisee.  Among the items of evidence cited by the court was Domino’s specific hiring requirements applicable to all franchisees, including rules about qualifications, appearance standards and required training software programs.  The court also pointed to testimony from the franchisee owner about Domino’s practices, including specific direction to fire certain franchisee employees (including the alleged harasser) and tactics, including “mystery shoppers,” designed to exert control over individual franchise stores.  Triable issues remained, the Court of Appeal concluded, whether “there was a lack of local franchisee management independence” which could render Domino’s liable.

Accepting Domino’s petition for review, the Supreme Court has ordered the parties to limit analysis to the question whether Domino’s is entitled to summary judgment on plaintiff’s claim that it is vicariously liable for tortious conduct by a supervising employee of the franchisee.

If the Supreme Court’s opinion is unfavorable to Domino’s, it could change in a very material way the degree of control franchisors maintain over their franchisee’s employment practices.  If it results in a shifting of responsibility to the franchisor, I imagine it will increase franchise purchase costs, trigger different or additional insurance provisions, with corresponding cost increases, and overall make franchise arrangements less appealing in our golden state.

Each year I’m faced with the decision which, if any, industry conferences to attend.  A shortage of time and money dictates that I cannot go to every conference I would like to attend.  Even if I could cobble together enough money to attend more conferences, my time is severely constrained and every hour spent at a conference is an hour that cannot be spent working for a client.

I’ve attended Defense Research Institute (DRI) conferences just about every year I’ve practiced, even though I’ve migrated committees from Young Lawyers, to Products Liability, to Commercial Litigation, to the Labor & Employment conference.  I’ve found these are well-organized and pretty useful.  I would recommend a DRI conference to colleagues.

A couple of weeks back, though, I attended a completely different kind of conference, which was an exponentially better use of my time.  I’m not going to discuss the specifics, because I was a guest and, unlike DRI or ABA, this industry group doesn’t maintain a website, publications and huge membership.  But it is precisely because of this concentrated scale that the meetings were so productive.

First, actual membership in the group is limited to in-house general counsel or legal staff members of companies in industries that routinely face the same or similar employment issues.  Actual members can bring guests who are outsiders, but membership will never be available to us “outhouse” lawyer.  This alone sets it apart from large industry or bar association conferences.  There are no sponsors or exhibitors.  More importantly, the conference does not become a “feeding frenzy” where hundreds of outside lawyers showboat or compete for the time and attention of a handful of in-house counsel.  There may be some marketing component to the conference, but it is low-key–limited to maybe buying someone dinner–and definitely not the focus or sole reason to attend.

Second, the group is smaller, but it is also comprised of industry leaders.  Sure, war stories are traded, but they tended to be fresh, relevant and real.  Because of the tighter group size, it permitted the agenda to be loose and unstructured in a way that permits the group to spend more time on topical topics.

Another advantage of the limited group size was that the actual members (and some of the guests) knew each other pretty well.  I observed that this led to a candidacy of the discussion that I would never expect to see at a larger group function.  Anyone who’s tried to build a better mousetrap by committee knows that familiarity breeds comfort which tends to lead to better end product.  That’s what it looked like to me, anyway.

It was a good experience; I hope I am invited back.  I would surely counsel anyone lucky enough to be invited to attend one of these smaller, more concentrated industry conferences to jump at the chance.

I have a friend who is a BSD in the venture capital world.  I reached out to him a while back because I had read that one of the companies his firm was funding was about to undergo a significant expansion.  I asked my friend if he wouldn’t mind introducing me to the company’s general counsel, so I could get my foot in the door in helping the company establish a solid platform for management of employment issues which were bound to arise, given their imminent hiring.

To my surprise, my friend rebuffed me.  “To tell you the truth,” he said, “it’s really not something that’s on their radar at this point.”  I let it pass–there might have been a variety of reasons he didn’t want to make the introduction.  But, suppose he was telling me the truth, that he thought the general counsel of this emerging tech start-up really didn’t need to be thinking about who to use to prevent and, if necessary, deal with employee “issues.”

If he was telling the truth, I think he was mistaken.  This is particularly true given that the company was domiciled in California, unquestionably the most hostile legal environment in the world for employers.

Granted, I don’t think selecting employment counsel is on par with raising funds or gaining market share. If the company fails, there won’t be employees to make claims or file lawsuits.   On the other hand, meeting and potentially retaining a legal expert to review the company’s policies, draft or revise a handbook and perhaps conduct some training is neither time-consuming nor rocket science.  It is certainly not expensive.  Particularly if the ounce of prevention establishes, at the company’s early stages, a solid foundation which prevents even one otherwise avoidable employment lawsuit.

I have seen up close organizations that started and grew without a solid, systematic adherence to employment laws.  In each instance, I’ve become involved only after the company has been sued and we are trying to frame a defense.  At that point, the company’s management invariably recognizes its shortcomings and vows to do better going forward.  Unfortunately, this only happens after the company is forced to spend tens of thousands (or more) in settlement and defense costs.

It is not unusual for small employers to look to their “business” counsel for guidance on complying with employment issues.  This is the lawyer that drafted their articles of incorporation or negotiated a lease.  However, it is more common for this to occur only after there has been a claim or suit.  Before that time, my friend is right, it’s literally “not on their radar.”

I’m partial to the idea of working with a lawyer that concentrates his or her practice on employment defense, rather than a business generalist.  There are lawyers who do nothing but employment advice and counseling, which is who I–a litigator–will look to if I’m confronted with a particularly unusual question.  The problem for the commercial lawyer in advising on employment issues is the rapidly changing nature of employment laws.  An additional problem arises when the claim goes further, and ripens into an administrative complaint with the Equal Employment Opportunity Commission (EEOC), California’s Department of Fair Employment and Housing (DFEH) or similar agency, or if there is a civil lawsuit filed.  While the company’s business lawyer might be a wizard at negotiating a complex lease, he or she might struggle when conducting a deposition, drafting a solid motion for summary judgment or representing the company in front of a jury.

I have all the respect in the world for entrepreneurs.  And I expect there are a thousand and one issues and headaches to successfully navigate without having another lawyer stick his or her nose into how the company runs its business.  But the last survey I saw said that the average verdict or award in employment lawsuits where the employer lost was over $400,000 (and this was a few years ago).  I’d argue that it’s never too early to put retaining an employment lawyer “on the radar.”

Not everyone is cut out to play the boss.  While I suspect there are a few sadists who actually enjoy the act of firing an employee, most people hate delivering bad news and learning you’re now jobless usually ranks near the top of the bad news heap.

From the point of view of a lawyer who represents employers in lawsuits, however, I view the process of termination to be extremely important.  It can be tempting, when one is forced to deliver the news, to sugarcoat.  Most sugar-coating doesn’t really make anyone feel better.  For example, “you’ll always be part of the family,” or “you’ll thank me someday for this chance at a fresh start,” might have worked for George Clooney in “Up In The Air,” but it’s a pretty stupid thing to say in the real world.

One brand of sugar-coating that can be really dangerous concerns mischaracterizing a termination for poor work performance as something other than what it is.  In particular, suggesting a sub-par employee is being “laid off” creates substantial risk.  If the “redundant” employee is replaced anytime in the near future, it sets the stage for him or her to argue, in a subsequent discrimination lawsuit, that the lack of work was merely a pretext.  That the actual goal was to eliminate the employee on the basis of some protected characteristic (i.e., race, gender, disability, religion).  This kind of evidence plays well at trial: like all of us, jurors love to hear about conspiracies and cover-ups.

One way for employers to make the act of termination less of a surprise–and therefore less painful for everyone involved–is to make termination the final step in a progressive discipline policy.  Implementing such a policy starts with  a frank discussion with the underperforming employee that is documented by a dated, written record of the discussion.  This type of discussion does not even need to be characterized as discipline, but rather a coaching tool.

If verbal discussions (documented) do not improve performance, the next step should be a written notice that describes the problem, proposes a solution and is provided to the employee concurrently with the verbal discussion.  The employee should be asked to sign this document, and perhaps there will be a space dedicated for any response the employee might have.  lf the problem persists, the possibility of one or more additional written notices/warnings can be provided, but the message communicated should be that, after a defined number of written notices/warnings, termination will result.

A progressive, documented discipline policy serves two really important purposes.  For me–your lawyer–it is important evidence if a wrongful termination or other lawsuit results from the employment relationship or termination.  Perhaps more importantly, though, it gives the employee every chance to succeed.