Archive for April, 2011


Monday, April 4th, 2011

Hiring can be a grueling business, especially when you are looking for higher level or more skilled employees.  You review resumes.  You call references.  You Google applicants.  You conduct endless interviews.

Finally, you find just the right person.  Time to relax.  In the interests of space, throw away the resumes of those you didn’t hire. Get rid of your interview notes.  What do you need them for?

Wrong answer.

Just when you thought plaintiff’s lawyers could not come up with any more creative ways to lighten your wallet, along comes a particularly imaginative one who claims that you discriminated against one of the applicants you did not hire and he wants money.  Have to make a buck somehow. If the job doesn’t work out, sue the company that didn’t hire you.  Nice work if you can get it.

This actually happened to MV Transportation.  It was looking for a staff lawyer to handle labor matters and a 56 year old, very experienced labor lawyer applied for the job.  He was not even interviewed.  The job went to a 40 year old lawyer whose labor law experience was a bit thin but whose experience in employment litigation was impressive and she came with a very high recommendation from a friend of the general counsel, who made the decision.  The older lawyer sued, claiming he had been the victim of age discrimination.

The case went to judgment in the trial court and up through the court of appeal.  In order to prevail, the applicant had to show that he was part of a protected class (he was); that he was qualified for the position and that he did not get the job because of discrimination.  Had he been able to do so, the burden would have shifted to the company to prove it had no discriminatory motive.

In the end, things came out for the best for MV.  But it was not easy and it cannot have been cheap.

The court of appeal held that in order to show a discriminatory motive, the applicant had to show not just that his credentials were better, but that they were “vastly superior” to those of the person who got the job.  His were better, but not “vastly superior”.

The applicant also argued that the company gave him varying and inconsistent explanations for why he did not get the job, but the court of appeal decided that those were merely failures of recollection.

The applicant’s strongest argument, though, was that the company had suspiciously destroyed the applications, resumes and notes surrounding the employee search. That not only raised the presumption that it was hiding something, but it was a violation of a California law that requires that employers retain all such materials for two years.  The court of appeal found that the destruction of records was done with a “culpable state of mind”; that the records might have revealed information relevant to the applicant’s case and that the company had an obligation to keep the records in accordance with California law.  The court of appeal severely criticized the company for having destroyed the records and suggested that in closer cases, the decision could hinge on this factor.

Fortunately for MV Transportation, the court found that all of that was insufficient to upset the trial court’s decision.

MV dodged a bullet, but it was a close call and there is lesson value in this case for employers.

Keep the employment applications and resumes.  Not only is it the law, it will help to show that the hiring decision was not tainted by discriminatory motive.  In addition, it will assist witnesses in recalling what they were thinking when the decisions were being made.  Years later, when such claims come to trial, the decision makers will not remember the dozens of resumes they reviewed, the interviews they conducted or their reasons for preferring the one hired over the ones who were not.  But the records will help refresh their recollection so they can testify credibly and effectively. In addition, of course, by the time of trial, the decision maker might, well, himself have moved on.  Without the records, defending then becomes nearly impossible.

It is equally important to keep notes of interviews and impressions of application or resume review.  The company can establish through those notes that a fair process was undertaken that had, as its intent, to get the best possible hire and not to discriminate against those who were not.  You will need that ammunition if a claim is made.

Finally, if you feel you must talk to unsuccessful applicants, you will be able to look at your records and see why the decision was made and will not give inconsistent answers for not hiring him.  On the other hand, you have no obligation to explain yourself and you would be better off simply telling a disgruntled applicant that explaining the decision to hire would violate the hiree’s right to privacy and that you must decline, for that reason, to do so.  Saying nothing is a better policy.

With all of the hungry plaintiff’s lawyers out there, companies have to operate defensively and that means documenting hiring decisions thoroughly and keeping the documentation.  Advance planning will minimize exposure to claims.  It is hard enough to generate revenues these days without having to expend thousands on defending lawsuits from those you don’t hire.


Monday, April 4th, 2011

One of the inquiries we often receive is whether a company can regard someone providing services to it as an “independent contractor”.  There are advantages and disadvantages to the designation, but most often it is a means by which companies can avoid the expense, time and paperwork of employment, as well as the exposure to claims by workers.  For the worker’s part, it is a method of minimizing taxes and withholding so the check he receives is bigger than the one he would have received were he an employee.

It is really something the advisability of which has to be determined on a case by case basis.  The problem with the mischaracterization of a service provider as an “independent contractor” rather than as an “employee”, is that a company can be exposed to severe penalties if the characterization is not correct.  For example, if an “independent contractor” is found to actually be an employee, the company may be required to make up for the withholding it failed to do when paying the service provider, as well as pay penalties and interest.  If other employees have benefits the “independent contractor” was not extended, he may have to be reimbursed for the value of those benefits.  It can be a very expensive proposition.  That is why it is important to be very careful when attempting to forge an independent contractor relationship with someone in a close case.

Courts have articulated a variety of factors in determining whether a person is an independent contractor rather than an employee.  No one factor is determinative and judges tend to weigh them in making a decision.  However, the more of these factors that are present, the more likely the person will be found to be an employee rather than an independent contractor.

The first factor is the place at which the work is to be done.  If it is in the company’s facility, the service provider is more likely an employee.

The second factor is control of the service provider’s work.  If the work is to be done under the supervision and at the direction of the company in the details and manner in which it is to be performed, the provider would generally be found to be an employee.           If the company sets the time at which the work is to be done, for example, if the provider is to be present at a certain time and on certain days to do his work, the providers is more likely to be considered an employee.

These are referred to as the “time, place and manner” factors and if all of these are present, it is likely the provider will be found to be an employee.

But there are other factors, as well.

An important factor is the tools of the trade.  If the company provides the tools through which the service provider accomplishes his work, such as computers, tools, equipment, supplies, paper, copiers, and so forth, it is more likely the provider will be considered an employee.

If the worker can be terminated without cause, that generally means the work is “at will” and that is the mark of an employee rather than an independent contractor.

On the other hand, if the provider must have a certain level of skill, for example, if the provider has a professional license or high skill credential, that argues for independent contractor designation.

If the provider has other customers to whom he provides the same type of service, that lends itself to a finding that the provider is an independent contractor.

If the provider is paid by the job, as opposed to by an element of time such as by the hour, day, week or month, that argues for independent contractor status.

If the work provided by the service provider is not the main work of company, the provider is more likely to be an independent contractor.  For example, if an automobile manufacturer were to hire on someone to install fenders on cars, it would be hard to characterize that person as an independent contractor because the installation of fenders is an integral part of auto manufacturing.  But if the manufacturer were to bring on someone to provide accounting services, that person could be an independent contractor since accounting, while important to auto manufacturing, is not a part of its core business.

If the service provider collects any money or fees for the work he is doing and simply remits back some of that to the company, that is the mark of an independent contractor.

The most important thing to remember is that if you provide the means, location and tools to do the work hired and direct how it is done, pay by a parcel of time and determine when the worker should do his work, that worker is probably an employee.

The best way to avoid the problem is to have a carefully drafted contract that specifically sets out in writing the factors that will show that the service provider is an independent contractor and carefully define the basis on which he is to be paid and that he has control over all aspects of his work, except the result.

It can be a delicate balance and it is one that is receiving greater scrutiny at all levels of government.  The California Department of Industrial Relations, for example, went after theatres some years back on the basis that the actors they hired for limited run plays were actually employees.  The theatre paid a dear price when it was determined that because the actors were told where to appear, when to appear and  how to act and were given the props and costumes through which they did their performances, they were employees. They had to pay huge amounts to those who regarded themselves as independent contractors, as well as penalties for having failed to properly characterize them.  This delicate balance is also one that has generated expensive class action lawsuits that have cost companies millions when they have guessed wrong.  We can help you navigate through the rocks and shoals if you are considering bringing on independent contractors to assist in your business.  But you must not try to do it alone.


Monday, April 4th, 2011

A company’s best defense against employee claims is a statement of firm and clearly articulated standards and rules.  Most businesspeople know that a good part of customer relations is the management of expectations.  The same is true of employee relations.  That is why it is critical that companies prepare, distribute and regularly update employee handbooks.  They are your best defense against employee claims.

California is an “at will” employment state which means that companies can terminate an employee’s employment for no reason.  Why, then, do we read of wrongful terminations lawsuits that end up in large judgments?  They arise, generally, because the company has not managed the employee’s expectations and has not taken the time emphasize the employee’s at will status. Such lawsuits can be maintained if the company has, by word and deed, led the employee to believe his employment is permanent and that he could rely on having a continuing, and long, career with the company.  (They can also arise when the employee is the beneficiary of an employment contract, but such contracts are typically extended only to top executives, so we need not address them here.)

Employee handbooks have been found by courts to be contracts between employer and employee and, as such, should spell out all of the terms of employment, such as vacation schedules and accruals, employee duties and rights, employee use of company equipment, hours, benefits and a host of rules that set forth the expectations on both sides.  It should specifically state that it is a contract and emphasize that employment is “at will”. The existence of a handbook will be very important if your company is ever the target of a claim by an employee.

A handbook is important for several reasons.  The first is that it is not unknown for disgruntled terminated employees to claim to have been told that they could expect long careers and continued employment with the company and that, as a result, the presumption of “at will” employment has been overcome.  They will claim that the expectation of continued employment is an “implied in fact” contract and proceed against the company.  It is often just enough to keep a case in court and to get it before a jury of employees who will often side with “the little guy” in an employment dispute. So, it is important to have a handbook that clearly indicates that employment is “at will” and that nothing anyone says will modify that relationship.  This will minimize the possibility that a claim will be made for wrongful termination and will make those that are made easier to defeat.

The second reason it is important is that it clarifies the relationship so that the probability of misunderstandings is drastically diminished.  Making “at will” employment a matter of contract between your company and the employee, will protect you against claims for wrongful termination.

The employee handbook also provides both employer and employee with a clear articulation of the rules that bind employee conduct.  This is very important for two reasons.  The first, of course, is that it lets the employee know what is expected of him or her.  The second is that it provides the means of minimizing claims against the employer upon termination and provides a good negotiating chip to get a release of liability from the employee when termination occurs.

If the company maintains a comprehensive set of rules, it can point to violations of those rules as a reason for termination and can provide the employer with the means of sustaining a claim that termination was “for cause”.  The clearer the rules and the care with which they are enforced will give the company the tools it needs to manage employees and protect itself from meritless claims.  It will help make the case that the reason for termination is a proper one grounded in the agreement between employee and employer.

The maintenance of a handbook and the enforcement of its rules will help the company establish reasons for termination.  Many companies have found themselves the victims of claims of discrimination, because they failed, first, to articulate the rules they expect employees to follow and, second, to adequately write up violations of those rules to document poor performance on the part of the employee.  Without that evidence, it is much harder to defend against a charge of discrimination, especially if the employee has a characteristic that is not widely present among other employees.

The strength of employee handbooks was recently illustrated in a case decided by the California Court of Appeal.  An employee in a dispute with her employer used company computers and its e-mail system to communicate with her attorney with respect to her case against the company.  The employee handbook specifically said that the employer had the right to monitor e-mails; that employees were not to use company equipment for personal purposes, that nothing on an employee’s computer was subject to a right to privacy and that the employer had the an unfettered right of access to it.

At trial, the company produced e-mails to and from the employee’s attorney that undermined her case and the Court of Appeal held that because the employer’s rights and the employee’s lack of an expectation of privacy were clearly set forth in the employee handbook, the e-mails were admissible, as a matter of contract.

This is significant because the confidentiality right between attorney and client is very strong in California so if the Court of Appeal is willing to overlook that strong public policy on the strength of an employee handbook, it clearly believes in the power of such handbooks carry with them.

Employee handbooks are wonderful tools for organizing employee relations and they systematize the conduct of those relations and define expectations. They are also your first line of defense against claims.  Every company should have one, regardless of size.