Employment News Alert: Voluntary Incentive Compensation Plans, Employment Arbitration Agreements & Wage & Hour Cases

California Supreme Court Validates Forfeiture Provisions of a Voluntary Incentive Compensation Plan

In Schachter v. Citigroup, Inc., 47 Cal. 4th 610 (2009), plaintiff participated in a voluntary incentive plan for two years but left the company before any of his stock fully vested and, therefore, forfeited his stock and any compensation he requested be paid into it. In a class action suit, he contended that the forfeiture, set forth in the plan, violated Labor Code sections 201, 202 and 219 providing that employees be paid all earned wages upon termination of employment.

The California Supreme Court, affirming all courts below it, concluded that plaintiff had been properly paid at time of his termination, and it was immaterial that some of the compensation was cash and the rest was restricted stock. As plaintiff had voluntarily decided to use part of his compensation to buy restricted stock, no Labor Code violation could be established.

This is good news for employers who create such plans to encourage long-term commitment of their employees. Based upon this decision, employers can feel secure in creating incremental stock vesting plans.

Clarifying Armendariz: Appellate Court Evaluates Employment Arbitration Agreements

Ten years ago, the California Supreme Court established criteria for court enforcement of employment arbitration agreements in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal.4th 83 (2000). However, litigation has persisted as parties continue to challenge employment arbitration with varying results. As a result, employers have been concerned about the enforceability of their employment arbitration agreements.

The most recent appellate case addressing this issue is Roman v. Superior Court, 172 Cal. App. 4th 1462 (2009). This decision provides some clarification to employers as to what to expect when an arbitration agreement is reviewed by a court. Upon reviewing the Armendariz factors, the trial court granted the Petition to Compel Arbitration despite the fact that there had already been discovery and other pleadings filed in the case and the Court of Appeal concurred.

The Roman case has created good news for employers attempting to draft enforceable arbitration agreements. Arbitration agreements prepared by employers are likely to be upheld if challenged in court as long as they provide for: 1) a neutral arbitrator, 2) the same remedies available in the arbitration as in the court system, 3) “adequate discovery”, 4) employer-paid arbitrator costs, 5) a written arbitrator decision, and 6) mutual agreement to submit all claims to arbitration without reservation by either party.

Class Certification in Wage and Hour Cases No Longer An Automatic Determination

In Ali v. U.S.A. Cab Ltd., 176 Cal. App. 4th 1333 (2009), the Court of Appeal affirmed a lower court denial of class action certification where it found that common questions of law and fact did not predominate. Plaintiff, a former cab driver who leased a cab from the defendant, filed a class action suit related to defendant’s alleged misclassification of cab lessees as independent contractors rather than employees. In opposing the certification, defendant submitted declarations that showed a wide variety of differences in the duties and work days of the drivers, whom plaintiff claimed were class members.

This decision demonstrates that if a company is able to prove that the differences between the various duties of purported class members outweigh their common characteristics, the courts are not likely to certify expensive and complex class action litigation.

This document is intended to provide you with general information about employment related issues. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact Ann Liroff at 415-546-7500 or aliroff@hbblaw.com or contact your regular Haight Brown & Bonesteel, LLP attorney.  This communication may be considered advertising in some jurisdictions.