I had the opportunity to attend an event with Chris Sacca last night.  He is a venture capitalist who has been living part-time in Los Angeles recently. He spoke about how he grew up in the investment scene in Silicon Valley. He got his feet wet in investing when he started day trading law school student loan money. By day trading, he was able to grow his net worth to $12 million. Then the bubble burst and he lost his friends’ and family’s money, and owed $4 million himself. Given that he wanted to be in the investment scene and possibly run a publicly traded company, bankruptcy was not an option. Chris began working as a corporate lawyer in Silicon Valley and worked odd jobs at night to pay back the money he owed (which he was able to negotiate down to a little more than $2 million). When he was laid off as a lawyer, he quickly had to adapt, and realized that no one wanted to work with a young guy working out of his house. He formed the Salinger Group (I use the term “formed” loosely – he just made up the name and thought it sounded good and that people would trust the name). He successfully worked his way through a number of companies, including Google and eventually became a venture capitalist. He now runs Lowercase Capital.

Here are a few points Chris made that stood out from his interview:

  • The startup scene in Los Angeles is alive and well. In fact Chris has raised a fund to invest in companies in Los Angeles.
  • Chris spoke about the sense of entitlement the younger generation has. This has turned him off of seed funding, as the entrepreneurs were insisting on a very high valuation of the company and requiring an investment decision on the spot.
  • Everyone needs to believe in themselves and that everyone has one thing they are good at. Chris encouraged everyone that when they are good at something, to not apologize about it, but still keep in mind that everyone can still use some help every now and then. He described his theory as “bold humility.”
  • Good entrepreneurs recognized they need money, and it is an important aspect of working, but more fundamentally, good entrepreneurs keep working because they like solving problems. That is why he is still working.
  • Successful leaders do not surround themselves with “yes men.” He learned this lesson when he made $12 million day trading. Everyone around him was telling him what a genius he was, and he said he actually started to believe it. Then the market corrected, and he realized that much of the success he had was due to his timing of the market.
  • He buys his trademark cowboy shirts from www.vintagewesternwear.com. 

It was a great event hosted by Zefr, who provided the room, beer and pizza. More about it can be read at PandoDaily. It was great to see the startup scene in Los Angeles alive and well.

Were Silicon Valley companies artificially keeping wages lower by having an agreement not to poach employees from competitors? This issue came to a head in 2010 when the Department of Justice settled an antitrust case with Adobe, Pixar, Google, Apple, Inuit, and Intel. The DOJ alleged that the companies had agreement not to poach each other’s employees, and that these agreements “reduced their ability to compete for high tech workers and interfered with the proper functioning of the price-setting mechanism that otherwise would have prevailed in competition for employees.” In the settlement with the DOJ, the companies agreed to discontinue the use of any agreements that would prevent any company from poaching employees from a competitor.

After knowledge of the DOJ case spread, a group of employees filed a class action lawsuit seeking damages by alleging that the companies violated California’s Cartwright Act and the Unfair Competition Law. The case is currently pending in California’s Federal Northern District Court. The allegations made in the DOJ case and in the class action litigation argue that the companies had a “do not call” list. Under this agreement the companies agreed not to cold call each other’s employees. There have been emails disclosed in the litigation where Steve Jobs emailed Eric Schmidt asking Google to stop its employee from soliciting an Apple employee. When Schmidt informed the Google employees to stop, the Google employees responded that this was inappropriate, and the offender would be fired within the hour.

This litigation shows how valuable a company’s employees are to its productivity and how hard it is to retain employees in competitive industries. It also shows the relatively few methods employers have to retain top talent. Generally speaking, noncompetition agreements are unenforceable in California, and the allegations made in this litigation show that agreements not to poach competitor’s employees can also be challenged as violating anti-trust and unfair competition laws.

As previously written about on this blog, the case PhoneDog v. Kravtiz is one of the first cases in the country to deal with substantive ownership issues arising out of social media accounts used in the workplace. As companies are moving more and more away from traditional marketing and advertising towards the use of social media, it is critical that companies have an agreement with employees about a few key items regarding social media accounts, such as ownership of the social media accounts.

On the other hand, the rise social media has given individuals the ability to create a brand for themselves and establish a large following for their expertise. These individuals are hired by companies not only for their expertise on the subject matter, but also for the large group of followers they developed via social media. The followers the individuals have through Twitter, Facebook or a blog is a valuable advertising and marketing resource for a company that wishes to gain the follower’s attention. Because of this shift from traditional advertising and PR, employers and employees have to be vigilant in approaching this issue given the potentially large value social media contacts can now have in the marketplace. An employee being hired who agrees to use their social media accounts to promote the company’s business should also clearly set out at least a few issues in a written agreement.

For example, a social media agreement between and employer and employee could address at the following issues:

  • Ownership of the employee’s social media accounts that will be used for business purposes. Clearly spell out who owns the accounts (or license to use the accounts).
  • Ownership and use of the company’s social media accounts. Who retains the right to change the passwords? Who retains the right to edit and approve content? What is the process to approve content prior to publishing?
  • Any restrictive terms of use of the employee’s social media accounts during employment. For example, does the employer have the right to edit and review the content prior to publication?
  • What control, if any, the company will have after the termination of the employment relationship over the employee’s or the company’s social media accounts. Is there a time frame after employment that the employee cannot use his or her own social media accounts for competitive business uses? Employers need to be careful here, however, as limiting an employee’s use of their social media accounts may be tantamount to a prohibited non-competition agreement or in violation of other state laws. I expect that this will be another hot area of the law that will be addressed by the courts within the next few years.
  • It may also be useful to set a monetary value on the social media accounts. This is probably easier to negotiate among the parties prior to any dispute over the value should litigation arise later.

My next article, Part II of this series, will address what claims employers and employees would likely use during litigation over social media accounts.

In Muldrow v. Surrex Solutions Corp., the California Court of Appeal upheld a trial court’s determination that the plaintiffs could not maintain a class action for proposed meal period class given the holding by the California Supreme Court in Brinker v. Superior Court (click here for additional information on the Brinker ruling). The appellate court had previously upheld the trial court’s denial of class certification, but the California Supreme Court granted review of the case pending its decision in Brinker. Once Brinker was decided, the Supreme Court transferred the case back to the appellate court for a decision applying the new analysis set forth in Brinker.

In Muldrow, the appellate court found that the trial court properly denied class certification for the meal break class.  It stated, “In Brinker, the Supreme Court held that an employer need only provide for meal periods, and need not ensure that employees take such breaks.”

In support of its conclusion that the trial court properly denied class certification as to the meal break claims, the court quoted the following language from the Brinker decision:

An employer’s duty with respect to meal breaks…is an obligation to provide a meal period to its employees. The employer satisfies this obligation if it relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so.

Plaintiffs argued that they should now be able to present evidence that the employees were “discouraged” from taking meal breaks given the Brinker decision. The appellate court rejected this request as this was the first time plaintiffs raised the issue, and there were a number of cases that plaintiffs could have relied upon for this theory prior to the Brinker decision.

I remember working odd summer jobs during college to pay the rent so that I did not have to move home. I was just thinking about one employer I worked for that always seemed to have payroll issues. Now, I do not think the mistakes were intentional, but they did cause me to have a few hard times coming up with rent when I had to complain and get my correct pay. With the closing few weeks of summer upon us, I thought it would be a good time to review a few requirements under California law when employers must pay wages.

Normal Payroll Deadlines

California law requires that employers pay employees at least twice during each calendar month. Paydays must be designated by the employer and posted at the worksite, as required under Labor Code 207. Labor Code section 204 requires the following:

  • Wages earned between the 1st and 15th of the month must be paid no later than the 26th day of the month work was done.
  • Wages earned between the 16th and last day of the month must be paid by the 10th of the following month.

If the employer pays on a different basis, such as weekly, every two weeks, or twice a month, when the pay period is something other than the 1st to the 15th and the 16th to the end of the month, then the employee must be paid within seven calendar days of the end of the of the payroll period. See Labor Code section 204(b).

Pay Due Upon Termination or Resignation

An employee who is terminated must be paid all wages and accrued vacation at the time of termination. Labor Code section 201. An employee who quits without giving more than 72 hours of notice, must be paid all wages and accrued vacation within 72 hours of quitting. Labor Code section 202. An employee who quits, but gives 72 hours of notice before quitting, must be paid at the time of quitting.

The penalty for non-compliance with Labor Code sections 201 and 202 provides that the employee is entitled to the amount of wages he or she would have continued to earn at their normal rate for each day that the employer does not pay the wages. These penalties accrue up to 30 days’ worth of wages. Labor Code section 203.

Imagine you are an employer and your employee in charge of your social media accounts leaves, keeps the accounts, and begins using the accounts while working for a competitor. Conversely, imagine you are an employee, leave employment to work for a competitor and your former employer sues you for $350,000 because you refuse to stop using your social media accounts. These issues are at play in PhoneDog v. Kravitz. The case illustrates the complicated issues surrounding exactly who owns social media accounts that are used for work. Noah Kravitz worked for PhoneDog as a product reviewer and video blogger. He had a Twitter account “@PhoneDog_Noah” he used as one way to publish product reviews as part of his job at PhoneDog. PhoneDog asserts in the lawsuit that it issues its employees Twitter accounts in the form of “@PhoneDog_[name]”. PhoneDog alleges that all of these Twitter accounts are proprietary, confidential information. Kravitz used the account while he was employed at PhoneDog, and garnered 17,000 Twitter followers.

When Kravitz left employment with PhoneDog to join a competitor, PhoneDog asked him to stop using the Twitter account. It is alleged in the lawsuit that Kravitz refused, changed the Twitter account handle to “@noahkravitz” and then continued to use the account and maintain the Twitter followers.

In response, PhoneDog filed a lawsuit against Kravitz for (1) misappropriation of trade secrets; (2) intentional interference with prospective economic advantage; (3) negligent interference with prospective economic advantage; and (4) conversion. Currently, the Court has ruled that PhoneDog’s lawsuit may proceed at this point, but Kravitz has raised some valid points that may be a defense, but still need to be developed further in litigation.

Kravitz maintains that there cannot be a claim against him for misappropriation of trade secrets because the Twitter account followers are not a secret, as anyone on Twitter can see who the followers are. Kravitz also argues that the password to the Twitter account is not a trade secret, as PhoneDog does not derive any economic benefit from the password itself – it simply allows the user to see public information. Kravitz was also the person who created the password, not PhoneDog, so there is no PhoneDog secret at issue here. Most interestingly, Kravitz argues that PhoneDog does not have a claim against him for misappropriating the account because the Twitter account is not owed by PhoneDog. Twitter’s Terms of Service specifies that all accounts are the exclusive property of Twitter, that Twitter has the right to “reclaim usernames without liability” to the users, and Twitter retains the right to terminate accounts.

The employer is not without its share of arguments as well. While Kravitz raises some interesting technical issues about who owns the Twitter account, PhoneDog would have a strong argument that the license issued by Twitter is really the property at issue. PhoneDog could argue that because the license granted by Twitter to Kravitz was done during Kravitz’ employment and he set up the account at the request of PhoneDog, this license actually belongs to PhoneDog. Some not so well known California Labor Code provisions strongly support PhoneDog’s argument.  For example, Labor Code section 2860, states:

Everything which an employee acquires by virtue of his employment, except the compensation which is due to him from his employer, belongs to the employer, whether acquired lawfully or unlawfully, or during or after the expiration of the term of his employment.

Furthermore, Labor Code section 2863 provides:

An employee who has any business to transact on his own account, similar to that entrusted to him by his employer, shall always give the preference to the business of the employer.

This fascinating case raises many interesting issues, and will not be the last time I blog about the issues it raises.  It is a good reminder that the creation and maintenance of social media accounts is a critical factor in the employment context today and needs to be addressed from both the employer’s and employee’s perspectives.

In sales, it is usually the case when the sale is made, but the customer has a set period of time to return the product. This presents an issue for an employer who pays the sales representative a commission. The employer does not want to pay a commission on an item sold that may be returned. On the other hand, the sales representative would like use of the money while waiting to the period of time the customer has to cancel the purchase. Add to the mix California’s very stringent requirements prohibiting chargebacks and protection of employee wages, and the issue becomes very complex. The decision in Deleon v. Verizon Wireless clarified the issue about whether employers may chargeback commissions that have not yet been earned by the sales representative.

The plaintiff, Deleon, worked as a sales representative for Verizon Wireless. He sued Verizon on the basis that its commission plan violated Labor Code section 223 by “secretly pay[ing] a lower wage while purporting to pay the wage designated by statue or by contract.” Verizon contended its chargeback policy did not violate section 223 because: (1) Deleon’s commission payments were advances, not wages; (2) the chargeback policy was set forth in the compensation plans and was not a “secret” underpayment of a lower than agreed-upon wage; and (3) the chargeback provision did not result in a payment of a lower wage than the wage designated in the compensation plans.

In agreeing with Verizon, the court held that while sales commissions are wages, the right to commissions is determined by the “terms of the contract for compensation.” Here, the agreement Verizon had with plaintiff clearly set forth the conditions necessary before a commission was earned. The plan was clear that commissions were only earned if the customer did not discontinue the cell phone service during the applicable chargeback period. The court held that until this chargeback period expired, plaintiff had not made a commission and the amounts provided to plaintiff were only advances. Because Verizon provided plaintiff an advance on the commissions, and if the customer cancelled the service before the chargeback period expired, it was permissible for Verizon to reduce the representative’s next advance as an offset of the cancelled sale.

The take away for employers: commission plans and agreements must be clearly drafted and set forth the conditions that must be met before the commission is earned. It must also set forth that any payments to the sales representative are only advances, not wages, until the sale is final. If the plan is clear, a chargeback against the advances are permissible should the sale not become final with the customer.
 

I don’t have any personal knowledge of how Steve Jobs was as a manager, but every account I read of him was that he was demanding and in your face. While this can be an effective management style of some, it does come with some associated costs.

Increased litigation costs
Unless your start-up has a huge backer and litigation budgets are not a concern, being a demanding manager that only says what is exactly on your mind when it comes into your mind may get good results, but it will also invite litigation. Don’t get me wrong, there is nothing illegal about being a demanding manager at work, but a lot of people probably don’t understand that. Also, over 20 states have proposed legislation to make bullying in the workplace illegal, but none of these attempts have become law – yet. Plus, even if the employee understands it is not illegal behavior, it creates an environment where the employee wants to get even with a manager or founder for how they were treated. This leads them to talk to a lawyer, which may lead to a lawsuit based on some other ground. Even if a lawsuit filed against a company is frivolous, it will take time and money away from what the company is supposed to be doing. This can cause a huge stress on a start-up company.

Good employees have options
If you treat your superstars badly, they know they will find another comparable job in this economic climate. Jobs and Apple created an environment where only the best work from everyone was tolerated. Jobs said that this helped the company maintain its “A” players because they did not have to be around B or C players. While I can see this rational, unless the company is Apple with an existing reputation, a lot of employees will not put up with an over demanding, unfriendly workplace. And many talented employees left Apple because they did not like Jobs’ style. The loss of good employees (who probably go to work for a competitor) asserts a huge cost on a start-up.

It still comes down to management style choices. But the choice to be like Jobs will have a cost associated with it. And if the company is a start-up, these costs may not be worth the perceived benefits.

 A split shift is defined in the California IWC Wage Orders as:

…a work schedule, which is interrupted by non-paid non-working periods established by the employer, other than bona fide rest or meal periods.

See Cal. Code Regs., tit. 8, § 11040, subd. 2(Q). If the employee works two shifts separated by more than a rest or meal period, they are entitled to receive one hour’s of pay at the minimum wage rate in addition to the minimum wage for that work day. See Cal. Code Regs., tit. 8, §11040, subd. 4(C). Any additional amounts over minimum wage paid to the employee can be used to offset the split shift pay due to an employee. For example, say an employee earns $10 per hour. She works 10:00 a.m. to 1:00 p.m., and then again from 3:00 p.m. to 8:00 p.m. This is a total of eight hours worked for the day, and she is entitled to a split shift payment of one hour at $8 (minimum wage). However, because she earned $16 over minimum wage ($2 above minimum wage x 8 hours = $16) for the eight hours of work, this amount can be used to offset the amount owed for the split shift pay. Therefore there is nothing owed to the employee in this example.  

A court clarified some aspects of split shift pay last year in the case Securitas Security Services USA, Inc. v. Superior Court. In that case, the plaintiffs were security guards that worked the graveyard shift. Securitas designated its workday as beginning at midnight and ending the following midnight. This resulted in the guards working shifts that started on one day, and then ended on the next working day. Plaintiffs argued that they were entitled to split shift pay because their shift ended in the morning, and then they were required to start a new shift several hours later in that same day. The Court ruled against the Plaintiffs and held that employees are not entitled to split shift pay when they work uninterrupted overnight shifts. In this case, there was no “split” in the shift. The court explained:

A "split shift" occurs only when an employee’s designated working hours are interrupted by one or more unpaid, nonworking periods established by the employer that are not bona fide rest or meal periods. The fact that a single continuous shift happens to begin during one "workday" and end in another does not result in a "split shift."

However, the case left open the question of how long between shifts would constitute a split shift. For example, can an employee take a two hour lunch period without obligating the employer to pay the split shift pay? Until courts clarify this issue, conservative employers limit the meal periods to one hour.

The scenario is common: employers have policies in place to protect the employees and the company, but getting employees to comply with the policies is difficult. For example, a company has a policy that employees have to be on-the-clock for during all of the time they are working, but there is one or two employees who habitually forget to clock-out at the end of the day. In addition to the administrative hassles this creates, there are legal issues of how much time the employer should pay the employee for.

Generally, employers are required to pay for all time that the company knows or should have known the employee was working. But legally what can employers do to ensure that employees are complying with company policy?

Starting with what employers cannot do: withhold wages from the employee. The employer cannot use withholding or deductions from wages as a disciplinary measure. This is well settled under California law.

Three Steps Employers Should Take To Have Employees Comply With Policies

1. Have well written policies.

It goes without saying, the policies need to be legal and clearly written so that employees and managers can easily understand the policies.

2. Train managers so that they understand the policies and know how what to enforce.

Managers who do not understand what they should be requiring of employees, or worse, misinterpret a company policy when enforcing it, can create a lot of legal liability for the company. Routine training for managers on common issues that arise in the workplace can do a lot to prevent litigation.

3. Discipline employees for failure to comply with the policies.

While employers cannot withhold wages as a form of discipline, employers may still write up employees who violate company policies. For example, if an employee is either intentionally or otherwise not properly recording their time, they should be counseled and written up for the violations. They also need to be warned that if the problem continues, they could be terminated. There is another benefit to having this documentation. If the company is sued in a wage and hour class action for off-the-clock work, the plaintiffs need to prove that there is a company-wide policy that permits or encourages off-the-clock work. If the company has the records of disciplining employees who were abusing the time clock system, it will be strong evidence that the company actively prohibited off-the-clock work from occurring.