Laborsphere

Taylor v. Nabors Drilling and California’s SB 292 Clarify that Sexual Harassment Need Not Be Motivated by Sexual Desire

On January 13, 2014, the California Court of Appeal decided in Taylor v. Nabors Drilling USA, L.P., 222 Cal. App. 4th 1228 (2014), that a person may maintain an action for sexual harassment when subjected to verbal attacks on his or her heterosexual identity, regardless of whether the attacks were motivated by sexual desire. This ruling came soon after the implementation of SB 292, which became effective in California on January 1, 2014. This bill revised the definition of sexual harassment under California Fair Employment and Housing Act (“FEHA”) to specify that sexually harassing conduct “need not be motivated by sexual desire.” As a result, to prove harassment “because of sex,” plaintiffs need only show that there was evidence that gender was a substantial factor in the harassment.

Both Taylor and SB 292 explicitly reject the view adopted by the California Court of Appeal in Kelley v. Conco Companies, 196 Cal. App. 4th 191 (2011), which held that a plaintiff failed to prove sexual intent because there was no evidence that heterosexual harassers sexually desired the male plaintiff. The court made this decision despite the fact that the defendant and coworkers in Kelley used “graphic, vulgar, and sexually explicit” language to express sexual interest and solicit sexual activity from the plaintiff.

Taylor and SB 292 resolve any ambiguity created by the Kelley decision, and make clear that a showing of sexual desire is not an essential element of a claim of sexual harassment—thereby affirming and solidifying California authority published before Kelley. Thus, it is clear that a plaintiff may establish an inference that an alleged harasser’s conduct is sexual by producing: (1) evidence of the alleged harasser’s sexual desire; (2) evidence that the alleged harasser is motivated by general hostility towards the particular gender of which plaintiff is a member; or (3) comparative evidence about how the alleged harasser treated members of both sexes in a mixed-sex workplace.

These developments in California sexual harassment law have important consequences for employers. To avoid a greater occurrence of suits, employers must now scrutinize offensive comments by same-sex employees objectively, based on the content of the remarks, not the intent of the speaker. Employers can minimize liability through adequate complaint protocols, instituting zero tolerance policies, and encouraging employees to report any inappropriate workplace behaviors. These actions may prevent alleged harassing conduct from being deemed sufficiently severe or pervasive. Employers should also stress that bullying, such as the use of homophobic epithets to heterosexual employees (Taylor), subjects the employer to liability. Accordingly, employers should update their policies and handbooks to reflect the change, as well as provide employees relevant information and a copy of the updated policy. Lastly, employers may consider additional training for supervisors or issuing a memo, advising them of SB 292 and their responsibilities to administer policies in conformity with the new law.

The Impact of 409A on Severance Payments

The Issue: An employment agreement conditions severance payments to an executive on her signing a release. Can this create a tax problem for the executive under the non-qualified deferred compensation rules of the Internal Revenue Code?

The Solution: Yes, unless the provisions of the employment agreement are properly drafted and the parties comply with the terms of the agreement.

Analysis: Code Section 409A (409A) governs the terms and operation of “non-qualified deferred compensation plans” and imposes restrictions on the reasons for and timing of deferred payments. Neither the employee nor the employer may accelerate or defer the receipt of deferred compensation (with some exceptions not applicable here).

Failure to comply with 409A leads to serious tax consequences for the executive, including acceleration of income and a 20% tax penalty. California imposes its own 5% tax penalty for failure to comply with 409A.

Termination of employment is a permissible payment event. If the employment agreement provides that severance will be paid within 2-1/2 months after termination with no conditions, the payment isn’t subject to 409A. If the agreement provides for a series of payments equal to not more than twice the executive’s pay (or the qualified plan compensation limit, currently $260,000) and they are to be paid within two years after termination, there is no problem.

The concern with conditioning severance pay on an executive signing a release is that if there is no time limit on when the release must be signed, the employee can affect the timing of payment by either signing the release quickly or delaying to a later date. This violates the strict requirements of 409A. It is important to recognize that it is not the employee’s action or inaction that is the problem; it is the provision in the employment agreement.

The remedy is simple. The employment agreement must specify (or be amended to specify) a fixed payment date after termination of employment (either 60 or 90 days) or a specified period no longer than 90 days when the severance payment will be made or commence (with special rules if the payment period can go into another tax
year). If the executive fails to sign and return the release by the commencement date, the severance must be forfeited.

Employers should tread carefully when dealing with the complicated requirements of 409A. If an employment agreement provides for any post-termination payment, it should be reviewed for compliance with 409A.

Forum Selection Clauses and Non-Compete Agreements

The Issue: You are a California employer with out-of-state headquarters, and your executive works and lives in California. Your employment agreement has a one-year post-termination non-compete. Can you enforce it?

The Solution: In general, no, but the answer may depend on whether you have a valid forum selection and choice of law clause that provides for resolution in a state that permits reasonable post-termination non-competes.

Analysis: In general, California employers cannot enforce post-termination non-competes and a party cannot circumvent California restrictions on non-competition with a choice of law provision designating a more non-compete friendly jurisdiction. However, the Supreme Court’s recent decision in Atlantic Marine Construction Co.,
Inc. v. U.S. District Court for the Western District of Texas, 134 S. Ct. 568, 571 U.S. ___ (Dec. 3, 2013) held that contractual forum selection clauses should be enforced in all but the most exceptional cases, and therefore may be helpful to employers who seek to enforce non-competes against employees who work or live in states, like California, that disfavor restrictive covenants.

Indeed, some recent California federal district court cases have focused on whether the employment agreement has an out-of-state forum selection and choice of law clause. In Meras Engineering, Inc. v CH20, Inc., the Washington-based employer was permitted to enforce its Washington forum selection and choice of law clauses against its California sales associates who left for a California competitor. The Washington court concluded it was proper to apply Washington law as provided by the employment agreements. The California court dismissed the California employees’ lawsuit in favor of the Washington forum selection clause.

Similarly, in two other recent California district court cases, Plaintiffs were former California employees who signed employment agreements with restrictive covenants and Pennsylvania forum selection clauses. In both cases, the employees argued the cases should not be transferred because the more restrictive covenant friendly Pennsylvania courts would enforce the non-compete, which contravenes a strong California public policy. Both California courts however, focused on the reasonableness of the forum selection clause, rather than on the clauses’ effect. Both found that the possibility a Pennsylvania court might apply Pennsylvania law to the non-compete clause was not a sufficient basis to invalidate the forum selection clause.

In light of these recent cases, California employers should consider whether they have a reasonable and enforceable basis for selecting an alternative forum and choice of law for their executive agreements, and, in consultation with
counsel, draft carefully tailored restrictive covenants that comply with that state’s law.

Obligations for Employers Before, During and After a Storm

As cleanup from the Nor’easter that pummeled the East Coast last week continues, and the prospect of more snow looms, we hope that you and your families, as well as your businesses and employees, are safe and warm and that the lights are on. As this has been one of the more problematic winters in recent memory, we wanted to remind employers of some of their obligations before, during and after a storm.

Temporary Closings

Unless your agreements or policies provide otherwise, you are generally not required to pay non-exempt employees when they are not working. Therefore, if your business is closed and your employees do not report to work, you are not obligated to pay non-exempt employees. However, make sure that these employees are not checking work e-mails, communicating with supervisors about work-related issues or otherwise working from home, because non-exempt employees are entitled to receive pay for these activities even if they do not physically report to work.

Note that some states require an employer to pay employees for reporting to work, even if the business closes and the employer sends them home. For example, a New Jersey employer must pay employees who report to work at least one hour of pay. A New York employer must pay employees who report to work at least four hours of pay (or the number of hours in the scheduled shift if it is less than four hours). With regard to exempt employees, they are generally entitled to receive their full salaries, even if the business is closed – at least if the shutdown lasts for less than a week. If a business is closed for an entire week and an exempt employee performs absolutely no work during that time, the employer is generally not required to pay the employee for the week.

When a business is temporarily closed, the employer can require exempt employees to use accrued vacation time for the time off, but this requirement should be set forth clearly in the Employee Handbook and any employment contracts.

Cleanup

After a storm passes, employees whose homes remain without power, who are repairing damage to their property or whose children’s schools remain closed, may seek additional time off from work. While an employer that can afford to do so may allow additional flexibility to these employees in order to give them peace of mind and boost their loyalty and morale, these requests may otherwise be handled pursuant to the employer’s contracts and policies.

Other Issues

In addition to the above general points, employers should also be aware of state laws that affect certain employees and certain industries. For instance, in New York and New Jersey, the prohibition against mandatory overtime for health care personnel includes an exception for a declared state of emergency. New Jersey also provides protections for employees who miss work because of their responsibilities as volunteer first responders.

Conclusion

Extreme weather and natural disasters that disrupt business create big headaches for employers and employees. We recommend clear and consistent communication with your employees to avoid confusion about your expectations. Also, maintaining sound employment policies and consulting with counsel when issues arise is critical for avoiding additional headaches resulting from ensuing workplace legal liability.

Webinar – 2014 CFO Alliance Sentiment Study Results

Drinker Biddle partnered with The CFO Alliance to collect survey responses from a broad sample of more than 500 senior financial executives across the United States in order to provide insights into the strategic planning and financial outlook of these executives.

Please join Labor & Employment Group co-chairs Cheryl Orr and Tom Barton, along with several of their partners from across the firm, for a one-hour webinar presentation on the results of The CFO Sentiment Study followed by a live Q&A. Participation and feedback is appreciated, as we will be creating a series of live and online events, discussions, and other materials centered on the top issues and opportunities for business leaders.

Date: Thursday, February 20, 2014
Time: 1:30 p.m. Eastern

Topics include:
•     Human Capital
•     Technology
•     Growth
•     Economic & Political Outlook
•     Financing & Budgeting
•     Risk
•     Trade
•     Government Regulation

Webinar – Church Plan Update: It’s a Changing World -What Church Plan Sponsors Need to Know

On Monday, February 24, 2014, the Drinker Biddle Employee Benefits & Executive Compensation Team will present a free one hour webinar on hot topics that church plan sponsors should be considering for 2014. The webinar will be led by Chicago partners David L. Wolfe and Mark E. Furlane. Some of the topics to be covered during the webinar include:

An update on church plan litigation, including the recent ruling against Dignity Health and what this means for your church plan;
How church plan sponsors can best position themselves to defend against such an attack;
What church plan sponsors need to know about maintaining their church plan status in 2014;
Pros and cons for various employee benefit plans.

To register click the RSVP button:

Date: Monday, February 24, 2014
Time: 1:30 – 2:30 pm central

David L. Wolfe
David is a partner and member of the Employee Benefits & Executive Compensation Practice Group. He represents clients in a full spectrum of industries with an emphasis on tax-exempt organizations. He is a co-founder and member of the Steering Committee for the development and continuing sponsorship of the HR/Hospital Advisory Board (co-sponsored by Deloitte) for senior HR executives in tax-exempt health care systems.

Mark E. Furlane
Mark is a partner in the Labor & Employment Practice Group. Before joining the firm in 1979, Mark spent nearly five years as a lawyer for the U.S. Marine Corps where he gained extensive trial experience. In Mark’s 30 years of private practice, he has represented employers in nearly all labor and employment issues confronting today’s employer. He focuses his practice on employment law, with an emphasis on employment, benefits and fiduciary litigation and employment counseling.

See LaborSphere’s prior coverage of recent church plan litigation here.