Thoits, Love, Hershberger & McLean Law Blog

AB 1396: Commission Agreements, Grammar, and Legislative Pollution

A new California law (AB 1396) requires that all employment relationships that involve payment of commissions “shall be in writing and shall set forth the method by which the commissions shall be computed and paid.”  The employee must be given a signed copy, and the employer must obtain a signed receipt from each employee.  The contract and the commission terms “are presumed to remain in full force and effect until the contract is superseded or the employment is terminated by either party.”  This new law will have a dramatic impact on any employer whose compensation arrangements involve commissions.  At a minimum, the customary annual commission plans published for such employees will need to be incorporated into a contract format and written receipts obtained.  Whether the employer routinely uses commissions or does so only on an intermittent or anecdotal basis, the new law requires new procedures and new written contracts.

Curious legislative drafting makes uncertain the effective date of the law.  So, now, let us have some fun with the legislature’s grammar and syntax.  Should we assume the law goes into effect January 1, 2013?

The only reference in the new statute to any effective date states that “[B]y January 1, 2013, whenever…” an employer enters into such a contract, it must be in writing.  Does this mean that starting immediately and only until January 1, 2013, all such contracts must be in writing; or does it mean that “after” January 1, 2013” such contracts “shall be in writing?”  It cannot mean the latter, because the word “after” was not used.  Even the Legislative Counsel’s digest avoids answering the question.  It states, “[T]his bill would, by January 1, 2013, make this contract requirement applicable to all employers entering into a contract…”  This implies that something must occur between now and then – without explanation.  Maybe the legislature intended to say, “This law takes affect January 1, 2013.”  But, it didn’t.  Maybe it meant to say, “We would like to say this law takes effect on January 1, 2013, but we also would like to say that we want employers to comply with it by January 1, 2013.”  Finally, we should ask the question begged by this semantic construction…what about commission arrangement that are made after January 1, 2013 – are they not covered by this new law?  The preposition “by” in this context means “before or no later than.”  Strict construction of the statutory words then requires that the statute means no later than January 1, 2013, employment relationships must comply by the indicated date – logically that can only include employment relationships now existing or created between now and that date. Even if equal interpretive weight is given to the word “whenever,” it seems to conflict with “by” instead of clarifying its use, i.e. “before January 1, 2013, whenever…” or “no later than January 13, 2013, whenever…” “By” is sometimes confused with “until” but neither application in this sense helps clarify the meaning.  Other commentators suggest the effective date is January 1, 2013.  And, if something is to be done between now and January 13, 2013, it must be using written contracts for commission arrangments, which means the law is not effective January 1, 2013, but sooner.  Maybe the legislature will clear this up with an amendment.

If anyone, grammar nerd or not, has any thoughts on what this phrase means, please comment, for fun, if for no other reason.

Stephen C. Gerrish, Employment Group

Meal Periods and Rest Breaks, Again

Another California Court of Appeal has concluded that while employers must provide employees with meal and rest breaks, they do not need to ensure that employees actually take them.  In the Lamps Plus Overtime Cases, the court denied class certification and, more importantly for this discussion, ruled against the plaintiffs' on the merits of their claims.  Two cases that raise meal and rest break issues are presently pending before the California Supreme Court, and rulings of other California Courts of Appeal cases have been similar to that of Lamps Plus.  The trial court in Lamps Plus denied plaintiffs' request that the court delay its ruling until the Supreme Court rules on the matter.  

Lamps Plus maintained policies on breaks that parallel California statutory law.  The court summarized those policies as follows:

Lamps Plus has an employee handbook that includes a policy requiring meal and rest breaks.  Its meal and rest break policy provides that its nonexempt employees “must” take an uninterrupted meal period of at least 45 minutes after not more than five hours of work. Employees are “entitled” to take a second meal period if they work more than 10 hours.  “Employees are required to take [unpaid] meal periods, and should not eat at their desks or work stations.”  Nonexempt employees are “authorized and permitted” to take a 15-minute paid rest period “for every four hours, or major fraction of four hours, that they work.” The policy also provides for written waiver of the meal periods for employees working a shift of six hours or less, as well as written waiver of the second meal period for those employees working between 10- and 12-hour shifts.  Employees are required to sign an acknowledgment providing:  “I acknowledge that I have received a copy of the Company‟s meal and rest break policy, and I acknowledge and I agree that I will comply with the policy.  I further agree that if I am not provided with the meal and rest periods specified in the policy, I will contact Human Resources . . . .” 

The plaintiffs alleged that Lamps Plus violated a variety of California's labor laws, including statutes and regulatons affecting breaks, off-the-clock work, itemized wage statements, and payment of wages on termination.  The Court of Appeal disagreed with the merits of these claims, but also found that there was not sufficient commonality to justify a class action.  At the heart of plaintiffs' case was the theory that employers must ensure that employees take meal and rest breaks, and that Lamps Plus maintained a companywide practice of requiring off-the-clock work and not paying wages timely upon termination. The court rejected these contentions.

This is yet another in a growing list of California cases rejecting the idea that employers must ensure that employees actually take breaks.  A series of federal decisions interpreting California law also agrees.  The court in Lamps Plus summarized the current state of California law:

The two cases presently before the Supreme Court (Brinker Restaurant v. S. C.,review granted Oct. 22, 2008, S166350 (Brinker), and Brinkley v. Public Storage,review granted Jan. 14, 2009, S168806 (Brinkley)) will address the “proper interpretation of California statutes and regulations governing an employer‟s duty to provide meal and rest breaks to hourly workers.”  While these cases have been pending before the Supreme Court, review has been granted for a number of appellate decisions addressing the meal and rest period issue, including this division‟s opinion in Hernandez v. Chipotle Mexican Grill, Inc., review granted January 26, 2011, S188755 [finding that employers must only provide breaks, and need not ensure they are taken], as well as Faulkenbury v. Boyd & Associates, review granted October 13, 2010, S184995 [addressing meal and rest period violations], among others.  Another decision by this division, Tien v. Tenet Healthcare Corp. (2011) 192 Cal.App.4th 1055, concluded there is no obligation to ensure that breaks are taken.  (Id. at pp. 1066-1067.)  Appellant in that case has petitioned for review, and as of the time of the filing of this opinion, the Supreme Court has taken no action on the petition.

The court noted that Brinker and Brinkley have been pending for some time, and that "it would hardly be efficient to stall resolution of all class actions claiming meal and rest period violations in the interim." Whether plaintiffs will seek review of Lamps Plus by the Supreme Court remains to be seen.  The decision on the interpretation of the meal and rest break statutes and regulations is ultimately in the hands of the California Supreme Court.

Stephen C. Gerrish, Employment Group

Facebook Privacy Privilege Rejected

There are no secrets.  Perhaps a wise rule to live by in an age of instant and gratuitous sharing of personal information, reinforced by a shifting culture where the boundaries of trust, privacy and discretion are fluid, and sensitivities to, and definitions of, what is "confidential" varied, and set by self-interest more than traditional community norms.  It is this latter perception that may cause many to think that the information they post on social networking sites is somehow special, protected, or private, or not part of their "real life."  Anyone that harbors such views should consider the caution of two commentators, whose work was recently cited in a judicial decision:  "...in this environment privacy is no longer grounded in reasonable expectations, but rather in some theoretical protocol better known as wishful thinking."  (Fleming and Herlihy, Department: Heads Up: What Happens When the College Rumor Mill Goes Online? Privacy, Defamation and Online Social Networking Sites, 53 B.B.J. 16 (January/February, 2009)). 

And so, as so often happens, dreams of wishful thinkers are dashed, sometimes in rather inglorious circumstances.  Take, for example, Bill McMillen, Sr., who claimed damages for personal injuries resulting from an accident he had when he was rear-ended in a stock car race.  He sued the speedway.  The speedway demanded that Bill turn over all his passwords and user names to Facebook and MySpace because it had reason to believe that information had been posted that suggested he was not injured as claimed.  Bill claimed his Facebook and MySpace passwords and user names were confidential and, more importantly, that his communications with friends on Facebook and MySpace were privileged from disclosure, much like a confidential communication between an attorney and his or her client.  The court in McMillan v. Hummingbird Speedway, Inc. (Pennsylvania Court of Common Pleas 9/9/10) rejected his contention.  After reviewing each site's terms of use and their basic structure and purpose ("...their ilk are social network computer sites people utilize to connect with friends and meet new people...they do not bill themselves as anything else."), the court noted that while millions of people join social networks, "more than a few use those sites indiscreetly" and the if they do, and those "indiscretions are pertinent to issues raised in a lawsuit in which they have been named, the search for truth should prevail."  Where there is an "indication" that relevant information may reside on a social network site, "access to those sites should be freely granted."  Bill McMillan was ordered to turn over user names and passwords to opposing counsel, who were granted free access to the contents of his accounts. 

The court pointed out that social networks are a "communication forum" useful in fostering relationships - but that confidentiality is not essential to maintain those relationships, and "while one may expect that his or her friend will hold certain information in confidence" the maintenance of the friendship does not depend on it.  A friendship is not like a relationship with a doctor, lawyer or priest.  And, when one posts information on a social network, given their terms and how they operate, he or she cannot reasonably expect that communications would remain confidential - such an expectation may be wishful thinking. 

In short, a member of Facebook or MySpace cannot maintain that his or her account is confidential.  So, anyone who claims to be injured, and is seeking compensation for those injuries, should realize that videos they post on Facebook of them jumping off cliffs, playing softball, wrestling with alligators, surfing big waves, etc. will be discovered and used to impeach their claims.  Revealed content may have other consequences, more or less consequential.  Social networking can be a wonderful way to maintain relationships and pass on information instantaneously - but if you have a secret to keep, do it the old-fashioned way. 

Stephen C. Gerrish, Employment Group

Employment Arbitration Agreements - Again

Another California court has ruled that an agreement between an employer and employee that all employment related claims must be arbitrated, instead of taken to court, is unenforceable.  In this most recent case, Trivedi v. Curexo Technology Corporation, the court found that the employer could not force the dispute into binding arbitration because:

1. The agreement was prepared by the employer;
2. The employee’s consent to the agreement was required as a condition of employment;
3. The employee was not given a copy of the arbitration rules that were recited in the agreement as governing the dispute;
4. The agreement changed the rules on the recovery of attorneys’ fees in discrimination cases, in a way favorable to the employer; and,
5. The agreement allowed either party to go to court, instead of the arbitration tribunal, to obtain an injunction, if necessary (which the court found tended to favor the employer).

Because of the first three problems, the court found the agreement “procedurally unconscionable.”  The final two reasons made the agreement “substantively unconscionable.”  The court stated that it was compelled to throw out the entire agreement, not just the problematic parts of it, because of the collective impact of the reasons, and the fact that there was more than one reason for substantive unconscionability.

What can an employer do, if anything, to create an enforceable arbitration agreement?  The first two criticisms listed above are actually quite customary and will not necessarily doom an agreement.  The third flaw can easily be prevented by paying more attention to the paperwork at the time of hiring.  The fourth flaw, by itself, may not have rendered the agreement completely unenforceable, but in any event could have been avoided by careful drafting.  The fifth flaw is well known in California as a problematical provision.  In short, had this employer followed more scrupulously the admonitions of the California Supreme Court (see, Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83) when drafting the agreement, rather than attempting to give itself some advantages, the arbitration clause may have been saved.  Further comment on the fourth and fifth flaws is useful.

Under state and federal anti-discrimination laws, an employer will not necessarily be entitled to attorneys’ fees if it is the prevailing party, even though a successful employee will be.  The law on this is well developed.  But, Curexo’s agreement provided that the “prevailing” party, whether employer or employee, was to be awarded its attorneys’ fees and costs.  The court was offended by this alteration of the balance of power, despite the employer’s argument that no matter what law governed the arbitrator had discretion to deny a successful employer an award of its attorneys’ fees.  The court was not impressed: call this strike two, after the procedural problems mentioned above.

As to the fifth and final flaw, California courts have dealt with this in the past:  it is generally agreed that the party most likely in need of going to the courthouse to obtain an injunction will be the employer.  So, adding the provision exempting such efforts from arbitration distinctly favors the employer. Strike three.

The lesson:  in an employment setting arbitration agreements must be fair and follow the admonitions of established California law. The drafting process should not be an exercise in seeing how many potentially beneficial provisions the employer can get away with.  If the employer’s considered business strategy is that requiring arbitration of employment disputes is beneficial, then an agreement should be used that assures the accomplishment of that strategy.  The Trivedi case provides additional life-lessons along that strategic pathway.

Stephen C. Gerrish, Employment Group

HP vs. Mark Hurd -- Inevitable Lawsuit over Inevitable Disclosure

What to make of these recent events?  First, Mark Hurd resigns as Hewlett-Packard’s board Chair, CEO and President under a cloud of alleged misbehavior and inappropriate personal relationships; next, Mr. Hurd is paid over $12 million dollars for the voluntary departure;  then, Oracle Corporation, in bold style, hires Mr. Hurd as its “co-president;”  finally, and its seems only moments later, HP sues Mr. Hurd because it believes in his new position at Oracle he will “be in a situation in which he cannot perform his duties for Oracle without necessarily using and disclosing HP’s trade secrets and confidential information.”  And, to add a curious post-modern twist, the complaint relies on media speculation about how Mr. Hurd will use his knowledge acquired at HP while in the employ of Oracle. 

However HP’s lawsuit may be characterized, the core theme appears to be that Hurd has violated continuing obligations to HP, based upon two fundamentals: (i) the announcement that he has accepted a new position, and (ii) HP’s opinion that he will necessarily disclose and use HP’s trade secrets in that new position.  HP’s lawsuit, filed yesterday, may be read here.

All this, in a state that holds as void, illegal and unenforceable any agreement that restrains trade or competition (“non-compete agreements”).

Much of the legal press commentary on these developments has focused on what is known as the “doctrine of inevitable disclosure.”  This doctrine would allow a plaintiff, like HP, to establish that Mr. Hurd is threatening to use or disclose HP’s trade secrets by merely proving that Mr. Hurd’s new employment will inevitably lead him to rely on HP’s trade secrets, without proof of actual use or disclosure.  California trade secret law allows a party to obtain an injunction against “threatened” use or disclosure.  But, there is a huge catch: California’s courts have rejected the doctrine of inevitable disclosure (see, Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1462 [125 Cal.Rptr.2d 277]) .  Yet HP’s allegations seem directly to challenge the this precedent.  And, of course, California’s statutory and judicial law also confirm that non-compete provisions like some of those recited in HP’s complaint are illegal and unenforceable.

To understand the context of HP’s legal claims involves two distinctly separate ideas:  (i) political tactics that might lead to a new agreement, using the court action as the vehicle; and (ii) the fabric of the legal thread between, on the one hand, actual threats to use or disclose trade secrets and, on the other hand, merely accepting a new position with a competitor (normally an entirely legal act in California).

A court in Wisconsin, curiously enough, has explained California’s unique position on inevitable disclosure as well as anyone:  actionable threatened use or disclosure can be proven by showing that a defendant possesses trade secrets and has, in the past misused or disclosed them, or that the defendant “intends to misuse or disclose” them, or that the defendant possesses trade secrets and “wrongfully” refuses to return them after a demand to do so.  But, threatened misappropriation cannot be established by showing only that the defendant possesses trade secrets, or that the defendant’s new position inevitably leads defendant “to rely upon the plaintiff’s trade secrets.” (See, Clorox Co. v. SC Johnson & Son, Inc., 627 F. Supp. 2d 954, 969 (ED Wisconsin 2009).

HP’s action against Mark Hurd will likely fall somewhere on the legal spectrum between actual threat and inevitable use.  But it will be very interesting to follow for reasons related to both concepts mentioned above.  Legally, it explores the boundaries of “threatened” misuse of trade secrets vs. the doctrine of inevitable disclosure.  Politically, and likely unrelated to the legal issues, it presents a tactic in a presumably larger strategy designed to somehow place Mr. Hurd on the sidelines for awhile.  Whatever the case, HP will need more evidence than media OpEd columns as evidence to support the injunction it seeks.

Perhaps it was inevitable that Mr. Hurd would be sued for going to work for a competitor so soon after “settling” on a severance package.  However, if the court grants an injunction to stop him from working it begs the question whether any CEO who, by job definition, possesses valuable trade secrets that might be disclosed, can safely take another C-level executive job without being sued?

Stephen C. Gerrish and Jeffrey A. Snyder, Employment Group

California Courts Expand Wrongful Termination Law – Again

Employee non-compete agreements (“non-competes”) are unenforceable in California, subject to a few exceptions.  The public policy grounds favoring employee mobility are so strongly against non-competes that employers who require their employees to sign them are subject to a lawsuit for unfair business practices.  Until recently, however, no California appellate case had ruled that an employer who chooses to terminate an employee subject to a non-compete “out of respect and understanding with colleagues in the same industry,” may be sued for wrongful termination in violation of public policy.  But that’s exactly what happened in Silguero v. Creteguard, Inc., a case decided by the Second Appellate District in Los Angeles on July 30, 2010 (Case No. B215179).

The plaintiff, Rosemary Silguero, alleged in her complaint that in 2003 she began working for Floor Seal Technology, Inc., which will be referred to as “Employer No. 1.”  She worked there as an inside sales representative.  In August 2007, she was threatened with termination unless she signed a confidentiality agreement.  Silguero signed the agreement, which also contained a non-compete: it prohibited her from “all sales activities for 18 months following either departure or termination.”  Despite signing, Silguero was terminated in October 2007.

Shortly after her termination, she found employment with Creteguard, Inc. (“Employer No. 2”).  Here’s where it gets interesting.  Employer No. 1 contacted Employer No. 2 and requested its “cooperation and participation” in enforcing the confidentiality agreement, including those provisions barring Silguero from all sales activities for 18 months following her departure.  Silguero did not last long with Employer No. 2.  In November 2007, Employer No. 2’s CEO informed Silguero in writing that “it has been brought to my attention…that you have signed a confidentiality/non-compete agreement with your past employer.  We regret to inform you that Creteguard is unable to continue your employment effective today, 11/14/07.  Although we believe that non-compete clauses are not legally enforceable here in California, Creteguard would like to keep the same respect and understanding with colleagues in the same industry.”

After being terminated by Employer No. 2, Silguero sued both employers (No. 1 for interference with her current employment, and No. 2 for wrongful termination).  The appellate court’s ruling dealt with Employer No. 2’s liability, which raised a novel issue under California law: can an employer be sued for wrongful termination in violation of fundamental public policy after terminating its employee “out of respect and understanding” for a competitor’s non-compete with that employee?

The court held that, yes, Employer No. 2 could indeed be sued despite its argument that it did nothing wrong by honoring a potentially valid non-compete agreement between Silguero and her former employer.  (Never mind that the CEO’s letter concedes that they didn’t think the non-compete was valid.)

The court had two basic problems with Creteguard’s argument.  First, recognizing that employers may not terminate employees for reasons that violate public policy, the court held there is a clear and fundamental public policy against the enforcement of non-competes (the court wasn’t buying the argument that the clause was potentially valid).  Second, allowing a wrongful termination claim under these facts advances the interests of employees in their own mobility and betterment, which is “deemed paramount to the competitive business interests of the employers, where neither the employee nor his new employer has committed any illegal act accompanying the employment change.”

The court was not happy with the “understanding” between the two employers because it would allow the first employer to accomplish indirectly what it could not accomplish directly.  Recall that the Creteguard CEO’s letter terminating Silguero was in keeping with the respect and “understanding” he had with colleagues in the same industry.

While we never know all the facts and dynamics behind the scenes, it appears the termination of Silguero was not handled well.  The CEO’s termination letter was not a helpful fact for the defense.

All terminations must be handled with care.  This case highlights another checklist item to consider before carrying out a termination -- has the employer been informed of any post-employment restrictions on the employee?  If so, the proper response is probably NOT to immediately fire the person.  Instead, the employer should investigate the facts and consider sending an appropriate response letter to the previous employer.  That response will, of course, depend on the unique facts and circumstances in each case.

Jeffrey A. Snyder, Employment Group

Insubordination Trumps Discrimination Claim

Last month, the 7th Circuit Court of Appeals (which hears appeals of cases decided in Illinois, Indiana, and Wisconsin) affirmed that an employee's allegations of discrimination under Title VII can be overcome by a showing that the employer had a legitimate reason for the termination - insubordination. The case, Everroad v. Scott Truck Systems, Inc. (2010) 604 F.3d 471, serves as a reminder that evidence of an employee's uncooperative, insubordinate behavior can defeat a claim of wrongful termination or discrimination entirely. The legal principle applied in the Everroad case is the same principal used by the 9th Circuit Court of Appeals, which hears discrimination cases brought under federal law in California. (See Payne v. Norwest Corp. (1999) 185 F.3d 1068)).
 
While employed by Scott Truck Systems, Everroad complained first about a male co-worker's belligerent behavior, and then about a female co-worker's personal telephone calls. Scott Truck Systems moved Everroad from a dispatcher position in which she had to interact with the offending male employee, to an administrator job sharing an office with a female co-worker. When Everroad complained about her female office mate, Scott Truck Systems held a meeting with both women to try and create a plan for the two to work together without further problems. During the tense, long meeting, Everroad's behavior was considered by her employer to be insubordinate. The next morning, Everroad greeted one of the owners in an exaggerated manner, and ignored the other owner's morning greeting completely.
 
Based on her behavior at the meeting and the next morning, Scott Truck Systems decided to terminate Everroad for insubordination immediately. Everroad asked why she was being terminated and was told that it was because she only winked at the owner that morning instead of saying hello. As she gathered her belongings, she told the owners they were nuts, crazy, insane and sick, and used foul language while departing. After her termination, Everroad alleged she had been discriminated against based on her gender and age.
 
The trial court dismissed the case, granting Scott Systems summary judgment. In order to proceed to trial on a discrimination claim, a plaintiff must allege a prima facie case of discrimination in the complaint. Then, the employer can challenge the complaint by showing a legitimate, non-discriminatory reason for the adverse employment action. In order to defeat Scott Systems’ motion for summary judgment motion Everroad was required to provide additional evidence indicating the employer's excuse was just a pretext for actual discrimination. Everroad was not able to provide evidence establishing her prima facie case of discrimination or evidence that Scott Truck Systems' stated reason for her termination was not, in fact, the real reason. The Court of Appeals affirmed the trial court's grant of summary judgment.
 
The Everroad case, and other cases like it, are important examples of terminations handled properly. When an employer is faced with an uncooperative, insubordinate employee - who may also be more likely than other former employees to file a lawsuit - it is crucial that the behavior is documented and imparted to the employee. Often, employers will try to soften the blow or avoid conflict and decline to tell the employee why they are being let go. But when the reason is insubordination, the best practice is usually to tell the employee that the behavior was noted and is unacceptable, and if this leads to termination, to explain the reason for the termination to the employee.

Erin L. McDermit, Employment Group

Electronic Discovery Update

In the last post on Electronic Discovery Compliance, this blog explored Judge Sheindlin’s most recent decision involving litigation opponents’ duties to preserve and produce evidence during litigation, The Pension Committee of the University of Montreal Pension Plan v. Banc of America Sec., LLC. In May 2010, Judge Sheindlin entered an important amendment to her decision. The amendment clarifies language in the original opinion that could have led to confusion. The original sentence, emphasized with underlining, read: “By contrast, the failure to obtain records from all employees (some of whom may have had only a passing encounter with the issues in the litigation), as opposed to key players, likely constitutes negligence as opposed to a higher degree of culpability.” Now, that sentence reads: “By contrast, the failure to obtain records from all those employees who had any involvement with the issues raised in the litigation or anticipated litigation, as opposed to just the key players, could constitute negligence.”

The new sentence incorporates two important concepts that have an overall softening effect on the original language used. First, with this amended text Judge Scheindlin indicated that judges expect litigants to obtain records from all employees who had any involvement with the issue, not simply all employees of an organization. This distinction makes a huge difference. If a company has 7,000 employees, but only 100 were potentially involved in the issues, a company tasked with obtaining records can obtain them from the 100, not the 7,000, without running afoul of its mandate to preserve evidence. The other change in the sentence suggests that a company’s failure to obtain records could constitute negligence, but doesn’t likely constitute negligence. Thus, in each case where there is an accusation that evidence wasn’t preserved, the judge will look at the facts of the case to determine if the failure was negligent, but won’t assume it was negligent from the start.

Erin L. McDermit, Employment Group

Quon, the Supreme Court, and Text Message Privacy

Sometimes our expectations about anticipated decisions of the United States Supreme Court are very high, primarily due to media characterizations of the impact the decision will have, and are are not met when the actual decision is made.  The just-decided case of City of Ontario v. Quon is such a case, especially for employment lawyers and privacy advocates.  The Ninth Circuit Court of Appeal found that police officer Quon had an absolute right of privacy in text messages sent using his work pager during business hours.  When the Supreme Court accepted the case for review, expectations were high.  Instead, Justice Kennedy, writing for the court, found that there was nothing new to decide:  he and the other justices assumed Quon possessed a right of privacy, but found that his employer’s (Ontario Police Department) search of his text messages was entirely reasonable, and did not violate his rights.  So what do the employment lawyers and privacy advocates learn from the case?  In short, that a reasonable search for a legitimate work-related purpose will not amount to a violation of an employee’s Fourth Amendment rights.

Quon may or may not have had a right of privacy in those text messages.  On the one hand, the police department had a clear policy on e-mail and computer usage – the employee has no right of privacy.  And, the department had made clear that the policy applied to text messages.  But Quon, who over-used his allotted character quantity, had been told his messages would not be audited if he simply paid each month for his over-use.  The Supreme Court said, in effect, it does not matter:  assuming he has a right of privacy, the search is nevertheless justified under long-standing precedent based on the “special needs of the workplace.”  Even if the employee has a privacy right to the messages, or a locker or desk, a search for a “noninvestigatory, work-related purpose” or for the “investigation of work-related misconduct” is reasonable if (i) it is justified at the inception and, (ii) the search is reasonably related to the objective.

A search may be justified “at the inception” if, for example, the employer has reasonable grounds for suspecting that the search is necessary for an appropriate purpose.  In Quon’s case, the evidence established that the search was important to the department’s investigation of whether the character limit on text messages was appropriate.  The City and the police department had a legitimate interest “in ensuring that employees were not being forced to pay out of their own pockets for work-related messages, or on the other hand that the City was not paying for extensive personal communication.”  In addition, as to the scope of the search, examining the message for content was reasonably related to the purpose of the search.  It is important to note that in conducting its inspection the police department did not examine any messages sent during off-duty hours.

Justice Kennedy’s decision applies to both public and private employers.  He states: 

Because the search was motivated by a legitimate work-related purpose, and because it was not excessive in scope, the search was reasonable …For these same reasons—that the employer had a legitimate reason for the search, and that the search was not excessively intrusive in light of that justification—the Court also concludes that the search would be “regarded as reasonable and normal in the private-employer context…"

Thus, no violation of the Fourth Amendment.  An interesting aspect of the case is Justice Scalia’s concurring opinion criticizing Justice Kennedy for explaining the many reasons why the Court should not make a more absolute pronouncement in the area of electronic communications and privacy.  For a glimpse at the philosophical differences in the approaches of Justices Kennedy and Scalia, read Scalia’s concurring opinion, here.

Stephen C. Gerrish, Employment Group

Update: IRC 409A and Severance Payments

We are pleased to announce that on June 9, 2010, Anne E. Senti-Willis, one of the firm's employment attorneys, with a focus on tax and employee benefit law, will present an update on IRC section 409A, dealing with deferred compensation.  The seminar is sponsored by the Palo Alto Area Bar Association.  Section 409A, passed in 2004, has presented many thorny issues for practitioners. Anne's presentation will focus on important changes relating to employment agreements providing severance payments and other compensation issues.  Please contact Anne's office if you have questions.