Rimon Law Blog
Category: Employment Law
Supreme Court Upholds Employer’s Right to Read Employee Text Messages
The Supreme Court recently held in City of Ontario v. Quon that in certain circumstances an employer has the right to read text messages sent from and delivered to a pager issued by the employer to one of its employees. While reading employee text messages may generally violate the Fourth Amendment's guarantee against "unreasonable searches and seizures," the Court held in this case that since the employer conducted its review for a noninvestigatory, work-related purpose, it was withing its rights.
The source of the litigation arose in 2001 when the City of Ontario, CA, issued pagers to its employees, among them Jeff Quon who was working for the Ontario Police Department. Under the wireless service plan, monthly text allowances were limited and excess usage was charged. Quon was told by his supervisor that his text messages would not be monitored as long as Quon paid the overage fees. However, before acquiring his pager, Quon and others accepted the City's "Computer Usage, Internet and E-Mail Policy" under which the City "reserve[d] the right to monitor and log all network activity including e-mail and Internet use, with or without notice. Users should have no expectation of privacy or confidentiality when using these resources." Although texts were not explicitly included in this policy, the City made clear that texts would be treated the same as e-mails. When Quon and other officers incurred overage charges numerous times, it was proposed that perhaps the text allowance was too low and that the department should determine whether the excessive texting was work-related, and if so, to expand the monthly text allowances. In fact, the vast majority of Quon's texts sent and received while at work were not work related, and he was disciplined. However, Quon and others felt the review had violated their Fourth Amendment rights and filed this action. The Court upheld the City's right to review the texts.
This opinion is an important reminder to employers to ensure that their personnel policies convey a clear message to employees regarding privacy issues related to use of company communication systems. Also, employers should make sure that their managers are aware of company policy and are not making misrepresentations to employees.
Class Action For 1.5 Million Wal-Mart Employees Affirmed By Ninth Circuit
In the recently decided case of Dukes v. Wal-Mart Stores, the Ninth Circuit upheld a 2004 district court's decision to certify a class that could potentially consist of 1.5 million women employed by Wal-Mart since 1997. Through this gender discrimination class action, the employees seek back pay, declaratory relief, and injunctive relief.
The plaintiffs allege that Wal-Mart engaged in discriminatory pay and promotion practices in violation of Title VII by paying female employees less than their male counterparts and giving fewer promotions to women than to men.
In 2005, after the district court held that class certification was appropriate under Federal Rule of Civil Procedure 23, Wal-Mart appealed that decision claiming that the class did not satisfy Rule 23(a)'s class requirements and that the potential size and cost of the claim violated Rule 23(b)(2). While the Ninth Circuit did not comment on the merits of the case, it held that there was no violation of Rule 23 that would prevent the class action. Wal-Mart plans to appeal the case to the Supreme Court.
The Ninth Circuit also held that when a district court is determining class status under Rule 23, it must apply a "rigorous analysis." It will be interesting to see whether this standard benefits parties opposing or advocating class certification in the future.
New Employee Rights Poster Issued Under National Labor Relations Act
The Department of Labor recently published a poster listing employees'; rights under the National Relations Labor Act (NRLA). The notice, which Federal contractors and subcontractors are required to display in a conspicuous location, informs employees that under the NRLA they are guaranteed:
- the right to organize and bargain collectively with their employers;
- the right to engage in other protected concerted activity; and
- protection from certain types of employer and union misconduct.
The notice is required to be posted all places where notices to employees are normally displayed, whether physical or electronic. It is available in both a one-page 11 x 17 in. format and a two-page 8.5 x 11 in. format. There is a fact sheet provided which lists, among other things, exceptions to the posting requirements and information on posting the notices and acquiring translated posters. More information is available at the Office of Labor-Management Standards website.
New Legal Trap for Employers in Hiring Independent Contractors
The United States Court of Appeals for the Second Circuit, in a September 10, 2009 ruling, held that an employer can be held liable for discriminatory hiring decisions made by its independent contractors. The case involved an independent contractor acting on behalf of the employer, telling the plaintiff that “they were looking for someone younger”.
The Second Circuit ruled that, even if the hiring decision is made by the authorized independent contractor, the employer was still responsible for the discriminatory hiring decision by the independent contractors. In a worse scenario, even if the independent contractor does not have the actual authority but the applicant thought that it did (“apparent authority” in legal terms), the employer is still liable.
Considering the harsh economy and fewer job opportunities these days, employers should be more cautious since the job applicant is more inclined to sue if he/she cannot get the job. Employers should avoid asking job applicant questions such as race, religion, national origin, gender and age, etc during the interview process; when entering into the independent contractor contract, it is a good idea to add an indemnification clause asking the independent contractor to indemnify the employer for any liability arising from the hiring process conducted by the independent contractor.
Start-up package
Check out our start-up package: Rimon Law Startup Package.
It gives an entrepreneur a big picture view of legal issues they should consider when they start/grow their company
A Primer on Stock Option Agreements and Restricted Stock Agreements
Why have a stock option plan?
Startups often prefer to compensate using stock options because it does not require a cash outlay. In addition, employees may prefer the favorable tax treatment associated with stock options. Stock options also often give employees a stake in the long-term success of the company that salaries or bonuses often do not.
What is a stock option?
A stock option is the right to acquire a certain number of shares of stock for a specific price (“exercise price”). Usually, the employer does not permit an employee to exercise the right to purchase immediately on the date the stock option is issued. Rather, the right to purchase stock typically “vests” or accrues over a period of time or upon meeting certain company performance goals. This encourages employees to remain with the company for the rest of the vesting period or helps the company meet its goals.
Tax consequences of Incentive Stock Options and Nonstatutory Stock Options
There are two forms of stock options: incentive stock options (“ISO”) and nonstatutory stock options (“NSO”). ISOs are different from NSOs in that ISOs receive favorable federal tax treatment if the option meets certain requirements of the Internal Revenue Code.
When granted, both ISOs and NSOs should have an exercise price that is not less than 100 percent of the fair market value of the underlying stock. Neither ISOs nor NSOs are taxable upon grant to the employee or when the option vests. The difference between them lies in the tax consequences when the option is exercised. When an NSO is exercised, the employee recognizes compensation (ordinary) income in an amount equal to the spread at exercise. An employee does not recognize taxable income on exercise of an ISO. However, the spread at exercise is includible in the employee’s federal alternative minimum taxable (“AMT”) income and may give rise to AMT tax liability.
If stock acquired upon exercise of an NSO is held for more than one year, any gain realized on the disposition of the stock is taxed at favorable long-term capital gain rates. ISOs must be held for at least two years from the date of grant and at least one year from the date of exercise to qualify for favorable capital gain tax rates. Otherwise, the employee recognizes compensation income that is taxed at ordinary income tax rates.
The other difference between ISOs and NSOs is in the benefit to the employer: for NSOs, the employer can take a deduction equal to the amount recognized by the employee upon exercise of the NSO. For ISOs, there is no deduction.
The different aspects of ISOs and NSOs provide flexibility in tailoring an equity compensation plan to fit a company’s needs.
What is restricted stock?
Instead of issuing stock options, some companies issue “restricted stock.” Restricted stock refers to stock that is transferred to an employee as compensation for services, subject to a vesting schedule. The employee usually is not required to pay for the stock. If the employee does not remain with the employer until the end of the vesting period, the stock must be returned to the employer. If the employee has paid any amount for the restricted stock but then fails to become vested, the employer usually refunds the purchase price to the employee. A discussion of the tax consequences of restricted stock is beyond the scope of this primer and requires a detailed conversation with a tax attorney.
Given the complex legal, accounting and tax issues, a company should seek advice before implementing an equity compensation plan.
Rimon offers the following flat-fee packages:
1. Basic non-qualified stock option plan without revisions drafted by a corporate attorney for $300. A review by a tax attorney for an additional $400: The client receives a basic no-frills non-qualified stock option plan. This package is appropriate if the value of the stock at the date of issuance is easily determinable and the client accepts the plan without discussing the alternatives.
2. A more extensive analysis by a corporate attorney and tax attorney: $400 for drafting by a corporate attorney and $700 for tax review: This includes a consultation as to whether to choose (a) qualified or (b) non-qualified stock option plan, or (c) restricted stock. This package is appropriate if the value of the stock at the date of issuance is easily determinable.
Non-disclosure Agreements
Your company’s ideas, methods, organization, and products are entitled to varying degrees of protection. With products and secrets more esoteric and virtual than ever before, it is essential that expectations and responsibilities are set forth in black and white.
A nondisclosure agreement serves a dual purpose: it educates the employee or contractor and it protects the company. A clearly written nondisclosure agreement will tell your workers what his or her responsibilities are toward the company and what the law considers company property.
Employment Service Agreements
A new company should determine which of its workers are employees and which are independent contractors. The workers’ status will determine what benefits s/he is owed during employment and at its conclusion. A new company is building its reputation not just for its product, but for its staff and for fairness as an employer as well. ATo this end, a company should have a written agreement to clarify for its workers and itself the job expectations, benefits and responsibilities. A written contract delineates scope and hours of work, how the relationship is to continue, and how it is to be terminated.