PART ONE: SEC and Employment Law Protect and Compensate Whistleblowers

Posted on June 24, 2011 by Walter Haines, Esq.

In a 3 to 2 vote the SEC recently approved whistleblower compensation rules. With these new rules the SEC is hoping to prompt employees with enticing monetary incentives to report their employer’s misconduct. It is also hoped that this will encourage companies self-report violations to the SEC.

What is the whistleblower compensation plan?

In the past the SEC has been reluctant to use what little authority they had to compensate whistle blowers but with the Dodd-Frank Act Section 922 whistleblowers can now be rewarded for tipping off the SEC whereby the monetary sanction exceeds $1 million. Furthermore the compensation a whistleblower can now receive for helping the SEC has been raised from 10% to 30% of the monetary sanction. Next the SEC will provide congress with annual reports of whistleblower claims in an effort to compensate whistleblowers more often. It’s also important to note that section 924 of the Dodd-Frank requires the implementation of the whistleblower compensation system to be ran by a separate office also designed to process claims by whistleblowers. Lastly, protections for whistleblowers from retaliation are strengthened, should an employer retaliate against a whistleblower the employee could be reinstated or recover up to 2 times back pay. Protections for whistleblowers in the Sarbanes-Oxley Act are expanded to cover employees of subsidiaries of public companies. The rules that the SEC adopted to implement the whistleblower compensation provisions of Dodd-Frank will be effective in July 2011.

Eligibility for Whistleblower Compensation

In order for a whistleblower to receive compensation several conditions must be satisfied:

(i) the Whistleblower must voluntarily offer information and must do so prior being requested to do so by the government or a self-regulatory organization in an inspection or investigation; 
(ii) the information must be given to a governmental or self-regulatory organization. A report to a company's internal compliance or corporate governance official can count as report to the government provided either the whistleblower or his or her company reports the information to the government within 120 days of the internal report;
(iii) the information must be original information, that is based upon the whistleblower's own knowledge or analysis and is not previously known to the entity to which it is reported and must "relate to a possible violation of the federal securities laws;" 
(iv) the information must lead to a successful enforcement action, which means the SEC brings a successful enforcement action based in whole or in part on the conduct identified in the whistleblower's information; 
(v) the successful enforcement action imposes monetary sanctions (fines, disgorgement, and interest) of more than $1 million.

Dodd-Frank and the whistleblower compensation rules also establish who is not eligible for reward:

(i) anyone who had a pre-existing legal or contractual duty to report the information to the governmental entity; 
(ii) attorneys who report privileged information, unless such reports are permitted under SEC rules or state bar rules; 
(iii) anyone who obtains the information through the commission of a crime; 
(iv) foreign government officials; 
(v) employees who learn the information through a firm's hotline; 
(vi) compliance and internal audit personnel, with some exceptions; and 
(vii) governmental employees and people who are criminally convicted in connection with the conduct they report.

How Compensation is determined

Just because the SEC can award a whistle blower 30% of the sanctioned amount doesn’t necessarily mean that it is guaranteed. The SEC may chose to award more money based on the significance of the information provided by the whistleblower, the assistance provided by the whistleblower, law enforcement interest in the matter, and the whistleblower's participation in internal compliance systems. Or the SEC may decrease the amount of a whistleblower's reward, based on the whistleblower's culpability, an unreasonable reporting delay, and the whistleblower's interference with internal compliance and reporting systems.

If you have any questions about this article or our blog, feel free to call us at:

Long Beach – (562) 256-1047
Los Angeles – (213) 261-0229
San Francisco – (415) 200-0012 or (415) 230-2755

San Diego – (619) 342-1242 or (619) 272-2193 

 

 

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California Labor Law Reimbursable Expenses, 2802

Posted on June 13, 2011 by Walter Haines, Esq.

California Labor law requires that employees be reimbursed for their work related expenses, such as mileage, supplies, training, tools and equipment and even legal expenses. Alternatively, employers usually have policies and procedures that create deadlines, in order to request and receive reimbursement.

In Stuart v. RadioShack, an employee is suing for reimbursement and RadioShack argues that his claim has no merit because Stuart did not make a proper request under its policies and procedures. So the question is: Do the requirements of the statute override policies and procedures for reimbursement set by the employer?

California Labor Code section 2802 states:
"An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties."
"Any contract or agreement, express or implied, made by any employee to waive the benefits of this article or any part thereof, is null and void."

California employers are required to reimburse employee expenses and employers cannot allow the employees to surrender or limit these rights for any reason. According to the Northern District Court: the employer's responsibility to reimburse expenses should be triggered by the same standard that applies in cases of "off-the-clock" work:
“The Court concludes that a fair interpretation of [Labor Code] §§ 2802 and 2804 which produces “practical and workable results,” consistent with the public policy underlying those sections, focuses not on whether an employee makes a request for reimbursement but rather on whether the employer either knows or has reason to know that the employee has incurred a reimbursable expense. If it does, it must exercise due diligence to ensure that each employee is reimbursed.”

Basically, employers can continue to use their policies and procedures but if they learn about reimbursable expenses that are owed to the employee, the employer should make every effort to reimburse the employee.

If you are concerned that you are owed reimbursable expenses please contact a California labor law attorney to help you claim the money that is owed to you.

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California Labor Law Attorneys Reexamine Commission Wages in Relation to the Salesperson Exemption

Posted on June 8, 2011 by Walter Haines, Esq.

 

California labor law attorneys have recently received an extended explanation of “commission wages” from the opinion given by the California Second Appellate District court. This explanation related directly to employees that are classified as exempt from overtime under the commissioned salesperson exemption. In the case Areso v. CarMax, Inc., it was decided that CarMax’s commission plan of a flat rate per sale would be considered commission wages.

Essentially the plaintiff Areso was unsuccessful in the class action in which he was claiming misclassification as exempt from overtime under the commissioned salesperson exemption and owed overtime. California labor law attorneys for Areso argued that overtime was owed because CarMax’s commission plan did not meet the requirements as “commission wages” under Labor Code Section 204.1, which necessitates commissions to be “based proportionately on the amount or value” of the sale of the employer’s property or services.

California labor law attorneys for CarMax were pleased to hear the court found CarMax’s commission structure is a “performance-based incentive system and thus fairly understood to be a commission structure” due to the language that commissions can be founded on the “amount” rather than “value” of cars sold, interpreting “amount” to mean the number of cars sold. Furthermore, the court agreed with labor law attorneys for CarMax’s argument that prior decisions necessitate commissions to be base on “a percentage of the price of the product or service” (as first articulated in Keyes Motors, Inc. v. DLSE, 197 Cal.App.3d 557, 563 (1987)) as dicta as it related only to the part of the statutory language in Labor Code § 204.1 interpreting the “value” of the product or service.

In order for someone to be considered exempt under the commissioned salesperson exemption, Labor Code Section 204.1, the employee:
• must be involved principally in selling a product or service (not making a product or rendering a service)
• The amount of their compensation must be based proportionately on the amount or value of the product or service.

The Court opinion also interpret the word “amount” in the statute, and found that a flat payment for each car sold satisfies the statutory stipulation because the commissions are compensated based on the “amount” or number of cars sold. Further, paying a flat amount for each car is “proportionate” because it is a one-to-one proportion where the “compensation will rise and fall in direct proportion to the number of vehicles sold.”

Flat fees and proportionate percentages can be a little confusing if you are unsure whether or not you are classified as exempt correctly you should contact a California labor law attorney to examine your exemption status and determine if you are entitled to any back pay for overtime you may have worked.
 

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