T may further define employers potential this change in the - PDF document

G Employment Law Alert January 2004 Changes to Commission Calculations is Risky Business By David M. Wissert, Esq. and Julie Levinson Werner, Esq. wo New Jersey Appellate Division decisions representatives. The plaintiff first became aware of T may further define employers’ potential this change in the employer’s method of liability to employees who are paid all or a calculating commissions when he received his portion of their compensation on a commission basis. commission check which reflected a significant In Winslow v. Corporate Express, Inc., the New decrease in his pay. On appeal, the Appellate Jersey Appellate Division considered whether an The employer’s failure to notify its employee had a viable cause of action against his sales representatives of the change in employer for reducing his compensation by calculation of commissions subjected changing the method of calculating sales the employer to a private cause of commissions without providing prior notice of the action under the statute. change. In this case, the plaintiff worked as a sales representative for an office supplies distributor and Division held that the plaintiff could proceed with was paid solely by commission. At the beginning of claims against his employer for violation of New the plaintiff’s employment, the employer calculated Jersey’s Wage Payment Law, breach of contract, the commissions of its sales staff based upon the and fraud. employer’s gross profits, which were determined by Among other provisions, the Wage Payment the actual costs of the products sold. However, Law requires employers to notify employees of any without providing prior notice to the plaintiff or its changes in pay rates including sales commissions other sales representatives, the employer before they implement such changes. The court subsequently changed its method of calculating determined that an employer that modifies the commissions by adding a “load factor” to its actual method by which it calculates commissions must costs to account for overhead expenses, which announce the change to affected employees prior resulted in lower commissions payments to its sales to its implementation. Here, the employer’s failure to notify its sales representatives of the INSIDE THIS ISSUE: change in calculation of commissions subjected To Rehire or Not to Rehire: the employer to a private cause of action under Sound Policies are the Answer the statute. This document is published by Lowenstein Sandler PC to keep clients and friends informed about current issues. It is intended to provide general information only. L Roseland, New Jersey Telephone 973.597.2500 65 Livingston Avenue www.lowenstein.com 07068-1791 Fax 973.597.2400

G The court also concluded that the employer’s disclose to ... a public body an activity, policy or actions might constitute a breach of employment practice of the employer ... the employee contract between the company and its sales reasonably believes is in violation of a law....” In DiPaolo , the defendant, a small houseware representative based on the parties’ prior course of dealing, which established the agreed-upon products company, hired the plaintiff for a terms and conditions of employment. sales/ administrative position, and promised to pay Furthermore, the employer could be liable for her a base salary and commissions based upon a fraud because it deliberately withheld percentage of sales. Apparently, the employer always paid the plaintiff her base salary, but did not Employers should reserve the right pay her commissions timely. After attempting to to alter the terms and conditions of resolve the issue internally without success, the employment at any time during the plaintiff informed her employer that she had met employment relationship. with an attorney. Shortly thereafter, the employer terminated the plaintiff and paid her outstanding information from its sales staff regarding its commissions. change in the method by which it calculated Although a private attorney is not included commissions. The lesson of Winslow is clear: within the definition of “public body” for purposes employers who alter the terms and conditions of of CEPA, the statutory definition does include any employees’ compensation, including the payment federal, state or local judiciary or regulatory agency. of commissions, must do so prospectively only. The DiPaolo court held that the employee’s report Employers also should reserve the right, at the to her employer that she had met with an attorney outset of employment, to alter the terms and to seek redress regarding the payment of her conditions of employment at any time during the commissions could constitute a threat to bring legal employment relationship. action, i.e., to file a lawsuit in court or to file a Another recent Appellate Division decision of complaint with the Wage and Hour Commission of interest to employers is Dipaolo v. AM the Department of Labor, each of which constitutes Conservation Group, Inc . In this case, the court a “public body.” Therefore, even though the considered whether an aggrieved employee’s employer had paid the employee all commissions to threat to see a lawyer, based on the employer’s which she was entitled, the court concluded the alleged illegal conduct regarding the payment of plaintiff had satisfied CEPA’s requirements. Thus, commissions, can constitute a “whistleblowing” the appellate court affirmed the jury’s award to the activity under the Conscientious Employee plaintiff of over $100,000 including damages, Protection Act (“CEPA”). Among other interest, attorneys’ fees and costs. provisions, CEPA prohibits an employer from Employers should be aware that the implications taking retaliatory action against an employee of both cases extend beyond the parameters of the because the employee “discloses, or threatens to facts in each case. Employers should not

G retroactively change an employee’s compensation; on what the employee believes to be illegal conduct instead, all changes must be communicated on the part of the employer because such action prospectively. In addition, employers should be could be seen as retaliatory. wary of taking any adverse action against an The authors thank Associate Amy L. Komoroski for employee who threatens to bring legal action based her assistance in the drafting of this article. To Rehire or Not to Rehire: Sound Policies are the Answer By David M. Wissert, Esq. and Julie Levinson Werner, Esq. recent United States Supreme Court that wants to ensure that its employees perform A decision provides some insight into how an their job functions appropriately but does not want employer may handle situations more to be faced with a discrimination claim against an effectively when former employees who have been employee with a legitimate disability. What should terminated for cause reapply for employment. In an employer do when a former employee, previously Raytheon Co. v. Hernandez , the Supreme Court was discharged for alcohol or drug use, reapplies for a presented with the question of whether the job? In Raytheon , the Supreme Court applied the Americans With Disabilities Act (the “ADA”) “confers preferential rehire rights on disabled ADA to such a situation. The plaintiff, Mr. employees lawfully terminated for violating Hernandez, was fired from Raytheon Co. after workplace conduct rules.” For technical legal reasons, testing positive for cocaine use. Two years later, he the Court did not expressly decide this exact issue, reapplied for a job, indicating on his job application but instead concluded that an employer can refuse to that he had worked previously for Raytheon. The rehire former employees if the refusal is based upon a human resources representative who reviewed his non-discriminatory “neutral no-rehire” policy. personnel file determined that Hernandez had Under the ADA, job applicants can bring a been terminated for workplace misconduct, but discrimination claim against a potential employer apparently the file did not expressly state that the alleging that the potential employer improperly misconduct was related to his prior drug use. discriminated against the applicant based upon the However, consistent with Raytheon’s policy against applicant’s disability. In some situations, an rehiring employees terminated for misconduct, addiction to alcohol or drugs may constitute a Raytheon did not rehire Hernandez. protected disability under either the ADA or the When a plaintiff alleges he has experienced New Jersey Law Against Discrimination (“NJLAD”). discriminatory treatment and has made a basic This can create a difficult situation for an employer showing of the necessary legal elements, there is a