In a case emphasizing the importance of acting in good faith in the interactive process and how an employer can do it right, on February 13, 2015, the First Circuit denied the EEOC’s petition for a rehearing en banc of the court’s decision to dismiss a lawsuit brought against Kohl’s Department Stores, Inc. by a diabetic former employee who claimed that her erratic working hours were exacerbating her condition.  EEOC v. Kohl’s Dep’t Stores, Inc., 774 F.3d 127 (1st Cir. 2014), reh’g en banc denied (Feb. 13, 2015).

Pamela Manning, a former sales associate at Kohl’s, had type I diabetes.  For two years, she worked predictable shifts as a full-time sales associate.  Following a restructuring of the staffing system nationwide in January 2010, however, Manning began working a schedule with unpredictable shifts, including some night shifts followed by day shifts (in Kohl’s parlance, “swing shifts”).  Manning alleged that the new schedule aggravated her diabetes.

After informing her supervisor that working erratic shifts was endangering her health, Manning obtained a doctor’s note requesting that she be scheduled to work “a predictable day shift.”  Manning’s store manager contacted human resources to discuss Manning’s request.  Kohl’s determined that it could not provide Manning’s preferred schedule of day-time hours only, but authorized the store manager to offer a schedule with no swing shifts.

On March 31, 2010, during a meeting with her store manager and immediate supervisor, Manning again requested a “steady shift” with mid-day hours, but was told that she could not be given a consistent schedule.  Manning stormed out of the meeting, saying that she had no choice but to quit.  Her supervisor followed her and asked what she could do to help, but she could not convince Manning to reconsider her resignation or to discuss any alternative accommodations.

Two days later, Manning contacted the EEOC to file a charge of discrimination.  On April 9, 2010, the store manager called Manning and asked that she rethink her resignation and consider alternative accommodations for both part-time and full-time work.  Manning ignored this overture and got off the phone as quickly as possible.  A week later, after hearing nothing further Manning, Kohl’s treated her departure as voluntary and terminated her employment.

Based on this record, on December 19, 2014, the First Circuit concluded that Kohl’s made earnest attempts to discuss potential reasonable accommodations.  By contrast, Manning’s conduct constituted a refusal to participate in the interactive process in good faith, warranting summary judgment in favor of Kohl’s.  In addition, the First Circuit ruled against the EEOC on Manning’s constructive discharge claim, finding that a reasonable person would not have felt compelled to resign when her employer offered to discuss other potential work arrangements with her.

In reaching its decision, the First Circuit emphasized that both the employer and the employee have a duty to engage in good faith, and that empty gestures by the employer will not satisfy this duty.  But if an employer does engage in the interactive process in good faith, and the employee refuses or fails to cooperate in the process, the employer cannot be held liable for a failure to provide a reasonable accommodation.

Employers addressing reasonable accommodation requests from their employees can learn from Kohl’s actions in this case.  Kohl’s benefited from its representatives’ diligence in documenting their response to Manning’s request (including the internal discussions) and in following up with Manning to give her an opportunity to propose alternative accommodations for her diabetes.  Thus, even though the store manager never conveyed an offer of “no swing shifts,” the First Circuit was able to find that Kohl’s made real efforts to work with Manning and that Manning unreasonably refused to continue the dialogue with Kohl’s.  And Kohl’s succeeded in winning dismissal of the ADA claim.  Employers who follow this course of conduct ensure their compliance with the ADA and, in the event an employee refuses to reciprocate discussions, may establish a defense to liability in a failure to accommodate lawsuit.

By: Amy B. Messigian

In a major blow to California employers who utilize a monthly commission scheme but pay biweekly or semimonthly salary to their commission sales employees, the California Supreme Court ruled earlier this week in Peabody v. Time Warner Cable, Inc. that a commission payment may be applied only to the pay period in which it is paid for the purposes of determining whether an employee is exempt from overtime.  Employers may not divide the commission payment across multiple pay periods in order to satisfy the minimum compensation threshold for meeting the exemption in any earlier pay period.  California employers who classify their commission sales employees as exempt should immediately take action to ensure compliance with the law.

The plaintiff in the case, Susan Peabody, worked approximately 45 hours per week as a commissioned salesperson for Time Warner Cable.  Peabody received biweekly paychecks, which included her salary for the pay period, as well as commission wages on a monthly basis.  After leaving her employment, she sued for a variety of wage and hour violations.  Peabody alleged that Time Warner Cable had misclassified her as an exempt employee for which it was not required to pay overtime.

In order to meet the commission sales exemption under California law, among other things, an employee must earn more than one and one-half times the minimum wage.  Peabody was paid less than one and one-half times the minimum wage in any pay period in which she did not also receive her commission payment; however, she was paid far in excess of one and one-half times the minimum wage on each pay period in which she also received her commission payment and her total monthly wages exceeded one and one-half times the minimum wage.  Based on the fact that the commission payment was reflective of commissions earned over the course of a month, Time Warner Cable argued that it should be permitted to split the commission payment between the pay periods in the month for the purposes of determining Peabody’s exemption from overtime.

The California Supreme Court rejected this approach holding that commission wages paid in one biweekly pay period cannot be attributed to other pay periods for purposes of meeting the exemption.  Rather, whether the minimum earnings prong of the commission sales exemption is satisfied depends on the amount of wages actually paid in a pay period.  “An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.”  This holding further differentiates that California commissioned sales exemption from the federal exemption, which permits employers to defer paying earned commissions so long as the employee is paid the minimum wage each pay period.

The Peabody ruling greatly impacts the manner in which companies structure their commission plans and payroll for commissioned employees.  Because a commission payment may only be allocated to the period in which it is paid for purposes of meeting the exemption, employers should consider adopting biweekly or semimonthly payroll structures for both salary and commission payments or allocating a greater distribution of employee income to base salary as opposed to commissions in order to meet the minimum salary threshold each pay period.

The ruling also forebodes a new wave of misclassification suits for unpaid overtime in cases such as this where an employee may only meet the exemption part of the time.  Of great concern will be the ability of employers to defend such suits where they have not kept good records of the hours worked by the employee, or their meal or rest breaks, due to the mistaken belief that they were exempt from overtime.  Employers with large numbers of commissioned salespeople should consult employment counsel to perform misclassification auditing and assess the risks of class litigation.