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Non-refundable Deposits May Be Refundable After All

By | Blog, Litigation, Real Estate Law

The recent California appellate court case of Kuish v. Smith (10 CDOS 1928, February 3, 2010) has reminded us that in the world of California real estate law, the concept of “nonrefundable” deposits is sometimes very illusive.
In this case, Mr. Kuish entered into a contract to purchase Mr. Smith’s waterfront home in Laguna Beach for $14 million. Under the contract and various amendments, Mr. Kuish deposited $620,000 into escrow, with $400,000 of the deposit released to the seller, and the balance held in escrow. The purchase agreement clearly specified that the deposits were to be “non-refundable.” After numerous extensions of the closing date, Mr. Kuish finally cancelled the escrow. That must have been a happy day for Mr. Smith, who then promptly sold the house to a back up buyer for $15 million and refused to return Mr. Kuish’s “non-refundable” deposits.
Mr. Kuish decided he really didn’t mean it when he agreed that the deposits would be non-refundable, and he sued Mr. Smith for return of the deposits. The trial court sided with Mr. Smith, holding that non-refundable meant non-refundable, particularly in this case where “both parties are ‘big boys,’ that is, sophisticated business people [who] understood all the ramifications of their actions in freely negotiating to make the deposits non-refundable.” The appellate court disagreed, however. Based on an earlier California Supreme Court decision, it held that retention of the deposit under these circumstances would constitute an invalid forfeiture under California law, regardless of whether the parties agreed that the deposit would be non-refundable.
The parties might have been able to make the deposits truly non-refundable in a couple of ways. The agreement could have been structured as an option to purchase the property, with the deposits designated as the consideration for granting the option. However, most sellers want to have a binding purchase agreement with their buyer, rather than granting an option. Alternatively, the purchase contract could have included an enforceable liquidated damages clause. To be enforceable in any contract for the sale of real property, a liquidated damages clause requires that the clause be reasonable under the circumstance existing at the time the contract is entered into (the actual damages in the event of default must be difficult to ascertain at that time), (ii) the clause must be separately signed or initialed by both parties, and (iii) if a pre-printed contract form is used, it must be in at least 10 point bold type. In a residential contract, each separate deposit must have its own liquidated damages clause signed by the parties at the time the deposit is made, and the clause is only valid to the extent the deposit is actually paid, and is “reasonable.” Whether a residential deposit is reasonable as liquidated damages depends not only upon the circumstances existing at the time the contract was entered into, but also upon the price and other terms and circumstances of any subsequent sale of the same property if the sale (or contract to sell) is made within six months of the buyer’s default. This last requirement might have prevented Mr. Smith and Mr. Kuish from making the deposits truly nonrefundable even if they had used a liquidated damages clause.
So, don’t rely upon simply providing that a deposit is non-refundable in your purchase agreements; always include a liquidated damages clause. And if you are dealing with residential property be sure to understand that a deposit may be refundable even if a liquidated damages clause is used, particularly in a rising real estate market (if and when such a market returns).
Thomas B. Jacob, Real Estate Group

"Kin Care" and the California Supreme Court

By | Blog, Employment Law

The California Supreme Court has just decided that an employee’s right to use accrued sick leave to attend to the illness of a child, parent, spouse or domestic partner does not apply to all employer sick leave policies.  (McCarther v. Pacific Telesis Group Ct. No. 164692, 2/18/10)).  Whatever one may think was the intent of the legislature in passing Labor Code section 233, which requires employers who provide sick leave to allow employees to use a specified portion of that sick leave to attend to the illnesses of others described in the statute, the Supreme Court found that the words of the statute do not apply to a broad sick leave policy that provides for uncapped, compensated sick leave.
The plaintiffs in the Supreme Court case originally brought their lawsuit against their employer because they claimed they were denied the right to use any of their paid sick leave for the purposes intended by the statute.  Pacific Telesis’ sick leave policy did not provide for “accrual” at a specified rate.  Instead, employees were entitled to uncapped paid sick leave for a variety of purposes but there were limits on how much could be used at any one time (five days).  The policy was generous for employees, but it had never been used in connection with an employee caring for a sick parent, child, spouse or domestic partner.  In addition, because there were no caps, or an accrued “bank” of earned sick days, the number o days available was unlimited, subject to the utilization rules.  Even though the plaintiffs were not disciplined in any way for their absences to care for others, the employer’s policy on absenteeism might apply against someone taking leave days to care for another.
The Supreme Court analyzed and interpreted the words of the statute very carefully and concluded, in short, that because the employer’s policy was uncapped, there were no specific “accrued and available” sick leave days under its policy. The legislation was not intended, therefore, to cover all sick leave policies – only those that provide for an accrual of a specified number of days, thus providing means to the words of that allow an employee to use sick leave that “would be accrued during six months at the employee’s then current rate of entitlement.”  The Court explained its decision:
“Employers are not required to provide sick leave. Many employers elect to do so, and many do so in the form of an accrual-based system. Employers may choose to refuse employees the right to use uncapped sick leave to care for relatives, although employers are certainly not precluded from doing so. Indeed, defendants offer compensated personal days off, which may be taken to care for ill relatives — a policy of which plaintiff Huerta availed himself to receive one day of compensated leave to care for his ill mother. There are employers, like defendants, that elect to provide an uncapped compensated sick leave policy. We conclude that section 233 does not apply to those types of policies.”
The practical effect of the decision may be very limited:  since the statute did not apply to the generous, uncapped policy, the employer could restrict the right to use the sick leave days for specific purposes or specific periods of time, despite the guarantee in the statute.  On a broader level, the court determined that the legislature did not intend to have the statute apply to all sick leave policies, so its words were interpreted accordingly, and logically.  The legislature may reexamine what its intent was.  Pending further legislative developments, the rights granted under Labor Code section 233 are not available to employees who are entitled and subject to a policy providing uncapped, paid sick leave.
Stephen C. Gerrish, Employment Group

E-Mail Privacy and Attorney-Client Privilege

By | Blog, Employment Law, Litigation

Employees should realize that they should not use the company’s e-mail account for personal, private matters, yet most continue to do so – everyone seems to assume that e-mail is private, no matter who owns the account. This may not be true, however, and anyone using a company e-mail account for his or her private messages could be in for a rude awakening – disclosure of the contents – if not careful.

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Monitoring Employee Social Networking

By | Blog, Employment Law

Much has been written and said about an employer’s right to regulate and monitor its employees’ use of e-mail and the internet.  Most of the discussion involves the clash between an employee’s privacy rights and the employer’s right to control and its ownership of the tools of the workplace and the employee’s time while at work.  Nobody questions the right of the employer to ban personal telephone calls, the use of the company e-mail facility for personal purposes and personal internet surfing or social networking during working hours.  But questions exist, however, about the extent of the employer’s right to monitor its systems for compliance with those policies.
The answer largely depends on the quality of the employer’s written policies, the practice of the employer in enforcing the policies, the unique privacy laws of the locale, and what exactly is meant by “monitoring” – merely monitoring an employee’s e-mail and history of internet use, or, on the other hand, accessing otherwise private internet sites restricted to authorized friends and guests?  Often the issues hinge on whether the employee had a legitimate expectation of privacy in the personal activities, even though conducted at work.  But that question does not the end of the analysis, and does not necessarily answer the ultimate question.
The rapid expansion of social networking and blogging, and the inevitable use of “company time” by employees of social media like Facebook or Twitter to engage in personal networking, including posting gossip and commentary about life at work, have likewise expanded the issues surrounding regulating and monitoring this behavior.  With the ever-present concern about negative commentary and inappropriate disclosure of workplace information, employers are inclined to explore and investigate their employees’ personal social networking activities more deeply.  This goes beyond merely ascertaining whether the employee was networking Facebook while at work – it may include attempts to gain access to restricted groups or sites to review content that may have been created exclusively on personal time.  This may lead not only to a privacy dispute with that employee, but also to violations of federal laws that regulate access to stored information on the internet.  A recent jury verdict in New Jersey provided one employer with a harsh lesson.
In the New Jersey case, Pietrylo v. Hillstone Restaurant Group, the jury found that the employer had wrongfully and without consent gained access to an employee’s MySpace site that was critical of work, and awarded statutory and punitive damages.  The facts are not uncommon:  the employer discovered that an employee had established a MySpace group where people could gossip and complain about work without anyone knowing (an erroneous assumption, but that’s another story).  Unfortunately for the employee, one of the authorized members of the group showed the site to her manager, and after some level of coercion, she gave the employer the password to the site.  The managers’ investigation of the contents of the group site led to the termination of the responsible employee, who then sued under a variety of legal theories, including violations of the federal Stored Communications Act.  The liability resulted from the employer’s direct access to the site by use of the password coerced from the other member – i.e., unauthorized access.
Whether those employees were using company computers on company time was irrelevant – the unauthorized or coerced access to the private site violated federal law in this case.
Enforcement and investigation of electronic and social media abuse should be pursued carefully; employers must consider all of the legal restrictions on access to private data, including personal privacy rights and federal and state statutes that restrict unauthorized access to data maintained by internet service providers and websites.  In California, employers also need to be aware that disciplining an employee for engaging in lawful conduct during non-working hours away from the workplace is prohibited by statute (Labor Code section 96(k)) and can lead to a claim before the state’s Labor Commissioner.
Stephen C. Gerrish, Employment Group

Genetic Discrimination in Employment: GINA Comes to Town

By | Blog, Employment Law

Employers now must comply with a new equal opportunity law; GINA, short for Genetic Information Non-Discrimination Act of 2008, in addition to sex, race, age and a dozen other categories.  All employers with at least 15 employees are subject to GINA.  This post gives a quick overview of GINA and a checklist of action items.  Further details are found on the EEOC website, including a new mandatory poster.
At first blush, GINA has a “futuristic” and limited sense about it.  After all, how many employers gather genetic information?  But the law was passed due to quick-moving advances in genetics and the development of genomic medicine, which could lead to insurability problems and job discrimination based on the availability of individuals’ genetic information and family histories.  GINA has two parts.  Title I deals with the use of genetic information in health insurance, and amends portions of ERISA, the Public Health Service Act, and the Internal Revenue Code.  More relevant to employers is Title II, which prohibits the use of genetic information in employment decisions and the intentional acquisition of genetic information about applicants and employees, and imposes strict confidentiality requirements. “Genetic information” is defined as information about an individual’s genetic tests, genetic tests of a family member, and family medical histories.  The term “family member” includes the employee’s dependents and certain relatives of the employee, or of the employee’s dependents.  The reason for including so many family members is to prevent employers from inferring that an employee is predisposed to a similar disease or disorder as a family member.  Prohibited employment practices under GINA include: (1) the use of genetic information to make decisions concerning any terms, conditions or privileges of employment; (2) intentional acquisition of genetic information; (3) violation of confidentiality; and (4) retaliation against an employee who opposes genetic discrimination.
What Should Employers Do Now?

1. Post the EEOC’s new “EEO is the Law” poster in the workplace;
2. Revise equal employment opportunity (EEO) statements in employee handbooks, to include a policy of non-discrimination on the basis of genetic information;
3. Do not request that applicants and employees provide family medical histories;
4. Do not request information about disorders or diseases of an employee’s family members to process leave requests unless directly related to a FMLA or CFRA request;
5. Consider whether any changes are necessary in the administration of employer or sponsored health benefit plans;
6. Abide by GINA’s confidentiality rules and separately file all medical information;
7. Enact service-of-process intake policies to prevent the inadvertent disclosure of genetic information in response to a civil discovery request that is not accompanied by a court order compelling production.

GINA was enacted based on recognition of developments in the field of genetics, the decoding of the human genome, and advances in genomic medicine.  Genetic tests now exist that can inform people whether they may be at risk for developing a specific disease or disorder.  But as the number of genetic tests and availability of data increase, so do concerns about whether people are at risk of losing health coverage or job opportunities if insurers and employers can access their genetic information.  Given the scientific advances, it is likely that GINA will become increasingly important.  To read more about GINA, go to the Thoits.com Resources page.

Jeffrey A. Snyder, Employment Group

Medical Leaves of Absence

By | Blog, Employment Law

Medical leave management is one of the more difficult issues faced by human resource professionals.  The interplay of Workers’ Compensation and federal and state disability discrimination and leave laws, and the entitlement of an employee to a leave of absence as a result of an industrial injury is confusing, and the decisions are not only risky, but often complicated by conflicting demands of management and notions of good sense and caution.  An injured employee’s inability to return to work, or to perform the essential functions of her job as a result of the injury, generates questions about how to manage long periods of absence, confusing or ambiguous directives from the employee’s treating physician, and accommodations necessitated by the employee’s permanent or temporary limitations, if she is nevertheless released to return to work.
A recent California Court of Appeal decision provides useful guidance on this confusing interrelationship.  The court in Gelson’s Markets v. Workers’ Compensation Appeals Board (November 13, 2009, No. B209336, Court of Appeals of California, Second District, Division Three) sided with the employer in overturning a decision of the WCAB, which, the court found, had applied the incorrect standard of proof to the employee’s claim of discrimination under Labor Code section 132a, which prohibits discrimination against employees injured in the course and scope of their employment.
What is particularly interesting about the decision is how the employer dealt with confusing and ambiguous directives from the employee’s physician, and the conflicting opinion of the employee about his readiness to return to work without limitations.  This process went on for an extended period of time.  And, three years after the injury, when the employer willingly return the employee to work upon finally receiving an unambiguous release, the employee filed a petition against the employer claiming discrimination under 132a for failing to return him to work much earlier.
The employer engaged in proactive, regular direct contacts with the doctor and the employee, continually requesting clarification and detailed information on the employee’s ability to perform the essential function of the job and the resolution of the conflicting opinion, or desire, of the employee.  When the employee demanded to return to work in the face of a contrary doctor’s opinion, the employer refused.  When the doctor modified his report to allow the employee to return to work, based solely on the desire of the employee, without any medical justification, the employer still refused to return the employee to work.
The WCAB found against the employer and awarded lost wages.  But the Court of Appeal reversed this ruling, finding that the WCAB had applied the wrong standard and that the employee had not been “singled out” for discriminatory treatment.  It confirmed that “… to establish a prima facie case of discrimination in violation of section 132a, the employee must show that he suffered an industrial injury, that the employer caused him to suffer some detrimental consequences as a result, and that the employer singled out the employee for disadvantageous treatment because of his injury.”  The Court reaffirmed the validity of the test adopted by the California Supreme Court in Department of Rehabilitation v. Workers’ Comp. Appeals Bd. (2003) 30 Cal.4th 1281.  In summary, the employer’s behavior was reasonable and there was not proof anyone would have been treated any differently.

Stephen C. Gerrish, Employment Group

Welcome to the Thoits Law Blog

By | Blog, Uncategorized

Welcome to the blog for the Palo Alto-based law firm of Thoits Law.
Thoits Law has been a prominent member of the Palo Alto legal community since 1949, and continues to provide a range of legal services from its offices in Palo Alto and Santa Cruz, California. Our continuing commitment, after more than 60 years of service, is to provide trusted counsel through lasting relationships. Personal attention, regardless of whether the project is large or small, is the hallmark of our firm’s philosophy.
The main objective of this blog is to identify and discuss current and important legal issues of interest to our clients and community. We cover topics in the areas of business, employment, intellectual property, litigation, real estate, and estate planning that impact your lives and your businesses in Silicon Valley and Northern California.
We look forward to your participation!