IN THE SUPREME COURT OF CALIFORNIA
DAVID B. SCHACHTER,
Plaintiff and Appellant,
S161385
v.
Ct.App. 2/7 B193713
CITIGROUP, INC., et al.,
Los Angeles County
Defendants and Respondents. )
Super. Ct. No. BC191447
Citigroup offered a voluntary employee incentive compensation plan that
provides employees with shares of restricted company stock at a reduced price in
lieu of a portion of that employee‟s annual cash compensation. Employees agree
that, should they resign or be terminated for cause before their restricted shares of
stock vest, they would forfeit the stock and the portion of cash compensation they
directed be paid in the form of the restricted stock. We consider here whether the
incentive plan‟s forfeiture provision violates Labor Code sections 201, 202, and
219, which provide that employees be paid all earned, unpaid wages upon
termination or resignation and prohibit agreements that purport to circumvent that
requirement. We conclude the forfeiture provision does not run afoul of the Labor
Code because no earned, unpaid wages remain outstanding upon termination
according to the terms of the incentive plan. Accordingly, we affirm the judgment
of the Court of Appeal.
1
Background
David B. Schachter was employed as a stockbroker by Smith Barney, Inc.,
now a subsidiary of Citigroup, Inc. (the company) from April 28, 1992 to March
29, 1996. Schachter, along with officers and other key individuals in the
company‟s employ, was given the option to participate in the company‟s capital
accumulation plan (the Plan),1 a program that provided incentives to those
employees who directly influenced the company‟s value.
Under the Plan, eligible employees could elect to receive awards of
restricted company stock “in lieu of cash payment of a percentage of the
employee‟s annual compensation.” Participating employees could elect to receive
5, 10, 15, 20, or 25 percent of their “total compensation in the form of restricted
stock.” To participate in the Plan for the following calendar year, an employee
had to execute a “Capital Accumulation Plan Election to Receive Restricted
Stock” form at the end of the current calendar year indicating the amount of “total
compensation in the form of restricted stock” he or she wished to receive. The
percentage of “total compensation” received as restricted stock could be different
for the first and second six-month periods of the year.
Restricted stock could not be sold, transferred, pledged, or assigned for a
two-year period commencing on the date of the award; however, the Plan provided
that participating employees “shall have the right to direct the vote” and “receive
any regular dividends on restricted stock shares” during the restricted period.2
1
Traveler‟s Group, Inc., the publicly traded parent company of Smith
Barney, originally sponsored the plan. Traveler‟s Group, Inc. and Citicorp merged
to form Citigroup, Inc.
2
Plan participants‟ rights to extraordinary dividends are determined at the
sole discretion of the nominations and compensation committee of the board of
directors.
2
For purposes of determining the number of shares to be acquired under the
Plan, the purchase price of the stock was discounted at a rate of 25 percent of its
then-current market price, averaged over the five days preceding the date of the
acquisition, to “reflect the impact of the restrictions on the value of the restricted
stock, as well as the possibility of forfeiture of restricted stock.” On the date of
the purchase, the company either issued stock certificates to a participating
employee, to be held by the company until the restricted period lapsed, or made a
“book entry” in the company‟s records evidencing the award. Although a
participating employee could elect to pay taxes on the restricted stock when the
stock was purchased (see 26 U.S.C. § 83), “the participating employees‟ restricted
shares [were] not included in the participating employees‟ gross income for
federal tax purposes until the two-year vesting period had expired.”
If an employee remained in the company‟s employ for the two years
following the purchase of restricted stock, title to the shares vested fully with the
employee, free of any restrictions. However, if an employee voluntarily
terminated employment or was terminated for cause before the end of the two-year
period, the employee forfeited his or her restricted stock as well as the percentage
of annual income designated by the employee to be paid as shares of restricted
stock. In contrast, if an employee was involuntarily terminated without cause, the
employee forfeited his or her restricted stock, but received in return, without
interest, “a cash payment equal to the portion of his or her annual compensation
that had been paid in the form of such forfeited [r]estricted [s]tock.”
On December 21, 1994, Schachter enrolled in the Plan, and elected to
receive 5 percent of his total compensation in 1995 in the form of restricted stock
for both six-month periods. On July 1, 1995, Schachter received 44 shares of
restricted stock with a vesting date of July 1, 1997, and on January 2, 1996, he
received 38 shares of restricted stock with a vesting date of January 2, 1998. At
3
the end of 1995, Schachter again elected to participate in the Plan during the 1996
calendar year, but modified his election such that no restricted stock would be
purchased during the first half of 1996, and 5 percent of his total compensation
between July and December 1996 would constitute restricted stock. On March 31,
1996, Schachter voluntarily terminated his employment with the company.
Because Schachter‟s resignation occurred prior to the vesting dates of his
restricted stock, he forfeited all of his shares of stock and the percentage of his
annual compensation he directed be paid to him in the form of restricted stock.
In May 1998, Schachter filed a putative class action against the company
alleging (1) that the Plan‟s forfeiture provision violated Labor Code3 sections 2014
and 202,5 which require the prompt payment of all earned wages when an
employee is terminated or when an employee resigns, (2) that the Plan‟s forfeiture
provision violated section 221,6 which prohibits an employee from returning
wages to an employer, and (3) that forfeiture of the percentage of annual
compensation received in the form of shares of stock constituted the unlawful
conversion of wages. The company filed a motion for summary judgment or
adjudication, which the trial court denied in its entirety on October 20, 1998.
3
All subsequent statutory references are to the Labor Code unless otherwise
noted.
4
Section 201 provides, in pertinent part, “If an employer discharges an
employee, the wages earned and unpaid at the time of discharge are due and
payable immediately.” (§ 201, subd. (a).)
5
Section 202 provides, “If an employee . . . quits his or her employment, his
or her wages shall become due and payable not later than 72 hours thereafter.” (§
202, subd. (a).)
6
Section 221 provides, “It shall be unlawful for any employer to collect or
receive from an employee any part of wages theretofore paid by said employer to
said employee.”
4
Years of litigation followed, and after a class consisting of former employees
“who have suffered financial damages as a result of the forfeiture provisions of the
[P]lan” was certified, and an intervening appeal (Schachter v. Citigroup, Inc.
(2005) 126 Cal.App.4th 726) was completed, the trial court “elected to exercise its
inherent authority to reconsider its original denial of the [company‟s summary
judgment] motion in accordance with Le Francois v. Goel [(2005)] 35 Cal.4th
1094.”7 Upon reconsideration, the trial court concluded that the Plan‟s forfeiture
provision did not violate sections 201 and 202, and it granted the company‟s
motion for summary judgment. Schachter appealed, and the Court of Appeal
affirmed the trial court‟s grant of summary judgment.
The Court of Appeal concluded that the Plan‟s forfeiture provision did not
violate sections 201 and 202, and, accordingly, the Plan did not violate section
219, which provides that wage payment statutes, among others, cannot “be
contravened or set aside by private agreement.” Schachter argued that the
forfeiture provision violated the Labor Code because an employee‟s resignation or
termination for cause resulted in the employee‟s forfeiture of “not only the shares
of the restricted [company] stock they had purchased,” which Schachter conceded
was lawful, “but also the „earned but unpaid compensation‟ used to purchase those
7
Between the trial court‟s initial denial and eventual grant of the company‟s
summary judgment motion, Schachter amended his complaint three times, the
company filed a second summary judgment motion against the third amended
complaint, and the case was reassigned to a different trial judge during the
pendency of that second summary judgment motion. The trial court granted the
second summary judgment motion, and the Court of Appeal reversed, concluding
that the motion was improper pursuant to Code of Civil Procedure section 437c,
subdivision (f), which prohibits a party from filing a summary judgment motion
based on issues asserted in a prior summary adjudication motion unless there is a
showing of newly discovered facts or a pertinent change in the law.
5
shares.” In rejecting Schachter‟s argument, the court concluded that Schachter
was paid all of his earned wages — some in the form of restricted stock with an
immediate right to vote and earn dividends, and some in the form of cash
compensation. The court also reasoned (and Schachter conceded) that if he had
been paid all of his compensation in cash and then used a portion of those paid
wages to purchase restricted stock, no Labor Code violation would have occurred.
The court concluded that the only difference between the instant transaction and a
certainly lawful two-step transaction in which the company paid Schachter and
then permitted him to use his earnings to purchase restricted stock was the Plan‟s
tax deferral benefits. The court found that “at most, the omission of the
intermediate step of delivering the money to [Schachter] before implementing his
request to use it to purchase the designated restricted stock amounts to a deduction
of wages for an authorized use, a transaction expressly permitted by section 224.”8
Schachter also argued that the Plan‟s forfeiture provision amounted to a
deferral and withholding of wages because the shares lacked ascertainable value
and therefore did not constitute a wage. The court rejected his argument,
explaining that the shares of restricted stock had value and constituted a wage
within the meaning of section 200.9 The court explained that Schachter received
8
Section 224 provides, in pertinent part, that “[t]he provisions of Sections
221 [prohibiting the repayment of a wage to an employer], 222 [prohibiting the
withholding of a wage] and 223 [prohibiting secretly paying less than a statutorily
mandated or contractually agreed-upon wage] shall in no way make it unlawful for
an employer to withhold or divert any portion of an employee‟s wages when the
employer is required or empowered so to do by state or federal law or when a
deduction is expressly authorized in writing by the employee to cover . . .
deductions not amounting to a rebate or deduction from the standard wage . . .
pursuant to wage agreement . . . .”
9
Section 200 defines a wage as “all amounts for labor performed by
employees of every description, whether the amount is fixed or ascertained by the
(footnote continued on next page)
6
these wages and no wages were deferred or withheld. Alternatively, the court
opined that if Schachter was correct and the restricted stock did not constitute a
wage, his claim would nonetheless fail because forfeiture of the stock (that is,
forfeiture of something that is not a wage) would not violate the Labor Code.
Finally, the court reasoned that even if it accepted Schachter‟s argument
that he was never paid wages either as cash or as restricted stock, his claim that the
Plan‟s forfeiture provision violated the Labor Code “would still fail as a matter of
law because he could not show the funds used to purchase the shares were actually
earned.” The court explained, “Under basic incentive compensation plans the
point at which the wage is actually earned is determined by the parties‟
agreement.” Payment of incentive compensation may be contingent upon the
happening of a future event, such as continued employment. Relying on
Neisendorf v. Levi Strauss & Co. (2006) 143 Cal.App.4th 509, 524 (Neisendorf),
which held that an employee is not eligible to receive a bonus if his or her
employment terminates prior to the happening of a contingent future event such as
employment on a specified date, the court explained that Schachter “elected not to
remain [in the company‟s employ] for the designated period (presumably after
making a calculated decision that the economic and noneconomic reasons to leave
outweighed the reasons to stay, which included completing the required services
needed to earn the restricted stock). Accordingly, Schachter did not earn — and
thus had no right to receive — either the restricted stock or the funds used to
purchase it.” We granted Schachter‟s petition for review.
(footnote continued from previous page)
standard for time, task, piece, commission basis, or other method of calculation.”
(§ 200, subd. (a).)
7
Discussion
We review de novo a trial court‟s grant of summary judgment along with
its resolution of any underlying issues of statutory construction. (Barner v. Leeds
(2000) 24 Cal.4th 676, 683.) A trial court may only grant a motion for summary
judgment if no triable issues of material fact appear and the moving party is
entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c); State
of California v. Allstate Ins. Co. (2009) 45 Cal. 4th 1008, 1017.) The evidence
must be viewed in the light most favorable to the nonmoving party. (See Binder v.
Aetna Life Ins. Co. (1999) 75 Cal.App.4th 832, 839.)
To ascertain whether the Plan‟s forfeiture provision violates sections 201
and 202, we must first address whether Schachter (or any class member) would be
owed — and therefore would be required to forfeit — any “earned and unpaid”
wages upon resigning or being terminated for cause. (§ 201, subd. (a).) A wage is
defined as “all amounts for labor performed by employees of every description,
whether the amount is fixed or ascertained by the standard for time, task, piece,
commission basis, or other method of calculation.” (§ 200, subd. (a).) We
construe the term “wages” broadly to “include not only the periodic monetary
earnings of the employee but also the other benefits to which he is entitled as a
part of his compensation.” (Wise v. Southern Pac. Co. (1970) 1 Cal.3d 600, 607.)
“Courts have recognized that „wages‟ also include those benefits to which an
employee is entitled as a part of his or her compensation, including money, room,
board, clothing, vacation pay, and sick pay. (E.g., Suastez v. Plastic Dress-Up Co.
(1982) 31 Cal.3d 774, 780; Department of Industrial Relations v. UI Video Stores,
Inc. (1997) 55 Cal.App.4th 1084, 1091.)” (Murphy v. Kenneth Cole Productions,
Inc. (2007) 40 Cal.4th 1094, 1103.) Incentive compensation, such as bonuses and
profit-sharing plans, also constitute wages. (See Neisendorf, supra, 143
8
Cal.App.4th at p. 522; Lucian v. All States Trucking Co. (1981) 116 Cal.App.3d
972, 974; Ware v. Merrill Lynch (1972) 24 Cal.App.3d 35, 44.)
Schachter alleges that the percentage of his annual compensation he
directed be paid to him in the form of shares of restricted stock constitutes a wage
that remained earned but unpaid following his resignation. We disagree.
Certainly all cash compensation Schachter received constituted a wage. The Court
of Appeal concluded, and we agree, that the shares of restricted stock issued to
Schachter also constituted a wage. The company does not dispute that both the
cash compensation and restricted stock — including the “conditional present rights
(voting and dividend rights),” as well as “contingent future rights of full
ownership in that restricted stock” (awarded but never transformed into
noncontingent, fully vested rights) — constituted wages. Schachter does not
contest these conclusions, and does not allege that the company failed to pay him
the compensation he elected to receive as cash or the shares of restricted stock
upon his termination. Instead, Schachter alleges that the portion of his cash
compensation he directed be paid to him in form of restricted stock should have
been paid to him in cash upon his resignation.
Schachter makes this argument in a somewhat convoluted fashion, alleging
here, as he did before the Court of Appeal, that the Plan is illegal and
unenforceable pursuant to section 219 (prohibiting agreements that attempt to
circumvent the requirements of the Labor Code), and a court would be precluded
from denying his wage claim under section 202 (regarding the timely payment of
wages upon termination) based upon the terms of the Plan despite the fact that
Schachter voluntarily enrolled in the Plan. The company argues, however, and we
agree, that “Schachter has put the cart before the horse.” Before Schachter can
argue that the Plan constitutes an improper agreement under section 219, he must
demonstrate that the Plan‟s forfeiture provision violates sections 201 and 202, the
9
statutes governing wage payment upon termination or resignation. This he cannot
accomplish.
Schachter correctly suggests that section 219 prohibits an employer and
employee from agreeing, even voluntarily, to circumvent provisions of article I
(consisting of §§ 200-243) of the Labor Code. Schachter also correctly argues that
“agreement[s] prospectively waiving an employee‟s rights under sections 201 [and
202] to receive all his or her earned but deferred or unpaid wages . . .
constitute . . . waivers which section 219 renders illegal and unenforceable.”
However, it is settled that an employer may unilaterally alter the terms of an
employment agreement, provided such alteration does not run afoul of the Labor
Code. (DiGiacinto v. Ameriko-Omserv Corp. (1997) 59 Cal.App.4th 629, 637
(DiGiacinto); see 3 Witkin, Summary of Cal. Law (10th ed.) Agency and
Employment, § 236 [unilateral reduction in wage].) “There is, of course, a strong
common law presumption that an employee may be demoted at will. Since it is
presumed that an employee may be discharged at will (Lab. Code, § 2922), the at-
will presumption would surely apply to lesser quant[a] of discipline as well.”
(Scott v. Pacific Gas & Electric Co. (1995) 11 Cal.4th 454, 464-465; see
DiGiacinto, supra, 59 Cal.App.4th at pp. 634-635.) The at-will presumption
authorizing an employer to discharge or demote an employee similarly and
necessarily authorizes an employer to unilaterally alter the terms of employment,
provided that the alteration does not violate a statute or breach an implied or
express contractual agreement. (Scott v. Pacific Gas & Electric Co., supra, 11
Cal.4th at p. 465; DiGiacinto, supra, 59 Cal.App.4th at p. 637.) An “employee
who continues in the employ of the employer after the employer has given notice
of changed terms or conditions of employment has accepted the changed terms
and conditions.” (DiGiacinto, supra, 59 Cal.App.4th at p. 637.)
10
It cannot be questioned that employers and employees are free to
prospectively and bilaterally alter the terms of employment. As we recently noted,
“ „[s]traight-time wages (above the minimum wage) are a matter of private
contract between the employer and employee.‟ ” (Gentry v. Superior Court (2007)
42 Cal.4th 443, 456, quoting Earley v. Superior Court (2000) 79 Cal.App.4th
1420, 1430.) Here, when Schachter submitted his Plan election form in December
1994, he agreed to a restructured compensation package for the following year that
included a lower annual salary and payment in the form of restricted stock
“subject to all of the provisions and administrative rules of the Plan.” Again, in
1995, Schachter submitted a Plan election form requesting that he be paid entirely
in cash during the first six months of 1996, and in cash and restricted stock during
the latter six months of 1996. He acknowledged that his resignation or termination
for cause before the end of the two-year vesting period would result in forfeiture
of the restricted stock and the percentage of his compensation that he “authorized
to be paid in the form of such restricted stock.”
Schachter does not contest that he received all of the cash compensation to
which he was entitled. Instead, he argues that the portion of compensation he
directed be paid to him in the form of restricted stock should have been
transformed into a cash payment upon his resignation. This argument is
unavailing. When he executed the Plan election forms, Schachter essentially
renegotiated the terms of his compensation with the company. Schachter elected
to be compensated with a mixture of cash and restricted stock in 1995, and for one
six-month period in 1996. He also elected to be paid wholly in cash for one six-
month period in 1996. Schachter understood that the restricted stock he opted to
receive would have limited and conditional present value and would not fully vest
until two years following the date he received it, provided he remained employed
by the company. As the Court of Appeal explained, “Schachter necessarily agreed
11
his compensation would consist of cash payments and a retention-based
conditional interest in the shares, with the latter being earned only if he remained
with [the company] for two years. He elected not to remain for the designated
period . . . . Accordingly, Schachter did not earn — and thus had no right to
receive — either the restricted stock or the funds used to purchase it.”
Schachter‟s compensation, by his tacit agreement, consisted of a mixture of
cash and incentive compensation. Incentive compensation, whether in the form of
a traditional cash bonus program or a more complex restricted stock plan, is
generally understood as an “ „inducement to employees to procure efficient and
faithful service.‟ ” (Dept. of Industrial Relations, Div. of Labor Stds. Enforcement
(DLSE), Enforcement Policies and Interpretations Manual (Rev. 2006) § 35.1;
quoting Duffy Bros. v. Bing & Bing (1926) 215 N.Y.S. 755, 758.) Eligibility to
receive incentive compensation “is properly determined by the . . . plans‟ specific
terms and general contract principles.” (Neisendorf, supra, 143 Cal.App.4th at p.
523.) While “[t]he public policy in favor of full and prompt payment of an
employee‟s earned wages is fundamental and well established” (Smith v. Superior
Court (2006) 39 Cal.4th 77, 82), “nothing in the public policy of this state
concerning wages . . . transforms [a] contingent expectation of receiving bonuses
into an entitlement.” (Neisendorf, supra, 143 Cal.App.4th at p. 522.) Only when
an employee satisfies the condition(s) precedent to receiving incentive
compensation, which often includes remaining employed for a particular period of
time, can that employee be said to have earned the incentive compensation
(thereby necessitating payment upon resignation or termination). (Ibid.; Lucian v.
All States Trucking Co., supra, 116 Cal.App.3d at p. 975 [“An employee who
voluntarily leaves his employment before the bonus calculation date is not entitled
to receive it”].)
12
Here, of course, Schachter voluntarily terminated his employment before
his restricted stock fully vested. By the terms of the Plan, and Schachter‟s own
concession, he is not entitled to those unvested shares of restricted stock. Having
elected to receive some of his compensation in the form of restricted stock, a
transaction he was aware carried risk as well as the potential for reward, Schachter
cannot now assert that he should have been paid in cash that portion of his
compensation he elected to receive as restricted stock.10 As the company
persuasively argues, Schachter‟s “bargained-for „wages‟ have been paid in full.
He received all of his promised cash compensation, received immediately
exercisable voting and dividend rights in the restricted stock, and was awarded
contingent rights of full ownership in that stock. The only thing that has not been
„paid‟ is something Schachter never „earned‟ — fully vested [company] stock.
Schachter therefore has no claim under [section] 201 or [section] 202.”
We note that had Schachter been involuntarily terminated by the company
without cause, he would have been required to forfeit his shares of restricted stock
in exchange for “a cash payment equal to the portion of his or her annual
compensation that had been paid in the form of such forfeited [r]estricted [s]tock,”
“without interest.” This provision is consistent with contract law principles
prohibiting efforts by one party to a contract to prevent completion by the other
party. (See DLSE, Enforcement Policies and Interpretations Manual, supra,
10
Schachter argues that a determination that he did not earn the shares or the
cash compensation he elected to receive as shares of restricted stock “renders the
Plan‟s income tax deferral a sham if not an outright fraud.” However, as the Plan
indicates, the tax benefit is gained from deferring taxes on awards of restricted
stock until vesting occurs. Because title 26 United States Code section 83 requires
that property must be subject to a “substantial risk of forfeiture” in order to qualify
for tax deferral, providing payment upon an employee‟s resignation or termination
for cause would in all likelihood jeopardize the validity of the tax deferral.
13
§ 35.5.) “If the employee is discharged before completion of all of the terms of
the bonus agreement, and there is not valid cause, based on conduct of the
employee, for the discharge, the employee may be entitled to recover at least a
pro-rata share of the promised bonus.” (Ibid.; DLSE Opn. Letter No. 1987.06.03
(June 3, 1987).) In the analogous context of commissions on sales, it has long
been the rule that termination (whether voluntary or involuntary) does not
necessarily impede an employee‟s right to receive a commission where no other
action is required on the part of the employee to complete the sale leading to the
commission payment. (See Willison v. Turner Resilient Floors (1949) 89
Cal.App.2d 589.) This concept has been colorfully described as “ „ “He who
shakes the tree is the one to gather the fruit.” ‟ ” (E. A. Strout Western Realty
Agency, Inc. v. Lewis (1967) 255 Cal.App.2d 254, 259, quoting Sessions v. Pacific
Improvement Co. (1922) 57 Cal.App. 1, 18; see also DLSE, Enforcement Policies
and Interpretations Manual, supra, § 34.6.)
Here, Schachter‟s actions — not the company‟s — resulted in the loss of
Schachter‟s contingent incentive compensation. As such, Schachter is not entitled
to “gather the fruit” because he failed to perform the condition necessary to do so
— in this case, remain employed with the company until two years had passed
from the date he received the restricted stock. We conclude that the Plan‟s
forfeiture provision does not run afoul of sections 201 or 202 because no earned
wages remain unpaid upon termination for cause or resignation. Because
Schachter‟s claim that the Plan violated section 219 was based on the faulty
premise that the Plan‟s forfeiture provision violated section 201 and 202, we
conclude that Schachter‟s argument that the Plan violates section 219 also fails.
Schachter additionally asserts that his incentive compensation, like vacation
pay, should vest on a pro rata basis, entitling him to at least some payment upon
resignation. We disagree. In Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d
14
774, 781 (Suastez), we held that vacation pay begins vesting as soon as the
employee has performed substantial services for his or her employer. Under
Plastic Dress-Up Company‟s vacation policy, employees were not eligible for any
vacation pay unless they remained employed on the first anniversary of their start
date. (Id. at p. 778.) We found the policy established “a condition subsequent
which attempts to effect a forfeiture of vacation pay already vested,” which is
expressly prohibited by section 227.3. (Suastez, supra, 31 Cal.3d. at p. 781; see
§ 227.3 [“[A]n employment contract or employer policy shall not provide for
forfeiture of vested vacation time upon termination”].) We stated that because
“some share of vacation pay is earned daily, it would be both inconsistent and
inequitable to hold that employment on an arbitrary date is a condition precedent
to the vesting of the right to such pay.” (Suastez, supra, 31 Cal.3d at p. 782.)
Contrary to Schachter‟s assertion, our ruling in Suastez was limited to
vacation pay and cannot extend to voluntary incentive programs, like the one at
issue in this case. In fact, we expressly acknowledged “that vacation pay is not an
inducement for future services, but is compensation for past services.” (Suastez,
supra, 31 Cal.3d at p. 782.) As explained above, the purpose of incentive
compensation is to serve as an “ „inducement to employees to procure efficient
and faithful service.‟ ” (DLSE, Enforcement Policies and Interpretations Manual,
supra, § 35.1, quoting Duffy Bros. v. Bing & Bing, supra, 215 N.Y.S. at p. 758.)
Under our analysis in Suastez, Schachter‟s argument that his incentive
compensation somehow vested like vacation pay necessarily fails because we
concluded in Suastez that “[i]f vacation pay served simply to induce employees to
remain on the job for a certain period of time, then interpreting eligibility
requirements as a condition precedent to the vesting of vacation pay would not be
unreasonable.” (Suastez, supra, 31 Cal.3d at p. 782.)
15
Conclusion
The judgment of the Court of Appeal is affirmed.
MORENO, J.
WE CONCUR: GEORGE, C. J.
BAXTER, J.
WERDEGAR, J.
CHIN, J.
MCCONNELL, J.*
RAMIREZ, J.**
_______________________
*
Presiding Justice, Court of Appeal, Fourth Appellate District, Division One,
assigned by the Chief Justice pursuant to article VI, section 6 of the California
Constitution.
**
Presiding Justice, Court of Appeal, Fourth Appellate District, Division
Two, assigned by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
16
See next page for addresses and telephone numbers for counsel who argued in Supreme Court. Name of Opinion Schachter v. Citigroup, Inc.
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 159 Cal.App.4th 10
Rehearing Granted
__________________________________________________________________________________
Opinion No.
S161385Date Filed: November 2, 2009
__________________________________________________________________________________
Court:
SuperiorCounty: Los Angeles
Judge: Victoria G. Chaney
__________________________________________________________________________________
Attorneys for Appellant:
Law Offices of Ashley D. Posner, Ashley D. Posner and Barbara Brudno for Plaintiff and Appellant.__________________________________________________________________________________
Attorneys for Respondent:
Skadden, Arps, Slate, Meagher & Flom, Raoul D. Kennedy, Joren S. Bass, Joan Shreffler, Douglas B.Adler, Seth M. Schwartz, Jeffrey W. McKenna, William P. Frank, Preeta D. Bansal and Sarah E.
McCallum for Defendants and Respondents.
Ira Hammerman, Kevin Carroll; Morgan, Lewis & Bockius, Sam S. Shaulson, Thomas M. Peterson, Carrie
A. Gonell; National Chamber Litigation Center, Inc., Robin S. Conrad and Shane B. Kawka for Chamber
of Commerce of the United States of America and Securities Industry and Financial Markets Association as
Amici Curiae on behalf of Defendants and Respondents.
Counsel who argued in Supreme Court (not intended for publication with opinion):
Barbara BrudnoLaw Offices of Ashley D. Posner
15303 Ventura Boulevard, Suite 900
Sherman Oaks, CA 91403
(310) 475-8520
Raoul D. Kennedy
Skadden, Arps, Slate, Meagher & Flom
Four Embarcadero Center, Suite 3800
San Francisco, CA 94111
(415) 984-6400
Petition for review after the Court of Appeal affirmed the judgment in a civil action. This case presents the following issue: Does the forfeiture provision of a voluntary incentive compensation plan, which gives employees the option of using a portion of their earnings to purchase shares in the company's stock below market price but provides that employees forfeit both the stock and the money used to purchase it if they resign or are terminated for cause within a two-year period, violate Labor Code sections 201 or 202?
| Date: | Citation: | Docket Number: | Category: | Status: |
| Mon, 11/02/2009 | 47 Cal. 4th 610, 218 P.3d 262, 101 Cal. Rptr. 3d 2 | S161385 | Review - Civil Appeal | submitted/opinion due |
| 1 | Schachter, David B. (Plaintiff and Appellant) Represented by Barbara E. Brudno Law Offices of Ashley D. Posner 15303 Ventura Boulevard, Suie 900 Sherman Oaks, CA |
| 2 | Schachter, David B. (Plaintiff and Appellant) Represented by Ashley David Posner Law Office of Ashley D. Posner 15303 Ventura Boulevard, Suite 900 Sherman Oaks, CA |
| 3 | Citigroup, Inc. (Defendant and Respondent) Represented by Jeffrey William McKenna Skadden Arps Slate Meaghter & Flom, LLP 4 Embarcadero Center, Suite 3800 San Francisco, CA |
| 4 | Citigroup, Inc. (Defendant and Respondent) Represented by Raoul D. Kennedy Skadden Arps Slate Meaghter & Flom, LLP 4 Embarcadero Center, Suite 3800 San Francisco, CA |
| 5 | Salomon Smith Barney, Inc. (Defendant and Respondent) Represented by Raoul D. Kennedy Skadden Arps Slate Meaghter & Flom, LLP 4 Embarcadero Center, Suite 3800 San Francisco, CA |
| 6 | Chamber of Commerce of the United States of America (Amicus curiae) Represented by Robin S. Conrad National Chamber Litigation Center, Inc. 1615 "H" Street, N.W. Washington, DC |
| 7 | Chamber of Commerce of the United States of America (Amicus curiae) Represented by Carrie Anne Gonell Morgan, Lewis & Bockius, LLP 5 Park Plz Ste 1750 Irvine, CA |
| 8 | Chamber of Commerce of the United States of America (Amicus curiae) Represented by Sam Shaulson Morgan, Lewis & Bockius, LLP 101 Park Avenue New York, NY |
| 9 | Chamber of Commerce of the United States of America (Amicus curiae) Represented by Thomas M. Peterson Morgan, Lewis & Bockius, LLP One Market, Spear Tower San Francisco, CA |
| 10 | Securities Industry & Financial Markets Association (Amicus curiae) Represented by Ira Hammerman Securities Industry & Financial Markets Association 1101 New York Avenue, N.W., 8th Floor Washington, DC |
| Opinion Authors | |
| Opinion | Justice Carlos R. Moreno |
| Dockets | |
| Feb 27 2008 | Petition for review filed Appellant David B. Schachter Attorney Ashley D. Posner |
| Mar 5 2008 | Received Court of Appeal record |
| Mar 17 2008 | Answer to petition for review filed Citigroup and Salomon Smith Barney, defendants and respondents Raoul Kennedy, counsel |
| Mar 27 2008 | Reply to answer to petition filed Appellant David B. Schachter ~Attorney Ashley D. Posner |
| Apr 18 2008 | Time extended to grant or deny review The time for granting or denying review in the above-entitled matter is hereby extended to and including May 27, 2008, or the date upon which review is either granted or denied. |
| May 14 2008 | Petition for review granted (civil case) Votes: George, C. J., Werdegar, and Moreno, JJ., and McConnell, A. P. J.* Kennard and Corrigan, JJ., were recused and did not participate. *Hon. Judith D. McConnell, Administrative Presiding Justice of the Court of Appeal, Fourth Appellate District One, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution. |
| May 21 2008 | Received Court of Appeal record |
| May 21 2008 | Request for extension of time filed opening brief/merits to 8-15-08 Appellant David B. Schachter ~Attorney Ashley D. Posner |
| May 29 2008 | Certification of interested entities or persons filed David Schachter, appellant Ashley Posner, counsel |
| May 29 2008 | Certification of interested entities or persons filed Citigroup et al., respondents Raoul Kennedy, Seth Schwartz, counsel |
| Jun 4 2008 | Extension of time granted On application of plaintiff and appellant and good cause appearing, it is ordered that the time to serve and file the opening brief on the merits is extended to and including August 15, 2008. |
| Aug 15 2008 | Opening brief on the merits filed David B. Schachter, appellant Ashely D. Posner, appellant |
| Aug 27 2008 | Request for extension of time filed to file the answer brief on the merits, to 10/15/08 Citigroup, et al, respondents |
| Sep 10 2008 | Extension of time granted On application of respondents and good cause appearing, it is ordered that the time to serve and file the answer brief on the merits is extended to and including October 15, 2008. |
| Oct 15 2008 | Answer brief on the merits filed Citigroup and Salomon Smith Barney, respondents Raoul Kennedy, William Frank, counsel |
| Oct 17 2008 | Request for extension of time filed by David B. Schachter, appellant Ashley D. Posner, counsel |
| Oct 22 2008 | Extension of time granted On application of appellant and good cause appearing, it is ordered that the time to serve and file the reply brief on the merits is extended to and including December 17, 2008. |
| Dec 17 2008 | Application to file over-length brief filed Reply Brief/Merits Appellant David B. Schachter ~Attorney Ashley D. Posner |
| Dec 17 2008 | Received: Oversized Reply Brief/Merits Appellant David B. Schachter ~Attorney Ashley D. Posner |
| Dec 24 2008 | Reply brief filed (case fully briefed) David Schachter, appellant Ashley Posner, counsel filed with permission |
| Jan 15 2009 | Received application to file Amicus Curiae Brief Chamber of Commerce of the United States of America and Securities Industry & Financial Markets Association Thomas Peterson, Carrie Gonell, counsel |
| Jan 22 2009 | Application to appear as counsel pro hac vice (granted case) Sam Shaulson as counsel for amici |
| Feb 4 2009 | Permission to file amicus curiae brief granted The application of Chamber of Commerce of the United States of America and Securities Industry and Financial Markets Association for permission to file an amicus curiae brief in support of respondent Citigroup is hereby granted. An answer thereto may be served and filed by any party within twenty days of the filing of the brief. |
| Feb 4 2009 | Amicus curiae brief filed Chamber of Commerce of the United States of America and Securities Industry and Financial Markets Association Sam S. Shaulson, Thomas M. Peterson, Carrie A.Gonell, Robin S. Conrad, Ira Hammerman, counsel |
| Feb 4 2009 | Application to appear as counsel pro hac vice granted The application of Sam S. Shaulson of New York for admission pro hac vice to appear on behalf of amici curiae Chamber of Commerce of the United States of America and Securities Industry and Financial Markets Association is hereby granted. (See Cal. Rules of Court, rule 9.40.) |
| May 14 2008 | Justice pro tempore assigned Hon. Judith McConnell (4/1) (Kennard and Corrigan, JJ., are recused) |
| Jul 20 2009 | Justice pro tempore assigned Hon. Manuel A. Ramirez (4/2) (Kennard and Corrigan, JJ., are recused) |
| Jul 31 2009 | Case ordered on calendar to be argued Wednesday, September 2, 2009, at 9:00 a.m., in San Francisco |
| Aug 14 2009 | Supplemental brief filed Plaintiff and Appellant: Schachter, David B.Attorney: Ashley David Posner |
| Aug 21 2009 | Received: Letter dated August 19, 2009,from counsel for appellant entitled "Amended List of Additional Cases", by Barbara Brudno, counsel. |
| Aug 21 2009 | Received: letter dated August 21, 2009, from counsel for Citigroup Inc., responent regarding an additional list of cases for oral argument, by Raoul D. Kennedy, counsel |
| Sep 2 2009 | Cause argued and submitted |
| Oct 30 2009 | Notice of forthcoming opinion posted To be filed Monday, November 2, 2009 at 10 a.m. |
| Briefs | |
| Aug 15 2008 | Opening brief on the merits filed |
| Oct 15 2008 | Answer brief on the merits filed |
| Dec 24 2008 | Reply brief filed (case fully briefed) |
| Feb 4 2009 | Amicus curiae brief filed |
| Brief Downloads | |
 | |
| May 4, 2010 Annotated by cdbrown9 | Facts: Plaintiff David Schachter was a stockbroker for Smith Barney, Inc., a subsidiary of Citigroup, Inc. As a Citigroup employee, he was eligible to take part in Citigroup’s voluntary employee incentive compensation plan, which allowed employees to elect to receive a designated percentage of the their yearly income in the form of discounted, restricted company stock. This restricted stock would vest two years from the purchase, as long as the employee remained employed by the company. If the employee voluntarily terminated employment or was terminated for cause before the two years had passed, he or she forfeited any restricted stock acquired. If the employee was involuntarily terminated, he or she would still forfeit the restricted stock but would be compensated for the income used to purchase it. During the two year vesting period, the employee could not sell the restricted stock but would be eligible to receive dividends and voting rights for it. Procedural Posture: Schachter filed a putative class action against Citigroup alleging that (1) the forfeiture provision violated sections 201 and 202, which require an employer to promptly pay an employee all earned wages upon termination or resignation; (2) the forfeiture provision violated section 221, which prohibits an employee from returning wages; and (3) the forfeiture constituted unlawful conversion of wages. Citigroup filed a motion for summary judgment that was denied by the trial court. The case was litigated for several years, during which time Schachter amended his complaint three times, a class of former employees was certified and an intervening appeal was completed. Citigroup made a second motion for summary judgment, which the trial court elected to reconsider. The trial court then concluded that the forfeiture provision did not violate sections 201 and 202 and granted Citigroup’s motion for summary judgment. The Court of Appeal affirmed the trial court’s grant of summary judgment. Holdings: 1. Shares of restricted stock constitute a “wage” under the California Labor Code. Court’s Analysis: • Schachter’s cash compensation and the restricted stock, including the voting rights, dividend rights and contingent future rights of ownership, constituted his wages. |
