Baker's Choice: May 2009

After our long, hard winter, the flowers are blooming, baseball season is in full swing, summer vacation is peeking over the horizon. . . . Before spring fever completely overtakes us, we're sending links to some of the more interesting exec comp and employment developments of early 2009, including the new federal COBRA premium subsidy, the Lilly Ledbetter Fair Pay Act, and the rush to exchange underwater options at companies like Google. Plus, a cautionary tale about relying on someone else's lawyer and an update on the SF municipal health ordinance battle.

• Help from Uncle Sam for post-termination health insurance premiums. Title III of the American Recovery and Investment Act of 2009 (ARRA), signed into law by President Obama on February 17, sets out a 65% subsidy for COBRA premiums paid by any individual who would otherwise lose group health coverage due to an involuntary termination of employment between September 1, 2008 and December 31, 2009. Although the law includes many complicated rules, its purpose is simple: to give people who have lost their jobs during this financial crisis the ability to retain health insurance for themselves and their families. Both the Department of Labor and the Internal Revenue Service have posted (or will be posting) plain language guidance for employees, and model forms for employers, online. I've uploaded the key IRS guidance, Notice 2009-27 for your convenience, and I've also pulled together an overview of some of the highlights for you in the form of a summary table.
  


• Congress overrules the US Supreme Court on un-equal pay. Almost two years ago, Rick Levine wrote here about the surprising decision in Ledbetter v. Goodyear Tire and Rubber Co. Inc., where a sharply divided Supreme Court held that the statute of limitations for pay discrimination under Title VII runs (and expires soon after) the first pay violation occurs, even when it would be impossible for the employee to know about the violation until much later. As Rick noted in his article, Justice Ginsberg's dissent in Ledbetter focused specifically on the practical impact of this ill-advised decision, and urged Congress to correct the "cramped" interpretation of the majority. In January 2009, Congress did just that, passing the Lilly Ledbetter Fair Pay Act to extend the statute of limitations to the first known violation: a very significant move going forward (although, sadly, of no help to Ms. Ledbetter). In enacting the new law, Congress (and the Obama administration) took Justice Ginsberg's "real world" considerations to heart, with the result that employees who are subject to an ongoing course of pay discrimination will have a realistic chance of remedy from here on.
  


• Employee stock option exchanges back in the news. With stock prices in free-fall, companies that use equity grants to compensate employees are confronting the "underwater option" problem, a problem we last saw during the dot-com bust at the turn of the century. When options are underwater (or "out of the money"), it means they have an exercise price that is greater than their current trading price -- not very motivating for employees with equity as a key component of their compensation. Despite dire warnings from stockholder groups, a number of high profile companies -- including Google, Intel, and Starbucks -- have chosen to allow employees who hold underwater options to exchange them for new options at the current market price. In January, trailblazer Google acknowledged that 85% of its employees held underwater options priced at $400+ (repricing to market was at $308.57); shareholders in fact responded to disclosure of the program with good cheer, bidding Google's stock price up by 6% on the day after it was announced. Google will take an accounting hit of $360 million for the March 2009 exchange.
  


• When should the company's corporate lawyer also be the executive's personal lawyer? [Hint: begins with "n" and ends with "r"]. Did you guess "never"? We give this advice to clients -- and other lawyers -- all the time, and the story of Laura Pendergast-Holt, former CIO of Stanford Financial Group, is a cautionary tale for both sides. Pendergast-Holt was charged earlier this year with criminal obstruction in the wake of a meeting in which she allegedly lied to the SEC investigators under oath. The only non-SEC lawyer in the room during the meeting was from the company's outside law firm, Proskauer Rose. Although it appears that the lawyer told both Pendergast-Holt and the SEC that he did not represent her personally, she claims to have thought otherwise, and the hearing proceeded (with disastrous results for her). Pendergast-Holt is represented now -- including in her malpractice suit against Proskauer Rose. The dangers – both to executives regarding company counsel as personal counsel and to those counsel themselves – do not always make the sort of headlines made by the Prendergast-Holt/Proskauer case; Rick describes some of the serious pitfalls in a new article, Yours, Mine and Ours: Who Does the Company's Lawyer Represent?.
  


• Odds and ends: The San Francisco Municipal Health Care Security Ordinance (HCSO) case continues to wend its way through the courts. As we you know, we've been following the fight between Golden Gate Restaurant Association and the City since the passage of the HCSO in 2006. Last year, the 9th Circuit upheld the HCSO; in March, the 9th Circuit (sitting en banc) rejected the GGRA's petition for rehearing and Justice Kennedy denied its subsequent request for a stay. The SF Chronicle recently reported that GGRA turned down a settlement offer from the the City and the group's website indicates that it will file its petition for cert with the US Supreme Court in June. As we noted last year, the split in the circuits on this issue makes it a good candidate for Supreme Court review next session. . . Last (and certainly least): Believe it or not, I'm still revising that same book every year! The NCEO has just published the Tenth Anniversary edition of The Stock Options Book. What happened to that decade, anyway?