Baker's Choice: September 2005

As we head into fall, I have a new look for this e-letter and lots of news for my clients and friends. First, I am delighted to tell you that as of September 1 2005, I have joined forces with my long-time colleague, Richard E. Levine, to form Levine & Baker LLP in San Francisco. As many of you already know, Rick is a business law litigator with close to 30 years of experience representing both executives and companies in employment-related disputes. Rick and I are excited about the synergy that our two law practices provide, and we look forward to making this combined expertise available to our clients. Read more about Rick and our new firm (including all of our new contact info). But don't hesitate to give me a call at (415)391-3510 if you want the whole scoop!

Now, enough about me . . . on to substantive matters!

• The California Supreme Court has been busily reviewing sex discrimination cases this year, with interesting results. By now, most of you have read about the California Supreme Court's decision in Miller v. Department Of Corrections (PDF, 163KB), which held that in certain circumstances, "paramour" favoritism can create a "hostile environment" for purposes of making a sex discrimination claim. Law firms and newspaper pundits have been grimly shaking their heads over the dire state of employee affairs (pun intended!) in California. But does Miller really change the rules already in place for ensuring a compliant workplace? We don't think so. We've put together a few quick thoughts (PDF, 93KB) on how executives and employers should approach their responsibilities after Miller. For those who want a more detailed discussion, take a look at our article, Nothing Tragic in Miller Ruling (PDF, 77KB), which appeared in The Recorder on August 19, 2005. In addition, in Yanowitz v. L'Oreal USA, the Court gave whistle blower protection to an employee who never blew the whistle when she claimed that she was the victim of retaliation for her refusal to follow an allegedly discriminatory workplace practice. Rick finds this case even more significant than Miller, and has jotted down a summary (PDF, 136KB) of its impact on workplace practices for your information.


• The IRS has been very busy with compensation issues this year and the results are a mixed bag for taxpayers. In a real win for employees, IRS Notice 2005-42 provides that amounts deferred under a cafeteria plan in one calendar year may be used to reimburse qualifying expenses incurred through March 15 of the following year, a major positive change from the historical "use it or lose it" rule in place until now. Further, after years of equivocating, the IRS finally withdrew proposed regulations (PDF, 51KB) that would have required FICA and FUTA withholding on disqualifying dispositions of ISO and ESPP stock. On the other hand, the IRS published its Executive Compensation-Fringe Benefits Audit Technique Guide, making it clear that tax issues related to highly compensated individuals are a serious priority for the agency. And while limited transition guidance for Section 409A's deferred compensation rules came out earlier in the year, as of this writing the widely-anticipated second installment (originally scheduled for June 2005) has yet to be published due to the complexity of the questions raised.


• Sexual harassment training in California under AB 1825 starts now. Any California employer of more than 50 employees must provide its supervisors with at least two hours of live, interactive class-room training by December 31, 2005. After that, updates, monitoring and compliance will be required on an ongoing basis. We're offering this training to our clients, so I encourage you to give us a call or email so we can help you set up and implement a compliant program before deadline.


• Quick Links: That incomprehensible new tax boilerplate you see popping up on all lawyer communications (including this one!) is in response to the June 2005 guidelines under IRS Circular 230; the goal was to deter illegal tax shelters but the language is so broad that the disclaimer is ending up everywhere, even on e-mails confirming telephone calls. . . . . In August, the Delaware Chancery court finally ruled in In re Walt Disney Co. Derivative Litigation that Disney directors did not breach their fiduciary duty in the hiring and firing of Michael Ovitz ten years ago, but note: the judge suggested that, when viewed in the light of (post-Enron) governance/executive compensation standards, future board decisions might be treated with less judicial deference. . . . Executives currently engaged in negotiating your employment agreements might enjoy reading Mark Gordon's suggestions for Negotiating What You're Worth in the Harvard Management Communication Letter.. . Finally, I invite those who'd like to see a review of last year's stock option cases to check out my 2005 Equity Compensation Legal Update (PDF, 162KB) article, which appeared in the Spring 2005 issue of The Journal of Employee Ownership Law and Finance.

As always, I welcome your questions and comments. And if you find yourself in downtown San Francisco, I hope you will drop by the Levine & Baker office at One Maritime Plaza to touch base with me and Rick in person.