Wage Law

A financial brokerage company offers qualifying employees an incentive compensation plan that allows participants the option of using a portion of their annual earnings to purchase shares in the company’s stock at a price below the stock’s publicly-traded market price.  If the participating employee resigns or is terminated for cause within a two-year vesting period, the employee forfeits the stock as well as the money used to purchase it. Do the forfeiture provisions of this voluntary incentive compensation plan violate Labor Code sections 201 and 202, which require an employer to pay its employee all earned but unpaid compensation following the employee’s discharge or his or her voluntary termination of employment? In a word, no. Schachter v. Citigroup. Inc. (2008) __ Cal.App.4th __.

As a matter of economic reality, employees who elect to participate in the plan’s stock-purchase program are paid all the wages they designate to invest in company stock. Thus, the plan’s forfeiture provisions do not violate the Labor Code; and the trial court in this case properly granted summary judgment in favor of the brokerage company.

We've read it, but we find the twisted reasoning in section three of the opinion ("Enforcement of the Plan’s Forfeiture Provisions Does Not Violate Sections 201 or 202") to be a little Kafkaesque. Read it yourself and tell us if you disagree. You can download the full text of Schachter v. Citigroup. Inc. here in pdf or word format. One thing is for sure, the Supreme Court is taking a little extra time to consider this one. The High Court has extended its time to grant or deny review in the case to May 27, 2008.