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NAW News

Legal Update

- April 2011

California Court Halts Manufacturer From Dictating Resale Prices for its Products

Bioelements, Inc. markets a proprietary line of products at beauty salons across the United States and through a network of independent online retailers. In mid-2009, Bioelements entered into written contracts with several dozen California-based companies for the online retail sale of its products to the public. The contracts stated the retailer “shall not charge less than the Manufacturer’s Suggested Retail Price (MSRP)” when reselling Bioelements product, or the retailer is “prohibited from charging more or less than the Manufacturer’s Suggested Retail Price (MSRP).”

According to the California Attorney General, the state’s antitrust and unfair competition laws prohibit vertical price-fixing—namely, a supplier cannot require, or agree with, a reseller of the supplier’s products to resell at a minimum price (e.g., not below MSRP), or at a set price (MSRP). A wholesaler-distributor or other reseller must be free at all times to set the price independently, without influence from the supplier.

In December 2010, California filed suit against Bioelements for vertical price-fixing in violation of the Cartwright Act (the state antitrust law) and unfair competition law. (People v. Bioelements, Inc., Cal. Superior Court). Less than a month later the parties entered into a settlement agreement in the form of a stipulated court order and permanent injunction that requires Bioelements to:

  • Permanently refrain from fixing resale prices for its products, including via any contracts, obligations or agreements of any kind, oral or written, that fix or set a standard or minimum resale price;
  • Advise its resellers that Bioelements disavows and will not enforce any agreement or understanding that purportedly obligates the reseller to maintain certain resale prices for Bioelements products; and
  • Advise Bioelements officers, directors, and employees of the terms of the permanent injunction.

Federal Antitrust Law Does Not Preempt State Law

The settlement is one of the first applications of California’s strict state antitrust law banning vertical price-fixing, in the wake of a 2007 U.S. Supreme Court decision that relaxed federal antitrust law in this area. In Leegin Creative Products, Inc. v. PSKS, Inc., the U.S. Supreme Court narrowly ruled (5-4) that vertical price-fixing agreements may not violate federal law if the agreements on balance have a pro-competitive effect. However, as this California case illustrates, conduct that may be acceptable under federal antitrust law may nevertheless violate a state’s antitrust law.

Employee Use of PDA May Trigger Overtime Pay Obligation

Are your employees using their company-provided or personal BlackBerry, iPhone or other personal digital assistants (PDA’s) to check and send business-related emails during non-office hours? If these workers are nonexempt employees, the wholesaler-distributor may be exposed to claims for overtime pay for this off-hours work.

Under the Federal Labor Standards Act (FLSA), unless an employee is “exempt”, the worker must be paid overtime (at least time-and-a-half the regular hourly rate) for time worked more than 40 hours in a workweek. Exempt employees are generally salaried workers who qualify under Labor Department regulations as a bona-fide executive, administrative, professional, computer or outside sales personnel. (See Department of Labor regulations, 29 CFR Part 541). An employee’s job title or status as a salaried worker is not determinative of whether he or she is “exempt”. The regulations require an analysis of the employee’s pay level and the primary duties actually performed by the worker in order to qualify as an exempt worker. All other workers are “nonexempt”, and thus must receive overtime pay for hours worked in excess of 40 per workweek.

Several class action lawsuits have been brought under the FLSA against employers who issued PDAs to their nonexempt employees and expected, or permitted, the employees to respond to business-related emails and calls outside of normal business hours. The suits contend that the employees should be receiving overtime pay for the time spent responding to the emails and calls during off-hours. The cases are pending.

Even nominal use of a PDA during off-hours can add up to several hours or more per week. In a class action case—where a potentially large group of similarly situated employees is involved—the monetary exposure can be substantial. Each employee in the class may recover two-times the amount of unpaid overtime pay, plus recover his or her attorneys fees and litigation costs.

Employer Policies

To limit this exposure, the wholesaler-distributor can issue a PDA only to exempt workers and have a policy that nonexempt workers are not expected or permitted to respond to business-related emails from any device during non-business hours. If it is essential to equip a nonexempt employee with a PDA, then the employer needs to establish rules as to their off-hours use, e.g., use is prohibited, or to be used only with express authorization, or to be used only under certain circumstances.

Finally, whatever the policy, the wholesaler-distributor should require its nonexempt employees to track and record all time spent using any PDA or other device for work purposes during off-hours. Requiring a nonexempt employee to keep contemporaneous time records and regularly provide the recorded time to the wholesaler-distributor will help control overtime and limit exposure to substantial claims for overtime pay.

FLSA Antiretaliation Provision Protects an Employee’s Oral Complaint of a Violation

The Fair Labor Standards Act (FLSA) sets forth employment rules concerning minimum wages, maximum hours and overtime pay. The Act contains an antiretaliation provision that makes it unlawful for an employer:

“… to discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to [the FLSA], or has testified or is about to testify in such proceeding …”(29 USC 215)

Federal appeals courts have been divided on whether an employee’s oral FLSA complaint is protected by the antiretaliation provision, since “filed” suggests that the complaint needs to be in writing. In a 6-2 ruling, the U.S. Supreme Court held that an employee’s oral complaint is covered by the above antiretaliation provision. The complaint need not be in writing, the Court ruled. (Kasten v. Saint-Gobain Performance Plastics Corp., No. 09-834).

At issue in this case was the employer’s placement of a time clock that prevented workers from receiving credit for time spent putting on and taking off required personal protection gear. On several occasions, the plaintiff orally complained to company officials about the time clock placement, asserting that it was illegal. He was subsequently discharged – allegedly in retaliation for his complaints. The employer countered that the termination was due to the plaintiff’s repeated failure to follow company policy on clocking-in. The Court stated that an employee’s oral complaint may fall within the Act’s antiretaliation provision, but it “must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection.”

Additionally, the employer argued that a complaint covered by the antiretaliation provision must be made by the employee to the Government, not to a private employer. Since this issue was not raised in the initial briefs, the Court stated “no view on the merits of Saint-Gobain’s alternative claim.” In this case both the district court and the 7th Circuit appeals court ruled against Saint-Gobain on this claim.