Labor and Employment Law Blog

Yahoo CEO Jerry Yang is Entitled to Overtime

The general rule in California is that everyone is entitled to overtime unless they meet one of the narrowly defined exemptions.  This means that many nurses, field service engineers, computer programmers, and IT Engineers, are entitled to overtime pay. But, is it possible that Jerry Yang, the co-founder and CEO of Yahoo could also sue for overtime pay?  Surprisingly, the answer seems to be "Yes."

As surprising as this seems, it does not alter the fact that a person must meet all of the requirements of an exemption in order to be exempt from overtime.  While certain exemptions do not require that an employee be paid on a salary basis (such as interstate truck drivers and outside salespersons), others do.   In this case, it is not likely that Mr. Yang would qualify as an interstate truck driver or an outside salesperson, so the company would probably rely on the Executive Exemption -- he is, after all, the CEO.  However, this exemption requires, among other things, that the employee be paid on a salary basis of at least two times minimum wage.  Currently, this amounts to $640 per week.  If you make less than this, you simply can not be exempt from overtime under the Executive Exemption.    

Even if you make more than $640 per week, problems frequently arise when the employer makes illegal deductions from your paychecks.  For instance, if you have money deducted from your pay if you work less than 8 hours in a day or you are not paid for company holidays, you will not be seen as being paid "on a salary basis," and the exemption will not apply to you no matter how many people you supervise.

So, why is Mr. Yang entitled to overtime?  In a recent article on Jerry Yang's pay, it was reported that Mr. Yang only receives a salary of $1 per year.  As such, he does not meet the minimum salary requirement for the exemption, so he can not qualify for that exemption. 

It should be noted that Federal Law has an exemption for people who own more than 20% of a business.  This exemption does not require that a proper salary be paid.  However, Mr. Yang only owns 3.9% of Yahoo.  While this may make his net worth about $1.5 Billion, it still means that the exemption does not fit.   Fortunately for Mr. Yang, this means that he would also be entitled to liquidated damages on any unpaid overtime.

Some may consider this an interesting academic argument because Mr. Yang is unlikely sue for unpaid overtime and minimum wage violations.  However, with the Private Attorney General Act of 2004, it turns out that anyone who works at Yahoo can sue for civil penalties on his behalf -- as long as that person suffered at least one labor violation.  As such, if a IT worker at Yahoo is not paid overtime, not only can he sue for his own overtime, but he can sue for civil penalties for Mr. Yang not being properly paid his overtime.  Given that in addition to overtime violations, there are also minimum wage violations, pay check stub violations, meal break violations, and record keeping violations, the amount of these civil penalties could add up quickly.

In a recent case, my office used the Private Attorney General Act to sue on behalf of various computer programmers who were not paid overtime even though my client was not a computer programmer.  The Defendant tried to have the claims thrown out, but the Judge allowed them to stay in. (Attorneys who would like copies of the briefs can contact me.)  It will be interesting to see how the case ultimately develops, but the Private Attorney General Act does seem to offer some promise in addressing labor violations in which the victim is unlikely to actually sue.  While the case about Mr. Yang is illustrative of how the law might be used, the more practical applications that we are using it for is to sue for unpaid interns and other low paid employees who are either afraid or unwilling to assert their own rights to be properly paid.

For attorneys reading this, you should also note that I have used the salary basis issue to get overtime for contract attorneys.  There is an interesting issue about whether these attorneys are also entitled to liquidated damages, but I have never been able to test this out out, as these cases have all settled very quickly.

Unpaid Internships - Common but Illegal

A common, but frequently unreported labor violation is the use of unpaid interns in violation of minimum wage and possibly overtime laws.  The scenario is fairly typical: a company offers an opportunity to ‘break into the business’ in exchange for the intern working for free.  You see many examples of this in the entertainment industry.  In fact, despite jobs sites such as Craigslist prohibiting the posting of unpaid “internships,” you can almost always find one posted.  Some companies try to get around the law by requiring that the internship be part of a college program.  However, there is no exception to the law allowed just because the “intern” may receive college credit.  While it might be possible for a college credit course to require some type of training for a company, the vast majority of these internships are in violation of Federal as well as California labor laws.

In order to qualify as an unpaid internship, the requirement is simple:  no work can be performed that is of any benefit at all to the company.  That is, you can not deliver mail, sort files, file papers, organize a person’s calendar, conduct market research, write reports, watch television shows and report on them, read scripts, schedule interviews, or any other job that assists the employer in any way in running their business.   

Examples of internships that have been legal are where the job is a “dummy” job.  For example, there was a case of an internship for working on a train.  The company had the interns driving trains from one end of their yard to the other under close supervision.  The moving of the trains was completely unnecessary and was just being done to train the potential employees. As such, no “work” was being performed, so the internship was legal.  On the other hand, if the workers were moving the trains as part of the regular re-positioning of the trains, but were still performing it under close supervision, they would be required to be paid for the work.

Thus, if in the entertainment industry, you read scripts that have already been read and rejected by the company and the company will not use your input in any way but is simply instructing you on how to read scripts, then they would not need to pay you for your time.  However, if you read the scripts and perform any work that is used by anyone in the company to make any type of decision about that script, then you must be paid for your time.

Another common type of unpaid internship is in martial arts schools that require students to teach classes in order to receive additional belts.  This practice is illegal unless the student is paid for the time.  Because the act of teaching a class is work that benefits the employer, it must be paid for.   

The U.S. Department of Labor has outlined a list of criteria that ALL must be met in order for an internship to be unpaid.

1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
2. The training is for the benefit of the trainee;
3. The trainees do not displace regular employees, but work under close observation;
4. The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion the employer’s operations may actually be impeded;
5. The trainees are not necessarily entitled to a job at the completion of the training period; and
6. The employer and the trainee understand that the trainees are not entitled to wages for the time spent in training.

From the above list, #4 is really the key one – all the others will follow from whether the employer derives any immediate benefit from the activities.

The main reason that you do not see more lawsuits regarding unpaid internships is that the interns are very unlikely to sue.  In most cases, they fear being blacklisted, as they will undoubtedly need to use the internship as a reference to get any future work.

This is where California’s Private Attorney General Act comes in.  Because this law allows anyone at the company to sue for labor violations, even if they themselves are not affected by the violation, it is now possible for these companies to be brought into compliance with the law.  If you work for a company that uses unpaid interns and would like to put an end to this illegal practice, you should consider bringing a Private Attorney General cause of action.

Of course, if the internship is work, not only minimum wage must be paid, but also California overtime (8 in a day / 40 in a week) as well as meal and rest breaks.