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Fewer Dreams of Riches Mean More Suits for Overtime and Other Mundane Pay: Electronic Arts Rethinks Perks

Wall Street Journal, Page 1, February 24, 2005

A hallmark of the boom years in high-tech was its work ethic: killer hours, often at modest salaries, without complaint. It was a small price for the excitement and the shot at a bonanza someday.

But as high-tech riches have faded, a different attitude toward employers is popping up: Pay me overtime, or I’ll sue.

Hidetomo Morimoto took a job in 2003 at a tech company that translates English software into Japanese. With the tech bubble already burst, he was grateful for the job, even though it paid just $1,800 a month to start. He soon found himself working 60 hours a week, Mr. Morimoto says, and during crunch times often didn’t leave till 1 a.m. Yet he says he never received any overtime pay.

In May, after he complained in an Internet posting that some Japanese employers took advantage of their staff’s strong work ethic, Mr. Morimoto found himself out of work. Now the 31-year-old is suing his old employer, demanding the overtime pay he says he should have received. The employer, Pacific Software Publishing Inc. in Bellevue, Wash.,           maintains it wasn’t remiss because Mr. Morimoto spent all of his extra hours in the office on personal matters, not work. It is countersuing, alleging defamation.

In the past 18 months, labor suits such as this have hit technology outfits ranging from start-ups to established companies. “Wage-and-hour class-action law suits have now invaded high-tech in the Valley,” says Lynne Hermie, an attorney representing several companies.

Accusations in the spate of suits include denying overtime pay, substituting stock options of little value for cash bonuses, and even not paying promised salaries. In a few cases, notably at video-game publisher Electronic Arts Inc., the ferment is prompting executives to         re-think job and compensation policies.

Changes to federal overtime law and a new California statute appear to have helped encourage the labor litigation. A 2004 U.S. law added certain white-collar groups to the list of those eligible for overtime. And California’s 2004 Private Attorneys General Act permitted workers to sue employers to enforce the state’s labor code. The state law in­creased both the opportunities to sue and the potential gain from doing so.

The increased litigation in technology is emblematic of how its workers’ expec­tations have changed. Amid the boom, as workers relished their pioneering role and appreciating stock options, some bragged about their long hours and disdained overtime pay as the mark of a clock-watcher.

There are still some fast-growing tech companies, notably Google Inc. and eBay Inc. But U.S. corporate spending on technology has slowed to a 12% annual growth rate, from the high teens in the late 1990s. Some tech behemoths are be having more like mature companies now— witness Microsoft Corp.’s 2003 decisions to start paying a dividend and stop giving stock options. Most notable is the change in job opportunities. About 900,000 U.S. technology jobs vanished in the four years through late 2004, according to Economy.com, which says out-sourcing accounted for 40% of the loss.

A result is the kind of wage-and-hour suits previously seen in such old-line in­dustries such as retailing and hotels. “Reality has set in,” says Harvey Sohnen, a labor attorney in Orinda, Calif. He says that “many tech workers are net slaves, putting in unconscionable hours and getting nothing but ashes in their mouth when their options became worthless. Now they just want to get paid.”

The lawsuits depict an industry focused intently on cost control. In one suit, several former salesmen last year accused Oracle Corp. of failing to keep accurate time records of their work in order to avoid paying them overtime. A former International Business Machines Corp. technician sued IBM in December, alleging that managers had asked him to manipulate his time cards to reduce over time pay. The technician, Ray Wheeler, says he was laid off when he complained.

IBM declined to comment on Mr. Wheeler or his suit, filed in Washington state’s Pierce County Superior Court. Oracle said the former salesmen’s complaint, in federal court in San Francisco, is without merit. An attorney close to the matter said Oracle is in talks to settle it.

Electronic Arts faces labor litigation despite a robust stock price that can reward employee shareholders just as in the tech boom. An EA employee filed suit in July, accusing the Redwood City, Ca lif., company of denying him overtime pay he was due. California labor law says software employees needn’t be paid for overtime if they meet certain tests, such as doing “intellectual or creative” work or exercising “discretion and independent judgment.” The employee, Jamie Kirschenbaum, said this doesn’t mean him. An animator for the game maker, he said in his complaint that as an “image production employee,” he follows strict instructions to produce graphics.

Several former EA image workers have joined his suit, which is in California Superior Court in San Mateo County. An EA engineer in Culver City, Calif., has filed a separate overtime suit in the same court. All of the plaintiffs or their lawyers declined to comment on the suits.

EA “believes it has acted lawfully and appropriately and we dispute the plaintiffs’ allegations,” said Rusty Rueff, executive vice president for human resources. The company is the largest video game publisher, with hit franchises such as The Sims and Madden football.

Mr. Kirschenbaum’s suit set off a firestorm on the Internet. In a posting in November, someone identified as “EA Spouse” wrote a vivid account of how she said the game company was overworking her husband. Joe Straitiff, a former soft ware engineer at EA, wrote that he had worked 70-hour weeks there for months during the frenetic “crunch time” when development milestones are being met.

In an interview, Mr. Straitiff said he was fired late last year because of repeated conflicts with his supervisor, mostly over long hours. “At every other company I’ve worked for, there was no such thing as mandatory overtime, but I was told by my EA manager I was expected to work long hours,” he said. EA declines to discuss why Mr. Straitiff left.

Need for Change

In December, EA’s Mr. Rueff acknowledged a need for change. “As much as I don’t like what’s been said about our company and our industry,” he wrote in a memo to employees, “I recognize that at the heart of the matter is a core truth: the work is getting harder, the tasks are more complex and the hours needed to accomplish them have become a burden. We’re forced to look at making some changes,”

The company recently polled employees on the quality of their working life. In response, Mr. Rueff said in an interview, it is developing plans to weed inefficiencies out of the game-creation process to improve the environment for workers.

The executive said California labor law puts more burdens on companies than other state or federal laws, and hasn’t kept pace with changes in the tech industry. “The fact that I have to argue and defend that an artist is con sidered creative or not creative under California labor laws is an amazing thing,” he said.

Mr. Rueff said EA is mulling some far-reaching moves as a result of the labor environment and industry changes. It may reclassify some jobs to make them eligible for overtime pay—but, for these jobs, may possibly drop such main stay Silicon Valley perks as stock options. He also said EA is seriously thinking about putting more new jobs—positions that would otherwise be based in Silicon Valley—in its development centers in British Columbia, Montreal and elsewhere. ‘We’re not looking for the lowest-cost environment, but there is a point where the California premium becomes too high,” he said.

Digging Into Savings

At start-ups, some lawsuits center on more-basic compensation matters. Dave Benach says he joined Unplugged Inc., a tiny wireless-games maker in Berkeley, two years ago, and was promised a $65,000 annual salary and a 3% equity stake.  If the company flourished, he fig ured, his stake could be worth millions.

In his first months, Mr. Benach says, he didn’t get paid. He didn’t mind at first, figuring Unplugged would pay once its business got off the ground. But he says that even after it published several wireless games in late 2003, his checks didn’t materialize.

For living costs, Mr. Benach, 32, dug into $30,000 in savings, relied on his wife’s income as a restaurant manager and sold some parts from his old BMW on eBay.  Mr. Benach says that when he complained to the company founder, he was told payments would be coming.

In December 2003, Mr. Benach says, Unplugged paid him $2,000. He says he got no more until nearly six months later, when he received $1,500. He put out feelers for other jobs, but retracted them when Unplugged landed a gig to develop a game around “Mean Girls,” the teen movie. “It was hard to walk way,” he says, because “I’d put my heart and soul into the products for more than a year.”

He compared notes with a colleague, Jeff Linam, who also said he wasn’t getting his pay. “It was one excuse after another,” Mr. Linam said in an inter view.

By last September, says Mr. Benach, he had received just $8,630 for nearly two years of work. Unplugged confirms the number. Mr. Benach resigned and asked for $99,700 that he figured he was owed. Not getting it, he sued for the money.

A lawyer for Unplugged, Manuella Hancock, says, “In a start-up, it takes a long time for the money to come in. No one was taking a salary. The plaintiff simply got tired of the frontier, and now he’s trying to get some money out of it.” The company hasn’t gone public.

Ms. Hancock also says Mr. Benach wasn’t a full-time employee but an independent contractor, at $20 an hour, for most of his time there. Mr. Benach denies that. His suit, in California’s Alameda County Superior Court, is in the discovery phase.

His former colleague Mr. Linam filed a wage suit in the same court last month. He says Unplugged paid him only $5,130 after a year and a half of work. The company says he, too, was an independent contractor most of his time there.

Mr. Benach has since ditched technology. He found work as a recruiter in the packaging industry. “It’s a relief” to be out of tech, he says.

Mr. Morimoto, the man suing a company that translates software into Japanese, was late to the tech game. A biology student in Japan, he moved to Seat tle in 1999, beginning a three-year programming course when biology jobs proved scarce. By the time he finished, even many skilled programmers were jobless. He took the Pacific Software job despite its low pay because “I was desperate to find a job in the computer field.”

Mr. Morimoto created server ap plications. He also maintained them after a project was done. As new business rolled in, his job included not only taking care of new projects but also keeping an eye on his previous ones. To get everything done, he says, he had to work longer and longer, sometimes 80 hours a week.

His pay rose to $2,200 a month. Mr. Morimoto says he didn’t complain about the hours, knowing what Pacific Soft ware expected. A section of its employee handbook from 2003 states: “Compensation is based on a monthly salary and will not increase due to overtime.”

A lawyer for Pacific Software, Steve Block, acknowledged that Mr. Morimoto’s compensation level made him eligible for overtime pay under Washington state law. But he maintained that when the employee stayed late, he was “tending to his personal affairs.”

Mr. Morimoto says that after his longest weeks, he sometimes didn’t get to sleep until 3 a.m., and then would wake at 8 to get ready for a new workday.

In May, Mr. Morimoto posted comments on the Internet saying some “Japanese” companies were abusing their workers. He didn’t name Pacific Software, a closely held U.S. company founded by Kenichi Uchikura, its president. But Mr. Morimoto was fired soon thereafter. Mr. Block, the company’s lawyer, says it fired him for a “number of improprieties,” including the Internet postings. Pacific Software’s defamation countersuit is filed in the same court as his action, Washington’s King County Superior Court.

Mr. Block says Pacific Software didn’t enforce employee-handbook statements such as the one about not paying overtime. But the company has since changed the handbook. A recent edition states: “You may be required to work extra hours as business conditions dictate. Non-exempt employees will be paid overtime as required by law.”