Phone Solicitors Battling McCall’s : Former Workers Protest Subtracted Sales Commissions

Betty Phillips, a veteran telephone solicitor, realized that something was wrong one week in 1975 when her paycheck from the prestigious McCall Publishing Co. totaled $0.00.

How could she have put in a good week’s work with average success in convincing McCall’s Magazine subscribers to renew their subscriptions and yet have ended up with zero dollars and zero cents for her efforts? After all, she earned 25% of the subscription price as a reward for each verified sale.

Dave Cadway, Phillips’ friend and fellow phone solicitor, had doubts about whether his telephone sales efforts were being rewarded adequately, but it took Phillips’ zero paycheck to launch him into what has become a decade-long effort to right the wrong he believed the publishers of the staid women’s magazine were doing to lowly telephone solicitors working for them.

“I was upset upon being cheated and started to do some research in the Law Library whereupon I eventually found out that McCall cheated me and probably thousands of other telephone solicitors to an almost inconceivable extent,� Cadway said in a sworn statement for one of the legal maneuvers that have ensued in the flap between the San Diego phone solicitors and the New York City publishing firm. “I was very shocked and dismayed to find out that a wealthy, popular company like McCall would go to such illegal extremes to cheat its employees out of money.�

Attorneys for the publishing company have denied any wrongdoing and, for the past four years, prevailed in every court hearing on the issue. Then, last month, a 4th District Court of Appeal panel reversed a lower court judgment and agreed with Cadway and Phillips that they deserved their day in court to prove that McCall had imposed an “unconscionable� contract upon them and other subscription solicitors and now owed the pair thousands of dollars previously subtracted from their sales commissions.

At issue is the former practice by the magazine of paying its subscription solicitors when their orders were verified, then later subtracting sales commissions from solicitors’ paychecks when subscribers subsequently failed to pay for the subscription or canceled their subscription order.

Cadway and Phillips admit that they signed employment contracts with McCall Publishing in 1974 that spelled out the policy, but they said that they were unaware that the practice would reduce their subscription earnings by 30% to 40%, leaving them unsure just what their weekly earnings would be and unable to do anything to prevent the commission losses.

The pair claims that McCall was violating state labor laws by subtracting previously-paid commissions from solicitors’ paychecks when McCall’s subscribers later reneged on their payments.

Thomas Massey Jr., attorney for Phillips and Cadway, contends that the appeals court justices went a step further than simply reversing a Superior Court judge’s summary judgment in favor of McCall’s Magazine. Massey, citing the majority opinion of the three-judge appeals court panel, said the justices supported his clients’ charge that the publishing firm violated Section 221 of the state Labor Code which says: “It shall be unlawful for any employer to collect or receive from an employee any part of wages theretofore paid by said employer to said employee.�

Massey argued that McCall “made no efforts to collect against these non-paying subscribers, but, instead, ‘charged back’ the amount of any non-payment against the employee’s paycheck,� unlawfully penalizing the employees to ensure the profitability of the company. The attorney said that the practice resulted in a $12,055.76 commission loss to Betty Phillips and a $5,954.95 loss to Dave Cadway during their tenures with McCall.

Massey, who has taken the case against McCall on a contingency fee basis, predicts that when his clients win their civil suit--and he’s sure that they will--the precedent will affect thousands of other California workers who depend on commissions or bonuses for part or all of their livelihood.

Section 221, Massey argues, prevents employers from subtracting any previously-paid amounts from employees’ paychecks unless those deductions are for the benefit of the employee. If non-payment by McCall’s subscribers legally can be subtracted from telephone solicitors’ commissions, then, asks Massey, could automobile salesmen be forced to return their sales commissions when a car buyer defaults on his monthly payments?

In 1979, Cadway was fired and Phillips moved to another job. Both still work in telephone soliciting for other businesses. But, during their employment as telephone solicitors for McCall, the two contend, the publishing firm took away more than one-third of their commissions through charge-backs when subscribers reneged on their subscription payments.

McCall Publishing Co. attorneys James R. Madison and Matthew D. Powers argued successfully in San Diego Superior Court that the charge-back system was above board and fair. Their petition for a summary judgment--a ruling that Phillips and Cadway had no legal points worthy of a trial--was granted by Judge Mack Lovett.

The McCall attorneys contended that Lovett was correct in directing a summary judgment for the publishing firm because the Labor Code section, 221, “was not intended to or does not preclude a compensation arrangement whereby an employer makes advances of future commissions to an employee subject to deduction of such commission advances from future payments if they turn out not to be earned.�

McCall attorneys argued that Phillips and Cadway were not “employees� but were actually “independent contractors� working for themselves, and therefore not covered by Section 221. Additionally, they argued, Phillips and Cadway were paid “advances� on their commission earnings, not “salaries� or “wages� specifically protected by the Labor Code section.

Massey, however, countered that the “charge-back� system by which McCall debited the subscription solicitors’ earnings--weeks and even months after the commissions were earned--violated the state labor regulation and resulted, at times, in his clients being paid below minimum wage rates.

Cadway, a red-haired, red-bearded 43-year-old with a short fuse on his temper, frowns on the polite, convoluted language of the law and has carried on his own war against McCall Publishing, complete with leaflets urging a boycott of the magazine by readers and advertisers and a mass protest meeting he organized to marshal others he claims were injured by the publishing company’s long-standing policies.

McCall’s sins, in Cadway’s opinion, are not simply misunderstandings arising from differences of opinion between lawyers over the definition of “employee,� “independent contractor,� “salary,� “charge-back,� “advance,� “commission,� etc. To Cadway, this is a struggle pitting McCall against himself, his friend Betty Phillips, and hundreds, perhaps thousands, of other employees of the publishing company.

Citing a 1941 IRS ruling that “telephone saleswomen, telephone supervisors and assistant telephone supervisors who performed their services in space provided by the corporation were its employees for social security and employment tax purposes,� Cadway contends that “for 40 years McCall’s purposely cheated many thousands of employees out of millions of dollars� and “continually cheated the state and federal government out of millions of dollars� by not contributing to Social Security, unemployment insurance or workmen’s compensation funds for its employees and by paying below-minimum wages.

In leaflets he scattered about town in strategic places, Cadway urged McCall’s subscribers to cancel their subscriptions, to boycott products of McCall’s advertisers and to write McCall’s advertisers vowing to boycott their wares until they cancel McCall’s Magazine ads.

He also offers free advice to other telephone solicitors who feel they have been wronged, including referral to attorneys who will take their cases on a contingency fee basis. Cadway vows not to rest in his one-man revolution against the New York City publishing firm and the conservative women’s magazine until 500 lawsuits have been filed by the “working men and women who have been taken to the cleaners by McCall’s.�

From their San Francisco offices, McCall’s attorneys are less concerned with Cadway’s extracurricular activities than with the measured words of the 4th District Court of Appeal justices.

In writing the majority decision reversing McCall’s summary judgment, Acting Chief Justice Robert O. Staniforth commented: “We deal here with a wage payment arrangement under which the employee can never know at any given time just how much he or she has earned by his or her efforts, nor can he or she control the events which result in loss of his or her earnings after she has expended the effort to earn those wages.�

Staniforth comments that, in the case of Cadway and Phillips, “ . . . the solicitor has done the work and produced the customer; the commission is earned and credited; then later taken away because McCall ‘loses’ the customer . . . “ The telephone solicitor has no duty to collect payment from the magazine subscriber, Staniforth stated, so “shifting later customer losses to the solicitor violates public policy and is unconscionable.� Justice Don R. Work concurred with Staniforth’s opinion reversing the lower court, but Justice Edward T. Butler dissented.

“The majority opinion is a splendid essay on the need to promote the welfare of employees,� Butler wrote. “Regretfully, it ignores the hard, cold, uncontested facts to which the parties stipulated and on which the trial court (Lovett) properly granted the motion for summary judgment. But for that stipulation and the unwinking eyes of those facts, I would happily join the majority’s choir in their hymn in praise of the working stiff.�

Telephone solicitors Cadway and Phillips signed an agreement that clearly stated McCall Publishing would pay commissions on the basis of paid subscriptions only, Butler pointed out. Their employment contracts clearly provided for the “charge-back� deductions from solicitors’ paychecks if a subscriber canceled or failed to pay his bill. McCall’s payments to its solicitors “were in the nature of advances by McCall and subject to recoupment by McCall in the event the commission turned out not to be earned,� Butler concluded in his dissenting opinion.

Massey and his clients are not ready yet to pop the cork on a celebration bottle of champagne, even though the appeals court justices recently rejected a petition for reconsideration of the appeal filed by McCall attorneys. There are still legal mountains to be climbed, Massey admits.

McCall attorney Powers said no decision has been made on whether to take the appeals court reversal up to the state Supreme Court. Whatever the decision, Massey knows he still has a tough fight before his clients can hope to recoup the thousands of dollars they contend they lost in subscription commissions or the millions of dollars they seek in punitive damages.

Phillips is mildly excited about the first major victory in the battle that began in 1975 when she received a weekly paycheck for zero dollars and zero cents. But Cadway is ecstatic, excited enough for both of them. After a decade of digging through lawbooks and worrying at the heels of the staid, unflappable publishing company, Cadway has tasted victory at last.

If he ends up with a pot full of money, Cadway plans to put some of it to good use on another of his crusades--bettering the lot of San Diego’s homeless.