Friday's Five: Five areas of liability facing California employers

1. Meal and rest breaks.
If you did not know of this exposure already existed in California, can I recommend some reading here, here and here?

2. Exempt vs. non-exempt classification of employees.
The default under California law is that every employee is entitled to overtime pay at a rate of time and a half or double of the employee’s hourly rate of pay. An employee is not entitled to overtime if the employer meets its burden in establishing that the employees qualifies under one of legally proscribed exempt positions (the positions are called exempt because the employee is exempt from the overtime requirements). Some exempt positions are:

  • Executive
  • Administrative
  • Professional
  • Outside sales
  • Computer professional
  • Commissioned sales

Exempt positions have very nuanced requirements that must be met in order for the employee to properly be considered exempt from the overtime pay requirement. For a company to make a determination of whether an employee is exempt, it must approach this determination carefully, and ensure the employee is pay enough in a salary and performs duties required by the exemption. The company should also consider documenting the specific exemption the employee qualifies for. For a list of the possible exempt positions under California law, the DLSE published one here.

3. Off the clock work.
Employees must be paid for all hours that the employee is subject to the employer’s control. Generally, if the employer knows or has reason to believe that an employee is working, that work must be paid for. To prevent off the clock claims, employers should develop clear policies on time keeping and prohibiting off the clock work, as well as having a well thought out complaint mechanism for employees to utilize. A complaint procedure is a good defense for claims of off the clock work made after the fact.

4. Proper calculation of overtime.
Generally, employers must pay one and one-half times the employee's regular rate of pay for all hours worked in excess of eight hours up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day of work in a workweek. In addition, employer must pay double the employee's regular rate of pay for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek.

In addition, the “regular rate of pay” include not only the employee’s hourly rate, but also the amount of piecework earnings and commissions earned by the employee. These additional earning must be calculated into employee’s regular rate of pay. The employee’s time and a half or double time overtime must be calculated on this higher regular rate.

5. Independent contractor misclassification.
As I’ve written about previously, the classification of weather a worker is an independent contractor or an employee is a multifactor test. Failure to conduct this analysis properly can expose employer to substantial civil penalties.
 

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Friday's Five: More than five required items that should be included in a new hire packet

Here is a list of some of the required notices employers must provide to new employees in California. Sometimes I have a hard time coming up with five rules or items for the Friday’s Five list, but not this time – I blew through five items (it is California after all): 

Document Title

Link to Document

Notice to Employee (Wage Theft Prevention Act) (for non-exempt employees)

Download here

I-9 – Employment Eligibility Verification

Download here

Right to Workers’ Compensation Benefits pamphlet

Download here

State Disability Insurance Provisions pamphlet - DE 2515

Download here

Paid Family Leave pamphlet - DE 2511

Download here

Sexual Harassment pamphlet

Download here

New Health Insurance Marketplace Coverage Options Form

Form for employers with health insurance plans - download here

Form for employer without health insurance plans - download here

Other documents I often recommend that employers have in their new hire packets are:

·   Commission Agreement (if applicable)

·   Meal and Rest Break Acknowledgment of employer’s policy

·   Employee Handbook and Acknowledgment

 

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San Diego City Council moves closer to raising minimum wage and mandating paid sick leave for San Diego employers

The San Diego City Council approved an ordinance that increases the minimum wage required to be paid to workers within the city to $11.50 per hour by 2017. In addition the ordinance calls for the minimum wage to automatically increase every year after 2018 by indexing the minimum wage to inflation. Currently California's minimum wage is set at $9.00 per hour, which increased from $8.00 per hour in July 2014

San Diego Proposed Minimum Wage Increases

Current Minimum Wage

$9.00 per hour

January 1, 2015

$9.75 per hour

January 1, 2016

$10.50 per hour

January 1, 2017

$11.50 per hour

January 1, 2018

Minimum wage will increase each year measured in the increase of the Consumer Price Index.

The ordinance also requires employers to provide up to five days of paid sick leave. If enacted, the sick leave requirement will begin in April 1, 2015 and provides employees with one hour of paid sick leave for every 30 hours worked. Leave must be carried over from year to year, but employers may cap the use of the sick leave to 40 hours of paid leave within a benefit year. The ordinance also provides that:

-          For employees that are not covered by the overtime requirements of California law, it will be presumed that they work 40 hours a week. If an employee works less than 40 hours they will only accrue sick leave based on their actual hours worked.

-          Employers may set a reasonable minimum increment for use of sick leave, but this minimum may not exceed two hours.

-          If an employee separates employment, but returns to work within six months, all previously unused sick leave will be reinstated to the employee. 

-          If an employee uses sick leave for more than three consecutive work days, the employer may require “reasonable” documentation from a licensed heath care provider justifying the leave. 

Currently the ordinance is before San Diego’s Mayor, Kevin Faulconer, who has stated he will veto the measure. However, the ordinance was passed by a super-majority that can override the Mayor’s veto, possibly forcing the issue to a referendum. If this occurs, the City Council will have the option to either rescind the legislation, or submit the matter to the voters of San Diego.

 

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Friday's Five: Five California Labor Code provisions employees cannot waive

Here is a list of five rights provided to employees under the California Labor Code that the employee may not waive by agreement with an employer.

1. Minimum wage
Labor Code Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws. That statute clearly voids any agreement between an employer and employee to work for less than minimum wage or not to receive overtime.

2. Overtime
In Gentry v. Superior Court, the Supreme Court explained:

[Labor Code] Section 510 provides that nonexempt employees will be paid one and one-half their wages for hours worked in excess of eight per day and 40 per week and twice their wages for work in excess of 12 hours a day or eight hours on the seventh day of work. Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws.

By its terms, the rights to the legal minimum wage and legal overtime compensation conferred by the statute are unwaivable. “Labor Code section 1194 confirms ‘a clear public policy . . . that is specifically directed at the enforcement of California’s minimum wage and overtime laws for the benefit of workers.’"

3. Expense reimbursement
Labor Code section 2802 requires employers to reimburse its employees for “necessary expenditures or losses incurred by the employee” while performing his or her job duties. Labor Code section 2804, clearly provides that an employee cannot waive this right to be reimbursed for or liable for the cost of doing business. Section 2804 provides, “Any contract or agreement, express or implied, made by any employee to waive the benefits of this article or any part thereof, is null and void….”

4. Right to participate in PAGA representative actions
The California Supreme Court recently clarified that employees may not waive their right to bring a representative action under the Private Attorney General Act (PAGA) (even though the Court held that class action waivers in arbitration agreements are enforceable). The Court held in Iskanian v. CLS Transportation that, “we conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”

5. Right to receive undisputed wages
Under Labor Code section 206.5 employers and employees may not enter into agreements that waive the employee’s right to receive wages that are undisputed. Labor Code section 206.5 also provides that an employer may not require “as a condition of being paid, to execute a statement of the hours he or she worked during a pay period which the employer knows to be false.”

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Friday's Five: Five legal pitfalls startup companies cannot make

1. Classifying all employees as independent contractors
To qualify as an independent contractor, the employer has the burden of proof to establish that the worker is actually an independent contractor and not an employee. I’ve discussed the parameter of this “economic realities” test here.  In addition to owing unpaid minimum wages and potential unpaid overtime, the employer also faces steep penalties for misclassifying independent contractors.

2. Treating all employees as exempt employees and not paying overtime.
An employee cannot agree to work without being paid overtime unless they qualify as an exempt employee. To qualify as an exempt employee, generally, the employee must perform certain duties, and must be paid a certain threshold in wages (usually at least two times the equivalent pay of minimum wage based on a 40 hour week).  

3. Not having a handbook and written policies.
Even if startup companies have no money, the Labor Code still applies. They still have to pay more than minimum wage, provide and record meal and rest breaks, issue wage notices to new employees, and otherwise comply with California law. A handbook, new hire packet, and standardized set of written policies is a good place to start.

4. Not providing clear offer letter with at-will provisions and clear understanding of who owns social media accounts and passwords.
Companies should providing a writing setting forth the employee’s compensation, stock option rights, at-will status, as well as who owns the rights to social media accounts and the passwords to access the accounts. Much better to have this set out early in order to avoid costly litigation and disruption in your business later.

5. Not having the right employment law counsel.
Startup owners should have a relationship with an attorney that actually practices California employment law. Have an agreement with them that for basic quick questions there will be little if no charge. I often tell my clients that if it takes a quick phone call to review a decision about an employment issue, there will be no charge. Of course this has to be within reason, as your lawyer sells his or her time to make a living.  So to make this easier on your lawyer, do the work before you call, and just double check that the decision you have made, or the letter you drafted is good-to-go. Otherwise, calling your lawyer and asking him to draft the letter will take him time (usually more time that the client could have done it in) and will increase the cost of legal services.

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Procedures to follow in investigating sexual harassment claims

Friday's Five: Five rules every California employer should know about providing final wages to employees

This Friday's Five is coming out a little late in the day, but as they say, better late....  I've been fielding a lot of questions about final wage payment requirements.  So here are five rules every employer should know about providing final wages to employees:

  1. An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination.
  2. An employee who gives at least 72 hours prior notice of quitting, and quits on the day given in the notice, must be paid all earned wages, including accrued vacation, at the time of quitting.
  3. An employee who quits without giving 72 hours prior notice must be paid all wages, including accrued vacation, within 72 hours of quitting.
  4. An employee who quits without giving 72-hours’ notice can request their final wage payment be mailed to them. The date of mailing is considered the date of payment for purposes of the requirement to provide payment within 72 hours of the notice of quitting.
  5. Final wage payments for employees who are terminated (or laid off) must be made at the place of termination. For employees who quit without giving 72 hours’ notice and do not request their final wages be mailed to them, is at the office of the employer within the county in which the work was performed.

For any employer who willfully fails to pay any wages due a terminated employee subject the employer to waiting time penalties under Labor Code section 203. Waiting time penalties accrue at an amount equal to the employee's daily rate of pay for each day the wages are not paid, up to a maximum of thirty calendar days.

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Complying With California's Minimum Wage Increase

Here is a short video regarding some items California employers should consider about the minimum wage increase taking effect July 1, 2014.

 For more information about the minimum wage increase:

Five issues California employers should review before the minimum wage increases July 1, 2014

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Five Things You Need To Know About Arbitration Agreements After The California's Supreme Court's Ruling In Iskanian v. CLS Transportation Los Angeles, LLC

1. Arbitration Agreements: What Are They?
Employers can agree that they and any employees who enter into an arbitration agreement will resolve their differences before a private arbitrator instead of civil court. There are many different arbitration companies to choose from, but the American Arbitration Association and JAMS are two of the larger ones that are routinely appointed in arbitration agreements. Arbitrators are private companies that usually hire retired judges to resolve disputes in a private setting as opposed to civil court.

2. Are Arbitration Agreements Enforceable in California?
Generally speaking, if the agreement is drafted and implemented properly, it is enforceable. However, arbitration agreements are routinely struck down by courts if they are not properly drafted. For example, recently a California court held in Ajamian v. CantorCO2e, that an arbitration agreement was not enforceable because it required the employee to waive statutory damages and remedies.  In addition, the agreement in that case only allowed the employer to recover its attorney’s fees if successful, not the employee.  The Court held these terms caused

3. Why Would an Employer Implement an Arbitration Agreement?
There are a number of reasons. The arbitration process can proceed more quickly than civil litigation, saving a lot of time and attorney’s fees in the process. For example, often times the discovery process moves more quickly, and if there are any disputes, the parties can raise them with the arbitrator telephonically, instead of the lengthy motion process required to resolve disputes in civil court. The arbitration process is also confidential, so if there are private issues that must be litigated, these issues are not filed in the public records of the courts. The parties also have a say in deciding which arbitrator to use in deciding the case, whereas in civil court the parties are simply assigned a judge without any input into the decision. This is very helpful in employment cases, which often times involve more complex issues, and it is beneficial to the parties to select an arbitrator that has experience in resolving employment cases.

4. Are Class Action Waivers Enforceable In Arbitration Agreements?
Yes. The California Supreme Court ruled in Iskanian v. CLS Transportation Los Angeles, LLC that class action waivers can be enforceable, following the standards set forth by the U.S. Supreme Court in AT&T Mobility v. Concepcion.  However, Plaintiffs continually challenge class action waivers on numerous grounds, and it is critical employers’ agreements are properly drafted and up-to-date. In addition, while courts will uphold class action waivers, the California Supreme Court held that employee may still bring representative actions under the Private Attorneys General Act (PAGA). PAGA claims are limited to specific penalties under the law, and have a much shorter one year statute of limitations compared to potentially a four year statute of limitations for most class actions.

5. Based On the Holding in Iskanian, Should Every Employer Enter Into Arbitration Agreements With Its Employees?
No. The decision to implement an arbitration agreement should be reviewed with an employment lawyer to discuss the positives as well as the negatives of arbitration agreements. As discussed above, there are a lot of benefits of having an arbitration agreement in place, but it does not come without a few drawbacks. The primary drawback is that in California, the employer must pay all of the arbitrator’s fees in employment cases. Arbitration fees can easily be tens of thousands of dollars – a cost that employers do not need to pay in civil cases. In addition, while a class action waiver may be enforceable, employers still face substantial liability under PAGA representative actions, and a strategy in implementing a class action waiver should be thought through with the help of informed counsel.

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California Supreme Court Upholds Class Action Waivers: Iskanian v. CLS Transportation Los Angeles, LLC

Today, the California Supreme Court issued a ruling in Iskanian v. CLS Transportation Los Angeles, LLC regarding the enforceability of class action waivers in arbitration agreements. In upholding class action waivers in arbitration agreements, the Supreme Court explained in the introduction of the opinion:

The question is whether a state’s refusal to enforce such a waiver on grounds of public policy or unconscionability is preempted by the FAA. We conclude that it is and that our holding to the contrary in Gentry v. Superior Court (2007) 42 Cal.4th 443 (Gentry) has been abrogated by recent United States Supreme Court precedent. We further reject the arguments that the class action waiver at issue here is unlawful under the National Labor Relations Act and that the employer in this case waived its right to arbitrate by withdrawing its motion to compel arbitration after Gentry.

When asserting a Labor Code claim in connection with an Unfair Competition Law claim (Business and Professions Code section 17200), the statute of limitations extends back four years. Today’s holding upholds arbitration agreements entered into between employers and employees barring employees from brining any claims on a class wide basis as long as the underlying arbitration agreement is enforceable under California law.

In addition, the Supreme Court reviewed whether an employer could have an employee waive his ability to bring a representative action under the Private Attorneys General Act (PAGA). PAGA is a Labor Code provision that permits aggrieved employees to recover civil penalties that are only recoverable by the California Labor and Workforce Development Agency (LWDA) and the Labor Commissioner. PAGA expands the scope of penalties available through wage and hour lawsuits. In holding that arbitration agreements could not limit an employee's right from bringing a representative PAGA claim, the Court explained:

The employee also sought to bring a representative action under the Labor Code Private Attorneys General Act of 2004 (PAGA) (Lab. Code, § 2698 et seq.). This statute authorizes an employee to bring an action for civil penalties on behalf of the state against his or her employer for Labor Code violations committed against the employee and fellow employees, with most of the proceeds of that litigation going to the state. As explained below, we conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy. In addition, we conclude that the FAA’s goal of promoting arbitration as a means of private dispute resolution does not preclude our Legislature from deputizing employees to prosecute Labor Code violations on the state’s behalf. Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.

Because PAGA claims seek to recover penalties, a one year statute of limitations applies. Therefore, even if employers have a class action waiver in an arbitration agreement entered into with an employee, the employee may still assert a representative PAGA action to recover appropriate penalties with a one year statute of limitations on behalf of all aggrieved employees. PAGA is sometimes referred to as the “bounty-hunter law” because it allows a plaintiff to recover these civil penalties that were only recoverable by the Labor Commissioner, but it requires that the plaintiff provide 75% of the civil penalties recovered to the LWDA and the remaining 25% to the aggrieved employees. In a previous post, I’ve written about PAGA claims and what to do in response to receiving a PAGA notice. The California Supreme Court's ruling in Iskanian v. CLS Transportation Los Angeles, LLC can be downloaded here (Word).  This is an initial summary of the holding, and I'll write more about the case as I've had more time to review the opinion in more detail. 

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