California Employment Law Report

California Employment Law Report

The latest litigation trends, court decisions, & issues on California Employment Law

DOL overtime rule changes: Five action items for employers

Worker

The DOL’s Final Rule was issued this week (see my previous article for the details), and we have had a few days to digest the new rules.  Now employers need to start putting together a plan to ensure compliance with the federal rules, and take time to ensure they are also complying with applicable California law.  This Friday’s Five is five suggestions to start the process:

1. Understand that the DOL’s changes apply to the FLSA, not California law.

At risk of sounding like a lawyer, the analysis to determine if an employee is properly classified as an exempt employee is very detailed and complex.  California’s requirements differ from the Federal requirements in many ways.  Therefore, it is imperative that California employers understand which laws apply to their employees, and that they are following the correct laws.  The set of rules that provides the employee with more rights and protections is usually the law that governs.  For example, to qualify as an exempt employee under California law, the employee must be paid the equivalent of two times the state minimum wage for full-time employment.  As of January 1, 2016, with the state minimum wage at $10 per hour, the annual salary must be at least $41,600 to qualify for the California white collar exemptions.  This is less than the annual salary of $47,476 or $913 per week as set by the DOL in the Final Rule.  Therefore, in order to avoid paying overtime for work over 40 hours in a week, California employers will need to pay at the higher salary required by federal law by the December 1, 2016 deadline.

2. Understand which law – federal or California – applies to your workforce.

Again, this analysis is complex and needs to be done carefully with competent legal counsel.  Generally, the law that gives employees the most protections or benefits must be followed.  The FLSA had a much lower salary basis test in the past, so California employers generally had to comply with California law regarding exempt status because it set a higher salary basis (the equivalent of two times the state minimum wage for full-time employment, which equals $41,600 annually, or $3,466.67 per month based on $10 per hour) and a stricter duties test than federal law.  Now, California employers will likely need to focus on compliance with the higher salary required under Final Rule, which becomes effective December 1, 2016, but still must also likely comply with California’s stricter duties test.  This is territory where advice from an employment lawyer particular to the client’s situation is critical.

3. Take time to evaluate workforce and reclassify employees if needed.

Employers should use the DOL’s Final Rule changes as an opportunity to audit their workforce to determine if employee classifications need to be reclassified prior to the December 1, 2016 implementation date of the Final Rule.  While the DOL changed the salary level required to qualify as exempt, employers cannot forget to ensure that exempt employee must also meet the requirements of the duties test, which generally requires employees to perform high level managerial duties for a substantial portion of their worktime.  As mentioned above, California applies a different, stricter duties test on employers, and because this provides more protection to the employee, California employers usually have to meet the California duties test.

It would also be an ideal time when the DOL’s regulations take effect to reclassify employees as nonexempt without raising the question of why the reclassification is taking place.

4. Update timekeeping systems and policies.

The increase in the salary basis test will likely result in many employers reclassifying employees as nonexempt.  Therefore, with more employees needing to clock-in an out for their start and stop times (in addition to tracking the start and stop times for meal breaks as required under California law), employers need to ensure their timekeeping system is up-to-date and compatible with their workforce.

5. Enforce a strict policy prohibiting off-the-clock work and implement policies designed to limit the amount of overtime worked to keep costs under control.

With many more employees likely being reclassified as nonexempt, it is even more critical that employers ensure they take all appropriate steps to protect themselves from off-the-clock work claims.  Employers should have an effective timekeeping policy and train their managers about preventing off-the-clock work.  In addition, employers need to develop a policy and train managers on the correct policies to control unauthorized overtime worked.  Managing overtime costs requires effective policies and manager training to ensure all wage and hour laws are complied with.

Department of Labor issues overtime rule changes

DOL

On May 18, 2016 the Department of Labor issued long awaited changes to the Federal rules setting forth the requirements for employees to qualify as exempt under the white collar exemptions.  Exempt employees are “exempt” from some labor laws governing employees, such as overtime pay.  Exempt employees are designated as such because they are “exempt” from certain wage and hour requirements due to their duties and level of pay (more information about exempt employees can be found here).  Generally speaking, in order to qualify as an exempt employee, the employee must meet (1) a salary basis test and (2) a duties test.  If the employee does not earn a high enough level of pay, or does not perform managerial duties for a certain percentage of their work time, the employee cannot qualify as exempt, and would be entitled to overtime pay and other labor law protections.

The DOL reviewed both the salary basis test and the duties test to “update and modernize the regulations governing the exemption of executive, administrative and professional (‘EAP’) employees” from the minimum wage and overtime pay protections of the Fair Labor Standards Act (“FLSA”).  The DOL’s Final Rule issued on May 18, 2016 makes the following changes to the FLSA requirements necessary for employees to qualify as an exempt executive, administrative, or professional employee:

  1. Exempt professional employees must earn at least $913 per week, or $47,476 annually for a full-year worker.  This is an increase from the $455 per week, or $23,660 annually for a full-year employee that is currently required under federal law.
  2. The higher salary requirement is effective December 1, 2016.
  3. The salary level that must be paid to employees to meet the salary basis test under federal law will increase automatically every three years.  Therefore, the first increase from the amount set forth above will take effect on January 1, 2020.
  4. Employers may count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the salary requirement.  The nondiscretionary bonuses and incentive payments must be paid on a quarterly or more frequent basis in order to apply.  Examples of nondiscretionary bonuses include bonuses set for meeting production levels, retention bonuses, and commissions based on a fixed formula.  Discretionary bonuses, such as bonuses provided to employees at the employer’s sole discretion and not according to predetermined standards cannot apply towards this 10 percent requirement.  Therefore, tips cannot be including when calculating the amount of salary the employee earns to meet the salary requirement pay.
  5. The Final Rule also allows employers to make “catch-up” payments to employees if they do not receive enough compensation in nondiscretionary bonuses in a given quarter to remain exempt.
  6. There is no change in the standard duties test.
  7. Set the total annual compensation requirement for highly compensated employees (HCE) subject to a minimum duties test to at least $134, 004.  The pay requirements for HCEs are effective as of December 1, 2016, and will also be reviewed and increased automatically every three years.

It is important to note for California employers that these changes apply to the FLSA, not California law.  Therefore, employers need to evaluate which law governs their situation (generally the law that provide more benefits or protections to the employee will apply, but this can be a complicated analysis, so approach with caution).  I’ll write more about how these changes will effect California employers in the coming days, as well as publish some resources for California employers to help navigate these changes.

Five interview practices every employer should know

Interview

Yes, it is that time again: Friday’s Five.  This week I address five interview practices that every California employer should know:

1.      Understand which questions employers cannot ask that may be viewed as discriminatory.

Employers cannot ask questions that relate to an applicant’s marital status, children, plans to have children, religion, age, national origin, and other protected categories.  Even questions that can be interpreted as being discriminatory towards a protected category can lead to discrimination claims, therefore employers should carefully consider the interview questions and plan questions in advance of the interviews.

2.      Develop a list of good interview questions to test how applicants think on their feet.

Some of my favorite questions:

  • Tell me something that’s true that almost nobody agrees with you on. (Peter Thiel)
  • On a scale of one to 10, how weird are you? (Tony Hsieh)

3.       No interview questions at all – use “try outs”

From Seth Godin:

There are no one-on-one-sit-in-my-office-and-let’s-talk interviews. Boom, you just saved 7 hours per interview. Instead, spend those seven hours actually doing the work. Put the person on a team and have a brainstorming session, or design a widget or make some espressos together. If you want to hire a copywriter, do some copywriting. Send back some edits and see how they’re received.

If the person is really great, hire them. For a weekend. Pay them to spend another 20 hours pushing their way through something. Get them involved with the people they’ll actually be working with and find out how it goes. Not just the outcomes, but the process. Does their behavior and insight change the game for the better? If they want to be in sales, go on a sales call with them. Not a trial run, but a real one. If they want to be a rabbi, have them give a sermon or visit a hospital.

California employers need to be careful about not having the applicant perform actual work to create something that is then sold to customers, this may qualify as compensable work that the employer would have to pay the applicant at least minimum wage for.  The DLSE Enforcement Policies and Interpretations Manual provides the following guidance on “try out” time:

Try Out Time. There may arise situations where an employer may wish to have a prospective employee exhibit skills such as typing, shorthand, or operation of machinery, before employment. The DLSE will accept such “try out time” as non- compensable if:

1. This time is not, in fact, training as opposed to testing skills;

2. there is no productivity derived from the work performed by the prospective employee, and

3. the period of time is reasonable u under the circumstances.

Each case must be reviewed on its facts. For instance, the period of time to test skills of a sewing machine operator will be much less than that needed to test the skills of a computer programmer. While no particular time frame can be given, the rate of pay for the occupation can usually be used as a guide to determine the amount of time necessary for a “try out”.

4.      Obtaining reference checks.

It is a good practice to follow-up with the applicant’s references provided.  I’m also a big proponent of conducting a search of the applicant’s background on the Internet.  For some issues that may arise when an employer uses the Internet to do a search on an applicant, my previous article on the topic can be read here.

5.      Use background checks with caution.

When conducting background checks on applicants and employees, employers need to take time to review the applicable state and federal laws that apply to background checks.  LinkedIn was sued previously for violation of the federal Fair Credit Reporting Act (FCRA) for certain background reports it generated for users of the site.  In addition, under California law, the Investigative Consumer Reporting Agencies Act and the Consumer Credit Reporting Agencies Act could apply to background checks in the employment context.  These laws are very complex, and employers should enter this area with the knowledge of their obligations before conducting background checks.  For more information about background checks, please see my previous article here.

Photo: World Relief Spokane

Five topics California’s sexual harassment training must include

Employers in California with 50 or more workers must provide at least two hours of sexual harassment Seal_of_Californiaprevention training to all supervisors.  The requirements of what topics this training must include has changed since AB 1825 was passed requiring the training.  For example, AB 2053 required as of January 2015 “prevention of abusive conduct as a component of the training and education”, and in April 2016, California’s Fair Employment and Housing Council issued new regulations addition additional topics.

Employers issuing training to its employees must review the training to ensure that the training at least covers the following five topics:

1.      The law – California’s Fair Employment and Housing Act (FEHA) and Title VII of the Civil Rights Act of 1964.

  • A definition of unlawful sexual harassment under California and Title VII of the federal Civil Rights Act of 1964, other forms of harassment covered by the FEHA, and discuss how harassment of an employee can cover more than one basis.
  • FEHA and Title VII statutory provisions and case law concerning the prohibition against and the prevention of unlawful sexual harassment, discrimination and retaliation in employment.
  • The types of conduct that constitutes sexual harassment.

2.      Remedies

  • Remedies available for sexual harassment victims in civil actions, and potential employer and individual exposure and liability.

3.      How to prevent harassment

  • Strategies to prevent harassment in the workplace.
  • Supervisors’ obligation to report sexual harassment, discrimination and retaliation of which they become aware.
  • Practical examples, such as factual scenarios taken from case law, news and media accounts, hypotheticals based on workplace situations and other sources, which illustrate sexual harassment, discrimination, and retaliation using role playing, case studies, and group discussions.
  • The limited confidentiality of the complaint process.
  • Resources for victims of unlawful sexual harassment, such as to whom they should report any alleged sexual harassment.
  • In addition to discussing the strategies to prevent harassment, the training should also cover the steps necessary to take appropriate remedial measures to correct harassing behavior, which includes an employer’s obligation to conduct an effective workplace investigation of a harassment complaint.
  • Training on what to do if the supervisor is personally accused of harassment.

4.      Policies

  • The essential elements of an anti-harassment policy and how to utilize it if a harassment complaint is filed.  Either the employer’s policy or a sample policy shall be provided to the supervisors.  Regardless of whether the employer’s policy is used as part of the training, the employer shall give each supervisor a copy of its anti-harassment policy and require each supervisor to reach and to acknowledge receipt of that policy.

5.      Anti-Bullying

  • A review of the definition of abusive conduct (for more information on this aspect please read my article here).

Five action items employers can take pending the DOL changes in exempt classifications

DOL

In 2015 the Department of Labor (DOL) proposed increasing the salary employees must receive in order to be classified as exempt.  The DOL finalized the rules and the changes are pending before the White House’s Office of Management and Budget.  If approved, it is likely that the final rules would take effect late summer or early fall of 2016.  Here are five action items employers should take now in order to comply with the pending DOL regulations:

1.     Understand how California differs from Federal regulations in regards to the exempt status of employees.

It is very dangerous for an employer to read a few legal updates from lawyers and a few articles from the internet and assume that they have a full understanding the requirements and the analysis that goes into properly classifying employees as exempt or non-exempt.  At risk of sounding like a lawyer, it is a very detailed analysis, and California’s requirements differ from the Federal requirements in many ways.  Therefore, it is imperative that employers understand which laws apply to their employees, and that they are following the correct laws.  The set of rules that provides the employee with more rights is usually the law that governs the particular situation.  As an example, California law sets forth requirements specific for an employee to qualify as a computer professional, while Federal law does not have a separate set of rules for this position.

2.     Take time to evaluate workforce and make any reclassifications when new regulations are issued. 

Employers should use the DOL’s change in regulations as an opportunity to audit their workforce to determine if there are some employee classifications that should be changed.  It would be an ideal time when the DOL’s regulations take effect to reclassify employees as nonexempt without raising the question of why is the reclassification taking place.

3.     Update timekeeping system and policies.

If the DOL regulations are implemented as drafted, it would significantly raise the level of pay required to meet the white collar exemption to $50,440 salary per year in 2016.  Currently, California employers must pay the higher amount of twice the state minimum wage for employees to meet one of the white collar exemptions.  As of April 2016, the state minimum wage is $10 per hour, and therefore employers must pay an annual salary of $41,600 for an employee to meet the salary basis test for a white collar exemption.  The increase in the salary level proposed by the DOL will likely result in many employers reclassifying employees as nonexempt.  Therefore, with more employees needing to clock in an out for the start and stop times (in addition to tracking the start and stop times for meal breaks as required under California law), employers need to ensure their timekeeping system is up-to-date and compatible with their workforce.

4.     Ensure the company’s policy prohibiting off the clock work is effective and enforced in addition to policies designed to limit the amount of overtime worked. 

If reclassifying employees as nonexempt as a result of the DOL regulations, employers need to ensure they take steps to protect themselves off-the-clock work claims.  Employers should have an effective timekeeping policy and train their managers about how prevent off-the-clock work.  In addition, employers need to develop and train managers on the correct policies to control unauthorized overtime worked.  Managing overtime costs requires effective policies and training of managers to ensure all wage and hour laws are complied with.

5.     Keep current on when the DOL rules go into place. 

Employers should not analyze employee exemption issues now and delay taking any action until later this summer.  It is likely that the DOL regulations will take effect soon, and employers cannot get caught in not updating and reclassifying employees once the relations are implemented.  Now is the time to start the analysis.  In the unlikely chance that the DOL regulations are not implemented, employers can chalk up the work done as a wage and hour audit to ensure compliance with the current obligations.

The Restaurant Advisory Group Seminar presents ‘The Lease’

I’m a member of the Restaurant Advisory Group (TRAG) which focuses on advising restaurants on a variety of business and legal issues.  On May 5, 2016 the group is offering a presentation on leases: Understanding What you are Signing in A Lease – The Good, The Bad, The Ugly Clauses, Tenant and Landlord Perspective.  The event is from 9 a.m. to 11 a.m. at the Petroleum Club in Long Beach.

The agenda for the event:

The lease is one of the most important assets of your business. Hence, we will be addressing various problematic clauses and solutions.  We start with an example of a letter of intent (LOI)/Proposal to lease, and will discuss the following:

  • Letter of Intent/Proposal to Lease.
  • Clauses to be addressed;
    • Assignment and Sublease Clause including options – pros and cons,
    • Personal guarantee
    • Assignor of lease – legal responsibilities
    • Options are personal and non-transferable
    • What is fair market rent at time of exercising option
    • Can not unreasonably be withheld – terminology
  • Percentage clauses,
    • Fixed rate vs CPI increase
    • How to avoid % clause
    • Property sold – how does it impact tenant and how to handle
  • Use clause,
    • Permitted or exclusive use
  • Operation clause –
    • Hours of operation
    • Parking
    • Abatement of rent when lead tenant vacates Center
  • Association/Merchant fees

There is no charge for readers of the Employment Law Report to attend.  You can register here.  Please contact me if you have any questions, and hope you can join us.

Five employment law developments in California

A lot was happening this week in California’s employment law.  This week’s Friday’s Five is a round-up on the highlights:

1.       Los Angeles City Council votes to require employers to provide 6 days of paid sick leave.

The LA City Council approved a measure to require employers to provide employees up to six paid sick days per year.  This is double the requirement under California state law that went into effect July 1, 2015.  It is likely that the law will go into effect July 2016.  The rules do not apply to small businesses with 25 employees or less until July 2017.  The law still must be drafted by the city attorneys.

2.       Uber settles class action cases for $100 million.

The settlement was reached this week by Uber to settle two class actions, one pending in California and the other in Massachusetts.  The class actions alleged that Uber improperly classified drivers as independent contractors rather than employees, and was seeking damages resulting from the misclassification.  The settlement provides $84 million to be distributed to the drivers “in California and Massachusetts who have used the Uber App at any time since August 16, 2009” until the court approves the settlement agreement.  The settlement resolves these cases, but Uber will likely have to continually fight this issue.  For more on the factors a court would look to in determining if an independent contractor has been misclassified, see my previous articles here.

 

 

3.       “Restrictive” Scheduling bill is working its way through California’s legislature.

Senate Bill 878 proposes to require retail establishments, grocery stores, and restaurants to set employees schedules 28 days in advance, and impose penalties on the employer if the schedule is modified by the employer.  In addition to the “modification pay” the employer would be required to pay to the employee, if the employer does not comply with the proposed law, the bill also adds a $4,000 penalty for failing to accurately provide “modification pay”, another $4,000 penalty for any harm that results to the employee or “another person” due to a violation of the law, and the ability for the employee to bring suit under the Private Attorney Generals Act (PAGA), among other penalties.

4.       California HR consulting company cited for $1 million for misclassification of exempt employees.

TriNet Human Resources Corp. provides outsource human resources solutions for small and medium sized business, was cited by the U.S. Department of Labor for failing to pay time and a half to 267 employees who worked more than 40 hours per week.  The case shows how often times the test to determine if an employee is exempt or nonexempt is not black or white.  If an HR company can get into legal trouble over the issue, it shows that employers must approach the exempt classification of employees very carefully.

5.       Reminder that California regulations may require an update to sexual harassment policies.

As I’ve written about previously, new regulations issued by California’s Fair Employment and Housing Counsel set for additional steps employers should consider in regards to their discrimination, harassment, and retaliation policies.   These regulations are effective April 1, 2016.

Gary Vaynerchuk on the workplace: a 2016 perspective

Gary_Vaynerchuk

If you know Garyvee, you may be asking yourself how could an employment law blog rely upon advice from someone who has not only admitted, but takes pride in, the fact that he checked out of school in the third grade, does not read books, and uses language that makes most standup comedian’s performances seem tame?  However, to underestimate Gary is a huge mistake, and he brings a refreshing and realistic view of the workplace as it exists in 2016, that many companies could learn some important lessons from.

Gary is an entrepreneur who has a noted career in growing his family wine business from $3M to a $60M business in five years.  After that, he started Vayner Media, a digital marketing company, that now employees over 600 employees.  His is also an angel investor and venture capitalist.  I’ve recently listened to the audio version of his new book, The #AskGaryVee Book, twice in the last couple of weeks.  In listening to the book, I realized that his perspective on the workplace is the modern perspective that I’ve often advocated for on this blog.

For today’s Friday’s Five, here are five lessons from The #AskGaryVee Show (Gary’s Youtube channel) that employers must understand:

1)      Where are the best place to hire employees these days?

Search key terms on twitter search and do the homework.  Do the work.  Search terms about the items the employee would be doing, going to the person’s home page, and then email them asking if they are looking for a job.  It takes time, but you have to put in the work.

 

2)      How do you handle “Eeyore” employees?  The one that always sound like they’re whining and pessimistic.

Fire them.  Energy is very important, and dragging down the team is bad.  Not having the smarts is better than being a downer on the team.  It is pretty easy to see who is enthusiastic about their work.  Also, it is incredible how a small group of employees can affect the company.  Managers have to be careful not to confuse this with being an introvert.  Being introverted is something that needs to be recognized, and not looked down upon.  Moping is different than being quiet and introverted, and being introverted is not necessarily a bad quality to have.

 

3)      On your team, is it better to have employees that specialize in one thing or someone who can wear multiple hats?

Both work, but Gary is a fan of a jack of all trades.  He hates when people use the excuse that they are great at one thing to stop from getting better at another thing.

 

4)      Would you support Vayner employees writing their own books and curating their own content streams/personal brands?

Yes.  You cannot say you want to build around the employees, and then suppress them.  Leaders have to believe so much in themselves that they are not afraid to help employees grow.

 

5)      As a guy who loves hustle and people, what is the “unforgivable sin” one of your employees could make?

Gary is not worried about people’s work ethic.  While hustle may be the leader’s skill, and being able to work long hours, it does not have to be the skill of employees.  The only sin is to not figuring out a way to play nice with the boys and girls they work with.  Being disrespectful or being selfish is completely unacceptable, as is creating conflict.

Only four months into 2016, new regulations require review of policies

Yes, it is only April, but even if employers updated their handbooks at the beginning of 2016, they should take another look at the handbooks to ensure they comply with new regulations issued by California’s Fair Employment and Housing Council.  The new regulations under the Fair Employment and Housing Act are effective April 1, 2016.  While the regulations are a restatement of the current law, they set forth an additional requirement that employers adopt a written discrimination, harassment, and retaliation prevention policy that meet certain conditions.

The new regulations provide that employers “have an affirmative duty to create a workplace environment that is free from employment practices prohibited by the Act.”  The regulations set forth that in addition to providing employees the Department’s DFEH-185 brochure on sexual harassment, or an alternative writing that complies with Government Code section 12950, employers are required to develop a harassment, discrimination, and retaliation policy that meets certain requirements.

Recommended actions for employers:

  1. Update handbooks to ensure the harassment policy complies with the new regulations.
  2. Update handbook acknowledgments to obtain written acknowledgments from employees that they have received the new policy.
  3. Review the new hire packets provided to new employees to ensure it contains the brochure DFEH-185 and all other required documents (disclosures and policies required to be provided to employees is becoming very detailed and complicated to comply with).
  4. Ensure all companies with 50 or more employees are compliant with its obligation to provide two hours of sexual harassment prevention training to all managers/supervisors.

Please contact me if you have any questions about updating handbooks or new hire packets to comply with these regulations.

Severance agreements under California law

This video is the third installment of three videos covering issues surrounding terminations in California.  For today’s Friday’s Five, in this final video in the series I discuss five common questions employers have about severance agreements:

  1. When are severance agreements appropriate in California?
  2. What are common terms in severance agreements? Such as a non-disparagement clauses and reference clauses.
  3. How much of a payment is required to the employee in a severance agreement?
  4. What is a section 1542 waiver of all known and unknown claims?
  5. Can employers include confidentiality provisions in severance agreements?

In order to obtain the termination checklist for California employers, please email me.

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