In a recent decision, Ramirez v. ISB Mehta Corp., a restaurant successfully defended a lawsuit filed by a former manager claiming that he was misclassified as an exempt employee.  While the case is not officially published, it provides a few good lessons for restaurant operators’ classification of their employees.  This Friday’s Five focuses on the lessons illustrated by this case:

1. Employers must approach classifying employees as exempt carefully

In Ramirez v. ISB Mehta, the plaintiff worked for Erik’s DeliCafe, a franchised restaurant in the Bay Area.  The plaintiff filed a class action alleging that he was misclassified as an exempt employee and was entitled to overtime compensation because his duties as a manager primarily involved nonexempt work.

The plaintiff testified that his daily duties including counting cash, entering daily sales information, making daily bank deposits, writing checks, placing food orders, buying produce, marketing, preparing and delivering catering orders, and working the register (taking walk-in customer orders). Defendant provided plaintiff with a cell phone, but paid plaintiff $100 a month for the service.

The trial court rejected plaintiff’s overtime compensation and minimum wage claims, finding that he was an exempt employee under both the executive and administrative exemptions defined in Industrial Welfare Commission Wage Order No. 5-2001.  The court found that plaintiff was primarily engaged in activities falling within those exemptions, such as:

  • directing the work of others;
  • authorized to hire and fire;
  • customarily and regularly exercising independent judgment; and
  • regularly and directly assisting the owner of the business

The evidence established that the employee’s duties and responsibilities also involved performance of non-manual work directly related to management policies or general business operations, and Employee was paid a salary more than twice the minimum wage.

Click here for common exempt classifications.

2. To meet the executive exemption, the employer must meet six requirements

The court explained to meet the executive exemption, the following must be met:

The executive exemption has six components: (1) the employee’s “duties and responsibilities involve the management of the enterprise in which he/she is employed,” (2) the employee “customarily and regularly directs the work of two or more other employees,” (3) the employee “has the authority to hire or fire other employees …,” (4) the employee “customarily and regularly exercises discretion and independent judgment,” and (5) the employee earns a monthly salary “no less than two (2) times the state minimum wage for full time [40 hour per week] employment.” (Cal. Code Regs, tit. 8, § 11050, subd. 1(B)(1)(a)-(d), (f).)

The remaining component, at issue here, requires the employee to be “primarily engaged in duties which meet the test of the exemption.” (Cal. Code Regs, tit. 8, § 11050, subd. 1(B)(1)(e).)

3. Factors to review when employee is performing both exempt and nonexempt duties to determine if the employee spends more than 50% of their time on exempt duties

The court set out the factors used in determining if the employee spends more than 50% of their time on managerial duties when the employee performs both managerial and non-managerial work:

Work performed by a nonexempt employee is generally nonexempt work when performed by the supervisor; (2) the regulations do not recognize hybrid activities (activities having both exempt and nonexempt aspects); (3) identical tasks may be exempt or nonexempt depending on the manager’s purpose in engaging in the task or the task’s role in the work of the organization; and (4) in large retail establishments when certain tasks are customarily assigned to nonexempt employees, the performance of that work by a manager is nonexempt. (Heyen, supra, 216 Cal.App.4th at pp. 822-823.)

The court found that in this case bookkeeping tasks, maintaining inventory and ordering supplies and marketing the restaurant were exempt duties.

Click here for my prior article for examples of duties that usually are exempt duties.

4. Employers bear the burden to prove that an employee is exempt

California courts have made clear that the employer bears the burden of proof when asserting that an employee is an exempt employee.  “[T]he assertion of an exemption from the overtime laws is considered to be an affirmative defense, and therefore the employer bears the burden of proving the employee’s exemption.”  Ramirez v. Yosemite Water Co. (1999).

5. Even though the employer prevailed in this lawsuit, it can be risky to classify restaurant managers classified as exempt

While the employer prevailed in this case, the case illustrates the close factual analysis required in determining whether an employee meets an exempt classification.  Especially in the restaurant context, it is likely that managers will be performing both nonexempt and exempt duties.  It is very easy for disgruntled employees to contend after the fact that their duties primarily consisted of nonexempt, non-managerial tasks.

Employers across the nation have been preparing to increase salary levels for managers to meet the higher salary level requirements implemented by the Department of Labor earlier this year under the Fair Labor Standards Act (FLSA).  The DOL rules were set to take effect on December 1, 2016, and require that employers must pay employees that qualify to be exempt executive, administrative or professionals (referred to as the “EAP” exemption) a minimum salary level of at least $921 per week or $47,892 annually.  21 states filed a lawsuit to prevent the DOL’s rule to take effect, arguing that in raising the minimum salary level, the DOL exceeded its delegated authority from Congress.  While not issuing a final ruling, the court determined that the plaintiff states have shown a likelihood of success on the merits justifying the preliminary injunction.  The merits of the case and a final determination will be made at a later date.

Therefore, the court issued an injunction preventing the DOL’s overtime rules from taking effect on December 1, 2016.  An issue addressed by the court was whether the injunction applied only to the 21 states involved in this case, or to all states.  The court’s opinion is unambiguous that the scope of the injunction applies to all states and all employers:

A nationwide injunction is proper in this case.  The Final Rule is applicable to all states.  Consequently, the scope of the alleged irreparable injury extends nationwide.  A nationwide injunction protects both employees and employers from being subject to different EAP exemptions based on location.

Now employers that started the process of raising salary levels for managers in order to comply with the DOL’s overtime rules must make a decision to continue with the raises or hold back on any implementation until there is further guidance from the courts.  It is also likely that President-elect Trump’s administration will not look favorably on the DOL’s overtime rules.  This adds further uncertainty about whether the increase in the salary level will ever go into effect once President-elect Trump takes office.

The opinion in State of Nevada, et al v. United States Department of Labor, can be read here.

Employers also need to remember that the minimum salary requirement is only one part of the exemption test, and California employers need to ensure that they are still complying with California’s requirements.

The DOL’s change in the federal overtime rules requiring a higher salary threshold ($47,476 paid annually) for employees to qualify as an exempt employee takes effect December 1, 2016.  This Friday’s Five discusses five final checklist items California employers should consider when reclassifying from exempt employees to nonexempt employees.

1. The DOL rule changes are still going into effect December 1, 2016.

This week, a few people asked me if the DOL changes are still going into effect since Donald Trump was elected as president.  Mr. Trump is unable to change the DOL’s rule that requires exempt employees be paid $47,476 in an annual salary until he is inaugurated as president.  Therefore, employers still must comply with this deadline.

2. Notice to Employee may be required.

Section 2810.5 of the California Labor Code requires employers provide notice to employees of their rate(s) of pay, designated pay day, the employer’s intent to claim allowances (meal or lodging allowances) as part of the minimum wage, and the basis of wage payment (whether paying by hour, shift, day, week, piece, etc.), including any applicable rates for overtime.

The law requires that the notice is provided to employees at the time of hiring or within 7 days of a change if the change is not listed on the employee’s pay stub for the following pay period. The notice must be provided in the language the employer normally uses to communicate.

Employers should carefully review the need to provide the notice to employee given any reclassification of employees from exempt to a nonexempt employee.  A template Notice to Employee can be downloaded from the DIR’s website here.

3. Consider how the change will be communicated and documented with employees.

Employers should explain to employees who are being reclassified from exempt to nonexempt about how they will be paid.  The notice should inform workers they will be paid overtime for work over 8 hours in a day and over 40 hours in a week.  The communication should also explain any changes in bonuses (don’t forget that nondiscretionary bonuses must be figured into the employee’s regular rate of pay for overtime purposes) and benefits.  Finally, the communications should set out the different duties the employee may be required to perform given the change in classification.

4. Meal and rest breaks.

In addition to communicating the change in pay to employees, the company should also distribute its meal and rest break policy.  The company should distribute any meal and rest break forms to the employees who are being converted to nonexempt that are normally given to new hires.

5. Off the clock and timekeeping policies.

Finally, employers need to implement compliant timekeeping policies to ensure that all nonexempt employees clock in and out for all work time.  In addition, California requires that employers record when nonexempt take their meal breaks, and any reclassified employees must understand this requirement.  Employers need to be careful about allowing employees who are reclassified as nonexempt to continue to use a company cell phone or laptop, as now any work performed once they leave the office must be compensated.  Employers should consider limiting nonexempt employees’ access to company cell phones, e-mail, and computers to avoid off the clock claims.

Any reclassification and audit regarding the proper classification of employees should be done with caution, as there are many different issues to consider that are outside of the scope of this article.

This Friday’s Five is a bit of everything: news, new California employment laws, and reminders about October 1 deadlines for the City of San Diego:

 1. House moves to delay DOL overtime rule implementation.

There is a great article by Lisa Jennings from Nation’s Restaurant News summarizing the House’s move to delay the overtime rule implementation, which is set to go into place on December 1, 2016.  The White House has already threatened to veto the bill if it makes it to the President’s desk.  For more information about the DOL overtime rules, visit my posts here.

2.  San Diego employers need to ensure they are in compliance with the October 1, 2016 deadline.

The City of San Diego’s new paid sick leave law (and its “implementing ordinance”) requires employers to provide written notice to employees about the paid sick leave law by October 1, 2016 (yes – that is tomorrow).  The Implementing Ordinance requires that every employer must also provide each employee at the time of hire, or by October 1, 2016, whichever is later, written notice of the employer’s legal name and any fictitious business names, address, and telephone number and the employer’s requirements under the law.  The notice must also include information on how the employer satisfies the requirements of the law, including the employer’s method of earned sick leave accrual.  The notice must be provided to employees in English and in each employee’s primary language, if it is a language if it is spoken by at least five percent of the employees at the employer’s workplace.  Employers may provide this notice through an accessible electronic communication in lieu of a paper notice.  The City published a form notice to comply with these requirements, which can be downloaded here.

3.  Governor signs law making it illegal for out-of-state employers to have their disputes heard outside of California.

Governor Brown signed S.B 1241 into law that restricts employers from requiring employees who primarily reside and work in California to adjudicate claims outside of California when the claim arose in California, or deprive employees of California law with respect of claims arising in California.

Employers should carefully review their arbitration agreements with California employees to ensure that the agreement does not have a choice of law provision that applies another state’s law to the agreement or require any claims be adjudicated outside of California.  The effective date for the law is January 1, 2017.

4.  New CA law prohibits employers from asking about juvenile convictions.

A.B. 1843, signed into the law by Governor Brown on September 27, 2016 prohibits employers from asking or taking into consideration juvenile convictions.  The law states, “employers [are prohibited] from asking an applicant for employment to disclose, or from utilizing as a factor in determining any condition of employment, information concerning or related to an arrest, detention, processing, diversion, supervision, adjudication, or court disposition that occurred while the person was subject to the process and jurisdiction of juvenile court law.”

5. NCAA and Pac-12 sued by former USC football player for unpaid wages.

An interesting class action lawsuit was filed by a former USC football player claiming that the NCAA and Pac-12 violated the Fair Labor Standards Act and California law by not paying football players minimum wage or overtime.  This is a different twist to the often debated issue of whether college athletes should be allowed to accept endorsement money.  It will be interesting to see how the lawsuit develops: on one side there is an argument that as the college sports programs have turned into huge profit generating centers sports, not academics could be seen as the primary focus for these athletes, but on the other hand the players are still students and many school programs do not generate huge revenues for the schools.

This week’s Friday’s Five covers five misconceptions about California employment law that can land employers in a lot of hot water:

  1. Meal and rest breaks seem so trivial.

The topic for the uneducated (or out of state) employer does seem trivial.  However, with the penalty owed to employees of one hour of pay for each missed meal or rest break (i.e., up to two hours of penalty pay per day) these violations add up to significant amounts of liability very quickly.  Wal-Mart’s 2005 verdict in California for meal and rest break violations for $172 million is a good example.

  1. My payroll company understands the laws about wages and itemized pay statements.

Payroll companies are not law firms and they will not notify you if you are not paying your employees properly, calculating overtime correctly, or even ensure that the paystubs they generate for your employees comply with the law.  It is the employer’s responsibility to ensure the employment laws are being complied with, and it is wise to have an experienced employment lawyer review these practices and audit the practices of the payroll company.

  1. The employee’s title determines if they are owed overtime.

An employee’s title is not determinative of whether they qualify as an exempt employee.  See my previous article on the various exemptions that employees may qualify for, and the requirements necessary for employees to meet those exemptions.

  1. Employees can be provided “comp time” instead of paid overtime.

While it is true employers may provide employee’s comp time in lieu of overtime, there are many technical restrictions that must be met in order for comp time plans to be legal under California law.  Labor Code section 204.3 only authorizes employers to provide nonexempt employees with compensated time off instead of pay for overtime if the following requirements are met:

  • Payment for comp time must be at the overtime rate of pay (i.e., not less than one and one-half hours for each hour of employment, or double time if applicable)
  • Must be in writing before work begins
  • Employees cannot accrue more than 240 hours of compensation time off
  • Employee has to make a written request for comp time in lieu of overtime
  • Employee must be scheduled to work at least 40 hours a week
  • Employee must be paid at rate of pay in effect at time of payment
  • Payment at termination must be at high of current or three-year average rate of pay
  • Employee must be permitted to use comp time within reasonable period
  • Employer must keep records of comp time accrued and used
  1. My company is too small to be a target for employment litigation.

If you have been a reader of this blog for any time period, you understand that every employer in California needs to understand their legal duties when it comes to employing workers.  And with competent employment law counsel [:)] it is not hard to comply with the law, but it is difficult to keep current with the law and ensure all legal obligations are being met.

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.

I cannot believe it is already Friday, and one week done in 2016.  This Friday’s Five focuses on a few action items for employers can use to start a review of their employment policies for 2016.Happy New Year 2016

 1.      Ensure the new hire packets contain all required information for employees. 

If employers do not have a standard new hire packet, the first step in 2016 should be implementing this packet.  There are many disclosures and documents that need to be provided to employees when they are hired.  This packet should be reviewed by legal counsel as well to ensure that all required forms are included for each employee.  For example, employees earning commissions must be provided the commission agreement in a writing signed by both the employee and the employer.  See Labor Code Section 2751.

 2.      Review pay stubs to ensure they are compliant. 

The DLSE provides an example of a pay stub and the required information for an hourly employee:

Also, do not forget that with California’s paid sick leave law that took effect on July 1, 2015, employers will have additional reporting information regarding employees’ accrued paid sick leave and usage. Employers must show how many days of sick leave an employee has available on the employee’s pay stub or a document issued the same day as a paycheck.

3.      Analyze if arbitration agreements are appropriate.

Employers should understand the potential benefits and costs associated with arbitration agreements, and should review with counsel whether they might be appropriate for their workforce.

4.      Review payroll practices and ensure overtime is being paid correctly.

If non-exempt, review to ensure the appropriate overtime is being paid at the proper rate, and that all overtime is being paid for work done over eight hours in a day and 40 hours in a week.

Generally, any work performed over eight hours in any workday or more than six days in any workweek requires that the employee is compensated for the overtime at not less than:

  •  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; and
  • 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.

Employers should review that the employee’s “regular rate of pay” used for calculating overtime includes all required payments to the employee such as non-discretionary bonuses, piecework earnings, or commissions.  The Department of Industrial Relations provides some good examples on what must be included when calculating the regular rate of pay and how to calculate the applicable overtime.

5.      Understand new laws taking effect in 2016.

Employers should learn about the new laws passed that are effective in 2016.  I’ve posted some excerpts from a webinar I recently conducted last week on a few new laws facing California employers in 2016.  I’ll be posting additional excerpts soon as well.  If you would like to be notified about future webinars or seminars I conduct, you can sign up here.

To qualify as an exempt employee, an employee must be “primarily engaged in the duties that meet the test of the exemption” and “earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” Labor Code section 515.  This forms the two part test the employees must meet to be exempt: (1) the salary basis test and (2) the duties test.  Yes, this Friday’s Five post is published on a Saturday, but a holiday party obligation got in the way (it did cross my mind, but I saved my readers from the obligatory “how to throw a holiday work party and avoid litigation” article – so I figured this will make up for the late post).  Here are five general issues employers should know about the salary basis test:

1.     To qualify for a “white collar” exemption, employees must be paid at least twice the state minimum wage.

To be exempt the requirement of having to pay overtime to the employee, the employee must perform specified duties in a particular manner and be paid “a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” (Lab. Code, § 515, subd. (a).)  As of July 1, 2014, the minimum wage in California increased from $8.00 to $9.00 per hour.  It is set to increase again to $10.00 per hour on January 1, 2016.  With the increase in the state minimum wage, there is a corresponding raise in the minimum salary required to qualify as exempt under the “white collar” exemptions.  Therefore, on July 1, 2014, in order to qualify for a white collar exemption, the employee must receive an annual salary of at least $37,440, and as of January 1, 2016, the threshold annual salary increases to at least $41,600.

2.     DOL proposal to increase the salary for required to meet the salary basis test under the FLSA is just a proposal (for now).

As I have previously written, the Department of Labor announced in June 2015 that it was considering a proposal to increase the salary basis amount under the Fair Labor Standards Act (FLSA) for the white collar exemptions from $23,660 to $50,400.  The Wall Street Journal is reporting that this proposal is not likely to become effective (if at all) until late 2016.  Employers need to understand that the DOL’s proposal pertains to federal law.  California employers need to abide by which ever salary basis level is higher – California state law or the FLSA.  It is important to understand the difference, and keep up to date on the DOL’s proposal in 2016.

3.     The employee’s salary cannot be reduced for quality or quantity of work.

In a recent case, Negri v. Koning & Associates (2013), an insurance claims adjuster challenged his employer’s exempt classification of his job.  The plaintiff was paid $29 per hour with no minimum guarantee, and when he worked more than 40 hours in a week, he still only received $29 per hour.  The employer attempted to argue that the plaintiff was an exempt employee under the administrative exemption.  The court rejected the employer’s position in holding that because the employee did not receive a guaranteed amount in “salary”, the employee did not meet the salary basis test to qualify as exempt.  In determining what constitutes a salary, the court looked to federal law:

An employee is paid on a “salary basis” if the employee “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to the exceptions provided in paragraph (b) of this section [(relating to absences from work)], an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. Exempt employees need not be paid for any workweek in which they perform no work. An employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.” (29 C.F.R. § 541.602(a) (2012)

Therefore, because the plaintiff’s pay varied according to the amount of time he worked, and was not guaranteed a base amount, he did not meet the salary basis test and was found to be non-exempt.

4.     If misclassified, the employee is entitled to unpaid overtime.

For all non-exempt employees, overtime is owed at a rate of 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.  Double the employee’s regular rate of pay is owed 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.  California’s Department of Industrial Relations FAQ on California overtime provides a good overview of the overtime requirements under California law.  In addition to the unpaid overtime that is owed to misclassified employees, employers also fact substantial penalties that accrue as a result of the employee not being paid all wages when earned.

5.     Approach with caution.

California courts have made clear that the employer bears the burden of proof when asserting that an employee is an exempt employee.  “[T]he assertion of an exemption from the overtime laws is considered to be an affirmative defense, and therefore the employer bears the burden of proving the employee’s exemption.”  Ramirez v. Yosemite Water Co. (1999).

Photo:  Justin Lynham

You may recall from your college business law class of the “American rule” regarding attorney’s fees: generally in the United States each side is responsible to their own attorney’s fees, and unlike other countries, the loser does not have to pay the other party’s attorney’s fees. Employers can basically ignore this general rule in employment litigation under California law. I debated about writing this article because once a lawsuit is filed, employers don’t have any control over what claims and damages the plaintiff will assert, so why would employers need to understand when they have exposure to a current or former employee’s attorney’s fees in litigation? However, employers need to understand the underlying liability of potential claims, the motivations behind those claims, and the major part of many employment law claims can be attorney’s fees. And as shown below, the California legislature has used the award of attorney’s fees to shift the risk in many actions against employers, and it is a concept that employers need to understand to address liability and litigation strategies. Here are five California employment related statutes that can expose employers to a plaintiff’s attorney’s fees:

1. Minimum wage/unpaid overtime claims. Labor Code section 1194, provides attorneys fees for plaintiffs who recover damages for minimum wage or overtime violations:

Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action … reasonable attorney’s fees, and costs of suit.

2. Unsuccessful appeal of Labor Commissioner Claim. In order to discourage appeals from Labor Commissioner rulings, California Labor Code section 98.2(c) requires the court “shall” awards costs and reasonably attorney’s fees to the other party. This section permits the employee to obtain fees on an unsuccessful appeal by the employer, or to the employer who prevails on an unsuccessful appeal by employee. The catch for employers however, is that Labor Code section 98.2(c) provides that the employee is “successful” and therefore entitled to attorney’s fees “if the court awards an amount greater than zero.” Yes, even if the employee receives $1, they are successful in the appeal, and are entitled to their attorney’s fees. Therefore, employers have a huge disincentive in appealing Labor Commissioner rulings.

3. Expense reimbursement claims Labor Code section 2802 provides that employers must pay for and reimburse employees for “all necessary expenditures or losses incurred by the employee in direct consequence” of the employee’s job. Therefore, items like mileage reimbursement, even personal cell phone expenses, or other out-of-pocket expenditures employees make while performing their job must be reimbursed by the employer. Labor Code section 2802(c) provides that the employee is entitled to “attorney’s fees incurred by the employee enforcing the rights granted by this section.”

4. Private Attorney General Act (PAGA) claims Plaintiff’s counsel bringing a PAGA claim can seeks attorney’s fees under this statute as well. See Labor Code section 2699(g). Plaintiffs’ attorneys also claims fees under California Code of Civil Procedure section 1021.5, which permits them to recover fees if the case “resulted in the enforcement of an important right affecting the public interest” if certain requirements are satisfied.

5. California’s Fair Employment and Housing Act (FEHA) The Fair Employment and Housing Act (FEHA) prohibits harassment and discrimination in employment based on protected categories and/or retaliation for protesting illegal discrimination related to one of these categories. “In civil actions brought under [FEHA], the court, in its discretion, may award to the prevailing party . . . reasonable attorney’s fees and costs, including expert witness fees.” (Gov. Code, § 12965, subd. (b).) Under FEHA, the fee shifting provision goes both ways, to the plaintiff but also potentially the employer. Courts have discretion to award the defendant employer attorney’s fees and costs as the prevailing party in cases where plaintiff’s claim is deemed unreasonable, frivolous, meritless or vexatious. As a California court recently explained:

Despite its discretionary language, however, the statute applies only if the plaintiff’s lawsuit is deemed unreasonable, frivolous, meritless, or vexatious. . . . ‘ “[M]eritless” is to be understood as meaning groundless or without foundation, rather than simply that the plaintiff has ultimately lost his case . . . .’

Robert v. Stanford University, 224 Cal.App4th 67 (2014).

You’ve set up a successful company and begin hiring employees. To be a successful operator in California, a company’s management needs to be familiar with the critical legal concepts in order to successfully navigate California’s complex employment laws. You never wanted to go to law school, but time to hit the, ahem, books (or the Internet).  Here are a five fundamental legal concepts that every employer should understand:

1. At-will employment. Under California law, it is presumed that all employment is terminable at-will. California Labor Code section 2922 provides: “An employment, having no specified term, may be terminated at the will of either party on notice to the other.” The at-will doctrine means that the employment relationship can be terminated by either party at any time, with or without cause, and with or without advanced notice. There are some major exceptions to this rule, see item #3 below for example, but generally California law recognizes that employers and employees may, at any time, and for any legal reason, terminate the employment relationship.

2. Meal and rest break obligations. Employers cannot employ an employee for a work period of more than five hours per day without providing the employee with a meal period of at least thirty minutes. This break may be waived if the total work period per day of the employee is no more than six hours, with the mutual consent of both the employer and employee. A second meal period of at least thirty minutes is required if an employee works more than ten hours per day, except that if the total hours worked is no more than 12 hours. The second meal period may be waived by mutual consent of the employer and employee only if the first meal period was not waived. Rest periods are based on the total hours worked daily and a full ten minute consecutive break must authorized and permitted for each four hour work period, or major fraction thereof. I’vewritten about these obligations before, and the DLSE’s website provides many details regardingmeal periods and rest breaks.

3. Protected categories. Under the at-will doctrine employers may decide to terminate an employee based on any reason, just as long as it is not an illegal reason. An illegal reason would be one based upon an employee’s protective category, such as their race, gender, national origin, disability, age, or sexual orientation for example. California law even protects employees who are perceived to be in a protected category, associated with someone who is in a protective category, or even a sympathizer of someone in a protected category. In addition, the DLSE provides that the following activities are also protected:

The engaging in or exercising of a right that is protected by law. Some examples of “protected activity” under the Labor Code include: 1. Filing or threatening to file a claim or complaint with the Labor Commissioner. 2. Taking time off from work to serve on a jury or appear as a witness in court. 3. Disclosing or discussing your wages. 4. Using or attempting to use sick leave to attend to the illness of a child, parent, spouse, domestic partner, or child of the domestic partner of the employee. 5. Engaging in political activity of your choice. 6. For complaining about safety or health conditions or practices.

4. The difference between exempt and non-exempt. Employers need to understand which positions are legally entitled to overtime and other protections of the Labor Code, and the position that are “exempt” from these requirements. Here is a list of common exemptions under California law. It is important to note that employers and employees cannot simply make the determination and agree to be exempt on their own (the right to overtime cannot be waived, see non-waivable rights below). The employer has the burden of establishing that the employee meets all of the required elements of a particular exemption in order for the employee to be legally classified as exempt. 5. Understanding that certain Labor Code provisions cannot be waived by employees. Employees cannot waive their rights to certain protections offered by the California Labor Code. For example, employees cannot waive their rights to minimum wage, overtime, expense reimbursements for out of pocket expenses incurred for business purposes, right to participate in PAGA representative actions, and the right to receive non-disputed wages. You can read more about these rights here. So before a decision is made because the employee willingly agrees to the terms, or may even ask for certain employment terms, employers need to be sure that the employee can actually agree to those terms under the law. Photo courtesy of Janet Lindenmuth