With the end of summer quickly approaching, this Friday’s Five (and next week’s post as well) covers broad topics employers should review periodically.  Today’s post covers five questions a company operating in California should be asking on a routine basis:

1. Has the company reviewed and updated the employee handbook and related policies?

As discussed in last weeks Friday’s Five about the new court decision on vacation pay in Minnick v. Automotive Creations, an employer’s policies are critical in defending claims.  Vague or out dated policies can create huge amounts of liability for employers. California’s requirements change throughout the year, and it is important that employers have a good relationship with employment counsel so that they are routinely communicating and reviewing the need to update policies based on new case law and legislation.

2. Does your company train supervisors and employees on its handbook and other policies, and does the company standby what it tells employees in these policies?

Legally drafted policies only get your company half of the way there.  Companies need to train managers and supervisors about what the policies mean and how they need to be implemented day-to-day.  Furthermore, the company needs to follow-through with what it tells supervisors, managers, and employees.  For examples, if the company maintains an open door policy, but none of the employees are utilizing the open door policy there could be a problem.  One solution is for the company to start pro-actively having open door sessions with employees to discuss their experience at the company (my post next week will discuss what should be asked during these open door sessions).

3. Has the company conducted a review of a local county and city laws that apply?

State, county and city laws regulating minimum wage and paid sick leave are numerous and California employers need to ensure they have closely reviewed they are complying with these requirements.  As Carl’s Jr. is finding out, noncompliance can have steep penalties.

4. When was the last time the company conducted an internal wage and hour audit internally? When was the last time an external lawyer or other professional reviewed wage and hour practices?

Many companies establish policies or simply continuing using policies from the past that have never been reviewed internally or externally by a lawyer or other professional.  I’ve published an HR audit list that covers a few of the essential areas that must be reviewed to lower a company’s legal exposure in California.

5. Is there an open line of communication with the employer’s payroll company and have specific wage and hour compliance issues been discussed?

The information that must be listed on employee’s pay stub is detailed, but easy to comply with.  A model pay stub published by the State Division of Labor Standards Enforcement can be found here (but note this only lists the state requirements – any other local county or city requirement will also apply).  The model pay stubs does not list paid sick leave, which employers must also remember to list on the employee’s pay stub or other writing provided to employees when they are paid.

Many payroll companies do not review the accuracy of the information listed on the pay stubs they generate, and this burden falls on the employer.  In addition to the California Labor Code requirements of the information that must be listed on pay stubs, the local requirements for reporting the amount of paid sick time available to employees must also be provided.  Employers need to proactively review and discuss these requirements with their payroll companies.

Is your company in an industry that is likely to be targeted by the Department of Labor (DOL) for FLSA violations, or by the California Labor Commissioner for California Labor Code violations? A review of the Department of Labor’s Wage and Hour statistics for fiscal year 2014, in connection with California’s Division of Labor Standards Enforcement most recent reporting for 2012-2013, establishes a clear pattern of industries that are targeted for wage and hour violations:

  1. Restaurants
  2. Garment manufactures
  3. Guard services
  4. Car washes
  5. Agriculture

Here is a summary of the DOL’s statistics:

DOL 2014 Statistics

Here is a summary of California’s DLSE’s most recent statistics:

DLSE 2012-13 wages collectedWhile there are some differences between the two agencies’ statistics, restaurants lead both lists. It is also important to note that not every business can fit into these predetermined categories (note that the “other” category in the DLSE’s lists is very large), so there are many other industries affected.

It is also important to note the amount collected from the various industries that the DLSE found was due. According to the DLSE, the worse collection efforts was in the garment industry, with only 2.8% of the wages found to be due were actually collected. The next lowest collection rate per industry was in the car wash industry at only 10% collection rate. It is important to review these collection rates, because it is informative about how the DLSE or DOL will view your particular establishment when investigating potential claims. The lower collection rates are probably due to the result of the employer’s simply going out of business or taking other steps to avoid collections of the penalties and fines, or what I refer to as the bad actor presumption (rightly or wrongly).

Bad actor presumption (rightly or wrongly)
Imagine if you were in charge of collecting the penalties issued by the DLSE or DOL, these collection figures would color your view of employers operating in these industries. Going into the investigation, the government already has a predisposition that certain employers are more likely to have violations, and then when told they must pay fines, the employer likely to still simply refuse to abide by the determination. I’m not making a presumption that these penalties and fines were rightly or wrongly issued, but am only commenting about how these numbers skew the view from the perspective of the governmental agency. The agencies go through the process of making a determination and issue a citation, and then even after the determination has been made and the employer had an opportunity to appeal the agencies’ determination, the employer still refuses to pay the citation. In effect, employers therefore are harming the reputation of every business operating in that industry, and make it more difficult to overcome the predisposition the investigator has about the particular industry.

This illustrates the importance of companies operating in these targeted industries to be especially vigilant about compliance with Federal and California employment laws. An employer can gain a higher level of credibility with the investigator if they can show compliant policies, good record keeping, and proper payment of wages. Next week I will discuss violations most likely to be assessed by the DOL or the DLSE.