There are a lot of California employment law developments at the mid-point of 2019.  Below are five recent videos from our YouTube Channel discussing these new developments.  Subscribe to our YouTube Channel to keep current.

Also, if you are not already subscribed to my Firm’s newsletter, click here to subscribe to receive updates and invitations for special events we host.

1. Uniforms in the Workplace – New Case Law: Townley v. BJ’s Restaurants

In Townley v. BJ’s Restaurant, the California Court of Appeal recently ruled that employers are not required to reimburse employees for slip-resistant shoes as they do not qualify as a uniform under California law.  This video addresses this new case, as well as other issues related to uniforms, such as:

  • When must an employer pay for a uniform?
  • When does the employer have to pay for the costs of cleaning the uniform?
  • Can an employer require a deposit for a uniform?

2. What Employers Can do to Protect Against Class Action Claims:

Since insurance does not cover class action claims, what can you do as an employer to protect yourself in these situations?  I discuss a few options in this video.

3. 5 Key Issues for Terminations in California:

Terminations. It is not a subject you cover in management class, or any class for that reason. But yet the termination process is one of the more common business decisions that will receive the most scrutiny, and are probably the most legally challenged decisions in the workplace.

4. California Legislature Places Gig Economy in Cross-hairs:

The California legislature is setting its sights on limiting employers’ use of independent contractors in the gig economy.

5. Minimum Wage Increases on the State and Local Levels: What you Need to Know

Here’s a brief overview of what employers need to know about minimum wage increases.

Happy Friday.  Here is a refresher post for today’s Friday’s Five about some requirements about 10-minute rest breaks required for non-exempt employees:

1. Timing of rest breaks

The 10-minute rest break must be provided to employees who work over three and a half hours.  Employers must authorize and permit employees to take 10-minute rest breaks for every four hours worked, or “major fraction” thereof.  A “major fraction” of four hours is anytime more than two hours.  Insofar as practicable, the rest breaks should be in the middle of each four-hour work period.

2. Rest breaks must be paid and employees must be relieved of all duties

The rest period is considered time worked and must be paid.

Employees must be relieved of all duties during the rest break, and cannot be required to monitor a pager, phone, or other device during the rest break.  The Court in Augustus v. ABM Security Services, Inc., ruled that “one cannot square the practice of compelling employees to remain at the ready, tethered by time and policy to particular locations or communications devices, with the requirement to relieve employees of all work duties and employer control during 10-minute rest periods.” The Court made clear that the employee must be “free from labor, work, or any other employment-related duties. And employees must not only be relieved of work duties, but also freed from employer control over how they spend their time.”  Further analysis on the Augustus case can be read here.

3. Rest breaks need to be “authorized and permitted”

Employers are required to “authorize and permit” rest breaks, and there is no affirmative duty for employers to require that employees take rest breaks.  Employers need to ensure that they do not interfere with an employee’s ability to take the rest break, and if the demands of work are such that employees cannot take the rest break, employers should have a system in place to compensate the employee the applicable “wage premium” of one hour of pay at the employee’s regular rate of pay for any violations.

4. Rest breaks do not need to be recorded

Unlike the 30-minute meal break, the 10-minute rest break does not have to be recorded in the timekeeping system.

5. Piece rate employees must be paid separately for rest breaks

Employers who paid employees on a piece rate basis need to ensure they comply with Labor Code section 226.2, which took effect in January 2016.  Under Labor Code section 226.2, employers who paid employees on a piece rate basis must pay employees for “rest and recovery periods and other nonproductive time separate from any piece-rate compensation.”  The law requires employers to calculate the regular rate of pay for each workweek, and then pay the piece-rate employees the higher of this regular rate of pay or the applicable minimum wage for rest break time.  The law also requires employers to pay piece-rate employees for “nonproductive time” which is defined as “time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.”  The nonproductive time is required to be paid at a rate no less than the applicable minimum wage rate.  In addition, employers who pay employees on a piece-rate basis need to report the pay for rest breaks, recovery periods, and nonproductive time separately on the employees’ pay stubs.  Employers with piece rate employees should consult with experienced counsel to ensure the correct amounts of time are being calculated and paid for under this law.

I published this post the last couple of years for the Fourth.  Hopefully I’ll be able to keep publishing it for many years to come.  Wishing you a great Fourth, and hope you have some time to put aside your work for a bit and enjoy some time with your family.  Happy Fourth!

Five things I’m thankful for this Fourth of July:

1.     For the great risk and sacrifice our Founding Fathers took to establish the country. 

When learning about the Founding Fathers in high school history class I did not have a perspective about the risks the Founders took in establishing the country.  Only now that I have a business, a family, and am relatively successful, can I realize the huge risks the Founders took.  By all means, they were the establishment, the elite of the American society, and if anyone had an interest in preserving the status quo, it was them.  Their sacrifices of life (theirs and their family members) and their fortunes helped build the foundation we benefit from today.

2.     The ability to speak freely and practice or not practice any religion I want.

It is great being able to freely speak your mind and believe in whatever you want.  It is also great be free to practice (or not) any religion you want.  We live in a very tolerant society, and it is even better when the government is not telling you how to live your life.  It is important to remember that throughout history, this has been the exception for how a government normally behaves.

3.     Our Country’s ability to attract creative people.

People that like creating things and being productive want to practice their trade where the government will basically leave them alone and provide a good environment to protect their gains derived from their hard effort (see item #5 below).  The U.S. provides this environment, and that is why so many people come to the U.S. to create a business or to practice their trade.  It is also important to recognize how lucky we are to have been born in the U.S.

4.     My right to practice any profession and access to unlimited resources to learn the required skills.

No one is dictating what students need to be after they graduate high school or college.  Everyone is free to pursue their interest, and the market decides the value of the effort.  With basically any information freely available on the Internet, anyone can learn almost any skill, and like no other time in human history individuals have an almost free method to sell their services or products over the Internet.  In your mid-40’s and want to make a career change?  Perfect, and you don’t even need to go back to school as the information is freely available on the Internet.  Didn’t finish college and are 20 years old with an idea?  Perfect.  Venture capitalists don’t care about your pedigree, they are only interested if you work hard and don’t give up.

5.     Our legal system.

Yes, it sounds trite.  But while I don’t think our legal system is perfect by any means, it is the best system established in the history of mankind.  Everyone living in the U.S. presently is very lucky to have this benefit.  It is a foundation for many of the items I mentioned above.  Because people have a good basis for predicting the outcomes of their actions, such as being able to retain property legally obtained, and knowing if someone breaches a contract there will be repercussions, it creates an environment that attracts hard effort and the best talent from around the world.  This is why the U.S. has been the leader in ideas and new businesses.  However, just because the system is established it does not mean our work is done.  We have to be vigilant not to lose the fairness, reasonableness, and lack of corruption in legal system.

Happy Fourth of July. I’m off to the neighborhood parade.

Finding an attorney who can help an owner, CEO, or president manage business issues can be a stressful situation if not approached correctly.  Below are five recommendations about what to look for when hiring an attorney, and when an attorney should be engaged (hint: sooner than later).

1. Personality fit is key

Just like any other high-stakes, high-stress relationship, how you get along with your attorney is one of the most fundamental aspects to the relationship.  I’m not saying you have to be able to be best friends with your attorney, but do you learn new things from them when you speak?  Also, consider whether or not  you enjoy calling your attorney.  If you dread speaking with your attorney, you will use them less, and this could cost you a lot of money in the long run.  Your attorney needs to be a trusted advisor that you feel comfortable reaching out to for advice.

Also, the attorney’s personality and how they treat you as a client is a key indicator on how they treat the attorneys on the other side of the deal or in litigation.  Most clients say they want the scorched-earth, brass-knuckles attorney representing them, but in reality, business deals and even litigation (at its core litigation is a business transaction), usually need to be resolved when reasonable people reach a compromise.  If your litigation attorney is billing by the hour and never seems interested in considering how to resolve the case sooner than later, it should raise some concerns.  Likewise, if your business attorney is not working on a flat fee and has issues with every single negotiation point in a deal, this could be a concern.

2. Ask friends and contacts for referrals

If you do not know any attorneys, ask your contacts in your industry for a referral.  If you have a trusted attorney that does not practice the particular issue you need help with, ask that attorney for a referral.  As discussed below, the legal industry is becoming very specialized, and attorneys that routinely practice in the area you need assistance with are critical.

3. Engage attorneys with experience in your industry

Just as important as the attorney’s experience in the practice area, it is equally important to find an attorney with experience in your industry.  If you operate a restaurant, your issues will be much different than the owner of a start-up software company.  Employment laws do not generally change based on which industry your company operates in, but there are some exceptions to this general rule.  Moreover, an attorney that has worked in your industry will be able to bring the experience of previously dealing with the issue, and will be better positioned to understand what to expect two or three steps in the future.

4. Seek lawyers with specializations

For example, I can determine within about five minutes if I’m dealing with opposing counsel who do not routinely litigate employment cases.  Likewise, I would be the first one to admit that I am not the attorney to negotiate your next lease.  Clients save a lot of money when hiring attorneys with experience in the area they need assistance in – many of the routine issues are already understood by the attorney and do not have to be researched.  Generally, a company will typically require the following types of attorneys:

  • Corporate attorney to assist with forming a corporation, raising money from investors, and stock issues.
  • Employment attorney to set up employment policies, such as handbooks, set up and audit pay practices to ensure everyone is properly classified, and to be available for routine advice and counseling issues that will come up from time-to-time.
  • Tax attorney to work with your other attorneys and accountants to advise on tax implications on various transactions and how best to structure the transactions to minimize the tax implications.
  • Intellectual property attorney when dealing with any copyright, trademark, or patent issues.
  • Real estate attorney to review leases or agreements to buy/sell buildings or land.

5. Engage a lawyer before you need them

Once you realize that an attorney will likely be needed for your business, engage the attorney for some small issues.  Make sure your personalities match, see if the attorney provides good value to your company, and get a general sense of the attorney.  In the employment context, it is also a good time for the attorney to get a sense of the company’s policies, meet  people in the human resources department, and potentially review and update the employee handbook.  This general knowledge is helpful when a critical issue arises, and important decisions must be made with your attorney on a very tight timetable.  It is much more comfortable to have at least the beginnings of a relationship with the attorney established, before your company is trusting this advisor with issues that could have significant consequences.

Employers considering implementing non-competition and non-solicitation agreements for their California workforce must understand the differences in these agreements, and California’s public policy against restraints against an employee’s ability to work in their profession or trade.  This Friday’s Five covers five issues that employers should understand regarding non-competition and non-solicitation agreements in California.

1. Non-competition and non-solicitation agreements cannot violate Business & Professions Code section 16600

In California, non-competition agreements are governed by Business & Professions Code section 16600, which states: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The statute permits non-competition agreements in the context of sale or dissolution of corporations (§ 16601), partnerships (§ 16602), and limited liability corporations (§ 16602.5).  But other than these narrow exceptions connected with the sale or dissolution of a company, California has a strong public policy against non-competition agreements.

Under the common law, as still recognized by many states today, contractual restraints on the practice of a profession, business, or trade, were considered valid, as long as they were reasonably imposed.

2. California Supreme Court ruling in Edwards v. Arthur Andersen regarding non-competition agreements

In 2008, the California Supreme Court ruled on the enforceability of non-competition agreements under California in Edwards v. Arthur Andersen LLP. Arthur Andersen argued that California courts have held that section 16600 embraced the rule of reasonableness in evaluating competitive restraints.

The Court disagreed with Arthur Andersen and held that the non-competition agreement at issue in the case was invalid under California law.  The agreement prohibited the employee from performing professional services for any client he worked with at Arthur Andersen for an 18-month period.  It also prohibited the employee from soliciting any client of Arthur Andersen’s Los Angeles office.  The Court held that these prohibitions restricted the employee’s ability to practice his accounting profession, and therefore was unenforceable under California law.

3. California Supreme Court refused to recognize the “narrow-restraint” exception in non-competition agreements

Arthur Andersen argued that section 16600 has a “narrow-restraint” exception and that its agreement with Edwards survives under this exception because the restraints against the employee were narrow and reasonable.  Arthur Andersen argued that the federal court in International Business Machines Corp. v. Bajorek (9th Cir. 1999) upheld an agreement mandating that an employee forfeits stock options if employed by a competitor within six months of leaving employment. Arthur Andersen also noted that a Ninth Circuit federal court in General Commercial Packaging v. TPS Package (9th Cir. 1997) held that a contractual provision barring one party from courting a specific customer was not an illegal restraint of trade prohibited by section 16600, because it did not “entirely preclude[]” the party from pursuing its trade or business.

In rejecting Arthur Andersen’s argument, the California Supreme Court refused to recognize the “narrow-restraint” exception for noncompetition agreements in California:

Contrary to Andersen’s belief, however, California courts have not embraced the Ninth Circuit’s narrow-restraint exception. Indeed, no reported California state court decision has endorsed the Ninth Circuit’s reasoning, and we are of the view that California courts “have been clear in their expression that section 16600 represents a strong public policy of the state which should not be diluted by judicial fiat.” [citation] Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect. We reject Andersen’s contention that we should adopt a narrow-restraint exception to section 16600 and leave it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under section 16600.

4. Customer non-solicitation agreements

There are two types of non-solicitation agreements: one that restricts the employee’s ability to solicit customers and another that restricts the employee’s ability to solicit employees (see item #5 below).

In regard to customer non-solicitation agreements, as set forth above, the California Supreme Court in Edwards v. Arthur Andersen ruled that a prohibition on a former employee’s solicitation of clients was an invalid restraint on the employee’s ability to pursue his trade or business.  Similarly, in 2009, a California appellate court in Dowell v. Biosense Webster, Inc. held that a broadly worded non-solicitation clause that prohibited an employee for a period of 18 months postemployment from soliciting any business from, selling to, or rendering any service directly or indirectly to any of the accounts, customers or clients with whom they had contact during their last 12 months of employment was void under section 16600.  In Dowell, the court rejected the employer’s argument that the agreement was enforceable under the trade secret exception because it found the non-solicitation provision was “not narrowly tailored or carefully limited to the protection of trade secrets, but are so broadly worded as to restrain competition.”

5. Employee non-solicitation agreements

Employee non-solicitation clauses can also be found to violate section 16600 if drafted too broadly and it in effect becomes an invalid restraint on the employee’s ability to work in their profession or trade.  However, the court in Loral Corp. v. Moyes (1985), ruled that the agreement at issue was more of a “noninterference agreement” between the employer and former employee.  It upheld the noninterference agreement that prevented the former employee from soliciting employees from the employer, and even though the agreement did not have a time limitation, the court interpreted the agreement to apply a one-year limit.

Likewise, the California Supreme Court held in Reeves v. Hanlon (2004) that a law firm employer could establish a claim for interference with prospective economic advantage against former attorneys who left the firm and solicited employees.  However, the Court noted, “that to recover for a defendant’s interference with an at-will employment relation, a plaintiff must plead and prove that the defendant engaged in an independently wrongful act—i.e., an act ‘proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard’” that induced the solicited employees to leave their employment.

California employers are cautioned to carefully review all agreements that restrict former employees’ ability to compete and solicit customers and employees to ensure the restrictions do not violate California’s strong public policy in allowing employees to perform their chosen profession or trade.

With June gloom bearing down on us here in Southern California, it may not feel like it outside, but July is right around the corner.  As written about previously here, many local city and county minimum wage requirements will increase on July 1, 2019.  California employers should review a few items to ensure the increase in minimum wage does not catch them off guard.  Here are five reminders to start the process of ensuring compliance with the July 1 deadline:

1. Ensure the company understands which city and county they are located within.

Many of the cities and counties provide resources to help companies determine if they are located within the city’s or county’s jurisdiction.  For example, the City of Los Angeles provides this resource.

2. Ensure employees who travel and work in other cities and counties are being paid the appropriate minimum wage.

Many of the local ordinances that require a higher minimum wage than the state minimum wage set forth when the city or county law will cover an employee who works within its jurisdiction.  For examples, Santa Monica and the City of Los Angeles assert jurisdiction over employees who work within their jurisdiction for two hours a week:

  • Santa Monica:  Law applies to any employee working a minimum of two hours within Santa Monica in a given week (even if employer is located outside of Santa Monica).
  • City of Los Angeles: Ordinance applies to “[a]n employee … who performs at least two hours of work in a particular week within the City of Los Angeles….”

Employers should review the various jurisdictions that their employees may travel into to ensure compliance with those requirements.

3.Ensure pay stubs reflect the increased minimum wage.

The DIR provides an example of a pay stub for an hourly employee the meets all of the required items under Labor Code section 226:

 

Ensure that all employees earning minimum wage who are covered by an local minimum wage increase on July 1, 2019 are updated to reflect the increased minimum wage amounts.

4. Update posters to ensure the compliant posters are being used in the workplace.

Many local cities and counties have issued updated posters to reflect the increased minimum wage as of July 1, 2019.  Employers should review to ensure they are using the most current versions of the posters as of July 1, 2019.  Here are a few links to cities and county posters in Southern California:

County of Los Angeles required notices:

City of Los Angeles required notices:

Pasadena’s required notices:

Santa Monica’s required notices:

  • July 1, 2019 Legal notice (English) (Spanish) (note that employers in Santa Monica are required to post both English and Spanish notices, even if they do not employ any Spanish speaking employees.
  • Posters in other languages can be downloaded here.

Malibu’s required notice:

City of San Diego’s required notices:

5. Update notices to employee who are hired on or after July 1, 2019.

Notices to Employee required under Labor Code section 2810.5 must be issued to all nonexempt employees when they start work.  The wage information section must reflect the higher minimum wage for minimum wage workers as of July 1, 2019.  Accordingly, the overtime rates of pay section of the Notice must also be updated to reflect the higher rates as a result of the higher minimum wage requirements.

Many local counties and cities are increasing the minimum wage that applies to employers within their jurisdiction on July 1, 2019.  Below is a list of some southern California counties and cities minimum wage requirements.  Some local governments require employers to update the required posters given the new increases taking effect on July 1, 2019 (see links below to posters).

County of Los Angeles

County of Los Angeles required notices:

City of Los Angeles

City of Los Angeles required notices:

Pasadena

Pasadena’s required notices:

Malibu

Malibu’s required notice:

City of Santa Monica

Santa Monica’s required notices:

  • July 1, 2019 Legal notice (English) (Spanish) (note that employers in Santa Monica are required to post both English and Spanish notices, even if they do not employ any Spanish speaking employees.
  • Posters in other languages can be downloaded here.

City of San Diego

City of San Diego’s required notices:

 

It is important to note that most cities and counties require employers to post the posters in languages other than English if a certain percentage of employees speak a different language.  Most cities and county (but not all) make the posters in the alternative languages available on their websites.

Employers need to remember that even if their business is not located in a city or county that does not have a minimum wage or paid sick leave requirement, this does not mean your company can ignore the new laws.  Most of the ordinances require compliance with their local laws if any employee works two hours within the city or county even if the employer is not based within that city or county.  For example:

  • Santa Monica:  Law applies to any employee working a minimum of two hours within Santa Monica in a given week (even if employer is located outside of Santa Monica).
  • City of Los Angeles: Ordinance applies to “[a]n employee … who performs at least two hours of work in a particular week within the City of Los Angeles….”
  • County of Los Angeles: Ordinance applies to “[a]nyone who works at least two hours in a one-week period within the unincorporated areas of Los Angeles County is entitled to the County minimum wage for the hours worked in the unincorporated area of the County.”
  • Pasadena: Applies to employees who perform at least two hours of work in Pasadena.
  • Malibu: “This ordinance applies to employees who perform at least two hours of work in a particular week within the Malibu city limits.”
  • San Diego: Applies “to employees who perform at least two (2) hours of work in one or more calendar weeks of the year within the geographic boundaries of San Diego.”

This Friday’s Five is a video covering five common questions about severance agreements in California:

  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?

When preparing a severance agreement, employers should also keep in mind the prohibitions on including confidentiality clauses in agreements that cover harassment claims.

The California legislature is setting its sights on limiting employers’ use of independent contractors in the gig economy.  A California bill, AB 5, sets to codify the California Supreme Court’s 2018 ruling in Dynamex v. Superior Court.  The bill passed the Assembly last week, and will need to be approved by both the Senate and the Governor before taking effect.

The California Supreme Court ruled in Dynamex that in order for a worker to be properly classified as an independent contractor, the company must establish the worker meets the ABC test:

  • Part A: Is the worker free from the control and direction of the hiring entity in the performance of the work, both under the contract for the performance of the work and in fact?
  • Part B: Does the worker perform work that is outside the usual course of the hiring entity’s business?
  • Part C: Is the worker customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity?

Here is a detailed article about the ruling in Dynamex v. Superior Court.

The bill currently exempts certain types of workers, such as hairstylists, real estate agents, certain investment advisers, licensed physicians and surgeons, licensed attorneys, dentists, architects, engineers and accountants.  However, the bill does not exempt rideshare companies, such as Uber or Lyft.

Employees are provided additional Labor Code rights than independent contractors for items such as minimum wage, meal and rest breaks, and overtime pay.  However, independent contractors are permitted more control over their work schedules and how they carry out their duties, which many workers in the gig economy prefer.  If independent contractors are required to be reclassified as employees, companies will have more control over when and where the workers perform their duties.  There is also concern that if the bill is passed, Uber and Lyft may not be able to operate in California.

California employers have many state and local hiring requirements in terms of the various notices that must be provided to new employees.  Employers should also carefully review the hiring documentation to ensure that additional documents that could benefit the company are also being provided to the new hires.  This Friday’s Five sets out five key areas that employers should consider in developing their own new hire checklist:

1. Offer letter. 

Offer letters should at least address the following items:

  • Terms of employment
  • Duties of the position
  • Start date
  • At-Will employment status
  • Exempt or non-exempt status
  • Wage or salary
  • Benefits, if any
  • Other conditions of employment (for example, applicant must pass a medical exam, drug test or background check)

2. Provide new hire with employee handbook and obtain signed acknowledgment of receipt.

3. Provide required forms and pamphlets.

California employers must provide the following documents for example:

  • I-9 Employment Eligibility Verification completed
  • W-4 federal and state tax withholding forms completed
  • Workers’ Compensation Time of Hire Pamphlet: Personal Chiropractor or Acupuncturist Designation Form and Personal Physician Designation Form
  • Sexual Harassment Pamphlet (DFEH-185P)
  • EDD Disability Insurance Pamphlet (Form DE 2515)
  • Paid Family Leave Pamphlet (Form DE 2511)
  • Wage and Employment Notice to Employees (Labor Code section 2810.5) (Form DLSE-NTE). This form is only required for non-exempt employees, and more information about the form can be read here.
  • New Health Insurance Marketplace Coverage Options and Health Coverage Form (Form OMB No. 1210-0149)
  • General Notice of Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation coverage rights (if 20 or more employees and employer offers health plan)
  • Rights of Victims of Domestic Violence, Sexual Assault and Stalking Pamphlet
  • Work Permit for Minors (if applicable) (CDE Form B1-4)

Note that many of the state forms listed above must be given to the employee in their primary language.  Employers need to also check their local cities and counties to ensure that they are providing any other required documents.  For example, the City of San Diego requires employers to provide and have employee acknowledge receipt of the Earned Sick Leave and Minimum Wage Employee Notification Form.

4. File New Employee(s) Report within 20 days of date of hire (Form DE 34).

5. Complete any other employer-specific requirements or documents:

  • Arbitration agreement
  • Orientation/training documents
  • Confidentiality/non-disclosure agreement
  • Direct deposit form
  • Any other company specific forms