On April 1, 2023, the City of Los Angeles’ Fair Work Week Ordinance (“FWWO”) becomes effective and regulates retail businesses with employees working in the City.  The FWWO states that there are over 140,000 workers in the retail sector in the “Los Angeles economy.”  The ordinance sets out that “unpredictability of work schedules endemic in the retail industry creates many socioeconomic burdens on worker of large retail establishments.”  The ordinance is effective on April 1, 2023, there is a 180-day grace period for employers to comply, then on September 28, 2023, the City will fully enforce the ordinance and its fines. On the state level, there have been similar proposed bills for all employers (not just the retail industry), but of them have passed.  This article reviews the five key issues retail employers must understand about the newly enacted City of Los Angeles ordinance:

1. Employers and employees covered under the ordinance

The ordinance applies to all employers who:

  1. Have 300 or more employees globally;
  2. Are identified as a retail business or establishment in the North American Industry Classification System (NAISCS) within the retail trade categories and subcategories 44 through 45; and
  3. Directly, indirectly or through an agent (including through a temporary or staffing agency) exercise control over the wages, hours, or working conditions of any employee. 

The ordinance applies to any employee who performs at least two hours of work within the City of Los Angeles and who qualifies as an employee under Labor Code section 1197 and the wage orders. 

2. Good faith estimate of schedule before hiring

Employers covered under the FWWO are required to provide new employees a “written good faith estimate of the Employee’s Work Schedule” before hiring the employee.  Employers must notify new employees of their rights under the ordinance, or alternatively, provide the new employee with a copy of the poster required by Section 185.10 of the ordinance (as of March 24, 2023, the City has yet to publish this poster).  Employers are also required to provide a written good faith estimate of the employee’s work schedule within 10 days of an employee’s request. 

The good faith estimate is not a contractual offer, but the employer “must have a documented, legitimate business reason, unknown at the time the good faith Work Schedule estimate was provided to the Employee, to substantiate the deviation.” 

A work schedule is defined as “the hours, days, and times, including On-Call Shifts, when the Employer requires an Employee to work or to be on-call to work.” 

3. Predictable pay

Under the ordinance, retail sector employers are required to provide employees with written notice of the work schedule at least 14 calendar days before the start of the work period.  If the employer changes the schedule within the 14 calendar days, the employee has a right to decline any hours that were not included in the initial work schedule.

If the employee voluntarily consents to work the changed hours, the consent must be in writing.  In addition, the employer must pay the employee “predictability pay” as set forth in this chart:

Employer-initiated ChangePredictability Pay
Increase in hours that exceeds 15 minutesOne (1) hour at the Employee’s regular rate of pay
Change to the date, time, or location (but no change in hours)One (1) hour at the Employee’s regular rate of pay for each change
Reduction of hours by at least 15 minutesHours not worked at one-half the Employee’s regular rate of pay
On-call shift, when the employer does not call the employee to perform workHours not worked at one-half the Employee’s regular rate of pay

This “predictability pay” is not required under the following exceptions:

  • the employee makes the schedule change request;
  • if an employee accepts a schedule change initiated by the employer due to an absence of another employee or unanticipated customer need (but the employer must communicate that acceptance of the hours is voluntary and the employee has a right to decline);
  • if the employee accepted the hours posted by the employer before hiring another employee to perform the work;
  • if the employee’s hours are reduced as a result of the employee’s violation of law or the employer’s lawful policies and procedures;
  • if the employer’s operations are compromised pursuant to law or force majeure; or
  • if the extra hours worked require the payment of overtime premium.

4. Other requirements under the FWWO

In addition to predicable schedules, the FWWO requires many other items, such as:

  • Employees have the right to request preference for certain hours, times, or locations of work.
  • Additional work hours must be offered to current employees before hiring new employees.
  • Employers may not require employees to find coverage for their shift if unable to work for reasons protected by law.
  • Employers may not schedule an employee to work a shift that starts less than 10 hours from the employee’s last shift without the employee’s written consent. Employers must pay a premium of time and a half for each shift that is not separated by at least 10 hours.
  • Employers must maintain records for at least three years of the work schedules, written offers and responses for additional work hours, written correspondence about work schedule changes, good faith estimates of work schedules, and “any other records that may be required to comply with the FWWO.
  • Notice and posting of employee rights under the ordinance.

5. Penalties and ability to cure violations

The City of Los Angeles can recover penalties up to $500 per violation per employee.  Employees and their representatives can also obtain certain relief under the ordinance under a private right of action that permits employees to file claims for violation of the ordinance.  However, employers are provided a cure period of 15 days from receipt of a written notice to cure, to take action to correct violations prior to an employee or their representative filing a complaint with the City or a civil action. 

Do employers need to have a computerized timekeeping system to comply with their requirements under California law?  Surprisingly (or maybe not so – depending on your views on how slow the law is in adapting to technological advances), the Labor Code does not address this issue right on point.  Yet, there are some governing principles employers can review in making the decision on what practices are best for their business. This Friday’s Five covers five key obligations employers should consider when setting up time keeping systems:

1. Are employers required to use a particular type of timekeeping system?

California law does not require the use of any electronic type of timekeeping system or time clocks.  Employers may elect to use paper and pen in recording an employee’s time.  As explained below, the records should be “indelible,” meaning that the time entries cannot be erased, removed, or changed.  However, even with just a handful of employees, many employers find it more efficient to use an electronic timekeeping system.  Moving towards an electronic time keeping system can reduce mistakes in the recording and calculation of time worked, make it easier to track changes, and could make a review of the time entries easier should there ever be a challenge by the employee about their pay.  Most timekeeping software today will also help monitor meal break compliance and will automatically flag any violations for a manager’s review.

2.  Can time records be kept electronically?

California Wage Orders require that employers maintain the employees time records “in the English language and in ink or other indelible form.”

The Division of Labor Standards Enforcement (“DLSE”) issued an Opinion Letter on July 20, 1995 stating that “storage of records by electronic means meets the requirements of California law if the records are (1) retrievable in the State of California, and (2) may be printed in an indelible format upon request of either the employee or the Division.”

The DLSE issued another Opinion Letter on November 10, 1998 advising employers that the electronic time record data could be maintained outside of the State of California “as long as a hard copy of the records was maintained at a central location within California.”  While the DLSE’s opinion letters are not binding legal precedent, they are given pervasive authority in court.  Thus, employers need to be careful about relying too heavily on these opinions.  In addition, these two Opinion Letters contradict each other.  As set forth below, the Wage Orders require time records “shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.”  Therefore, employers should consider maintaining a copy of employee time records, either electronically or on paper, within the State of California.

Similar language is also found in Labor Code section 226 pertaining to the information required to be provided to employees on pay stubs:

The deductions made from payments of wages shall be recorded in ink or other indelible form, properly dated, showing the month, day, and year, and a copy of the statement or a record of the deductions shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.

On July 6, 2006, the DLSE issued an Opinion Letter permitting employers to issue electronic pay stubs to employees if certain requirements were met.  The DLSE stated:

The Division in recent years has sought to harmonize the “detachable part of the check” provision and the “accurate itemized statement in writing” provision of Labor Code section 226(a) by allowing for electronic wage statements so long as each employee retains the right to elect to receive a written paper stub or record and that those who are provided with electronic wage statements retain the ability to easily access the information and convert the electronic statements into hard copies at no expense to the employee.

The DLSE approves electronic wage statements if the employer incorporates the following features:

  1. An employee may elect to receive paper wage statements at any time;
  2. The wage statements will contain all information required under Labor Code section 226(a) and will be available on a secure website no later than pay day;
  3. Access to the website will be controlled by unique employee identification numbers and confidential personal identification numbers (PINs).  The website will be protected by a firewall and is expected to be available at all times, with the exception of downtime caused by system errors or maintenance requirements;
  4. Employees will be able to access their records through their own personal computers or by company-provided computers.  Computer terminals will be available to all employees for accessing these records at work.
  5. Employees will be able to print copies of their electronic wage statements at work on printers that are in close proximity to the computer or computer terminal.  There will be no charge to the employee for accessing their records or printing them out.  Employees may also access their records over the Internet and save it electronically and/or print it on their own printer.
  6. Wage statements will be maintained electronically for at least three years and will continue to be available to active employees for that entire time.  Former employees will be provided paper copies at no charge upon request.

This same analysis would likely apply to the time records employers are required to maintain under California law.  However, employers need to approach this issue with advice from counsel, as there are no clear court decisions that have approved of the DLSE’s position.

3.  Length of time electronic records should be kept

The records must be kept for at least three years.  Labor Code section 1174(d). However, employers should also note that the statute of limitations for many wage and hour class actions in California can extend back to four years under Business and Professions Code section 17200. Therefore, employers should consider keeping wage statements and other documentation required to defend against claims going back the previous four years.

4. Time records must record more than just start and stop times for the day

The Wage Orders require that California employers keep “[t]ime records showing when the employee begins and ends each work period. Meal periods, split shift intervals and total daily hours worked shall also be recorded. Meal periods during which operations cease and authorized rest periods need not be recorded.”  IWC Wage Order 5-2001(7)(a)(3).

Additionally, Labor Code section 1174 requires employers to keep time records showing the hours worked daily and the wages paid, number of piece-rate units earned by, and the applicable piece rate paid.

5. Records must be maintained in California

These records must be maintained in the state or at the “plants or establishments at which employees are employed.”  Labor Code section 1174(d).

The Wage Orders likewise require that employers keep records “at the place of employment or at a central location within the State of California.” As mentioned above, if employers have electronic records, a copy of the electronic data should be maintained within the state just as a precaution.

Employers need to ensure that the data being saved is the actual time records of the employees and can be reproduced in format that is accurate and easy to read, should the records ever be requested or needed to defend litigation.

Effective January 1, 2023, employers with 15 or more employees are required to include the pay scale for the position in any job posting.  SB 1162 amends Labor Code section 432.3 to add this obligation, among other items.  As a reminder, Labor Code section 432.3, effective since January 1, 2018, prohibits California employers from asking applicants about prior salary history.  Section 432.3 already required employers to provide applicants a pay scale upon reasonable request.  We are receiving a lot of questions about the new requirements effective in 2023.  This Friday’s Five (sorry I could not fit the requirements into five issues today) highlights some of the law’s key provisions that apply to all employers, and additional provisions that apply to employers with 15 or more employees:

All Employers:

  • Starting on January 1, 2018, Labor Code section 432.3 prohibits California employers from relying on salary history information of an applicant in determining whether to make an offer to the applicant, and in determining the pay to offer.  As discussed below, Labor Code section 432.3 has been amended each year and employers need to comply with the most current version which is effective January 1, 2023. 
  • However, employers are permitted to ask an applicant about their salary expectations for the position (as long as they do not ask what the applicant has earned in the past).  Employees may voluntarily disclose how much they were paid at previous positions, but employers are prohibited from relying on prior salary information to justify a pay difference between employees of the opposite sex or different races or ethnicities, who are performing substantially similar work. 
  • Rather, Labor Code section 432.3 requires that employers provide a pay scale for a position upon “reasonable request” to an applicant applying for employment.  “Pay scale” is defined to mean a salary or hourly wage range. A more specific definition of “pay scale” is provided below. The prior version of this Labor Code section defined “reasonable request” as a request made after an applicant has completed an initial interview with the employer. However, this was removed effective January 1, 2023, and therefore employers must provide this information to any job applicants regardless of whether they have interviewed or not. 
  • Labor Code section 432.3 requires all employers to provide an employee with the pay scale for their current position upon request. 
  • An employer shall maintain records of a job title and wage rate history for each employee for the duration of the employment plus for three years after the end of the employment in order for the Labor Commissioner to determine if there is a pattern of wage discrepancy. These records shall be open to inspection by the Labor Commissioner.  Failure to maintain these records creates a rebuttable presumption in favor of the employee’s claim. 
  • The Labor Commissioner has jurisdiction to enforce Labor Code section 432.3 with penalties ranging from $100 to $10,000 per violation.  However, for a first offense, no penalty shall be issued if the employer updates all job postings for open positions to comply with the law.
  • Remember, employers cannot prohibit employees from discussing or disclosing their wages, or for refusing to agree not to disclose their wages under Labor Code sections 232(a) and (b). In addition, employers cannot require that an employee refrain from disclosing information about the employer’s working conditions, or require an employee to sign an agreement that restricts the employee from discussing their working conditions under Labor Code section 232.5.

Employers with 15 or more employees:

  • An employer with 15 or more employees shall include the pay scale for a position in any job posting.
  • The Labor Commissioner FAQs explains that Labor Code section 432.3 “defines ‘pay scale’ to mean the salary or hourly wage range the employer reasonably expects to pay for a position. An employer who intends to pay a set hourly amount or a set piece rate amount, and not a pay range, may provide that set hourly rate or set piece rate.”  The FAQs provide that “[a] legally compliant job posting only requires the ‘salary or hourly wage range that the employer reasonably expects to pay for the position.’” The FAQs also explain that other compensation “or tangible benefits provided in addition to a salary or hourly wage are not required to be posted.”  However, if the hourly or salary wage includes piece rate or commission, then the posting must include this range as well. 
  • The law does not define “job posting.”  This has left many questions for employers on whether a help wanted sign, or a banner indicating the establishment is hiring, must also include the pay scale. 
  • An employer with 15 or more employees that engages a third party to announce, post, publish, or otherwise make known a job posting shall provide the pay scale to the third party. The third party shall include the pay scale in the job posting.
  • The Labor Commissioner interprets the law to require that “the pay scale must be included within the job posting if the position may ever be filled in California, either in-person or remotely.”

As California employers already know, noncompliance with the numerous employment regulations can result in serious legal consequences, monetary penalties, and damage to an organization’s reputation. One of the most effective ways for employers to ensure compliance with employment laws is by using checklists. Checklists are useful tools that can help employers keep track of their compliance obligations and reduce the risk.  It has been established that checklists reduce accidents when used by pilots and doctors, there is no reason why common employment law matters should not have checklists to work from.  This Friday’s Five covers five reasons why employers should use checklists for employment law compliance, and some recommendations for checklists:

1. Ensuring consistency and standardization

Checklists help employers ensure that all their employees are treated equally and fairly by applying the same standards and policies across the board. By creating a standard checklist for disciplinary actions, employers can be sure that all employees receive the same treatment and that no one is inadvertently left out or given preferential treatment.

2. Reducing risk of noncompliance

California employment law can be complex and confusing, with numerous regulations and requirements to keep track of. By using checklists, employers can systematically ensure that they are complying with all the relevant regulations and avoid the risk of noncompliance. Checklists also help employers stay up-to-date with changes to employment laws, which can be especially important when operating in multiple states or across various local city and county requirements across California. 

Some topics we generally recommend employers develop checklists for include:

  1. new hires and on boarding employees
  2. records and retention policies
  3. wage and hour issues
  4. meal and rest break issues
  5. end of employment issues
  6. employee training requirements

3. Improving communication and collaboration

Checklists can be shared among different departments, facilitating communication and collaboration across the organization. This can help ensure that all managers are aware of compliance requirements and can work together to ensure compliance. By involving multiple departments in the compliance process, employers can increase the likelihood of catching any compliance issues before they become serious problems.

4. Supporting audits and investigations

Employers who use checklists for employment law compliance are better prepared for audits and investigations. Checklists can help employers quickly and easily gather the information needed to respond to inquiries and requests from government agencies, such as the California Labor Commissioner, Department of Labor, or the Equal Employment Opportunity Commission. By having all the necessary information in one place, employers can minimize the disruption and stress of an audit or investigation.

5. Demonstrating good faith efforts

Finally, using checklists for employment law compliance can demonstrate an employer’s good faith efforts to comply with regulations. This can be especially important in the event of a legal dispute or investigation. By showing that they have taken reasonable steps to comply with the law, employers can potentially mitigate the consequences of potential penalties.

By implementing a standard checklist for employment law compliance, employers can save time, reduce costs, and protect the organization from legal and financial consequences.  Looking for some example outlines of audits, feel free to email me, I would be happy to share an example template to help start the process.

California law starts from a presumption that all employees are non-exempt employees, meaning that they are not exempt from the Labor Code requirements, such as overtime pay, meal and rest breaks, and minimum wage. Exempt employees are designated as such because they are “exempt” from certain wage and hour requirements due to their duties and pay. However, the employer bears the burden when classifying an employee as exempt, and simply providing a title to an employee does not make them exempt.

This week, the U.S. Supreme Court issued a decision in Helix Energy Solutions Group, Inc. v. Hewitt that examined the issue of the “salary basis” test under federal law.  As explained below, because California does look to federal law when interpreting its wage and hour laws, the decision needs to be understood by California employers and is a good reminder of the heightened requirements California employers have to meet the exemption requirements under California law. 

1. Overview of federal and California white-collar exemptions

The Fair Labor Standards Act (FLSA) exempts employees employed as in an executive, administrative, or professional capacity (these exemptions are often referred to as the white-collar exemptions).  The Department of Labor issued regulations that set forth the requirements for employees to meet these exemptions, generally looking to (1) the employee’s duties, (2) how much the employee is paid, and (3) how the employee is paid, such as by salary, wage, commission, or bonus.

Likewise, California law recognizes certain exempt categories (including the executive, administrative, and professional) of employees for purposes of overtime and other wage and hour requirements.  California Labor Code section 515 and California’s Wage Orders set forth the requirements for exempt employees in California.  It is important to note that while California and federal law are similar in some regards, and sometimes California looks to federal law when interpreting its own laws, there are significant differences that employers must be aware of for any exempt analysis under California law. 

2. California looks to federal law when interpreting its Wage Orders

The federal Fair Labor Standards Act of 1938 (29 U.S.C. § 201 et seq.) applies a “salary basis test” to determine whether employees who are classified by their employers as “salaried,” and therefore exempt from minimum wage and overtime requirements, are in fact properly subject to exemption. California state law must meet or exceed standards adopted under federal law, and California follows the federal salary basis test to a substantial degree. See Kettenring v. Los Angeles United School Dist. (2008). 

In Negri v. Koning & Associates, a California Court of Appeals explained that the “Division of Labor Standards Enforcement (DLSE) construes the IWC wage order to incorporate the federal salary-basis test for purposes of demining whether an employee is exempt or nonexempt.” (referring to DLSE Opinion Letter No. 2002.03.01 (Mar. 1, 2002).  The Court in Negri acknowledged that while the DLSE opinion letters are not controlling, they are instructive on the wage orders, and therefore look to federal law on the definition of “salary.” 

3. Salary basis test under the FLSA

At issue in Helix Energy Solutions Group, Inc. v. Hewitt, was whether the employee was paid on a salary basis.  Plaintiff worked as a “tool-pusher” for Helix Energy Solutions Group on an offshore oil rig.  He would work 12 hours a day, seven days a week, for a 28-day “hitch.”  Then he would have 28 days off.  Helix paid plaintiff on a daily-rate basis, which started at $963 per day and increased to $1,341 per day, which amounted to more than $200,000 on an annual basis.  Plaintiff claimed that because he was paid on a daily basis, he did not meet the salary basis requirement to be exempt, and therefore should be paid for his overtime. 

Federal regulations provide that “An employee will be considered to be 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. … [A]n 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.” (29 C.F.R. § 541.602(a).)

The U.S. Supreme Court held that plaintiff was not paid on a salary basis.  The Court explained, “A daily-rate worker’s weekly pay is always a function of how many days he has labored.  It can be calculated only by counting those days once the week is over – not, [as the regulations require], by ignoring that number and paying a predetermined amount.”  The Court noted that the definition of “salary” refers to “fixed compensation regularly paid, as by the year, quarter, month or week,” which is distinguishable from “wages” for “[p]ay given for labor’ at ‘short stated intervals.’” (citing Webster’s New International Dictionary).

4. Salary basis test under CA Law

The California Court of Appeals in Negri v. Koning & Associates examined the same issue as reviewed in Helix, but under California law.  The case was decided in 2013, and reviewed the issue of whether an insurance claims adjuster who was paid $29 per hour with no minimum guarantee qualified as an exempt employee under California law. 

As the Court in Negri explained, “Exemptions from the overtime pay requirement are proper only where ‘the employee is primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises discretion and independent judgment in performing those duties, and earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.’ (Lab. Code, § 515, subd. (a).)”  The Wage Orders also govern, and the Court explained that while they do not define salary, the term “salary” “is generally understood to be a fixed rate of pay as distinguished from an hourly wage.” The Court held that because defendant stipulated that it never paid plaintiff a guaranteed salary and that if plaintiff worked fewer claims he made less money, therefore “plaintiff was not paid ‘a predetermined amount’ that ‘was not subject to reduction based upon the quantity of work performed.’”  Since plaintiff was not paid a salary, defendant did not prove that he qualified as an administrative exempt employee under the Wage Orders. 

5. Rational for the salary basis test

The Court explained in Helix, that the overtime laws were “designed both to ‘compensate [employees] for the burden’ of working extra-long hours and to increase overall employment by incentivizing employers to widen their ‘distribution of available work. Employees therefore are not ‘deprived of the benefits of the [overtime compensation] simply because they are well paid.”  The salary basis test “create a compensation system functioning much like a true salary – a steady stream of pay, which the employer cannot much vary and the employee may thus rely on week after week.” 

The Court also explained that Helix could comply with the salary-basis requirement in two ways:

  1. Add to plaintiff’s per-day rate a weekly guarantee that satisfied the requirements; or
  2. Could convert plaintiff’s compensation into a straight weekly salary for time spent on the rig.

Remember, the salary basis test is only one aspect of the federal and California exemption test.  Employers still must show that the employee earned the required salary level and meets the duties test in order to qualify for the applicable exemption.  More information about common exemptions under California law and the requirements to meet the exemptions can be read here.

One last note for wage and hour practitioners: Justice Kavanaugh raised an interesting point in his dissenting opinion about whether the Department of Labor’s regulations that set out the salary basis and level requirements could be challenged in the future as being inconsistent with the FLSA.  He noted that the FLSA statute only “focuses on whether the employee performs executive duties, not how much an employee is paid or how an employee is paid” and may not survive a challenge.  He notes, “But I am hard-pressed to understand why it would matter for assessing executive status whether an employee is paid by salary, wage, commission, bonus, or some combination thereof.” 

California law presumes that all employees are non-exempt employees, meaning that they are not exempt from the Labor Code requirements, such as overtime pay, meal and rest breaks, and minimum wage. Exempt employees are designated as such because they are “exempt” from certain wage and hour requirements due to their duties and pay. However, the employer bears the burden when classifying an employee as exempt, and simply providing a title to an employee does not make them exempt. The employee must meet very specific requirements for each applicable exemption, and if the requirements are not met the employer must comply with all wage and hour requirements – such as overtime pay, etc…. It is also important to note that some exemptions only exempt the employee from specific Labor Code provisions (for example, the inside sales exemption only exempts the employee from overtime pay requirements, but the employer is still required to provide meal and rest breaks).

Looking to learn more about exempt employee classifications?  My firm is hosting a webinar on Wednesday, February 28, 2023 at 10 a.m. PT: Understanding Exempt v. Non-Exempt Classifications Under California Law.  Registration is here.

Below is a review of some common exemptions that arise in a workplace under California law and the requirements to meet each one:

1. Executive/managerial exemption
In order to meet the executive (managerial) exemption, the employee must meet all of the following requirements:

  1. Employee’s duties and responsibilities involve the management of the enterprise in which he or she is employed or of a customarily recognized department or subdivision of the enterprise;
  2. Employee customarily and regularly directs the work of two or more other employees;
  3. Employee has the authority to hire or fire other employees, or whose suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change of status or other employees is given particular weight;
  4. Employee customarily and regularly exercises discretion and independent judgment in performing his or her duties;
  5. Is “primarily engaged” in duties that meet the test of the exemption;
  6. Earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.  With the increase to the California minimum wage, effective January 1, 2023, the minimum annual salary to meet the exemption increases to $64,480 ($5,373.34 per month).

The term “primarily engaged in” means that more than one-half of the employee’s work time must be spent engaged in exempt work and differs substantially from the federal test which simply requires that the “primary duty” of the employee falls within the exempt duties. Therefore, to qualify for this exemption, the employee must spend more than 50% of their work time on exempt duties.

2. Administrative exemption
To meet the administrative exemption, an employee must meet all of the following requirements:

  1. Employee spends more than one-half of their work time performing office or non-manual work directly related to management policies or general business operations for the employer or the employer’s customers;
  2. Employee “customarily and regularly” exercises discretion and independent judgment in carrying out job duties as to matters significant to the employer’s business;
  3. Performs his or her job only under general supervision and works along specialized or technical lines requiring special training, experience, or knowledge; and
  4. Is paid a salary equivalent to no less than two times the state minimum wage. With the increase to the California minimum wage, effective January 1, 2023, the minimum annual salary to meet the exemption increases to $64,480 ($5,373.34 per month).

3. Computer professional exemption
To be an exempt computer professional, the employee must meet the following requirements:

1. The employee is primarily engaged in work that is intellectual or creative and requires the exercise of discretion and independent judgment.

“Primarily” is defined as requiring more than 50% of the employee’s work time be spent on these types of duties.

2. The employee is primarily engaged in duties that consist of one or more of the following:

  • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications.
  • The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to, user or system design specifications.
  • The documentation, testing, creation, or modification of computer programs is related to the design of software or hardware for computer operating systems.

3. The employee is highly skilled and is proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering.

4. The employee’s hourly rate of pay, or annual salary if paid on salaried basis, meets a minimum threshold amount set by California’s Division of Labor Statistics and Research (DLSR). Effective January 1, 2023, a computer software employee’s minimum hourly rate of pay exemption from $50.00 to $53.80, the minimum monthly salary exemption from $8,679.16 to $9,338.78, and the minimum annual salary exemption from $104,149.81 to $112,065.20.

4. Commissioned inside sales exemption
To qualify as an exempt commissioned inside sales employee, an employee must meet the following requirements:

  1. Employee’s earnings must exceed one and one-half times the California minimum wage; and
  2. More than half of the employee’s compensation must be commissions.

Employers must note that this exemption is only for the overtime requirement, and other wage and hour requirements such as minimum wage, meal and rest breaks, time recording requirements still must be met.

5. Outside salesperson exemption
To qualify as an exempt outside salesperson the employee must:

  1. Be at least 18 years old;
  2. Must customarily and regularly work more than 50% their work time away from the employer’s place of business; and
  3. Must be engaged in selling tangible items or obtaining orders or contracts for products, services, or use of facilities.

There are many exemptions, and many nuances to each exemption, so employers should perform this analysis very carefully and receive advice from an experienced attorney or HR professional when classifying employees as exempt.  Hope you can join us on February 28, 2023 for our webinar discussing this topic in more detail. 

There is a lot to report on a state and on the Los Angeles local level as we start February 2023.  This Friday’s Five covers updates on Cal/OSHA ETS, and LA City and County supplemental paid sick leave updates and newly announced minimum wages:

1. Los Angeles City COVID-19 supplemental paid Sick leave (SPSL) expires February 15

Los Angeles City COVID-19 Supplemental Paid Sick Leave set to expire on February 15, 2023. The Los Angeles City’s website provides the following:

“As a result of Mayor Garcetti and the City Council’s actions to end the COVID-19 Emergency Declaration on February 1, 2023, Mayor Garcetti’s Public Order regarding Supplemental Paid Sick Leave will expire two weeks after February 1, 2023.”

More information can be found on the City’s website here.

2. Los Angeles County’s COVID-19 emergency declaration remains in place, with no clear indication of when it will be lifted

Unlike the City, Los Angeles County has not lifted its COVID-19 emergency declaration, and employers with employees in the County still must comply with the County’s SPSL requirement.  For more information about the County’s SPSL requirements, see our prior article here.

When will the County lift its emergency?  There is no indication, and Los Angeles County Public Health Director Barbara Ferrer told the LA Times recently, “We’re not lobbying to extend the emergencies. What we are doing is taking a hard look at what protections are offered by the emergency declarations and, if things go away, what would be put in place to mitigate any unanticipated or unintended consequences.”

3. Cal/OSHA Emergency Temporary Standards (ETS) expired, and is replaced with COVID—19 Prevention Non-Emergency Regulations

On the state level, on Friday, February 3, Cal/OSHA’s COVID—19 Prevention Non-Emergency Regulations became effective replacing the Emergency Temporary Standards.  These regulations replace the Emergency Temporary Standards.  One of the biggest changes is the elimination of “exclusion pay” for employees who cannot work for certain COVID-related reasons.  The new regulations remain effective for two years, except for the record keeping requirements that will remain in effect for three years.  Cal/OSHA’s website setting forth updated fact sheets, FAQs, and an updated COVID-19 model written program is available here.

The new non-emergency regulations can be found here.

4. Los Angeles City Minimum Wage Increase Announced: $16.78 on July 1, 2023

On February 1, 2023, the City of Los Angeles announced that its minimum wage will increase to $16.78/hour on July 1, 2023. More information and the required updated poster is available on the City’s website.

5.  Los Angeles County Minimum Wage Increased Announced: $16.90 on July 1, 2023

County of Los Angeles maintains its own minimum wage, and the county recently announced that as of July 1, 2023, its minimum wage will increase to $16.90/hour. The County’s website with more information and updated workplace posters is available here.

Employers with employees in Los Angeles City and County need to start planning for the increased minimum wage now.  Learn more about key items employers need to consider for compliance with the state and local minimum wage requirements for California in our article here.

As an employer in California, it is important to be aware of the state’s vacation policies that are unique to California. Below are some regulations in California that employers need to be aware of to remain compliant with California law.  This Friday’s Five is a reminder of five issues on vacation policies that can create traps for California employers:

1. No use-it-or-lose-it policies permitted
Under California law, vacation is treated the same as earned wages and vest as the employee performs work. Because vacation is earned proportionally as the employee works, policies requiring employees to lose vacation already earned is illegal under California law.

2. Reasonable caps are allowed
While employers cannot implement “use-it-or-lose-it” policies, they can place a reasonable cap, or ceiling, on vacation accrual. The DLSE explains:

Unlike “use it or lose it” policies, a vacation policy that places a “cap” or “ceiling” on vacation pay accruals is permissible. Whereas a “use it or lose it” policy results in a forfeiture of accrued vacation pay, a “cap” simply places a limit on the amount of vacation that can accrue; that is, once a certain level or amount of accrued vacation is earned but not taken, no further vacation or vacation pay accrues until the balance falls below the cap. The time periods involved for taking vacation must, of course, be reasonable. If implementation of a “cap” is a subterfuge to deny employees vacation or vacation benefits, the policy will not be recognized by the Labor Commissioner.

3. Vacation is a form of earn wages that must be paid out according to final pay requirements
An employee who is discharged must be paid all of his or her wages, including accrued but unused vacation, immediately at the time of termination. See Labor Code Sections 201 and 227.3.  More information about the timing and payment of final wages can be read here.

4. Deductions not allowed from employee’s final wages for unaccrued vacation time
Vacation is treated as a form of wages under California law, and by allowing employees to take vacation time before it is earned is similar to providing a loan.  Employers may not utilize self-help remedies to recover debts from the employee’s final paycheck, including deducting wages owed to an employee to cover vacation that time was used but had not yet been accrued by the employee.

5. “Cliff vesting” policies are problematic
Employers may set probationary periods or waiting periods during which times employees do not accrue vacation time. However, the DLSE maintains that employers may not maintain a policy that grants employees a lump sum of vacation upon reaching certain dates (for example, such a policy would grant the employee five days of vacation at the employee’s one year anniversary of work, but not permit the employee to take any vacation prior to the anniversary date).

The DLSE’s view on this type of “cliff vesting” is that the employer is attempting to provide for accrued vacation, but at the same time is attempting to limit its liability of having to pay out a pro rata share of the accrued vacation if the employee does not work until the date the vacation is granted to the employee.  Many employers avoid these potentially problematic lump sum grants of vacation, and simply set a time period (i.e., the employee’s first six months of employment) that the employee does not accrue vacation.

California law regarding vacation policies is vastly different than federal law and other states. It is essential for employers to understand these obligations to avoid falling into legal traps. As we start 2023, it’s a good time to review and update your company’s vacation policies to ensure compliance.

The hiring process in California can be confusing: there are various required federal and state documents that must be reviewed and signed for new employees. It is imperative for California employers to familiarize themselves with the requirements for their local jurisdictions and industries to minimize their legal risk.

Here are five key categories of documents for new hires:

1. Offer Letter

An official offer letter can be the best way to communicate with the new candidate to avoid misunderstanding about the job, salary and other terms and conditions of employment.  Offer letters should at least address the following items:

  • Terms of employment
  • The employee’s at-will status
  • Duties of the position
  • Start date
  • 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. I-9, Employment Eligibility Verification

Federal law requires completion of Form I-9 to verify employee’s identity and employment authorization. The USCIS has not yet released the updated I-9 Form in 2023, but the current USCIS I-9 can be used until an updated version is available.

3. Federal and State Tax Withholding Forms

Both Federal W-4 Form and California DE 4 Withholding Certificate must be provided to newly hired employees. 

4. Required Pamphlets

Generally speaking, most employers in California are required to provide the following documents with new employees upon hire:

  • Time of Hire Pamphlet
  • Sexual Harassment Pamphlet (DFEH-185P)
  • EDD Disability Insurance Pamphlet (DE 2515)
  • Paid Family Leave Pamphlet (DE 2511 )
  • Rights of Victims of Domestic Violence, Sexual Assault and Stalking Pamphlet
  • Wage and Employment Notice to Employees (Labor Code section 2810.5) (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 (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)
  • Work Permit for Minors (if applicable) (CDE Form B1-4)

These documents are routinely updated each year – so employers need to update the documents provided to employees on at least an annual basis.

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, and certain industries have specific required disclosures as well. 

5. Other Important Documents

Other documents often recommend that employers provide to new hires include:

  • Meal and rest break acknowledgment
  • Employee’s meal period waiver for shifts less than six hours
  • Employee handbook acknowledgment
  • Arbitration agreement
  • Confidentiality/non-disclosure agreement

As we start 2023 it is a perfect time for companies to conduct a California employment law practices audit to ensure that policies are compliant, managers are properly trained, and the company is maintaining the required records for the necessary length of time.  Here are five topics to review in conducting an audit and a few suggested questions for each topic:

1. Hiring Practices

  • Are applications seeking appropriate information?
    • Ensure compliance with state and local ban the box regulations.
  • Are new hires provided with required policies and notices?
  • Are new hires provided and acknowledge recommended policies?
    • For example: meal period waivers for shifts less than six hours
  • Are hiring managers trained about the correct questions to ask during the interview?
  • Does the company provide new hires (and existing employees) with arbitration agreements that comply with California law?

 2. Records

  • Are employee files maintained confidentially and for at least four years?
  • Are employee time records maintained for at least four years?
  • Are employee schedules maintained for at least four years?
  • Do the managers have set forms for the following:
    • Employee discipline and write-ups
    • Documenting employee tardiness
  • How is the employee documentation provided to Human Resources or the appropriate manager?
  • Who is involved in reviewing disability accommodation requests?
  • How are employee absences documented?

3. Wage and Hour Issues

  • Does the company have its workweeks and paydays established?
  • Are paydays within the applicable time limits after the pay period as required under the law?
  • Are employees provided with compliant itemized wage statements?
  • Are employees provided a writing setting out their accrued paid sick leave each pay period?
  • Are employees properly classified as exempt or nonexempt?
    • For exempt employees, review their duties and salary to ensure they meet the legal requirements to be an exempt employee.
  • Any workers classified as independent contractors, and if so, could they be considered employees under AB 5?
  • Are nonexempt employees properly compensated for all overtime worked?
  • Is off-the-clock work prohibited?
    • Policy in place?
    • Are managers trained about how to recognize off-the-clock work and what disciplinary actions to take if find employees working off-the-clock?
  • Does the company’s time keeping system round employee’s time?
    • If so, is the rounding policy compliant with the law? (note that meal breaks cannot be rounded pursuant to Donohue v. AMN Services)
  • Are meal and rest period policies set out in handbook and employees routinely reminded of policies?
    • Does the company pay “premium pay” for missed meal and rest breaks? If so, how is this documented on the employee pay stub?
    • Do employees record meal breaks?
    • Are managers trained on how to administer breaks and what actions to take if employees miss meal or rest breaks?
    • Are employees provided attestations to document the reason if the employee missed, took a short, or a late meal break? (See Donohue v. AMN Services)
  • Is vacation properly documented, tracked, and is unused vacation paid out with the employee’s final paycheck?
  • Are all deductions from the employee’s paycheck legally permitted?
  • Are employees reimbursed for all business expenses, such as uniforms, work equipment, mileage for work, and for expenses incurred for working from home (such as internet, cell phones, etc.)?

 4.End of Employment Issues

  • Are employees leaving the company provided their final wages, including payment for all accrued and unused vacation time?
  • Are final paychecks provided to employees within the required deadlines?
  • Does the employer deduct any items from an employee’s final paycheck?
    • If so, are the deductions legally permitted? (Use caution, very few deductions are permitted under California law.)

5. Anti-harassment, discrimination and retaliation

  • Are supervisors provided with sexual harassment training every two years? (If employer has 50 or more employees, supervisors are legally required to have a two-hour harassment prevention training that complies with California law.)
  • Are there steps in place to provide nonsupervisory employees with 1-hour sexual harassment prevention training and once every 2 years thereafter? (Required for employers with 5 or more employees.)
  • Are supervisors and managers discussing the company’s open-door policy to employees at routine meetings with employees? Is this being documented?