Employment Practices Liability Insurance, often referred to as EPLI, can be a great resource for some employers in California.  However, just like any other major purchasing decision, employers must be very careful when purchasing this insurance, as often times they can be surprised about what the insurance does not cover and the loss of control over the defense of lawsuits.  This Friday’s Five covers five issues employers must be aware when considering EPLI insurance:

1. Usually wage and hour claims, and class actions are excluded from EPLI coverage.

It is normal practice for insurance companies to exclude coverage of wage and hour issues and class action claims.  This is normally the large liability ticket issue that an employer is attempting to protect against when purchasing an EPLI policy, but then are surprised to learn that these types of claims are not covered once sued for a wage and hour claim or named in a class action lawsuit.

2. Similarly, liability for California’s Private Attorney General Act representative actions is usually not covered.

Just as class actions usually are not covered, insurance companies usually carve out coverage for wage and hour claims under California’s Private Attorney General Act (PAGA) representative actions.  These representative actions can carry substantial liability for employers.  For more information about PAGA claims, see a prior post here.

3. Intentional acts cannot be insured under CA law.

California law prohibits an insurance company from covering willful acts as set forth in Insurance Code section 533.  The policy rational behind this law is to discourage intentional acts that cause harm or property loss to others.  If it is an intentional act, California law prohibits insurance from covering the act.  Therefore, if an employment lawsuit alleges willful acts took place as part of the allegations, it is also likely not going to be covered by insurance.  This prohibition on covering intentional acts can be used by insurance companies to exclude coverage for employment claims of sexual harassment, discrimination, and retaliation.

4. Loss of control of defense counsel.

Most insurance policies will dictate which law firm must be used to defend the case.  This is another surprise to many employers who have used a law firm for many years in setting up employment policies, handbooks, and procedures, only to find out that some other law firm that may not have experience in the employer’s industry, and does not have the trusted relationship built over a number of years, suddenly defending its interests in litigation.  Unlike items 1 through 3 above, employers can negotiate this term with the insurance company, but this negotiation is better done when purchasing the policy or renewing the policy.  Employers are advised to not wait until a lawsuit is filed and the insurance company assigns its preferred law firm to your case to start the discussion of which law firm should be defending the case.  Employers should negotiate this term up front so that they have the option to select its preferred law firm to defend any litigation.

5. Loss of control over settlement of lawsuit.

Once the insurance company agrees to cover the liability of a lawsuit, it can dictate whether to settle a case and for how much.  Insurance companies can look at a covered claim differently than an employer who is defending the lawsuit.  For example, companies facing litigation are concerned that settling for too high of an amount may bring on additional copy-cat lawsuits.  Insurance companies view settling the case with different concerns, such as risk for that one case, and their concerns may not be in line with the employer’s.  Once an insurance company is covering a risk, the employer loses control on the potential resolution of the case.  Employers need to understand this dynamic in assessing whether an EPLI policy is a good fit for their business.

Many employers have been able to effectively manage risks using EPLI policies, but there are many issues that must be understood prior to purchasing these types of policies.  EPLI policy costs are rising, and employers should work with their broker and current employment attorney in assessing whether an EPLI policy meets their needs, and go into the purchase well-informed in order to make the best cost-benefit analysis.

In working with employers are various sizes, backgrounds, sophistication, and industries, I’ve seen a lot of confusion and simple misunderstandings about what constitutes employee discipline and how to properly document employee performance issues or discipline.  This Friday’s Five reviews five common misunderstandings about discipline and documentation:

1. If it was not a formal write-up put in the employee’s file, then the action does not constitute disciplinary action.

There is no legal definition of what constitutes a write-up.  Likewise, there is no legal requirement of what need to be placed in an employee’s personnel file.  Therefore, documentation about verbal warnings, e-mails, letters, even notes on napkins can be evidence to support an employer’s position that an employee was terminated because of performance issues.  The key item employers need to remember is if the employee challenges the reason for the termination, the employer has support for the termination decision, either through testimony and/or documentation.  The documentation can come in any form and does not have to be a formal write-up that is maintained in the employee’s personnel file.  However, this is not to say that employers can do away with formal employee reviews and write-ups, as these are good practices to maintain.

2. Verbal warnings do not have to be documented.

If there is no record of a verbal warning, it is very difficult to prove later that the employee had been counseled about the issue.  Managers should always document a verbal warning in some manner, such as in a manager’s log or e-mailing themselves the specifics about the verbal warning.  By preparing an e-mail and sending it to human resources or even to himself or herself, a manager creates a great time-stamped record that is excellent evidence should there ever be any litigation concerning a termination.

3. Employees must sign disciplinary documents for them to be effective.

Some employers do not think a write-up for an employee is valid unless the employee signs the write-up, but this is not true.  While it is a good policy to have some system that proves the employee was presented with the write-up, it is not required that the employee sign the document.  It is common that an employee will refuse to sign such documents because they do not agree with them, but this should not prevent the employer from documenting the discipline.  To alleviate this issue, employers can provide a line on the document that states the employee does not necessarily agree with the write-up, but is signing the document only to acknowledge receipt.  If the employee still refuses to sign the document, the manager administering the writ-up should simply record on the bottom of the document that it was presented to the employee, the date, and that the employee refused to sign.

Another method to avoid the argument that the employee never received the written warning is to email the employee.  This creates a great record of when the warning was prepared and sent to the employee, which will be hard for the employee to argue was never provided to them.

4. Employers must follow a progressive disciplinary policy and cannot fire employees on their first offense.

While employers may choose to implement a progressive discipline policy that starts discipline with a verbal warning and progresses to a second or third written warning prior to termination.  However, if using a progressive disciplinary system, employers should be careful to preserve the employee’s at-will status and reserve the right to not follow the progressive disciplinary system.  If the employee is at-will, they can be terminated at any time, even after their first small infraction of a company policy.  For more information about at-will employment, click here for my previous article.

5. Disciplinary documentation should be as broad as possible.

While write-ups and performance documentation should address the overall issue that the employee needs to improve, employers need to avoid general statements without providing specific examples.  For example, instead of writing-up an employee for having a “poor attitude,” the employer should provide a specific performance issue, such as the employee’s response to a customer was rude and not professional and set forth what the employee said.  The employer should also document the time, date and facts of the incident.  Write-ups should also list the conduct that is expected of the employee in the future.

This Friday’s Five lists five action items employers should utilize when conducting harassment investigations:

1. Selecting the investigator

Employers should take time to train an in-house person who can conduct harassment investigations.  This person, usually someone from Human Resources (but it does not need to be) should have additional experience and training about how to investigate these claims.  First, the person needs to be able to conduct appropriate investigations to limit the liability to the company.  Second, the person’s experience and training will likely be closely examined, if not challenged by opposing counsel if the case develops into litigation.  Therefore, someone with experience and who is well credentialed is preferred.

2. The investigation must be free of any appearance of influence or bias

The investigator must not have any personal involvement with any of the parties who are a part of the investigation.  To avoid any appearance of undue influence, the investigator must not be subject to any control or supervisory control from the alleged harasser.  This means that for smaller companies, or in cases where the owner or president of the company is alleged to have harassed someone, it is recommended that an outside third-party that is independent from the company be hired to conduct the investigation.

3. The investigation must ask the right questions

The EEOC provides the following examples of questions to ask during a sexual harassment investigation:

Questions to Ask the Complainant:

  • Who, what, when, where, and how: Who committed the alleged harassment? What exactly occurred or was said? When did it occur and is it still ongoing? Where did it occur? How often did it occur? How did it affect you?
  • How did you react? What response did you make when the incident(s) occurred or afterwards?
  • How did the harassment affect you? Has your job been affected in any way?
  • Are there any persons who have relevant information? Was anyone present when the alleged harassment occurred? Did you tell anyone about it? Did anyone see you immediately after episodes of alleged harassment?
  • Did the person who harassed you harass anyone else? Do you know whether anyone complained about harassment by that person?
  • Are there any notes, physical evidence, or other documentation regarding the incident(s)?
  • How would you like to see the situation resolved?
  • Do you know of any other relevant information?

Questions to Ask the Alleged Harasser:

  • What is your response to the allegations?
  • If the harasser claims that the allegations are false, ask why the complainant might lie.
  • Are there any persons who have relevant information?
  • Are there any notes, physical evidence, or other documentation regarding the incident(s)?
  • Do you know of any other relevant information?

Questions to Ask Third Parties:

  • What did you see or hear?
  • When did this occur? Describe the alleged harasser’s behavior toward the complainant and toward others in the workplace.
  • What did the complainant tell you?
  • When did s/he tell you this?
  • Do you know of any other relevant information?
  • Are there other persons who have relevant information?

4. The investigator must make credibility assessments

The EEOC again provides some guidance on the factors to use when determining which witnesses are more credible:

  • Inherent plausibility: Is the testimony believable on its face? Does it make sense?
  • Demeanor: Did the person seem to be telling the truth or lying?
  • Motive to falsify: Did the person have a reason to lie?
  • Corroboration: Is there witness testimony (such as testimony by eye-witnesses, people who saw the person soon after the alleged incidents, or people who discussed the incidents with him or her at around the time that they occurred) or physical evidence (such as written documentation) that corroborates the party’s testimony?
  • Past record: Did the alleged harasser have a history of similar behavior in the past?

None of the above factors are determinative as to credibility. For example, the fact that there are no eye-witnesses to the alleged harassment by no means necessarily defeats the complainant’s credibility, since harassment often occurs behind closed doors. Furthermore, the fact that the alleged harasser engaged in similar behavior in the past does not necessarily mean that he or she did so again.

5. The investigation’s final determination

After making credibility determinations and evaluating the facts, management of the company must make a determination about whether or not the harassment occurred.  The parties should be informed of the determination.  Even if the employer determines that harassment did not occur, the EEOC takes the position that the employer should take steps such as preventative training and continued monitoring.  For example, even though the underlying harassment may not have occurred, a supervisor could still be held liable for retaliating against the employee who filed the harassment complaint.  Therefore, it is important for employers to inform the parties involved of the outcome, unacceptable behavior as a result of the determination, and to ensure ongoing compliance with the company’s findings and legal obligations.

This Friday’s Five is a video (see video below) that reviews the ABC test for independent contractors as set forth in the California Supreme Court’s ruling in Dynamex Operations West, Inc. v. Superior Court, (2018) 4 Cal.5th 903.  The five issues I discuss in the video include:

1) Part A of the test requires that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

2) Part B of the test requires that the worker performs work that is outside the usual course of the hiring entity’s business; and

3) Part C of the test requires that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

4) The contractor must actually be in business for themselves.

The court in Garcia v. Border Transportation Group, LLC (2018) 28 Cal.App.5th 558, explained that “Dynamex makes clear that the question in part C is not whether [Border Transportation] prohibited or prevented [plaintiff] from engaging in an independently established business.”  Instead, the analysis is if the plaintiff “independently has made the decision to go into business for himself or herself” and “generally takes the usual steps to establish and promote his or her independent business – for example, through incorporation, licensure, advertisements, routine offerings to provide services of the independent business to the public or to a number of potential customers, and the like.” Id. at 572-573.

5) The Dynamex ABC test only applies to wage-order claims, and the Borello test applies to all other claims.

The court in Border Transportation explained:

[Dynamex] did not reject Borello, which articulated a multifactor test for determining employment status under the Worker’s Compensation Act. Nor did it address the appellate court’s ruling that “insofar as the causes of action in the complaint . . . are not governed by the wage order” and predicated solely on the Labor Code, “the Borello standard is the applicable standard for determining whether a worker is properly considered an employee or an independent contractor.”

Border Transportation, 28 Cal.App.5th at 571.

The Borello Test

So employers not only have to comply with the ABC test, they also have to comply with the factors set forth in Borello for all non-wage order labor code issues.  The “most significant consideration” is the putative employer’s “right to control work details.”  S.G. Borello & Sons, Inc. v. Dep’t of Indus. Relations (Borello), (1989) 48 Cal. 3d 341, 350.  Recently, the California Supreme Court noted that under the right-of-control test, it is “not how much control a hirer [actually] exercises, but how much control the hirer retains the right to exercise.” Ayala v. Antelope Valley Newspapers, Inc., (2014) 59 Cal. 4th 522 at 533.

The second set of factors that the court will look at under the Borello test are as follows:

(a) whether the one performing services is engaged in a distinct occupation or business;

(b) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;

(c) the skill required in the particular occupation;

(d) whether the principal or the worker supplies the instrumentalities, tools, and the place of work for the person doing the work;

(e) the length of time for which the services are to be performed;

(f) the method of payment, whether by the time or by the job;

(g) whether or not the work is a part of the regular business of the principal; and

(h) whether or not the parties believe they are creating the relationship of employer-employee.

Finally, the Borello test has five additional factors borrowed from the Fair Labor Standards Act (FLSA) in making a determination of a worker’s classification:

(i) the alleged employee’s opportunity for profit or loss depending on his managerial skill;

(j) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers;

(k) whether the service rendered requires a special skill;

(l) the degree of permanence of the working relationship; and

(m) whether the service rendered is an integral part of the alleged employer’s business.

In Rodriguez v. Taco Bell Corp., 896 F.3d 952 (9th Cir. 2018), an employee brought a putative class action alleging that Taco Bell’s discounted meal policy effectively denied employees the ability to take a duty free meal break.  At issue in this case was Taco Bell’s policy of offering a discounted meal from the restaurant during the employees’ meal breaks as long as the employees ate the meal on the company’s premises.  The ability to purchase discounted meals was voluntary.  The policy was implemented to prevent theft.  The employees argued that because they were required to remain on the company’s property in order to obtain the discounted meal they employees were not provided a duty free meal break.  The court rejected Plaintiff’s argument and held that Taco Bell’s policy complied with California law.  Here are five issues California employers should understand about the decision:

1. Meal and rest break requirements

The court in Rodriguez v. Taco Bell explained that California requires non-exempt employees be afforded rest breaks and meal periods after working a certain number of hours. See Cal. Labor Code §§ 226.7, 512.  At issue in this case is the Labor Code’s requirement that employees who work more than five hours in a day be afforded a meal period of “not less than 30 minutes” and employees who work more than ten hours in a day must be provided a second meal period of the same duration. Labor Code 512(a).  The court also noted that California Industrial Welfare Commission (“IWC”) Wage Order 5-2001 “requires employees be relieved of ‘all duty’ during the meal period. Cal. Code Regs., tit. 8, § 11050, subd. 11(A).”

The court also explained that if a meal or rest break is not provided according to California law, employees are entitled to the remedy of premium wages of “one additional hour of pay at the employee’s regular rate of compensation for each workday that the meal or rest or recovery period is not provided.” Cal. Labor Code § 226.7(c).

2. Discounted meal policy did not establish control over employees

The court found that Taco Bell’s meal policy was compliant under California law because the company relieved the employees of all duty and relinquished control over their activities.  Taco Bell did not require its employees to purchase the discounted meal, there was no evidence that Taco Bell pressured its employees to purchase the discounted meals, employees were free to purchase meals and full price and leave the company premises.  In addition, there was no evidence to show that employees were required or pressured to work while on premises during the meal period.  In fact, Taco Bell had a policy prohibiting this, “as employees were required to take rest breaks and meal periods away from ‘[t]he food production area’ and ‘[t]he cash register service area.’”

3. Voluntary nature of the discounted meal policy was key issue in case

Plaintiff argued that employers must pay employees whenever they control the employees, even if the employee is not required to work, as set forth in Morillion v. Royal Packing Co., 22 Cal.4th 575 (2000). In Morillion, the employer required employees to travel to work on employer-provided buses, and the employees had no option to drive themselves.  There, the court held that employer’s work rules “prohibited employees from using their own transportation to get to and from the fields” where they worked, and therefore this time was considered work time and the employees had to be paid.  The court in Taco Bell also noted however that the Morillion court made it clear that if the employer provided optional transportation that the employee was not required to use, the travel time would not need to be compensated.  The court in Taco Bell explained that this scenario is more similar to Taco Bell’s voluntary discount meal program.

4. Employers must relieve employees of all duty during breaks

The court in Taco Bell did note that “an employer may so burden the use of employee’s break time that the employees must be considered ‘on duty.’”  The court explained:

In Augustus, the employees were required to carry a device so that the employer could reach the employee during the break if services were needed. Augustus, 211 Cal.Rptr.3d 634, 385 P.3d at 832. The California Supreme Court said that such an arrangement was “irreconcilable with employees’ retention of freedom to use rest periods for their own purposes.” Id. In Madera, the employees were not only on call, but were forbidden to conduct any personal business. See Madera, 204 Cal.Rptr. 422, 682 P.2d at 1089.

5. Remember to record meal breaks

Although not an issue in the case, the Wage Orders require that meal breaks taken by the employees must be recorded by the employer. See Wage Order No. 5 (7)(A)(3) (“Meal periods, split shifts intervals and total daily hours worked shall also be recorded.”).  The California Supreme Court held in Brinker Restaurant Corp. v. Superior Court that, “[i]f an employer’s records show no meal period for a given shift over five hours, a rebuttable presumption arises that the employee was not relieved of duty and no meal period was provided.”  Brinker Restaurant Corp. v. Superior Court, 53 Cal.4th 1004, 1053 (2012).

However, there is no similar requirement for employers to record 10-mintute rest breaks.

For more information about meal and rest breaks, see my prior article here.

Rick Reyes, a law clerk at our firm, recently wrote an article published in the National Law Review: Transgender Individuals in the Workplace: An Overview of Employers’ Scope of Obligations in California.

The article provides some great guidance for employers on this developing issue, such as new posters required by California law, training that addresses gender identity, gender expression and sexual orientation, facility, and grooming considerations.  The article can be read here

Congratulations Rick!

California employers have many different obligations to train employees on certain issues.  The primary training obligation that applies to nearly every employer (with 5 or more employees) is to provide sexual harassment prevention training.  However, as set forth below, different industries have different standards, and employers need to review the requirements that pertain to their industries and companies to ensure compliance.

This article is the fifth article in my series of articles of employment audits to start out 2019.  Prior articles covered the hiring process, records retention practices, wage and hour considerations, and end of employment issues.    This article provides five reminders about a few of the training obligations facing California employers:

1. Employers with 5 or more employees must provide sexual harassment prevention training to all employees (even nonsupervisory employees) by January 1, 2020. 

SB 1343 is a bill that was passed in 2018 that requires employers with 5 or more employees, including temporary or seasonal employees, to provide at least 2 hours of sexual harassment training to all supervisors and at least one hour of sexual harassment training to all nonsupervisory employees by January 1, 2020, and once every 2 years thereafter.

The bill does require that the Department of Fair Employment and Housing (“DFEH”) is to develop or obtain 1-hour and 2-hour online training courses on the prevention of sexual harassment in the workplace and to post the courses on the DFEH’s website. The bill requires the DFEH to make existing informational posters and fact sheets, as well as the online training courses regarding sexual harassment prevention, available to employers and to members of the public in specified alternate languages on the DFEH website.  At this point the DFEH has not indicated when the training and materials will be available, but check back here throughout the year for updates.

2. Harassment prevention training must cover certain topics.

Employers issuing sexual harassment prevention training to its employees must review the training to ensure that the training covers the required topics.  For example, some of the topics include:

  • The law that applies, such as California’s Fair Employment and Housing Act (“FEHA”) and Title VII of the Civil Rights Act of 1964.
  • Remedies available for sexual harassment victims in civil actions, and potential employer and individual exposure and liability.
  • How to prevent harassment.
  • The essential elements of an anti-harassment policy and how to utilize it if a harassment complaint is filed.
  • Anti-Bullying – A review of the definition of abusive conduct (for more information on this aspect see my prior article here).

3. Talent agencies required sexual harassment training and educational materials.

AB 2338 requires talent agencies to provide educational materials about sexual harassment prevention, retaliation, and reporting to its artists.  At a minimum, the materials shall include the information listed in the DFEH’s Form 185.  Materials may be provided electronically, such as a website or other means.  The bill also requires talent agencies to make available educational materials regarding nutrition and eating disorders available to adult artists within 90 days of agreeing to representation.  Talent agencies must keep records for three years confirming it has made the required information available.

4. Hotel and motel operators must provide training on human trafficking awareness.

SB 970, passed in 2018, requires hotel and motel operators to provide at least 20 minutes of “interactive training and education” regarding human trafficking awareness to employees who are likely to interact or come into contact with victims of human trafficking.

The require training must take place by January 1, 2020 and must be provided to employees within six months of employment in such a covered position.  Training is required once every two years thereafter.

Training is required for, but is not limited to, the following positions: “an employee who has reoccurring interactions with the public, including, but not limited to, an employee who works in a reception area, performs housekeeping duties, helps customers in moving their possessions, or drives customers.”

5. Employers need to develop an anti-harassment policy that includes a complaint procedure.

All employers should have an anti-harassment policy of their own developed and distributed to all employees.  Employers are required to develop a harassment, discrimination, and retaliation prevention policy that meets the following requirements:

  1. Is in writing;
  2. Lists all current protected categories covered under the Act;
  3. Indicates that the law prohibits coworkers and third parties, as well as supervisors and managers, with whom the employee comes into contact from engaging in conduct prohibited by the Act;
  4. Creates a complaint process to ensure that complaints receive:
    • An employer’s designation of confidentiality, to the extent possible;
    • A timely response;
    • Impartial and timely investigations by qualified personnel;
    • Documentation and tracking for reasonable progress;
    • Appropriate options for remedial actions and resolutions; and
    • Timely closures.
  5. Provides a complaint mechanism that does not require an employee to complain directly to his or her immediate supervisor, including, but not limited to, the following:
    • Direct communication, either orally or in writing, with a designated company representative, such as a human resources manager, EEO officer, or other supervisor; and/or
    • A complaint hotline; and/or
    • Access to an ombudsperson; and/or
    • Identification of the Department and the U.S. Equal Employment Opportunity Commission (EEOC) as additional avenues for employees to lodge complaints.
  6. Instructs supervisors to report any complaints of misconduct to a designated company representative, such as a human resources manager, so the company can try to resolve the claim internally. Employers with 50 or more employees are required to include this as a topic in mandated sexual harassment prevention training, pursuant to section 11024 of these regulations.
  7. Indicates that when an employer receives allegations of misconduct, it will conduct a fair, timely, and thorough investigation that provides all parties appropriate due process and reaches reasonable conclusions based on the evidence collected.
  8. States that confidentiality will be kept by the employer to the extent possible, but not indicate that the investigation will be completely confidential.
  9. Indicates that if at the end of the investigation misconduct is found, appropriate remedial measures shall be taken.
  10. Makes clear that employees shall not be exposed to retaliation as a result of lodging a complaint or participating in any workplace investigation.

In addition, employers are required to distribute the pamphlet, Sexual Harassment Is Forbidden by Law (DFEH-185), to all employees.  Employers should also routinely discuss the sexual harassment policy with employees at meetings and remind them of the complaint procedures and document these additional steps.  This additional training will show that the company is serious about preventing harassment and took affirmative steps to protect its employees.

On March 7, 2019, the United States Department of Labor (“DOL”) issued a proposed rulemaking to increase the salary level that employees must receive in order to qualify as an exempt employee.  The DOL sets standards under the Federal Labor Standards Act (“FLSA”), but California employers are also required to comply with California’s wage and hour laws.  This Friday’s Five reviews five issues California employers need to understand about the DOL’s proposal and how it may affect them:

1. DOL’s proposed salary threshold for exempt employees.

The DOL’s proposal increases the minimum salary required under the FLSA for an employee to qualify as an executive, administrative or professional exemption (referred to as the “EAP” exemption) from the currently-enforced level of $455 to $679 per week (equivalent to $35,308 per year).

Since 2004,  the salary required under the FLSA was set at $23,660 per year.  The Obama administration proposed rules that would have required employers to pay employees that qualify for the EAP exemption a minimum salary level of at least $921 per week or $47,892 annually.  The Obama administration rules were set to take effect on December 1, 2016, but were blocked by a lawsuit filed by 21 states.  The March 7, 2019 proposed rules lower the salary requirement by about $12,000 as compared to the Obama administration proposed rules.

The DOL’s proposed rules are expected to become effective in January 2020.

2. DOL also increased the total annual compensation required for “highly compensated employees.”

The proposal increases the total annual compensation requirement for “highly compensated employees” (“HCE”) from the currently-enforced level of $100,000 to $147,414 per year.  This amount is about $13,000 higher than the proposed rule under the Obama administration.

3. The DOL did not propose any changes to the job duties test and did not set any automatic increases to the salary levels.

There were no changes to the job duties test that is required to qualify as an exempt employee.  In addition, there are no future automatic adjustments to the salary threshold.

4. California employers must still comply with California’s more stringent standards regarding exempt employees.

Under California law, exempt employees must perform specified duties in a particular manner and be paid “a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” (Lab. Code, § 515(a).)  As of January 1, 2019, the minimum wage in California increased from $11.00 to $12.00 per hour for employers with 26 or more employees (the increase is from $10.50 per hour to $11.00 per hour for employers with 25 or fewer employees on January 1, 2019).  With the increase in the state minimum wage, there is a corresponding raise in the minimum salary required to qualify as exempt under the EAP exemptions.

Therefore, on January 1, 2019, in order to qualify for an EAP exemption under California law, the employee must receive an annual salary of at least $49,920 for large employers and $45,760 for small employers.

In addition, California does not permit employers to consider bonuses, commissions, or other payments made to the employee during the year as part of the employee’s salary to meet the minimum threshold.  Finally, California does not contain a “highly compensated employee” exemption.

5. Don’t forget about the duties test.

With attention on the DOL’s salary increase required to meet the EAP exemptions, it is important for employers to remember that this is only one-half of the test used to qualify  as an exempt employee.  The law also requires that the employee perform more than 50% of their time performing exempt duties.  The duties that qualify as exempt can be difficult to determine, and many industries, such as insurance claim adjusters, financial service industry employees, executive assistants, and purchasing agents are just a few job classifications that have been the subject of litigation in the past.

California passed a wave of new laws in 2018 relating to the #metoo movement, many of which prohibit confidential settlement agreements or disclosure of allegations related to sexual harassment in the workplace.  This Friday’s Five post reviews five areas impacted by these new laws in 2019, which illustrate the need for employers to stay informed about the new requirements that apply to their company and industry:

1. SB 820 added Civil Procedure Code section 1001 – Limits on confidentially clauses

California’s Stand Together Against Nondisclosure (STAND) Act prohibits certain terms in agreements with employees.  The law voids any confidentiality provisions in agreements settling claims for sexual harassment under Civil Code section 51.9, workplace sexual harassment or discrimination, failure to prevent harassment, and retaliation for reporting sexual harassment or discrimination.

This law applies to agreements entered into on or after January 1, 2019 involving claims filed in court or filed in an administrative action.  The law permits the claimant to request a term in the settlement that his or her identify remain confidential, including all facts that could lead to the discovery of his or her identity, including pleadings filed in court.

The law does not apply to pre-litigation settlements.  The law also permits parties to keep the amount of the settlement confidential (unless a government agency or public official is a party to the settlement agreement).

2. AB 3109 added Civil Code section 1670.11 – Right to testify about sexual harassment

Civil Code section 1670.11 makes any provision in a contract or settlement agreement entered on or after January 1, 2019 void and unenforceable if it waives a party’s right to testify in an administrative, legislative, or judicial proceeding about alleged criminal conduct or alleged sexual harassment.

3. SB 1300 added Government Code section 12964.5 – Employer may not release FEHA claims unless it involves a “negotiated settlement agreement”

SB 1300 added section 12964.5 to the Government Code which makes it an unlawful employment practice for an employer to require and employee to sign a release of a claim or right under the Fair Employment and Housing Act (“FEHA”).  In addition, the law prohibits an employer from requiring an employee to sign a nondisparagement agreement or other document that denies the employee the right to disclose information about unlawful acts in the workplace, including, but not limited to sexual harassment.  The new law took effect on January 1, 2019.

The law makes any document violating its terms unenforceable.

The law does not apply to “a negotiated settlement agreement” to resolve an underlying claim filed by an employee in court, before an administrative agency, alternative dispute resolution forum, or through an employer’s internal complaint process.  “Negotiated” is defined as an agreement that “is voluntary, deliberate, and informed, provides consideration of value to the employee, and that the employee is given notice and an opportunity to retain an attorney or is represented by an attorney.”

4. The Tax Cuts and Jobs Act – Limit on tax deductions for payments and attorney’s fees related to confidential settlements or payments

Enacted on December 22, 2017, the Tax Cuts and Jobs Act changed the Internal Revenue Code to prohibit tax deductions as an ordinary and necessary business expense for any settlements or payments “related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement.”  The law also disallows any deductions for attorney’s fees related to the confidential settlement or payment.  See 26 U.S.C. § 162(q).

5. Review standard forms to ensure compliance

Employers should review their documents and forms to ensure compliance with the new laws.  For example, employers should review and potentially update employment documents, which may include the following:

  • severance agreements
  • standard release of claims, and settlement agreements
  • non-solicitation agreement
  • confidentiality agreements
  • nondisclosure agreements
  • employee handbook procedures and policies

The process of separating an employee from a company must be clearly set out and planned in advance.  I recommend developing a separation checklist so that all of the company’s policies are followed, as well as any applicable laws that pertain to the employer and their industry.  This article is the fourth article in my series of articles of employment audits.  Prior articles covered the hiring process, records retention practices, and wage and hour considerations.  This article provides five issues employers should consider in developing a separation checklist for their company:

1. Documenting reason for termination

Employers should establish a protocol for documenting the reason for termination.  Some considerations for documenting could include the following:

  • Is there a company policy that was violated? This is policy in writing?  Has it been distributed to the employee, and has the employee signed an acknowledgment of the policy?
  • Who was involved in the termination decision?
  • Review reasons for termination, and have clear guidelines for seeking legal counsel to avoid any potential wrongful termination or discrimination claims.

 2. Final paycheck amounts

An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination.  Ensure that the final paycheck will be available to the employee on a timely basis (see below for timing requirements).  If an employee had direct deposit, an employee must re-authorize direct deposit for a final paycheck, and this should be documented.  In Canales v. Wells Fargo, N.A., (2018) the court held that employers are not required to provide final wage statements (pay stubs) at the same time as the final check, but instead have until the semimonthly deadline set forth in Labor Code section 226(a).

3. Timing of final paycheck

California law requires the employer comply with the following deadlines for providing final paychecks:

  • An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination. This does not mean that the company cuts the check and mails it to the employee, the check must be provided to the employee at the time of termination.
  • An employee who gives at least 72 hours prior notice of quitting, and quits on the day given in the notice, must be paid all earned wages, including accrued vacation, at the time of quitting.
  • An employee who quits without giving 72 hours prior notice must be paid all wages, including accrued vacation, within 72 hours of quitting.
  • An employee who quits without giving 72-hours’ notice can request their final wage payment be mailed to them. The date of mailing is considered the date of payment for purposes of the requirement to provide payment within 72 hours of the notice of quitting.

Final wage payments for employees who are terminated (or laid off) must be made at the place of termination. For employees who quit without giving 72 hours’ notice and do not request their final wages be mailed to them, the location is at the office of the employer within the county in which the work was performed.

4. List of all required documents to separating employees

California law requires employers to provide certain documents to employees.  Here is a list of some of the routine forms required:

Employers should take time to review their obligations and forms that are required for their particular industry or situation.

5. Have established protocol for references and disclosing why the employee left the company within the company itself.

Employers often establish that it will only confirm the title and dates of employment for former employees, and, if authorized by the former employee, the former employee’s final pay rate. Employers do this to avoid potential claims for misrepresentation, violation of privacy, and defamation. Also, employers need to be careful about disclosing the reason for an employee departure within the company, as that may violate the former employee’s privacy rights. Employers should remind employees and management not to disclose this information to people in the company that do not have a reason to know, and remind employees about who any requests for references should be directed to within the company.