Many cities and counties across California are set to increase their minimum wages in July 2017, and employers need to start preparing now.  For example, Los Angeles City and County are increasing the minimum wage for employers with 26 or more employees to $12 per hour on July 1, 2017 (currently at $10.50 per hour). This Friday’s Five video covers five issues that employers should start to review in order to comply with these increases in the minimum wage.

For more information about the local minimum wages in place throughout California:

San Diego: http://www.californiaemploymentlawrep…

Los Angeles: http://www.californiaemploymentlawrep… and http://www.californiaemploymentlawrep…

Southern California overview of various minimum wage requirements: http://www.californiaemploymentlawrep…

Sample model pay stub: https://www.dir.ca.gov/dlse/PayStub.pdf

 

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

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

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

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

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

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

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

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

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

2. Notice to Employee may be required.

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

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

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

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

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

4. Meal and rest breaks.

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

5. Off the clock and timekeeping policies.

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

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

With attention on the DOL’s salary increase required to meet the white collar exemptions, it is important for employers to remember that this is only one-half of the test to qualify for as an exempt employee.  The law also requires that the employee perform more than 50% of their time performing exempt duties.  For this week’s Friday’s Five, here are five examples of duties that qualify as exempt duties for the administrative exemption (click here for a description of some of the different exemptions that exist):

1.      Insurance claims adjusters

Insurance claim adjusters whose duties include activities such as interviewing insureds, witnesses and physicians; inspecting property damage; reviewing factual information to prepare damage estimates; evaluating and making recommendations regarding coverage of claims; determining liability and total value of a claim; negotiating settlements; and making recommendations regarding litigation.

2.      Financial services industry employees

Employees in the financial services industry whose duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer’s financial products.

3.      Executive assistants

An executive assistant or administrative assistant to a business owner or senior executive of a large business generally meets the duties requirements for the administrative exemption if such employee, without specific instructions or prescribed procedures, has been delegated authority regarding matters of significance.

4.      Human resource managers

Human resources managers who formulate, interpret or implement employment policies and management consultants who study the operations of a business and propose changes in organization generally meet the duties requirements for the administrative exemption.

5.      Purchasing agents

Purchasing agents with authority to bind the company on significant purchases generally meet the duties requirements for the administrative exemption even if they must consult with top management officials when making a purchase commitment for raw materials in excess of the contemplated plant needs.

6.      (bonus) Property managers

In McKee v. CBF Corp. C.A. 5 (Tex) the court held that under the Fair Labor Standards Act (FLSA), that a “property manager” was an exempt employee under the administrative exception when her duties including overseeing the employer’s properties, ensuring they were properly maintained.  She also supervised five maintenance employees, approving their schedules and vacation time.  In addition, the property manager had employees reporting to her, as managers would generate a list of issues to be addressed on a daily basis.  She would decide which of these issues would be handled by outside contractors and tasking her employees to individual assignments.

Employers must be careful about this analysis, as California law can differ from federal law.  Therefore, experienced counsel should be consulted when conducting an audit regarding whether an employee is properly classified as an exempt employee.

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

 1. House moves to delay DOL overtime rule implementation.

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

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

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

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

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

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

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

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

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

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

Welcome to Friday’s Five!  Here are five video excepts from a presentation I conducted in September 2016 to a group of restaurateurs:

  • exempt employee overview
  • the DOL’s increase in the salary basis test and what it means for employers
  • California’s minimum wage – state and local considerations

 

Please let me know if you have any questions or suggestions for topics you would like to see discussed.  Have a great weekend.

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

  1. Meal and rest breaks seem so trivial.

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

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

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

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

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

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

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

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

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

Employment Law - Mid Year Update - LinkedinJoin me for a seminar for a mid-year update on California employment law issues.  Learn how to keep your company compliant with new developments in California.  Topics will include:

  • Top five pitfalls facing California employers in 2016
  • How to prepare for the Department of Labor’s changes to the overtime rules going into effect on December 1, 2016
  • Local city minimum wage and paid sick leave developments
  • Revisions to anti-harassment and discrimination regulations potentially requiring revisions to handbooks and policies
  • Q & A – bring your questions to discuss with the attorneys from my firm
  • Mixer – network with other business owners, human resource professionals, and other professionals

The event is from 4 p.m. to 7 p.m. on June 22, 2016  (seminar from 4 to 5 p.m., mixer from 5 to 7 p.m.).

Location: Westside Tavern, 10850 W Pico Blvd, Los Angeles, CA 90064 (click here for map)

1.0 SHRM and HCRI credit for HR Professionals.

$150 Regular Price/$40 for clients of VTZ and California Restaurant Association Members. If you are a client, or a CRA member, email cpeck@vtzlaw.com for promo code.

Space is limited.

For more information and registration, click here

Hope you can join us.

The DOL’s Final Rule was issued this week (see my previous article for the details), and we have had a few days to digest the new rules.  Now employers need to start putting together a plan to ensure compliance with the federal rules, and take time to ensure they are also complying with applicable California law.  This Friday’s Five is five suggestions to start the process:

1. Understand that the DOL’s changes apply to the FLSA, not California law.

At risk of sounding like a lawyer, the analysis to determine if an employee is properly classified as an exempt employee is very detailed and complex.  California’s requirements differ from the Federal requirements in many ways.  Therefore, it is imperative that California employers understand which laws apply to their employees, and that they are following the correct laws.  The set of rules that provides the employee with more rights and protections is usually the law that governs.  For example, to qualify as an exempt employee under California law, the employee must be paid the equivalent of two times the state minimum wage for full-time employment.  As of January 1, 2016, with the state minimum wage at $10 per hour, the annual salary must be at least $41,600 to qualify for the California white collar exemptions.  This is less than the annual salary of $47,476 or $913 per week as set by the DOL in the Final Rule.  Therefore, in order to avoid paying overtime for work over 40 hours in a week, California employers will need to pay at the higher salary required by federal law by the December 1, 2016 deadline.

2. Understand which law – federal or California – applies to your workforce.

Again, this analysis is complex and needs to be done carefully with competent legal counsel.  Generally, the law that gives employees the most protections or benefits must be followed.  The FLSA had a much lower salary basis test in the past, so California employers generally had to comply with California law regarding exempt status because it set a higher salary basis (the equivalent of two times the state minimum wage for full-time employment, which equals $41,600 annually, or $3,466.67 per month based on $10 per hour) and a stricter duties test than federal law.  Now, California employers will likely need to focus on compliance with the higher salary required under Final Rule, which becomes effective December 1, 2016, but still must also likely comply with California’s stricter duties test.  This is territory where advice from an employment lawyer particular to the client’s situation is critical.

3. Take time to evaluate workforce and reclassify employees if needed.

Employers should use the DOL’s Final Rule changes as an opportunity to audit their workforce to determine if employee classifications need to be reclassified prior to the December 1, 2016 implementation date of the Final Rule.  While the DOL changed the salary level required to qualify as exempt, employers cannot forget to ensure that exempt employee must also meet the requirements of the duties test, which generally requires employees to perform high level managerial duties for a substantial portion of their worktime.  As mentioned above, California applies a different, stricter duties test on employers, and because this provides more protection to the employee, California employers usually have to meet the California duties test.

It would also be an ideal time when the DOL’s regulations take effect to reclassify employees as nonexempt without raising the question of why the reclassification is taking place.

4. Update timekeeping systems and policies.

The increase in the salary basis test will likely result in many employers reclassifying employees as nonexempt.  Therefore, with more employees needing to clock-in an out for their start and stop times (in addition to tracking the start and stop times for meal breaks as required under California law), employers need to ensure their timekeeping system is up-to-date and compatible with their workforce.

5. Enforce a strict policy prohibiting off-the-clock work and implement policies designed to limit the amount of overtime worked to keep costs under control.

With many more employees likely being reclassified as nonexempt, it is even more critical that employers ensure they take all appropriate steps to protect themselves from off-the-clock work claims.  Employers should have an effective timekeeping policy and train their managers about preventing off-the-clock work.  In addition, employers need to develop a policy and train managers on the correct policies to control unauthorized overtime worked.  Managing overtime costs requires effective policies and manager training to ensure all wage and hour laws are complied with.

On May 18, 2016 the Department of Labor issued long awaited changes to the Federal rules setting forth the requirements for employees to qualify as exempt under the white collar exemptions.  Exempt employees are “exempt” from some labor laws governing employees, such as overtime pay.  Exempt employees are designated as such because they are “exempt” from certain wage and hour requirements due to their duties and level of pay (more information about exempt employees can be found here).  Generally speaking, in order to qualify as an exempt employee, the employee must meet (1) a salary basis test and (2) a duties test.  If the employee does not earn a high enough level of pay, or does not perform managerial duties for a certain percentage of their work time, the employee cannot qualify as exempt, and would be entitled to overtime pay and other labor law protections.

The DOL reviewed both the salary basis test and the duties test to “update and modernize the regulations governing the exemption of executive, administrative and professional (‘EAP’) employees” from the minimum wage and overtime pay protections of the Fair Labor Standards Act (“FLSA”).  The DOL’s Final Rule issued on May 18, 2016 makes the following changes to the FLSA requirements necessary for employees to qualify as an exempt executive, administrative, or professional employee:

  1. Exempt professional employees must earn at least $913 per week, or $47,476 annually for a full-year worker.  This is an increase from the $455 per week, or $23,660 annually for a full-year employee that is currently required under federal law.
  2. The higher salary requirement is effective December 1, 2016.
  3. The salary level that must be paid to employees to meet the salary basis test under federal law will increase automatically every three years.  Therefore, the first increase from the amount set forth above will take effect on January 1, 2020.
  4. Employers may count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the salary requirement.  The nondiscretionary bonuses and incentive payments must be paid on a quarterly or more frequent basis in order to apply.  Examples of nondiscretionary bonuses include bonuses set for meeting production levels, retention bonuses, and commissions based on a fixed formula.  Discretionary bonuses, such as bonuses provided to employees at the employer’s sole discretion and not according to predetermined standards cannot apply towards this 10 percent requirement.  Therefore, tips cannot be including when calculating the amount of salary the employee earns to meet the salary requirement pay.
  5. The Final Rule also allows employers to make “catch-up” payments to employees if they do not receive enough compensation in nondiscretionary bonuses in a given quarter to remain exempt.
  6. There is no change in the standard duties test.
  7. Set the total annual compensation requirement for highly compensated employees (HCE) subject to a minimum duties test to at least $134, 004.  The pay requirements for HCEs are effective as of December 1, 2016, and will also be reviewed and increased automatically every three years.

It is important to note for California employers that these changes apply to the FLSA, not California law.  Therefore, employers need to evaluate which law governs their situation (generally the law that provide more benefits or protections to the employee will apply, but this can be a complicated analysis, so approach with caution).  I’ll write more about how these changes will effect California employers in the coming days, as well as publish some resources for California employers to help navigate these changes.