A lot was happening this week in California’s employment law.  This week’s Friday’s Five is a round-up on the highlights:

1.       Los Angeles City Council votes to require employers to provide 6 days of paid sick leave.

The LA City Council approved a measure to require employers to provide employees up to six paid sick days per year.  This is double the requirement under California state law that went into effect July 1, 2015.  It is likely that the law will go into effect July 2016.  The rules do not apply to small businesses with 25 employees or less until July 2017.  The law still must be drafted by the city attorneys.

2.       Uber settles class action cases for $100 million.

The settlement was reached this week by Uber to settle two class actions, one pending in California and the other in Massachusetts.  The class actions alleged that Uber improperly classified drivers as independent contractors rather than employees, and was seeking damages resulting from the misclassification.  The settlement provides $84 million to be distributed to the drivers “in California and Massachusetts who have used the Uber App at any time since August 16, 2009” until the court approves the settlement agreement.  The settlement resolves these cases, but Uber will likely have to continually fight this issue.  For more on the factors a court would look to in determining if an independent contractor has been misclassified, see my previous articles here.

 

 

3.       “Restrictive” Scheduling bill is working its way through California’s legislature.

Senate Bill 878 proposes to require retail establishments, grocery stores, and restaurants to set employees schedules 28 days in advance, and impose penalties on the employer if the schedule is modified by the employer.  In addition to the “modification pay” the employer would be required to pay to the employee, if the employer does not comply with the proposed law, the bill also adds a $4,000 penalty for failing to accurately provide “modification pay”, another $4,000 penalty for any harm that results to the employee or “another person” due to a violation of the law, and the ability for the employee to bring suit under the Private Attorney Generals Act (PAGA), among other penalties.

4.       California HR consulting company cited for $1 million for misclassification of exempt employees.

TriNet Human Resources Corp. provides outsource human resources solutions for small and medium sized business, was cited by the U.S. Department of Labor for failing to pay time and a half to 267 employees who worked more than 40 hours per week.  The case shows how often times the test to determine if an employee is exempt or nonexempt is not black or white.  If an HR company can get into legal trouble over the issue, it shows that employers must approach the exempt classification of employees very carefully.

5.       Reminder that California regulations may require an update to sexual harassment policies.

As I’ve written about previously, new regulations issued by California’s Fair Employment and Housing Counsel set for additional steps employers should consider in regards to their discrimination, harassment, and retaliation policies.   These regulations are effective April 1, 2016.

I cannot believe it is already Friday, and one week done in 2016.  This Friday’s Five focuses on a few action items for employers can use to start a review of their employment policies for 2016.Happy New Year 2016

 1.      Ensure the new hire packets contain all required information for employees. 

If employers do not have a standard new hire packet, the first step in 2016 should be implementing this packet.  There are many disclosures and documents that need to be provided to employees when they are hired.  This packet should be reviewed by legal counsel as well to ensure that all required forms are included for each employee.  For example, employees earning commissions must be provided the commission agreement in a writing signed by both the employee and the employer.  See Labor Code Section 2751.

 2.      Review pay stubs to ensure they are compliant. 

The DLSE provides an example of a pay stub and the required information for an hourly employee:

Also, do not forget that with California’s paid sick leave law that took effect on July 1, 2015, employers will have additional reporting information regarding employees’ accrued paid sick leave and usage. Employers must show how many days of sick leave an employee has available on the employee’s pay stub or a document issued the same day as a paycheck.

3.      Analyze if arbitration agreements are appropriate.

Employers should understand the potential benefits and costs associated with arbitration agreements, and should review with counsel whether they might be appropriate for their workforce.

4.      Review payroll practices and ensure overtime is being paid correctly.

If non-exempt, review to ensure the appropriate overtime is being paid at the proper rate, and that all overtime is being paid for work done over eight hours in a day and 40 hours in a week.

Generally, any work performed over eight hours in any workday or more than six days in any workweek requires that the employee is compensated for the overtime at not less than:

  •  One and one-half times the employee’s regular rate of pay for all hours worked in excess of eight hours up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day of work in a workweek; and
  • Double the employee’s regular rate of pay for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek.

Employers should review that the employee’s “regular rate of pay” used for calculating overtime includes all required payments to the employee such as non-discretionary bonuses, piecework earnings, or commissions.  The Department of Industrial Relations provides some good examples on what must be included when calculating the regular rate of pay and how to calculate the applicable overtime.

5.      Understand new laws taking effect in 2016.

Employers should learn about the new laws passed that are effective in 2016.  I’ve posted some excerpts from a webinar I recently conducted last week on a few new laws facing California employers in 2016.  I’ll be posting additional excerpts soon as well.  If you would like to be notified about future webinars or seminars I conduct, you can sign up here.

Happy New Year!  This Friday’s Five consists of five new video’s taken from a recent presentation I conducted on new employment laws facing California employers in 2016.  Wishing everyone the best in 2016.

2016 Update: California’s new equal pay protections:

2016 Update: Meal and rest break considerations:

2016 Update: Minimum wage increases state and locally:

2016 Update: Employers may cure some PAGA violations on pay stubs

2016 Update: California’s new requirements for piece rate pay employees:

If you find these updates useful, please email me (anthony [dot] zaller [at] yahoo.com) if you are interested in attending any of my future presentations or webinars on California employment law.

As we approach the close of 2015, employers should take the time to review their employment law policies and practices.  I’m often asked where should the process start?  Here are five areas employers can focus on to start the audit process:

1.      Employee handbooks

Employers need to ensure their policies are up to date, and a few areas that saw updates that may need attention in regards to employee handbooks are the revisions to California’s paid sick leave, the enforceability of arbitration agreements that contain class action waivers, and equal pay protections.

Employers should review new laws taking effect in 2016 to ensure compliance.

2.      Ensure compliance with minimum wage increases

California minimum wage increases to $10 per hour effective January 1, 2016.

Employers need to remember that the state minimum wage also sets the salary basis for exempt employees, and therefore the minimum salary that must be paid to exempt employees will also be increasing.

3.      Wage and hour issues

There are so many wage and hour areas that employers need to ensure compliance with, but here are few to help start the audit process:

4.      Meal and rest breaks

Even though it is widely known by employers of their obligations to provide meal and rest breaks, there is still substantial litigation over this issue.  Therefore, employers should continually review their meal and rest break policies and practices to ensure compliance with the law.  To start, here is a link to a previous article about five things California employers should not forget about meal and rest breaks.

5.      Correct information is listed on employee pay stubs and new requirements for piece-rate employees

Employers should ensure their pay stubs provided to employees comply with the requirements of Labor Code section 226.  The DLSE provides a sample of what information a compliant pay stub should list for an hourly employee, but don’t forget about the requirement to report an employee’s accrued paid sick leave.

Employers should especially conduct this review if they paid employees on a piece-rate basis.  A new law, AB 1513, adds various Labor Code sections and places new requirements on employers who pay on piece-rate basis.  The law now mandates that employers pay piece-rate employees separately for the following activities:

  • Rest breaks
  • Recovery periods (for employees who work outside)
  • Non-productive time (defined by the law)

The law requires employers to calculate the regular rate of pay for each workweek, and then pay the piece-rate employees the higher of this regular rate of pay or the applicable minimum wage for rest break time.  The law also requires employers to pay piece-rate employees for “nonproductive time” which is defined as “time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.”  The nonproductive time is required to be paid at a rate no less than the applicable minimum wage rate.  Employers paying employees on a piece rate basis should review the new obligations with an employment law attorney to ensure compliance.

To qualify as an exempt employee, an employee must be “primarily engaged in the duties that meet the test of the exemption” and “earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” Labor Code section 515.  This forms the two part test the employees must meet to be exempt: (1) the salary basis test and (2) the duties test.  Yes, this Friday’s Five post is published on a Saturday, but a holiday party obligation got in the way (it did cross my mind, but I saved my readers from the obligatory “how to throw a holiday work party and avoid litigation” article – so I figured this will make up for the late post).  Here are five general issues employers should know about the salary basis test:

1.     To qualify for a “white collar” exemption, employees must be paid at least twice the state minimum wage.

To be exempt from the requirement of having to pay overtime to the employee, the employee 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, subd. (a).)  As of July 1, 2014, the minimum wage in California increased from $8.00 to $9.00 per hour.  It is set to increase again to $10.00 per hour on January 1, 2016.  With the increase in the state minimum wage, there is a corresponding raise in the minimum salary required to qualify as exempt under the “white collar” exemptions.  Therefore, on July 1, 2014, in order to qualify for a white collar exemption, the employee must receive an annual salary of at least $37,440, and as of January 1, 2016, the threshold annual salary increases to at least $41,600.  This salary basis will increase with each increase in the California state minimum wage.

2.     DOL proposal to increase the salary for required to meet the salary basis test under the FLSA is just a proposal (for now).

As I have previously written, the Department of Labor announced in June 2015 that it was considering a proposal to increase the salary basis amount under the Fair Labor Standards Act (FLSA) for the white collar exemptions from $23,660 to $50,400.  The Wall Street Journal is reporting that this proposal is not likely to become effective (if at all) until late 2016.  Employers need to understand that the DOL’s proposal pertains to federal law.  California employers need to abide by which ever salary basis level is higher – California state law or the FLSA.  It is important to understand the difference, and keep up to date on the DOL’s proposal in 2016.

3.     The employee’s salary cannot be reduced for quality or quantity of work.

In a recent case, Negri v. Koning & Associates (2013), an insurance claims adjuster challenged his employer’s exempt classification of his job.  The plaintiff was paid $29 per hour with no minimum guarantee, and when he worked more than 40 hours in a week, he still only received $29 per hour.  The employer attempted to argue that the plaintiff was an exempt employee under the administrative exemption.  The court rejected the employer’s position in holding that because the employee did not receive a guaranteed amount in “salary”, the employee did not meet the salary basis test to qualify as exempt.  In determining what constitutes a salary, the court looked to federal law:

An employee is 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. Subject to the exceptions provided in paragraph (b) of this section [(relating to absences from work)], an 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. Exempt employees need not be paid for any workweek in which they perform no work. An employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.” (29 C.F.R. § 541.602(a) (2012)

Therefore, because the plaintiff’s pay varied according to the amount of time he worked, and was not guaranteed a base amount, he did not meet the salary basis test and was found to be non-exempt.

4.     If misclassified, the employee is entitled to unpaid overtime.

For all non-exempt employees, overtime is owed at a rate of one and one-half times the employee’s regular rate of pay for all hours worked in excess of eight hours up to and including 12 hours in any workday, and for the first eight hours worked on the seventh consecutive day of work in a workweek.  Double the employee’s regular rate of pay is owed for all hours worked in excess of 12 hours in any workday and for all hours worked in excess of eight on the seventh consecutive day of work in a workweek.  California’s Department of Industrial Relations FAQ on California overtime provides a good overview of the overtime requirements under California law.  In addition to the unpaid overtime that is owed to misclassified employees, employers also fact substantial penalties that accrue as a result of the employee not being paid all wages when earned.

5.     Approach with caution.

California courts have made clear that the employer bears the burden of proof when asserting that an employee is an exempt employee.  “[T]he assertion of an exemption from the overtime laws is considered to be an affirmative defense, and therefore the employer bears the burden of proving the employee’s exemption.”  Ramirez v. Yosemite Water Co. (1999).

Photo:  Justin Lynham

1.     It does not matter if you are a start-up, mom and pop business, or a fortune 500 company, employment laws cannot be ignored. 

While different laws do apply to larger employers, for the most part, every employer has to comply with roughly the same laws in California.  California’s paid sick leave requirement that took effect in 2015 is a good example, there is no exception for small businesses.  If the employer has one employee, the employer must offer paid sick leave in accordance with the law.  Think you are too “small” to be a target?  The penalties add up very quickly for very technical violations, such as not providing all of the required information on an employee’s pay stub.  Plus, the Labor Commissioner just received more authority in pursuing judgments against employers starting in 2016, including the ability to hold business owners personally liable for unpaid Labor Commissioner judgments.

2.     Not every employee can be exempt. 

There are many different exemptions available that “exempt” employees from certain Labor Code requirements, such as overtime pay.  However, to qualify for a “white collar” exemption, employees must meet a two factor test: (1) salary basis test and (2) duties test.  To pass the salary basis test, exempt employees must be paid the equivalent of two times the state’s minimum wage for a 40 hour week.  As of July 1, 2014, the minimum wage in California increased from $8.00 to $9.00 per hour.  It is set to increase again to $10.00 per hour on January 1, 2016.  With the increase in the state minimum wage, there is a corresponding raise in the minimum salary required to qualify as exempt under the “white collar” exemptions.  Therefore, on July 1, 2014, in order to qualify for a white collar exemption, the employee must receive an annual salary of at least $37,440, and as of January 1, 2016, the threshold annual salary increases to at least $41,600.

Don’t forget, the analysis does not stop there, the employee must also pass the duties test.  Generally, this means that more than one-half of the employee’s work time must be spent engaged in exempt work.  This differs substantially from the federal test which simply requires that the “primary duty” of the employee falls within the exempt duties.

3.     Companies must be careful about vacation policies under CA law.

The Wall Street Journal reports that Zenefits, a HR software and insurance provider based in San Francisco, is dealing with potential unpaid vacation claim from its own employees.  Zenefits has raised $500 million at a $4.5 billion valuation, and has provided a new model to the insurance sales industry by providing free HR software to its users, in exchange for the opportunity to become the client’s insurance and benefits broker.  The company is offering former employees on average $5,000 to resolve a potential dispute regarding its vacation policy.  It appears from the reports that the company switched from a vacation policy that provided very specific vacation accrual rates to an unlimited vacation policy.  During the switch, however, it is reported that the company did not pay out the vacation that was accrued under the previous policy.  California law is very specific, and requires that companies pay all accrued but unused vacation upon separation from the company, and does not permit “use-it-or-lose-it” vacation policies.

4.     Employees must be paid for all wages, including all accrued but unused vacation at time of termination. 

My previous Friday’s Five article addresses the timing requirements for when wages and unused vacation must be paid to employees separating from a company.

5.     Start-up mentality of “ask for forgiveness” can cost a lot of money in California.

While an aggressive strategy may be good for creating a business, breaking into a new industry, or created a new product, the strategy is the opposite of how employers should operate in regards to complying with employment laws in California.  While it takes time, and a relatively small amount of money to come into compliance up front, this investment is much smaller than the hundreds of hours and huge costs spent defending litigation.

Photo: Shelly Prevost

This Friday’s Five discusses five issues California employers should remember about whether they may require credit checks from applicants or employees.  And if employers can obtain the information, what additional considerations they should take into account when using this information for employment decisions and privacy concerns.

1.      Credit checks are different than background checks.

Since January 1, 2012, Labor Code section 1024.5 restricts which positions employers can require credit checks.  It is important to note that credit reports or credit checks are different than background checks.  The law defines “consumer credit report” as “any written, oral, or other communication of any information by a consumer credit reporting agency bearing on a consumer’s credit worthiness, credit standing, or credit capacity, which is used or is expected to be used, or collected in whole or in part, for the purpose of serving as a factor in establishing the consumer’s eligibility for: … (2) employment purposes….” See Civil Code section 1785.3(c).  It is important for employers to understand the difference between obtaining a credit report versus a more general background check.

2.      California employers can only preform credit checks for a limited number of positions.

Employers are only permitted to obtain consumer credit reports for applicants/employees who meet one of the following categories:

  • A managerial position (defined as an employee who meets the executive exemption set forth in the Industrial Welfare Commission’s Wage Orders).
  • A position in the state Department of Justice.
  • That of a sworn peace officer or other law enforcement position.
  • A position for which the information contained in the report is required by law to be disclosed or obtained.
  • A position that involves regular access, for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, to all of the following types of information of any one person: (A) Bank or credit card account information. (B) Social security number. (C) Date of birth.
  • A position in which the person is, or would be, any of the following: (A) A named signatory on the bank or credit card account of the employer. (B) Authorized to transfer money on behalf of the employer. (C) Authorized to enter into financial contracts on behalf of the employer.
  • A position that involves access to confidential or proprietary information, including a formula, pattern, compilation, program, device, method, technique, process or trade secret that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who may obtain economic value from the disclosure or use of the information, and (ii) is the subject of an effort that is reasonable under the circumstances to maintain secrecy of the information.
  • A position that involves regular access to cash totaling ten thousand dollars ($10,000) or more of the employer, a customer, or client, during the workday.

 3.      If employers can conduct a credit check, employers must notify employees of certain information.

The law requires that the employer provide the following information to the applicant/employee prior to obtaining a consumer credit report:

 The notice shall inform the person that a report will be used, and shall identify the specific basis under subdivision (a) of Section 1024.5 of the Labor Code for use of the report. The notice shall also inform the person of the source of the report, and shall contain a box that the person may check off to receive a copy of the credit report. If the consumer indicates that he or she wishes to receive a copy of the report, the user shall request that a copy be provided to the person when the user requests its copy from the credit reporting agency. The report to the user and to the subject person shall be provided contemporaneously and at no charge to the subject person.

 4.      If the position is denied based upon the applicant’s/employee’s credit information, the employer must provide an additional notification.

The law requires that if an applicant/employee is denied employment “either wholly or partly” because of information obtained in a consumer credit report, the employer must provide the following information:

 Whenever employment involving a consumer is denied either wholly or partly because of information contained in a consumer credit report from a consumer credit reporting agency, the user of the consumer credit report shall so advise the consumer against whom the adverse action has been taken and supply the name and address or addresses of the consumer credit reporting agency making the report. No person shall be held liable for any violation of this section if he or she shows by a preponderance of the evidence that, at the time of the alleged violation, he or she maintained reasonable procedures to assure compliance with this section.

 5.      Employers must keep all financial information confidential. 

Disclosure of credit information obtained for an applicant or employee would be a violation of the individual’s right of privacy.  Therefore, employers must take steps to safeguard this information and ensure that only employees who have a need to know have access to the information, and that these employees understand that it is confidential information that cannot be shared even with other employees in the company that do not have a reason to know the information.

Speaking with some clients, I sense their overwhelming confusion in setting up employment policies in California. While it can be a daunting task, I remind them that the key is to approach it in a systematic process, and once the system is in place, compliance can be very easy. While there are many issues employers need to review on an ongoing basis, there are five that are a good starting point:

 1)  Meal and rest breaks

Yes, California employers are still being sued for meal and rest break violations. This should be a primary concern for all California employers, and simply part of standard operating procedures by now.

 2)  New hire process and packets

Employers should review their hiring process, including:

3)  Paid sick leave compliance

As of July 1, 2015, employers must allow employees to accrue paid sick leave under California law. I’ve written about the law, as well as the amendment to clarify the law signed by Governor Brown on July 13, 2015.

The DIR provides a great resources page every employer should review.

 4)  Exempt vs. non-exempt employee classifications

5)  Uncompensated work-time

Employers need to be careful and have policies in place to address claims from employees that they were not paid for all time worked. These claims can take many different forms:

  • Travel time may have to be paid
  • Off-the-clock work
  • On-call time
  • Pre-shift or post-shift work. In 2014, Amazon workers sued their staffing company claiming that the post-shift security check employees had to undergo should have been compensated work-time. The U.S. Supreme Court ruled in the staffing company’s favor, but nevertheless, it was a costly case for the company and required protracted litigation.

 

In July 2015, the Department of Labor proposed regulations that would increase the salary amount employers would need to pay for employees to qualify as exempt.  If adopted, the proposal would require that employees would have to earn at least $50,440 per year in order to qualify for most exemptions in 2016.  This episode discusses how the proposal may effect California employers.