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

In Cornell v. Berkeley Tennis Club, Plaintiff Ketryn Cornell alleged that her obesity should qualify as a disability under California law. Ketryn Cornell began working part-time for the Berkeley Tennis Club as a lifeguard and pool manager in 1997, while attending college at UC Berkeley. She was employed as a night manager and continued to work at the Club after graduating from college in 2001.  In 2011, she took on additional duties and began working as a night manager, day manager, and tennis court washer. She received positive reviews, merit bonuses, and raises throughout this period.

The Club employed a new general manager in 2012.  The new manager implemented a uniform policy.  While mandating the staff to wear uniform shirts, the largest sized ordered by the club did not fit Cornell.  Cornell was obese, at five feet, five inches tall, she weighed over 350 pounds.  Cornell explained to the general manager that she needed a bigger size, and he reported that he would work on providing an appropriate uniform.  However, it is unclear if he attempted to find shirts Cornell could fit.  Taking upon herself, Cornell ordered shirts from a specialty shop at her own expense and had them embroidered with the Club logo.

Cornell filed a lawsuit in May 2014, asserting causes of action for various Labor Code violations and the eight causes of action that were at issue on the appeal, which included disability discrimination/failure to accommodate under the Fair Employment and Housing Act (FEHA), wrongful discharge in violation of public policy based on the disability discrimination, disability harassment under the FEHA, and retaliation under the FEHA.  Here are five takeaways for California employers arising from this disability discrimination decision:

1. Obesity can qualify as a physical disability under the Fair Employment and Housing Act.

Under FEHA, it is unlawful to discriminate against an employee on the basis of “physical disability.” (Gov. Code, § 12940, subd. (a).)  In addition to making it illegal to discriminate on the basis of disability, the FEHA makes it unlawful “to fail to make reasonable accommodation for the known physical . . . disability of an . . . employee.” (§ 12940, subd. (m)(1).)  Finally, the FEHA prohibits an employer from harassing an employee “because of . . . physical disability.” (§ 12940, subd. (j)(1).)

The Club moved for summary adjudication of the discrimination/failure to accommodate claim and the harassment claim on the basis that Cornell’s obesity is not a physical disability under FEHA. The Club also argued that even if Cornell has a condition protected by the FEHA, she did not require an accommodation and was not terminated for a discriminatory reason, and the Club’s actions were not severe or pervasive enough to constitute harassment.

Cornell argued that her obesity qualified as an actual physical disability because it is a “physiological disease, disorder, condition, cosmetic disfigurement, or anatomical loss that does both of the following: [¶] (A) Affects one or more of the following body systems: neurological, immunological, musculoskeletal, special sense organs, respiratory, including speech organs, cardiovascular, reproductive, digestive, genitourinary, hemic and lymphatic, skin, and endocrine. [¶] (B) Limits a major life activity.” (Government Code § 12926, subd. (m)(1).)

In Cassista v. Community Foods, Inc. (1993) 5 Cal.4th 1050 (Cassista), the California Supreme Court held “that weight may qualify as a protected `handicap’ or `disability’ within the meaning of the FEHA if medical evidence demonstrates that it results from a physiological condition affecting one or more of the basic bodily systems and limits a major life activity.” (Id. at p. 1052.) Interpreting the same statutory language as currently found in section 12926, subdivision (m)(1)(A), and relying on federal antidiscrimination law for guidance, the Court concluded that “an individual who asserts a violation of the FEHA on the basis of his or her weight must adduce evidence of a physiological, systemic basis for the condition.” (Cassista, at pp. 1063-1065.)

The court set forth the definition of “physiological”:

Rather, the pertinent question is whether a genetic cause qualifies as a “physiological cause.” “Physiological” means “relating to the functioning of living organisms.” (Oxford English Dict. Online (3d ed. Mar. 2006) [as of Dec. 21, 2017 [physiological].) This term encompasses genetics, and the Club does not argue otherwise. We therefore reject the implication that Cornell cannot establish her claim by proving that her obesity has a genetic cause.

The Court found that Cornell’s testimony that other doctors had determined her obesity was caused by genetics, and the fact that those doctors were not deposed, was enough evidence for Cornell to overcome the employer’s motion for summary judgment and proceed to trial on this claim.

2. Even if others were involved in decision to terminate, plaintiff can still maintain a discrimination cause of action if person alleged to have discriminated against plaintiff was involved in the termination decision.

The employer in this case argued that the general manager who was alleged to have discriminated against Cornell was not the only person involved in the decision to terminate her, but that other supervisors were involved, and therefore the decision could not have been discriminatory.  The court rejected this argument in holding:

“[S]howing that a significant participant in an employment decision exhibited discriminatory animus is enough to raise an inference that the employment decision itself was discriminatory, even absent evidence that others in the process harbored such animus.” (DeJung v. Superior Court (2008) 169 Cal.App.4th 533, 551.) There is evidence that [General Manager] Headley made several comments suggesting he held a discriminatory animus toward Cornell. Although the extent to which he participated with Gurganus and Miller in the decision to fire Cornell is unclear, there is plenty of evidence that he participated in some way….

3. While sporadic comments are not enough to create a hostile work environment, courts may look to the context of all of the actions taken against the employee in determining if a hostile work environment existed.

The Club argued that even if Cornell is otherwise entitled to protection under the FEHA, summary adjudication of her disability harassment claim was proper because she was not subject to sufficiently severe or pervasive harassment. The appellate court disagreed:

Here, Cornell was able to present enough evidence to at least continue to trial with her harassment cause of action because of the statements made by the General Manager in regards to obtaining a uniform shirt that fit Cornell, the General Manager’s comments about Cornell having weight-loss surgery, and his comments to kitchen staff not to give Cornell extra food because “she doesn’t need it.”  The Court recognized that these types of comments on four occasions do not create a hostile work environment, “Four comments over several months does not establish a pattern of routine harassment creating a hostile work environment, particularly given that the comments were not extreme.”  (“Actionable harassment consists of more than “annoying or `merely offensive’ comments in the workplace,” and it cannot be “occasional, isolated, sporadic, or trivial; rather, the employee must show a concerted pattern of harassment of a repeated, routine, or a generalized nature.” (Lyle v. Warner Brothers Television Productions (2006) 38 Cal.4th 264, 283.)”)

However, the Court found that the employer’s conduct must be viewed in context of the General Manager’s other actions, “including his ordering of shirts that were significantly too small for her and reporting to the Personnel Committee that she was resisting the uniform policy by not wearing appropriate shirts, as well paying her less than another employee and denying her extra hours and internal job openings.”  This evidence was enough to prevent the employer from dismissing Cornell’s harassment claims prior to trial.

4. Requests for reasonable accommodations are protected activities under the law.

In 2015 the Legislature amended section 12940 to add subdivision (m)(2), which made it unlawful for an employer to “retaliate or otherwise discriminate against a person for requesting accommodation under this subdivision, regardless of whether the request was granted.” (Stats. 2015, ch. 122, § 2.)

5. Primary takeaway for employers: treat all employees with respect.

While certain conduct that is rude, unfair, and unethical may not raise to the level of being unlawful discrimination, harassment, or retaliation under the law, this type of conduct will inevitably lead to higher litigation costs and employee turnover.  I’ve written about how most companies cannot afford to have managers like Steve Jobs, and this case is another example.  While the employer had arguments that the manager’s actions in this case were not illegal under the law, even if the employer prevails at trial in this case, the costs associated with the litigation are substantial.  Unprofessional comments by co-workers, managers and supervisors in the workplace should be stopped by employers, as they may not be illegal, it could create litigation from employees who felt that they were not treated fairly.

The start of 2024 is the perfect time for companies to conduct a California employment law audit to ensure policies are compliant, managers are properly trained, and the company is maintaining the required records for the necessary length of time.  Here are five topics to review in conducting an audit and a few suggested questions for each topic (feel free to reach out to us as well for a self-audit, we conduct periodic audits for our clients as a preventative measure):

1. Hiring Practices

 2. Records

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

3. Wage and Hour Issues

  • Does the company have its workweeks and paydays established?
  • Are paydays within the applicable time limits after the pay period as required under the law?
  • Are employees provided with compliant itemized wage statements?
  • Are employees provided with a writing setting out their accrued paid sick leave each pay period? Has the amount of accrued paid sick leave reported to employees been updated to comply with California’s increased requirements in 2024?
  • Are employees properly classified as exempt or nonexempt?
  • Are any workers classified as independent contractors, and if so, could they be considered employees under AB 5?
  • Are nonexempt employees properly compensated for all overtime worked?
  • Is off-the-clock work prohibited?
    • Policy in place?
    • Are managers trained how to recognize off-the-clock work and what disciplinary actions to take if finding employees working off-the-clock?
  • Does the company’s time keeping system round employee’s time?
    • If so, is the rounding policy compliant with the law? Employers should note that meal breaks cannot be rounded pursuant to Donohue v. AMN Services, and whether California employers may use time rounding at all is currently being reviewed by the California Supreme Court. Employers are cautioned about using time rounding given these cases.
  • Are meal and rest period policies set out in handbook and employees routinely reminded of policies?
    • Does the company pay “premium pay” for missed meal and rest breaks? If so, how is this documented on the employee pay stub? Does the company have a clear definition of what is considered a missed break and document why the employee missed the break?
    • Do employees record meal breaks?
    • Are managers trained on how to administer breaks and what actions to take if employees miss meal or rest breaks?
    • Are employees provided attestations to document the reason if the employee missed, took a short, or a late meal break? (See Donohue v. AMN Services)
  • If employer provides vacation, is the policy properly documented, tracked, and is unused vacation paid out with the employee’s final paycheck?
  • Are all deductions from the employee’s paycheck legally permitted?
  • Are employees reimbursed for all business expenses, such as uniforms, work equipment, mileage for work, and for expenses incurred for working from home (such as internet, cell phones, etc.)?

 4. End of Employment Issues

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

5. Anti-harassment, discrimination and retaliation

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

The recent surge in Private Attorneys General Act (PAGA) lawsuits and the amounts of damages sought in these cases in California has become a significant cause for concern among the business community. This legislation, initially designed to empower employees to file lawsuits for labor code violations on behalf of themselves and other workers, has seen a dramatic increase in its application. This uptick has not only heightened the legal and financial pressures on companies across various industries but also raised questions about the broader implications for the state’s business environment. The California Supreme Court recently heard oral arguments in Estrada v. Royalty Carpet Mills, Inc., regarding whether a trial court has discretion to limit PAGA cases that are unmanageable.  This article reviews the split in California Appellate courts on this issue, and how the case could impact the potential future of PAGA litigation in California.

1. Background of PAGA

PAGA was enacted in 2004 to authorize aggrieved employees to file lawsuits against employers on behalf of themselves, other employees, and on behalf of the State of California for Labor Code violations.  PAGA allows aggrieved employees to act as a “Private Attorneys General” to seek remedies against their employer not only for the violations committed against them, but also to recover any violations committed by their employer against other employees.  The statute was intended “to punish and deter employer practices that violate the rights of numerous employees under the Labor Code.” Iskanian v. CLS Transportation Los Angeles, LLC (2014).   The plaintiff’s ability to bring claims on behalf of other employees is referred to as “non-individual claims.” PAGA is “simply a procedural statute allowing an aggrieved employee to recover civil penalties … that otherwise would be sought by state labor law enforcement agencies.” Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009).

2. Supreme Court issue being reviewed in Estrada v. Royalty Carpet Mills, Inc.

Do trial courts have inherent authority to ensure that claims under the Private Attorneys General Act (Lab. Code, § 2698 et seq.) will be manageable at trial, and to strike or narrow such claims if they cannot be managed?

The parties had oral argument before the California Supreme Court on November 8, 2023.  Therefore, a decision should be expected at any time.  This decision will resolve a split in authority between two cases: Wesson v. Staples of the Offices Superstore, LLC and Estrada v. Royalty Carpet Mills, Inc.

3. Wesson v. Staples of the Offices Superstore, LLC – Holding that trial courts have authority to deem PAGA cases are unmanageable.

In Wesson v. Staples of the Offices Superstore, LLC (September 2021) the Second Appellate District, Division Four, of the Court of Appeal of California held, “We conclude that courts have inherent authority to ensure that a PAGA claim will be manageable at trial—including the power to strike the claim, if necessary—and that this authority is not inconsistent with PAGA’s procedures and objectives, or with applicable precedent.”  In so holding, the Wesson court found  that the trial court did not abuse its discretion in striking Wesson’s PAGA claim as unmanageable.

The Wesson court explained that, “California courts have exercised their inherent powers to preclude representative claims where a trial of those claims would be unmanageable. In the class action context, the courts have required class action proponents to demonstrate that ‘litigation of individual issues, including those arising from affirmative defenses, can be managed fairly and efficiently.’”

In Wesson, the plaintiff brought a PAGA claim for over 346 Staples General Managers for over $36 million in civil penalties.  Wesson’s claims were based on the theory that the GMs were misclassified as exempt employees, and should have been paid overtime, and provided meal and rest breaks.  The Appellate court noted that the record “raised significant manageability concerns.”  Staples presented evidence that the GM position was not standardized, and there were critical variations on how GMs performed their jobs and the extent to which they performed nonexempt tasks.  Staples produced evidence that showed the duties for each of the GMs varied based on each store’s “size, sales volume, staffing levels, labor budgets, and other variables.” Staples also presented evidence that showed GMs’ management duties varied based on each of their “experience, aptitude, and managerial approaches, among other factors.”  Based on this, Staples argued that Wesson’s PAGA allegations “would require individualized assessments of each GM’s classification and would lead to ‘an unmanageable mess’ that ‘would waste the time and resources of the Court and the parties … .’”

Therefore, the Wesson court held, “We do not believe a court is powerless to address the challenges presented by large and complex PAGA actions and is bound to hold dozens, hundreds, or thousands of minitrials involving diverse questions, depending on the breadth of the plaintiff’s claims.” 

4. Estrada v. Royalty Carpet Mills, Inc. – Holding that trial courts do not have authority to deem PAGA cases unmanageable. 

In March 2022, the Fourth Appellate District, Division Three of the California Court of Appeal issued a decision in Estrada v. Royalty Capet Mills, Inc. disagreeing with the holding in Wesson.  The court in Estrada stated, “After reviewing both perspectives, we respectfully disagree with Wesson and agree with the reasoning of the district courts that have refused to dismiss PAGA claims based on manageability.” The court in Estrada held that manageability is a requirement that plaintiffs must prove in a class action, but that “‘a representative action under PAGA is not a class action.’” The court explained that a class action is “a procedural device for aggregating claims ‘when the parties are numerous, and it is impracticable to bring them all before the court.’” However, PAGA claims “are administrative law enforcement actions that ‘are different from conventional civil suits. The Legislature’s sole purpose in enacting PAGA was ‘to augment the limited enforcement capability of the [Labor Workforce Development Agency (LWDA)] by empowering employees to enforce the Labor Code as representatives of the Agency.’” 

Due to the differences between class actions and PAGA representative actions, the California Supreme Court has held that PAGA plaintiffs need not meet class action certification requirements when pursuing PAGA penalties in Arias v. Superior Court, and Kim v. Reins International California, Inc. 

The court in Estrada held, “Accordingly, requiring that PAGA claims be manageable would graft a crucial element of class certification onto PAGA claims, undercutting our Supreme Court’s prior holdings.”

However, the Estrada court conceded that there are issues that trial courts must manage in PAGA cases, as “[s]ome PAGA claims involve hundreds or thousands of alleged aggrieved employees, each with unique factual circumstances. We do not intend our ruling to mean that in such scenarios, a court must allow for each of these alleged aggrieved employees to be examined at trial. Such a scenario would be unduly expensive, impractical, and place far too great a burden on our already busy trial courts. Rather, courts may, where appropriate and within reason, limit witness testimony and other forms of evidence when determining the number of violations that occurred and the amount of penalties to assess.”  Ultimately the Estrada court did not set forth a standard for trial courts to manage PAGA claims, just that, “[w]e encourage counsel to work with the trial courts during trial planning to define a workable group or groups of aggrieved employees for which violations can more easily be shown….If a plaintiff alleges widespread violations of the Labor Code by an employer in a PAGA action but cannot prove them in an efficient manner, it does not seem unreasonable for the punishment assessed to be minimal.”

5. 2024 Balot Initiative to reform PAGA

Anytime now, the California Supreme Court will issue a decision in the Estrada case, which may empower trial courts to more effectively manage Private Attorneys General Act (PAGA) claims. This could include the authority to restrict the use of this procedural device in cases where it is deemed inappropriate. On another front, PAGA faces a challenge directly from the voters of California. The California Fair Pay and Employer Accountability Act aims to replace PAGA. This initiative has garnered enough signatures to secure a spot on the November 2024 ballot. If approved, it would allow employees to receive 100% of the penalties collected, a significant increase from the current 25% allocation. Additionally, it proposes to prohibit the awarding of attorneys’ fees in such cases and to double the penalties for employers who knowingly violate the law. More details about the initiative are available on the Californians for Fair Pay and Accountability website.

Here are five considerations that should be on the top of every employer’s mind in California during the hiring process in 2024:

1. Does the manager posting job ads understand which pay transparency disclosures are required?

Since January 1, 2023, employers with 15 or more employees are required to include the pay scale for the position in any job posting.  SB 1162 amends Labor Code section 432.3 to add this obligation, among other items.  As a reminder, Labor Code section 432.3, effective since January 1, 2018, prohibits California employers from asking applicants about prior salary history.  Section 432.3 already required employers to provide applicants a pay scale “upon reasonable request.”  It defines “pay scale” as “the salary or hourly wage range that the employer reasonably expects to pay for the position.”

2. Will the applicant commit the “unforgivable sin” and how can an employer find this out?

Gary Vaynerchuk explains that being able to put in long hours is not a skill that he looks for in every employee.  The “unforgivable sin” for Vaynerchuk is if employees cannot get along with co-workers, are disrespectful, selfish, or create conflict.  How can an employer find out if an applicant is not a team player?  Seeing how the applicant treats the receptionist upon arriving for the interview and how they treat the waiter at the lunch meeting can be key indicators. Also, asking around with colleagues and your network about people can surprisingly lead to great information about applicants.  For example, it amazes me how many attorneys know of other attorneys in Los Angeles and how important one’s reputation is even in a large legal community like Los Angeles.

3. While legal, I’m not a fan of following up with references provided by applicant.

Is it a good practice to follow-up with the applicant’s references provided? While many employers swear by this practice, I’m not a fan. I just don’t see how an applicant would be so naive to provide a reference that would not be positive for them. Alternatively a Google search of the applicant can provide some great unfiltered information.  I can hear attorneys and HR professionals groaning already about potential legal issues with conducting a basic Internet search of an applicant’s background.  Generally speaking, employers are free to Google an applicant.

4. Does the employer understand obligations when conducting non-criminal background checks?

When conducting a formal background check (i.e., not a Google search, but paying for a background check) on applicants and employees, employers need to take time to review the applicable state and federal laws that apply to background checks.  LinkedIn was sued previously for violation of the federal Fair Credit Reporting Act (FCRA) for certain background reports it generated for users of the site.  In addition, under California law, the Investigative Consumer Reporting Agencies Act and the Consumer Credit Reporting Agencies Act could apply to background checks in the employment context.  These laws are very complex, and employers should enter this area with the knowledge of their obligations before conducting background checks.

5. Does the employer understand state and local criminal history background check prohibitions?

Since January 1, 2018 California employers cannot ask an applicant for employment to disclose information about criminal convictions.  The law (added as Section 12952 to the Government Code) applies to employers with 5 or more employees.  Once an offer of employment has been made, employers can conduct criminal history background checks, but only when the conviction history has a “direct and adverse relationship with the specific duties of the job,” and requires certain disclosures to the applicant if employment is denied based on the background check.  In addition, local governments, such as Los Angeles and San Francisco have implemented their own prohibitions on criminal history checks, and employers must also comply with these local requirements.  Don’t forget about California’s prohibition on inquiring about applicant’s prior salary history and inquires about the applicant’s prior use of marijuana as well.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here are five key categories of documents for new hires:

1. Offer Letter

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

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

2. I-9, Employment Eligibility Verification

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

3. Federal and State Tax Withholding Forms

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

4. Required Pamphlets

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

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

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

Note that many of the state forms listed above must be given to the employee in their primary language.  Employers need to also check their local cities and counties to ensure that they are providing any other required documents, and certain industries have specific required disclosures as well. 

5. Other Important Documents

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

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

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

1. Hiring Practices

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

 2. Records

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

3. Wage and Hour Issues

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

 4.End of Employment Issues

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

5. Anti-harassment, discrimination and retaliation

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

On April 21, 2022 the Board for Cal/OSHA approved a third readoption of the Emergency Temporary Standards (ETS) that governs employer’s duties to prevent the spread of COVID-19.  The ETS applies to most employers in California not covered by Cal/OSHA’s Aerosol Transmissible Diseases standard. The new version of the ETS will replace the current version, which expires today (May 6, 2022), and the new requirements are expected to remain in effect until December 31, 2022.

The new ETS relaxes and eliminates some of the existing COVID-19 requirements, incorporates the current masking, quarantine, and workplace exclusion requirements by the California Department of Public Health (“CDPH”), and adds some new definitions and overall provides more flexibility in dealing with the changing landscape of COVID-19. Cal/OSHA is expected to provide guidance on this new ETS in the form updated FAQs. Below are a few noteworthy changes in the revised ETS affecting almost all California employers.

  • CDPH guidance now governs exclusion and return-to-work criteria for close contacts.
  • Fully vaccinated definition is eliminated entirely. Requirements previously limited to unvaccinated employees now apply to all employees. By way of example, the new ETS requires employers to provide respirators to all employees upon request, while the prior version only required respirators be provided to unvaccinated employees upon request. Likewise, the prior ETS only required employers to make testing available to unvaccinated symptomatic employees, while the new ETS requires employers to offer testing to all symptomatic employees regardless of vaccination status. Be mindful that the distinction between vaccinated and unvaccinated may still apply to local public health rules that are more restrictive than the new ETS.  Plan for potential increased testing costs.
  • New Returned Cases definition added: The new ETS creates a limited exemption for testing for COVID-19 cases in the 90 days after the initial symptom onset, or first positive test, if asymptomatic.
  • Return-to-work testing may be self-administered and self-read. The result must include additional independent verification, such as a time-stamped photograph.
  • Face Coverings. The “light test” for cloth face masks (“not let light pass through when held up to a light source”) has been eliminated. In the few remaining situations were face masking is required, the protocols are to be consistent with current CDPH’s requirements.
  • Physical distancing (except during major outbreaks) and physical partitions requirements have been eliminated.
  • Cleaning and disinfecting protocols have been eliminated.

California employers should familiarize themselves with the new ETS requirements and update their written policies to ensure compliance with the new requirements. Given the incorporation of the CDPH guidance, employers should regularly monitor CDPH’s guidance, and watch for  Cal/OSHA’s updated FAQs. Employer also need to stay abreast of local public health regulations that may be more stringent than the ETS and CDPH. Lastly, while many of the ETS requirements have been eliminated or modified, many requirements, including exclusion pay requirements, remain in place through the end of the year.

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

1. Hiring Practices

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

 2. Records

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

3. Wage and Hour Issues

  • Does the company have its workweeks and paydays established?
  • Are paydays within the applicable time limits after the pay period as required under the law?
  • Are employees provided with compliant itemized wage statements?
  • Are employees provided a writing setting out their accrued paid sick leave each pay period?
  • Are employees properly classified as exempt or nonexempt?
    • For exempt employees, review their duties and salary to ensure they meet the legal requirements to be an exempt employee.
  • Any workers classified as independent contractors, and if so, could they be considered employees under AB 5?
  • Are nonexempt employees properly compensated for all overtime worked?
  • Is off-the-clock work prohibited?
    • Policy in place?
    • Are managers trained about how to recognize off-the-clock work and what disciplinary actions to take if find employees working off-the-clock?
  • Does the company’s time keeping system round employee’s time?
    • If so, is the rounding policy compliant with the law? (note that meal breaks cannot be rounded pursuant to Donohue v. AMN Services)
  • Are meal and rest period policies set out in handbook and employees routinely reminded of policies?
    • Does the company pay “premium pay” for missed meal and rest breaks? If so, how is this documented on the employee pay stub?
    • Do employees record meal breaks?
    • Are managers trained on how to administer breaks and what actions to take if employees miss meal or rest breaks?
    • Are employees provided attestations to document the reason if the employee missed, took a short, or a late meal break? (See Donohue v. AMN Services)
  • Is vacation properly documented, tracked, and is unused vacation paid out with the employee’s final paycheck?
  • Are all deductions from the employee’s pay check legally permitted?
  • Are employees reimbursed for all business expenses, such as uniforms, work equipment, mileage for work, and for expenses incurred for working from home during COVID-19 (such as internet, cell phones, etc.)?

 4.End of Employment Issues

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

5. Anti-harassment, discrimination and retaliation

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