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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.

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

As we move deeper into 2025, it’s the perfect time for California employers to return to the fundamentals. With ever-evolving employment laws and aggressive enforcement—especially around wage and hour issues—getting the basics right can mean the difference between smooth operations and costly litigation.

As a preview to our upcoming webinar, “Wage and Hour Back to Basics for California Employers?”—a practical, no-nonsense session covering the most critical issues employers face in 2025, this article is focusing on five common wage an hour issues California employers should routinely audit. Please join us for a deeper dive into these and other key wage and hour issues for California employers, plus all attendees receive a 2025 PAGA Compliance Certificate.  Register for the webinar here. 

Whether you’re scaling a team or managing a legacy workforce, use this as a checklist to stay compliant and protect your business.

1. Payroll Compliance: The Foundation

Payroll isn’t just about issuing paychecks on time. Employers must ensure their systems and practices comply with California’s detailed legal requirements:

  • Established Workweeks and Paydays: Are your workweeks clearly defined and paydays consistently scheduled within required timelines?
  • Wage Statements: Do your itemized wage statements meet all statutory requirements? Common issues include missing hours worked, incorrect rates, or omitting the employer’s name and address.
  • Sick Leave Accruals: Each pay period must include an update on accrued and used paid sick leave as required under California law and may local city and county jurisdictions throughout California. 
  • Vacation Tracking: Ensure vacation policies are documented, accurately tracked, and accrued benefits are reflected properly.

2. Wages and Deductions: Avoiding Costly Errors

Missteps in deductions or reimbursements can lead to major penalties.

  • Permitted Deductions: Only a narrow list of deductions is allowed under California law. Err on the side of caution and consult counsel before withholding anything beyond taxes and benefits.
  • Expense Reimbursement: Are employees reimbursed for work-related expenses such as uniforms, personal cell phone use, mileage, and tools?
  • Final Paychecks: For terminations, final pay must include all wages and accrued vacation, and must be provided according to the requirements under California law.

3. Employee Classification: Exempt vs. Nonexempt (and Contractors)

Improper classification continues to be a top litigation trigger.

  • Exempt Status Review: Ensure duties and salaries meet California’s specific tests for exempt employees. Titles alone don’t determine exemption.
  • Independent Contractors: Use caution post-AB 5. Apply the ABC test to confirm true independent contractor status.

4. Timekeeping: Precision Prevents Problems

Timekeeping issues are among the most frequently litigated wage and hour claims.

  • Overtime Tracking: Ensure nonexempt employees are paid correctly for all overtime, and that policies prohibit unauthorized off-the-clock work.
  • Training Managers: Managers should know how to identify and prevent off-the-clock work—and understand the consequences of ignoring violations.
  • Time Rounding: If rounding is used, the policy must be neutral and not result in underpayment over time.  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.

5. Meal and Rest Breaks: Small Breaks, Big Liability

Meal and rest break violations are usually a key claim for PAGA and class action lawsuits.

  • Handbook and Reminders: Policies must be clearly documented and regularly communicated to employees.
  • Timely Breaks and Premium Pay: Breaks must be timely, and any missed meal or rest periods must be compensated with premium pay (and properly noted on wage statements).
  • Recordkeeping and Training: Are employees recording their meal breaks? Are managers trained to monitor compliance and escalate issues?

Final Thought: Routine Audits Are a Must

Employment laws don’t stand still—and neither should your compliance practices. Schedule a semiannual audit or partner with employment counsel to review these core areas. A proactive approach in 2025 will reduce risk, improve operations, and reinforce your commitment to treating employees fairly.

The beginning of 2025 presents an ideal opportunity for companies to perform a California employment law audit. This proactive step ensures your policies align with current regulations, your managers receive proper training, your company retains required records for the appropriate duration, and will greatly reduce potential PAGA penalties under the 2024 PAGA reform. To help guide your audit, we’ve outlined five key areas to review, along with suggested questions for each topic. If you need assistance, don’t hesitate to reach out—our team regularly conducts audits for clients as a preventive 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. Ensuring PAGA Compliance Through Reasonable Efforts and Addressing Wage and Hour Practices

  • PAGA audit to show reasonable efforts to comply with the Labor Code at cap penalties:
  • Conduct periodic payroll audits
  • Establish compliant policies and handbook policies
  • Train supervisors on Labor Code compliance
  • Take appropriate corrective action with supervisors who violate company policy
  • Read more about the reasonable steps employers should be taking to cap PAGA penalties in our prior article here: https://www.californiaemploymentlawreport.com/2024/07/key-action-items-for-california-employers-under-the-new-paga-reform-law/
  • 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?
    • (See additional PAGA audit items above)
    • 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?

As 2024 comes to a close, California employers are reminded of their obligations under SB 476, which took effect on January 1, 2024. This law requires employers to shoulder the costs of obtaining food handler cards and compensate employees for their time spent on training and testing. Now, nearly a year into its implementation, it’s crucial for employers to ensure ongoing compliance with these requirements.

Here are five key aspects of SB 476 that California employers should keep in mind:

1. Employers Must Pay for Food Handler Card Costs and Training Time

Under SB 476, employers must:

  • Cover the cost of the training course and examination required to obtain a food handler card.
  • Compensate employees for the time spent in training and testing.
  • Ensure employees are relieved of other work duties while participating in these activities.

This obligation has been in effect for nearly a year, and employers should review their payroll and reimbursement processes to ensure compliance.

2. Employment Cannot Be Conditioned on Possessing a Food Handler Card

SB 476 prohibits employers from requiring job applicants or employees to already have a food handler card as a condition of employment. Employers must avoid:

  • Making possession of a food handler card a prerequisite in job postings.
  • Refusing to hire or retain employees solely because they have not yet obtained the card.

Employers should ensure that hiring practices, job descriptions, and onboarding materials reflect this requirement. Train managers involved in hiring to avoid inadvertent violations.

3. Timing Requirements for Food Handler Cards Are Unchanged

While SB 476 introduced new employer obligations, it did not alter the timeline for employees to obtain and maintain food handler cards:

  • Employees must acquire a food handler card within 30 days of hire.
  • Cards remain valid for three years from issuance and transfer with the employee to new employers during this period.

Employers should monitor compliance to ensure employees meet these deadlines, avoiding potential penalties.

4. Training and Examination Standards Remain Consistent

The law maintains existing standards for food handler training and testing, which include:

  • Specific course content as outlined in Section 113947.2.
  • A minimum of 40 questions on the exam, requiring a passing score of 70% or higher.
  • Training options via in-person or online courses with security measures to prevent fraud.

Employers should verify that the courses they sponsor meet these requirements to ensure compliance.

5. Recordkeeping Obligations Are Unchanged

SB 476 did not modify employers’ documentation requirements. Employers must maintain records proving that each food handler employed has a valid card and provide these records to local enforcement officers upon request.

Exemptions from Food Handler Card Requirements

It’s also important to remember the exemptions to the food handler card requirement, which include employees at:

  • Public and private school cafeterias.
  • Certified farmer’s markets and grocery stores.
  • Healthcare facilities and elderly nutrition programs.
  • Facilities with collective bargaining agreements or in-house food safety training programs that meet specific criteria.

Review the full list of exemptions to determine whether your employees are covered by this requirement.

Steps Employers Should Take to Ensure Compliance

With nearly a year of SB 476 in effect, employers should take the following steps to stay compliant:

  1. Audit reimbursement and payroll practices to confirm training costs and wages for training time are covered.
  2. Update hiring materials and train managers to avoid conditioning employment on food handler card possession.
  3. Monitor employee compliance with the timeline for obtaining and maintaining valid cards.
  4. Confirm that training providers meet regulatory standards.
  5. Maintain accurate records to provide to enforcement officers if requested.

By reviewing policies and procedures now, employers can ensure they remain compliant and avoid potential penalties.

Effective September 3, 2024, a new ordinance in Los Angeles County offers additional protections for individuals with criminal records seeking employment. The Fair Chance Ordinance builds upon California’s Fair Chance Act (AB 1008), codified in Government Code section 12952, which prohibits employers from asking about criminal records before extending a job offer. The new ordinance applies to businesses operating in unincorporated areas of LA County that employ five or more employees regardless of location.  The ordinance applies to employees, or applicants to a position that will involve, performing at least two hours of work on average each week within the unincorporated areas of Los Angeles County. Below are five key takeaways for employers:

1. Prohibition on Criminal Background Inquiries Pre-Offer

Employers cannot inquire about criminal history before extending a conditional job offer. Any mention of criminal background checks in job advertisements, interviews, or application forms is prohibited. For example, the Ordinance requires employers to include language in all job advertisements “stating that qualified Applicants with arrest or Conviction records will be considered for Employment in accordance with the Los Angeles County Fair Chance Ordinance for Employers and the California Fair Chance Act.”  Employers are prohibited from using language that excludes or discourages applicants with criminal histories from applying and using phrases like “No Felons” or “No Convictions” (though they can mention that a background check is required). If laws restrict hiring based on certain criminal histories, those specific restrictions must be clearly stated. Additionally, if a criminal history review is part of the hiring process after a conditional offer, job ads must list all “material job duties of the specific job position which the employer reasonably believes that Criminal History may have a direct, adverse and negative relationship….”  If employers do plan to perform background checks after a conditional offer, they must notify applicants in writing, including a justification for the review.

2. Conditional Offers Required Prior To Background Check

Employers must provide written notice to the applicant or employee stating that the offer is contingent on a criminal history review before conducting a background check. The employer must also provide a written justification for the review, which cannot rely solely on general safety concerns. Justifications may include risks to the business or safety concerns for staff and the public. Additionally, if other background information (e.g., education, social media history, employment history, motor vehicle or driving history, reference checks, credit history, license or credential verification, drug testing, or medical examinations) is being reviewed, it must be listed. Employers cannot request criminal history details from the applicant before receiving the official background check report, and a copy of the report must be provided to the applicant before discussing any findings.

3. Individualized Assessments Required

Before withdrawing a job offer or taking any adverse action based on an applicant’s criminal history, employers must conduct an “individualized assessment.” This involves reviewing whether the applicant’s criminal record directly impacts their ability to perform the job and considering mitigating factors, such as rehabilitation efforts, time passed since the offense, and the nature of the job.

4. Notice and Opportunity to Respond

If an employer intends to deny employment based on criminal history, they must first send a “Preliminary Notice of Adverse Action.” The applicant then has five business days to respond, either challenging the accuracy of the background check or providing evidence of rehabilitation. If additional time is needed, applicants may request an extension of up to 10 business days.

5. Record Retention and Posting Requirements

Employers are required to retain records relating to the hiring process, including job postings, applications, assessments, and notices for a minimum of four years.

Additionally, employers must post a required notice about the ordinance at workplaces and on their websites, informing employees and applicants of their rights.  The notice can be downloaded here: https://dcba.lacounty.gov/wp-content/uploads/2024/08/FCOE-Official-Notice-Eng-Final-8.30.2024.pdf

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.