I’ve been working with several clients recently in reviewing various timekeeping and payroll systems and am amazed about the limited capability for some of the software being offered to employers.  With employees’ access to computers, point of sale systems, tablets and other technology, timekeeping should be a seamless function within a company in 2021, but surprisingly software companies often over promise on what they can deliver.  Below are five key functions that timekeeping software need to provide to California employers in 2021:

1. Timekeeping software must maintain records in an “indelible” form.

California Wage Orders require that employers maintain the employees time records “in the English language and in ink or other indelible form.”  “Indelible” means that the time entries cannot be erased, removed, or changed.

The Division of Labor Standards Enforcement (“DLSE”) issued an Opinion Letter on July 20, 1995 stating that “storage of records by electronic means meets the requirements of California law if the records are (1) retrievable in the State of California, and (2) may be printed in an indelible format upon request of either the employee or the Division.”

However, the DLSE issued another Opinion Letter on November 10, 1998 advising employers that the electronic time record data could be maintained outside of the State of California “as long as a hard copy of the records was maintained at a central location within California.”  As these two Opinion Letters contradict each other, employers could also look to the Wage Orders.  The Wage Orders require that time records “shall be kept on file by the employer for at least three years at the place of employment or at a central location within the State of California.”

Therefore, employers should consider maintaining a copy of employee time records, either electronically or on paper, within the State of California.

2. Must record required information – especially information about meal breaks.

California Wage Orders require employers keep “[t]ime records showing when the employee begins and ends each work period. Meal periods, split shift intervals and total daily hours worked shall also be recorded. Meal periods during which operations cease and authorized rest periods need not be recorded.”  IWC Wage Order 5-2001(7)(a)(3).

Additionally, Labor Code section 1174 requires employers to keep time records showing the hours worked daily and the wages paid, number of piece-rate units earned by, and the applicable piece rate paid.

It is essential that timekeeping software record the information required by the Labor Code.

3. Meal break attestations should be recorded electronically.

The California supreme court in Donohue v. AMN Services LLC (2021) explained that if an employer’s records do not show a compliant meal break was taken by the employee, it may be possible for the employer to use electronic attestations at the time an employee does not take a full meal break, a late meal break, or misses a break in order to ensure accurate tracking.

In Donohue, the employer’s timekeeping system provided a drop-down menu that prompted the employee to choose one of three options:

  1. “I was provided an opportunity to take a 30 min break before the end of my 5th hour of work but chose not to”;
  2. “I was provided an opportunity to take a 30 min break before the end of my 5th hour of work but chose to take a shorter/later break”;
  3. “I was not provided an opportunity to take a 30 min break before the end of my 5th hour of work.”

The employee was required to choose an option by the end of the pay period, and if the employee selected item #3, they were paid a premium wage for the missed break. The court recognized that this attestation by the employee would be enough to track meal break violations or to establish that the employee was provided a meal break but voluntarily chose to continue to work.

The use of electronic attestations by employers in California to defend against meal and rest breaks is critical.  Attestations shift the burden of proof back to the plaintiff to establish that they did not have an opportunity to take a meal or rest break, even if the time records show that they did not clock out for a compliant meal break.  The timekeeping software should require employees to complete the attestation before clocking out at the end of their shift.

4. Timekeeping software must record edits to time entries.

Timekeeping software needs to record when an employee’s time entry was changed.  It should record who made the change, when the change was made, why the change was made, and what exactly was changed.  The software should be able to print a report of all of the changes made, and should be sortable by time period, employee, and the manager who made the change.  The software should also be able to generate a report for select employees on a batch basis.  This is necessary in wage and hour litigation when a sampling of employee data is sometimes required to be disclosed to opposing counsel.

Being able to access this information quickly and efficiently is critical to defend against wage claims.  For example, a few years ago we defended a claim where an employee alleged that a manager edited time punches in an electronic timekeeping system to reflect less time.  However, upon review of the time entries, and the edits, the net effect of the manager’s changes resulted in an increase in the time the employee worked because the employee forgot to clock in at the beginning of the shift on a regular basis.

5. Retain back-up copies in a usable format that the employer can access, even if the employer is no longer a client of the software provider.

The statute of limitations for many wage and hour class actions in California is four years under Business and Professions Code section 17200 (this is one year longer than under the Wage Orders mentioned above), and employers should consider keeping wage statements and other wage and hour records for four years.  Just as critically important, this data needs to be saved in a manner that is easily accessible and usable.  Records for thousands of employees maintained on paper printouts held in a storage unit are not easily accessible, and create huge costs when these paper records need to be reviewed and potentially relied upon in litigation.  Digital time records that are stored in a common format, such as a data file that is compatible with Excel, save a huge amount of time and costs when needed in litigation, and can ultimately be an advantage in litigation.

I enjoy working with entrepreneurs; I love their spirit, drive, and persistence, even when the odds are stacked against them.  This is especially true now dealing with the labor shortage, supply chain disruptions, and irate customers.  But what makes entrepreneurs keep working, taking risks, and showing up each day?  Here are five qualities that I believe make a successful entrepreneur/business founder:

1. They don’t do it for the status.

A restaurant client of mine opened a new restaurant a few years ago and invited friends and family to the soft opening.  You would think that this would be a great time for the operator to celebrate his success and meet with the people attending the event, right?  He was one of the first people I saw walking up to the restaurant because he was in the parking lot picking up trash.  I’ve changed this story a bit to protect the identity of my client – but the essence is true – this successful entrepreneur was picking up garbage to ensure customers had a great first experience.

If an entrepreneur is doing it for the status, they will not do the dirty work, put in the long hours, or have the push that is required to have a chance at success.  Entrepreneurs understand they must do everything in their company – even pick up trash during the launch.

2. They can rely upon and follow their own instinct.

There are many different stats on the failure rate of startups – but the often cited percentage is that 90% fail.  Also, only 25% of small businesses will employ more than just the founder.  Entrepreneurs are confident in their own decisions and have the fortitude to be held accountable for their decisions.  It is a difficult lifestyle (often not discussed, but getting more attention recently) that can be very lonely.  In the likely event that the startup fails, the entrepreneur must be comfortable with their contacts, friends and family members who will likely criticize the entrepreneur’s attempt as being foolish.  But if the company succeeds, these same critics will be the first ones who would say that they always knew the entrepreneur “had it in them.”  Entrepreneurs don’t internalize the shame or the accolades, and they continue on following their own instincts.

3. They select great teams and develop a great culture.

Entrepreneurs have a great EQ and cultivate the people around them and on their team.  At first, when the company cannot afford other employees and executives, it is critical that they have friends and family that they can trust to receive honest feedback.  As the company grows, these positions are filled with other executives selected by the entrepreneur.  As Gary Vaynerchuk points out, “The higher you climb and the more the business grows, the stakes become a lot bigger. More and more people are depending on you to make the right decisions for them and the company. The league you’re playing in and the skill set required jumps from pickup ball to NBA very quickly.”  It is critical that the entrepreneur selects the right team, and communicates the culture of the organization.  This stars with just two employees.

4. They are comfortable with uncertainty.

One trait that I believe is essential for an entrepreneur is the ability to be comfortable with uncertainty.  It may even extend beyond uncertainty, to include the ability to be comfortable with risk.  A lot of people who claim they are a start-up founder say they like the risk, but let’s face it, once there is a major setback or the company fails, most people go and get a job.

5. They are realistic, but don’t let the status quo set their reality.

Yes, there are many obstacles facing the entrepreneur, and yes, no one has done this before, but the entrepreneur sees potential opportunities where others have not.  This takes a very refined skill of understanding reality, while also being opportunistic, just enough to see something that others have not seen before.  For Bill Gates and Paul Allen, this was the insight that PCs would become a fixture in every business and house, when the companies that dominated the field, such as IBM, were certain that mainframe computers were the future.  For Jeff Bezos, it was the insight that he could take an on-line book company and evolve it to sell everything to everyone.

Are these qualities in a person’s DNA or are they learned over time?  I believe it is a bit of both – some natural tendencies in combination with hard work that can ultimately lead to a successful business.

[Updated 10/14/21 to reflect that Mayor Garcetti signed the Los Angeles City ordinance.]

Adding yet another layer of confusion into who must receive a COVID-19 vaccine, Los Angeles City Council enacted a vaccine mandate for indoor venutes.  This ordinance is not to be confused with the recent Los Angeles County order issued on September 28, 2021 requiring patrons and employees of certain establishments to be vaccinated.  Here are five issues employers in Los Angeles should understand about the Los Angeles County and City requirements:

Los Angeles City ordinance:

  1. The City Council will vote on the ordinance next week (the week of October 4, 2021).  [Update: On 10/6/21 the City Council passed the ordinance, which which was signed by Mayor Garcetti.]
  2. The ordinance applies to businesses where food or beverages are served, including, but not limited to, restaurants, bars, fast food establishments, coffee shops, tasting rooms, cafeterias, food courts, breweries, wineries, distilleries, banquet halls, and hotel ballrooms. It also applies to gyms, entertainment and recreation venues, and personal care establishments (such as spas).
  3. The ordinance does not apply to employees. The ordinance only requires patrons to provide proof of vaccination to enter an indoor portion of a business covered by the ordinance.  A patron can be exempted from this requirement due to a medical condition if the patron provides a “self-attestation” that the Patron has a medical condition or a sincerely held religious belief that qualifies the Patron for one of these exemptions.  If the patron provides the self-attestation, they can only enter the indoor portion of the establishment if they provide proof of a negative COVID-19 test and photo identification.
  4. The ordinance requires businesses to display an “advisory notice” informing patrons that, beginning on November 4, 2021, they must provide proof of vaccination in order to enter any indoor portion of the business.
  5. Enforcement of the ordinance would begin on November 29, 2021, and businesses face progressive fines reaching $5,000 for the fourth and each subsequent violation. There are still questions about how the City will enforce the ordinance.  Councilman Joe Buscaino raised this issue this week noting that the city is still researching which agency would enforce the ordinance.

Los Angeles County order implemented on September 28, 2021:

  1. Los Angeles County order is effective October 7, 2021.
  2. Bars, breweries, wineries and distilleries:
    1. From October 7 to November 3, these establishments must require patrons who are 12 years or older to provide proof of COVID-19 vaccination status for entry of at least one dose.
    2. Beginning November 4, 2021, they must require all patrons 12 years or older to provide proof of full vaccination in order to have indoor service.
    3. By November 4, 2021, all on-site employees must provide proof of full vaccination. Employees are eligible to exemptions based on medical or sincerely held religious beliefs, but these exempted employees must be tested once a week and wear a surgical mask or higher-level respirator.
    4. Unvaccinated patrons may enter the indoor portion of the establishment for limited time periods for specific reasons, such as using the restroom, picking up an order, or make repairs at the business. However, these individuals must wear a mask.
  3. Nightclubs and lounges:
    1. From October 7 to November 3, these establishments must require patrons and on-site personnel to provide proof that they have received one dose of a COVID-19 vaccination for indoor service. On November 4, all patrons and on-site personnel must provide proof of being fully vaccinated in order to receive indoor service.
    2. Employees are eligible to exemptions based on medical or sincerely held religious beliefs, but these exempted employees must be tested once a week and wear a surgical mask or higher-level respirator.
  4. Restaurants:
    1. The County “strongly recommends” that restaurants reserve indoor seating and service for patrons who are fully vaccinated.
    2. The County’s order provides that restaurants “should” verify the full vaccination status of all patrons who will be seated indoors.
  5. Limited exceptions for unvaccinated individuals to enter indoors at bars, breweries, wineries, distilleries, nightclubs and lounges: Unvaccinated patrons may enter the indoor portion of the establishment for limited time periods for specific reasons, such as using the restroom, picking up an order, or make repairs at the business.  However, these individuals must wear a mask.

Los Angeles County developed an overview for businesses regarding the vaccination or test requirement, which is available here.

Los Angeles County also developed a business toolkit for compliance with the order, which is available here.

On September 22, 2021, Governor Newsom signed AB 701 into law aimed at “warehouse distribution centers” and the use of quotas.  While the law was drafted to curtail alleged practices of Amazon, it will impact many warehouses across California.  Here are five key questions California employers need to understand about the new law:

1. Which employers must comply with AB 701?

The new law applies to employers with 100 or more employees at a single warehouse distribution center or 1,000 or more employees at one or more “warehouse distribution centers” in the state of California.  Warehouse distribution centers are defined as:

an establishment as defined by any of the following North American Industry Classification System (NAICS) Codes, however that establishment is denominated:

(A) 493110 for General Warehousing and Storage.

(B) 423 for Merchant Wholesalers, Durable Goods.

(C) 424 for Merchant Wholesalers, Nondurable Goods.

(D) 454110 for Electronic Shopping and Mail-Order Houses.

The law makes clear that “warehouse distribution center” does not include NAICS Code 493130, Farm Product Warehousing and Storage.

2. What quota disclosures are required to employees?

The law defines “quota” to mean, “a work standard under which an employee is assigned or required to perform at a specified productivity speed, or perform a quantified number of tasks, or to handle or produce a quantified amount of material, within a defined time period and under which the employee may suffer an adverse employment action if they fail to complete the performance standard.”

Employers must provide to each employee upon hire or within 30 days once the law takes effect, a written description of each quota that applies to the employee, and the “quantified number of tasks to be performed or materials to be produced or handled, within the defined timer period, and any potential adverse employment action that could result from failure to meet the quota.”

Current and former employees who believe that meeting a quota caused a violation of their right to take a meal or rest period or required them to violate an occupational health and safety law, the employee may request the following:

  • A written description of each quota applicable to them, and
  • The employee’s own “personal work speed data.”

Current and former employees may make this request orally or in writing, and employers have 21 calendar days from the date of the request to provide the information.

3. Which quotas cannot be enforced by employers under AB 701?

The new law provides that employees shall not be required to meet quotas that prevents the employee from taking compliant meal and rest periods, using bathroom facilities (including reasonable travel time to and from the bathroom), or violating occupational health and safety laws.  Employers may also not take adverse employment actions against employees who do not meet a quota due to taking a compliant meal and rest break or complying with the health and safety laws, or if the quota was not disclosed to the employee as discussed above.

4. What are the penalties for violations?

Employees may bring a lawsuit for injunctive relief to obtain compliance with the requirements, and if they prevail in the action, they are entitled to recover costs and attorney’s fees.  Employers may also be exposed to penalties in representative actions brought under the Private Attorneys General Act (PAGA).  However, the new law does provide that if the employee files a PAGA claim for violations under the new law, employers can cure alleged violations under Labor Code section 2699.3.

5.  When does the law take effect?

AB 701 takes effect January 1, 2022.

California employers have a lot to keep their eye on over the last few weeks. For this week’s Friday’s Five article, here is a list of five key issues California employers should know about and how these issues will likely impact their workplace:

1. New decision approves striking unmanageable PAGA claims.

In Wesson v. Staples The Office Superstore, LLC, the California Court of Appeals held that trial courts have inherent authority to ensure that Private Attorney General Act (PAGA) claims are manageable at trial, and may strike PAGA classes that are not manageable.  Plaintiff’s lawsuit was on behalf of 346 Staples general managers, arguing that the GM’s were misclassified as exempt employees.  Plaintiff contended that the trial court lacked authority to ensure PAGA claims are manageable arguing that there is no requirement of manageability in the PAGA statute.  Defendant argued that plaintiff’s claims would require individualized assessments for each GM to determine if each individual GM was properly classified, and that this would lead to “an unmanageable mess” that “would waste the time and resources of the Court and the parties.”

The holding in Wesson provides defendants an additional defense against the tide of PAGA claims filed against California employers.

2. California COVID-19 supplemental paid sick leave set to expire September 30, 2021.

California’s supplemental paid sick leave that requires employers with more than 25 employees is set to expire on September 30, 2021.  The law requires employers to provide up to 80 hours of paid leave for certain qualifying reasons.  Absent emergency legislation or an executive order by Governor Newsom, this requirement will end on September 30.

Employers need to be aware of local city or county ordinances that still may be in place requiring paid sick leave for employees.

3. Vaccination mandates on the federal, state, and local levels.

On September 9, 2021, Biden announced a move to mandate private employers with more than 100 workers to require vaccinations or to test for COVID-19 on a weekly basis.  More information about Biden’s vaccine mandate can be read in our prior post here.  As of the date of this writing, OSHA has not published any guidelines or requirements for employers.  This requirement is likely to be announced within the coming weeks.  It has been reported that employers will have 50 to 90 days to comply with the requirements once they are announced.

California does not have a general state-wide mandate (but this could also change in the coming weeks – likely through additional rules made through Cal/OSHA’s ETS).  California does have mandates for teachers and school staff, and for certain health care workers who must be vaccinated by September 30, 2021.

In addition, many local counties and cities have passed or are considering vaccination mandates, such as Los Angeles City and Palm Springs (which only applies to patrons).  Los Angeles County will be issuing a new Health Officer Order requiring patrons and employees of indoor bars, wineries, breweries, nightclubs and lounges.  The order will require customers and employees to have at least one dose by October 7, and the second dose by November 4.

4. New case upholding ban of mandatory arbitration agreements in California.

In U.S. Chamber of Commerce v. Bonta, the Ninth Circuit upheld portions of California’s AB 51 that makes it an unlawful practice for employers to require applicants or employees to enter into arbitration agreements as a condition of employment.  More information about the decision is in our prior post here.  In short, employers with voluntary arbitration programs are unaffected, as AB 51 only regulates mandatory agreements. Also, existing mandatory arbitration agreements are not invalidated, but employers with mandatory arbitration programs should consult legal counsel for guidance on this new decision.

5. California Supreme Court reviewing extend of penalties available in meal and rest break cases.

In Naranjo v. Spectrum Security Services, the California Supreme Court is reviewing the extent of penalties that a plaintiff can recover for meal and rest break violations.  At issue in the case is whether a violation of Labor Code section 226.7, which requires payment of premium wages for meal and rest break violations, also triggers penalties under Labor Code section 203 (waiting time penalties) and section 226 (wage statement violations).  The case is fully briefed by the parties.  The Court’s ruling will greatly impact the value of wage and hour cases being litigated in California.  We will report on the decision once it is issued.

In 2019, California enacted AB 51, making it an unlawful employment practice for employers to require applicants or employees, as a condition of employment, to waive any right, forum, or procedure relating to a Labor Code or FEHA claim. The short version of this word salad is that employers couldn’t mandate arbitration agreements. However, a federal district court preliminarily enjoined enforcement of AB 51 two days before the law was scheduled to go into effect.

Wednesday, a three-judge panel of the Ninth Circuit partially vacated that injunction.

At issue is whether AB 51 is preempted by the Federal Arbitration Act, which prohibits states from disfavoring arbitration agreements relative to other contracts. The district court agreed with business groups that AB 51 conflicted with the FAA. AB 51 has several components. One is the prohibition described above. A second component is a ban on discriminating or retaliating against an employee who refuses to sign an arbitration agreement. Additionally, employers who violate these prohibitions are guilty of a misdemeanor and can also be sued by the employee. The district court found that all of the foregoing as preempted by the FAA.

The Ninth Circuit panel split 2-1 in finding that the ban did not conflict with the FAA. The majority reasoned that the ban merely regulates pre-agreement conduct, and that AB 51 does not invalidate any arbitration agreement. Moreover, the FAA’s purpose is not frustrated by AB 51 because the FAA is concerned with enforcing voluntary arbitration agreements, not mandatory ones.  However, the majority found that the criminal penalties and civil liability are preempted (and thus remain enjoined) to the extent they apply to executed arbitration agreements.

This “bifurcated” approach drew sharp criticism from the dissenting justice: “In case the effect of this novel holding is not clear, it means that if the employer offers an arbitration agreement to the prospective employee as a condition of employment, and the prospective employee executes the agreement, the employer may not be held civilly or criminally liable. But if the prospective employee refuses to sign, then the FAA does not preempt civil and criminal liability for the employer under AB 51’s provisions. In other words, the majority holds that if the employer successfully ‘forced’ employees ‘into arbitration against their will,’ … the employer is safe, but if the employer’s efforts fail, the employer is a criminal.”

This decision leaves us with two big questions.

First, what does this mean for the future of AB 51? After all, the district court order was only a preliminary injunction meant to maintain the status quo while the merits of the litigation could be fully resolved. However, the Ninth Circuit’s decision resolved legal questions that will definitely bind the district court and likely bind the Ninth Circuit throughout the rest of the litigation. This means that AB 51 (minus the criminal penalties and civil liability in part) will likely survive unless the entire Ninth Circuit rehears the matter or the Supreme Court agrees to take up the matter. If the Supreme Court does grant certiorari, we will get another chapter in a long-running dispute between the Court and California over arbitration.

Second, what are employers to do now? Those with voluntary arbitration programs are unaffected, as AB 51 only regulates mandatory agreements. Existing mandatory arbitration agreements are not invalidated, either. However, employers with mandatory arbitration programs should consult legal counsel for guidance on this new decision.

Yesterday, September 9, Biden announced a move to mandate private employers with more than 100 workers to require vaccinations or test for COVID-19 on a weekly basis. California legislators have considered a mandatory vaccination law for employers, but did not pass the law prior to the end of the legislative session. Here are five key items California employers need to know about the upcoming federal mandate proposed by Biden:

1. The mandate would be issued through the Department of Labor’s Occupational Safety and Health Administration (OSHA).

OSHA would develop the rules for employers to comply with, and would have the authority to issue fines against employers who are not in compliance.  President Biden said fines could be $14,000 per violation.  OSHA will issue an Emergency Temporary Standard (ETS) soon that will set forth the requirements for employers.  There is no date yet when the ETS are expected.  Biden also signed an executive order requiring all government employees to be vaccinated.

2. What are the requirements for employers under Biden’s vaccine mandate?

Biden announced the mandate on September 9, stating that the mandate will require private employers with 100 or more employees to have their employees vaccinated or require a negative test from unvaccinated employees at least once a week.  The ETS will require employers to pay for the time it takes works to receive the vaccination or to recover post-vaccination.  For now, this is all we know, and employers will have to wait until the ETS is published by OSHA for the details.

The White House said that there will be “limited exceptions” to the vaccine mandate.  According to federal and California state law, employers will need to continue to provide reasonable accommodations for employees with medical issues that prevent them from receiving the vaccination or based upon a sincerely held religious belief.

As employers who have already mandated vaccinations in the workplace are finding, dealing with requests for reasonable accommodations can be tricky, especially for employees who are asking for a reasonable accommodation based upon a sincerely held religious belief.  Hopefully OSHA’s ETS will set forth a clear path for employers on how to document and deal with these type of accommodation requests.  If the ETS does not provide this clarity, it would unfortunately continue to place employers in a difficult position of facing fines for non-compliance with the ETS, or facing civil lawsuits from employees claiming disability or religious discrimination.

3. California’s vaccine mandates.

California lawmakers considered a potential bill requiring COVID-19 vaccinations on a state level for anyone to enter an indoor business establishment and to have workers vaccinated, but ultimately did not pass any mandate before the end of the legislative session.

California does have mandates for teachers and school staff, and for certain health care workers who must be vaccinated by September 30, 2021.

California requires all workers who provide services or work in heath care facilities set forth below to have their first dose of a one-dose regimen or their second dose of a two-dose regimen by September 30, 2021:

  • General Acute Care Hospitals
  • Skilled Nursing Facilities (including Subacute Facilities)
  • Intermediate Care Facilities
  • Acute Psychiatric Hospitals
  • Adult Day Health Care Centers
  • Program of All-Inclusive Care for the Elderly (PACE) and PACE Centers
  • Ambulatory Surgery Centers
  • Chemical Dependency Recovery Hospitals
  • Clinics & Doctor Offices (including behavioral health, surgical)
  • Congregate Living Health Facilities
  • Dialysis Centers
  • Hospice Facilities
  • Pediatric Day Health and Respite Care Facilities
  • Residential Substance Use Treatment and Mental Health Treatment Facilities

In addition, many local counties and cities have passed or are considering vaccination mandates, such as Los Angeles City and Palm Springs (which only applies to patrons).

Additionally, Cal/OSHA’s own ETS requires weekly testing of unvaccinated employees whenever a workplace experiences a COVID-19 outbreak, defined as three or more cases within a 14-day period.

4. Employers must start considering how to implement mandatory vaccines.

California employers will need to continue to navigate the patchwork of federal, state, and local laws regarding vaccinations.  Now with this impending federal requirement from the Biden administration, employers with 100 or more employees need to start preparing on how to comply with the new requirement.  We have developed a checklist of seven items that California employers can use to start the process of requiring mandatory vaccinations, which is available here.

5. Legal challenges to Biden’s mandatory vaccination requirement.

Republican governors have already stated that they will be mounting a legal challenge to Biden’s vaccine mandate.  There are likely other groups that will challenge the mandate also.  However, the legal challenges will likely take some time to be resolved.  Until the OSHA ETS are ruled by a court to be invalid in some manner, employers will need to ensure compliance with the new regulations.

Hope you have been able to enjoy the summer.  As many employees take (or consider taking) vacation during these last remaining days of the summer, employers in California must be aware of unique rules that apply to vacation time. This Friday’s Five is a reminder of five issues on vacation policies that can create traps for California employers:

1. No use-it-or-lose-it policies permitted.
Under California law, vacation is treated the same as earned wages and vest as the employee performs work. Because vacation is earned proportionally as the employee works, policies requiring employees to lose vacation already earned is illegal under California law.

2. Reasonable caps are allowed.
While employers cannot implement “use-it-or-lose-it” policies, they can place a reasonable cap, or ceiling, on vacation accrual. The DLSE explains:

Unlike “use it or lose it” policies, a vacation policy that places a “cap” or “ceiling” on vacation pay accruals is permissible. Whereas a “use it or lose it” policy results in a forfeiture of accrued vacation pay, a “cap” simply places a limit on the amount of vacation that can accrue; that is, once a certain level or amount of accrued vacation is earned but not taken, no further vacation or vacation pay accrues until the balance falls below the cap. The time periods involved for taking vacation must, of course, be reasonable. If implementation of a “cap” is a subterfuge to deny employees vacation or vacation benefits, the policy will not be recognized by the Labor Commissioner.

3. Vacation is a form of earn wages that must be paid out on the employee’s last day of work.
An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination. See Labor Code Sections 201 and 227.3.  More information about the timing and payment of final wages can be read here.

4. Deductions are not permitted from employee’s final wages for use of vacation that was not accrued.
Vacation is treated as a form of wages under California law, and by permitting an employee to take vacation time before it is earned is similar to providing a loan to the employee.  Employers may not utilize self-help remedies to recover debts from the employee’s final pay check, including deducting wages owed to an employee to cover vacation that time was used but had not yet been accrued by the employee.

5. “Cliff vesting” policies are problematic.
Employers may set probationary periods or waiting periods during which times employees do not accrue vacation time. However, the DLSE maintains that employers may not maintain a policy that grants employees a lump sum of vacation upon reaching certain dates (for example, such a policy would grant the employee five days of vacation at the employee’s one year anniversary of work, but not permit the employee to take any vacation prior to the anniversary date).

The DLSE’s view on this type of “cliff vesting” is that the employer is attempting to provide for accrued vacation, but at the same time is attempting to limit its liability of having to pay out a pro rata share of the accrued vacation if the employee does not work until the date the vacation is granted to the employee.  Many employers avoid these potentially problematic lump sum grants of vacation, and simply set a time period (i.e., the employee’s first six months of employment) that the employee does not accrue vacation.

California law is vastly different than Federal law and other states. It can be a trap for employers, but with some understanding of the obligations created under the law it can easily be managed.

Hope you are enjoying the final weeks of the summer.

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

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

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

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

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

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

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

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

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

The law makes any document violating its terms unenforceable.

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

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

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

5. Review standard forms to ensure compliance

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

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

Employers often ask me the question of what steps can they take to stop employment litigation. My response usually begins with a warning that there is nothing an employer can do that will prevent a frivolous lawsuit. However, employers can control their actions and decisions, and by reviewing a few items on a regular basis, it can greatly reduce a company’s liability. Here are five steps employers can start with:

1. Implement an accurate and easy to use timekeeping system.

California law requires employers to track start and stop times for hourly, non-exempt employees. The law also requires employer to record an employee’s thirty-minute meal period. The time system needs to be accurate, and the employer needs to be involved in the installation and setup of the system. Do not simply use the default settings for the hardware and software. Understand what the system is tracking and how it is recording the data. Since the statute of limitations for California wage and hour violations can extent back four years, it is recommended that employers take steps to keep these records at least four years.

2. Keep employee handbook and other policies up to date.
Employers should periodically have their handbooks, operating policies and new hire packets reviewed to ensure they are current. Employers need to remember that a review of policies should extend beyond the handbook and should also incorporate a review of all other policies, pay practices, and documents that are given to employees when they are hired and at termination.

3. Document everything.
I cannot overemphasis the need to document what occurs in the workplace. Most importantly, employers need to document employee performance. It is all too often that a problem employee’s personnel file does not contain any type of documentation about his poor performance. Lack of documenting makes it much harder to prove the business reason behind a termination for poor performance.

4. Consider hiring a knowledgeable HR professional.
An experienced HR professional will allow the president or other executives in the company to focus their time and energy in their core roles. In addition, it is helpful from a structural and managerial perspective for the employees in an organization to know exactly who to go to for HR information or complaints. A human resources professional with experience in handling workplace investigations and dealing with employee complaints is very valuable to a company. Let’s face it, no matter how well you run your company, there will be complaints. Having a proactive, knowledgeable professional assisting in the process of investigating and resolving the issues is instrumental to a successful company.

5. Get to know an employment attorney you can run issues by on a day-to-day basis.
You knew this was coming, but regardless of the unashamed self-promotion, employers should have counsel that is well versed in California employment law. California’s employment laws are very nuanced, and an attorney that has experience in this area will save the company not only in legal fees, but also in potential exposure. I have a client that says that when you have a problem with your eyes, you don’t go to your general practitioner. The same applies for advice on California employment issues – California employment law is unique. In addition, working with an employment lawyer on a routine basis is also a great way to see how he or she works and if the lawyer is compatible with your operations. It is better to find counsel you trust early on, instead of discovering that you don’t get along with your counsel in the middle of defending a lawsuit.