Mediation is an essential part of litigation, but it can be a confusing process for parties involved in a lawsuit. However, by understanding a few key aspects of mediation, you can approach the process with confidence and clarity. Mediation is a non-binding process where the parties hire an independent mediator, often a retired judge or experienced attorney, to help facilitate a settlement. Below are five critical points to help you navigate mediation successfully:

1. The Mediator’s Role Is to Make You Uncomfortable About Your Case

As I’ve discussed in previous posts, the mediator’s primary job is to get the case settled, not to favor one side or give you a sense of how strong your case is. Mediators aren’t there to be your friend or to validate your perspective—they’re there to find a middle ground between two adversarial parties who both think they’ll win in court. To achieve this, mediators will challenge both sides’ assumptions and highlight the weaknesses in each party’s case.

When a mediator seems to attack your position, it’s important not to take it personally. They are doing the same thing with the other side, working to move both parties toward compromise. Their critiques are strategic and part of the negotiation process—they aren’t necessarily a reflection of the mediator’s actual views on your case’s merit.

2. Set a Bottom Line and a Goal Before Entering Mediation

It’s crucial to establish your “walk-away” number before entering mediation. However, experienced negotiators know that having both a walk-away threshold and a goal is important.  Having a goal for the mediation as well as a walk-away number helps parties negotiate more effectively. 

That said, flexibility is key. While it’s important to know your limits, parties should also be prepared to reevaluate their goals if the case won’t settle within the pre-determined range. Staying open to adjustments during mediation can increase the likelihood of reaching a resolution.

Finally, remember, mediation is not binding.  Parties can end a mediation at any point if they do not agree with the negotiation tactics of the other party, or if they numbers are clearly not within the pre-determined set walk-away number. 

3. Know Your Mediator

Your attorney should have some information about the mediator before going into a mediation.  Often times attorneys have sued the mediator to help revolve prior cases.  Sometimes, if your lawyer has not used the mediator before, your lawyer can gather information about the mediator.  I generally like to know the following about the mediator and prepare my clients what to expect on the following items:

  • What is the mediator’s negotiating style?  Mediator have different styles, some are aggressive and combative (see point #1 above), and that is just their style.  Others take a friendly approach giving the impression that they are on your side and are here to help resolve the case.  However, clients always need to remember point #1 above. 
  • Clients need to understand the mediator’s background.  Is the mediator a retired judge?  If so, where did they preside? What types of cases did they preside over?  If they are an employment attorney, were they typically a plaintiff’s attorney or defense attorney?  If the mediator does not have an employment law background when mediating an employment law case, I think that is very important to know as well. 
  • What tools does the mediator like to use to move through impasses?  Will the mediator move to negotiating brackets? Do they like making mediator proposals?  See below for more information on these tools. 
  • Does the mediator stress facts or do they quickly move into negotiating numbers?
  • If the case does not settle at the mediation, how good is the mediator about following up with parties to try to keep settlement discussions continuing after the mediation? 

4. Understand Different Negotiating Tools Used in Mediation

Before the mediation, work with your attorney to understand the negotiation tactics that may come into play. Mediators often use strategies designed to help the parties move closer together. Here are two common tactics:

  • Negotiating by Brackets: Instead of offering a single number, one party may suggest a bracket.  So instead of offering a number as a counteroffer, the party would offer a range: “If you agree to come down to X, I’ll agree to go up to Y.” The midpoint of the range is typically seen as a hint of where the party is willing to settle. Think carefully about how to respond to such proposals and understand the strategies needed when negotiating brackets.  Some mediators will inform the parties not to look at the mid-points of the ranges, while others will indicate that the mid-points are basically where the party is willing to go to in negotiations. 
  • Mediator’s Proposal: If negotiations hit an impasse, the mediator may make an independent proposal, which is a settlement number they believe both sides might accept—not based on the case’s merit, but as a compromise. Each side responds to the mediator privately with a yes or no, without knowing the other party’s answer. This tactic can sometimes break deadlocks when emotions or posturing block progress.

Understanding the different tools that can be used at the mediation can help you navigate mediation more effectively and respond in ways that serve your interests.  It is also a good practice to understand and learn about these tools prior to the mediation, so that you are not attempting to understand the tools at the same time you are evaluating how to negotiate at the mediation. 

5. Stick to Your “Last, Best, and Final Offer”

Credibility is everything in mediation. If you present a number as your “last, best, and final offer” but continue to negotiate after it’s rejected, you lose credibility with both the mediator and the opposing party. Once credibility is lost, it’s difficult to regain, and the other side will likely push for further concessions.

If you decide to issue a “last, best, and final offer,” be prepared to walk away if it’s not accepted. It’s a tool that should be used sparingly, and only when you are ready to end negotiations.

The Prosper Accelerator retreat hosted by Inspire Brands this week provided a unique space for leaders in the hospitality industry to share insights into building stronger, more people-centered businesses. The Prosper Accelerator program, a signature initiative of the Prosper Forum, is designed to foster emerging leaders in the foodservice and hospitality industry. This year-long program, launched in 2023, brings together experienced industry mentors with exceptional talent to support leadership by developing a robust network of talented individuals to lead the way forward. To learn more about this impactful program and its commitment to empowering 1,000 leaders over the next decade, click here.

Here are five invaluable lessons I took away from the speakers over the last two days this week:

1. Lead with Giving Value

Maria Rivera, CEO of Smalls Sliders, emphasized the point that leaders need to leave with their hands out, not with their hands up.  What she meant by this was that by creating a meaningful connection with team members starts by offering value first, and not focusing on yourself as the leader. Maria emphasized that generosity is one of the most powerful ways to build trust and loyalty. By focusing on genuinely helping others, we naturally cultivate trust and relationships.

2. Learn from Mistakes

Success stories are inspiring, but the journey’s real learning points often come from failures. Leaders shared candid stories of their setbacks and what they learned from these mistakes. This was a great reminder that even leaders need resilience and highlighted the importance of not just recovering from mistakes but actively seeking out what these experiences can teach. It’s through these hard-earned lessons that we adapt and grow.

3. Don’t Require Your Team to Always Be Right, But Require Them to Have a Point of View

Vans Nelson, Senior Vice President of Operations Innovation at Inspire Brands made this point.  Having a stance encourages proactive thinking and ensures that everyone is actively participating in the direction of the team and organization. Allowing for mistakes (and not penalizing for them) cultivates innovation.  By encouraging team members to voice their opinions can help leaders see any potential blind spots, and to consider all alternatives. 

4. Authentically Listen

Many speakers during the retreat underscored the importance of the skill of listening. The best leaders don’t just hear words; they listen to understand, empathize, and respond meaningfully. Authentic listening builds a bridge of respect and trust, creating a culture where everyone feels valued and understood.

5. Even IT is About the People

Finally, a surprising yet poignant takeaway was the reminder that even the most tech-driven areas of business should remain people-centered. Whether we’re talking about IT, logistics, or data analysis, it’s the human element that drives these functions forward. Keeping people’s needs and experiences at the forefront—even in tech-focused roles—strengthens alignment and ensures technology serves its most important purpose: empowering people.

The Prosper Accelerator retreat offered an invaluable opportunity for each Accelerator to learn from experienced leaders and gain meaningful insights into building people-focused, resilient businesses, as well as network with other leaders in the industry. I hope they found the retreat as impactful as I did and that the lessons shared will inspire their growth as leaders. I’m looking forward to seeing each of them continue to grow and make their mark, and I can’t wait to reconnect at the Prosper events in 2025 to celebrate their progress!

As we approach 2025, California employers need to be aware of several key legislative changes that will impact workplace policies and operations. These laws have been passed and will take effect in 2025, shaping the employment landscape in the state. Here are the top five new laws that employers should prepare for:

1. AB 3234: Social Audits and Child Labor Reporting

Effective January 1, 2025, AB 3234 introduces new reporting requirements for employers who have voluntarily undergone a social audit. This law is aimed at increasing transparency, particularly regarding the employment of child labor. Under this law, employers must post a clear and conspicuous link on their website to provide the following information:

  • Audit details: The year, month, day, and time the audit was conducted, and whether it took place during a day or night shift.
  • Child labor: Whether the employer engaged in or supported the use of child labor.
  • Policies and procedures: A copy of any written policies or procedures the employer has regarding the employment of children.
  • Workplace hazards: Whether children were exposed to hazardous or unsafe working conditions that could affect their physical or mental health and development.
  • Work hours: Whether children worked during regular school hours or night shifts.
  • Auditing company statement: The law requires a statement clarifying that the auditing company is not a government agency and is not authorized to verify compliance with state or federal labor laws or health and safety regulations.

This law reflects California’s continued focus on the protection of vulnerable workers and its commitment to labor transparency.

2. California Worker Freedom from Employer Intimidation Act: SB 399

The Governor also signed, SB 399, also called the California Worker Freedom from Employer Intimidation Act, that protects employees from being forced to participate in employer-sponsored meetings or communications that convey the employer’s opinions on religious or political matters. Under this bill, starting January 1, 2025:

  • Employers are prohibited from retaliating or threatening retaliation (including discharge, discrimination, or any adverse actions) against employees who refuse to attend or participate in such meetings.
  • If an employee refuses to attend these meetings, they must still be paid for the time.
  • A civil penalty of $500 will be imposed on employers who violate this provision.

This law aims to ensure that employees have the freedom to make decisions regarding their involvement in employer-initiated discussions about religious or political issues without fear of reprisal.

3. SB 1100: Driver’s License Requirements in Job Advertisements

SB 1100 introduces new restrictions on including driver’s license requirements in job postings. Employers may only list a driver’s license as a job requirement if:

  • Driving is an essential function of the position.
  • Alternative transportation methods are not feasible for the job. This law aims to reduce discriminatory practices in hiring by ensuring that job postings are more inclusive for applicants who may not possess a driver’s license but can perform the job using other means of transportation.

4. SB 1340: Local Discrimination Enforcement

SB 1340 permits local governments to enforce employment discrimination laws, provided these laws are at least as protective as the state’s Unruh Civil Rights Act. This new law opens the door for a more localized enforcement of discrimination policies, which could lead to a patchwork of requirements across different regions in California. Employers will need to stay informed about local ordinances to ensure compliance with both state and local anti-discrimination laws.

5. AB 2499: Expanded Protections for Victims of Violence

AB 2499 expands protections for employees who are victims of violence or who have family members that are victims. This law:

  • Prohibits retaliation against employees who take time off to address violence-related issues, including seeking medical care, safety planning, and attending court proceedings.
  • Expands paid sick leave to cover absences related to violence.
  • Requires reasonable accommodations for employees who may face safety concerns at work. Employers must update their handbooks and provide notice of these expanded rights to employees at the time of hire, annually, and upon request.

Preparing for 2025

With these new laws, and others, on the horizon, California employers should take proactive steps to review and update their policies, employee handbooks, and training programs. Compliance will not only protect employers from legal risks but also foster a safer, more equitable workplace.

With California’s recent reforms to the Private Attorneys General Act (PAGA), employers now have an unprecedented opportunity to significantly reduce their potential liability for labor code violations. One of the most crucial changes under the reformed PAGA is the introduction of penalty caps for employers who demonstrate good faith efforts to comply with labor laws. However, to fully take advantage of these reductions, employers must be proactive in auditing their payroll, timekeeping, and labor practices. Regular audits not only ensure compliance but are essential in building the evidence needed to qualify for reduced penalties under the reformed PAGA. In this article, we’ll explore why conducting audits is now more critical than ever for California employers looking to protect their businesses from costly litigation and maximize the benefits of PAGA’s revised penalty structure.

Under the reformed PAGA, penalties have been significantly reduced to provide relief to employers.  The reformed PAGA applies to newly filed cases after June 19, 2024. Any PAGA claims filed on or after this date will be subject to the new rules and penalty structures introduced by the reform. Cases filed before June 19, 2024, will continue to be governed by the old PAGA regulations. Below is a list of penalties and their respective reductions under the reformed PAGA:

1. Good Faith Compliance Penalty Caps:

  • Old Penalty: No cap on penalties if violations were found.
  • New Penalty:
    • 15% of the applicable penalties if the employer took all reasonable steps to comply before receiving a PAGA notice or a records request.
    • 30% of the applicable penalties if the employer took all reasonable steps to comply within 60 days after receiving a PAGA notice.
  • Reduction: Penalties are reduced by 85% in the first case and 70% in the second case, depending on the timing and good faith efforts.

2. Wage Statement Violations:

  • Old Penalty: $100 per employee, per pay period.
  • New Penalty: $25 per employee, per pay period (if the employee can still determine accurate information from the wage statement, or if the only violation is related to the employer’s name and address, and the employee is not confused about the employer’s identity).
  • Reduction: 75% reduction from $100 to $25.

3. Penalties for Isolated Violations:

  • Old Penalty: $100 per employee, per pay period.
  • New Penalty: $50 per employee, per pay period for violations lasting fewer than 30 consecutive days or four pay periods.
  • Reduction: 50% reduction.

4. Derivative Violations (Stacking Penalties):

  • Old Penalty: Multiple penalties for labor code violations arising from the same underlying conduct.
  • New Penalty: No stacking of penalties allowed. Only one penalty is imposed for the underlying violation.
  • Reduction: Complete elimination of stacking.

5. Subsequent Violation Penalties (Aggravated Penalties):

  • Old Penalty: $200 per employee, per pay period.
  • New Penalty: $200 per employee, per pay period, but limited to cases where:
    1. The employer had a prior finding or determination of unlawful practices within the last 5 years by the LWDA or a court.
    2. The violation was determined to be malicious, fraudulent, or oppressive.
  • Reduction: This applies only to aggravated cases, limiting the application of the $200 penalty.

6. Penalties for Employers Paying Weekly:

  • Old Penalty: Employers paying weekly were exposed to double the penalties because there were twice as many pay periods.
  • New Penalty: Penalties are reduced by 50% for employers paying weekly, ensuring that weekly pay cycles do not result in disproportionately high penalties.
  • Reduction: 50% reduction.

These penalty reductions are aimed at incentivizing employers to comply with the Labor Code while offering relief from excessive penalties for technical violations and giving them more opportunities to mitigate liability under PAGA.

Zaller Law is actively helping clients navigate the complexities of PAGA compliance by providing comprehensive payroll and labor practice audits. These audits are essential for employers seeking to minimize their exposure to PAGA claims and benefit from the newly reduced penalties under the reformed law.

A well-structured process for onboarding new employees is a common practice, but equally important—and often overlooked—is having a clear procedure for when employees leave the company. Ensuring that all company property is returned, providing any required documentation, and taking steps to mitigate potential legal risks are crucial when an employee departs. Here are five key steps California employers should include in their separation process:

1. Ensure All Necessary Documents Are Provided to the Departing Employee

Just as with new hires, there are several essential documents that need to be provided to employees at the time of separation. Employers should prepare a termination packet that includes mandatory documents such as:

  • Notice of Change in Relationship
  • COBRA and Cal-COBRA notices
  • Health Insurance Premium (HIPP) notice

In addition, employers should create their own forms to request the return of company property (e.g., laptops, keys, parking cards) to ensure everything is accounted for before the employee leaves.

2. Issue the Final Paycheck on Time

California law has strict requirements for when final paychecks must be issued:

  • If an employee is terminated, all wages, including accrued vacation, must be paid immediately at the time of termination.
  • If an employee gives at least 72 hours’ notice of their resignation, all wages must be paid on their last day of work.
  • If an employee quits without providing 72 hours’ notice, the employer has 72 hours to issue their final paycheck.
  • If the employee requests, the final paycheck can be mailed, and the date of mailing is considered the date of payment for compliance purposes.
  • Final pay must included all accrued but unused vacation.
  • Final wages for terminations must be provided at the location where the employee was dismissed. In the case of a resignation without notice, the final paycheck can be picked up at the employer’s office within the county where the employee worked.

3. Consider Whether to Conduct an Exit Interview

Exit interviews can provide valuable insights but aren’t always appropriate. If the departure is tense or the situation is highly emotional, an exit interview might escalate tensions. On the other hand, it could be an opportunity to leave things on a more positive note. Employers should assess each situation individually and not rely on a blanket policy.

4. Determine If a Severance Agreement Is Appropriate

While severance pay is not required in California, there are situations where offering it can be beneficial. Employers might offer severance during layoffs, to fulfill executive contracts, or to mitigate the risk of potential legal disputes. If severance is offered, it’s crucial to have the agreement reviewed by legal counsel to ensure it includes a broad release of claims, protecting the employer from future litigation. Learn more about severance agreements in our previous post here.

5. Establish a Clear Policy for References and Internal Disclosure

To protect against claims of defamation, privacy violations, or misrepresentation, many employers limit the information they provide about former employees to confirming job titles and employment dates. If a former employee authorizes it, their final pay rate may also be disclosed. When sharing any further information—whether with external contacts or internally within the company—employers should proceed cautiously and consult legal counsel to ensure compliance with privacy laws. Additionally, it’s important to remind managers and staff not to disclose the reasons behind an employee’s departure unless they have a legitimate need to know.

By following these five steps, employers can reduce legal risks and ensure a smoother transition when employees leave the company.

While California law does not require employers to offer severance pay, providing it in exchange for a release of claims can be a strategic move to avoid future litigation when parting ways with employees. For at-will employees, where no contract mandates severance, an employer may still benefit from offering a severance package in specific situations to mitigate legal risks. Though severance agreements can be complex, this article highlights five key considerations employers should keep in mind when drafting such agreements to protect their interests and minimize costly disputes.

1. Release of claims

The idea of the severance agreement is to have some certainty that there will not be litigation following the employee’s separation from the company.  Employers may seek a general release of known and unknown claims if it is specific and easy to understand.  Courts have held that “a written release extinguishes any obligation covered by the release’s terms, provided it has not been obtained by fraud, deception, misrepresentation, duress, or undue influence.”  (Skrbina v. Fleming Cos., 1996).

Release of Unknown Claims

The employee (and employer for that matter) can waive all known claims. However, in California, for any party to release unknown claims, the agreement needs to be clear and advise the party that they are releasing unknown claims. Ideally, the agreement should set forth that the employee is waiving all rights under California Civil Code section 1542, and to specifically quote section 1542 in the agreement, which provides:

A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.

2.  Choice of law and venue

California Labor Code section 925 prohibits employers from requiring an employee who primarily resides and works in California, as a condition of employment, to adjudicate claims outside of California that arose in California and deprive the employee of “substantive protection of California law.”  Section 925 does not apply to any contracts negotiated when the employee is represented by legal counsel.  Section 925 only applies to contracts entered into, modified, or extended on or after January 1, 2017.  However, since a severance agreement is being entered at the end of the employment relationship, employers may have the argument that section 925 does not apply to severance agreements because it is not being entered into “as a condition of employment.”  Employers should approach this issue carefully, and to the extent there is a need to provide for a state other than California’s law to apply to the severance agreement, or for the venue to be set outside of California, employment counsel needs to be consulted.

3. No re-hire

Beginning January 1, 2020, an employer may not include a no re-hire provision in the severance agreement under certain circumstances.  Code of Civil Procedure section 1002.5 prohibits and invalidates any provisions in settlement agreements entered into on or after January 1, 2020 that prevent workers from obtaining future employment with the settling employer or its affiliated companies.

The law applies to any employees who have filed a claim: (1) against the employer in court, (2) before an administrative agency, (3) in an alternative dispute resolution forum, or (4) through the employer’s internal complaint process.  Therefore, if the employee has complained internally, and a severance agreement is reached with the employee without any litigation being filed, the employer would still be restricted from placing a no-rehire provision in the severance agreement.

The law does not prohibit or otherwise restrict an employer from preventing an employee from obtaining future employment if the employer has made a good faith determination that the person engaged in sexual harassment or sexual assault.

4. Confidentiality

Severance agreements may a contain limited confidentiality provision where the employee agrees not to disclose the amount paid or the terms of the agreement.  The confidentially provision can set forth the limited number of people the employee may make disclosures to, such as legal or tax advisors, family members, or as required under the law.  However, California employers need to be careful about confidentiality provisions,  as California law prohibits confidential settlement agreements or disclosure of allegations related to unlawful acts in the workplace.

Employers may still contain non-disparagement provisions and confidentiality clauses in agreements with employees, but the following notice must be included in the document:“Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.”

5. Special provisions

When drafting severance agreements, it’s important to include a range of key provisions to ensure compliance with legal requirements and to protect the employer’s interests. Some of the critical provisions to consider are:

  • Older Workers Benefit Protection Act (OWBPA): Provides protection for employees aged 40 or older, ensuring that they receive certain rights and protections under severance agreements.
  • Non-waivable claims: Certain claims, such as workers’ compensation and unemployment insurance claims, cannot be waived by the employee.
  • No prevailing party and attorney’s fees: Ensure that the agreement does not include provisions that would allow either party to claim attorney’s fees if legal disputes arise.
  • Return of company property: A clause requiring the employee to return any company-owned equipment or materials upon separation.
  • Non-competition, non-solicitation, and non-disclosure terms: These provisions can help protect the company from competition, solicitation of clients or employees, and disclosure of proprietary information.  However, California law is highly restrictive when it comes to non-competition agreements, generally prohibiting them except in limited circumstances, such as the sale of a business or dissolution of a partnership, making it essential for employers to carefully craft these terms.
  • Job reference: Address how future job references will be handled, including the possibility of neutral or positive references.
  • Integration clause: Ensures that the written agreement constitutes the entire understanding between the parties, superseding any prior discussions.
  • Severability clause: Provides that if any part of the agreement is found to be invalid, the rest of the agreement will remain enforceable.
  • Arbitration clause: Allows disputes to be resolved through arbitration rather than litigation, which can be a faster and less costly option for employers.

Incorporating these provisions helps create a comprehensive severance agreement that minimizes potential risks and complies with legal standards.

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

The service industry in California constantly grapples with the complexities surrounding tips, tip pooling, and mandatory service charges. Recently, on August 23, 2024, a federal appeals court blocked the Department of Labor’s (DOL) controversial 80/20/30 rule in Restaurant Law Center, Texas Restaurant Association v. United State Dept. of Labor. This rule, which created significant compliance burdens for hospitality employers who do not have a more stringent state law (like California), has been vacated by the Fifth Circuit U.S. Court of Appeals, offering immediate relief to employers subject to federal law in the Fifth Circuit, and potentially to all employers, even outside of the Fifth Circuit. The court’s decision aligns with a recent Supreme Court ruling that limits federal agency power, marking a significant shift in the regulatory landscape by limiting the DOL’s regulatory authority. However, California employers must still navigate a different set of state-specific rules. Here are five crucial points every California employer should understand about tips, tip pools, and service charges.

1. Employee Ownership of Tips
Under California law, any voluntary tip left by a customer is the sole property of the employee. Employers are prohibited from taking or sharing any portion of these tips. According to Labor Code section 351, tips belong exclusively to the employee for whom they were intended. But mandated tip pooling agreements can be implemented as discussed below.

2. Legality of Employer-Mandated Tip Pooling
California law allows for employer-mandated tip pooling as long as the process is fair, reasonable, and excludes managers, owners, or supervisors. The courts have upheld tip pooling arrangements where tips are shared among employees in the chain of service, provided that the distribution is reasonable. For example, courts have approved scenarios where a percentage of tips is allocated to waitstaff, busboys, and bartenders, as long as the distribution reflects the actual service contribution of each role.

3. No Tip Credits Towards Minimum Wage
Unlike some other states as discussed above, California law does not allow employers to use tips as a credit toward meeting the minimum wage requirement. This departs from the FLSA that permits employers to credit tips towards an employee’s wages to a certain amount. However, because this is not permitted in California, regardless of the amount of tips an employee receives, the employer must pay the full state, local minimum wage or the minimum wage required for fast-food restaurants under AB 1228. Tips cannot be counted towards satisfying the minimum wage obligation.

4. Eligibility to Participate in Tip Pools
Employees who are part of the “chain of service” can be included in a mandatory tip pool. This includes not just waitstaff, but also kitchen staff, bartenders, and dishwashers who contribute to the service experience. However, managers, owners, and supervisors generally cannot partake in the tip pool. An exception exists in specific cases where a service employee, who also acts as a supervisor, can share tips left in a collective tip box. Employers should approach this exception cautiously to avoid legal liability.

5. Distinction Between Tips and Mandatory Service Charges
It’s essential for employers to distinguish between tips and mandatory service charges. While tips are voluntary and belong to the employee, mandatory service charges are set by the employer and belong to the business. Employers have discretion over how to distribute these charges, but must include them when calculating an employee’s regular rate of pay for overtime purposes. Failure to do so can result in costly legal repercussions.

    By understanding these five key points, California employers can navigate the complexities of tip-related regulations more effectively, ensuring compliance with state laws while fostering a fair and transparent workplace for their employees.

    As a business owner or HR professional, staying informed on the latest in employment law is crucial to protecting your company. However, with the daily demands of running a business, it’s easy to overlook some of the valuable resources that are available to you—especially the ones that are free and designed specifically to help you navigate the complexities of employment law.

    Here’s a quick reminder of the free resources Zaller Law Group published that you may not be fully utilizing. These tools are designed to keep you updated, informed, and equipped with the knowledge to handle various employment law issues with confidence.

    1. Subscribe to Our YouTube Channel

    If you’re not already subscribed to our YouTube channel, you’re missing out on a wealth of video content that dives deep into various aspects of employment law. From quick tips to in-depth discussions on hot topics, these videos are a convenient way to stay informed. You can subscribe here.

    2. Follow Our Blog: The California Employment Law Report

    Our blog is a go-to source for the latest news, updates, and expert analysis on California employment law. Whether you’re dealing with wage and hour issues, employee discipline, or new legislation, my blog provides timely insights that can help you stay ahead of the curve. Don’t miss out—subscribe to the blog here.

    3. Download Essential White Papers

    To help you manage your workforce more effectively, we’ve published several white papers that offer practical advice on critical topics. Two of the most popular are:

    • Termination Checklist: Ensure that your termination process is thorough and legally compliant by downloading the checklist here.
    • Best Practices When Conducting Employee Discipline: Learn the best practices for handling employee discipline to avoid legal pitfalls and maintain a fair workplace. Download it here.

    These white papers are excellent resources to have on hand, so make sure you’ve taken advantage of them. We have published additional white papers regarding best practices for meal and rest breaks, arbitration agreements, and use of daily wage and hour attestations. Feel free to contact us if you are interested in access to these resources.

    4. Get Notified About Upcoming Seminars/Webinars

    In addition to written content, Zaller Law and its attorneys also host regular monthly seminars and webinars that provide in-depth training on various employment law topics. These sessions are invaluable for staying up-to-date with the latest developments and understanding how they apply to your business. You can subscribe to receive notices about these events here.

    5. Stay Updated with Our Podcast

    If you prefer audio content, our podcast is the perfect way to stay informed on the go. Each episode covers a range of employment law topics, offering insights and practical advice that you can apply in your business. Don’t miss out on new episodes—subscribe here.

    One last item—make sure you subscribe to receive text message alerts for important, timely legal developments. This is the fastest way to stay informed about critical changes that could impact your business, ensuring you’re always up to date, no matter where you are. Subscribe to Text Brief here.

    Don’t let these free tools go to waste—start utilizing them today, and you’ll be better prepared to handle whatever employment law challenges come your way.

    Have a great weekend!

    As we reach the midpoint of 2024, it’s essential for California employers to take note of a few key legal updates that could impact their businesses. From increased minimum wages to new workplace safety requirements, the first half of the year has introduced important legal updates that require attention. This mid-year review offers five reminders on what employers should keep in mind to stay compliant with the latest laws and regulations:

    1. Private Attorneys General Act (PAGA) Reform

      California employers will be receiving immediate relief under the new Private Attorneys General Act (PAGA) reform law.  The California Legislature passed AB 228 and SB 92 on June 27, 2024, and Governor Newsom signed both bills into law on July 1, 2024.  Our analysis of the reform is set forth in our previous article here.  This article focuses on what steps California employers should be considering in light of the new reform law.  Because the new law applies to any PAGA cases file on or after June 19, 2024, employers should consider taking steps to limit the penalties that are available under PAGA (read our prior article here to learn more). 

      2. Naranjo v Spectrum Security Services, Inc. – California Supreme Court ruling in favor of employers

      The California Supreme Court’s decision in Naranjo v. Spectrum Security Services, Inc. represents a significant win for employers across the state, providing much-needed clarity on wage statement requirements and the categorization of premium pay for missed breaks. While this ruling alleviates some of the complexities surrounding California’s stringent labor laws, it also serves as a reminder that vigilance in wage and hour issues remains crucial.  The California Supreme Court ruled that if an employer reasonably and in good faith believed it was providing complete and accurate wage statements in compliance with section 226 of the Labor Code, then it has not knowingly and intentionally failed to comply with wage statement requirements.

      3. Fast food minimum wage increase July 1, 2024

      The minimum wage for California’s fast-food operators will increase to $20 per hour on April 1, 2024 under AB 1228.  The new law applies to national fast food chains, which are defined as “limited-service restaurants consisting of more than 60 establishments nationally that share a common brand, or that are characterized by standardized options for decor, marketing, packaging, products, and services, and which are primarily engaged in providing food and beverages for immediate consumption on or off premises where patrons generally order or select items and pay before consuming, with limited or no table service.

      4. Many local cities and counties across California increased their minimum wage requirements on July 1, 2024

      For example, here is a list of a few local cities and counties new minimum wage requirements effective July 1, 2024:

      • West Hollywood – $19.08
      • Los Angeles City – $17.28
      • Los Angeles County – $17.27
      • Malibu – $17.27
      • Pasadena – $17.50
      • San Francisco – $18.67
      • Santa Monica – $17.27

      See here for full list of the city and county minimum wages across California. 

      5. July 1, 2024 – Deadline for California employers to implement workplace violence prevention plan

      As of July 1, 2024, California employers are required to implement additional measures for workplace safety. This legislation compels most non-health care related businesses to review and develop certain workplace violence measures by mandating the creation, execution, and ongoing maintenance of a Workplace Violence Prevention Plan (WVPP).  For more information, read our prior article about the new requirement here.