Employee document storage and retention policies: it is not cutting edge legal theory or management philosophy, but companies that think about and actively develop a plan will save large amounts of money.  The costs savings will come from being able to better defend litigation because the key documents were maintained, and it will come in the form of saving time and effort in searching for and retrieving employment documents when needed.  This Friday’s Five review five best practices for document retention for California employers:

  1. Define what is kept in a personnel file

The terms “personnel records” or “personnel file” are not defined under California law and there is considerable ambiguity about what documents should be keep in an employee’s personnel file.

While not legally binding on employers, there is some guidance from the Division of Labor Standards Enforcement (“DLSE”) expressing the following view:

Categories of records that are generally considered to be “personnel records” are those that are used or have been used to determine an employee’s qualifications for promotion, additional compensation, or disciplinary action, including termination. The following are some examples of “personnel records” (this list is not all inclusive):

        Application for employment

        Payroll authorization form

        Notices of commendation, warning, discipline, and/or   termination

        Notices of layoff, leave of absence, and vacation

        Notices of wage attachment or garnishment

        Education and training notices and records

        Performance appraisals/reviews

        Attendance records

Employers need to clearly define what they will keep (or not keep) in an employee’s personnel file so that all management understands which documents need to be placed in the personnel file of an employee and where to locate documents pertaining to employees.

2. Time records must be kept long enough and must be in a “user friendly” format

Employers must record and maintain accurate time records under California law. If the employer knows employees are not properly recording their time, the employer needs to enforce a policy to have employees accurately record their time, even if it requires disciplinary action. Also, how can time records be “inadequate”?

  • The records that do not record the employee’s actual time working. For example, the employee records their start and stop time and the same time every day even though the employer knows it changes.
  • Not keeping time records long enough. The statute of limitations can reach back four years in wage and hour class actions, and these records will be the primary issues in most cases.
  • Not recording all required information. For example, employers are required to record employee’s meal periods under the IWC Wage Orders (see section 7 – Records).
  • Not keeping the time records in a manner that is usable. Maintaining records in a form that makes reviewing the records almost impossible is almost equivalent to not maintaining them in the first place. Some thought should be put into how an employer is keeping old time record information and how that data could efficiently be reviewed in the future if needed.

3. No institutional knowledge of document storage and retention policies

Is there one person with full knowledge of the employment policies implemented by the company? Institutional knowledge about the various policies put into place by the company, when they were implemented and why they were implemented is critical knowledge. Also, this information should not reside with just one person in case that person leaves the company.

4. Consider how to store documents and whether certain documents need to be kept separately

Just as I-9 forms are routinely kept separately from other employment documents for employees in order to be able to retrieve them easily if requested by the U.S. Citizenship and Immigration Services and to ensure the information is maintained confidentially, employers should consider if any other employment documents should be store separately.

For example, if an employer has arbitration agreements with employees, the arbitration agreements may be store separately for ease of access and easy of verifying which employee has entered into an arbitration agreement.

In addition, employers should consider storing documents electronically.  I’m a big advocate of electronic storage of documents because I believe it is more secure and easier to retrieve the documents, but it there is a matter of preference.  Moreover, federal and state law may regulate whether certain documents (such as time records or I-9s) can be maintained electronically.

5. Consider having a “miscellaneous document” policy

What should employers document? Conversations with employees, reviews, days absent and the reason for the absence, performance issues (both good and bad – see below), etc…. With email and the ability to scan documents or take pictures of documents on a phone, there is almost no excuse not to have everything documented. The only issue preventing employers from documenting issues is not stressing the need to do document, and the press of business.  Employers should have a miscellaneous document retention and storage policy that allows issues to be document and store in a place that can be retrieved later.

Two cases decided in the last two months have further clarified the scope of discovery and plaintiff’s ability to pursue damages in addition to individual damages under California’s Private Attorneys General Act (PAGA).  The holdings are a bit of a mixed bag for employers, but they offer some clarification into PAGA.  This Friday’s Five is a summary of five issues employers need to understand about PAGA and the new decisions setting out the rights plaintiffs have to pursue representative actions under the statute:

1. PAGA representative actions are different than class actions.

California’s Private Attorneys General Act (PAGA) was designed by the California Legislature to offer financial incentives for private individuals to enforce state labor laws. At the time PAGA became law, the state’s labor law enforcement agencies did not have enough resources or staffing necessary to keep up with the rapid growth of California’s workforce. Therefore, PAGA allows aggrieved employees to sue as a proxy or agent of California’s state labor law enforcement agencies in collecting civil penalties for Labor Code violations. The employee must give 75 percent of the collected penalties to the Labor and Workforce Development Agency, and the remaining 25 percent is to be distributed among the employees affected by the violations.

First, because the plaintiff under PAGA is seeking penalties and not other forms of damages, a one year statute of limitations applies. This varies drastically from the four year statute of limitations that apply to most wage and hour class actions when a Business and Professions Code section 17200 cause of action is alleged.

Second, in Arias v. Superior Court, the California Supreme Court held that a plaintiff does not have to certify a class under PAGA to recover damages on behalf of all the other employees in the representative action.  However, as set forth below, courts are still deciding the scope of PAGA representative actions in terms of discovery rights and manageability issues.

2. Arbitration agreements with class action waivers are enforceable, but representative actions brought under the Private Attorneys General Act are not subject to arbitration and cannot be waived.

Many courts have been upholding arbitration agreements that contain class action waivers, including the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC.  That case held that class action waivers are enforceable, following the standards set forth by the U.S. Supreme Court in AT&T Mobility v. Concepcion.  However, in Iskanian, the California Supreme Court held that PAGA representative actions cannot be waived by employees and cannot be compelled to arbitration.  The Court held that, “we conclude that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”

3. PAGA penalties are separate from individual damages.

In August 2017, a California appellate court held in Esparza v. KS Industries that PAGA representative actions can only seek “civil penalties” permitted by PAGA.  As set forth above, the civil penalties recovered by a PAGA claim 75 percent must be allocated to the Labor and Workforce Development Agency and 25 percent to the aggrieved employees in the representative action.  The court found that PAGA civil penalties do not include unpaid wages sought by the individual plaintiff.

4. Employers defending PAGA claims must require plaintiffs to explicitly state whether they are pursuing individual damages (which must be arbitrated) or PAGA civil penalties (which cannot be arbitrated).

As the court noticed in Esparza, PAGA representative claims for civil penalties are not subject to arbitration, but claims for unpaid wages based on Labor code section 558 are not civil penalties and can be compelled to arbitration.

If the employee wants to pursue both, the employer should compel arbitration of the plaintiff’s individual claims and stay the PAGA case pending the resolution of the individual claims.

5. Employers facing PAGA cases must consider filing a motion to sequence discovery early in the case.

In Williams v. Superior Court, a case decided in July 2017, the plaintiff sought to obtain the contact information for fellow California employees who worked for defendant, Marshalls of CA, LLC.  Defendant refused to provide the contact information for the other employees, and plaintiff filed a motion to compel.  The trial court limited the ability of plaintiff to obtain contact information to the store where the plaintiff worked, but denied it as to every other California store, subject to change after plaintiff sat for his deposition and made a showing of some merit to the underlying action.

The California Supreme Court reversed the trial court’s ruling and required defendant to provide the contact information for all California employees:

Our prior decisions and those of the Courts of Appeal firmly establish that in non-PAGA class actions, the contact information of those a plaintiff purports to represent is routinely discoverable as an essential prerequisite to effectively seeking group relief, without any requirement that the plaintiff first show good cause.  Nothing in the characteristics of a PAGA suit, essentially a qui tam action filed on behalf of the state to assist it with labor law enforcement, affords a basis for restricting discovery more narrowly.

The Court was clear, however, that upon a defendant’s motion showing good cause, a trial court can ordered sequenced discovery.   The Court explained:

Marshalls reasons instead that the trial court’s imposition of a merits requirement can be justified under Code of Civil Procedure section 2019.020.  That provision sets out the general rule that the various tools of discovery may be used by each party in any order, and one party’s discovery “shall not operate to delay the discovery of any other party.”  (Id., subd. (a).)  However, if a party shows “good cause,” the trial court “may establish the sequence and timing of discovery for the convenience of parties and witnesses and in the interests of justice.”  (Id., subd. (b).)  But Marshalls did not file a section 2019.020 motion, and we thus have no occasion to decide what showing might suffice to warrant a court order sequencing discovery.

With the end of summer quickly approaching, this Friday’s Five (and next week’s post as well) covers broad topics employers should review periodically.  Today’s post covers five questions a company operating in California should be asking on a routine basis:

1. Has the company reviewed and updated the employee handbook and related policies?

As discussed in last weeks Friday’s Five about the new court decision on vacation pay in Minnick v. Automotive Creations, an employer’s policies are critical in defending claims.  Vague or out dated policies can create huge amounts of liability for employers. California’s requirements change throughout the year, and it is important that employers have a good relationship with employment counsel so that they are routinely communicating and reviewing the need to update policies based on new case law and legislation.

2. Does your company train supervisors and employees on its handbook and other policies, and does the company standby what it tells employees in these policies?

Legally drafted policies only get your company half of the way there.  Companies need to train managers and supervisors about what the policies mean and how they need to be implemented day-to-day.  Furthermore, the company needs to follow-through with what it tells supervisors, managers, and employees.  For examples, if the company maintains an open door policy, but none of the employees are utilizing the open door policy there could be a problem.  One solution is for the company to start pro-actively having open door sessions with employees to discuss their experience at the company (my post next week will discuss what should be asked during these open door sessions).

3. Has the company conducted a review of a local county and city laws that apply?

State, county and city laws regulating minimum wage and paid sick leave are numerous and California employers need to ensure they have closely reviewed they are complying with these requirements.  As Carl’s Jr. is finding out, noncompliance can have steep penalties.

4. When was the last time the company conducted an internal wage and hour audit internally? When was the last time an external lawyer or other professional reviewed wage and hour practices?

Many companies establish policies or simply continuing using policies from the past that have never been reviewed internally or externally by a lawyer or other professional.  I’ve published an HR audit list that covers a few of the essential areas that must be reviewed to lower a company’s legal exposure in California.

5. Is there an open line of communication with the employer’s payroll company and have specific wage and hour compliance issues been discussed?

The information that must be listed on employee’s pay stub is detailed, but easy to comply with.  A model pay stub published by the State Division of Labor Standards Enforcement can be found here (but note this only lists the state requirements – any other local county or city requirement will also apply).  The model pay stubs does not list paid sick leave, which employers must also remember to list on the employee’s pay stub or other writing provided to employees when they are paid.

Many payroll companies do not review the accuracy of the information listed on the pay stubs they generate, and this burden falls on the employer.  In addition to the California Labor Code requirements of the information that must be listed on pay stubs, the local requirements for reporting the amount of paid sick time available to employees must also be provided.  Employers need to proactively review and discuss these requirements with their payroll companies.

In this Friday’s Five I discuss:

  • new case decision on vacation pay and policies (Minnick v. Automotive Creations)
  • PAGA decision allowing contact information for other employees (Williams v. Superior Court),
  • new Form I-9 released and employers must start using by September 17, 2017 (download here)
  • new Notice of Rights for Victims of Domestic Violence/sexual assault/stalking required to be provided to California employees effective July 1, 2017 (download here), and
  • new law signed by Governor Brown prohibiting inquiries into litigant’s immigration status.

For good or bad, the use of AI is already prevalent and its potential uses are expanding quickly, including to the workplace.  LinkedIn is currently suing a competitor, hiQ Labs, for use of information “scraped” from the social network’s site and used for AI analysis.  hiQ uses the information gleaned from LinkedIn to predict whether employee are likely to leave their jobs.  While the issue in the lawsuit is whether outside companies have the right to use information made public on social media sites and does not involve any employment work-place privacy issues, the lawsuit has disclosed how AI is currently being used and in the workplace.  AI is quickly being adopted, and its effects will have huge ramifications for employers and employees.  This Friday’s Five discusses five impacts AI will have in the employment context:

1. Predictions of whether employees are likely to leave their jobs.

The analysis being done by hiQ Labs is a prime example of information that would be highly relevant to employers, employer’s competitors, recruiters and others.  As the Wall Street Journal article notes:

Among its services, hiQ monitors and analyzes LinkedIn profile pages to see who is polishing their résumés and liable to be poached, assigning so-called flight-risk scores to individual employees.

LinkedIn’s primary argument in suing hiQ to stops its “scraping” of LinkedIn’s information is that if LinkedIn users understood that their data was being gathered and used in this manner that they would be reluctant to share information and update their profiles.  This illustrates that there is value in the information being shared on LinkedIn when AI can analyze user’s data.  Regardless of which company has access to it, the fact that LinkedIn is suing over who has access to this data establishes how valuable the data is.  Employers are likely to begin using this data to evaluate their workforce in the near future, if it is not already occurring.

2. Set pay and performance standards.

One positive use of AI in the workplace could be as an aid to highlight good performers in a company and remind the managers to provide positive feedback or raises to high performing employees to increase employee retention.  Another potential use is analyzing data to set pay scales commensurate with the market for a particular locale or skill set.

3. Predictions of potential litigation.

Just as AI has been used to predict future mechanical failures of engines or other devices based on data history and monitoring the device, AI will likely be used to highlight employees who may pose a litigation risk.  Just as hiQ sets flight-risk scores, it is conceivable to set litigation-risk scores based on data.  Not commenting on whether this is appropriate (or legal) to do, the reality is that AI can and will be used for this analysis.

4. Help evaluate candidates interviewing for a job.

AI will likely be used in helping companies evaluate candidates for a job.  AI could evaluate education, experience, and other data obtained through the internet to predict an employee’s likely fit with the company as well as skill set.  There are laws already in place about employer’s use of certain public information, such as credit history and criminal backgrounds that must be excluded from such analysis, employers would have to approach this type of analysis cautiously to ensure compliance with existing laws.

5. Will there be a backlash for use of AI in the employment context, and will it be regulated?

Employers are already regulated on how they can use background information about candidates and employees under the Fair Credit Reporting Act (FCRA) and California’s Investigative Consumer Reporting Agencies Act (ICRAA).  Similarly, AI is using background information known about a person and comparing that data to a wide data set to glean likely future outcomes.  There could be a case made that just as the FCRA and ICRRA create obligations to provide notice to employees about the background information that an employer is relying upon to make an employment decision for the employee to correct any mistakes in that information, employees should be able to see the data being relied upon in the AI analysis.  However, given that AI can gather and process a huge amount of data, it might be impossible to review all of the data.  Moreover, the data relied upon by AI about the employee’s background may be very accurate, but the algorithms relied upon by the AI might weight information in a way that does not result in accurate predictions.  Don’t forget, AI predictions are just that – predictions.  Nevertheless, employers are always looking for a small advantage over competitors, and AI may be one additional tool to do this.  However, like many other areas of technology, the legal system is slow to adopt to technical advancements.  AI in the workplace exists and is being used, employers and the legal system needs to start considering its ethical and legal parameters.

In this Friday’s Five I recommend books that I am either reading and have read related to managing employees or a business.  I hope everyone is having a great summer.

 

1. Manager Onboarding: 5 Steps for Setting New Leaders Up for Success

By Sharlyn Lauby

 

2. 101 Tough Conversations to Have with Employees: A Manager’s Guide to Addressing Performance, Conduct, and Discipline Challenges

By Paul Falcone

 

3. 101 Sample Write-Ups for Documenting Employee Performance Problems: A Guide to Progressive Discipline & Termination

By Paul Falcone

 

4. How to Win Friends & Influence People

By:  Dale Carnegie

A classic business book not often thought of as a human resources book.  However, many of the principles set out in this book are great practices for human recourse managers.

 

5. The Thank You Economy

By: Gary Vaynerchuk

Anther book not thought of as a traditional human resources book, but many of the lessons set out by Gary on how to market and build a successful business in today’s economy equally apply to human resources and managing a workforce.  Being authentic and focusing on one-on-one interactions with people will always be a good practice, no matter how technical the workplace becomes.

Photo by Ben White on Unsplash

USCIS released a revised version of Form I-9, Employment Eligibility Verification. The revised I-9 was released on July 17, 2017, and employers can use this revised version or continue using Form I-9 with a revision date of 11/14/16 N through September 17, 2017. On September 18, 2017 employers must use the revised form with a revision date of 07/17/17 N. Employers must continue following existing storage and retention rules for any previously completed Form I-9.

The City of Los Angeles recently assessed Carl’s Jr. Restaurants $1.45 million in fines for violation of the City’s minimum wage law ordinance.  The City sought these penalties against Carl’s Jr. for allegedly failing to pay 37 employees the applicable Los Angeles minimum wage rate of $10.50 per hour from July 1, 2016 to December 31, 2016.  The city also claimed that the company failed to post the required notices required by the ordinance and did not allow investigators access to two locations.  This astronomical fine imposed by the city seems out of proportion for the size of the number of employees affected, but it is a stark reminder for employers about how serious any violations of the local ordinances could be.  Here are five lessons for Southern California employers from this incident:

1. Enforcement of local ordinances is taking place.

The cities that have passed local ordinances are enforcing the laws strenuously.  The City of Los Angeles has especially been active in investigating potential violations.  First hand I have had a number of clients who have been contact by the city seeking information about compliance with the ordinance.  The investigators have appeared at workplaces in person and also contacted the employers over the phone. As discussed in item number five below, it is important for employers to train staff about how to appropriately respond to questions with people entering the workplace asking for information about the employer’s employment practices.

2. Review pay rates to ensure compliance with local ordinances.

Employers need to remember that even if their business is not located in a city or county that does not have a minimum wage or paid sick leave requirement, this does not mean your company can ignore the new laws.  Most of the ordinances require compliance with their local laws if any employee works two hours within the city or county even if the employer is not based within that city or county.  For example:

  • Santa Monica:  Law applies to any employee working a minimum of two hours within Santa Monica in a given week (even if employer is located outside of Santa Monica).
  • City of Los Angeles: Ordinance applies to “[a]n employee … who performs at least two hours of work in a particular week within the City of Los Angeles….”
  • County of Los Angeles: Ordinance applies to “[a]nyone who works at least two hours in a one-week period within the unincorporated areas of Los Angeles County is entitled to the County minimum wage for the hours worked in the unincorporated area of the County.”
  • Pasadena: Applies to employees who perform at least two hours of work in Pasadena.
  • Malibu: “This ordinance applies to employees who perform at least two hours of work in a particular week within the Malibu city limits.”

3. Penalties for non-compliance are substantial.

An employer who violates the City of Los Angeles’ minimum wage requirements is liable to the employee for payment of back wages and an additional penalty of $100 for each day that the violation occurred or continued.  Where retaliation has occurred, the employee is entitled to reinstatement and a trebling of all back wages and penalties.

In addition, employers are subject to administrative fines as set forth below:

Failure to post notice of the Los Angeles Minimum Wage rate

 $500 per day per employee
Failure to allow access to payroll records $500 per day per employee
Failure to maintain payroll records or to retain payroll records for your years $500 per day per employee
Failure to allow access for inspection of books and records or to interview employees $500 per day per employee
Retaliation for exercising rights under the ordinance $1,000 per day per employee
Failure to provide employer’s name, address, and telephone in writing $500 per day per employee
Failure to cooperate with the Division’s investigation $500 per day per employee
Failure to post Notice of Determination to employee $500 per day per employee

4. Ensure all poster and notice requirements are complied with.

The cities and counties that have local minimum wage and paid sick leave ordinances are making the notices relatively easy to obtain from their websites.  For example, here are a few links published by various cities in the Los Angeles area:

Santa Monica notices:  https://cityofsantamonica.app.box.com/s/nuccal4on935m43p0nhmuzgy65f5mbwl

City of Los Angeles notice: http://wagesla.lacity.org/#information

County of Los Angeles notice: http://file.lacounty.gov/dca/cms1_245570.pdf

Pasadena notice:  http://www.cityofpasadena.net/minimumwage/

Malibu: http://www.malibucity.org/minimumwage

5. Implement policy and train staff and managers about how to respond to investigators.

All staff should receive training about how to respond if contacted by anyone who indicates that they are from a government office and are seeking information about the workplace.  It is important for the employer to be able to identify and confirm that the investigators are who they are reporting to be and that they are actually working for the federal, state or local government.  Once their identify has been confirmed, employers need to designate who from the company will gather and communicate the relevant information to the investigators in a timely manner.  The person designated by the employer should have experience in dealing with investigations, an understanding of the company’s policies and the local legal requirements.  Finally, the employer should address whether they need the assistance of legal counsel to assist in the investigation.

American FlagI published this post the last couple of years just before the Fourth.  Thinking back on it again this year I want to publish the same post, and hopefully I’ll be able to keep publishing it for many years to come.  Hope you have some time this weekend for put aside your work for a bit this weekend and enjoy some time with your family.  Happy Fourth!

Five things I’m thankful for this Fourth of July:

1.     For the great risk and sacrifice our Founding Fathers took to establish the country. 

When learning about the Founding Fathers in high school history class I did not have a perspective about the risks the Founders took in establishing the country.  Only now that I have a business, a family, and am relatively successful, can I realize the huge risks that the Founders took.  By all means, they were the establishment, the elite of the American society, if anyone had an interest in preserving the status quo it was them.  It is great that their sacrifices of life (theirs and their family members) and their fortunes, helped build the foundation we benefit from today.

2.     The ability to speak freely and practice or not practice any religion I want.

It is great being able to say what you want to say freely and believe in whatever you want.  It is also great be free to practice or not practice any religion you want.  We live in a very tolerant society, and it is even better when the government is not telling you how to live your life.  It is important to remember that throughout history, this has been the exception for how a government normally behaves.

3.     Our Country’s ability to attract creative people.

People that like creating things and being productive want to practice their trade where the government will basically leave them alone and provide a good environment to protect their gains derived from their hard effort (see item #5 below).  The U.S. provides this environment, and that is why so many people come to the U.S. to create a business or to practice their trade.  It is also important to recognize how lucky we are to be born in the U.S.

4.     My right to practice any profession and unlimited resources to learn the required skills.

No one is dictating what students need to be after they graduate high school or college.  Everyone is free to pursue their interest, and the market decides the value of the effort.  With basically any information freely available on the Internet, anyone can learn almost any skill, and like no other time in human history individuals have an almost free way to sell their services or products over the Internet.  In your mid-40’s and want to make a career change?  Perfect, and you don’t even need to go back to school as the information is freely available on the Internet.  Didn’t finish college and are 20 years old with an idea?  Perfect.  Venture capitalists don’t care about your pedigree, they basically are only interested if you work hard and don’t give up.

5.     Our legal system.

Yes, it sounds trite.  But while I don’t think our legal system is perfect by any means, it is the best system established in the history of mankind.  Everyone living in the U.S. presently is very lucky to have this benefit.  It is a foundation for many of the items I mentioned above.  Because people have a good basis for predicting the outcomes of their actions, such as being able to retain property legally obtained, and knowing if someone breaches a contract there will be repercussions, it creates an environment that attracts hard effort and the best talent from around the world.  This is why the U.S. has been the leader in ideas and new businesses.  However, just because the system is established it does not mean our work is done.  We have to be vigilant not to lose the fairness, reasonableness, and lack of corruption in the legal system.

Happy Fourth of July.  I have to go start the grill.