This Friday’s Five discusses five issues California employers should remember about whether they may require credit checks from applicants or employees.  And if employers can obtain the information, what additional considerations they should take into account when using this information for employment decisions and privacy concerns.

1.      Credit checks are different than background checks.

Since January 1, 2012, Labor Code section 1024.5 restricts which positions employers can require credit checks.  It is important to note that credit reports or credit checks are different than background checks.  The law defines “consumer credit report” as “any written, oral, or other communication of any information by a consumer credit reporting agency bearing on a consumer’s credit worthiness, credit standing, or credit capacity, which is used or is expected to be used, or collected in whole or in part, for the purpose of serving as a factor in establishing the consumer’s eligibility for: … (2) employment purposes….” See Civil Code section 1785.3(c).  It is important for employers to understand the difference between obtaining a credit report versus a more general background check.

2.      California employers can only preform credit checks for a limited number of positions.

Employers are only permitted to obtain consumer credit reports for applicants/employees who meet one of the following categories:

  • A managerial position (defined as an employee who meets the executive exemption set forth in the Industrial Welfare Commission’s Wage Orders).
  • A position in the state Department of Justice.
  • That of a sworn peace officer or other law enforcement position.
  • A position for which the information contained in the report is required by law to be disclosed or obtained.
  • A position that involves regular access, for any purpose other than the routine solicitation and processing of credit card applications in a retail establishment, to all of the following types of information of any one person: (A) Bank or credit card account information. (B) Social security number. (C) Date of birth.
  • A position in which the person is, or would be, any of the following: (A) A named signatory on the bank or credit card account of the employer. (B) Authorized to transfer money on behalf of the employer. (C) Authorized to enter into financial contracts on behalf of the employer.
  • A position that involves access to confidential or proprietary information, including a formula, pattern, compilation, program, device, method, technique, process or trade secret that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who may obtain economic value from the disclosure or use of the information, and (ii) is the subject of an effort that is reasonable under the circumstances to maintain secrecy of the information.
  • A position that involves regular access to cash totaling ten thousand dollars ($10,000) or more of the employer, a customer, or client, during the workday.

 3.      If employers can conduct a credit check, employers must notify employees of certain information.

The law requires that the employer provide the following information to the applicant/employee prior to obtaining a consumer credit report:

 The notice shall inform the person that a report will be used, and shall identify the specific basis under subdivision (a) of Section 1024.5 of the Labor Code for use of the report. The notice shall also inform the person of the source of the report, and shall contain a box that the person may check off to receive a copy of the credit report. If the consumer indicates that he or she wishes to receive a copy of the report, the user shall request that a copy be provided to the person when the user requests its copy from the credit reporting agency. The report to the user and to the subject person shall be provided contemporaneously and at no charge to the subject person.

 4.      If the position is denied based upon the applicant’s/employee’s credit information, the employer must provide an additional notification.

The law requires that if an applicant/employee is denied employment “either wholly or partly” because of information obtained in a consumer credit report, the employer must provide the following information:

 Whenever employment involving a consumer is denied either wholly or partly because of information contained in a consumer credit report from a consumer credit reporting agency, the user of the consumer credit report shall so advise the consumer against whom the adverse action has been taken and supply the name and address or addresses of the consumer credit reporting agency making the report. No person shall be held liable for any violation of this section if he or she shows by a preponderance of the evidence that, at the time of the alleged violation, he or she maintained reasonable procedures to assure compliance with this section.

 5.      Employers must keep all financial information confidential. 

Disclosure of credit information obtained for an applicant or employee would be a violation of the individual’s right of privacy.  Therefore, employers must take steps to safeguard this information and ensure that only employees who have a need to know have access to the information, and that these employees understand that it is confidential information that cannot be shared even with other employees in the company that do not have a reason to know the information.

Speaking with some clients, I sense their overwhelming confusion in setting up employment policies in California. While it can be a daunting task, I remind them that the key is to approach it in a systematic process, and once the system is in place, compliance can be very easy. While there are many issues employers need to review on an ongoing basis, there are five that are a good starting point:

 1)  Meal and rest breaks

Yes, California employers are still being sued for meal and rest break violations. This should be a primary concern for all California employers, and simply part of standard operating procedures by now.

 2)  New hire process and packets

Employers should review their hiring process, including:

3)  Paid sick leave compliance

As of July 1, 2015, employers must allow employees to accrue paid sick leave under California law. I’ve written about the law, as well as the amendment to clarify the law signed by Governor Brown on July 13, 2015.

The DIR provides a great resources page every employer should review.

 4)  Exempt vs. non-exempt employee classifications

5)  Uncompensated work-time

Employers need to be careful and have policies in place to address claims from employees that they were not paid for all time worked. These claims can take many different forms:

  • Travel time may have to be paid
  • Off-the-clock work
  • On-call time
  • Pre-shift or post-shift work. In 2014, Amazon workers sued their staffing company claiming that the post-shift security check employees had to undergo should have been compensated work-time. The U.S. Supreme Court ruled in the staffing company’s favor, but nevertheless, it was a costly case for the company and required protracted litigation.

 

Even though employers allow employees to watch TV, surf the Internet, or even sleep, depending on the circumstances such on-call time, even if the employee is not doing any work, still may be required to be paid by the employer.  It has been clear since the 1940’s that employers have the obligation to pay employees when the employer requires the employee’s “readiness to serve”:

Of course an employer, if he chooses, may hire a man to do nothing, or to do nothing but to wait for something to happen. Refraining from other activity is often a factor of instant readiness to serve, and idleness plays a part in all employments in a stand-by capacity. Readiness to serve may be hired, quite as much as service itself, and time spent lying in wait for threats to the safety of the employer’s property may be treated by the parties as a benefit to the employer. Whether time is spent predominantly for the employer’s benefit or for the employee’s is a question dependent upon all the circumstances of the case.

Armour & Co. v. Wantock (1944) 323 U.S. 126, 133. Most of California Wage Orders define “hours worked” as “the time during Security Guard Sleeping2which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” Wage Order 9, subd. 2(H). As explained in Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 582, “[T]he two phrases – ‘time during which an employee is subject to the control of an employer’ and ‘time the employee is suffered or permitted to work, whether or not required to do so’ – can also be interpreted as independent factors, each of which defines whether certain time is compensable as ‘hours worked.’ Thus, an employee who is subject to an employer’s control does not have to be working during that time to be compensated under [the applicable] Wage Order.”

Courts have looked at various factors to evaluate the level of control over employees in determining whether on-call time needs to be paid by the employer: (1) whether there was an on-premises living requirement; (2) whether there were excessive geographical restrictions on employee’s movements; (3) whether the frequency of calls was unduly restrictive; (4) whether a fixed time limit for response was unduly restrictive; (5) whether the on-call employee could easily trade on-call responsibilities; (6) whether use of a pager could ease restrictions; and (7) whether the employee had actually engaged in personal activities during call-in time. See Mendiola v. CPS Sec. Solutions, Inc. (2015) 60 Cal 4th 833, 841. In addition, Courts also “take[] into account whether the ‘[o]n-call waiting time…is spent primarily for the benefit of the employer and its business.” Mendiola at 841 (citing Gomez v. Lincare, Inc. (2009) 173 Cal.App.4th 508).

In Mendiola v. CPS Sec. Solutions, Inc., security guards resided at the employer’s trailers located on construction sites they were responsible for patrolling. They were obligated to respond immediately in uniform when contacted by a dispatcher or became aware of suspicious activity. If guards left the property, they had to report where they were going, and could not be more than 30 minutes away from the site. In addition, the employer placed restrictions on the guards’ living conditions in the employer-provided trailers, and the employees could not have visitors, pets, or consume alcohol. Mendiola at 841. In addition, the California Supreme Court held that the guards’ “mere presence” was integral to CPS’s business, as “the idea that construction sites should have an active security presence during the morning and evening hours.” Id. at 841-42. Given these facts, the Supreme Court held that the security guards’ on-call hours constituted compensable hours worked and, further, that defendant could not exclude “sleep time” from plaintiff’s 24-hour shifts. Id. at 838.  Therefore, employers should consider the following five issues:

  1. Review the overall control over the employee while they are on-call.
  2. Review the geographic restriction on the employee’s movement.
  3. Is the employee’s presence or quick response integral to the business?
  4. Review the frequency that the employee is call while on standby.
  5. Analyze if other factors establish control over the employee while on-call, such as the requirement that the employee respond in uniform or drive a company car when responding to a call.

It is important for employers to carefully review the total circumstances surrounding employees who are on-call. The penalties can be astounding, and as Mendiola established, employees on-call who are even sleeping may still be entitled to pay.

Photo courtesy of Satish Krishnamurthy

In July 2015, the Department of Labor proposed regulations that would increase the salary amount employers would need to pay for employees to qualify as exempt.  If adopted, the proposal would require that employees would have to earn at least $50,440 per year in order to qualify for most exemptions in 2016.  This episode discusses how the proposal may effect California employers.

Hiring new employees? For the next job oJob offerffer, instead of relying on the old job offer letter you have a lawyer review in the 1990’s, it is recommended to review the offer letter to ensure it is up to date with current law. While some of the items discussed below are not necessarily new aspect to California law, it is always good to review the terms set out in the offer letter to ensure it includes the relevant terms, and incorporates the any changes in the law. Here are the five terms employers should consider to include in job offer letters:

1. At-will designation

It should be clearly set forth that the employee is being hired as an at-will employee, and that employment may be terminated by either party with or without notice at any time. Under California law, it is presumed that all employment is terminable at-will. California Labor Code section 2922 provides: “An employment, having no specified term, may be terminated at the will of either party on notice to the other.” The at-will doctrine means that the employment relationship can be terminated by either party at any time, with or without cause, and with or without advanced notice. Even though the law presumes all employment is at-will, it should be clearly set out in the offer letter as well.

2. Description of the job

It is a good practice to have job descriptions for all positions in a company. If the company does not have a job description, be as detailed as possible about the duties of the position the applicant is being hired for in the offer letter. This will help avoid potential disputes about whether certain duties are essential functions of the position for reasonable accommodation purposes, and could also be evidence in defending claims that the employee was misclassified as exempt. The job offer could also set forth whether the position is non-exempt or exempt, and have the duties reflect the designation.

3.  Integration Clause

Place language into the agreement that the terms set forth in the offer letter supersede any other offers or promises. This type of term is referred to as an integration clause. Including an integration clause into the offer letter will assist in countering any claim later on that other promises were made to the employee at the time of hire and the employer failed to comply with those promises.

4.  Set forth commission terms if employee is eligible for commissions

As of January 1, 2013, all commission agreements must be in writing. The agreement must be signed by the employer and the employee. Employers should review the offer letter to see if the offer letter meets these requirements. If it does not, or the commission structure is too complex to include in the offer letter, commission agreements still must be set out in writing and signed by the employer and the employee. Employers should approach the issue of commissions carefully to ensure that the agreement is properly defined. In addition, in the case of non-exempt hourly employees, employers must be careful on how the commissions will affect the calculation of the regular rate of pay for overtime purposes.

5.  Confidentiality provisions

Set forth if your company will require the employee to enter into a confidentiality agreement. If possible, attached the confidentiality agreement and have the applicant sign the agreement at the same time the job offer is accepted. The offer letter should also contain language to the effect that the applicant does not have any agreements with prior employers that would interfere with their duties and that the applicant will not use any confidential information learned at prior positions with the new employer.

Photo: Mark Seton

Many employers have new hire packets and hiring procedures, but just as important, and often overlooked by employers, is to have a process for departing employees. It is important to ensure an employee departing the company provides all items back to the company and is provided any legally required documentation, and is a good opportunity to take steps to address potential liability. Today’s Friday’s Five provides the five items that should be on California employers’ separation checklist:

1. List of documents to be provided by employer.

As I previously wrote about, employers should have a termination packet of documents that it is required to provide to separating employees, such as:

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

The Company should also consider generating its own forms requesting company property to be returned (such as laptops, parking cards, keys, etc…) from departing employees.

2. Ensure final paycheck is issued in accordance with the deadlines set by law.

The law generally requires the employer comply with the following deadlines for providing final paychecks:

  • An employee who is discharged must be paid all of his or her wages, including accrued vacation, immediately at the time of termination. This does not mean that the company cuts the check and mails it to the employee, the check must be provided to the employee at the time of termination. See below for more details about when and where final checks have to be presented to employees.
  • An employee who gives at least 72 hours prior notice of quitting, and quits on the day given in the notice, must be paid all earned wages, including accrued vacation, at the time of quitting.
  • An employee who quits without giving 72 hours prior notice must be paid all wages, including accrued vacation, within 72 hours of quitting.
  • An employee who quits without giving 72-hours’ notice can request their final wage payment be mailed to them. The date of mailing is considered the date of payment for purposes of the requirement to provide payment within 72 hours of the notice of quitting.
  • Final wage payments for employees who are terminated (or laid off) must be made at the place of termination. For employees who quit without giving 72 hours’ notice and do not request their final wages be mailed to them, is at the office of the employer within the county in which the work was performed.

3. Evaluate the need for an exit interview.Termination Meetings

Not every situation would warrant conducting an exit interview. If the separation is not amicable it may make the situation worse if conducted, or it may be an opportunity to separate on a better note. It simply depends on the situation. However, employers should consider whether it is needed to not and not simply have a policy not to conduct them.

4. Evaluate whether a severance agreement would be appropriate.

Under California law, severance is not required. However, employers can offer severance to employees for numerous reasons: there is a layoff and the employer wants to provide something to the employees, the company entered into a contract with an executive to provide severance if certain conditions were met, or the separation is high risk and there is potential litigation between the parties. If an employer offers severance payment to a departing employee, they should always have the severance agreement reviewed by an employment attorney to ensure that it contains a broad release of claims. My previous article discussed in more detail issues about severance and severance agreements.

5. Have established protocol for references and disclosing why the employee left the company within the company itself.

Employers often establish that it will only confirm the title and dates of employment for former employees, and, if authorized by the former employee, the former employee’s final pay rate. Employers do this to avoid potential claims for misrepresentation, violation of privacy, and defamation. If employers provide more information about former employees, it should be done very carefully with the guidance of employment counsel. Also, employers need to be careful about disclosing the reason for an employee departure within the company, as that may violate the former employee’s privacy rights as well. Employers should remind employees and management not to disclose this information to people in the company that do not have a reason to know.

Are you tired of employmSacramentoent lawyers’ obnoxious headlines asking if you are sick over California’s paid sick leave law yet?  I’ll spare you the play on words and get to some of the major amendments to California’s paid sick leave law, which took effect immediately upon the Governor’s signature of AB 304 on July 13, 2015.  Therefore, the amendments apply to employers going forward.  For today’s Friday’s Five, here is a summary of five of the major amendments employers should note:

1.      Employers may now use a different accrual method other than one hour of paid sick leave for every 30 hours worked.

In order to simplify the math for employers, the law was amended to provide that an employer may use an alternative accrual method as long as it is (1) on a regular basis, and (2) the employee has no less than 24 hours or three days paid sick leave or paid time off by the 120th calendar day of employment, or each calendar year, or in each 12-month period.

2.      If an employer pays out accrued paid time off to an employee at time of termination, the employer does not have to reinstate the previously accrued and unused paid sick days.

The law requires that if an employee separates from employment, but is rehired within one year, the previously accrued and unused paid sick leave must be reinstated.  This amendment clarifies that if the employer pays the accrued but unused sick leave out at the time of separation (which is not required under the sick leave law), then the employee is not entitled to reinstatement of the paid sick leave that was already paid out to them earlier.

3.      If an employer provides unlimited paid sick leave or unlimited paid time off to an employee, the employer meets its reporting requirements on the employee’s pay stub by indicating “unlimited” on the wage statement. 

4.      Employers have different options for calculating the amount of pay owed to employees while taking sick leave.

The amendment clarifies that the employer can use any of the following calculations when determining how much to pay employees while on paid sick leave:

a) For non-exempt employees, the regular rate of pay can be calculated in the same manner as the regular rate of pay for overtime purposes in the workweek.  This is a new option for employers provided under the amendment.

b) For non-exempt employees, the regular rate of pay can be calculated by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.  This method was permitted for employers to use under the original law.

c) For exempt employees, employers can calculate paid sick leave in the same manner as the employer calculates wages for other forms of paid leave time.

5.      Employers are not required to inquire into or record the purpose of why the employee uses paid leave.

Employers have many other record keeping requirements under the new law, but now it is clear that they are not required to maintain the reasons why employees used the sick leave.  The original requirement created under the paid sick leave law, and unchanged by these amendments, requires employers to document and keep records of the hours worked and paid sick days accrued and used by an employee for at least three years. Employees (as well as the Labor Commissioner) have the right to access these records. Failure to keep the required records creates a presumption against the employer that the employee is entitled to the maximum number of hours provided for under the law.

Photo: Franco Folini

1)      Gratuities

All tips are the empMoney close uployee’s property, and cannot be taken by the employer.  Labor Code section 350 states unequivocally that “Every gratuity is hereby declared to be the sole property of the employee or employees for whom it was paid, given or left for.” In addition, Labor Code section 351 clearly states that “[n]o employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer.”  For more information about gratuities, click here.

2)      Costs of photographs

Labor Code section 401 prohibits the employer from requiring employees to submit a photograph from an applicant or an employee without paying for the cost of the photograph.

3)      Cost of uniforms

Employers are required to pay for the costs of uniforms.  Now, what qualifies as a uniform?  That’s a more difficult question.

4)      Business expenses

Labor Code section 2802 prohibits employers from passing on the costs of running a business to an employee.  Therefore, an employer must reimburse its employees for any costs incurred by the employee that is in direct consequence of the employee’s work.  The primary example of this requirement is that employers must reimburse employees for mileage driven in their personal cars for work errands.

5)      Cost for medical or physical exams

If an employer requires an employee or applicant to undergo a medical or physical examination as a condition of employment, the employer must pay for the exam as required by Labor Code section 222.5.

Photo: Kevin Dooley

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

WhFourth of Julyen 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 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 note that if you were lucky enough to be born in the U.S., it is a great reason to remain in the U.S.

4.     My right to practice any profession I want 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 have an open almost free way to sell your 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.

Photo: Kim Seng