1) Who owns a tip?

California law is clear that voluntary tips left for an employee for goods sold or services performed belong to the employee, not the employer. Labor Code section 351 provides, “No 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…. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.”

2) Is employer mandated tip pooling legal?

Yes. In the seminal 1990 case on tip-pooling, Leighton v. Old Heidelberg, Ltd., the court held that an employer’s practice of tip pooling among employees was not prohibited by section 351 because the employer did not “collect, take, or receive” any part of a gratuity left by a patron, and did not credit tips or deduct tip income from employee wages. The court relied upon the “industry practice” that 15% of the gratuity is tipped out to the busboy and 5% to the bartender, which was “a house rule and is with nearly all Restaurants.” However, owners, managers, or supervisors of the business cannot share in the tip pool.

3) When do tip tips left on credit cards have to be paid, and can a deduction made for processing the credit card transaction?

If a patron leaves a tip on their credit card, the employer may not deduct any credit card processing fees from the tip left for the employee. Moreover, tips left using a credit card must be paid to employees no later than the next regular payday following the date the credit card payment was authorized. See Labor Code § 351.

4) Does California allow an employer to credit a portion of the employee’s tips towards minimum wage?

No. While some states provide the employer with a “tip credit”, California law does not allow this. However, with the recent passage of the increase in California’s minimum wage from $8 per hour to $9 per hour on July 1, 2014, and then to $10 per hour on January 1, 2016, there is more discussion of examining whether a tip credit should be considered in California. However, current law does not allow employers to “credit” an employee’s tips towards the minimum wage requirement for each hour worked.

5) Do tips change an employee’s regular rate of pay for overtime calculations?

No. Because tips are voluntarily left by customers to employees, tips do not increase an employee’s regular rate of pay used to calculate overtime rates.

Generally, employees have a privacy expectation in their personnel files, contact information, and work related information. However, this expectation of privacy is not limitless, especially when the employee publically airs his or her work experiences on social media sites for the public to see. Courts have held that employees can waive this right to privacy once they make disclosures in public for everyone else to read via social media networks.

For example, in a case not in the employment context, a California court reviewed the issue of whether an author who posts an article on myspace.com can state a cause of action for invasion of privacy and for intentional infliction of emotional distress against a person who submits that article to a newspaper for republication. The case, Moreno v. Hanford Sentinel, Inc. involved a college student who had moved away from her home town of Coalinga, California. She wrote “An ode to Coalinga” and posted it on her site on MySpace.com. The ode badmouthed her hometown. Six days after publishing it on MySpace, she took the writing off of the site, but the town’s high school principal submitted the writing to the local newspaper for publication. The newspaper republished the ode in the letters to the editor section and listed Moreno’s full name even though she only used her first name on her MySpace page. The ode must have contained some serious dirt on the city, as it resulted in death threats against Moreno’s family, and eventually forced her family to close a 20 year old business and move out of town.

Moreno sued for invasion of her privacy alleging that her post on MySpace was only supposed to be viewed by a few of her friends, and because she removed the post six days after publishing the article. The court rejected Moreno’s theory that the newspaper’s publication violated her right to privacy because her post to MySpace was made virtually to everyone with an Internet connection. The Court reasoned that, “[Moreno’s] affirmative act made her article available to any person with a computer and thus opened it to the public eye. Under these circumstances, no reasonable person would have had an expectation of privacy regarding the published material. As pointed out by appellants, to be a private fact, the expectation of privacy need not be absolute.” Therefore, the court held that “the fact [Moreno] expected a limited audience does not change the above analysis. By posting the article on myspace.com, [Moreno] opened the article to the public at large. Her potential audience was vast.” The court concluded that Moreno therefore could not asserted a cause of action for invasion of her right to privacy against the newspaper.

Even though this case is not involving employment information, a similar analysis would apply to an employee who posts information on social media about workplace issues. Once the employee places the information about his or her work circumstances on social media, this greatly reduces the employee’s privacy in the subject matter. However, an employer should be cautious, and use common sense in responding to such posts. For example, if an employee posts negative information about the company on social media, it would obviously not give the employer a right to disclose the employee’s health information and documents from the employee’s personnel file. Alternatively, if the employee posts about how bad an employer treated him or her, the employer would have the right to publically set the record straight with facts specific to rebut the allegations made by the employee.

Employers should use common sense in responding publically to an employee’s or former employee’s posts on social media and keep any discussions limited to the facts and issues raised by the employee. Furthermore, employers should approach situations with caution when an employee’s posts on social media are password protected and only friends of the employee can view the post. Hacking or gaining access to social media posts under false pretenses is most likely illegal, and would tilt the analysis back into the employee’s favor that the information was not disclosed to everyone and, therefore, would be considered private. In addition, employers may never retaliate against employees for making complaints via the internet or otherwise, and should be careful in making employment decisions based on employees’ complaints about workplace issues even if made on the Internet.

With Governor Brown’s signing of the bill raising California’s minimum wage to $10.00 per hour by January 2016, there are a few new considerations this triggers for California employers.  This quick video discusses the increase in guaranteed salary employers must pay in order to for employees to qualify as exempt. 

//www.youtube.com/embed/hQk14P9aMJI

Yesterday, Governor Brown signed into law SB 462 which amends Labor Code section 218.5 to only allow employers to recover their attorney’s fees and costs upon a finding by the court that the employee brought the claim in bad faith. This Labor Code section applies to actions for nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions.

Prior to this amendment, Labor Code section 218.5 permitted the employee or the employer to recover their attorney’s fees and costs if they prevailed in the underlying action – and there was no need for the employer to make this harder showing that the employee brought the case in bad faith in order to recover its fees and costs. This amendment now makes it harder for employers to recover attorney’s fees and costs upon prevailing in a case involving unpaid wages.

The new decision in Beaumont-Jacques v. Farmers Group examines the test in determining a worker’s independent contractor status. In applying the “economic realities” test set forth by the California Supreme Court in S.G. Borello & Sons, Inc. v. Dept. of Industrial Relations, the Court focused on whether the worker had “meaningful discretion with reference to her efforts” in making the determination about whether her classification as an independent contractor was proper.

Case Facts
In this case, Plaintiff had an agreement with the company that set forth both parties understood and agreed Plaintiff would be working as an independent contractor. The agreement required Plaintiff to conform to the company’s regulations, operations, and certain standards. The agreement provided that either party could terminate the relationship at-will. Moreover, Plaintiff had “meaningful discretion” by recruiting agents and training them to work for the company. She would determine her own hours, vacation schedule, supervising her own staff, remitting payroll taxes for her own staff, paying her own expenses such as office lease, marketing costs and telephones. She also deducted these costs as a business expense in her personal tax returns and identified herself as self-employed in the returns.

Court’s Analysis
The court stated that the “pivotal inquiry looks at the ‘control of details’ – i.e., whether the [company] has ‘the right to control the manner and means of accomplishing the result desired.” As the court noted, however, this does not mean that once the company requires certain standards from the worker that this would automatically make the worker an employee:

The California Supreme Court has declared that “the owner may retain a broad general power of supervision and control as to the results of the work so as to insure satisfactory performance of the independent contract—including the right to inspect [citation], the right to make suggestions or recommendations as to details of the work [citation], the right to prescribe alterations or deviations in the work [citation]—without changing the relationship from that of owner and independent contractor . . . .” (McDonald v. Shell Oil Co. (1955) 44 Cal.2d 785, 790 (McDonald).)

The court explained that the key issue is that the company has the right to “oversee the results, but not the mean, of the work in question” in order for the independent contractor status to be upheld.

Applying this test in this case, the court held that Plaintiff was properly classified as an independent contractor because the Defendant did not control “to any meaningful degree the means by which [Plaintiff] performed and accomplished her duties” even though Plaintiff had to attend meeting with the company and was held accountable to reach very specific objectives. Finally, the court held that the fact that the agreement at issue here which allowed both parties to terminate the relationship upon 30-days’ notice did not support Plaintiff’s assertion she was an employee. Because the relationship could be terminated by either Plaintiff or the company, the court did not provide this issue any weight.

However, even though the court found that the Plaintiff in this case was properly classified as an independent contractor, employers should be careful in making independent contractor classifications. The relatively new Labor Code provisions adopted in 2012 added new penalties for “willful misclassification” of employees as independent contractors which cannot be treated lightly.

The Private Attorneys General Act (PAGA) is a Labor Code provision that permits aggrieved employees to recover civil penalties that are only recoverable by the California Labor and Workforce Development Agency (LWDA) and the Labor Commissioner. PAGA expands the scope of penalties available through wage and hour lawsuits.  PAGA is sometimes referred to as the “bounty-hunter law” because it allows a plaintiff to recover these civil penalties that were only recoverable by the Labor Commissioner, but it requires that the plaintiff provide 75% of the civil penalties recovered to the LWDA and the remaining 25% to the aggrieved employees.

However, as a result of frivolous lawsuits under PAGA, the legislature amended the law in 2004 to require plaintiffs to exhaust administrative remedies prior to commencement of a civil action under PAGA. Therefore, in order to exhaust the administrative remedies, a plaintiff must send a letter via certified mail to the LWDA and the employer listing the specific Labor Code violations, including the facts and theories to support the alleged violations. Then the LWDA may then send a letter back to the plaintiff informing them that it will or will not be pursuing the case. If the LWDA responds that it will not pursue the case, or simply does not respond within 30 days, the plaintiff may then proceed with a civil lawsuit to collect PAGA penalties.

Because the plaintiff must send this notice to the LWDA and the employer, the employer receives some advance notice about a potential lawsuit. And if the notice is properly drafted by the plaintiff, the employer should be able to understand the plaintiff’s legal theories and alleged violations. It is also important the employer contact employment counsel as soon as receiving a PAGA letter to the LWDA. This is because the employer has a short time period (33 days) to “cure” any alleged violations. The employer can correct any alleged violations, and provide written notice to the plaintiff and the LWDA describing the actions taken and that the plaintiff cannot recover PAGA penalties. It is critical that the employer review whether or not it should utilize this safe harbor cure provision to prevent plaintiff from recovering PAGA penalties with counsel. Quick action by the employer could preclude plaintiffs from being able to recover PAGA penalties before the lawsuit even begins.

Being named as a defendant in a class action lawsuit can be overwhelming, especially for a quickly growing company. However, with planning, a company can minimize the impact of the litigation on its existing operations and put forth the best defense. Here are seven items a company can do as part of this planning process when it is first notified of an existing lawsuit.

1. Contact employment counsel.
A lawyer who has experience in employment law and class actions should be contacted as soon as possible. There are certain deadlines that begin to run when a lawsuit is filed, and any delay could adversely affect the company’s defense. If the company does not know of an employment lawyer, a good start is to reach out to trusted advisors for recommendations, such as the company’s corporate lawyer or accountant. Wage and hour litigation, especially in California, is very unique and it is recommended that the company utilize a lawyer that has experience in this area.

2. Review allegations with counsel to see if the safe harbor provision of the Private Attorney General Act (PAGA) could apply.
With the advice of counsel, there should be a review of the allegations in the complaint, and if the Plaintiff is seeking damages under PAGA, the PAGA notice sent to the Labor Workforce & Development Agency (“LWDA”). PAGA provides the employer a short window of time (33 days from receiving the PAGA notice) to “cure” any alleged violations. If the employer cures the problems within the time period, the Plaintiff cannot recover penalties under PAGA. Whether or not any items need to be cured, and the process for utilizing this safe harbor should be reviewed closely with counsel.

3. Gather time records and personnel files for the Plaintiff.
The personnel file for the named Plaintiff will have to be produced early in the case. In addition, the information in the personnel file will (hopefully) document any performance issues or other possible defenses the company has to the Plaintiff’s allegations. Also, if the company has implemented an arbitration agreement, it will be important to determine if the Plaintiff has signed it and whether or not there is an argument that in signing the agreement the Plaintiff cannot bring a class action.

4. Begin constructing a list of all employees who have worked in similar positions as the Plaintiff during the last four years (which is likely the statute of limitations).
In California, the statute of limitations for most wage and hour class actions is four years from the date the complaint is filed. Therefore, the employees who have worked in the same or similar positions as the Plaintiff will likely be the group of employees the Plaintiff is seeking to represent in the class action. It is important to know how many of these employees there are. For example, if there are too few this could be a defense to class certification.

5. Gather employee handbooks and policies that were in effect during the last four years.
The litigation will likely revolve around what policies the company had in place, and whether the policies were legally compliant. The company’s counsel will have to review these policies and handbooks. It is also likely that the company will have to produce these early in the litigation as well.

6. Review any applicable insurance policies.
The company should review all insurance policies it has to see if any of them could potentially cover the litigation. Most employment practices liability insurance (“EPLI”) policies exclude class action lawsuits from coverage, but there may be coverage for defense costs, or there may be something unique about the litigation facing the company that triggers coverage. It is also important to assess whether the lawsuit needs to be tendered to the insurance company.

7. Develop a plan about how to communicate the existence of the class action with current employees.
Word usually starts to spread quickly among the employees about the existence of the lawsuit. The company, with advice from counsel, should determine whether it wants to be proactive about communicating with the employees about the lawsuit, as well as what can and cannot be said to employees. At the minimum, a person within the company should be designated to handle any questions about the lawsuit. This will ensure a consistent message is used.

Who was the first person to recognize Steve Jobs’ potential and offer him a job? It was Nolan Bushnell. By the way, Bushnell is also the founder of Atari, co-inventor of the video game Pong, founder of Chuck E. Cheese, and is a serial entrepreneur. Given Bushnell’s track record in business, and having the badge of honor of the first person to hire Steve Jobs is more than enough evidence that managers, CEO’s, and human resources personnel should listen to his thoughts on hiring.

Bushnell’s recently published book, Finding the Next Steve Jobs, sets forth what he refers to as “pongs”, or general flexible rules managers should abide by in order to find, hire, and retain the best and most creative employees. I starting reading the book after I was fortunate enough to meet Nolan at Paul Allen’s Living Computer Museum opening in April [see picture – from left to right: Chris Espinosa (Apple’s 8th employee), Nolan Bushnell, Bob Frankston (co-creator of VisiCalc), Robert Zaller (co-founder of MITS and co-inventor of the Altair), me, and Eric Zaller]. Bushnell makes some excellent points in regards to finding and hiring the best and most creative employees and provides some examples on how to interview applicants to see their true personalities. The following are a few points Bushnell discusses in the book, and a very good reminder to anyone involved in the hiring process.

Creative employees are arrogant.
Only the arrogant have the strength to push for their ideas. They will continue to push their ideas far past the point any other individual would have relinquished to the pressure to give in or to conform to the “norm.” Arrogance does have its place, it is the vehicle creatives use when their solutions do not match anyone else’s views, which must be the case by definition of being creative. I’ve written before that arrogance can buy a company a lot of lawsuits, especially if a manager or the CEO is arrogant. An arrogant employee cannot create the same level of liability for a company, but they still must proactively be handled and discussed with other the other members of the team. On the other hand, managers and a CEO must be able to manage their arrogance in order to avoid looking like a bully, buying the company a lot of litigation.

Hire creative people and find a position for them. Don’t hire for a position.
Bushnell advocates the idea that a company can find great employees through everyday interactions with people. The truly creative and passionate people will standout, it does not matter what job they are doing, their skills will carry over to their work in any job.

Ignore the applicant’s resume during the interview.
Bushnell also provides some great examples of how to conduct an interview to determine if the applicant is a good fit for the company. He recommends asking applicants about their top ten favorite books, listening to how they describe their life (“The passionless tend to be blamers.”), and asking applicants questions that have no right answers. This allows the interviewer to see how the applicant analyzes a problem.

Finding the Next Steve Jobs is a great resource for anyone in the human resources profession, and for anyone who has the responsibility of finding great employees for their company.

Employees of AirTouch who worked for the cellular provider filed a putative class action alleging that the AirTouch employees were entitled to additional wages under California’s “reporting time pay” requirements. The plaintiffs alleged that they were owed reporting time pay for days on which they were required to attend store meetings, which lasted only a short period of time, but were not scheduled to work after the meetings.

California law requires an employer to pay “reporting time pay” under the applicable Wage Order, which states:

Each workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee’s regular rate of pay, which shall not be less than the minimum wage.

AirTouch would schedule store meetings that all employees were required to attend.  The meetings were scheduled at least four days in advance and were usually held on a Saturday or Sunday before the stores opened.  The meetings lasted from one hour to an hour and a half. Plaintiffs argued because the employees were required to report for the work meetings, which only lasted one to one and a half hours, and then did not work after the meetings, the employees were entitled to two hours of pay under the reporting time pay requirement. 

In rejecting plaintiffs’ argument that the Wage Orders required employers to always pay employees two hours of work when required to report to work, the court stated the following:

To simplify, the issue may be framed by the following question: If an employee’s only scheduled work for the day is a mandatory meeting of one and a half hours, and the employee works a total of one hour because the meeting ends a half hour early, is the employer required to pay reporting time pay pursuant to subdivision 5(A) of Wage Order 4 in addition to the one hour of wages?

The answer to this question is no, because the employee was furnished work for more than half the scheduled time. The employee would be entitled to receive one hour of wages for the actual time worked, but would not be entitled to receive additional compensation as reporting time pay. Although somewhat lengthy and cumbersome, Wage Order 4’s reporting time pay provision is not ambiguous. There is only one reasonable interpretation of subdivision 5(A) as it pertains to scheduled work—when an employee is scheduled to work, the minimum two-hour pay requirement applies only if the employee is furnished work for less than half the scheduled time.

It is important to note a few critical facts of this case. The employer scheduled the meeting times and provided employees with at least four days’ notice of the scheduled meetings. Also, the employees always worked at least half the duration of each scheduled period for the meetings. The case, Aleman v. AirTouch Cellular can be read here.

Your company has updated its employee handbook, but the work is not over in California. Here are a few reminders of additional steps employers should review after conducting a handbook update and on a periodic basis. Of course this list is not comprehensive, but it comprises of a few items that sometimes take a backseat to the employee handbook update.

1. Ensure wage notice statements are issued and are correct.

Labor Code section 2810.5 requires employers to provide written notice to employees about specific employment items. For example, the law requires that employers provide notice to employees of their rate(s) of pay, designated pay day, the employer’s intent to claim allowances (meal or lodging allowances) as part of the minimum wage, and the basis of wage payment (whether paying by hour, shift, day, week, piece, etc.), including any applicable rates for overtime. The notice must also contain the employer’s "doing business as" names, and that it be provided at the time of hiring and within 7 days of a change if the change is not listed on the employee’s pay stub for the following pay period.  The recommended notice published by the Division of Labor Standards Enforcement can be downloaded here.  Also the DLSE publishes frequently asked questions that address many issues regarding the notice here. 

2. Start Using New Form I-9 By May 7, 2013.

By May 7, 2013, employers will be required to use the new I-9 Form. The new Form I-9 can be downloaded from the U.S. Citizenship and Immigration Services website here. It would be a good time to review the “Handbook for Employers, Guidance for Completing Form I-9” published by the USCIS.

3. Place all commission agreements in writing.

Beginning January 1, 2013, when an employee is paid commissions, the employer must provide a written contract setting forth the method the commissions will be computed and paid. The written agreement must be signed by both the employer and employee. Commission wages are “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Commissions do not include (1) short-term productivity bonuses, (2) temporary, variable incentive payment that increase, but do not decrease, payment under the written contract, and (3) bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.

4. Conduct pay stub audit.

Under Labor Code 226, employers must keep copies of employees’ itemized pay statements for at least three years, at the site of employment or at a central location within the state of California. The law was amended, and as January 1, 2013 it clarifies that the term “copy” means either a duplicate of the statements provided to employees, or a computer generated record that shows all information required under Labor Code 226. In addition, the law sets a new deadline for employers to either provide a copy or permit the employee to inspect the personnel file within 30 days after the employer receives the request.

5. Ensure all personnel records are maintained properly.

When reviewing which records should be maintained in an employee’s personnel file, it is important to keep in mind why an employer would ever have to produce a personnel file – to support its employment based decisions. Therefore, employers should typically maintain personnel files with the following documents: signed arbitration agreements, sexual harassment compliance records for supervisors, sign acknowledgements of policy by employee (for example, confidentiality/proprietary information agreements, meal and rest break acknowledgments, handbook acknowledgments), Wage Theft Protection Act notice, commission agreements signed by both the employer and employee, warnings and disciplinary action documents, performance reviews, documents of any grievance concerning the employee, documents pertaining to when the employee was hired, records pertaining to last day of work and documenting reason for departure from employment.