Search record meal breaks

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

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

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

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

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

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

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

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

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

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

3. Meal break attestations should be recorded electronically.

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

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

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

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

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

4. Timekeeping software must record edits to time entries.

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

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

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

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

With the increased interest in cryptocurrencies, like Bitcoin and Ethereum, the employment lawyer in me started thinking about whether it would be legal for employers to pay employees in cryptocurrency.  NFL player Sean Culkin was already one-step ahead of me, and last month said he may want his $920,000 salary from the Kansas City Chiefs paid in Bitcoin.  Here are five issues employers should understand about cryptocurrencies and the blockchain, and how it will likely impact the employment setting in the next few years:

1. What is a cryptocurrency and the blockchain?

Cryptocurrencies, such as Ethereum and Bitcoin, are virtual currencies that exits on the blockchain.  A blockchain is a type of database, but by using blockchain technology it is much more secure than a standard database and allows many different people to access and record transactions at the same time.  At the time of publishing this article, Bitcoin and Ethereum are the two largest cryptocurrencies (“crypto”) by market capitalization.  More information about cryptos can be read here.  A very detailed explanation about cryptos and how blockchains work can be read here.

2. Can employers pay wages in forms other than U.S. currency, such as in Bitcoin or Ethereum?

Paying employees in crypto could be used to attract talent or make payments to employees located around the world easier for a multinational company.  But would it be legal?  Under federal law, the Federal Labor Standards Act (“FLSA”) mandates “payments of the prescribed wages, including [minimum wage and] overtime compensation, in cash or negotiable instrument payable at par.” 29 CFR § 531.27(a).  Presumably, one could make the case that a payment to an employee in crypto would be a payment “at par” as long as the conversion rate was equal to the applicable minimum wage rate or other required salary amounts to meet the definition of an exempt employee.  Indeed, the Department of Labor has stated in the past that employers could combine the value of U.S. Dollars and foreign currency “in order to satisfy the minimum salary requirement for the application of the Fair Labor Standards Act (FLSA) executive, administrative, and professional exemption.”  If crypto is accepted as a valid currency, it seems reasonable that crypto should be treated similarly to foreign currencies in this regard.

Under California law, Labor Code section 200(a) defines wages as “all amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation.” There is no specification that wages must only be paid in U.S. Dollars.  California courts have also held that wages are “not only the periodic monetary earnings of the employee but also the other benefits to which he is entitled as a part of his compensation.” Wise v. Southern Pacific Co. (1970).  Wages can include money, room, board, clothing, vacation pay (a form of deferred compensation) and sick pay.

California Labor Code section 212 also prohibits employers from paying employees in “script, coupon, cards, or other thing redeemable, in merchandise or purporting to be payable or redeemable otherwise than in money.”  This section was designed to make it illegal for employers to pay employees with a coupon that was only redeemable at the “company store”, a past practice documented in the song “Sixteen Tons” written by Merle Travis.

A California court explained, “The accepted purpose of Labor Code section 212 is to prevent employers from paying wages by giving orders … payable only in goods, or orders of an indefinite nature not payable on demand, but at some future time, or paychecks which cannot be honored because of the drawee’s insufficient funds.”  Brown v. Superior Court (2011).  However, since cryptocurrency is a form of “money,” and Labor Code section 212 does not specifically require U.S. currency, there is an argument that section 212 does not prohibit payment of wages in cryptocurrency.  As set forth above, “wages” under California Labor Code section 200 can take many forms, not just fiat currency.

Until there is further guidance on this issue under the FLSA and California law, employers who are looking to pay employees in crypto could take a hybrid approach.  The employer could avoid many of these foundational issues by paying the employee minimum wage or the required salary needed to meet an exemption in U.S. Dollars, and then offer the employee additional payment in crypto.  While employers considering this type of hybrid approach would still need to be careful not to run afoul various federal, state, and local regulations, the approach would remove some of the more fundamental issues that the legal system will need time to develop regulations to catch up to the technology.

3. California’s additional restrictions on forms of wages.

Employers considering paying employees in crypto would also need to navigate other areas of the California Labor Code.  For example, Labor Code section 212 California requires that wages must be payable without discount.  Therefore, any transaction fees that an employee must pay to redeem or access the cryptocurrency would violate this provision.  Moreover, Labor Code section 212 requires payments by “order, check, draft, note, memorandum, or other acknowledgement of indebtedness” to show the name and address of an establishment within California where the instrument can be redeemed.  Since crypto is virtual, it is an open question regarding how this requirement would apply to payments made to employees.  It also raises the potential argument that since crypto currency is not “negotiable and payable in cash, on demand…at some established place of business in the state,” it is not a valid form of “money” to make payments to employees.  On the other hand, it could be argued that crypto is redeemable anywhere in California with an internet connection, and an employee can “cash” their crypto into their bank account almost instantaneously.

4. Value fluctuation issues.

With the volatility of cryptocurrency, there could also be potential issues regarding the value of the cryptocurrency in terms of when it is paid to employees.  Given the volatility of crypto, there could be wide valuation fluctuations even from the end of the payroll period to the time that the employee receives the payment.  There would also be potential calculation issues regarding the appropriate conversion rate employers would need to make if an employee was owed past unpaid wages, or premium wages for missed meal or rest breaks.  What if the crypto currency increased in value over 500% since the time it is determined that an employee was owed a premium wage for a missed meal break?  Could the employer pay the employee the value of the crypto at the time the missed meal break occurred, or would the employer need to pay the current increased value of the crypto?

5. Future potential of the blockchain in the employment setting.

Beyond cryptocurrency, the blockchain technology will likely become a part of everyday life and will have many applications in the employment context.  Since a blockchain is like a database that can store private information, the blockchain could be used by employees to prove educational history, work history, and the attainment of certain certifications.  In 2017, Massachusetts Institute of Technology has issued students virtual diplomas recorded on the blockchain, that the students can securely share with whomever they choose.  Likewise, employers could utilize the technology to issue titles, internal certifications, and record dates of employment to create a digital record that employees could chose to share the information with when searching for another job or verifying salary for a loan.

As February ends, there are many developments on the employment legal front.  Here are five prevalent employment issues for California and across the U.S.:

1. California Supreme Court holds employers may not round time entries for meal periods.

On February 25, 2021, the California Supreme Court held that employers may not engage in time rounding time punches for meal breaks under California law.  The case, Donohue v. AMN Services, Inc., the Court held that “meal period provisions are designed to prevent even minor infringements on meal period requirements, and rounding is incompatible with that objective.”  The Court distinguished time rounding policies in the context of meal breaks from time rounding policies for tracking an employee’s work time.  A California Court of Appeal held in See’s Candy Shops, Inc. v. Superior Court (2012) that employers may use rounding policies “to calculate regular and overtime wages if the rounding policy is neutral on its face and as applied.”  In Donohue, the Court explained that meal breaks are different: “In the meal period context, however, there is an asymmetry between the treatment of rounded-up minutes (i.e., time not work that is compensated with regular pay) and the treatment of rounded-down minutes (i.e., time worked that may trigger premium pay).”

The Court also raised concerns about time rounding policies given the ease of tracking employees’ time with technology, and the Court noted, “[a]s technology continues to evolve, the practical advantages of rounding policies may diminish further.”

The Court also held that time records showing late, short, or missed meal breaks “raise a rebuttable presumption of meal period violations, including at the summary judgment stage.”

2. Lawsuit challenging Cal/OSHA Emergency Temporary Standards (ETS) regulations is denied.

On February 25, 2021, the San Francisco Superior Court denied a group of employer’s application for preliminary injunction attempting to prevent Cal/OSHA’s Emergency Temporary Standards that were issued on November 30, 2020.  In denying the preliminary injunction, the court stated that “the balance of interim harms and the public interest in curbing the spread of COVID-19 and protecting worker and community health weigh heavily in favor of the continued implementation and enforcement of the ETS Regulations.”

California employers must still comply with the Cal/OSHA ETS regulations.  For more information about the ETS regulation, see our prior post here. 

3. Federal $15 minimum wage is not going to be part of President Biden’s COVID-19 relief bill.

On February 25, 2021, the Senate parliamentarian Elizabeth MacDonough ruled that minimum-wage legislation could not be passed through the budget-reconciliation process, and therefore would not be included in the $1.9 trillion relief package.  The Federal minimum wage, which is currently at $7.25 per hour, could still be increased through other paths.  Given the 50-50 Democrat-Republican split in the Senate, it appears that an increase in the Federal minimum wage will likely need to be a compromise.  Some proposed compromises include raising the minimum wage to $11 or $12 per hour, setting increases in minimum wage on a regional basis across the country, or limited the higher minimum wage to larger employers only.  Employers across the country will need to pay attention to see how this legislation develops. Our prior post on President Biden’s COVID-19 Rescue Plan can be read here.

4. California pay data reporting is due March 31, 2021.

As California employers are preparing to file their pay reporting data with the Department of Fair Employment and Housing (DFEH) by March 31, 2021 pursuant to SB 973 (click here for more information about the pay data reporting requirements), there are many questions arising about how to collect certain information.  For example, employers need to report the pay data based on seven race/ethnicity categories:

  • Hispanic/Latino
  • Non-Hispanic/Latino White
  • Non-Hispanic/Latino Black or African American
  • Non-Hispanic/Latino Native Hawaiian or Other Pacific Islander
  • Non-Hispanic/Latino Asian
  • Non-Hispanic/Latino American Indian or Alaskan Native
  • Non-Hispanic/Latino Two or More Races

However, how are employers to gather this information?  The DFEH published FAQs that explains: “Employee self-identification is the preferred method of identifying race/ethnicity information. If an employee declines to state their race/ethnicity, employers must still report the employee according to one of the seven race/ethnicity categories, using — in this order — current employment records, other reliable records or information, or observer perception.”  Employers should document the collection of this data in order to prove compliance with this guidance from the DFEH.

5. Labor Commissioner cites Los Angeles business for COVID-19 retaliation.

On February 17, 2021, the California Labor Commissioner cited a Los Angeles employer for $125,913 for “workplace retaliation and labor law violations, after the Labor Commissioner found that the employer illegally fired four workers for reporting unsafe working conditions during the COVID-19 pandemic.”  The citations include $45,193 in lost wages, $720 in interest due, $40,000 in Section 98.6 retaliation penalties, and $40,000 in Section 1102.5 retaliation penalties.  As business begin to reopen in California, employers must be aware of potential COVID-19 claims and ensure all employment decisions are well documented.

08/13/2020 UPDATE:

On the date of the initial publication of this article, the Labor Commissioner’s lawsuits against ride-sharing behemoths Uber and Lyft, were in the early stages.  But, the Labor Commissioner’s office is not the only entity seeking relief from the court against Uber and Lyft.  Back on May 5, 2020, the California Attorney General brought action against these companies to enjoin them from continuing to classify their drivers as independent contractors. 

Fast forward in time.  On August 10, San Francisco Superior Judge, Ethan P. Schulman, issued an order granting the State’s preliminary injunction.  What does this mean?  In effect, the court is restraining both Uber and Lyft from continuing to classify their drivers as independent contractors.  Judge Schulman’s order defines “drivers” as all individuals who drive for Uber and Lyft as ride-hailing drivers in the state of California during the pendency of this lawsuit. 

In reaching this determination, the court determined that the State will likely prevail on their claim that Uber and Lyft have misclassified their drivers.  In applying the ABC Test, Judge Schulman stated that “[i]t’s simple: [Uber and Lyft] drivers do not perform work that is ‘outside the usual course’ of their business,” thereby failing Prong B of the test. 

Although a major win for employees, the fight is far from over.  Both Uber and Lyft have appealed the Superior Court’s order; Uber’s constitutional challenge to A.B. 5 is pending in the U.S. Court of Appeals for the 9th Circuit; and, Proposition 22 – an initiative sponsored by Uber and Lyft that would exempt them from complying with A.B. 5 – remains on calendar to be voted on by the people of California. 

As State agencies and workers continue to focus their efforts on enforcing the requirements of A.B. 5, employers must review their classification practices to avoid any potential liability.  We will continue to monitor this issue and keep employers updated of any new developments.

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On Wednesday, August 5, the California Labor Commissioner filed two complaints against ridesharing giants Uber and Lyft with the Alameda County Superior Court.  The complaints allege various wage and hour causes of action, including misclassification of employees as independent contractors, failure to pay minimum wage, failure to pay overtime, failure to pay wages for meal and rest periods, failure to indemnify employees for incurring business expenses, among others.  However, the crux of Labor Commissioner’s complaints is simple: Lyft and Uber have made business decisions to unlawfully classify its drivers as independent contractors rather than as employees.

The complaints allege that Uber and Lyft cannot overcome the presumption that all of its drivers are employees, as both companies fail to satisfy the requirements under AB-5, as codified in Labor Code section 2750.3 (see discussion below).  Specifically, the complaints allege that Uber and Lyft exert substantial control and direction over the drivers, including setting restrictions on the types of vehicles drivers may drive, setting the fares customers must pay, setting the compensation of their drivers, tracking the drivers through their respective apps., etc.  Additionally, since Lyft’s and Uber’s drivers transport customer passengers, they are not engaged in an independently established trade or business of the same nature as the work they perform for Lyft or Uber.

Ultimately, the Labor Commissioner’s position is that Uber and Lyft cannot meet the elements of the ABC Test.  Thus, both companies have willfully and unlawfully “misclassified [their] drivers as independent contractors . . . thereby denying [them] the protections available to employees under the Labor Code . . .”

The Labor Commissioner’s complaints seek injunctive relief (a court order prohibiting a party from doing or engaging in a specific action or conduct – in this case misclassifying their drivers as independent contractors), as well as, statutory and civil penalties for wage and hour violations.  For that reason, Uber and Lyft could face substantial liability for the alleged violations.

The ABC Test: The Legal Basics

These lawsuits stem from Uber and Lyft violating AB-5.  AB-5, which went into effect on January 1, 2020, codified the California Supreme Court’s ABC Test for independent contractors as set forth in Dynamex Operations West, Inc. v. Super. Ct. decided in 2018. 

In short, AB-5 presumes that a worker is an employee, unless the hiring entity establishes that the worker:

A.     Is free from the control and direction of the hiring entity in connection with the performance of the work – both under the contract for the performance of the work and in fact;

B.     Performs work that is outside the usual course of the hiring entity’s business; and,

C.     Is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Lab. Code § 2750.3(a)(1)(A)–(C) (emphasis added).

Although it may seem simple on its face, the ABC Test makes classifying a worker as an independent contractor much harder for employers.  Specifically, businesses will face an uphill battle in overcoming prong “B” of the test.

Of course, and as with almost any law, AB-5 carves out certain (and very narrow) exemptions, such as for those engaged in “professional services” and “bona fide business-to-business contracting relationships” (if certain conditions are met).  In these circumstances, the determination of employee or independent contractor status is governed by the Borello test. 

The Independent Contractor/Employee Dichotomy: Corresponding Legal Implications and Requirements

Why is it so important to properly classify a worker as an independent contractor vis-à-vis an employee?

Federal and state laws impose numerous requirements on employers with respect to their employees.  That is not the case when workers are classified as independent contractors.  For that reason, many businesses classify workers as independent contractors because it relieves them from having to comply with such laws or providing certain benefits.  For example, independent contractors need not be covered by workers’ compensation, are not covered by wage and hour laws, and are excluded from coverage under the National Labor Relations Act. 

On the other hand, classifying a worker as an employee may feel as opening Pandora’s box; it triggers numerous requirements under the law.  These include: complying with all wage and hour laws (such as payment for overtime, providing meal and rest breaks, paid sick leave, reimbursement of business expenses), record keeping, deducting employment taxes from their earnings, etc. 

Employers must remember, however, that both independent contractors and employees are protected under state anti-harassment laws.

Takeaways

The lawsuits against Uber and Lyft serve as an important reminder for all employers to audit and take a closer look at their classification practices, and ensure proper compliance with the law.  Simply deeming and “classifying” a worker as an independent contractor on paper may be insufficient.  Employers must carefully apply the ABC Test to make a proper determinations and classifications.  Moreover, even if a business believes that they may be exempted from the ABC Test, it is recommended that they consult with legal counsel, as the exemptions are rather complex. 

The consequences of misclassification can include liability for unpaid wages and hefty statutory and civil penalties.  More importantly, misclassifying workers may expose companies to lawsuits under the Private Attorneys General Act (PAGA), which allows employees to sue the employer on a representative capacity on behalf of the state and other aggrieved employees.  PAGA claims can lead to substantial civil penalties and can become an employer’s biggest headache rather quickly. 

A common question posed to me this past week was what types of lawsuits should employers be concerned about once the economy begins to reopen.  I figured that the California economy is slowly reopening, so I should start writing my Friday’s Five lists again – so here are the top five areas of concern I see for California employers post-coronavirus:

1. Leave issues

There are a patchwork of paid leave laws that California employers must be very careful in navigating.  For example, here are a few federal, state and local leave laws that could apply to an employer in Los Angeles:

2. Retaliation claims

Labor Code section 1102.5 protects employees against retaliation for disclosing information, or because an employer believes an employee has disclosed information, to a government or law enforcement agency, to a person with authority over the employee, or to another employee who has the authority to investigate, discover, or correct a violation where an employee reasonably believes that the information discloses a violation of a state or federal statute, or a violation of or noncompliance with a local, state, or federal rule or regulation. The key item to understand here is that the employee only had to have a reasonable belief that the disclosure discloses a violation of federal, state or local law or regulation.

3. OSHA/Cal-OSHA/EEOC/DFEH worksite investigations

Employers must comply with requirements to provide safe work environments:

    • OSHA: https://www.osha.gov/SLTC/covid-19/controlprevention.html
    • Cal-OSHA guidance on requirements to protect workers from coronavirus: https://www.dir.ca.gov/dosh/coronavirus/Health-Care-General-Industry.html

OSHA provided revised guidelines on May 19, 2020 setting forth the following requirements for recording of COVID-19 workplace cases:

OSHA is revising its previous enforcement policy for recording cases of coronavirus. Under OSHA’s recordkeeping requirements, coronavirus is a recordable illness, and employers are responsible for recording cases of the coronavirus, if the case:

Also, remember to have your Injury and Illness Prevention Program (IIPP) in place.

4. Wage and hour issues

The following wage and hour issues could be common types of claims following the recovery from the coronavirus pandemic:

5. Disability discrimination/reasonable accommodations

Fair Employment and Housing Act (FEHA) provides it is unlawful to discriminate against an employee on the basis of “physical disability.” (Gov. Code, § 12940, subd. (a).)  In addition to making it illegal to discriminate on the basis of disability, the FEHA makes it unlawful “to fail to make reasonable accommodation for the known physical . . . disability of an . . . employee.” (§ 12940, subd. (m)(1).)  Finally, the FEHA prohibits an employer from harassing an employee “because of . . . physical disability.” (§ 12940, subd. (j)(1).)  Employers must consider reasonable accommodations for high risk employees, such as for employee with underlying impairments, 65 years old or older, possibly for pregnancy-related impairments.  A reasonable accommodation is not require if employee is simply afraid to return to work, is on unemployment, or who is caring for someone else who is at high risk (but be careful on this issues, as it could trigger other leave laws, such as California’s paid sick leave laws or the FFCRA).

By Michael Thompson

You are busy. You’re a small-business owner with a to-do list a mile long. Or maybe you’re a manager or HR professional being pulled in fifteen different directions.

Also, employment law is complex and demanding (especially in California). Even simple things like updating your handbook to address 2020 changes feels like a project that will have to wait for another day.  Or week.  Or 2021.

These two things are a difficult but common combination. The truth is, eliminating all exposure to employment issues is unrealistic. At the very least, it is too much to accomplish in one day.

So let’s talk about one thing you can accomplish today that will put you in a better position than you were yesterday.

Today (right now, actually), you will send an email to all of your employees, but not about outstanding orders or performance benchmarks or happy hour. This email will be about workplace harassment.  And look, it’s already drafted:

All,

I want to take a moment to remind you about an important company policy.

[(Your Company Name) is committed to providing a work environment free of harassment, discrimination, or other unprofessional conduct.  Sexual harassment, or discrimination or harassment on the basis of any category protected by law, will not be tolerated. This policy also applies to customers, vendors, and anyone else who comes into contact with our employees.]  For more information on this policy, please consult the employee handbook or speak with (me/human resources/your supervisor).

If you experience [harassment or discrimination] or witness another employee experience it, you have a duty to immediately bring this information to the attention of (your supervisor). If you do not believe the matter can be discussed with (your supervisor), you can discuss this or any other issue with (me/human resources/the company president). All reports will be investigated promptly and fairly, and the company will protect you from retaliation or punishment for making a complaint or cooperating in an investigation.

Thank you,

Modify the information in (parenthesis) to fit your company and remove the [brackets].  Personalize it as you feel appropriate.

Now, go send it.  We’ll wait.

….

Done? Great. Here is what that email accomplishes: If harassment or discrimination is occurring in the workplace, it is better that you find out now so that you can address it. Or would you rather find out when terminating an employee five months from now? Or getting sued out of the blue three years from now? Frequently, such claims will allege that the conduct occurred over a long period of time. But if the plaintiff receives this email and says nothing, this email will be powerful evidence for your company’s defense of the claim.

Even better, this email is flexible and can be modified to address more than just [harassment or discrimination].  What about [off-clock work]?  Just substitute this into the brackets of the second paragraph:

[(Your Company Name) does not permit non-exempt employees to work “off the clock,” and does not permit any employee to encourage or pressure another employee to do so. You must accurately report all time that you work and may not falsify your time record or that of another employee. You should examine all of your time records and paystubs to ensure you are being properly paid for all of your work.]

The same can be done for [meal and rest breaks].  Or [violations of law].  Or [business expenses].

Take an extra second to set a reminder six months from now to do this again.

Congrats, you took a concrete step today to protect your business.  See you next week.

Understandably, entrepreneurs’ main concerns are shipping great products and making sure they can meet the next payroll.  As your company grows, regardless of what industry you are in, tech, biotech, or a restaurant, it is critical that the founder devote some time and effort into ensuring employment law compliance.  Investors will demand this during the due diligence (as they do not want their money used for defending employment law claims), and employment litigation can be a costly and time-consuming event that could ruin a company’s chances of success early in the start-up process.  Below are five mistakes start-ups cannot afford to make.

1. Classifying all employees as independent contractors
To qualify as an independent contractor, the employer has the burden of proof to establish that the worker is actually an independent contractor and not an employee. California passed AB 5 that takes effect on January 1, 2020 and implements the ABC test to determine whether a worker can be classified as an independent contractor. AB 5’s primary focus was on the gig economy’s use of independent contractors, but all start-ups should take note and approach this issue with caution. In addition to owing unpaid minimum wages and potential unpaid overtime, the employer also faces steep penalties for misclassifying independent contractors.

2. Treating all employees as exempt employees and not paying overtime.
An employee cannot agree to work without being paid overtime unless they qualify as an exempt employee. To qualify as an exempt employee, generally, the employee must perform certain duties, and must be paid a certain threshold in wages (usually at least two times the equivalent pay of minimum wage based on a 40-hour week).

3. Not having a handbook and written policies.
Even if startup companies have no money, the Labor Code still applies. They still have to pay more than minimum wage, provide and record meal and rest breaks, issue wage notices to new employees, and otherwise comply with California law. A handbook, new hire packet, and standardized set of written policies is a good place to start.

4. Not providing a clear offer letter with at-will provisions and clear understanding of who owns social media accounts and passwords.
Companies should be providing a writing setting forth the employee’s compensation, stock option rights, at-will status, as well as who owns the rights to social media accounts and the passwords to access the accounts. It is much better to have this set out early in order to avoid costly litigation and disruption in your business later.

5. Not having the right employment law counsel.
Startup owners should have a relationship with an attorney that actually practices California employment law. Have an agreement with counsel that enables the company to ask quick questions as they arise – if your lawyer is invested in the relationship, quick calls often time are not billed. However, make this easier on your lawyer, do the work before you call, and just have the lawyer’s input to double check that the decision you have made, or the letter you drafted is good-to-go. Otherwise, calling your lawyer and asking him to draft the letter will take time (usually more time than the client could have done it in) and will increase the cost of legal services.

It is important for employers in California to make sure that their front-line managers dealing with employees on a day-to-day basis are knowledgeable about different employment issues that routinely come up in the employment context.  This week’s Friday’s Five covers five areas that employers should review with their managers to ensure they inform the appropriate executives about any potential issues in the workplace:

1. At-will employment

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. There are some major exceptions to this rule, but generally California law recognizes that employers and employees may, at any time, and for any legal reason, terminate the employment relationship.  Of course managers should consult with human resources or the appropriate executive before terminating an employee, but managers need to understand that they can terminate employees with or without cause and should be trained on the legal parameters of at-will employment.

2. Anti-harassment, discrimination and retaliation

California employers with 50 or more employees are required to provide at least two hours of classroom or other effective interactive training and education regarding sexual harassment to all supervisory employees who are employed as of July 1, 2005, and to all new supervisory employees within six months of assuming a supervisory position.  All covered employers must provide sexual harassment training and education to each supervisory employee once every two years.  In 2015, California requires that a portion of the training also address “abusive conduct.”  More information about what topics must be covered in the training, who qualifies to provide the training, as well as other requirements about the training can be found here.

Managers should also be trained about the employer’s obligation to prevent sexual harassment in the workplace.

3. Timekeeping requirements

California law requires employers to track start and stop times for hourly, non-exempt employees. The law also requires employer to track the start and stop times for the employee’s thirty minute meal periods. The time system needs to be accurate, and the employer needs to be involved in the installation and setup of the system. Do not simply use the default settings for the hardware and software. Understand what the system is tracking and how it is recording the data. Since the statute of limitations for California wage and hour violations can extent back four years, it is recommended that employers take steps to keep these records at least four years.  Employers should also have a complaint procedure in place and regularly communicate the policy to employees in order to establish an effective way to remedy any issues.

4. Meal and rest break requirements

As I’ve written about many times previously, employers must have a compliant meal and rest break policy.  Indeed, given the California Supreme Court’s ruling in Augustus v. ABM Security Services in December 2016, employers should review their rest beak policy to ensure it complies with this ruling.

5. Responding to requests for records and legal notices

There are many different Labor Code provisions that obligate the employer to provide current and former employees with a copy of their personnel files and/or payroll records.  For example, Labor Code section 432 permits employees to obtain a copy of any document they signed, Labor Code section 1198.5 allows current and former employees to obtain copies of their personnel records, and Labor Code section 226(c) permits employees to inspect or copy payroll records within 21 days after making a request to do so.

Managers need to be trained to immediately inform management or Human Resources about any requests to obtain these records by current and former employees.  In addition, managers should be trained to immediately report receiving any legal notices, including the following:

I am not sure of the cause, but my office has seen an increase in Labor Commissioner claims filed over the last two months.  Employers need to prepare and plan on how to defend these claims, and with some planning, the process is a lot less daunting.  Here are five effective strategies in defending Labor Commissioner claims:

1. Understanding the claims made by the employee.

Employers usually become aware of a complaint to the Labor Commissioner when they receive a Notice of Claim and Conference from the Labor Commissioner’s office.  Employers are not required to file any paperwork in response to the notice of conference, but the employer or an employer’s representative is required to appear at the conference at the date and time indicated on the notice.  The conference is not the actual hearing on the matter, rather the conference is structured as a non-binding settlement conference during which the Labor Commissioner discusses the various allegations, the employer’s response, and will attempt to mediate a resolution between the parties.

2. Ensure the claims alleged by the employee can be heard by the Labor Commissioner.

The Labor Commissioner can only hear disputes for “any action to recover wages, penalties, and other demands for compensation.”  Labor Code section 98(a).  Therefore, the Labor Commissioner cannot adjudicate any other types of employment claims, such as harassment or discrimination.  Likewise, if the employer has a counter claim against the employee, it cannot be heard by the Labor Commissioner, but must be filed in court.

Likewise, if the employee has an arbitration agreement with the employer, the employer can compel arbitration of the claim and remove jurisdiction from the Labor Commissioner.

3. Decide if legal representation is required during the Labor Commissioner complaint process.

Neither the employee and the employer are required to have an attorney during any stage of the Labor Commissioner process.  Whether or not an employer decides to have legal representation during the process depends on how comfortable the employer is with handling these issues and how well they understand the law in order to articulate the appropriate defenses available to them.  Also, many employers attend the settlement conference (discussed below) without legal representation if they are comfortable with the issues, and if the case does not settle and is set for a hearing, then the employer has an attorney assist with the hearing.

4. Understanding strengths and weaknesses of case going in to settlement hearing.

Although it is not mandatory, most Labor Commissioner offices will often set the matter for a settlement conference.  Employers often misunderstand the purpose of the initial settlement conference.  The settlement conference is not the hearing on the matter in which the Labor Commissioner takes sworn testimony and makes a decision.  While this step is not the actual hearing that will determine who should prevail, employers should prepare evidence and documents that will be persuasive during the settlement conference to establish defenses to the employee’s claims.  It is also good to listen to the employee’s facts and learn what they are claiming, what evidence they may have, and who may be witnesses.  It is important to learn this information in the event that the case does not settle and is set for a formal hearing.

It is important for employers to review the paperwork provided from the Labor Commissioner’s office to ensure that they gather and bring the required paperwork to the settlement conference.

Usually the Labor Commissioner requires the following background information from the employer:

  1. Completion of the DLSE’s Report of Workers’ Compensation Insurance
  2. City business license
  3. Articles of information filed with the Secretary of State
  4. Any documentation that may be applicable to the employee’s claims: payroll records, time sheets, handbook and applicable policies, correspondence with the employee, etc.…

The employer should also review the employee’s allegations in the notice of claim and prepare an outline of defenses and facts that support their position.

Employers should also understand the arguments in support of their defenses so that those can be articulated to the employee and Labor Commissioner.  The more persuasive the employer’s case is, the more likely that the case can be resolved for a nominal amount during the settlement conference.

Employers should be prepared to negotiate during the settlement conference and be prepared with a range of how much they would be willing to settle the case. An experienced employment law attorney can help address the strengths and weaknesses of the claims and can help advise on the appropriate settlement offer, if any, that could be made.

5. Preparing for hearing.

If the case does not settle at the settlement conference, or if there was never a settlement conference set, the Labor Commissioner will set the matter for a hearing pursuant to Labor Code section 98(a).  The hearings are often referred to as “Berman” hearings after the name of the legislator who sponsored the bill creating this procedure.  The basic idea behind Berman hearings is to provide a relatively fast way to resolve wage disputes.  However, with the state budget constraints, the hearings are usually set for about one year from the date that the settlement conference takes place.

The hearing takes place in the Labor Commissioner’s office, and is usually in a conference room.  The Labor Commissioner will tape record the hearing, and all witnesses’ testimony is provided under oath, just like it would be if they were testifying in court.  The Labor Commissioner can issue subpoenas compelling the attendance of parties at the hearing, as well as compelling parties to produce documents at the hearing.

  • Direct examination questions for the employer’s witnesses
  • Cross-examination questions for claimant, and potential cross-examination questions for any witnesses that claimant may bring to the hearing
  • Prepare key exhibits. Prepare to have documents that support the employers case ready to present at the hearing (generally it is good to have multiple copies of the exhibits so that they can be handed out during the hearing and everyone has a copy to refer to).  Handbook policies, meal and rest break policies and acknowledgments, timekeeping policies, and time records are generally the types of exhibits that an employer would rely on in establishing that the employee was permitted to take breaks and was paid for all time worked.
  • Prepare witnesses that support defense. Employers can bring in witnesses that support the employer’s defense.  For example, evidence can be submitted through managers or supervisors that are able testify to the fact that the employee was always clocked-in when they were working or had the ability to take meal and rest breaks.  Also, co-workers who worked with the claimant are also good witnesses to establish that they always saw the claimant take breaks and never saw them working off the clock.

Generally, employers need to be prepared but flexible for how the hearing will proceed.  The Labor Commissioner conducting the hearing has a lot of flexibility on how the parties are to present witnesses and conduct cross-examinations.  The rules of evidence are not controlling in the proceeding, but the Labor Commissioner generally has discretion to control the evidence presented during the hearing.  The Labor Commissioner can, and usually will, ask questions of their own to get a better understanding of certain issues.

After the hearing, the Labor Commissioner will issue a written order that must be served on all parties.  Unless this order is appealed, it is a binding judgment against the parties, and a certified copy of the order is filed with the superior court and judgment is entered.

California employers need to routinely need to review their policies and practices to make sure they are complying with intricacies that may arise in their work place.  In law school, attorneys-to-be are taught to “issue spot,” and the unfortunate litigation landscape that faces California employers, business owners and their supervisors must also “issue spot” and make sure the unique aspects of California employment law are being complied with to avoid liability.  This Friday’s Five covers five issues employers should issue spot on a routine basis to help ensure compliance and reduce liability:

1. Reporting time pay

Reporting time pay is triggered when an employee is required to report for work, but is not put to work or is furnished less than half their usual or scheduled day’s work.  If this occurs, the employee needs to 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 cannot not be less than the minimum wage.

It is important for employers to train managers and supervisors about this requirement, so that they understand the need to pay reporting time pay, or report the instance to HR to ensure the employee receives reporting time pay if they are sent home before one-half of their shift is worked.

2. Split shift pay

A split shift is a work schedule that is interrupted by a non-paid, non-working period established by the employer that is other than a meal or rest break.  So if the employee is required to work a shift, but then asked to report to a second shift over later in the same day, the employer may be obligated to pay a split shift premium.  Again, this issue is one that front-line managers and supervisors need to be trained on to ensure that split shifts are being reported to HR or other appropriate management in the company to ensure any split shift pay obligations are being paid.

3. Expense reimbursement issues

Under Labor Code section 2802, employers need to reimburse employees for any business expenses they incur in the course of completing their work for the employer.  This basic concept sounds easy in principle, but given the technology used in today’s workplaces, there can be many areas that expose employers to liability.  For example, if employees are required to work at home, have access to the internet, print reports, or send and receive faxes, the costs for completing this work should be reimbursed by the employer.  Other areas that are often litigated are cell phone reimbursement, mileage reimbursement, and reimbursement for the costs of uniforms and safety equipment.

4. Off-the-clock claims

Employers can be held liable for unpaid wages if they knew or should have known that employees were working and not being paid for the work.  Employers should establish and regularly communicate a time keeping policy to employees and supervisors.  The policy should set forth that employees always have an open door to complain to their supervisors and other managers or human resources about missed meal and rest breaks, unpaid wages, or unpaid wages.  If employees routinely acknowledge that they understand the time keeping policy and are agreeing to record their time through the employer’s system, this can go a long way in defending any off-the-clock claims.

5. On-Call time

Even though employees are traveling to a work site or even sleeping, if the employee is under the control of the employer, the employer may have to pay them for being on-call.  For example, the California Supreme Court held that security guards who were required to reside in a trailer provided by the employer at construction worksites would still need to be paid for the time they slept while on-call.  In that case, during weekdays the guards were on patrol for eight hours, on call for eight hours, and off duty for eight hours.  On weekends, the guards were on patrol for 16 hours and on call for eight hours.  The Court held that the employer was not permitted to exclude the time guards spent sleeping from the compensable hours worked in 24-hour shifts.  See Mendiola v. CPS Security Solutions, Inc.

Likewise, in Morillion v. Royal Packing Co., the California Supreme Court held that, “we conclude the time agricultural employees are required to spend traveling on their employer’s buses is compensable under Wage Order No. 14-80 because they are ‘subject to the control of an employer’ and do not also have to be ‘suffered or permitted to work’ during this travel period.”  Generally, travel time is considered compensable work hours where the employer requires its employees to meet at a designated place and use the employer’s designated transportation to and from the work site.