September 17, 2014 CALIFORNIA WAGE-HOUR COMPLIANCE: … · Upcoming 2014 Shaw Valenza Employment...

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September 17, 2014

CALIFORNIA WAGE-HOUR COMPLIANCE: THE TOP 10

EMPLOYER MI$TAKE$

Presented by: Jennifer Brown Shaw, Esq.

CALIFORNIA WAGE-HOUR COMPLIANCE: THE TOP 10 EMPLOYER MI$TAKE$

Table of Contents

Page 1. Not Understanding What Laws Apply .............................................................1 2. Not Properly Classifying Employees ...............................................................1 3. Not Complying With Timekeeping Rules for Non-Exempt Employees ............2 4. Not Providing Compliant Rest Breaks and Meal Periods ................................3 5. Not Properly Paying Employees for All Hours Worked ...................................5 6. Not Having Written Commission/Bonus Agreements ......................................6 7. Not Following Vacation Rules .........................................................................6 8. Not Complying With Recordkeeping and Other Requirements .......................6 9. Not Understanding the Requirements for Independent Contractor Status .....7 10. Not Properly Assessing Your Risk ..................................................................7 Questions? .............................................................................................................8 Upcoming 2014 Shaw Valenza Employment Law Seminars ADDITIONAL MATERIALS

General Wage-Hour Audit Checklist

Articles prepared by Shaw Valenza LLP

“More “Domestic Workers” Entitled to Overtime and Other Rights,” The Daily Recorder (October 17, 2013)

“Paying Employees Who Travel,” The Daily Recorder (October 30, 2013) “Making Lawful Deductions from Advanced Commissions,” The Daily

Recorder (November 13, 2013) “Equal Pay Already is the Law,” The Daily Recorder (May 19, 2014) “A Return to Sanity in Class Actions?” The Daily Recorder (June 23, 2014) “Department of Labor FMLA Investigations,” The Daily Recorder (July 9,

2014) 348494.1.00204.003

1

1. NOT UNDERSTANDING WHAT LAWS APPLY

Fair Labor Standards Act

California Labor Code

California Division of Labor Standard’s Enforcement Manual/opinion letters/FAQs

Industrial Welfare Commission wage orders (establish minimum wages and conditions of employment for all employees in the covered industries and occupations unless an exemption applies; 17 total)


2. NOT PROPERLY CLASSIFYING EMPLOYEES

Exempt/Non-Exempt:

Presumption of non-exempt status

California’s test is quantitative, FLSA’s test is qualitative

Determining “exempt” status

Salary and duties tests

“White collar” exemptions (executive, administrative, and professional) with both salary and duty requirements


2. NOT PROPERLY CLASSIFYING EMPLOYEES (CONT.)

Other exemptions (outside salespersons, doctors/surgeons, domestic employees, personal attendants and companions, highly-skilled computer professional employees)

Job title is irrelevant

Must work on paper and in reality

Temps:

Agency/direct hire

Joint employment risk


2


Independent Contractors:

Strict tests (stay tuned!)

Forget about it!

Volunteers/Interns:

Problem if “for profit” organization

Beware of “extra” volunteer duties for regular employees



Students:

Cannot work for free unless receiving school credit


3. NOT COMPLYING WITH TIMEKEEPING RULES FOR NON-EXEMPT EMPLOYEES

Record time in, time out for lunch, time back from lunch and time out at end of day

Process to obtain review of time by employee

Be careful with rounding after See’s Candiesdecision

“Wage Theft”

Overtime calculations


3

4. NOT PROVIDING COMPLIANT REST BREAKS AND MEAL PERIODS

Rest breaks:

Paid 10-minute rest break for every four hours worked or “major fraction thereof” = 2:01 – 4:00 hours

Shift less than 3½ hours: no rest break

Shift between 3½ and 6 hours: one rest break

Shift more than 6 hours and up to 10 hours: two rest breaks


4. NOT PROVIDING COMPLIANT REST BREAKS AND MEAL PERIODS (CONT.)

Shifts more than 10 hours and up to 14 hours: three rest breaks

Rest break need not occur before meal period

No rest break if an employee’s total daily work time will not exceed 3½ hours

Employees cannot “waive” rest breaks



Generally - no one-hour premium pay due, unless (1) employer does not make lawful rest break “available” or (2) employer interferes with ability to take rest break

Cannot have policy granting employee discretion


4


Meal periods:

Duty-free

At least 30 minutes

Generally unpaid

If employee will work five hours or more, meal break must be “provided” (not ensured)



Must begin anytime before the end of the 5th hour of work (no such thing as an “early” meal period)

First meal period can be waived by mutual agreement if total shift is < 6 hours

Second meal period due if employee will work more than 10 hours; must begin before the end of the 10th hour of work



Second meal period can be waived if employee took first meal period and work will end < 12 hours

No “rolling” meal periods every five hours; no “third” meal period in wage orders 4, 5, 7 (but see, e.g., order 12)

If employee chooses not to take a full 30 minutes, no premium is due, but employer must pay for all hours worked (and should discipline the employee)


5


FLSA rule: if duty-free meal period is

< 20 minutes, all time must be paid (i.e., meal period cannot be unpaid)

No “auto deduct”

“Duty-free:” no restrictions on activities, e.g., employee may leave premises; may make phone calls, eat, etc.



On-duty meal periods available only in limited circumstances with written agreement that can be revoked at any time

Employer must pay normal wages for time worked (“suffer” or “permit rule”)


5. NOT PROPERLY PAYING EMPLOYEES FOR ALL HOURS WORKED

Alternative workweek schedules

Split shifts

Travel time (beware multiple worksites)

Make-up time

On-call vs. relieved of all duty

Reporting time/call-back pay

Off-the-clock issues (bag check, donning/doffing, messages, etc.)


6

6. NOT HAVING WRITTEN COMMISSION/BONUS AGREEMENTS

California law requires written commission agreements

Address when commissions/bonuses are “earned” and what happens on separation of employment

Do not complicate the commission/bonus determination!


7. NOT FOLLOWING VACATION RULES

Offering vacations is not mandatory

If an employer offers vacation:

No “use-it-or-lose-it” policies

A “reasonable” accrual cap is allowed

All accrued vacation must be paid out at separation at employee’s final rate of pay

Can offer at lower rate of pay


8. NOT COMPLYING WITH RECORDKEEPING AND OTHER REQUIREMENTS

Wage Theft Prevention Act Notice

Itemized wage statements

Certain notices and posters must be displayed at each worksite in an area accessible to all employees

Maintain appropriate workplace records (OSHA, etc.)

Wage order requirements (e.g., suitable seating, temperature, etc.)


7

9. NOT UNDERSTANDING THE REQUIREMENTS FOR INDEPENDENT CONTRACTOR STATUS

Major federal/state crackdown for “willful” misclassification ($5,000 to $25,000 penalty per violation)

Information sharing between federal DOL and state agencies

Active BOFE involvement in California

Issues arise with EDD, WCAB and IRS/FTBaudits


9. NOT UNDERSTANDING THE REQUIREMENTS FOR INDEPENDENT CONTRACTOR STATUS (CONT.)

EDD independent contractor reporting requirement (Form DE 542) (www.edd.ca.gov/de542.pdf)


10. NOT PROPERLY ASSESSING YOUR RISK

Conduct wage-hour audit with counsel

Take appropriate remedial measures

Stay on top of the law!


8

QUESTIONS?


1

UPCOMING 2014 SHAW VALENZAEMPLOYMENT LAW SEMINARS

Preventing Harassment and Other EEO Issues Work: It’s All About Respect (AB 1825 Compliance)

December 9 – Sacramento

Effectively Managing Leaves of Absence and the Reasonable Accommodation Process

October 14 – Webinar

Preventing and Reducing Employment Law Liability with Effective Internal Investigations

September 23 – WebinarNovember 7 – Sacramento (Advanced)

*New Session* AB 1825 Compliance/“Train-the-Trainer” Certificate ProgramNovember 5 - Sacramento

Annual Employment Law UpdateDecember 4 – Sacramento


General Wage-Hour Audit Checklist

of12©2014ShawValenzaLLP.AllRightsReserved.

GENERALWAGE‐HOURAUDITCHECKLIST

I. HOURSWORKED

Theorganization:

Definesworkdayandworkweekinitshandbook

Paysallemployeesatleast$9.00perhour(2014)orthelocalrate(excludingtipsandcommissions)?

Paystimeandahalfforallhoursovereight(8)inaworkdayand40inaworkweek,andforthefirsteight(8)hoursontheseventh(7th)consecutivedayoftheworkweek

Paysdoubletimeforallhoursworkedover12inone(1)dayoreight(8)ontheseventh(7th)consecutivedayoftheworkweek

Doesnothaveanynon‐exemptemployeesworkingalternativeworkweekschedules(withoutanAWSagreement)

Ifanyboxesareunchecked,pleaseexplain.

A. DeductionsFromWages

1. Describeanyitemsemployeesarerequiredtopurchase,i.e.,uniformsortools:

2. Describeanydeductionsfrompayotherthanthoserequiredfortaxesorbenefits,i.e.,foremployeeloans,employeetheft,wageoverpayments,etc.:


a. Doanydeductionscauseanyemployee’swagetofallbelowtheminimumwage?YesNo

b. Areemployeesrequiredtoconsenttoanydeductions,otherthanfortaxes?YesNo(Ifyes,providewrittenconsent.)

B. Commissions

1. Areanyemployeespaidcommissions?YesNo(Ifyes,describesuchaswhichemployees,whatportionoftheircompensationiscommissions,etc.)

2. Doallemployeeswhoarepaidcommissionshaveawrittenagreementthatspecifiesthemethodbywhichcommissionsarecomputedandpaid(requiredifemployerhasnofixedbusinessinstate,andforallbeginning1/1/13)?YesNo(Ifyes,providesampleagreements.)

C. Bonuses

1. Doestheorganizationprovidediscretionarybonuses?YesNo(Ifyes,describe,e.g.,howoften,towhom,whatamounts,anywrittenpolicies.)

2. Doestheorganizationprovidenon‐discretionarybonuses?YesNo(Ifyes,describe,e.g.,howoften,towhom,whatamounts,anywrittenpolicies.)


II. OVERTIME

A. RegularRateforNon‐ExemptEmployees

1. Howdoestheorganizationcalculatetherateatwhichitpaysemployeesforovertime?

2. Ifemployeesreceiveanypayforworkperformed,otherthananhourlyrate,e.g.,shiftdifferentials,incentivepay,productionbonuses,etc.,isthatamountincludedinthe“regularrate?”YesNo(Ifno,explain.)

B. MakeUpTimeforNon‐ExemptEmployees

1. Doestheorganizationpermittheuseofmake‐uptime?YesNo

2. Ifyes,isthemake‐uptime:

Forpersonalobligations(nosolicitationorencouragementfromorganization)

Withsigned,writtenemployeerequest

Fortimeinthesameworkweek

Nevermorethan11hoursperdayor40perweek



C. Classification

1. Doallemployeesclassifiedasexempt(executives,administrators,orprofessionals)fromovertimemeetminimumsalaryrequirements(inCalifornia,$37,440/yr)?YesNo

2. Doestheorganizationhaveamethodfordecidingandreviewingtheexemptstatus(includingtheactualduties)ofitspositions?(Describe.)

3. Areexemptemployeespaidforallweeksinwhichtheyperformanywork,evenifnotafullworkweek,unlessotherwisepermittedbylaw(forexample,iftheyareonjuryserviceforpartoftheweek)?YesNo

4. Areanyemployeesclassifiedasexemptsalespeople,computersoftwareprofessionals,orotherwiseexempt?YesNo(Ifyes,describe,i.e.,locationofemployees,regularjobduties,etc.)

III. WORKHOURSFORNON‐EXEMPTEMPLOYEES

A. Donon‐exemptemployeesworkseven(7)consecutivedaysinaworkweek?YesNo

B. Shiftchanges:Donon‐exemptemployeeshavetowearrequiredclothingorsafetygear?YesNo

C. Splitshifts:Donon‐exemptemployeesworksplitshifts(ascheduleinterruptedbynon‐work,non‐paidperiodsotherthanabonafidemealperiod(forexample,atwohourbreakinthemiddleoftheday))?YesNo

D. ReportingTime:Donon‐exemptemployeesreporttowork,butgetsenthomewithoutbeingpaidatleasthalf(1/2)thescheduledshift(atleasttwo(2)hoursanduptofour(4)hours)?YesNo

E. OfftheClock:Donon‐exemptemployeeswork“offtheclock?”YesNo


F. On‐call:Donon‐exemptemployeesworkon‐call?YesNo

1. Ifyes,describehowpaid,i.e.,onlyforhoursspentresponding,onlyifcallstakeacertainamountoftime,etc.:

2. Ifyes,istheemployeerestrictedatall?YesNo(Describeanyrestrictions;i.e.,geographicandtemporallimitations,frequencyofcalls,etc.):

G. TravelTime:Donon‐exemptemployeestravelforwork?YesNo

1. Ifrequiredtoreporttoaworksiteotherthantheirregularworksite,aretheypaidforthetimeandexpensestothealternatesite?YesNo

2. Afterreportingtoworkattheirregularworksite,arepaidforallwork‐relatedtravelandexpensesduringtheworkday?YesNo

3. Arenon‐exemptemployeespaidforallwork‐relatedtraveltimeandexpensesforoutoftowntravel,exceptfortimespentonpersonalpursuits,i.e.,eating,sleeping,sightseeing,etc.?YesNo

4. Arenon‐exemptemployeespaidfortheregularcommute?YesNo

5. Donon‐exemptemployeesdoanyworkbeforestartingorafterfinishingwork,e.g.,emailingfromhome?YesNo

H. Comptime:Donon‐exemptemployeesreceive“comptime”ratherthanovertimepay?YesNo

I. Sleeptime:Donon‐exemptemployeesspendworktimesleeping?YesNo

J. Dressing/Washing:Arenon‐exemptemployeesrequiredtodress/washatwork?YesNo(Ifyes,paidforthetime?)


K. Meals/Lodging:Donon‐exemptemployeesreceivemealsorlodgingcreditstominimumwage?YesNo(Ifyes,doesemployerhaveavoluntarywrittenagreement?YesNo)

Ifanyboxesarechecked“yes,”pleaseexplain.

IV. RESTPERIODS

A. Describetheprocessformanagingrestperiods,e.g.,howoften/howlongtheperiodsare,whoensurestheyaretaken,howyourecognize/dealwithrestbreaks,etc.:

B. Non‐exemptemployees

Arepermittedtotakeatleasta10‐minutepaidrestperiodforeveryfour(4)hoursworkedormajorfractionthereof(definedasmorethantwo(2)hours)

Arepaidforrestperiods

Aretoldtotakerestperiodsinthemiddleoftheworkday,whenpractical

Areprohibitedfromdoinganyworkduringrestperiods

Maynotleavethepremisesforrestperiods

Mustnotifytheirsupervisorsiftheydonottakerestperiods

Areprovidedreasonabletimetoexpressbreastmilk,ifneeded(eitherconcurrentlywithrestperiodsoratsomeothertime,unpaid)

Areprovidedasuitablelocationforexpressingmilk(notatoiletstall)


V. MEALPERIODSFORNON‐EXEMPTEMPLOYEES

A. Describetheprocessformanagingmealperiods,e.g.,howoften/longtheperiodsare,whoensurestheyaretaken,whetherwaiversarepermittedandwhen,howyourecognizeanddealwithmissedmealperiods:

B. Non‐exemptemployees

Whoworkmorethansix(6)hoursarerequiredtotakeanunpaid,dutyfreemealperiodforatleast30uninterruptedminutesbeforetheendofthefifthhourofwork

Mustnotifysupervisorsiftheydonottakemealperiods

Mustsigntimesheetsverifyingaccuratestartandendofmealperiods

Mayskipamealperiodonlyiftheworkperiodperdayisnomorethansix(6)hoursandtheemployeeandorganizationmutuallyconsentinwriting

Receiveasecondunpaid,dutyfreemealperiodofatleast30uninterruptedminutesiftheyworkmorethan10hours,whichcannotbewaivedunlessinwritingandtheemployeeworksfewerthan12hours

VI. INDEPENDENTCONTRACTORSANDTEMPORARYAGENCIES

A. IndependentContractors

1. Doestheorganizationcontractwithindividualthirdparties(naturalpersons,evenifincorporated,etc.)toperformwork? Yes No(Ifno,skiptoSectionB.)

2. Howarecontractorspaid,i.e.,hourly,weekly,forcompletionofproject,etc.?

3. Istheorganizationinvoiced?YesNo


4. Howisacontractor’sworksupervised?

5. Cancontractorshireotherstoperformthework?YesNo(Ifno,explain.)

6. Arecontractorsexpectedtoworkspecifichours?YesNo(Ifyes,explain.)

7. Docontractorssuperviseorganizationemployees?YesNo(Ifyes,explain.)

8. DoestheorganizationreportcontractorstotheCaliforniaEmploymentDevelopmentDepartmentasrequired?YesNo

B. TempAgencies

1. Doestheorganizationhiretemporaryworkersthroughtempagencies?YesNo(Ifno,skiptoSectionVII.)

2. Isthetempagencyresponsibleforpayingwages?YesNo

3. Isthetempagencyresponsibleforprovidinglegallyrequirednotices,policies,orotherdocumentstotempworkers?YesNo(Describetheorganization’sinvolvementand/oroversightintheprocess.)


VII. PAYMENTOFWAGES

A. Paydays

Non‐exemptemployeesarepaidatleasttwicepermonth,bythe26thforworkperformedbetweenthe1stand15thandthe10thforworkperformedfromthe16thtotheendofthepreviousmonth.

Exemptemployeesarepaidatleastmonthly.

Overtimeispaidnolaterthanonepayperiodfollowingtheperiodinwhichtheovertimehoursareworkedorassoonascalculableandreflectedontheemployee’spaystubasacorrection.


B. PaymentonSeparation

Employeeswhoquitwithoutnoticereceivetheirfinalpaywithin72hoursofthequitnotice.

Employeeswhoquitwithatleast72hours’noticereceivetheirfinalpayontheirlastdayofwork.

Employeesterminatedinvoluntarilyreceivetheirfinalpayatthetimeoftermination.

Finalpaychecksincludeallamountsowed,includingbonusesandcommissions,accruedunusedvacationpayandpersonaldays,ifany.



C. Paychecks/WageStatements

EmployeescancashtheirpaychecksatsomeplaceofbusinessinCaliforniawithouthavingtopayanyfee.

Thenameandaddressofthatbusinessappearonthefaceofthepaycheckorotherinstrument.

Directdeposit,ifoffered,isstrictlyvoluntary.

Ifanyoftheboxesareunchecked,pleaseexplain.

D. WageGarnishments

Doestheorganizationeverprocesswagegarnishments?YesNoIfyes:

Wagegarnishmentsdonotexceed25%ofanyemployee’spayafterlegallyrequireddeductions(ormorethan50%forchildsupportgarnishments).

Theorganizationdoesnotchargemorethan$1.50perdeduction.

Childsupportisdeductedfirstiftherearemultiplegarnishments.

Employeesarenotdischargedbecauseofgarnishmentforasingleindebtedness.


E. Wage,Assignments,Advances,andLoans

1. Hasanyemployeeassignedhisorherwagesinwritingtoanotherperson?YesNo

2. Doestheorganizationadvancewagesorvacationtime/PTO,orotherwiselendemployeesmoney?YesNo


a. Ifyes,whatisthemethodandmannerofrepayment,i.e.,salarydeduction?

b. Howdoestheorganizationaddressamountsowedattermination?

VIII. OTHERWAGEREQUIREMENTS

A. Uniforms

1. Doestheorganizationrequireemployeestowearclothingofdistinctivestyleordesign(suchascolororstyle)?YesNo(Ifyes,describe,e.g.,a“washandwear”poloshirt.)

a. Ifyes,doestheorganizationpayfortheclothing?YesNo

b. Ifnot“washandwear,”doestheorganizationprovideforthemaintenanceoftheclothing?YesNo

B. Reimbursement

1. Doestheorganizationhaveastandardbusinessexpensereimbursementrequestprocess/form?YesNo(Ifyes,describe.)


C. Wage‐OrderRequiredWorkingConditionsGenerally

1. Employeesareprovidedchangingrooms,separatefrombathrooms,ifrequiredtochangeclothingonthepremises(temperatureatleast68degrees).YesNo

2. Employeesareprovidedarestingfacilityorbreakroom,separatefromthebathroom(temperatureinbreakroomandbathroomatleast68degrees).YesNo

3. Employeesareprovidedseatswhenthenatureoftheworkreasonablypermitsseats.YesNo

4. Areanyemployeesrequiredtobebonded?YesNo(Ifso,whopaysforthebond?)

D. Volunteers,Interns,andExterns

Doestheorganizationuseunpaidvolunteers,interns,orexterns?YesNo(Ifyes,describe.)

E. ChildLabor

1. Doestheorganizationemployminors?YesNo(Ifyes,describeanyrestrictionsonminors’employment.)

346008.1.00204.002

Articles prepared by Shaw Valenza LLP

More “Domestic Workers” Entitled to Overtime and Other Rights

By: Jennifer Brown Shaw and Brian J. Lim

In the next two years, two new laws will affect millions of workers providing home care to the elderly, disabled, and/or children. In California, the Governor recently signed AB 241, which gives “personal attendants” the right to overtime in certain circumstances. AB 241 will be effective on January 1, 2014, but will expire on January 1, 2017, unless the Legislature extends the date. Similarly, the Department of Labor (“DOL”) created new rules significantly limiting the scope of the Fair Labor Standards Act’s (“FLSA”) existing overtime exemptions for domestic service workers providing “companionship” and those who live in the households where they provide care. The new FLSA rules are effective on January 1, 2015. Below is a brief review of these important developments. The Scope of Assembly Bill 241 In California, Wage Order 15 governs the working conditions for household occupations, including “personal attendants” – defined as persons employed by a household or third party recognized in the health care industry to work in households to supervise, feed, or dress the elderly, disabled, and children. Wage Order 15 currently exempts certain personal attendants from overtime, rest breaks and meal periods and other wage-hour rules. Personal attendant services include assistance bathing, showering, obtaining medical care, preparing meals, shopping, and using a telephone. Personal attendants may include nannies and caregivers. The exemption does not apply to nurses or personal attendants who spend more than 20% of their workweek on work

that does not qualify as personal attendant services (such as taking blood or providing medical services). AB 241 will require most employers (even private households) who use personal attendants to pay overtime when they work more than nine hours in a workday or 45 hours in a workweek. Of course, this overtime rule is more generous to employers than California’s regular overtime rule, which requires non-exempt employees to be paid overtime for work in excess of eight hours in a workday or 40 hours in a workweek. AB 241 excludes from its coverage personal attendants who: (1) perform services through the In-Home Supportive Services program; (2) have specified familial relationships with the employer; (3) are certain types of babysitters; (4) are employed by certain licensed health facilities as specified in the Health and Safety Code; (5) are employed pursuant to certain voucher programs connected with the State Department of Developmental Services; or (7) provide child care and who are exempt from certain licensing requirements of the Health and Safety Code. Once AB 241 becomes effective, there will be three categories of domestic worker employers in California: (1) those who do not employ personal attendants who must pay overtime under the regular overtime rules for non-exempt employees; (2) those who employ personal attendants subject to AB 241 who must pay overtime under the new rules in 2014; and (3) those who employ personal attendants excluded from AB 241 and remain covered by Wage Order 15’s current exemption.

The New DOL Companionship and Live-In Domestic Worker Rules Since 1975, domestic service workers providing “companionship services” to the elderly, ill, injured, or disabilities and those who reside in the households where they provide services have been exempt under the FLSA. Such workers include home health aides, attendants, and caregivers, among others. The new DOL rules: (1) clarify and narrow the type of services that constitute “companionship”; (2) limit the application of the current companionship and live-in domestic worker exemptions to only employers who are the individual, family, or household using the services (i.e., employers like home care agencies cannot use the exemptions); and (3) impose new recordkeeping obligations on employers of live-in domestic service employees. Courts have interpreted the current definition of “companionship services” so broadly that essentially any services provided for the elderly, ill, or disabled in a “private home” (i.e., not a retirement home or assisted living/skilled nursing facility) qualifies for the exemption. Under the DOL’s new rules, “companionship services” are limited to “fellowship and protection.” “Fellowship” means engaging the client in activities like conversation, reading, games, crafts, and walks. “Protection” means to be present with the client in her home or accompanying her when outside the home to monitor her safety and well-being. So, driving and providing medical services will generally not qualify as “companionship.” Domestic workers who provide certain “care” services (e.g., dressing, grooming,

October 17, 2013

meal prep, housework) may still qualify for the exemption if those care services do not exceed 20% of the hours worked every week. The new rules also limit the companionship exemption to situations in which the individual receiving services (or a family member) hires the caregiver. Third-party employers, like home care agencies, will not qualify. Finally, the new rules require employers of live-in domestic service workers to maintain accurate records of hours worked. Although not specified in the new rules, employers with employees who will lose current exempt status will

also have to maintain accurate time records of hours when the rules go in effect. Tips for Employers For employers affected by both AB 241 and the DOL’s new rules, it is important to remember that when both laws apply, the more restrictive law will govern. So, beginning in 2015 when the DOL rules are effective, California employers will have to pay non-exempt caregivers overtime when they work more than nine hours in a workday (the California standard) or 40 hours in a workweek (the FLSA standard).

Employers in this industry should carefully evaluate their practices to determine whether any of their employees will lose their exempt status under AB 241 or the DOL’s new rules and modify recordkeeping and payroll policies in anticipation of the new laws. There are other nuances to AB 241 and the new DOL rules not addressed in this article. Employers should consult with experienced legal counsel for a more in-depth analysis of these developments.

Reprinted by permission of The Daily Recorder.

Paying Employees Who Travel

By: Jennifer Brown Shaw and Alayna Schroeder

Most California employers know they must pay non-exempt employees for all their work hours. However, understanding pay and related obligations can be significantly more complicated when an employee’s workday does not begin and end in a single location—for example, if the employee services several clients throughout the workday.

Travel Time During the Workday

Employers generally need not pay for the time an employee spends commuting to and from work, but must pay for all of an employee’s business travel in the middle of the workday. If an employee does not report to a fixed worksite and instead is assigned to report to an alternate location—such as a client site—the California Department of Labor Standards Enforcement (“DLSE”) generally takes the position that the employee may be required to commute a “reasonable” distance, and the employer need not pay the employee for that commute time. Unfortunately, the DLSE does not define what “reasonable” means in these circumstances. Many employers set a standard “reasonable” commute distance (such as the time it would take the employee to commute from home to the company’s offices or other fixed location) or time (such as 30 minutes), but it is unclear whether the DLSE would agree with this approach.

On the other hand, an employer must pay for all business travel that occurs in the middle of a single shift (even if the shift spans multiple workdays). Also, if an employee traveling between two client sites or other locations spends time on personal pursuits in the middle of the travel (for example, returning

home for lunch), the employer must pay for the amount of time it takes to travel directly between the two work locations. Because an employer cannot monitor employee travel times individually, it must accept the employee’s stated travel times as accurate. If the time spent seems inappropriately long without adequate justification (for example, and accident or detour), the employer should still pay for the travel time, but can investigate the potential abuse and discipline the employee if appropriate.

Split Shift Premium

Employers may also incur liability to pay a “split shift” premium to certain workers who travel during the workday, if their employer-provided work schedules are interrupted by non-paid, non-working periods “other than bona fide rest or meal periods.” In those circumstances, an employer must pay the employee one hour’s pay at the minimum wage, in addition to the minimum wage for that workday. The DLSE considers a “bona fide” meal period to last around one hour or less.

For example, if an employer assigns an employee to work at one client location in the morning and another in the afternoon with a few hours of time off in between, the employer may be responsible for the split shift premium. It does not matter that the employee is free to do whatever he or she wants during that period of time, or whether the employee prefers the schedule. Again, because split shift liability is based on a “work schedule,” not a “workday,” the employer may incur split shift liability anytime a single shift is divided—even if it divided over two workdays.

Expenses and Liability

California Labor Code 2802 requires an employer to indemnify an employee for reasonable and necessary business expenses, including travel expenses. The DLSE takes the position that if an employer reimburses employees for driving their personal vehicles at the standard IRS mileage rate (currently, 56.5 cents per mile), the amount presumptively covers driving expenses including gas, maintenance, and insurance.

However, employers should not assume paying the IRS rate will relieve them of all potential driving-related liability. In a recent Second Appellate District case, Moradi v. Marsh USA, an employer required an employee to drive her car to work and use it throughout the workday. The employee decided to stop for frozen yogurt and a yoga class on her way home, and she struck and injured a motorcyclist.

Although an employer generally is not responsible for an employee’s actions when commuting to and from work, the court in the Moradi case held the employer was liable to the motorcyclist under the “required vehicle” exception to this general rule. Because the employer required the employee to drive her vehicle to work and her personal deviation for yoga and yogurt at the end of the workday was foreseeable, the employer could be legally responsible for the accident. Of course, the Moradi case does not mean an employer is always responsible when an employee is involved in an accident. In a recent Ninth Circuit Court of Appeals decision, Halliburton Energy Services, Inc. v. Department of

October 30, 2013

Transportation, an employer was not liable to third parties when its employee got in an accident in a company vehicle while on a personal trip more than 100 miles from home. In that case, the court determined that the employee’s personal use of the vehicle was not foreseeable.

Employer Guidelines

To meet its travel pay obligations, an employer must pay for time traveling throughout the workday, as well as related expenses. The DLSE permits employers to pay a lower wage for travel

time, as long as the wage does not drop below minimum wage and employees have adequate notice of the reduced rate.

If traveling employees earn at or near the minimum wage, employers must also pay those employees the “split shift” premium in appropriate circumstances. Alternatively, employers should schedule various assignments close together during the workday, so that it does not incur split shift liability. Finally, employers must adequately compensate employees for their travel

expenses and should ensure they are prepared to address liability for employee accidents. Employers may require employees to maintain adequate insurance coverage as a condition of employment, and should also understand the extent of their own insurance coverage for employee accidents and injuries.


Making Lawful Deductions from Advanced Commissions

By: Jennifer Brown Shaw and Lukas J. Clary

Sales commissions can lead to wage-hour disputes. Commissions are wages. Wages are due when they are earned. Employees naturally want to be paid as soon as possible. Employers desire control over when a commission is “earned” to avoid premature payment. Some sales transactions take time to complete. Products can be returned and payment refunded. To help employees with cash flow, employers may advance commissions to employees before they are “earned.” Advances in essence are loans, rather than wages. So, employers may either credit an earned commission against the advance, or recover the advance if the sale is not finalized or if a product is returned for credit. Employees sometimes argue that the employer is not allowed to recoup wages previously paid. The validity of that argument turns on whether the previously issued commission is deemed an earned or vested wage or merely an advance. Determining When a Commission Becomes an Earned Wage California Labor Code section 221 prohibits an employer from collecting or receiving any part of a previously paid wage. If a commission is deemed an earned wage, therefore, it is unlawful for an employer to recoup the commission in the case of, for example, a return, refund or chargeback. The difference between an advance or loan and a commission typically depends on the sales commission agreement. A commission agreement is a type of contract. California courts apply contract principles in analyzing

chargeback claims. They consistently approve of agreements that clearly address how chargebacks affect commissions. For example, in Koehl v. Verio, Inc., the court upheld a charge-back policy that allowed Verio to recover commissions advanced when the customer canceled the account before the customer had made three months of payments. And, in DeLeon v. Verizon Wireless, LLC, Verizon prevailed in litigation based on a policy that allowed chargebacks if a customer canceled a cellphone service contract within one year. The commission agreement in both of these cases clearly stated that commission payments were advances that could be charged back to the employee if a customer canceled in the specified time period. On the other hand, if the commission agreement does not expressly address chargebacks, California courts likely will consider chargebacks unlawful wage deductions. In Harris v. Investor’s Business Daily, Inc., an employer used a points system to determine sales employees’ compensation. The employees could earn and lose points based on certain events, such as meeting sales goals or selling more expensive subscriptions. The employer deducted points from an employee if a customer canceled their subscription within 16 weeks. But unlike the Verio and Verizon agreements discussed above, Investors’ commission agreements did not expressly characterize commissions as advances or describe the terms upon which the company could deduct a chargeback. The court held the chargebacks were unlawful wage deductions. In another case, Sciborski v. Pacific Bell, Pacific Bell charged back $19,000 in

commissions paid to an employee after it discovered a clerical error. The employee had satisfied all of the conditions contained in his commission agreement (here, a collective bargaining agreement) to earn a commission. Neither the CBA nor any other document allowed the employer to charge back wages based on a clerical error in assigning accounts. Therefore, the court of appeal did not allow the employer to make the deduction. Tips for Employers California law requires written commission agreements in most cases. As discussed above, courts generally apply contract principles to the interpretation of these agreements. For employers to avoid wage-hour law problems, the devil is in the details. Employers have significant flexibility to choose whether to advance commissions, to reconcile advances against future earnings, and to determine when commissions are “earned.” To do so, employers must ensure written commission agreements are clear. Courts and the Division of Labor Standards Enforcement will resolve ambiguities against the employer’s position. A good commission agreement explains how commissions are calculated, when they are earned, and when payment will be made. The plan should also specify what sales are included and excluded, and how commissions will be allocated when circumstances, such as territories, change. A good agreement also addresses how commissions are earned and paid when employment ends. Earned wages must be paid at the time of termination. To avoid paying

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commissions to a former employee, employers may wish to ensure that salespersons concluding sales after the original salesperson’s departure earns the commission, or that earning a

commission in part depends on service after the sale. As always, it may pay to have commission agreements reviewed by competent employment law counsel.


Equal Pay Already is the Law

By: Jennifer Brown Shaw and Julia C. Melnicoe

Income equality and equal pay lately have been hot topics in political circles. The proposed Paycheck Fairness Act‘s proponents claim the law would help narrow the wage gap between men and women, notwithstanding ongoing debate over the statistics. Employers should be aware that state and federal law already require equal pay based on equal work. Below is a summary of the current laws and the proposal to improve their effectiveness. The Federal Equal Pay Act and California Labor Code The federal Equal Pay Act and the California Equal Pay Law require employers to provide men and women equal pay for substantially equal work. “Substantially equal” means the positions require roughly the same levels of (1) skill (2) effort and (3) responsibility. The work also must be (4) performed under similar working conditions and (5) within the same establishment. “Skill” refers to training, education, or experience actually needed to perform the position. “Effort” measures the physical and mental requirements of the job — e.g., long hours or heavy lifting. “Responsibility” means the level of accountability associated with the position, such as handling money or trade secrets, for example. “Similar working conditions” means the physical comfort and risks are about the same for both jobs. “Same establishment” generally means the same physical/geographical location, unless salaries are set uniformly without regard to the location of the employee. Unlike other anti-discrimination laws, it is not necessary for an employee to prove intent to violate equal pay laws.

What matters is that workers of the opposite sex were not paid equally for substantially equal work. An employee making this showing is entitled to the gap in pay plus an equivalent amount in liquidated damages. So, if an employee shows she made $20,000 less than her male counterpart for the same work, she would be entitled to $40,000 in damages. That said, the law recognizes exceptions. Not all pay disparities are illegal. Pay differentials are permitted when they are based on legitimate job-based differences including seniority, merit, quantity/quality of production, or any other reason unrelated to sex (the “catch-all” exception). The employer has the burden of showing that these differences exist. Title VII and the Fair Employment and Housing Act The federal Equal Pay Act, passed in 1963, pre-dated the broader provisions of Title VII of the Civil Rights Act of 1964. Title VII (and the California Fair Employment and Housing Act) generally prohibit discrimination – unequal treatment - against members of protected groups. The focus is on whether the employer paid an employee less than another worker because of the employee’s race, sex, religion, etc. This could mean that the employee’s salary was intentionally set artificially low due to discriminatory motives, or that the employer’s seemingly neutral compensation policies nevertheless favor members of one group over another without adequate justification. The employer may explain the disparity with any legitimate, non-discriminatory

reason, just as in any discrimination case. Lily Ledbetter Act It can be difficult for a worker to learn he or she is unfairly underpaid. Employees do not always share their salary information with co-workers. Employers typically do not broadcast what they pay each employee, either. In the past, the statute of imitations barred otherwise meritorious claims, at least under federal law. That changed when Congress passed the Lily Ledbetter Fair Pay Act of 2009. The law was a response to the U.S. Supreme Court’s decision holding most of Lily Ledbetter’s claims against her employer were time-barred. The law allows an employee to file an equal pay claim long after the employer made the discriminatory decision that led to the pay disparity. The Lily Ledbetter Act does not affect California statutes. Under the Labor Code, section 1197.5, claims for wage disparities may be brought up to two years after the violation occurs, and up to three years if the violation is “willful.” The Ledbetter law’s expanded statute of limitations may provide greater coverage for employees than the Labor Code’s equal pay provision. What Would the Paycheck Fairness Act Add? Proponents of the federal Paycheck Fairness Act claim it will increase transparency about wages, theoretically making it easier to discover a discrepancy. It would also prohibit retaliation against employees who raise concerns. California law already

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prohibits retaliation against employees who complaint about equal pay. California law also prohibits adverse action against employees who discuss their wages. Indeed, the National Labor Relations Act also prohibits employers from taking adverse action against employees who discuss their wages. The proposed law also may tighten up employers’ reliance on the Equal Pay Act’s “catch-all” exception as a defense to disparate pay. Courts would be required to ensure that apparently gender-neutral reasoning was not the result of historical sex-related wage decisions or irrelevant job qualifications. Employers would be required to show that policies that disparately impact one sex cannot be replaced by a more

neutral policy that achieves the same purpose. Recommendations The renewed focus on unequal pay should prompt employers to look at their compensation systems. Larger employees hire outside consultants to perform sophisticated compensation analyses. These are not practical for all employers. At minimum, employers should review similarly situated employees’ pay rates to ensure that there are lawful reasons to explain pay disparities among employees who perform the same work. Employers should ensure there is adequate justification for paying new workers differently for performing the

same task as well. If a male applicant earned more at a prior job than a female applicant, paying the male new hire more than the female new hire may perpetuate discrimination. Employers that base pay increases on merit should ensure that the measurement of “merit” will withstand a third party’s scrutiny. Documentation of lawful compensation decisions will be critical. The Ledbetter law means that even decisions made long ago can give rise to new claims. Finally, employers should review policies prohibiting employees from discussing their wages.


A Return to Sanity in Class Actions?

By: Jennifer Brown Shaw and Kelcie M. Gosling

In 2012, the California Supreme Court issued its decision in Brinker Restaurant Corp. v. Superior Court, holding that a wage-and-hour case alleging missed meal and rest breaks could be brought as a class action. Since that decision, a number of lower appellate and trial courts have stretched the Brinker ruling to (or beyond) its breaking point, certifying wage claims as class actions even when factual questions specific to individual class members predominated over common issues of fact. Indeed, courts have almost routinely granted certification in wage and hour actions, causing employers to pay billions of dollars in settlement to avoid expensive class action litigation and the risk of ruinous judgments, including staggering attorneys’ fees to plaintiffs’ counsel. Now, in one of the most anticipated wage and hour decisions in recent years, the California Supreme Court issued its opinion in Duran v. U.S. Bank National Association, directing trial courts to take a far more rigorous approach to determining whether wage claims may be fairly and manageably brought as class actions. Background The class members in Duran were 260 current and former banking officers who claimed USB misclassified them as exempt from California’s overtime pay requirements under the “outside salesperson” exemption. That exemption applies to employees who

spend more than 50 percent of their workday engaged in sales activities outside the office. During the first phase of the trial, the trial court devised a plan to determine USB’s liability to all 260 class members by extrapolating from a supposedly “random” sample of only 21 plaintiffs (including the two named class plaintiffs). Only those employees were allowed to testify about their work habits, and they all claimed they spent less than 50 percent of their time outside the office. The court did not allow USB to introduce any evidence about the work habits of any other class members, even though USB offered declarations or deposition testimony from 79 plaintiffs (or more than a third of the class) stating that they spent more than 50 percent of their workday engaged in outside sales, and were therefore properly classified as exempt. Based only on the sample group’s testimony, the trial court concluded USB misclassified the entire class. In the second phase of the trial, the trial court relied on testimony from statisticians to determine damages. From that testimony, the court extrapolated the average amount of overtime worked by the sample group to all 260 class members. The result: a $15 million judgment against USB, representing an average overtime award of $57,000 to each class member – including those who were not due any overtime.

USB appealed. The Court of Appeal reversed the trial court’s judgment and ordered the class decertified. Plaintiffs then sought review from the California Supreme Court. The Supreme Court Decision In a unanimous opinion, the high court affirmed the Court of Appeal’s judgment and remanded the case to the trial court. The Court first noted that Labor Code exemptions “frequently depend on how individual employees perform their jobs.” Thus, depending on the nature of the exemption and the facts of the case, “a misclassification claim has the potential to raise numerous individual questions that may be difficult, or even impossible, to litigate on a class-wide basis.” In determining whether to certify a class, “manageability of individual issues is just as important as the existence of common questions uniting the proposed class,” and the court must establish a trial management plan whereby individual issues can be determined “fairly and efficiently.” The trial management plan must permit defendants to litigate affirmative defenses, such as an applicable exemption, even when those defenses turn on individual questions, such as the work habits of individual plaintiffs. Applying these principles to the case before it, the Supreme Court held that the trial court’s methodology was “profoundly flawed.” Although the Court did not completely reject the use

June 23, 2014

of sampling, representative testimony or statistical models, it held that the 21-plaintiff sample was too small to be statistically significant and improperly selected – and therefore not representative of the class as a whole. In the Court’s view, extrapolating class-wide liability and damages from a flawed sample was obviously unreliable and had an unacceptably high margin of error. Furthermore, the trial court did not allow USB to challenge the model or present evidence that many plaintiffs were properly classified as exempt, which resulted in a denial of due process to USB. In short, the Court found that the trial court abused its discretion and sent the case back for further proceedings.

Now What? Interestingly, both sides in Duran declared victory after the Supreme Court’s decision. While the defense bar hailed the opinion as soundly rejecting “trial by formula,” lawyers who represent employees touted the decision as confirming that misclassification cases may still be tried as class actions. There is no doubt that misclassification class actions still pose enormous risks for employers. (After all, USB has been litigating Duran case since 2001 and still faces further proceedings in the trial court; even if USB ultimately prevails, it will have spent untold millions on defense costs.) To minimize such risks, employers should exercise caution in classifying jobs as exempt. Employers may want to undertake job studies to determine whether their exempt employees are actually performing the

necessary percentage of exempt job duties and, if not, consider restructuring or reclassifying the position. Employers should also consider auditing job descriptions and work rules to ensure that they realistically reflect how employees spend their time. In addition, employers may consider requiring employees to sign a binding arbitration agreement that contains a class action waiver, as a condition of employment. Before doing so, however, employers should take note that the California Supreme Court will soon issue a decision regarding the validity of such waivers under state law (Iskanian v. CLS Transportation). Until the Supreme Court decides this issue, including class action waivers in these agreements is not without risk.


Department of Labor FMLA Investigations

By: Jennifer Brown Shaw and Alayna Schroeder

Under the Family and Medical Leave Act (FMLA), employers with 50 or more employees must provide eligible employees with a leave of absence for certain qualifying reasons, including an employee or family member’s serious health condition. Although the U.S. Department of Labor (the “DOL”), the government entity responsible for enforcing the FMLA, has always had the authority to investigate employers for FMLA compliance, the agency recently announced that it intends to increase the frequency of on-site investigations. Employers subject to the FMLA should take steps to avoid the risks associated with such investigations. The Investigatory Process The DOL has the authority to investigate any employer subject to the FMLA. It is not always obvious how the agency selects which employers to investigate. Most often, the DOL initiates an investigation in response to an employee complaint or a series of complaints. In other situation, the audit may be the result of a focus on certain industries or geographic areas. The audit process the DOL employs varies. The investigator may call the employer in advance to schedule an appointment, or may instead arrive at the worksite without prior notice. Additionally, the investigator will likely ask to see documents, including the employer’s FMLA and related policies. The DOL is particularly concerned about rigid attendance policies that do no make exceptions for FMLA-related absences, such as “no fault” attendance

policies. The investigator will likely also review other documents, such as leave paperwork and payroll or timekeeping records. Finally, the investigator may interview employees. If so, the employer may have some discretion in identifying the appropriate representatives and/or other employees who may have relevant information. And, the employer can participate in interviews of its representatives or managers. It can also explain to employees the investigatory process so that employees understand the importance of being truthful and concise. The Final Conference Following the investigation, the investigator may initiate a final conference. The purpose of the final conference is to provide the DOL the opportunity to identify any compliance issues it identified during the audit and to propose solutions, which may include changes in an employer’s practices. The DOL may also issue payment of fines or settlements to certain employees. While the employer is not obligated to commit to the DOL’s proposed plan, the final conference gives the employer a general sense of the legal claims the DOL may pursue against it if the entities are not able to reach a resolution. If the employer and the DOL are not able to resolve issues in the final conference, the DOL may pursue a lawsuit against the employer. In addition, individual employees may file a civil claim against the employer, even if the DOL and the employer are able to

resolve issues. In the worst cases of “willful” violations, the employer may face criminal penalties. Employer Tips Obviously, the best way for an employer to reduce the risk of an FMLA investigation is to take steps in advance to prevent it. First, employers should conduct self-audits to ensure their FMLA practices are legally complaint. The audit should include reviewing applicable policies, ensuring posters are appropriately displayed, and reviewing FMLA documentation, which should be stored separately from general employee personnel files. At the same time, California employers must be aware of additional or different obligations that exist under the California Family Rights Act (CFRA), the state’s FMLA analog. Because DOL investigators may not be familiar with the CFRA, employers must be prepared to explain when the CFRA requires their practices to differ from FMLA requirements. For example, while the DOL has a model medical certification form most employers require employees to complete to authorize FMLA leave, the form does not comply with CFRA requirements. Next, employers should ensure they have effective internal complaint procedures to address complaints or questions about leave policies and practices, including FMLA leave. This step may help employers resolve FMLA-related issues before employees complain to the DOL. Employers can also reduce the risk of complaints by

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ensuring managers and other personnel are trained on administration of FMLA and related leaves. Of course, sometimes investigations are unavoidable. In that case, employers should take steps to manage the investigation and protect employee privacy. For example, employers should train supervisors and managers to properly to respond to an unannounced visit from a DOL investigator by asking the investigator to schedule an

appointment with the correct employer representative. This simple request will give the employer the opportunity to properly compile the requested information and to seek legal advice if it feels such advice is necessary. And, while the employer should be polite to the investigator, it should not hesitate to ask specific questions about what information the investigator needs and why. Doing so ensures the investigator has access to the necessary

documents and information, but it also prevents the employer from providing confidential or private employee information that is not necessary to the investigation. Of course, participating in an FMLA investigation is a challenging and complex process. For this reason, many employers choose to work with legal experts who can help them navigate the process and make appropriate strategy decisions.


September 17, 2014 CALIFORNIA WAGE-HOUR COMPLIANCE: … · Upcoming 2014 Shaw Valenza Employment...

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