Employment Law Bulletin | September 2018

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Want to appeal a decision by the Labor Commissioner? Think again.

 

Last month, California law firm Danko Meredith, PC (Danko) learned the hard way that appealing an award to a former employee by the Labor Commissioner can be very risky and extraordinarily costly. In a decision called Nishiki v. Danko Meredith APC, the First District Court of Appeal reminded employers of their obligations under California law when an employee resigns without notice. Specifically, the Labor Code requires employers to pay all wages within 72 hours of the resignation. If an employer fails to do so, the employee’s wages continue as a penalty for up to 30 days until the wages are paid (a.k.a. waiting time penalties). In Nishiki, the Court addressed the timeliness of the final paycheck and the associated waiting time penalties under this rule as well as whether an employee can recover attorney’s fees on appeal.

The Facts

Taryn Nishiki (Nishiki) was employed as an office manager and paralegal by Danko. On the evening of Friday, November 14, Nishiki resigned from her position by sending out an email to the firm’s partners after the firm has closed for business. The following Tuesday, Danko mailed Nishiki her final paycheck. Unfortunately, the check contained a clerical error in that it had the correct amount of wages listed in numbers, but the wrong amount reflected in written format. The written amount reflected an underpayment of $80. Nishiki was unable to cash the check as a result of the error and informed Danko of the situation on November 26. Instead of immediately fixing the problem, Danko told Nishiki that they could not confirm her inability to cash the check. When Nishiki again reiterated that she was not able to cash the check and had no way to confirm her inability to do so, Danko gave her the option of returning the original check for a replacement or keeping the original and getting a second check for $80. Nishiki mailed the original check back and received a replacement check on December 5.

The Labor Commissioner’s Decision

Nishiki subsequently filed a complaint with the Labor Commissioner demanding $7,500 in unpaid wages and penalties, which included claims for unpaid vacation, missed rest breaks, and waiting time penalties. The Labor Commissioner ultimately denied Nishiki’s claims for unpaid vacation and rest breaks but awarded $4,250 in waiting time penalties for the 17 days Nishiki had to wait to get the corrected final paycheck. Danko appealed the decision. In hindsight, this strategy was ill considered considering that Section 98.2 of the Labor Code allows for an award of attorney’s fees against the party who appeals a decision by the Labor Commissioner if that party is unsuccessful in the appeal. Under that section, an employee must only recover an amount greater than zero to be deemed the successful party on appeal, making the employer’s threshold for success low and the riskiness of the employer’s appeal high.

The Appeal

In considering Nishiki’s claims, the Court of Appeal reduced the waiting time penalties to $2,250 (only 9 days instead of 17), but it granted Nishiki’s request for attorney’s fees under Labor Code section 98.2(c) in the amount of $86,160 plus costs! As for the reduction in waiting time penalties, the court found that the clerical error did not amount to a willful withholding of final pay. However, the firm was in violation of the law when it did not immediately fix the problematic check after receiving notice of the problem from Nishiki, so waiting time penalties were ordered from the date of notice until the corrected check was mailed.

The Take Aways

So what are the take aways from Nishiki? First, any clerical errors related to the method of payment should be fixed immediately upon notice of the error in order to avoid waiting time penalties. Second and just as important, employers should think very carefully before appealing a Labor Commissioner award, the end result could easily end up costing tens of thousands more than the original award!

No Se Habla Español?

SMT’s employment attorneys can provide your company with employment policies, forms and employee disciplinary documentation in Spanish.  Providing such important information to employees in the language they understand is critical to employee performance, providing a welcoming diverse work environment, and protecting your company against employment claims.  Contact an SMT attorney today to get started. 

Spaulding McCullough & Tansil LLP
Employment Law Group

Jan Gabrielson Tansil  | Lisa Ann Hilario | Kari Brown

Employment Law Bulletin | June 2018

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California Supreme Court Limits Ability to Classify Workers as Independent Contractors in Claims Brought Under the Wage Orders

 

On April 30, 2018, the California Supreme Court in Dynamex Operations West, Inc. v. Superior Court, dramatically changed the landscape for companies that hire independent contractors by expanding the definition of “employ” and creating a presumption that all workers are employees in claims brought under the California Wage Orders.  The Supreme Court held that in such cases, a worker is an employee if the relationship with the hiring party falls under one of the following:  the hiring party (1) exercises control over wages, hours, or working conditions, (2) causes the worker to suffer or permits the worker to work; or (3) engages the employee, creating a common law employment relationship.  In order to limit the broad application of the second definition (to suffer or permit to work), the court adopted the “ABC” test, which requires the hiring party to prove all of the following in order to overcome the presumption that the worker is an employee and prove an independent contractor relationship:

(A) the worker 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;

AND

(B) the worker performs work that is outside the usual course of the hiring entity’s business;

AND

(C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring party.

If the hiring party cannot establish all three of these prerequisites, the worker is an employee covered by the following Wage Order’s protections:

  • minimum wage
  • maximum hours of work (overtime, double time, 7th consecutive days)
  • rest breaks
  • meal breaks
  • timekeeping/record keeping
  • itemized wage statements (pay stubs)
  • child labor laws
  • uniforms and equipment

In addition to complying with the Wage Orders that offer the protections (and prescribe the penalties) listed above, employers must pay Social Security, payroll, unemployment and state taxes in addition to providing worker’s compensation insurance and paid sick leave.  While it might be tempting to avoid these obligations by classifying a worker as an independent contractor, misclassification of a worker who is by the Dynamex standard an “employee” can result in serious exposure to significant wage claims, penalties and damages.

If you have workers you currently classify as independent contractors, we recommend that you review your arrangement under the ABC test to make sure your relationship is properly classified.  Please do not hesitate to contact us for assistance with this evaluation.

 

Final Pay Penalties:  Up to 30 Days of Wages Awarded, Even for Negligent Mistakes

 

In Diaz v. Grill Concepts Services, Inc., a California Court of Appeal recently held that an employer’s negligent mistake in making final pay is not a defense to final pay penalties.  The court further ruled that a judge does not have discretion to lower the penalty based on the employer’s “innocent” mistake or lack of awareness of its final pay obligations.   Given these harsh rules, employers must be well versed in the final pay rules and the potential penalties imposed for violating them.  Here’s a refresher:

  • California employees are entitled to receive their final pay for all hours worked and accrued vacation/PTO balances when their employment ends.
  • If the employee is terminated, laid off, or quits with at least 72 hours’ notice, final pay (including accrued vacation/PTO) must be delivered on the employee’s last day of employment.
  • If the employee quits with less than 72 hours’ notice, final pay is due within 72 hours of the notice.
  • Labor Code section 203 provides that when timely final pay is not made, the employee’s wages shall continue as a penalty, up to a maximum of 30 days (the equivalent of six weeks of pay).  These penalties are commonly referred to as “waiting time” penalties and they are recoverable by an employee who files a lawsuit in court or a claim with the California Labor Commissioner.
  • Waiting time penalties are equal to one day of wages for every day the employee waits for payment, up to a maximum of 30 days.  For the employee earning just $11/hour, the waiting time penalties can be as high as $2,640 ($11/hour x 8 hours x 30 days) – regardless of the amount of final wages owed.

 

Even employers who know the final pay rules often innocently make mistakes.  Here are a few we often see that result in final pay penalties:

  • Terminating an employee mid-pay period without the ability to prepare the payroll check in-house;
  • Mailing address errors – transposed numbers, sending checks to employee’s previous address;
  • A “no show” employee is deemed to have resigned, but the check isn’t sent within 72 hours of that determination;
  • An employee’s final wages are sent via overnight delivery with a signature required – if the employee isn’t home to receive the mail, final pay is delayed (we recommend that you use Federal Express without signature – the delivery will be on time and FedEx tracking records will prove delivery);
  • An employee’s final wages are sent via certified mail with return receipt requested – again, if the employee isn’t home to sign for the mail, final pay is delayed; and
  • Failure of supervisors to timely communicate a voluntary quit to HR or payroll

 

The Diaz case reflects the important public policy in favor of timely payment of wages to employees.  If you have questions about your obligations, please contact an employment attorney at SMT.

No Se Habla Español?

SMT’s employment attorneys can provide your company with employment policies, forms and employee disciplinary documentation in Spanish.  Providing such important information to employees in the language they understand is critical to employee performance, providing a welcoming diverse work environment, and protecting your company against employment claims.  Contact an SMT attorney today to get started.

Spaulding McCullough & Tansil LLP
Employment Law Group

Jan Gabrielson Tansil  | Lisa Ann Hilario | Kari Brown

Employment Law Bulletin | May 2018

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Exempt Employee Salaries and Use of Time Off – When Are Deductions Permitted?

 

We’ve all heard the adage that exempt employees* are entitled to receive their full salary if they perform any work during the workweek, but what does that really mean?  Improper deductions from exempt employee salaries can lead to expensive wage and hour claims.  If unlawful deductions from salary were made and the employee no longer works for the organization, add up to 30 days of waiting time penalties into the liability mix.  Here are the rules for deducting exempt employee salaries and time off banks for partial workweek and partial workday absences.

*Exempt employees are those employees who are not eligible for overtime because they are paid a fixed salary equal to at least two times minimum wage times 2080 hrs. ($45,760 for 2018) and meet the requirements of an exemption from the Industrial Welfare Commission Order applicable to the employer.

Beginning or Ending Employment in the Middle of a Workweek

Let’s start with the easiest.  If an employee is hired or terminated in the middle of the workweek, the employer is only required to pay the exempt employee for the days actually worked.  If the employer’s workweek is Sunday to Saturday and the employee starts work on a Wednesday of what would ordinarily be a Monday through Friday work schedule, the employee is owed 3/5 of the weekly salary for the first week of work.  The prorated salary must be paid in full day increments, even if the employee only worked half of Wednesday and all day on Thursday and Friday.

Taking Time Off for Personal Reasons During the Workweek

When exempt employees take time off for part of a workweek, the employer can deduct that time away from the employee’s vacation/PTO bank in increments, however the employer’s policy must state what those increments are.  If the employee’s vacation/PTO balance is zero (or if the employer does not offer vacation/PTO at all), the employer can only deduct full workday absences from the salary; salary deductions for partial day absences are not allowed.  Warning – If your exempt employees have the ability to work outside the workplace (think email, phone calls, remote computing) make sure the employee has not performed any work remotely before deducting a full day absence from the salary.

Taking Sick Leave During the Workweek

The rules applicable to time off for personal reasons also apply when an exempt employee takes paid sick leave with one exception:  if the employer’s sick leave policy provides that employees will be paid their sick leave balance if they don’t use their sick leave (e.g. a “well pay” feature), then the sick leave bank can only be deducted if the time away is four or more hours.

Partial Workweek Business Closures

If the employer closes the business for a partial workweek making work unavailable to the exempt employee, the employee must be paid the full weeks’ salary unless the closure was due to an Act of God or reasons beyond the employer’s control (for example, utility failures, fire).  However, if the business is closed for an entire workweek and the employee does not perform any work during the workweek, no salary is owed for that workweek.  But, heed the warning above if the employee has the ability to work remotely without your knowing it.

Another interesting tidbit, employers cannot require exempt employees to use their vacation/PTO when the employer closes the business for a partial workweek.

Partial Workweek Disciplinary Suspensions

If disciplining an exempt employee involves a suspension, make it a full workweek and prohibit the employee from working remotely.  If the employee works a partial workweek she/he will be entitled to the full workweek’s salary – meaning the employee got some free paid time off as her/his discipline!

Conclusion

Exempt employee salary rules can be complicated, but strict compliance is critical to avoid exposure to wage and hour claims.  The key to compliance is having well trained payroll and human resources staff to ensure they manage employee time off banks and salary payments properly.  Contact one of SMT’s employment law attorneys if you have questions about compliance or would like to schedule a training.

 

Immigration Authorities – Are You Prepared if They Appear at Your Place of  Business?

 

As we reported in our December 2017 Employment Law Bulletin, new regulations took effect in January imposing specific obligations on California employers when immigration authorities show up at the workplace with an arrest warrant, search warrant or request to inspect the employer’s I-9 forms demonstrating employees’ authorization to work in the United States.

Among the new employer obligations is the requirement to post a detailed notice to employees within 72 hours of the receipt of a Notice of Inspection from an immigration agency.  The Labor Commissioner has recently published a template for the Notice to assist with the very short timeframe for posting, which can be found here: https://www.dir.ca.gov/DLSE/LC_90.2_EE_Notice.pdf. There are additional obligations once the results of the inspection are disclosed to the employer, which if not followed can result in stiff penalties.  See our December 2017 Employment Law Bulletin for more details.

Several of our clients have contacted us for assistance in preparing response plans, procedures and training for employees on how to respond when immigration agencies show up at the workplace.  If you’re interested in having a plan drafted for your workplace or need help weeding through the new notice requirements, please contact an SMT attorney.  We’ll be glad to help.

No Se Habla Español?

SMT’s employment attorneys can provide your company with employment policies, forms and employee disciplinary documentation in Spanish.  Providing such important information to employees in the language they understand is critical to employee performance, providing a welcoming diverse work environment, and protecting your company against employment claims.  Contact an SMT attorney today to get started.

Spaulding McCullough & Tansil LLP
Employment Law Group

Jan Gabrielson Tansil  | Lisa Ann Hilario | Kari Brown

Employment Law Bulletin | February 2018

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2018 EMPLOYMENT LAW UPDATE ACTION ITEMS

In this month’s Employment Law Bulletin we bring you our 2018 Employment Law Update Action Items checklist. Employers can use this handy checklist to help ensure their organization is in compliance with new laws that took effect in January 2018.   It also includes action items regarding some of the issues we most frequently counseled our clients about during 2017.  (See the checklist starting with “Wage Statements.”)  Please reach out to an SMT employment attorney if you have questions.  We are here to help.

 

REQUIRED LABOR LAW POSTINGS:

  • Update CA Labor Law Poster

 

NEW PROHIBITION AGAINST SALARY INQUIRIES IN HIRING PROCESS:

  • Review employment applications, interview and pre-screening practices to remove any inquiries about salary history
  • Train interviewers not to request salary history information
  • Document any voluntary salary history disclosures
  • Train decision makers not to consider salary history in making hiring decisions (if applicant voluntarily disclosed salary history)
  • Prepare pay scales for each job opening and provide to applicant if requested
  • Amend contracts with third-party vendors, such as recruiters, to require them to comply with the new law

 

CALIFORNIA EQUAL PAY ACT:

  • Perform audits to ensure that there is a bona fide reason for disparity in pay amongst EEs doing the same or substantially similar work
  • Create a list of all bona fide factors that apply to your business and the position in question
  • Establish a protocol for documenting that only bona fide factors were considered when setting pay
  • Keep records of wages and wage rates, job classifications and other terms and conditions of employment

 

BAN THE BOX LEGISLATION:

  • Review employment applications and all pre-offer documents to eliminate requests for criminal history information
  • Train interviewers not to request criminal history information
  • If a criminal background check will be done, revise sample offer letters to provide job offers are conditioned on successful completion of a criminal background check
  • Don’t have applicants sign criminal background check authorization forms until after the conditional job offer has been made – check to make sure your background check company is in compliance
  • If you want to withdraw a job offer based on background check results, consult legal counsel first

 

NOTICE OF RIGHTS OF DOMESTIC VIOLENCE VICTIMS:

  • Give written Notice of Domestic Violence Victim Rights to all new EEs (add to new hire checklist if you have one)
  • Give written Notice of Domestic Violence Victim Rights to current EEs (upon request)

 

NEW PROTECTIONS FOR UNDOCUMENTED WORKERS:

  • Clearly identify public and nonpublic areas
  • Train EEs who are likely to greet immigration officials when they come onto the property to notify a point person
  • Train the “point person” how to deal with immigration officials and not to permit them to go into nonpublic areas
  • Train the “point person” regarding the Notice of Inspection procedures and issue to EE
  • Check the DLSE website at www.dlse.ca.gov on 7/1/2018 for their template posting and post

 

I-9 FORMS:

  • Make sure you are using the July 2017 I-9 form
  • Become familiar with I-9 Instructions; train appropriate staff
  • Take care not to use eligibility information or processes for the wrong reason

 

CALIFORNIA NEW PARENT LEAVE (ERs of 20 or more EEs):

  • Add a new parent leave policy to your employee handbook
  • If you offered your own form of parent leave, revise your policy to make sure it complies with the law
  • Train HR and supervisors regarding new parent leave requirements and how to provide notice to eligible EEs
  • Make sure payroll department understands how to integrate payment of sick/vacation/PTO with PFLI benefits

 

NEW HARASSMENT PREVENTION REQUIREMENTS:

  • Distribute new DFEH Sexual Harassment pamphlet to all EEs
  • Review and revise sexual harassment policy to comply with the new requirements
  • Post “Transgender Rights in the Workplace” posting

 

NEW HARASSMENT PREVENTION TRAINING REQUIREMENTS (ERs of 50 or more EEs):

  • Ensure new EEs hired, and existing EEs promoted, into supervisory positions receive training within 6 months and every 2 years thereafter
  • Track attendance and maintain proof of training
  • Ensure trainings cover the new requirements

 

MINIMUM WAGE IN CALIFORNIA:

  • Review hourly pay rates and increase as needed
  • Review pay for EEs where minimum wage is used as a threshold and increase as needed:
    • Exempt EE salaries
    • Wage Order 16 EEs who provide their own hand tools/equipment
    • EEs paid minimum wage for travel, waiting time, etc.
    • Commissioned sales people (to maintain overtime-exempt status)
    • EEs in the construction industry exempt from paid sick leave law based on CBA that provides for pay at least 30% > minimum wage
    • EEs exempt from state overtime law based on CBA that provides for regular hourly pay at least 30% > minimum wage
  • Review exempt EE salaries and increase as needed
  • Since the new minimum wage laws are triggered by ER size, pay attention to fluctuation in EE counts throughout the year and adjust the minimum wage accordingly
  • Make sure you have the current minimum wage posting (the 2016 posting is still good)

 

OVERTIME FOR AGRICULTURAL WORKERS:

  • Changes are not effective until 1/1/2019 at the earliest (depending on ER size), but now is a good time to review what overtime exposure will be and to develop plans to address (limiting overtime exposure by hiring more EEs vs. keeping the same number of EEs who work more hours and are owed overtime)
  • Since the new overtime law is triggered by ER size, pay attention to fluctuation in EE counts to be sure to apply the correct overtime rule

 

IRS MILEAGE RATE FOR 2018:

  • Pay the IRS mileage rate
  • If not paying IRS rate, ensure your mileage rate truly covers the cost incurred by the EE

 

MARIJUANA IN THE WORKPLACE:

  • Decide what policy best fits your organization
  • Train supervisors and management to recognize signs of intoxication
  • Review and revise
    • Pre-employment procedures
    • Fitness For Duty Policies
    • “Off Duty” Definition
    • Rehabilitation leave

 

WAGE STATEMENTS (PAY STUBS):

  • Review pay stubs for exempt and nonexempt EEs to ensure they contain all required

 

THIRD PARTY PAYROLL ASSISTANCE:

  • Review pay stubs for exempt and nonexempt EEs to ensure they contain all required Information (see above)
  • If you have nonexempt EEs who earn an hourly wage plus commissions, incentives, bonuses or other compensation, consider an audit with legal counsel to ensure you are including these in calculated the OT rate of pay
  • Audit time and payroll records to ensure the person reporting hours to the payroll company is providing the correct information

 

ELECTRONIC TIMEKEEPING:

  • Review timekeeping procedures and implement policies and procedures instructing EEs what they should do if their time is not properly recorded
  • Do not allow managers/supervisors/payroll to revise EE time entries without EE’s written consent
  • Keep written evidence of all EE-approved time record changes in the EE’s payroll file

 

BYOD:

  • Check and update policies and practices for reimbursement of cell phone/device expenses
  • Check and update policies and practices for after-hours work by non-exempts
  • Train supervisors about after-hours expectations and requirements
  • Check confidentiality policies and agreements regarding ownership and use of ER information
  • Train supervisors/managers/owners not to text with EEs about anything that could
    • create liability
    • result in disciplinary action for any EE
    • embarrass them in front of a jury

 

TRAVEL TIME ISSUES

  • Clearly spell out when travel time is commute vs. working hours
  • Check and update policies and practices for reimbursement of travel expenses
  • Think through and document any policies, practices and documentation when using a special travel rate of pay

 

CAREGIVER EE ISSUES

  • Be sure to have a written agreement and job description
  • Address overnight and live-in issues
  • Clearly address any on-call time
  • Don’t become a landlord unintentionally
  • Keep time records and true payroll records
  • Pay wages like an ER

No Se Habla Español?

SMT’s employment attorneys can provide your company with employment policies, forms and employee disciplinary documentation in Spanish.  Providing such important information to employees in the language they understand is critical to employee performance, providing a welcoming diverse work environment, and protecting your company against employment claims.  Contact an SMT attorney today to get started.

Spaulding McCullough & Tansil LLP
Employment Law Group

Jan Gabrielson Tansil  | Lisa Ann Hilario | Kari Brown