California employers are subject to one of the most regulated workplaces in the United States. Not only must they comply with the Fair Labor Standards Act (FLSA) which regulates wage and hour requirements on the federal level, but they must also comply with the usually much stricter overlay of state law and regulation.
California wage and hour law is the subject of a combination of statutory and regulatory schemes. The basic law in this area governing such matters as paydays, workdays and workweeks is found in the California Labor Code. However the "nuts and bolts" of state wage and hour requirements are found in a series of Wage Orders promulgated pursuant to the California labor Code byThe Industrial Welfare Commission(IWC). There are currently seventeen Wage Orders in effect establishing minimum wages and working conditions for employees in thirteen industries, three occupations and "miscellaneous employees" not covered by the other sixteen Wage Orders.
The Division of Labor Standards Enforcement (DLSE) a department of theCalifornia Labor Commission is charged with interpretation and enforcement of state wage and hour laws. Its federal counterpart is the Depart of Labor (DOL). Either agency may prosecute claims on behalf of employees or conduct independent audits of the employer's wage and hour practices. An employer who is found by either process to have failed to comply with applicable law can be subject to fines and penalties as well as damages.
The following will outline selected areas in which employers in today's employment environment have been found liable for wage and hour violations and will suggest some defensive strategies.
INDEPENDENT CONTRACTORS
Independent Contractors are generally defined as a worker who contracts with a business to provide a part specific result. Independent contractors are not subject to federal or state wage and hour laws and do not come under the jurisdiction of the DOL or the DLSE.
In the effort to avoid the increasing burden of regulatory compliance and costs associated with employment, California employers have recently often sought to reclassify their workers as independent contractors. However, the consequences of misclassifying employees as independent contractors can be severe, including the payment of back wages, benefits and /or taxes, as well as fines and penalties.
To make matters more confusing, different regulatory agencies and courts impose different tests for determining independent contractor status and the outcomes can be inconsistent. The definitive legal analysis can be complicated, but in the case of any contemplated independent contract situation the employer should ask him or herself the following 5 questions:
1. Is the prospective independent contractor working exclusively for you?
2. Will the prospective independent contractor be performing services at your place of business and under your supervision?
3. Will the prospective independent contractor be dependent on you for his/her livelihood during the period he/she is performing services for you?
4. Can you terminate the contract or contractor anytime?
5. Can the prospective independent contractor quit at any time without incurring liability.
If the answer to two or more of the above questions is "yes" you should consult with counsel before committing to an independent contract relationship. The fact that the parties have a written agreement characterizing the relationship as that of an independent contract will not be controlling if the relationship is challenged.
TEMPORARY OR CONTINGENT WORKERS
Employers have been increasingly taking advantage of contingent workers in order maximize flexibility during fluctuations in business. Contingent workers are also sometimes referred to as leased workers or temporary workers. Although such workers are usually provided by personnel agency or staffing company who hires the workers, manages their work assignments and pays the workers, a joint employment relationship may be created by virtue of the services being performed for the customer of the agency as well as the supervision exercised by the customer employer over the work being performed.
In a joint or co-employment relationship, each of the employers has actual and potential rights and obligations relating to the same employee. More significantly, the co-employers may be jointly and severally liable to the employee for compliance with applicable wage and hour requirements, including minimum wage, overtime pay and record keeping.
Defensive Strategies
The customer employer can take certain steps to minimize its exposure as a joint employer by doing the following:
1. Ensure that the staffing agency retains responsibility for interviewing, testing, training, evaluating, disciplining, counseling and terminating the temporary employee. The employee assigned should be trained and qualified to meet the customer-employers needs. If there are performance or conduct problems with the temporary employee, the customer employer should be communicate those to the staffing agency, not to the employee directly. Similarly, termination of the temporary employee's should be communicated by the staffing agency rather than the customer employer.
2. The customer employer should obtain a written indemnification provision in the staffing agency contract whereby the staffing agency agrees to defend and indemnify the customer employer for any claims by the employee based on wage and hour, or other, violations by the staffing agency during the joint employment.
EXEMPT/NON-EXEMPT CLASSIFICATION
Certain employees are exempt from the requirements of either or both state and federal wage and hour laws, chief among them the requirement to pay premium overtime wages. Employees engaged in what are classified as executive, administrative or professional positions are entitled to exemption. The test for each of these exemptions is detailed and beyond the scope of this article except to say that generally the primary duties of such positions involve the exercise of independent judgment and discretion and the management and supervision of others. An exempt position must be paid on a salary basis with the amount of the salary meeting a minimum, threshold. It is important to understand that just because an employee is paid a salary and given a management title is no assurance that the employee will be considered exempt.
Somewhat less confusing are the exemptions available for outside sales persons and certain highly compensated and skilled computer professionals. However, because the consequences of misclassifying employees as exempt are severe, including up to four years overtime wages, fines and penalties, counsel should be consulted if there is any doubt as to whether an employee's position is exempt or non-exempt.
Even where an employee's position has been initially correctly classified, the employer's subsequent treatment of the employee can jeopardize the exempt status of the position. The following are examples of common situations in which employers expose themselves to liability and about which they may be unaware. The following list is not exhaustive and if the employer has any question as to whether an exempt employee or class of exempt employees is being properly treated, the employer is encouraged to consult with counsel.
1. Non-performance
Where a position has been correctly classified as exempt, but the employee occupying the position regularly shirks those responsibilities and spends most of his or her time occupied with non-exempt type duties, the position may lose its exemption. For example where a sales person has been promoted to a sales manager, but shirks or delegates his or her management duties to others so he or she can spend more time on the floor selling, that person's exempt status is threatened.
Defensive Strategy
The employer's best defense in such a situation is 1.) to have a written job description which clearly describes the exempt nature of the duties which comprise the position; and 2.) Discipline and make a record having disciplined the exempt employee for not performing up to levels qualifying for the exemption, up to and including termination.
2. Impermissible "Docking for Disciplinary Leave
As mentioned above, one criteria for exempt status is that the employee must be compensated on a "salary basis" . That means the employee must regularly receive a pre-determined amount of compensation during each pay period that is not subject to reduction due to variation in the quality or quantity of work performed. The employee must receive his or her full salary for any week in which the employee performs any work at all. Therefore the exempt employee's salary cannot be "docked" for less than a week for disciplinary purposes.
Defensive Strategy
If an exempt employee is to be placed on an unpaid leave for disciplinary reasons. The leave can be for no less than one week and must be timed to coincide with the employer's work week.
3. Employer Instituted Shutdowns
In the present economy, many employers have instituted company-wide shutdowns from time to time as a cost saving measure. Since exempt employees cannot be docked for less than a week's salary, an employer who is planning a shutdown will have to pay exempt employees their full salary for any work week in which as work is performed; nor can the employer deduct from the employees accrued vacation or paid time off bank if the shutdown is less than one work week.
Defensive Strategy
Employer planned shutdowns should be for no less than one week and planned to coincide with the employer's workweek.
4. Personal Absences
The employer may deduct an exempt employee's full day absences from the employee's sick day bank or vacation bank for full day absences for sickness, disability, vacation or personal reasons. The employer may only deduct less than full day absences if they are recurring intermittent absences allowed under the Family Medical Leave Act. By comparison, deductions from non-exempt employees' paid time off bank may be made hourly or by other increments of time.
This means, among other things that an exempt employee who checks e-mail or voicemail while on vacation can claim that they "worked" that day and that, therefore, that day should not be deducted from the vacation or paid time off bank.
Defensive Strategies
The employer should review its written handbook policies or published policy statements regarding leaves, vacation, paid time off, etc. to make certain that exempt and non-exempt employees are categorized and treated separately with regard to how time will be tracked and under what circumstances pay may be "docked" or accrued time off deducted. The employer may also want to consider a statement in their policies to the effect that exempt employees are not required or expected to check their voicemail or e-mail while on vacation. By amending its polices and practices in the manner described above, the employer can reduce its risk that an enforcing agency could reclassify as non-exempt an otherwise exempt employee or group of employees because they were treated as non-exempt.
REGULATING OVERTIME
California employers are required to pay premium overtime rates to non-exempt employees who work more than eight hours in any one workday or more than forty hours in any workweek. It is important to note that "hours worked" for purposes of calculating and paying overtime is the time during which an employee is subject to the control of an employer and includes all the time the employee is suffered or permitted to work, whether or not required to so. The underlined phrase means that an employer will be liable for overtime pay for overtime worked by an employee which the employer knew or should have known about, whether or not the work was required or requested by the employer.
An example of the foregoing is the employee who comes in an hour early and stays an hour late everyday because he or she wishes to miss the peak commute traffic. The employee begins work when he/she arrives and works until he/she leaves, but records his/her time as an eight hour work day. If the employer knew or should have known, e.g. saw the employee there everyday for 10 hours and saw the eight hour time cards or time sheets, the employer will be liable for two hours of overtime per day if that employee makes a claim down the road.
Another example is the employee who wants to get ahead by putting in extra time. The employer assigns a project or report to the non-exempt employee at the end of the workday to be done the following day(s). The report or completed project is on the employer's desk first thing the following morning. It should be obvious to the employer that the report or project had to have been completed the evening before after the employee had already worked a full eight hour workday. The employer is obligated to pay overtime wages for the amount of time spent preparing the report or project.
Defensive Strategies
However counter-intuitive it may seem in some instances the employer must be vigilant in policing "off the clock" work by non-exempt employee. While the employee may originally undertake such work without the expectation of the payment of overtime wages and in order to demonstrate initiative or ambition, the employer will be liable for those overtime wages together with fines and penalties if that employee later becomes a disgruntled employee or if the employer is targeted by another employee for a wage and hour class actions suit.
The employers policies and procedures should clearly state that it is the employer's practice and policy to pay overtime compensation for all overtime hours worked, but that for budgetary reasons, the employer requires that all overtime be approved in writing by a designated level of management in advance of performing the work. The employer may want to consider period reminders of the policy placed in all paychecks. The policy should provide for discipline , up to and including termination for violation of the policy.
The foregoing is a brief summary of selected wage and hour pitfalls in which an increasing number of California employers have found themselves as a result of agency audit or employee class action suit. The employer who has questions about these or any other wage and hour issues should consult counsel before taking any action.