(Updated May 7, 2018)
New laws pop up in California on a regular basis, as summarized by our What’s New for 2018 advisory. Meanwhile, California employers must also be mindful of the laws already on the books, many of which pose traps for the unwary. Here are our top 20 nominees for the employment legal issues warranting particular vigilance.
1. Use of Staffing Agencies and Joint Employment. Employers in California are directly liable to workers supplied by labor contractors (including temporary and other staffing agencies and farm labor contractors) when those labor contractors fail to correctly and completely pay wages or fail to provide workers’ compensation insurance coverage to their employees. Employers using workers from labor contractors are liable to such workers for unpaid wages, even if they have already fully paid the labor contractor. Read our detailed advisory here.
2. Independent Contractor (1099) v. Employee (W-2) Classification. Misclassification may lead to significant scrutiny by both workers, the California Labor Commissioner, and the Employment Development Department. The ultimate question of classification is a matter of law, and not up to the employer and worker. The California Supreme Court just rewrote the test for evaluating those relationships. Under the new “ABC Test”, a worker is an employee for purposes of the California Wage Orders unless the company proves all of the following: (A) the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work, and in fact (i.e. that the worker is free from the hirer’s control in performing work both practically, and in contract); (B) the worker performs work that is outside the usual course of the hiring entity’s business (i.e. that what the worker does is different from what the hirer’s business does); 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 entity (i.e. that what the worker does for the hirer is what the worker typically does for work). Review our detailed advisory here.
3. Background Checks and Criminal History Inquiries. Looking into an applicant’s background is permissible, so long as certain procedures are followed.
a) California law generally prohibits use of a consumer credit report for employment purposes. Criminal histories have restrictions as well. Read our detailed advisory here.
b) Employers generally may not ask applicants about criminal history until a conditional offer is made. Read our detailed advisory here. A rule that automatically bars employment to any applicant who has a record of criminal conviction will likely violate state and federal law if the conviction is not job-related and the policy has a disparate impact upon a protected class. Read our detailed advisory here. If a third-party administrator conducts background checks, it is vital that they comply with all applicable requirements, as well as indemnify the employer in case of a claim.
4. Form I-9 Compliance. This is important because of ICE’s increased audit efforts. The current version of the I-9 form must be used. Read our detailed advisories here and here. The process is further complicated by California’s issuance of driver’s licenses to undocumented residents. Read our detailed advisory here.
5. Non-exempt (Hourly) v. Exempt (Salary) Employee Classifications. California law exemptions are different from and narrower than the federal exemptions. The first step is to ensure compliance with the applicable CA Wage Order. Employers should craft written job descriptions with an eye towards ensuring that the description meets the definition of exempt duties. In addition, because California’s minimum wage increased on January 1, 2018 to $10.50 per hour for employers with 25 or fewer employees, and to $11.00 per hour for employers with 26 or more employees, the minimum salary an employee must now earn to qualify for exempt status under California law will increase to $43,680 per year ($840 per week) for employers with 25 or fewer employees, and to $45,760 per year ($880 per week) for employers with 26 or more employees. These rates are scheduled to increase again on January 1, 2019. Click here for more information from the Labor Commissioner's Office.
6. Unpaid Interns. Many employers are tempted to use unpaid interns. The U.S. Department of Labor updated the standards used to determine whether the worker is an intern or an employee who must be paid, covered by workers’ compensation insurance, etc. Read our detailed advisory here. Interns have the same protections under state anti-discrimination and anti-harassment laws as do employees.
7. Local Minimum Wage and Paid Sick Leave Regulations. In addition to federal and California state law, California cities and counties have ordinances that require compliance. This requires review of employment applications, minimum wage rates, and paid sick leave policies to ensure compliance with applicable local ordinances. For instance, Los Angeles County and several cities in California have passed ordinances governing higher minimum wage rates and paid sick leave benefits. Read our detailed advisory here.
8. Employee Arbitration and Class Action Waiver Agreements. These agreements require an employee to waive the right to a civil court jury trial, and instead to arbitrate before a private arbitrator; and waive the right to bring a class action claim in any venue.
a) Waiving the ability to sue as a class action plaintiff effectively protects the employer against a class action, almost certainly the greatest (and most uninsurable) employment risk. An enforceable arbitration agreement frequently devalues the case in the eyes of the employee’s attorney.
b) There are limits, however. Agreements must be fair to be enforceable (not “unconscionable”), and California Private Attorney General Act (“PAGA”) class representative actions cannot be waived. Read our detailed advisory here.
9. Employee Restrooms. All single-user restrooms must be designated as all gender. Read our detailed advisory here. Failing to do so may be negative evidence in any harassment or discrimination claim, and may constitute a violation of the California Building Code.
10. Equal Pay. California’s Fair Pay Act requires employers to demonstrate that any wage differential is based on a bona fide factor other than gender, race, ethnicity, or any other protected characteristic. The statute lowers the burden of proof for employees claiming discriminatory pay practices by prohibiting an employer from paying lower wage rates for “substantially similar” work. And, employers can no longer ask for prior salary history from applicants. Read our detailed advisories here and here.
11. Paystub and Payroll Practices. There are specific requirements for payroll schedule, pay checks, and pay stubs, per California Labor Code sections 204, 212, and 226a. Read our detailed advisory here.
a) Payroll schedule requirements are:
i. Non-exempt or exempt employee wages earned may be paid “twice during each calendar month, on days designated in advance … as the regular paydays [so that] labor performed between the 1st and 15th days, inclusive, of any calendar month shall be paid for between the 16th and the 26th day of the month during which the labor was performed, and labor performed between the 16th and the last day, inclusive, of any calendar month, shall be paid for between the 1st and 10th day of the following month.”
ii. Non-exempt or exempt employee wages earned may be paid on a “weekly, biweekly, or semimonthly payroll” schedule, if wages are paid “not more than seven calendar days following the close of the payroll period.”
iii. Exempt (but notnon-exempt) employee wages may be “paid once a month on or before the 26th day of the month during which the labor was performed if the entire month’s salaries, including the unearned portion between the date of payment and the last day of the month, are paid at that time.”
b) Employees must be able to cash their pay checks “on demand, without discount, at some established place of business in the state, the name and address of which must appear on the instrument,” except that “if the drawee is a bank,” the bank’s address need not appear on the pay check, so long as it may be cashed “without discount [i.e., without fee], at any place of business” of the bank.
c) Pay stubsmust include the nine items enumerated in Labor Code 226a, including the gross and net “wages earned,” the “total hours worked by the employee,” and “all applicable hourly rates...and the corresponding number of hours worked at each….” This means that the appropriate rates of pay for paid sick leave, vacation/PTO, overtime worked at different rates of pay in the same pay period, and meal/rest break premium pay should be confirmed. And, the “total” portions of the pay stub should only include the proper items.
12. Commission Agreements and Bonus Plans. California employees who are paid a commission must have a written, signed agreement reflecting the precise method by which commissions will be calculated and paid. Draws against commissions may violate rest period rules if the employee is non-exempt. Read our detailed advisory here. Bonus plan agreements are recommended so that the terms of the bonus are clear. In addition, non-discretionary bonuses need to be included in calculating overtime pay for non-exempt employees. Read our detailed advisory here.
13. Meal and Rest Breaks. A timekeeping system that “automatically deduct[s] a half hour for meal breaks” is a common and often risky practice. Rather than automatic deductions, employers should instead use counseling to address those situations where the weekly/monthly time records reveal an employee’s non-compliance with the meal period policy, by taking no meal break, a late meal break, an interrupted break, or a short meal break. Read our detailed advisory here. An employer’s timekeeping system should produce a report of the missed, short or late meal breaks for each payroll period so those issues can be addressed. If the employer caused the short, late or missed meal break, the employer must pay the one hour meal period premium penalty pay. And, employers should take steps to ensure that employees who have employer-provided devices such as cell phones do not monitor or respond to texts, calls or email while on breaks. Read our detailed advisory here.
14. Timekeeping for Non-Exempt Employees. It is important to review non-exempt employee time records with corresponding paychecks to determine whether overtime is calculated properly, and to identify potential risks re: piece rate pay, reporting time pay, travel time pay, and/or split shift pay.
a) “Rounding” clock- in/out times may be defensible, but invite high-stakes class action litigation. Read our detailed advisory here.
b) “Reporting time pay applies in situations where employees who are required to report to work for a scheduled period of time, but at the employer’s request work less than half that time; in that scenario, the employees are entitled to be paid for just the time worked, as long as the time worked is at least half of the scheduled time. But, if the employee is not provided with work for at least half of the scheduled time, or there is no set period of time, the employee is entitled to the greater of 2 hours of pay, or half of the usual or scheduled day of work, up to a 4-hour maximum.
c) “Piece rate” workers must be paid for non-piece rate work as well, including rest breaks. Read our detailed advisory here.
d) While commute time is not compensable (unless the employee is under the employer’s control during the commute), all other travel time is compensable. Commute time – i.e., the time spent commuting from home to work and from work to home – is generally not considered “hours worked” and thus is not compensable. Travel time – i.e., where there is an “assigned” work place and the employee is required to travel to another site – is compensable, subject to an offset of the time it normally takes an employee to commute to his/her assigned workplace.
e) Employees must be given a day of rest. Read our detailed advisory here.
15. Expense Reimbursements. California Labor Code Section 2802 requires reimbursement of business expenses. Two potentially problematic issues are: reimbursement for mobile devices; and, employee uniforms.
a) Reimbursement is required for an employee’s personal cell phone and voice and data plan when the phone is also used for business purposes. Read our detailed advisory here. Having policies and practices in place are key to avoiding a class action alleging failure to reimburse for work-related cell phone usage. Such policies include “Bring Your Own Device” (or “BYOD”) agreements that govern use of devices for work purposes, which can help limit exposure to off-the-clock work and reimbursement issues, as well as provide for the protection of sensitive employer information.
b) Clothing or footwear of a distinctive design or color is considered a uniform. If an employer requires the use of a uniform, then it must provide those uniforms to employees at no cost to the employee. And, the employer must also replace a uniform at no cost to the employee, unless the original uniform was destroyed through the employee’s gross misconduct. The employer generally must also maintainuniforms at no cost to the employee, unless the uniform is made of fabric requiring nothing more than ordinary washing and drying; in those circumstances, an employer can reasonably require the employee to maintain the uniform. However, employers must themselves maintain, or else reimburse employees, for maintaining, those uniforms requiring ironing, dry-cleaning or special laundering.
16. Drug Testing. Drug testing is limited in California to pre-employment and circumstances giving rise to “reasonable suspicion.” Employers may not automatically drug test after workplace accidents, nor may they randomly drug test (unless as part of a U.S. Department of Transportation testing scheme). The legalization of marijuana in California for recreational purposes warrants a review and likely updating of workplace drug and alcohol policies. Read to our detailed advisory here.
17. Leaves of Absences. Leaves in California are tricky. Navigating the interplay of the various types of legally-protected medical leaves – e.g., paid sick, workers’ compensation, FMLA (and state law equivalent), and ADA/FEHA disability – can be difficult. Read our detailed advisory here. California law does not permit an employer to inquire about the actual medical condition itself; the employer may only ask about the restrictions resulting from the condition. And, once FMLA/CFRA leave is exhausted, employers must nevertheless continue the interactive process and consider unpaid ADA/FEHA disability leave as a possible reasonable accommodation. Read our detailed advisory here.
18. Anti-Harassment Training and Policies. California requires sexual harassment training, which is interactive and at least two hours in length, for all supervisors within six months of hire, and retraining every two years thereafter. But, in this climate, employers are well-advised to do more than just satisfy the minimum legal requirement on training. Read our detailed advisory here.
a) Training must include issues pertaining to transgender and gender non-conforming employees. Read our detailed advisory here.
b) Beyond the required training, policies and handbooks need to be revised and updated to conform to new requirements. Read our detailed advisory here.
c) Appropriate employees should be trained on how to conduct company investigations. Review the California Department of Fair Employment and Housing Workplace Harassment Guide for California Employers here.
19. Required Posters. Employers must post the applicable California Wage Order in the workplace, as well as many other notices that are now required by various state and federal laws, including those imposed by recent legislative and regulatory changes. Read our detailed advisory here.
20. Termination Documents. Even the most compliant employers face wrongful termination, discrimination, retaliation, wage-hour, and harassment lawsuits. The only “silver bullet” against protracted and expensive litigation is an enforceable separation agreement that contains a general release of all known and unknown claims. While a separation agreement may not legally provide for the release of certain claims, such as those for workers’ compensation or unemployment benefits, a carefully crafted agreement used in appropriate circumstances will go a long way toward significantly reducing risk.