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California Minimum Wage Increases to $10 per hour

Effective January 1, 2016 the minimum wage in California is $10 per hour.  Employers need to be aware, however, that this affects more than just employess in non-exempt positions.  In order for an employer to classify a job as exempt from overtime and other provisions of the Department of Industrial Relations Wage Orders under the executive, administrative, or professional exemption, an exempt position must meet both the salary basis test and the duties test.  Under the salary basis test, an exempt in California employee must be paid at least two times the minimum wage.  An employer could risk facing a misclassification lawsuit or Labor Commissioner claim if it fails to increase exempt employees’ wages to meet the salary basis test under the new wage amount.

Don’t Be So Quick To Judge (Or To Fire)

Recently I read a blog post by a venture capitalist who advised readers to slow down in the hiring process but to “fire fast”.  And I agree with him in principle:  taking more time to hire the right candidates will generally yield better results in the long run, and holding on to marginal employees for too long can reduce a company’s performance. However, I think this latter point deserves expanding upon. 

Terminating an employee too quickly can hurt a company’s performance as much or more than terminating too slowly.  With proper coaching, employees can often get out of a rut and return to a higher level of performance.  Losing a good employee results in lost talent, as well as costs associated with replacement.  In addition, terminating an employee can result in lower morale for those who remain.  They may be concerned for their own job security, or feel that the company treated the employee unfairly.

From a legal standpoint, terminating an employee too quickly can increase the risk of a lawsuit, arbitration, or other employment law claim against the company.  A fair investigation, progressive discipline and proper documentation may provide a good defense against discrimination and harassment claims – but it will do little to protect an employer from wage and hour claims.  It’s simple math:  “You’re fired” + unpaid overtime = lawsuit.  An employee who feels like they were treated fairly, even in getting fired, is less likely to make a claim.  

I don’t disagree with the point that keeping a marginal employee on for too long reduces company performance.  It’s knowing the difference between “too late” and “too soon” that can be challenging, and steps that perhaps should be taken first.  Talk to an employment lawyer for help understanding the legal implications of terminating a particular individual.


Legalese to English: Types of Lawyers

A few weeks ago, I spoke with someone in the healthcare industry who kept saying she needed a “contract attorney”.  While I knew that she actually meant she needed a “transactional attorney” to handle a matter involving a contract, it made me pause. It struck me that even a highly intelligent, educated executive didn’t know the right terms to use to get the type of lawyer she needed.  So, here you have it, a Legalese to English quick guide for understanding terms that describe lawyers.  (Hold on, this page is strictly PG!).  Another time I’ll focus on other areas, such as basic words involved in lawsuits, or areas of practice.

Litigator:  This type of attorney handles lawsuits at the trial court level.  Often they also represent people or businesses in matters handled by government agencies such as the Labor Commissioner.  They may or may not also function as one or more other types of attorney.

Transactional Attorney:  This type of attorney handles – you guessed it – various types of transactions.  It can be as complicated as a merger between huge international corporations, or as simple as writing a basic contract to provide goods or services. 

Appellate Attorney:  This type of attorney handles matters that have been appealed after a ruling by a lower court or a government agency.

Patent Attorney:  This actually may not be an attorney at all.  Rather, a patent attorney is someone who has the required education (such as physics, biology, mathematics, or engineering), passed an examination administered by the U.S. Patent and Trademark Office (US PTO), and been admitted to represent clients before the US PTO.

Contract Attorney:  Contrary to what it sounds like, a contract attorney is not an attorney who handles contracts.  That would be a transactional attorney (see above).  Rather, a contract attorney is a licensed attorney who has contracted to work for another firm or lawyer, but is not a regular employee. 

Appearance Attorney: This is an attorney who, like a contract attorney, is not a regular employee of the firm representing the client.  This type of attorney only handles a specific court (or agency) appearance.  Generally, use of an appearance attorney is limited to appearances that do not require in depth knowledge of the case. 

Specialist:  In California, a “certified specialist” has passed an additional examination given by the State Bar for a particular area of law.  Not every area has a certified specialist designation available.  For example, in California, as of the time of writing this article there is no such thing as a “specialist” in employment law.  While the term is sometimes used to help someone understand the lawyer’s main focus area, really it is being used incorrectly in that context.

 Of Counsel:  This term actually has four different meanings, according to the American Bar Association.  It can be a retired partner who remains affiliated with a firm.  It can be a part-time practitioner who works on a different basis than regular lawyers at the firm (e.g., law professors who are affiliated with a firm).  It can be a lawyer who is with a firm in a senior level but for a variety of reasons is not yet a full partner.  It can also be a similarly senior attorney who does not expect to ever become a full partner.  The terms “special counsel” and “counsel” are sometimes used interchangeably with “Of Counsel”.


Employers Who Pay Commissions Only Once Per Month May Risk Violating Minimum Wage And Overtime Rules

Employers often pay commissions to their employees only once per month.  However, unless a California employee falls within an administrative, executive, or professional exemption, the employer must pay that employee at least twice per month.  While it is acceptable to pay commissions only once per month, each pay period must still meet either the minimum wage & overtime requirements, or meet the commissions exemption (1.5 times the minimum wage) for employees covered by certain Wage Orders.


The California Supreme Court recently held that Time Warner Cable failed to properly pay an employee where it paid commissions once per month and wages for hours worked twice per month.  The employee worked sometimes in excess of 48 hours in a pay period for which the paycheck did not include commissions, and the result was that she was not paid minimum wage for all 48 hours. Time Warner argued that the commissions paid once per month should count toward both pay periods in that month, for purposes of meeting the commissions exemption and the minimum wage / overtime rules.  The court disagreed and held that commissions paid in one pay period cannot be used to satisfy the minimum wage and overtime requirements of a different pay period.


What does this mean for employers? For employers who pay commissions once per month, they should carefully review whether, for each pay period, employees are being paid at least minimum wage and overtime for all hours worked, without applying commissions paid in a different pay period.


Retaliation Is The Most Common EEOC / DFEH Complaint

Employers may be surprised to learn that the single most common charge filed against employers with the EEOC and, in California, the DFEH, is retaliation.  The federal Equal Employment Opportunity Commission recently released its statistics for 2013, showing that out of approximately 94,087 charges against employers in the USA and its territories, 40.9% included a charge of retaliation.  In California, the Department of Fair Employment and Housing’s statistics for 2013 show that out of 18,480 charges against employers, a whopping 68.7% included a charge of retaliation.

The reasons for this may have to do with recent U.S. Supreme Court decisions that broadened the protections for employees.  For retaliation, an employee only needs to show that the retaliation was enough to dissuade him or her from reporting or supporting a charge against the employer — which is a lower standard than that for discrimination.  What’s more, an employer can be liable for failing to stop retaliation by lower level employees.

The same laws that prohibit discrimination and harassment in employment based on certain protected characteristics also prohibit retaliation for complaining about discrimination and harassment.  Employers should review their policies to ensure that the include a prohibition against unlawful retaliation.  In addition, they should train their employees to avoid engaging in retaliatory conduct.  Consistent implementation of solid policies is key to managing risk in today’s workplace.

Employers Face Harsh Consequences For Willful Misclassification Of Employees As Independent Contractors In California

Employers are often surprised to learn that they are not protected by a contract wherein an individual acknowledges and agrees that they an independent contractor rather than an employee. The courts have determined that economic realities, not contract language, determine whether an individual is an employee or an independent contractor. Moreover, it is a fundamental public policy in California that employee status is presumed once the employee provides evidence that s/he performed services for the employer.  The burden then shifts to the employer to prove that the person was actually an independent contractor.  This, of course, can be very difficult to overcome.

As of January 1, 2012, California amended the law regarding willful misclassification of employees as independent contractors, making the consequences much harsher.  “Willful misclassification means avoiding employee status for an individual by knowingly and voluntarily misclassifying that individual as an independent contractor.”  Labor Code §226.8.

So what’s the worst that could happen?  An employer found to have engaged in a pattern and practice of willfully misclassifying employees as independent contractors can be fined $25,000 per employee and ordered to prominently state on its website that it has “committed a serious violation of the law by engaging in the willful misclassification of employees”.  Other consequences may include: unpaid overtime and other wages, meal period penalties, rest period penalties, other compensation and benefits, employment taxes, plaintiff’s attorneys’ fees (in addition to the defendant company’s attorneys’ fees), costs of suit, and an injunction.

There is no bright line rule about whether any particular worker qualifies as an independent contractor or an employee.  Rather, the economic realities test is applied, and a number of factors are taken into consideration.  An employer should consult with an experienced employment law attorney to help determine the proper classification.  


New Rules About Personnel Files

Summary:

As of January 1, 2013, the law regarding employee personnel files has been drastically rewritten.  Now, upon a current or former employee’s (or his/her representative’s) written request, an employer must make available for inspection or provide a copy of the entire personnel file, at reasonable intervals but no later than 30 days from the request.  An employer only has to comply with such a request from a former employee once per year.  Certain documents may be excluded from the file, and names of non-supervisory personnel names may be redacted.

An employer who fails to comply with the law may be subject to a penalty of $750, injunctive relief, and attorney’s fees.  The statute is quite lengthy and detailed.  Any employer with questions about what must be provided and when should contact experienced employment counsel

For questions about this or other California labor and employment law issues, please contact us at 310-302-9100.

California Requires Written Employment Contracts For Commissioned Employees

Summary:

As of January 1, 2013, every employer of employees whose services are to be rendered within California, whose compensation “involves commissions” must have a written employment contract.  

The contract must specifically state the method by which the commissions are computed and paid.  The employer must give a signed copy of the contract to the employee, and must obtain a “signed receipt” for the contract from each such employee.

Further, if the written contract expires and the parties continue to work under it, then the contract is presumed to remain in full force and effect until the contract is superseded or the employment is terminated by either the employer or the employee.

 

Who does this law affect?

Every employer who employs even one employee whose compensation “involves commissions” is affected by this law.  This applies even if the employee is part time or temporary.  And misclassifying an employee as an independent contractor won’t get around the issue – there’s a $25,000 penalty for willfully doing so.

What are “commissions” for purposes of this law?

“Commissions” that trigger the requirement for a written employment contract are defined as compensation paid to any person for services rendered in the sale of the employer’s property or services and based proportionally upon the amount or value thereof.

While at first this definition seems all inclusive, it is more nuanced.  At least one California court has distinguished commissioned employees based upon whether they are selling a product or service, or are actually rendering the service itself.  For example, auto mechanics who are paid a fixed percentage of the hourly rate charged to customers were not commissioned employees, because they are rendering the service, not selling it.  However, if they were principally involved in selling the service, the result would be different.

For purposes of this law, “commissions” do not include: 1) short term productivity bonuses such as are paid to retail clerks; 2) temporary, variable incentive payments that increase, but do not decrease, payment under the written contract; or 3) bonus and profit-sharing plans, unless there has been an offer from the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.

 

What are the consequences of failing to comply with the law?

It is unclear at this time what all of the consequences will be.  The legislature repealed the statute pertaining to damages for non-compliance after a prior version of the law was declared unconstitutional.  However, employees may bring an unfair competition lawsuit or possibly a private attorney general act lawsuit to redress violations.  Lawsuits brought to recover commissions may carry one-way attorney fee shifting provisions, providing that employers must pay not only their own attorneys’ fees but also those of an employee who successfully sues them.

 

What employers should do now:

Employers should bring themselves into compliance as quickly as possible.  However, drafting a valid and enforceable employment contract with the appropriate provisions should be handled by an expert.  Employers should consider having an experienced employment law attorney draft the employment contract for commissioned employees.


For questions about this or other California labor and employment law issues, please contact us at 310-302-9100.

Yes, an employer really can fire someone for no reason at all - but not for an illegal reason.

By Alexandra M. Steinberg

One of the most common misperceptions among employees is that they believe they have been wrongfully terminated because their bosses have been abusive toward them. However, being an obnoxious boss isn't illegal, unless it's motivated by some illegal reason. For example, as most people know, it's illegal under both federal and California law to harass someone based on factors such as race, sex, national origin, and so on. An employer also cannot retaliate against an employee for engaging in protected conduct, such as complaining about sexual harassment or certain other illegal practices.

However, it is not illegal for the boss to terminate someone because, for example, the boss had to fight traffic for two hours and now wants to take it out on his or her employees. The reality is, even though sometimes conduct is extremely unfair, it is not always illegal. An employee who is terminated or quits for good cause may be eligible for unemployment insurance benefits yet may not have a basis for a lawsuit.

So what is an employee or employer do when faced with an abusive supervisor? This is where HR and employment law diverge. There are legal answers, and there are human resources answers - and the two are not always the same. Ultimately, where the boss is a nightmare but not violating the law, the right answer for the employee may be to find a new job. For the employer, finding the right solution be more complicated. Disciplining the supervisor risks that s/he may make a claim of illegal conduct of his/her own; allowing the conduct to continue risks poor morale and possible claims by other employees. Replacing a problem employee carries inherent recruiting and training costs as well as possible lost productivity. An experienced employment law attorney knows the nuances of the law, and is in a far better position to evaluate whether the conduct is illegal or not, and whether a viable claim for illegal harassment exists.


© Alexandra M. Steinberg 2016 All rights reserved.